What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-21 · 144 added, 146 removed, 443 unchanged (40% of the section changed)

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Company Background

Boise Cascade is a large, vertically-integrated wood products manufacturer and building materials distributor with widespread operations throughout the United States (U.S.) and one manufacturing facility in Canada.

Boise Cascade is a large, integrated wood products manufacturer and building materials distributor with widespread operations throughout the United States (U.S.) and one manufacturing facility in Canada.

We completed an initial public offering of our common stock on February 11, 2013.

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We have a broad base of customers, which includes a diverse mix of dealers, home improvement centers, leading wholesalers, specialty distributors, and industrial converters.

Our Wood Products and BMD segments are vertically-integrated from wood fiber procurement through distribution.

Our Wood Products and BMD segments are integrated from wood fiber procurement through distribution.

During 2023, approximately 66% of our Wood Products segment sales, or approximately 78% and 42% of our Wood Product segment's EWP and plywood sales volumes, respectively, were to our BMD segment.

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We recorded income from operations of $624.4 million during the year ended December 31, 2023, compared with $1,157.8 million during the same period in the prior year.

In our Wood Products segment, income increased by $44.0 million to $575.2 million for the year ended December 31, 2022, from $531.2 million in 2021.

The increase in segment income was due primarily to higher EWP sales prices.

This increase was offset partially by lower plywood sales prices, lower EWP sales volumes, and higher wood fiber costs and other manufacturing costs.

In addition, depreciation and amortization expense increased due to the acquisition of two plywood facilities on July 25, 2022.

In our BMD segment, income improved $146.0 million to $627.1 million for the year ended December 31, 2022, from $481.1 million for the year ended December 31, 2021, driven by a gross margin increase of $215.5 million, primarily related to improved gross margins across our EWP and general line products.

The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $56.8 million and $7.8 million, respectively.

In our Wood Products segment, income decreased by $238.1 million to $337.1 million for the year ended December 31, 2023, from $575.2 million in 2022.

The decrease in segment income was due primarily to lower plywood and EWP sales prices, as well as lower EWP sales volumes.

In addition, segment income was negatively impacted by an increase in depreciation and amortization expense related to the Coastal Plywood acquisition.

These decreases were offset partially by lower wood fiber costs and higher plywood sales volumes.

In our BMD segment, income decreased $291.3 million to $335.8 million for the year ended December 31, 2023, from $627.1 million for the year ended December 31, 2022, driven by a gross margin decrease of $276.0 million, resulting primarily from gross margin declines on EWP and commodity products and lower sales volumes across all product lines compared with 2022.

These changes are discussed further in "Our Operating Results" below.

On July 25, 2022, our wholly-owned subsidiary, Boise Cascade Wood Products, L.L.C., completed the acquisition of 100% of the equity interest in Coastal Plywood Company (Coastal Plywood), and its plywood manufacturing operations located in Havana, Florida, and Chapman, Alabama (the Acquisition) for a purchase price of $515.2 million, including closing date working capital of $25.2 million.

We continue to integrate these facilities into our system, which will provide incremental stress-rated veneer needed to optimize and expand our southeastern U.S.

EWP production capacity.

In addition, the Havana plywood operation improves our mix of specialty plywood products and we believe is well positioned geographically to support plywood demand in the southeastern U.S.

On October 2, 2023, our wholly-owned subsidiary, Boise Cascade Building Materials Distribution, L.L.C.

(BMD) completed the previously announced acquisition of Brockway-Smith Company (BROSCO), a wholesale distributor specializing in doors and millwork, pursuant to the Agreement and Plan of Merger, dated August 22, 2023 (Merger Agreement), by and among BMD, Firepit Merger Sub, Inc., a wholly-owned subsidiary of BMD (the Merger Sub), BROSCO and the representative of the BROSCO stockholders.

On the terms and subject to the conditions set forth in the Merger Agreement, on October 2, 2023, Merger Sub merged with and into BROSCO, with BROSCO surviving the merger as a wholly-owned subsidiary of BMD (the BROSCO Acquisition).

The purchase price of the BROSCO Acquisition was $162.8 million, net of cash acquired, and inclusive of estimated working capital at closing of approximately $51 million, which is subject to post-closing adjustments.

We funded the BROSCO Acquisition and related costs with cash on hand.

These facilities expanded our door and millwork business into the Northeast U.S.

We ended 2023 with $949.6 million of cash and cash equivalents and $445.3 million of debt.

At December 31, 2023, we had $395.9 million of unused committed bank line availability.

We generated $249.4 million of cash during the year ended December 31, 2022, as cash provided by operations was offset partially by funding the Acquisition, capital spending and dividends paid on our common stock.

We used $48.8 million of cash during the year ended December 31, 2023, as cash provided by operations was offset by capital spending, funding the BROSCO Acquisition and dividends paid on our common stock.

A further description of our cash sources and uses for the comparative periods are discussed in "Liquidity and Capital Resources" below.

Demand for the products we manufacture, as well as the products we purchase and distribute, is correlated with new residential construction, residential repair-and-remodeling activity and light commercial construction.

While mortgage rates have declined from peak levels in late 2022 and home price increases have moderated, home affordability remains a challenge for consumers.

The Federal Reserve's upcoming actions in response to inflationary data and what impacts these actions have on mortgage rates and the broader economy will continue to influence the near-term demand environment.

We expect a deceleration in housing starts, with various industry forecasts for 2023 single- and multi-family housing starts in the U.S generally ranging from 1.1 million to 1.3 million units, compared with actual housing starts of 1.55 million in 2022 and 1.60 million in 2021, as reported by the U.S.

Residential construction, particularly new single-family construction, is the key demand driver for the products we manufacture and distribute.

Recent industry forecasts for 2024 U.S.

housing starts are generally consistent with actual housing starts of 1.42 million in 2023, as reported by the U.S.

