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Item 2. Management’s Discussion and Analysis

2024-05-06 compared with 2023-10-30 · 112 added, 156 removed, 164 unchanged (62% of the section changed)

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As used in this Form 10-Q, the terms "Boise Cascade," "we," and "our" refer to Boise Cascade Company and its consolidated subsidiaries.

Boise Cascade is a large, vertically-integrated wood products manufacturer and building materials distributor.

Boise Cascade is a large, integrated wood products manufacturer and building materials distributor.

We have two reportable segments:

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Executive Overview

We recorded income from operations of $185.6 million during the three months ended September 30, 2023, compared with income from operations of $299.4 million during the three months ended September 30, 2022.

In our Wood Products segment, income decreased $56.4 million to $99.6 million for the three months ended September 30, 2023, from $156.0 million for the three months ended September 30, 2022, due primarily to lower EWP and plywood sales prices, offset partially by lower wood fiber costs and higher plywood sales volumes.

In our BMD segment, income decreased $57.3 million to $97.1 million for the three months ended September 30, 2023, from $154.4 million for the three months ended September 30, 2022, driven by a gross margin decrease of $48.4 million, resulting primarily from lower margins on EWP, offset partially by increased selling and distribution expenses of $6.0 million.

We recorded income from operations of $133.0 million during the three months ended March 31, 2024, compared with income from operations of $127.6 million during the three months ended March 31, 2023.

In our Wood Products segment, income increased $1.8 million to $71.2 million for the three months ended March 31, 2024, from $69.4 million for the three months ended March 31, 2023, due primarily to higher EWP sales volumes and higher plywood sales prices, offset partially by lower EWP sales prices and higher wood fiber costs.

In our BMD segment, income increased $2.8 million to $72.5 million for the three months ended March 31, 2024, from $69.7 million for the three months ended March 31, 2023, driven by a gross margin increase of $22.9 million, resulting primarily from higher sales volumes and improved margins on general line and commodity products, offset partially by increased selling and distribution expenses and depreciation and amortization expense of $16.5 million and $4.0 million, respectively.

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

We ended third quarter 2023 with $1,273.0 million of cash and cash equivalents and $395.9 million of undrawn committed bank line availability, for total available liquidity of $1,668.9 million.

We had $445.1 million of outstanding debt at September 30, 2023.

We generated $274.6 million of cash during the nine months ended September 30, 2023, as cash provided by operations was offset partially by capital spending, dividends paid on our common stock, and tax withholding payments on stock-based awards.

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

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 Firepit Merger Sub, Inc., a wholly-owned subsidiary of BMD (the Merger Sub), and BROSCO.

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 Acquisition).

The purchase price of the Acquisition was $168 million, inclusive of estimated working capital at closing of $51 million, which is subject to post-closing adjustments.

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

These facilities will expand our door and millwork business in the Northeast U.S.

We ended first quarter 2024 with $890.2 million of cash and cash equivalents and $395.7 million of undrawn committed bank line availability, for total available liquidity of $1,286.0 million.

We had $445.5 million of outstanding debt at March 31, 2024.

We used $59.3 million of cash during the three months ended March 31, 2024, as cash provided by operations was offset by capital spending, treasury stock purchases, dividends paid on our common stock, and tax withholding payments on stock-based awards.

A further description of our cash sources and uses for the three-month 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.

Various industry forecasts for 2023 U.S.

housing starts are estimated to be 1.4 million units, compared with actual housing starts of 1.55 million in 2022, 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.

Current 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.

Throughout 2023, home affordability has been a challenge for consumers given higher mortgage rates and limited home price decreases.

However, given a resilient economy and low levels of existing home inventory for sale, demand for new residential construction has been stronger than anticipated.

Homebuilders have also addressed affordability challenges facing homebuyers in various ways, including smaller home sizes, fewer amenities, price incentives, and mortgage rate buydowns.

Economic uncertainties, escalating mortgage rates, and home affordability are expected to continue to influence the near-term demand environment.

Consensus forecasts for 2024 single- and multi-family housing starts in the U.S.

generally range from 1.3 million to 1.4 million units, which is comparable with 2023.