Census Bureau.

As it relates to home improvement spending, the age of U.S.

housing stock and elevated levels of homeowner equity provide a favorable backdrop for repair-and-remodel spending.

While likely tempered by an economic slowdown, we anticipate the primary drivers of repair-and-remodeling activity to continue to be supportive of homeowners' further investment in their residences.

Despite recent declines in mortgage rates and homebuilders responding with various mechanisms to attract buyers, home affordability remains a challenge for consumers.

However, with a resilient economy and elevated mortgage rates, which limits existing home inventory for sale, new residential construction is expected to remain an important source of supply for homebuyers.

Within new residential construction, the recent reduction in rates and potential for future rate reductions has created optimism that single-family starts will reflect year-over-year growth.

However, there is reservation that multi-family starts may pull back from recent record highs due to capital costs for developers combined with cooling rents and elevated supply.

Regarding home improvement spending, the age of U.S.

housing stock and elevated levels of homeowner equity have provided a favorable backdrop for repair-and-remodel spending.

In 2023, year-over-year growth rates in renovation spending moderated due to economic uncertainty and higher borrowing costs.

While home improvement spending is expected to remain robust compared to history, recent industry forecasts project mid-single-digit declines in 2024.

Ultimately, macroeconomic factors, the level and expectations for mortgage rates, home affordability, home equity levels, and other factors will likely influence the near-term demand environment for the products we manufacture and distribute.

As a manufacturer of certain commodity products, we have sales and profitability exposure to declines in commodity product prices and rising input costs.

Our distribution business purchases and resells a broad mix of commodity products with periods of increasing prices providing the opportunity for higher sales and increased margins, while declining price environments expose us to declines in sales and profitability.

We expect future commodity product pricing and commodity input costs to be volatile in response to economic uncertainties, industry operating rates, transportation constraints or disruptions, net import and export activity, inventory levels in various distribution channels, and seasonal demand patterns.

In addition, we have experienced price erosion and reduced volumes on our EWP products due to slowing economic activity and decreased demand for new residential construction.

As such, we have and will continue to manage our production levels to meet current and expected sales demand, which will result in operating some of our facilities below their capacity until demand improves.

Our distribution business purchases and resells a broad mix of products with periods of increasing prices providing the opportunity for higher sales and increased margins, while declining price environments expose us to declines in sales and profitability.

Future product pricing, particularly commodity products pricing and input costs, may be volatile in response to economic uncertainties, industry operating rates, supply-related disruptions, transportation constraints or disruptions, net import and export activity, inventory levels in various distribution channels, and seasonal demand patterns.

Factors That Affect Our Operating Results and Trends

Our results of operations and financial performance are influenced by a variety of factors, including:

(i) the commodity nature of the products we manufacture and distribute;

(i) the commodity nature of a portion of the products we manufacture and distribute;

(ii) general economic and industry conditions affecting demand;

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These factors have historically produced cyclicality in our results of operations, and we expect this cyclicality to continue in future periods.

Commodity Nature of Our Products

Many of the building products we manufacture or distribute, including OSB, plywood, and lumber, are commodities that are widely available from other manufacturers or distributors with prices and volumes determined frequently in an auction market based on participants' perceptions of short-term supply and demand factors.

At times, the price for any one or more of the products we produce or distribute may fall below our cash production or purchase costs, requiring us to either incur short-term losses on product sales or cease production at one or more of our manufacturing facilities.

Commodity Nature of a Portion of Our Products

A portion of the building products we manufacture or distribute, including OSB, plywood, and lumber, are commodities that are widely available from other manufacturers or distributors, with prices and volumes determined frequently in an auction market based on participants' perceptions of short-term supply and demand factors.

At times, the price for any one or more of the products we produce or distribute may fall below our cash production or purchase costs, requiring us to either incur short-term losses on product sales or curtail production at one or more of our manufacturing facilities.

Therefore, our profitability with respect to these commodity products depends, in significant part, on effective facilities maintenance programs, and on managing our cost structure, particularly raw materials and labor, which represent the largest components of our operating costs.

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The following table provides changes in the average composite panel, including certain panel subcategories, and average composite lumber prices as reflected by Random Lengths, an industry publication, for the period noted below.

In addition to the year-over-year average price changes, 2022 and 2021 were years of exceptional price volatility when compared to historical results.

In addition to the year-over-year average price changes, 2022 was a year of exceptional price volatility when compared to historical results.

Year Ended December 31

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In addition, EWP demand will be highly influenced by single-family housing starts.

Industry supply for the products we produce and distribute is influenced primarily by price-induced changes in the operating rates of existing facilities, but is also influenced over time by the introduction of new product technologies and substitutes, capacity additions and closures, the restart of idled capacity, and log availability.

Industry supply for the products we produce and distribute is influenced primarily by price-induced changes in the operating rates of existing facilities, but is also influenced over time by the introduction of new product technologies, capacity additions and closures, the restart of idled capacity, and log availability.

The balance of supply and demand in the U.S.

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OSB accounted for approximately 5% of the aggregate amount of materials, labor, and other operating expenses (excluding depreciation) for our Wood Products segment in 2023.

OSB is a commodity, and prices have been historically volatile in response to economic uncertainties, industry operating rates, transportation constraints or disruptions, net import and export activity, inventory levels in various distribution channels, and seasonal demand patterns.

OSB is a commodity, and prices have been historically volatile in response to economic uncertainties, industry operating rates, supply-related disruptions, transportation constraints or disruptions, net import and export activity, inventory levels in various distribution channels, and seasonal demand patterns.

Wood fiber also includes, to a lesser extent than OSB, lumber purchased from third parties for I-joist production at our Canadian EWP facility and for production at our laminated beam plant in Idaho.

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2023 Compared With 2022

For the year ended December 31, 2022, total sales increased $461.2 million, or 6%, to $8,387.3 million from $7,926.1 million during the year ended December 31, 2021.

As described below, the increase in sales was driven by the changes in sales prices and volumes for the products we manufacture and distribute with single-family residential construction activity being the key demand driver for our sales.

During 2022, U.S.

housing starts decreased 3%, driven by a decrease in single-family starts of 11%, compared with 2021.

For the year ended December 31, 2022, average composite panel and average composite lumber prices were 18% and 9% lower, respectively, compared with the same period in the prior year, as reflected by Random Lengths composite panel and lumber pricing.

For the year ended December 31, 2023, total sales decreased $1,549.1 million, or 18%, to $6,838.2 million from $8,387.3 million during the year ended December 31, 2022.

As described below, the decrease in sales was driven by the changes in sales prices and volumes for the products we manufacture and distribute with single-family residential construction activity being the key demand driver for our sales.

During 2023, total U.S.

housing starts and single-family housing starts decreased 9% and 6%, respectively, compared with 2022.

For the year ended December 31, 2023, average composite lumber and average composite panel prices were 47% and 32% lower, respectively, compared with the same period in the prior year, as reflected by Random Lengths composite lumber and panel pricing.

These decreases in composite commodity pricing impacted our sales prices in both of our segments, as noted below.

Wood Products.

During the year ended December 31, 2022, sales, including sales to our BMD segment, increased $145.1 million, or 7%, to $2,115.9 million from $1,970.8 million in 2021.

The increase in sales was driven by higher sales prices for I-joists and LVL (collectively referred to as EWP) of 44% and 41%, respectively, resulting in increased sales of $152.3 million and $155.5 million, respectively.

The increase in EWP pricing was due to realizations of previously announced price increases and the expiration of certain temporary price protection arrangements.

Higher sales volumes for plywood of 5% resulted in increased sales of $36.5 million.

Plywood sales volumes increased due to the Acquisition.

In addition, other sales, including by-products and laminated beams, increased sales by $12.2 million.

These increases were offset partially by lower plywood sales prices of 14%, resulting in decreased sales of $109.3 million.

In addition, I-joist and LVL sales volumes decreased 21% and 3%, respectively, resulting in decreased sales of $92.5 million and $13.8 million, respectively.

I-joist and LVL sales volumes decreased due to a decline in housing starts and significant inventory destocking through the customer channel.

I-joist volumes were also impacted by the availability of product substitutes and construction methods.

During the year ended December 31, 2023, sales, including sales to our BMD segment, decreased $183.3 million, or 9%, to $1,932.6 million from $2,115.9 million in 2022.

The decrease in sales was driven by lower plywood sales prices of 29%, resulting in decreased sales of $242.0 million.

In addition, lower sales prices for I-joists and LVL (collectively referred to as EWP) of 4% and 2%, respectively, resulted in decreased sales of $19.8 million and $9.7 million, respectively.

Lower sales volumes for I-joists and LVL of 4% and 1%, respectively, resulted in decreased sales of $20.9 million and $6.7 million, respectively.

EWP sales volumes decreased due to a decline in housing starts.

I-joist volumes were also impacted by the availability of product substitutes and construction methods in certain geographies that reduce the wood floor opportunity.

In addition, other sales, including byproducts and laminated beams, decreased sales by $16.1 million.

These decreases were offset partially by higher sales volumes for plywood of 21%, resulting in increased sales of $146.4 million.

Plywood sales volumes increased from the prior year due to the Coastal Plywood acquisition, as well as downtime taken in 2022 to replace an existing dryer at our Chester, South Carolina, plywood facility.

In addition, plywood sales volumes increased as we shifted a higher proportion of our internally produced veneer into plywood production, given the change in demand for EWP.

Building Materials Distribution.

During the year ended December 31, 2022, sales increased $469.3 million, or 7%, to $7,643.6 million from $7,174.3 million in 2021.

Compared with the prior year, the overall increase in sales was driven by sales price increases of 11%, offset partially by a sales volume decrease of 4%.

By product line, commodity sales decreased 7%, or $272.3 million, general line product sales increased 17%, or $377.7 million, and sales of EWP (substantially all of which is sourced through our Wood Products segment) increased 28%, or $363.9 million.

During the year ended December 31, 2023, sales decreased $1,464.9 million, or 19%, to $6,178.7 million from $7,643.6 million in 2022.

Compared with the prior year, the overall decrease in sales was driven by sales price and sales volume decreases of 16% and 3%, respectively.

By product line, commodity sales decreased 32%, or $1,096.6 million, general line product sales decreased 4%, or $99.3 million, and sales of EWP (substantially all of which is sourced through our Wood Products segment) decreased 16%, or $269.0 million.

Costs and Expenses

Materials, labor, and other operating expenses (excluding depreciation) increased $172.4 million, or 3%, to $6,472.5 million for the year ended December 31, 2022, compared with $6,300.1 million during the prior year.

In our Wood Products segment, materials, labor, and other operating expenses increased due to higher per-unit costs of logs of approximately 6% compared with 2021, as well as increased labor and other manufacturing costs.

However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 120 basis points, which was primarily due to higher EWP sales prices, resulting in improved leveraging of wood fiber costs.

In BMD, the increase in materials, labor, and other operating expenses was driven by higher purchased materials costs as a result of higher product prices, compared with 2021.

However, the BMD segment MLO rate improved 200 basis points compared to 2021 due primarily to improved margins on EWP and general line products.

Materials, labor, and other operating expenses (excluding depreciation) decreased $1,063.2 million, or 16%, to $5,409.3 million for the year ended December 31, 2023, compared with $6,472.5 million during the prior year.

In our Wood Products segment, materials, labor, and other operating expenses increased due to higher labor and other manufacturing costs, as well as the Coastal Plywood acquisition.