Home affordability remains a challenge for many consumers due to the cost of housing combined with elevated mortgage rates.

However, with low unemployment and an undersupply of existing housing stock available for sale, new residential construction is expected to remain an important source of supply for homebuyers.

Recent pressures on multi-family starts are expected to continue due to increased 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.

However, industry forecasts project continued moderation of year-over-year growth in renovation spending, and economic uncertainty may also negatively impact homeowners' further investment in their residences.

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 healthy 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.

Future commodity product pricing and commodity input costs may 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.

During fourth quarter 2023, we expect to experience seasonally slower demand for the products we manufacture and distribute, as well as modest EWP price erosion.

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

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• material disruptions and/or major equipment failure at our manufacturing facilities;

• declining demand for residual byproducts, particularly wood chips generated in our manufacturing operations;

• labor disruptions, shortages of skilled and technical labor, or increased labor costs;

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• cost and availability of raw materials, including wood fiber and glues and resins;

• our ability to successfully and efficiently complete and integrate acquisitions;

• the concentration of our sales among a relatively small group of customers, as well as the financial condition and creditworthiness of our customers;

• our ability to execute our organic growth and acquisition strategies efficiently and effectively;

• failures or delays with new or existing technology systems and software platforms;

• our ability to successfully pursue our long-term growth strategy related to innovation and digital technology;

• concentration of our sales among a relatively small group of customers, as well as the financial condition and creditworthiness of our customers;

• impairment of our long-lived assets, goodwill, and/or intangible assets;

• substantial ongoing capital investment costs, including those associated with acquisitions, and the difficulty in offsetting fixed costs related to those investments;

• substantial ongoing capital investment costs, including those associated with organic growth and acquisitions, and the difficulty in offsetting fixed costs related to those investments;

• our indebtedness, including the possibility that we may not generate sufficient cash flows from operations or that future borrowings may not be available in amounts sufficient to fulfill our debt obligations and fund other liquidity needs;

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• cost of compliance with government regulations, in particular, environmental regulations;

• the enactment of tax reform legislation;

• exposure to product liability, product warranty, casualty, construction defect, and other claims;

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Our Operating Results

The following tables set forth our operating results in dollars and as a percentage of sales for the three and nine months ended September 30, 2023 and 2022:

The following tables set forth our operating results in dollars and as a percentage of sales for the three months ended March 31, 2024 and 2023:

Three Months Ended

September 30 Nine Months Ended

2023 2022 2023 2022

Sales $ 1,645.4 $ 1,544.3

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Set forth below are historical U.S.

housing starts data, segment sales volumes and average net selling prices for the principal products sold by our Wood Products segment, and sales mix and gross margin information for our BMD segment for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended

September 30 Nine Months Ended

2023 2022 2023 2022

Housing Starts (a)

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Multi-family 79.7 126.7

361.7 385.7 1,076.9 1,225.2

Segment Sales

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ft.) (3/8" basis) 378 367

(percentage of Building Materials Distribution sales)

(percentage of BMD sales)

Building Materials Distribution

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Gross margin percentage is gross margin as a percentage of segment sales.

For the three months ended September 30, 2023, total sales decreased $320.2 million, or 15%, to $1,834.4 million from $2,154.6 million during the three months ended September 30, 2022.

For the nine months ended September 30, 2023, total sales decreased $1,565.0 million, or 23%, to $5,194.0 million from $6,759.0 million for the same period in the prior year.

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 of our sales.

In third quarter 2023, total U.S.

housing starts decreased 6%, driven by a decrease in multi-family housing starts compared to the same period in 2022.

However, single-family housing starts increased 7% compared with the same period in 2022.

On a year-to-date basis through September 2023, total housing starts and single-family housing starts decreased 12% and 13%, respectively, compared with the same period in 2022.

Average composite lumber and average composite panel prices for the three months ended September 30, 2023 were 26% and 5% lower, respectively, than in the same period in the prior year, as reflected by Random Lengths composite lumber and panel pricing.

For the nine months ended September 30, 2023, average composite lumber and average composite panel prices were 52% and 40% lower, respectively, compared with the same period in the prior year.