These increases were offset partially by lower per-unit costs of OSB (used in the manufacture of I-joists) and logs of approximately 9% and 4%, respectively, compared with 2022.

Materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment increased by 770 basis points, which was due primarily to lower plywood and EWP sales prices, resulting in decreased leveraging of labor and other manufacturing costs .

In BMD, the decrease in materials, labor, and other operating expenses was driven by lower purchased materials costs as a result of a decrease in product prices and lower sales volumes compared with 2022.

However, the BMD segment MLO rate increased 80 basis points compared to 2022 due primarily to lower margin percentages on EWP.

Depreciation and amortization expenses increased $30.9 million, or 30%, to $132.5 million for the year ended December 31, 2023, compared with $101.6 million during the prior year.

The increase was due primarily to the Acquisition and other capital expenditures.

The increase was due primarily to the Coastal Plywood acquisition on July 25, 2022, accelerated depreciation of $6.2 million in fourth quarter 2023 for the indefinite curtailment of lumber production at our Chapman, Alabama facility, as well as other capital expenditures.

These increases were offset partially by decreases in depreciation related to fully depreciated assets.

Selling and distribution expenses increased $6.2 million, or 1%, to $559.5 million for the year ended December 31, 2023, compared with $553.3 million for the prior year.

The increase was due primarily to higher shipping and handling costs of $23.2 million, as well as higher employee-related expenses, including base pay increases, and sales and incentive compensation of $21.7 million.

In addition, travel and entertainment expenses and occupancy expenses increased $5.1 million and $3.1 million, respectively.

The increase was due primarily to higher employee-related expenses of $17.0 million and increased shipping and handling and occupancy costs of $5.2 million and $2.1 million, respectively.

These increases were offset partially by lower sales commissions of $19.5 million.

General and administrative expenses increased $10.6 million, or 10%, to $114.4 million for the year ended December 31, 2023, compared with $103.8 million for the prior year.

The increase was due primarily to higher employee-related expenses, including base pay increases, and incentive compensation of $14.1 million, as well as a $5.6 million increase in discretionary expenses related to professional fees and travel and entertainment.

In addition, in our Wood Products segment, we purchased $1.8 million of insurance related to the Acquisition and incurred $1.3 million of acquisition-related expenses.

For the year ended December 31, 2022 other (income) expense, net, was $1.7 million of income, which primarily included earn-out income related to a previous asset sale in our Wood Products segment, offset partially by other expenses.

The increase was due primarily to higher employee-

related expenses, including base pay increases and incentive compensation of $7.3 million.

In addition, for the year ended December 31, 2023 we incurred $5.1 million of acquisition-related expenses for the acquisition of BROSCO, compared to $1.3 million incurred for the year ended December 31, 2022 for the acquisition of Coastal Plywood.

For the years ended December 31, 2023 and 2022 other (income) expense, net, was $1.9 million of income and $1.7 million of income, respectively.

In both periods other income primarily included earn-out income related to a previous asset sale in our Wood Products segment.

Income From Operations

Income from operations increased $186.0 million to $1,157.8 million for the year ended December 31, 2022, compared with $971.8 million for the year ended December 31, 2021.

Income from operations decreased $533.4 million to $624.4 million for the year ended December 31, 2023, compared with $1,157.8 million for the year ended December 31, 2022.

Wood Products.

For the year ended December 31, 2022, segment income increased $44.0 million to $575.2 million from $531.2 million for the year ended December 31, 2021.

The increase in segment income was due primarily to higher EWP sales prices.

This increase in segment income was offset partially by lower plywood sales prices, lower EWP sales volumes, and higher wood fiber costs and other manufacturing costs.

In addition, depreciation and amortization expense increased $18.1 million related to the Acquisition, we purchased $1.8 million of acquisition-related insurance, and incurred $1.3 million of acquisition-related expenses.

For the year ended December 31, 2023, segment income decreased $238.1 million to $337.1 million from $575.2 million for the year ended December 31, 2022.

The decrease in segment income was due primarily to lower plywood and EWP sales prices, as well as lower EWP sales volumes.

In addition, segment income was negatively impacted by an increase in depreciation and amortization expense related to the Coastal Plywood acquisition and accelerated depreciation of $6.2 million in fourth quarter 2023 for the indefinite curtailment of lumber production at our Chapman, Alabama facility.

These decreases in segment income were offset partially by lower wood fiber costs and higher plywood sales volumes.

Building Materials Distribution.

For the year ended December 31, 2022, segment income increased $146.0 million to $627.1 million from $481.1 million for the year ended December 31, 2021.

The increase in segment income was driven by a gross margin increase of $215.5 million, primarily related to improved gross margins across our EWP and general line products compared with 2021.

The improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $56.8 million and $7.8 million, respectively.

For the year ended December 31, 2023, segment income decreased $291.3 million to $335.8 million from $627.1 million for the year ended December 31, 2022.

The decline in segment income was driven by a gross margin decrease of $276.0 million, resulting primarily from gross margin declines on EWP and commodity products and lower sales volumes across all product lines compared with 2022.

In addition, general and administrative expenses increased $7.8 million, due partially to acquisition-related costs.

Depreciation and amortization expenses also increased $5.3 million due primarily to increased capital expenditures, as well as the BROSCO Acquisition.

Unallocated corporate expenses increased $4.2 million to $48.6 million for the year ended December 31, 2023, from $44.4 million for the year ended December 31, 2022.

The increase was due primarily to higher employee-related expenses, offset partially by lower self-insurance losses during 2022.

The increase was due primarily to higher employee-related and incentive compensation expenses.

Interest Income.

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Change in fair value of interest rate swaps.

For information related to our interest rate swaps, see the discussion under "Disclosures of Financial Market Risks" and "Financial Instruments" included in this "Item 7.

For information related to our interest rate swap, see the discussion under "Disclosures of Financial Market Risks" and "Financial Instruments" included in this "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K.

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Our rate is affected by recurring items, such as state income taxes, and discrete items that may occur in any given year but are not consistent from year to year.

During the year ended December 31, 2022, the primary reason for the difference between the federal statutory income tax rate of 21% and the effective tax rate was a $45.0 million increase in income tax expense, or an effect of 3.9%, from state income taxes.

During the year ended December 31, 2021, the primary reason for the difference between the federal statutory income tax rate of 21% and the effective tax rate was a $35.7 million increase in income tax expense, or an effect of 3.8%, from state income taxes.

During the years ended December 31, 2023 and 2022, the primary reason for the difference between the federal statutory income tax rate of 21% and the effectiv e tax rate was the effect of state taxes.

For more information related to our income taxes, see Note 4, Income Taxes, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

Liquidity and Capital Resources

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At December 31, 2023, we had $1,345.5 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability).

Our cash and cash equivalents increased by $249.4 million during the year ended December 31, 2022, as cash provided by operations was offset partially by funding the Acquisition, capital spending, and dividends paid on our common stock, as further discussed below.

Our cash and cash equivalents decreased by $48.8 million during the year ended December 31, 2023, as cash provided by operations was offset by capital spending, funding the BROSCO Acquisition and dividends paid on our common stock, as further discussed below.

At December 31, 2023, our cash was invested in high-quality, short-term investments, which we record in "Cash and cash equivalents." The majority of our cash and cash equivalents is comprised of money market funds that are broadly diversified and invested in high-quality, short-duration securities, including U.S.

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In 2023, our operating activities generated $687.5 million of cash, compared with $1,041.2 million in 2022.

The $374.2 million increase in cash provided by operations in 2022 relates primarily to the following:

• A $44.0 million increase in income in our Wood Products segment and a $146.0 million increase in income in our BMD segment.

The $353.8 million decrease in cash provided by operations in 2023 relates primarily to the following:

• A $238.1 million decrease in income in our Wood Products segment and a $291.3 million decrease in income in our BMD segment.

See "Operating Results" above for a discussion on our results for 2023.

• A $41.0 million decrease in working capital during 2022, compared with a $109.2 million increase in working capital during 2021.

• A $23.6 million decrease in working capital during 2023, compared with a $41.0 million decrease in working capital during 2022.

Working capital is subject to cyclical operating needs, seasonal buying patterns for inventory purchased for resale and logs, the timing of the collection of receivables, and the timing of payment of payables and expenses.

The decrease in working capital in 2022 was primarily attributable to lower receivables, offset partially by an increase in inventories and a decrease in accounts payable and accrued liabilities.

The decrease in working capital in 2023 was primarily attributable to an increase in accounts payable and accrued liabilities and decreased inventories, offset partially by higher receivables.

The increase in accounts payable was related to increased purchasing in fourth quarter 2023 in response to improved demand compared to fourth quarter 2022 and extended terms offered by certain BMD vendors.

The decrease in inventories was due primarily to improved housing demand in fourth quarter 2023 compared to fourth quarter 2022, offset partially by increased inventories at some BMD locations due to location expansions.

The increase in receivables in 2023 primarily reflects increased sales of approximately 7%, comparing sales for the month of December 2023 with sales for the month of December 2022.

The decrease in working capital in 2022 was primarily attributable to lower receivables, offset partially by an increase

in inventories and a decrease in accounts payable and accrued liabilities.

The decrease in receivables in 2022 primarily reflects decreased sales of approximately 24%, comparing sales for the month of December 2022 with sales for the month of December 2021.

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The decrease in accounts payable and accrued liabilities in 2022 was related to the decrease in inventories in our BMD segment and lower accrued rebates as of December 31, 2022 as housing activity slowed at the end of 2022.

The increase in working capital in 2021 was primarily attributable to higher receivables and inventories, offset partially by an increase in accounts payable and accrued liabilities.

The increase in receivables in 2021 primarily reflects increased sales of approximately 20%, comparing sales for the month of December 2021 with sales for the month of December 2020.

Inventories increased in 2021 primarily due to the increased cost of inventory purchased for resale and higher production costs for our manufactured products.

The increase in accounts payable and accrued liabilities in 2021 was related to the increase in inventories and higher accrued rebates as of December 31, 2021.

• A $127.0 million decrease in cash paid for income taxes, net of refunds.

During 2023, cash paid for taxes, net of refunds received was $133.0 million, compared to $260.0 million in 2022.

The decrease in cash paid for income taxes is primarily due to a decrease in income from operations.

Investment Activities

Net cash used for investing activities was $375.6 million and $625.5 million during 2023 and 2022, respectively.

During the year ended December 31, 2022, we used $515.2 million for the Acquisition.

The facilities acquired in the Acquisition will provide incremental stress-rated veneer needed to optimize and expand our southeastern U.S.

EWP production capacity and improve our mix of specialty plywood products.

In addition, we used approximately $114.1 million of cash for purchases of property and equipment, which included business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance.

During the year ended December 31, 2023, we used approximately $215.4 million of cash for purchases of property and equipment, which included business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance.

Quality and efficiency projects include quality improvements, modernization, energy, and cost-saving projects.

Included in our 2022 capital spending is funding for our BMD organic expansions in Minnesota, Ohio, and Kentucky, which services Cincinnati and the surrounding markets.

In addition, we purchased land in South Carolina and Texas for our recently announced BMD greenfield distribution centers, which will allow us to better serve customers in several high-growth markets.

In our Wood Product segment, we had capital spending related to the replacement of a dryer at our Chester, South Carolina, veneer and plywood plant, and post-acquisition veneer equipment related spending at our Chapman, Alabama facility.

Purchases of property and equipment also included approximately $4 million for environmental compliance in 2022, and we expect to spend approximately $4 million in environmental compliance related spending in 2023.