For the three months ended March 31, 2024, total sales increased $101.1 million, or 7%, to $1,645.4 million from $1,544.3 million during the three months ended March 31, 2023.

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 of our sales.

In first quarter 2024, total U.S.

housing starts and single-family housing starts increased 1% and 27%, respectively, compared with the same period in 2023.

Average composite panel prices for the three months ended March 31, 2024 were 23% higher than in the same period in the prior year, as reflected by Random Lengths composite panel pricing.

Average composite lumber prices for the three months ended March 31, 2024 were 2% lower than in the same period in the prior year, as reflected by Random Lengths composite lumber pricing.

Wood Products.

Sales, including sales to our BMD segment, decreased $80.1 million, or 13%, to $515.2 million for the three months ended September 30, 2023, from $595.3 million for the three months ended September 30, 2022.

The decrease in sales was driven by lower plywood sales prices of 20%, resulting in decreased sales of $36.8 million.

In addition, lower sales prices for I-joists and LVL (collectively referred to as EWP) of 16% and 14%, respectively, resulted in decreased sales of $25.3 million and $23.4 million, respectively.

Lower sales volumes of LVL of 5% resulted in decreased sales of $8.3 million, while sales volumes for I-joists were flat.

These decreases were offset partially by higher sales volumes for plywood of 19%, resulting in increased sales of $29.2 million.

For the nine months ended September 30, 2023, sales, including sales to our BMD segment, decreased $207.4 million, or 12% to $1,482.9 million from $1,690.3 million for the same period in the prior year.

The decrease in sales was driven by lower plywood sales prices of 36%, resulting in decreased sales of $254.8 million.

In addition, lower sales volumes of I-joists and LVL (collectively referred to as EWP) of 17% and 8%, respectively, resulted in decreased sales of $71.0 million and $34.2 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.

These decreases were offset partially by higher sales volumes for plywood of 33%, resulting in increased sales of $178.7 million.

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

In addition, 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.

Sales, including sales to our BMD segment, increased $31.5 million, or 7%, to $468.9 million for the three months ended March 31, 2024, from $437.4 million for the three months ended March 31, 2023.

The increase in sales was driven by higher sales volumes for I-joists and LVL (collectively referred to as EWP) of 46% and 31%, respectively, resulting in increased sales of $38.8 million and $35.5 million, respectively.

EWP sales volumes increased due to an increase in housing starts.

In addition, higher plywood sales prices of 3% resulted in increased sales of $3.8 million.

These increases were offset partially by decreased sales prices for LVL and I-joists of 8% and 7%, respectively, resulting in decreased sales of $11.6 million and $8.5 million, respectively, as well as decreased plywood sales volumes of 8% resulting in decreased sales of $12.6 million.

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

In addition, other sales, including residual byproducts and lumber, decreased $14.5 million.

Building Materials Distribution.

Sales decreased $286.5 million, or 15%, to $1,670.3 million for the three months ended September 30, 2023, from $1,956.8 million for the three months ended September 30, 2022.

Compared with the same quarter in the prior year, the overall decrease in sales was driven by sales price and sales volume decreases of 14% and 1%, respectively.

By product line, commodity sales decreased 20%, or $151.2 million;

general line product sales decreased 5%, or $32.4 million;

and EWP sales (substantially all of which are sourced through our Wood Products segment) decreased 21%, or $102.9 million.

During the nine months ended September 30, 2023, sales decreased $1,513.7 million, or 24%, to $4,686.1 million from $6,199.8 million for the same period in the prior year.

The overall decrease in sales was driven by sales price and sales volume decreases of 17% and 7%, respectively.

By product line, commodity sales decreased 37%, or $1,048.1 million;

general line product sales decreased 8%, or $167.1 million;

and sales of EWP (substantially all of which are sourced through our Wood Products segment) decreased 22%, or $298.5 million.

Sales increased $125.8 million, or 9%, to $1,505.0 million for the three months ended March 31, 2024, from $1,379.2 million for the three months ended March 31, 2023.

Compared with the same quarter in the prior year, the overall increase in sales was driven by a sales volume increase of 12%, offset partially by a sales price decrease of 3%.

By product line, commodity sales increased 1%, or $5.5 million;

general line product sales increased 16%, or $83.3 million;

and EWP sales (substantially all of which are sourced through our Wood Products segment) increased 12%, or $37.0 million.

Costs and Expenses

Materials, labor, and other operating expenses (excluding depreciation) decreased $213.8 million, or 13%, to $1,442.2 million for the three months ended September 30, 2023, compared with $1,656.0 million during the same period in the prior year.

In our Wood Products segment, materials, labor, and other operating expenses decreased due to lower per-unit costs of logs and OSB (used in the manufacture of I-joists) of approximately 6% and 3%, respectively, compared with third quarter 2022, as well as a decrease in other manufacturing costs, offset partially by increased labor costs.

However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment increased by 620 basis points.

The increase in the MLO rate was primarily the result of lower plywood and EWP sales prices, resulting in decreased leveraging of labor and wood fiber 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 compared with third quarter 2022.

BMD segment MLO rate increased 20 basis points compared with third quarter 2022, driven primarily by lower margin percentages on EWP compared with third quarter 2022.

In our BMD segment, periods of increasing prices provide the opportunity for higher sales and increased margins, while declining price environments generally result in declines in sales and profitability.

For the nine months ended September 30, 2023, materials, labor, and other operating expenses (excluding depreciation) decreased $1,084.6 million or 21%, to $4,099.2 million, compared with $5,183.8 million in the same period in the prior year.

In our Wood Products segment, materials, labor, and other operating expenses decreased due to lower per-unit costs of OSB (used in the manufacture of I-joists) and logs of approximately 13% and 4%, respectively, compared with the first nine months of 2022.

This decrease was offset partially by higher labor and other manufacturing costs, as well as the Coastal Plywood acquisition.

However, the MLO rate in our Wood Products segment increased by 890 basis points, which was primarily due to lower plywood 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 the first nine months of 2022.

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

Depreciation and amortization expenses increased $3.1 million, or 11%, to $31.5 million for the three months ended September 30, 2023, compared with $28.4 million during the same period in the prior year.

For the nine months ended September 30, 2023, these expenses increased $23.8 million, or 34%, to $93.4 million, compared with $69.6 million in the same period in the prior year.

The increase in both periods was due primarily to the Coastal Plywood acquisition on July 25, 2022, and other capital expenditures.

Selling and distribution expenses increased $5.5 million, or 4%, to $147.7 million for the three months ended September 30, 2023, compared with $142.2 million during the same period in the prior year, primarily due to higher base salaries, special bonuses, and incentive compensation expenses of $7.6 million, offset partially by a decrease in sales commissions of $2.8 million.

For the nine months ended September 30, 2023, selling and distribution expenses decreased $7.4 million, or 2%, to $415.7 million, compared with $423.1 million during the same period in 2022, primarily as a result of lower sales commissions and incentive compensation expenses of $21.2 million, offset partially by higher employee-related expenses of $6.9 million and increased shipping and handling and occupancy costs of $3.1 million and $1.2 million, respectively.

In addition, discretionary expenses related to travel and entertainment and advertising increased $1.3 million.

General and administrative expenses for both the three months ended September 30, 2023 and 2022 were $27.6 million.

For the nine months ended September 30, 2023, general and administrative expenses increased $2.8 million, or 3%, to $84.2 million, compared with $81.4 million during the same period in 2022.

The increase was primarily the result of higher employee-related expenses and professional fees, offset partially by a decrease in insurance expense as the three months ended September 30, 2022 included representations and warranties insurance related to the Coastal Plywood acquisition.

Materials, labor, and other operating expenses (excluding depreciation) increased $76.8 million, or 6%, to $1,307.4 million for the three months ended March 31, 2024, compared with $1,230.6 million during the same period in the prior year.

In our Wood Products segment, materials, labor, and other operating expenses increased due to higher EWP sales volumes and higher per-unit costs of OSB (used in the manufacture of I-joists) of approximately 24%, compared with first quarter 2023, as well as increased other manufacturing and labor costs.

Materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment increased by 140 basis points.

The increase in the MLO rate was primarily the result of lower EWP sales prices, resulting in decreased leveraging of other manufacturing costs.