Our 2023 capital spending includes spending for veneer-related projects at mills that support EWP production, spending related to new door and millwork facilities in Kansas City, Missouri, and Denver, Colorado, the build out and start up of a new distribution center in Marion, Ohio, and the purchase of distribution centers in West Palm Beach, Florida, and Modesto, California.

In addition, our capital spending includes initial funding for greenfield distribution centers in Texas and South Carolina.

Purchases of property and equipment also included approximately $3 million for environmental compliance in 2023.

In addition, we used $162.8 million, net of cash acquired, for the BROSCO Acquisition.

These facilities expanded our door and millwork business into the Northeast U.S.

markets and enhance BMD's general line product mix.

During the year ended December 31, 2023, we received $1.0 million of earn-out income related to a previous asset sale in our Wood Products segment.

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We expect our capital spending in 2024 will be for business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance.

Our 2023 capital expenditures range includes funding for greenfield distribution centers in South Carolina and Texas, projects at our mills in the southeast to expand our EWP capacity, and the recently announced purchase of property to house an additional door shop assembly operation in Kansas City, Missouri.

Our 2024 capital expenditures range includes spending on previously announced projects to add I-joist production capabilities at our Thorsby EWP mill and converting a plywood layup line to a parallel laminated veneer line at our Chapman, Alabama plywood facility.

At our Oakdale, Louisiana facility, multiple investment projects are planned over the next two years which include upgrade and redesign of the log utilization center, a new veneer dryer and press, and modification of an existing veneer dryer.

In addition, our 2024 capital expenditures range includes spending on the previously announced greenfield distribution centers in Texas and South Carolina in our BMD segment.

Our 2024 capital spending also includes approximately $10 million for environmental compliance projects.

This level of capital expenditures could increase or decrease as a result of several factors, including acquisitions, efforts to further accelerate organic growth, exercise of lease purchase options, our financial results, future economic conditions, availability of engineering and construction resources, and timing and availability of equipment purchases.

During the year ended December 31, 2021, we used approximately $106.5 million of cash for purchases of property and equipment, which included business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance.

During the year ended December 31, 2022, we used $515.2 million of cash for the acquisition of Coastal Plywood.

Quality and efficiency projects include quality improvements, modernization, energy, and cost-saving projects.

In 2022, purchases of property and equipment included approximately $4 million for environmental compliance.

During the year ended December 31, 2022, we received $2.5 million of earn-out income related to a previous asset sale in our Wood Products segment.

Financing Activities

During 2022, our financing activities used $166.3 million of cash, including $159.6 million for common stock dividend payments and $3.9 million of tax withholding payments on stock-based awards.

See "Dividends on Common Stock" below for further discussion of common stock dividend payments.

During 2023, our financing activities used $360.7 million of cash, including $346.5 million for common stock dividend payments, $6.4 million for the repurchase of 75,678 shares of our common stock, and $5.9 million of tax withholding payments on stock-based awards.

See "Dividends on Common Stock" below for further discussion of common stock dividend

payments and "Stock Repurchase Program" below for further discussion of stock repurchases.

During 2023, we did not borrow under our revolving credit facility and therefore had no borrowings outstanding on the facility as of December 31, 2023.

On September 9, 2022, we entered into the Eighth Amendment to the Amended and Restated Credit Agreement (the Amendment) related to our senior secured asset-based revolving credit facility and term loan.

The Amendment increases the maximum amount available for revolving loans from $350 million to $400 million, extends the maturity date of the agreement, and replaced the LIBOR rate with SOFR.

The term loan remains at $50.0 million.

As of December 31, 2022, we have no debt maturities prior to 2027.

During 2022, our financing activities used $166.3 million of cash, including $159.6 million for common stock dividend payments and $3.9 million of tax withholding payments on stock-based awards.

During 2021, we also borrowed $28.0 million under our revolving credit facility, which was subsequently repaid during the same period with cash on hand.

At December 31, 2022, we had no borrowings outstanding under the revolving credit facility.

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Our board of directors, at its discretion, may increase or decrease the number of authorized shares or terminate the Program at any time.

During the year ended December 31, 2023, we repurchased 75,678 shares under the Program.

As of December 31, 2023, there were approximately 1.9 million shares of common stock that may yet be purchased under the program.

During 2022, we did not purchase any shares under the Program.

For more information related to our stock repurchases, see Note 12, Stockholders' Equity, of the Notes to Consolidated Financial Statements in "Item 8.

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Our operating and finance lease obligations could change based on whether we actually exercise these renewal options and/or if we entered into additional lease agreements.

See Note 2, Summary of Significant Accounting Polices, and Note 10, Leases, of the Notes to Consolidated Financial Statements in “Item 8.

See Note 2, Summary of Significant Accounting Policies, and Note 9, Leases, of the Notes to Consolidated Financial Statements in “Item 8.

Financial Statements and Supplementary Data” of this Form 10-K.

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Commodity Price Risk

Many of the products we manufacture or purchase and resell and some of our key production inputs are commodities whose price is determined by the market's supply and demand for such products.

A portion of the products we manufacture or purchase and resell and some of our key production inputs are commodities whose price is determined by the market's supply and demand for such products.

Price fluctuations in our selling prices and key costs have a significant effect on our financial performance.

The markets for most of these commodities are cyclical and are primarily affected by economic uncertainties, industry operating rates, transportation constraints or disruptions, net import and export activity, inventory levels in various distribution channels, seasonal demand patterns, and other factors beyond our control.

The markets for most of these commodities are cyclical and are primarily affected by economic uncertainties, industry operating rates, supply-related disruptions, transportation constraints or disruptions, net import and export activity, inventory levels in various distribution channels, and seasonal demand patterns.

For further discussion of commodity price risk, refer to "Item 1A.

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At December 31, 2023, we had one interest rate swap agreement.