In BMD, the increase in materials, labor, and other operating expenses was driven by higher purchased materials costs as a result of an increase in sales volumes compared with first quarter 2023.

However, the BMD segment MLO rate improved 30 basis points compared with first quarter 2023, driven by a greater mix of general line and EWP sales, which have higher margins than commodity products.

In addition, margin percentages for our commodity and general line product sales improved, offset partially by lower margin percentages on our EWP sales.

Depreciation and amortization expense increased $4.7 million, or 15%, to $35.9 million for the three months ended March 31, 2024, compared with $31.2 million during the same period in the prior year.

The increase was due primarily to the BROSCO acquisition on October 2, 2023, accelerated depreciation of $2.2 million in first quarter 2024 for the indefinite curtailment of lumber production at our Chapman, Alabama facility, as well as other capital expenditures.

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

Selling and distribution expenses increased $15.3 million, or 12%, to $144.1 million for the three months ended March 31, 2024, compared with $128.8 million during the same period in the prior year.

The increase was due primarily to higher employee-related expenses of $6.6 million and increased shipping and handling and occupancy costs of $2.2 million and $1.0 million, respectively.

In addition, expenses related to advertising and professional services increased $1.5 million.

General and administrative expenses decreased $1.4 million, or 5%, to $25.1 million for the three months ended March 31, 2024, compared with $26.5 million for the same period in the prior year, primarily due to a decrease in professional fees and incentive compensation, offset partially by an increase in employee-related expenses.

Income From Operations

Income from operations decreased $113.8 million to $185.6 million for the three months ended September 30, 2023, compared with $299.4 million for the three months ended September 30, 2022.

Income from operations decreased $498.9 million to $503.2 million for the nine months ended September 30, 2023, compared with $1,002.1 million for the nine months ended September 30, 2022.

Income from operations increased $5.4 million to $133.0 million for the three months ended March 31, 2024, compared with $127.6 million for the three months ended March 31, 2023.

Wood Products.

Segment income decreased $56.4 million to $99.6 million for the three months ended September 30, 2023, compared with $156.0 million for the three months ended September 30, 2022.

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

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

For the nine months ended September 30, 2023, segment income decreased $227.2 million to $273.0 million from $500.2 million for the nine months ended September 30, 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 in segment income were offset partially by lower wood fiber costs and higher plywood sales volumes.

Segment income increased $1.8 million to $71.2 million for the three months ended March 31, 2024, compared with $69.4 million for the three months ended March 31, 2023.

The increase in segment income was due primarily to higher EWP sales volumes, as well as higher plywood sales prices.

These increases in segment income were offset partially by lower EWP sales prices and higher wood fiber costs.

In addition, segment income was negatively impacted by accelerated depreciation of $2.2 million in first quarter 2024 for the indefinite curtailment of lumber production at our Chapman, Alabama facility.

Building Materials Distribution.

Segment income decreased $57.3 million to $97.1 million for the three months ended September 30, 2023, from $154.4 million for the three months ended September 30, 2022.

The decline in segment income was

driven by a gross margin decrease of $48.4 million, resulting primarily from lower margins on EWP.

In addition, selling and distribution expenses increased $6.0 million.

For the nine months ended September 30, 2023, segment income decreased $269.3 million to $265.3 million from $534.6 million for the nine months ended September 30, 2022.

The decline in segment income was driven by a gross margin decrease of $275.6 million, resulting primarily from gross margin declines on EWP and commodity products and lower sales volumes across all product lines, offset partially by decreased selling and distribution expenses of $10.5 million.

Unallocated corporate expenses for both the three months ended September 30, 2023 and 2022 were $11.0 million.

For the nine months ended September 30, 2023, unallocated corporate expenses increased $2.3 million to $35.1 million from $32.8 million for the nine months ended September 30, 2022.

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

Segment income increased $2.8 million to $72.5 million for the three months ended March 31, 2024, from $69.7 million for the three months ended March 31, 2023.

The increase in segment income was driven by a gross margin increase of $22.9 million, resulting primarily from higher sales volumes and improved margins on general line and commodity products.

The gross margin improvement was offset partially by increased selling and distribution expenses and depreciation and amortization expense of $16.5 million and $4.0 million, respectively.

Unallocated corporate expenses decreased $0.8 million to $10.7 million for the three months ended March 31, 2024, from $11.5 million for the same period in the prior year.

The decrease was due primarily to a decrease in professional fees.

Interest Income.

Interest income increased $10.6 million to $13.8 million for the three months ended September 30, 2023, from $3.2 million for the three months ended September 30, 2022.

For the nine months ended September 30, 2023, interest income increased $30.3 million to $35.0 million from $4.7 million for the nine months ended September 30, 2022.

The increase in both periods was due primarily to higher interest rates on cash equivalents and increases in the average balances of cash equivalents.

Interest income increased $0.9 million to $10.6 million for the three months ended March 31, 2024, from $9.7 million for the three months ended March 31, 2023.

The increase was due primarily to higher interest rates on cash equivalents.

Change in fair value of interest rate swaps.

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Income Tax Provision

For the three and nine months ended September 30, 2023, we recorded $49.0 million and $131.7 million, respectively, of income tax expense and had an effective rate of 25.5% and 25.4%, respectively.

For the three and nine months ended September 30, 2022, we recorded $76.0 million and $248.8 million, respectively, of income tax expense and had an effective rate of 25.7% and 25.2%, respectively.

For all periods, the primary reason for the difference between the federal statutory income tax rate of 21% and the effective tax rate was the effect of state taxes.

For the three months ended March 31, 2024 and 2023, we recorded $32.8 million and $33.3 million, respectively, of income tax expense and had an effective rate of 24.0% and 25.6%, respectively.

For both periods, the primary reason for the difference between the federal statutory income tax rate of 21% and the effective tax rate was the effect of state taxes.

Liquidity and Capital Resources

We ended third quarter 2023 with $1,273.0 million of cash and cash equivalents and $445.1 million of debt.

At September 30, 2023, we had $1,668.9 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability).

Further descriptions of our cash sources and uses for the nine-month comparative periods are noted below.

We ended first quarter 2024 with $890.2 million of cash and cash equivalents and $445.5 million of debt.

At March 31, 2024, we had $1,286.0 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability).

Our cash and cash equivalents decreased by $59.3 million during the three months ended March 31, 2024, as cash provided by operations was offset by capital spending, treasury stock purchases, dividends paid on our common stock, and tax withholding payments on stock-based awards.

Further descriptions of our cash sources and uses for the three-month comparative periods are noted below.

We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations, working capital, income tax payments, and to pay cash dividends to holders of our common stock over the next 12 months.

We expect to fund our seasonal and intra-month working capital requirements in the remainder of 2023 from cash on hand and, if necessary, borrowings under our revolving credit facility.

On October 2, 2023, we completed the acquisition of BROSCO for a purchase price of $168 million, inclusive of estimated working capital at closing of $51 million, which is subject to post-closing adjustments.

We funded the acquisition and related costs with cash on hand.

For further discussion, see Note 5, Acquisitions, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1.

Financial Statements" of this Form 10-Q.

We expect to fund our seasonal and intra-month working capital requirements in 2024 from cash on hand and, if necessary, borrowings under our revolving credit facility.

Sources and Uses of Cash

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Below is a discussion of our sources and uses of cash for operating activities, investing activities, and financing activities.

Nine Months Ended

Three Months Ended

Net cash provided by operations $ 27,462 $ 47,992

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Operating Activities

For the nine months ended September 30, 2023, our operating activities generated $521.1 million of cash, compared with $814.1 million of cash generated in the same period in 2022.

The $293.0 million decrease in cash provided by operations was due primarily to a decrease in income from operations, offset partially by a decrease in cash paid for taxes, net of refunds, of $85.3 million.

In addition, working capital decreased $1.1 million during the nine months ended September 30, 2023, compared with a $62.0 million increase for the same period in the prior year.

For the three months ended March 31, 2024, our operating activities generated $27.5 million of cash, compared with $48.0 million of cash generated in the same period in 2023.

The $20.5 million decrease in cash provided by operations was due primarily to a greater year-over-year increase in working capital.