Under the interest rate swap, we receive one-month term SOFR plus a spread adjustment of 0.10% variable interest rate payments and make fixed interest rate payments, thereby fixing the interest rate on $50.0 million of variable rate debt exposure.

Under the interest rate swap, we receive one-month SOFR plus a spread adjustment of 0.10% variable interest rate payments and make fixed interest rate payments, thereby fixing the interest rate on $50.0 million of variable rate debt exposure.

Payments on this interest rate swap, with a notional principal amount of $50.0 million, are due on a monthly basis at an annual fixed rate of 0.41%, and this swap expires in June 2025.

We entered into this forward interest rate swap in 2020 (the 2020 Swap) and it was amended in 2022.

Prior to the amendment we received one-month LIBOR-based variable interest rate payments and made fixed interest rate payments at an annual fixed rate of 0.39% on the 2020 Swap.

At December 31, 2021, we had two interest rate swap agreements.

Under these interest rate swaps, we received one-month LIBOR-based variable interest rate payments and made fixed interest rate payments.

Payments on one interest rate swap, entered into in 2016, with a notional principal amount of $50.0 million were due on a monthly basis at an annual fixed rate of 1.007%, and this swap expired in February 2022 (the Initial Swap).

The 2020 Swap, as mentioned above, commenced on the expiration of the Initial Swap in February 2022.

The interest rate swap agreements were not designated as cash flow hedges, and as a result, all changes in the fair value are recognized in "Change in fair value of interest rate swaps" in our Consolidated Statements of Operations rather than through other comprehensive income.

At December 31, 2022, we recorded a long-term asset of $4.8 million in "Other assets" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreement.

At December 31, 2021, we recorded a long-term asset of $1.2 million in "Other assets" on our Consolidated Balance Sheets, and we also recorded a long-term liability of $0.1 million in "Other long-term liabilities" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreements.

The swaps were valued based on observable inputs for similar assets and liabilities and other observable inputs for interest rates and yield curves (Level 2 inputs).

The interest rate swap agreement was not designated as a cash flow hedge, and as a result, all changes in the fair value are recognized in "Change in fair value of interest rate swaps" in our Consolidated Statements of Operations rather than through other comprehensive income.

At December 31, 2023 and 2022, we recorded a long-term asset of $3.0 million and $4.8 million, respectively, in "Other assets" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreement.

The swap was valued based on observable inputs for similar assets and liabilities and other observable inputs for interest rates and yield curves (Level 2 inputs).

Foreign Currency Risk

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The table below provides information as of December 31, 2023, about our interest rate swap.

For information on our interest rate swap, see Interest Rate Risk and Interest Rate Swaps of Note 15, Financial Instrument Risk, of the Notes to Consolidated Financial Statements in "Item 8.

For information on our interest rate swap, see Interest Rate Risk of Note 14, Financial Instrument Risk, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K.

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Failure to comply with these laws and regulations could result in civil or criminal fines or penalties or in enforcement actions.

Our failure to comply could also result in governmental or judicial orders that stop or interrupt our operations or require us to take corrective measures, install additional pollution control equipment, or take other remedial actions.

Our failure to comply could also result in governmental or judicial orders that stop or interrupt our

operations or require us to take corrective measures, install additional pollution control equipment, or take other remedial actions.

During 2023 and 2022, we spent approximately $3 million and $4 million, respectively, on capital expenditures to comply with environmental requirements.

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Bark and manufacturing residuals are used as biomass fuel, which allows us to generate the majority of the energy needed to manufacture our products.

All manufacturing energy not derived from biomass is sourced from natural gas.

All manufacturing energy not derived from biomass is sourced from natural gas or electricity.

None of our manufacturing facilities use coal or fuel oil as primary energy sources to manufacture products.

The use of our products is an energy efficient building choice, and when used in place of fossil fuel-intensive materials avoids greenhouse gases (GHG) that would have been emitted during manufacturing.

The use of our products is an energy efficient building choice, and results in lower greenhouse gas (GHG) emissions during manufacturing, when used in place of more fossil fuel-intensive materials.

We are assessing opportunities related to increased interest or demand for wood-based building materials due to their role in climate mitigation.

In recent years, various legislative and regulatory proposals to restrict GHG emissions, such as carbon dioxide, have been under consideration in state legislative bodies and the Environmental Protection Agency (EPA).

These proposals have included regulations to reduce GHG emissions from new and existing electric utilities, which may result in increased electricity and natural gas costs to our businesses.

These proposals have included regulations to reduce GHG emissions from new and existing electric utilities, which may result in increased electricity costs to our businesses.

This impact may be partially mitigated, as the majority of the energy used to manufacture our products is generated from biomass fuel, which reduces our reliance on fossil fuels.

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Oregon and Washington have enacted regulations intended to reduce GHG emissions.

These regulations have not directly affected our facilities;

These regulations have not directly affected our manufacturing facilities;

however, they are expected to impact our operations by increasing future costs related to natural gas, transportation fuel, and/or electricity.

Our manufacturing operations in these states derive a significant amount of their energy from biomass fuel, a carbon neutral emission, which may not be directly regulated.

Our manufacturing operations derive a significant amount of their energy from biomass fuel, a carbon neutral emission, which may not be directly regulated.

However, changes in biomass fuel regulations may increase our costs for fuel and electricity.

We are not aware of any plans to regulate GHG emissions by other states in which we have manufacturing operations.

There are ongoing efforts by various organizations to encourage and/or require companies to calculate, report, and reduce their carbon footprint.

There are several states that have implemented, or have proposed to implement, regulations that will require sale of zero-emission heavy duty trucks and phase out existing diesel fueled trucks.

Our manufacturing and distribution operations rely on diesel fueled trucks to transport materials from suppliers and deliver products to customers.

These new zero-emission vehicles are expected to be more expensive than traditional diesel trucks.