Working capital increased $149.2 million during the three months ended March 31, 2024, compared with a $117.7 million increase for the same period in the prior year.

See "Our Operating Results" in this Management's Discussion and Analysis of Financial Condition and Results of Operations for more information related to factors affecting our operating results.

The decrease in working capital during the nine months ended September 30, 2023 was primarily attributable to an increase in accounts payable and decreased inventories, offset partially by higher receivables.

The increase in working capital during the nine months ended September 30, 2022 was primarily attributable to higher receivables and inventories, offset by an increase in accounts payable and accrued liabilities.

The increase in accounts payable during the nine months ended September 30, 2023 was related to increased purchasing in response to improved demand compared to fourth quarter 2022 and extended terms offered by certain BMD vendors.

During the nine months ended September 30, 2022 the increase in accounts payable and accrued liabilities was primarily related to the increase in inventories.

During the nine months ended September 30, 2023 inventories decreased in our Wood Products segment due to improved demand compared to fourth quarter 2022.

However, our BMD segment inventories increased during the nine months ended September 30, 2023 due to seasonal building, steady housing demand, and location expansions.

During the nine months ended September 30, 2022 inventories increased primarily due to increased cost of inventory purchased for resale for EWP and general line products, the Coastal Plywood acquisition during the third quarter of 2022, and higher production costs for our manufactured products.

The increases in receivables in both periods primarily reflect increased sales of approximately 30% and 13%, comparing sales for the months of September 2023 and 2022 with sales for the months of December 2022 and 2021, respectively.

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

The increase in receivables in both periods primarily reflect increased sales of approximately 19% and 26%, comparing sales for the months of March 2024 and 2023 with sales for the months of December 2023 and 2022, respectively.

Inventories increased during the three months ended March 31, 2024 and March 31, 2023 in preparation for the spring building season.

The increase in accounts payable and accrued liabilities as of March 31, 2024 was related to the increase in inventories and extended terms offered by certain BMD vendors, offset partially by employee incentive compensation payouts made during the quarter.

The increase in accounts payable and accrued liabilities as of March 31, 2023 was related to the increase in inventories, offset partially by employee incentive compensation payouts made during the quarter and lower accrued rebates.

Investment Activities

During the nine months ended September 30, 2023 and 2022, we used $99.3 million and $61.8 million, respectively, of cash for purchases of property and equipment, including business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance.

During the nine months ended September 30, 2022, we also used $516.9 million of cash for the Coastal Plywood acquisition.

During the nine months ended September 30, 2023 and 2022, we received $1.0 million and $2.5 million, respectively, of earn-out income related to a previous asset sale in our Wood Products segment.

Excluding acquisitions, we expect capital expenditures in 2023 to total approximately $190 million to $210 million.

During the three months ended March 31, 2024 and 2023, we used $34.3 million and $30.1 million, respectively, of cash for purchases of property and equipment, including business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance.

During the three months ended March 31, 2024, we also used $3.4 million of cash for post-transaction closing adjustments related to the BROSCO acquisition.

For further discussion on the BROSCO acquisition, see Note 5, Acquisition, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1.

Financial Statements" of this Form 10-Q.

Excluding potential acquisitions, we expect capital expenditures in 2024 to total approximately $250 million to $270 million.

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, spending related to new door shop assembly operations in Kansas City, Missouri, and Denver, Colorado, and the purchase of a distribution center in West Palm Beach, Florida.

financial results, future economic conditions, availability of engineering and construction resources, and timing and availability of equipment purchases.

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.

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.

Financing Activities

During the nine months ended September 30, 2023, our financing activities used $149.7 million of cash, including $140.9 million for common stock dividend payments, $5.9 million of tax withholding payments on stock-based awards, and $1.5 million for the repurchase of 25,678 shares of our common stock.

During the nine months ended September 30, 2023, we did not borrow under our revolving credit facility and therefore have no borrowings outstanding on the facility as of September 30, 2023.

During the nine months ended September 30, 2022, our financing activities used $120.3 million of cash, including $114.0 million for common stock dividend payments and $3.9 million of tax withholding payments on stock-based awards.

During the nine months ended September 30, 2022, we did not borrow under our revolving credit facility.

During the three months ended March 31, 2024, our financing activities used $49.6 million of cash, including $27.0 million for the repurchase of 205,938 shares of our common stock, $11.2 million for common stock dividend payments, and $11.0 million of tax withholding payments on stock-based awards.

During the three months ended March 31, 2024, we did not borrow under our revolving credit facility and therefore have no borrowings outstanding on the facility as of March 31, 2024.

During the three months ended March 31, 2023, our financing activities used $16.1 million of cash, including $8.3 million for common stock dividend payments, $5.9 million of tax withholding payments on stock-based awards, and $1.5 million for the repurchase of 24,727 shares of our common stock.

During the three months ended March 31, 2023, we did not borrow under our revolving credit facility.

Future dividend declarations, including amount per share, record date and payment date, will be made at the discretion of our board of directors and will depend upon, among other things, legal capital requirements and surplus, our future operations and earnings, general financial condition, material cash requirements, restrictions imposed by our asset-based credit facility and the indenture governing our senior notes, applicable laws, and other factors that our board of directors may deem relevant.

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Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Form 10-K.

As of September 30, 2023, there have been no material changes in other material cash requirements outside the ordinary course of business since December 31, 2022.

As of March 31, 2024, there have been no material changes in other material cash requirements outside the ordinary course of business since December 31, 2023.

Note 8, Debt, and Note 16, Commitments, Legal Proceedings and Contingencies, and Guarantees, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" in our 2023 Form 10-K describe the nature of our guarantees, including the approximate terms of the guarantees, how the guarantees arose, the events or circumstances that would require us to perform under the guarantees, and the maximum potential undiscounted amounts of future payments we could be required to make.

As of September 30, 2023, there have been no material changes to the guarantees disclosed in our 2022 Form 10-K.

As of March 31, 2024, there have been no material changes to the guarantees disclosed in our 2023 Form 10-K.

Seasonal Influences

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Seasonally cold weather increases costs, especially energy consumption costs, at most of our manufacturing facilities.

As of October 15, 2023, we had approximately 7,250 employees.

As of April 28, 2024, we had approximately 7,310 employees.

Approximately 18% of these employees work pursuant to collective bargaining agreements.

As of October 15, 2023, we had ten collective bargaining agreements.

Five agreements covering approximately 450 employees at our Elgin plywood plant, Kettle Falls plywood plant, and Woodinville BMD facility are set to expire on May 31, 2024, but the terms and conditions of these agreements will remain in effect after expiration pending negotiation of new agreements.

As of April 28, 2024, we had ten collective bargaining agreements.

Five agreements covering approximately 460 employees at our Elgin plywood plant, Kettle Falls plywood plant, and Woodinville BMD facility are set to expire on May 31, 2024.

One agreement covering approximately 40 employees at our Vancouver BMD facility is set to expire on December 31, 2024.

One agreement covering approximately 20 employees at our Billings BMD facility is set to expire on March 31, 2025.

The terms and conditions of these agreements will remain in effect after expiration pending negotiation of new agreements.

We may not be able to renew these agreements or may renew them on terms that are less favorable to us than the current agreements.

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In the normal course of business, we are exposed to financial risks such as changes in commodity prices, interest rates, and foreign currency exchange rates.

As of September 30, 2023, there have been no material changes to financial market risks disclosed in our 2022 Form 10-K.

As of March 31, 2024, there have been no material changes to financial market risks disclosed in our 2023 Form 10-K.

Environmental

As of September 30, 2023, there have been no material changes to environmental issues disclosed in our 2022 Form 10-K.

As of March 31, 2024, there have been no material changes to environmental issues disclosed in our 2023 Form 10-K.

For additional information, see Environmental in "Item 7.

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Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Form 10-K.

At September 30, 2023, there have been no material changes to our critical accounting estimates from those disclosed in our 2022 Form 10-K.

At March 31, 2024, there have been no material changes to our critical accounting estimates from those disclosed in our 2023 Form 10-K.

New and Recently Adopted Accounting Standards

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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-Q

Item 2. Management’s Discussion and Analysis