In addition, there are concerns that the availability of compliant trucks may not be sufficient to meet demand at the time of scheduled replacement, the charging or hydrogen fuel infrastructure may not be adequate, and available early model zero-emission trucks may not be able to travel the distance or carry the load of existing trucks.

In addition, there are ongoing efforts by some states and various organizations to encourage and/or require companies to calculate, report, and reduce their carbon footprint.

Furthermore, our customers may impose carbon footprint standards on their vendors, which may require us to incur additional costs associated with the evaluation and reduction of GHGs.

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Boilers must be in compliance with the revised standards by September 2025.

At this time, we believe the majority of our boilers will be able to comply with the new standards.

However, we are still undergoing testing at our recently acquired facilities.

We do not anticipate significant capital expenditures to comply with the revised standards.

We determined boiler improvement projects are necessary to meet the revised standards at three of our facilities and we expect to spend approximately $4 million in 2024 on these projects.

Some of our wood products facilities are subject to the Plywood and Composite Wood Products (PCWP) MACT standards for hazardous air pollutants, and they have complied with these standards since 2007 or 2008.

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Furthermore, soon after publication of the RTR Rule, an environmental organization filed a petition for reconsideration which the EPA has granted.

The EPA has a court-ordered deadline to complete the revised rule by November 2023.

While there was a court-ordered deadline of November 2023 to complete the revised rule, the EPA negotiated an extension that allows them until June 2026 to finalize the revised rule.

It is expected that manufacturing facilities subject to PCWP MACT standards will have three years after publication of the revised rule for compliance.

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The ODEQ established four risk groups.

None of our mills were identified in

the first tier risk group.

None of our mills were identified in the first tier risk group.

Our Medford plywood mill was identified in the second tier group.

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The emission reductions are not expected to impact the facility's ability to meet production goals.

Our Elgin plywood mill is required to conduct a study to determine what levels of emission reduction can be achieved by installation of improved boiler controls, begin installation of boiler combustion improvements in July 2023, monitor emissions and propose new emission limits by December 2025, and then be fully compliant with those new emission limits by August 2026.

Our Elgin plywood mill is required to conduct a study to determine what levels of emission reduction can be achieved by installation of improved boiler controls.

We began installation of boiler combustion improvements in May 2023, are monitoring emissions, and are required to propose new emission limits by December 2025.

We are then required to be fully compliant with those new emission limits by August 2026.

We expect to spend approximately $2 million in 2024 related to these boiler combustion improvements.

Critical Accounting Estimates

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At December 31, 2023 and 2022, we had $63.0 million and $72.2 million, respectively, of EWP rebates payable recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets.

Business Combinations

From time to time, we may enter into material business combinations.

We allocate the total purchase price of a business combination to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, with the excess purchase price recorded as goodwill.

The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values (fair value is determined using the income approach, cost approach and/or market approach) of inventory, property, plant and equipment, and identifiable intangible assets, among others.

This method also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

If we are required to retroactively adjust provisional amounts that we have recorded for the fair value of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial

condition and results of operations.

Additionally, we expense any acquisition-related costs as incurred in connection with each business combination.

Significant estimates and assumptions used to determine the fair value of assets acquired, including property, plant, and equipment, customer relationships, and other identifiable intangible assets, includes future cash flows that we expect to generate from the acquired assets.

If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges.

In addition, we have estimated the economic lives of certain acquired assets, and these lives are used to calculate depreciation and amortization expense.

If our estimates of the economic lives change, depreciation and amortization expenses could be increased or decreased.

Long-Lived Asset Impairment

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In this annual report on Form 10-K, we disclose income before interest (interest expense and interest income), income taxes, and depreciation and amortization as EBITDA, which is a non-GAAP financial measure.

We also disclose Adjusted EBITDA, which further adjusts EBITDA to exclude the change in fair value of interest rate swaps and loss on extinguishment of debt.

We also disclose Adjusted EBITDA, which further adjusts EBITDA to exclude the change in fair value of interest rate swaps.

We also disclose Segment EBITDA, which is segment income before depreciation and amortization.

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EBITDA and Adjusted EBITDA, however, are not measures of our liquidity or financial performance under GAAP and should not be considered as alternatives to net income, income from operations, or any other performance measure derived in accordance with GAAP or as alternatives to cash flow from operating activities as a measure of our liquidity.

The use of EBITDA and Adjusted EBITDA instead of net income or segment income (loss) have limitations as analytical tools, including the inability to determine profitability;

The use of EBITDA and Adjusted EBITDA instead of net income or segment income have limitations as analytical tools, including the inability to determine profitability;

the exclusion of interest expense, interest income, and associated significant cash requirements;

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Our measures of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the year ended December 31, 2022, 2021 and 2020:

The following table reconciles net income to EBITDA and Adjusted EBITDA for the years ended December 31, 2023, 2022 and 2021:

2023 2022 2021

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Change in fair value of interest rate swaps 1,791 (3,559) (1,745)

Loss on extinguishment of debt — — 13,968

Adjusted EBITDA $ 756,697 $ 1,257,564 $ 1,052,470

The following table reconciles segment income and unallocated corporate costs to Segment EBITDA, EBITDA and Adjusted EBITDA for the year ended December 31, 2022, 2021, and 2020:

The following table reconciles segment income and unallocated corporate costs to Segment EBITDA, EBITDA and Adjusted EBITDA for the years ended December 31, 2023, 2022, and 2021:

2023 2022 2021

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Change in fair value of interest rate swaps (1,791) 3,559 1,745

Loss on extinguishment of debt — — (13,968)

Depreciation and amortization 1,404 1,280 1,497

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Change in fair value of interest rate swaps 1,791 (3,559) (1,745)

Loss on extinguishment of debt — — 13,968

Corporate Adjusted EBITDA $ (47,306) $ (45,007) $ (39,106)

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis