BOISE CASCADE Co 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Understanding Our Financial Information This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes in "Item 1. Financial Statements" of this Form 10-Q, as well as our 2023 Form 10-K. The following discussion includes statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other non-historical statements in the discussion, are forward-looking. These forward-looking statements include, without limitation, any statement that may predict, indicate, or imply future results, performance, or achievements and may contain the words "may," "will," "expect," "believe," "should," "plan," "anticipate," and other similar expressions. All of these forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Item 1A. Risk Factors" in our 2023 Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission (the SEC). We do not assume an obligation to update any forward-looking statement. Our future actual results may differ materially from those contained in or implied by any of the forward-looking statements in this Form 10-Q. Background Boise Cascade Company is a building products company headquartered in Boise, Idaho. 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, integrated wood products manufacturer and building materials distributor. We have two reportable segments: (i) Wood Products, which primarily manufactures engineered wood products (EWP) and plywood; and (ii) Building Materials Distribution (BMD), which is a wholesale distributor of building materials. Our products are used in the construction of new residential housing, including single-family, multi-family, and manufactured homes, the repair-and-remodeling of existing housing, the construction of light industrial and commercial buildings, and industrial applications. For more information, see Note 12, Segment Information, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. 24 Table of Contents Executive Overview We recorded income from operations of $117.4 million during the three months ended September 30, 2024, compared with income from operations of $185.6 million during the three months ended September 30, 2023. In our Wood Products segment, income decreased $45.7 million to $53.9 million for the three months ended September 30, 2024, from $99.6 million for the three months ended September 30, 2023, due primarily to lower EWP and plywood sales prices, as well as higher conversion costs. In addition, lower I-joist sales volumes also contributed to the decrease in segment income. In our BMD segment, income decreased $22.3 million to $74.8 million for the three months ended September 30, 2024, from $97.1 million for the three months ended September 30, 2023, driven by increased selling and distribution expenses and depreciation and amortization expense of $10.0 million and $5.1 million, respectively. In addition, gross margin decreased $7.7 million, driven by lower margins on commodity products and EWP, offset partially by improved margins on general line products. These changes are discussed further in "Our Operating Results" below. We ended third quarter 2024 with $761.6 million of cash and cash equivalents and $395.7 million of undrawn committed bank line availability, for total available liquidity of $1,157.3 million. We had $450.0 million of outstanding debt at September 30, 2024. We used $188.0 million of cash during the nine months ended September 30, 2024, as cash provided by operations was offset by capital spending, dividends paid on our common stock, and treasury stock purchases. A further description of our cash sources and uses for the nine-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. Residential construction, particularly new single-family construction, is the key demand driver for the products we manufacture and distribute. As reported by the U.S. Census Bureau, housing starts were 1.42 million in 2023. Current industry forecasts for U.S. housing starts are approximately 1.35 million in 2024 followed by 2025 starts at or modestly above 1.40 million. For the nine months ended September 2024, single-family starts are outpacing 2023 levels by 10% whereas multi-family starts have declined sharply from historic levels due to increased capital costs for developers, combined with historic levels of multi-family unit completions in 2024. Home affordability remains a challenge for many consumers due to home prices and the cost of financing, with the level of mortgage rates also limiting the supply of existing housing stock available for sale. Large homebuilders are addressing affordability challenges by reducing home sizes and plan complexity, as well as offering mortgage rate buydowns. New residential construction will continue to be an important source of supply for the demand created by undersupplied housing, favorable demographic trends, and low unemployment. We expect 2025 to reflect modest growth in home improvement spending, as the age of U.S. housing stock and elevated levels of homeowner equity will continue to provide a favorable backdrop for repair-and-remodel spending. Ultimately, macroeconomic factors, the level and expectations for mortgage rates, home affordability, home equity levels, home size, and other factors will 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 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 the following: • the commodity nature of a portion of our products and their price movements, which are driven largely by industry capacity and operating rates, industry cycles that affect supply and demand, and net import and export activity; • general economic conditions, including but not limited to housing starts, repair-and-remodeling activity, light commercial construction, inventory levels of new and existing homes for sale, foreclosure rates, interest rates, inflation, unemployment rates, household formation rates, prospective home buyers' access to and cost of financing, and housing affordability, that ultimately affect demand for our products; • the highly competitive nature of our industry; 25 Table of Contents • declines in demand for our products due to competing technologies or materials, as well as changes in building code provisions; • disruptions to information systems used to process and store customer, employee, and vendor information, as well as the technology that manages our operations and other business processes; • 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; • the need to successfully formulate and implement succession plans for key members of our management team; • product shortages, loss of key suppliers, and our dependence on third-party suppliers and manufacturers; • the cost and availability of third-party transportation services used to deliver the goods we manufacture and distribute, as well as our raw materials; • cost and availability of raw materials, including wood fiber and glues and resins; • 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 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; • restrictive covenants contained in our debt agreements; • compliance with data privacy and security laws and regulations; • the impacts of climate change and related legislative and regulatory responses intended to reduce climate change; • cost of compliance with government regulations, in particular, environmental regulations; • exposure to product liability, product warranty, casualty, construction defect, and other claims; • fluctuations in the market for our equity; and • the other factors described in "Item 1A. Risk Factors" in our 2023 Form 10-K. 26 Table of Contents 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, 2024 and 2023: Three Months Ended September 30 Nine Months Ended September 30 2024 2023 2024 2023 (millions) Sales $ 1,713.7 $ 1,834.4 $ 5,156.8 $ 5,194.0 Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 1,375.7 1,442.2 4,123.8 4,099.2 Depreciation and amortization 36.9 31.5 107.1 93.4 Selling and distribution expenses 157.5 147.7 451.4 415.7 General and administrative expenses 26.2 27.6 77.2 84.2 Other (income) expense, net 0.1 (0.1) (0.1) (1.8) 1,596.4 1,648.8 4,759.5 4,690.8 Income from operations $ 117.4 $ 185.6 $ 397.3 $ 503.2 (percentage of sales) Sales 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 80.3 % 78.6 % 80.0 % 78.9 % Depreciation and amortization 2.2 1.7 2.1 1.8 Selling and distribution expenses 9.2 8.1 8.8 8.0 General and administrative expenses 1.5 1.5 1.5 1.6 Other (income) expense, net — — — — 93.2 % 89.9 % 92.3 % 90.3 % Income from operations 6.8 % 10.1 % 7.7 % 9.7 % 27 Table of Contents Sales Volumes and Prices 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, 2024 and 2023: Three Months Ended September 30 Nine Months Ended September 30 2024 2023 2024 2023 (thousands) U.S. Housing Starts (a) Single-family 258.0 259.3 780.2 708.8 Multi-family 93.6 104.9 263.0 370.7 351.6 364.2 1,043.2 1,079.5 (thousands) Segment Sales Wood Products $ 453,896 $ 515,225 $ 1,412,647 $ 1,482,926 Building Materials Distribution 1,567,466 1,670,296 4,727,708 4,686,076 Intersegment eliminations (307,638) (351,080) (983,541) (975,013) Total sales $ 1,713,724 $ 1,834,441 $ 5,156,814 $ 5,193,989 Wood Products (millions) Sales Volumes Laminated veneer lumber (LVL) (cubic feet) 5.0 4.9 14.8 13.3 I-joists (equivalent lineal feet) 59 64 181 166 Plywood (sq. ft.) (3/8" basis) 391 390 1,146 1,236 Wood Products (dollars per unit) Average Net Selling Prices Laminated veneer lumber (LVL) (cubic foot) $ 27.62 $ 29.08 $ 28.15 $ 30.03 I-joists (1,000 equivalent lineal feet) 1,921 2,035 1,966 2,086 Plywood (1,000 sq. ft.) (3/8" basis) 333 382 357 371 (percentage of BMD sales) Building Materials Distribution Product Line Sales Commodity 34.9 % 37.4 % 35.5 % 38.1 % General line 43.8 % 39.4 % 42.4 % 39.3 % Engineered wood products 21.3 % 23.2 % 22.1 % 22.6 % Gross margin percentage (b) 15.7 % 15.2 % 15.2 % 15.0 % _______________________________________ (a) Actual U.S. housing starts data reported by the U.S. Census Bureau. (b) We define gross margin as "Sales" less "Materials, labor, and other operating expenses (excluding depreciation)." Substantially all costs included in "Materials, labor, and other operating expenses (excluding depreciation)" for our BMD segment are for inventory purchased for resale. Gross margin percentage is gross margin as a percentage of segment sales. 28 Table of Contents Sales For the three months ended September 30, 2024, total sales decreased $120.7 million, or 7%, to $1,713.7 million from $1,834.4 million during the three months ended September 30, 2023. For the nine months ended September 30, 2024, total sales decreased $37.2 million, or 1%, to $5,156.8 million from $5,194.0 million for the same period in the prior year. As described below, the change 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 2024, total U.S. housing starts and single-family housing starts decreased 3% and 1%, respectively, compared with the same period in 2023. On a year-to-date basis through September 2024, total housing starts decreased 3%, while single-family housing starts increased 10%, compared with the same period in 2023. Average composite panel prices for the three and nine months ended September 30, 2024 were 19% lower and 4% higher, respectively, than in the same period in the prior year, as reflected by Random Lengths composite panel pricing. Average composite lumber prices for the three and nine months ended September 30, 2024 were 13% and 7% lower, respectively, 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 $61.3 million, or 12%, to $453.9 million for the three months ended September 30, 2024, from $515.2 million for the three months ended September 30, 2023. The decrease in sales was driven by lower plywood sales prices of 13% resulting in decreased sales of $19.2 million, and lower sales prices for LVL and I-joists (collectively referred to as EWP) of 5% and 6%, respectively, resulting in decreased sales of $7.2 million and $6.7 million, respectively. Sales volumes for I-joists decreased 8% resulting in decreased sales of $10.7 million, while sales volumes for LVL and plywood were flat. I-joist sales volumes are influenced by multiple factors, including the level of housing starts, competition from other wood-based products, and an increasing proportion of concrete floor applications that limit wood floor opportunity. In addition, other sales, including lumber and residual byproducts, decreased $9.8 million. For the nine months ended September 30, 2024, sales, including sales to our BMD segment, decreased $70.3 million, or 5%, to $1,412.6 million from $1,482.9 million for the same period in the prior year. The decrease in sales was driven by lower sales prices of 6% for both LVL and I-joists, resulting in decreased sales of $27.8 million and $21.8 million, respectively. Plywood sales volumes and sales prices decreased 7% and 4%, respectively, resulting in decreased sales of $33.4 million and $16.1 million, respectively. 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 lumber and residual byproducts, decreased $38.6 million. These decreases were partially offset by higher sales volumes for LVL and I-joists of 12% and 9%, respectively, resulting in increased sales of $46.2 million and $32.3 million, respectively. Building Materials Distribution. Sales decreased $102.8 million, or 6%, to $1,567.5 million for the three months ended September 30, 2024, from $1,670.3 million for the three months ended September 30, 2023. Compared with the same quarter in the prior year, the overall decrease in sales was driven by a sales price decrease of 6%, as sales volumes were flat. Excluding the impact of the BROSCO acquisition on October 2, 2023, sales would have decreased by 9%. By product line, commodity sales decreased 12%, or $76.2 million; general line product sales increased 4%, or $27.1 million; and EWP sales (substantially all of which are sourced through our Wood Products segment) decreased 14%, or $53.7 million. During the nine months ended September 30, 2024, sales increased $41.6 million, or 1%, to $4,727.7 million from $4,686.1 million for the same period in the prior year. The overall increase in sales was driven by a sales volume increase of 4%, offset partially by a sales price decrease of 3%. Excluding the impact of the BROSCO acquisition, sales would have decreased by 2%. By product line, commodity sales decreased 6%, or $105.5 million; general line product sales increased 9%, or $165.4 million; and sales of EWP decreased 2%, or $18.3 million. Costs and Expenses Materials, labor, and other operating expenses (excluding depreciation) decreased $66.5 million, or 5%, to $1,375.7 million for the three months ended September 30, 2024, compared with $1,442.2 million during the same period in the prior year. In our Wood Products segment, materials, labor, and other operating expenses decreased due to lower sales volumes, offset partially by increased labor costs, compared with third quarter 2023. However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment increased by 650 basis points, primarily as the result of lower EWP and plywood sales prices. In BMD, the decrease in materials, labor, and other operating expenses compared with third quarter 2023 was driven by lower purchased materials costs as a result of a decrease in product prices. The BMD segment MLO rate decreased 50 basis points, driven by higher margin percentages on general line products, offset partially by lower margins on commodity and EWP products. 29 Table of Contents For the nine months ended September 30, 2024, materials, labor, and other operating expenses (excluding depreciation) increased $24.6 million, or 1%, to $4,123.8 million, compared with $4,099.2 million in 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 costs of OSB (used in the manufacture of I-joists), compared with the first nine months of 2023. Labor costs were also higher compared with the same period in the prior year. The MLO rate in our Wood Products segment increased by 410 basis points, due primarily to lower EWP and plywood sales prices. In BMD, the increase in materials, labor, and other operating expenses compared with the first nine months of 2023 was driven by higher purchased materials costs due primarily to the BROSCO acquisition. However, the BMD segment MLO rate decreased 20 basis points, driven by higher margin percentages on our general line sales, offset by lower margins on our EWP sales compared with the first nine months of 2023. Depreciation and amortization expense increased $5.4 million, or 17%, to $36.9 million for the three months ended September 30, 2024, compared with $31.5 million during the same period in the prior year. For the nine months ended September 30, 2024, depreciation and amortization expense increased $13.7 million, or 15%, to $107.1 million, compared with $93.4 million in the same period in the prior year. The increase in both periods was due to the BROSCO acquisition and other capital expenditures. For the nine months ended September 30, 2024, the increase was also due to $2.2 million of accelerated depreciation recorded in first quarter 2024 for the indefinite curtailment of lumber production at our Chapman, Alabama facility. Selling and distribution expenses, inclusive of the BROSCO acquisition, increased $9.8 million, or 7%, to $157.5 million for the three months ended September 30, 2024, compared with $147.7 million during the same period in the prior year. The increase was due primarily to higher employee-related expense of $8.1 million, offset partially by decreased incentive compensation expense of $2.1 million. In addition, costs related to professional fees and shipping and handling increased $1.3 million. For the nine months ended September 30, 2024, selling and distribution expenses increased $35.7 million, or 9%, to $451.4 million, compared with $415.7 million during the same period in 2023. The increase was due primarily to higher employee-related expenses of $20.9 million, offset partially by decreased incentive compensation expense of $2.7 million. Shipping and handling and occupancy costs increased $2.7 million and $2.6 million, respectively. In addition, costs related to professional fees, travel and entertainment, and advertising increased $4.8 million. General and administrative expenses decreased $1.4 million, or 5%, to $26.2 million for the three months ended September 30, 2024, compared with $27.6 million for the same period in the prior year. For the nine months ended September 30, 2024, general and administrative expenses decreased $7.0 million, or 8%, to $77.2 million, compared with $84.2 million during the same period in 2023. The decrease in both periods was primarily the result of lower incentive compensation and professional fees, offset partially by an increase in other employee-related expenses. Income From Operations Income from operations decreased $68.3 million to $117.4 million for the three months ended September 30, 2024, compared with $185.6 million for the three months ended September 30, 2023. Income from operations decreased $105.9 million to $397.3 million for the nine months ended September 30, 2024, compared with $503.2 million for the nine months ended September 30, 2023. Wood Products. Segment income decreased $45.7 million to $53.9 million for the three months ended September 30, 2024, compared with $99.6 million for the three months ended September 30, 2023. The decrease in segment income was due primarily to lower EWP and plywood sales prices, as well as higher conversion costs . In addition, lower I-joist sales volumes also contributed to the decrease in segment income. For the nine months ended September 30, 2024, segment income decreased $75.1 million to $197.9 million from $273.0 million for the nine months ended September 30, 2023. The decrease in segment income was due primarily to lower EWP and plywood sales prices, as well as higher wood fiber and conversion costs. These decreases in segment income were offset partially by higher EWP sales volumes. Building Materials Distribution. Segment income decreased $22.3 million to $74.8 million for the three months ended September 30, 2024, from $97.1 million for the three months ended September 30, 2023. The decrease in segment income was driven by increased selling and distribution expenses and depreciation and amortization expense of $10.0 million and $5.1 million, respectively. In addition, gross margin decreased $7.7 million, driven by lower margins on commodity products and EWP, offset partially by improved margins on general line products. 30 Table of Contents For the nine months ended September 30, 2024, segment income decreased $32.6 million to $232.7 million from $265.3 million for the nine months ended September 30, 2023. The decline in segment income was driven by increased selling and distribution expenses and depreciation and amortization expense of $37.4 million and $13.5 million, respectively. These decreases in segment income were offset partially by a gross margin increase of $15.4 million, resulting primarily from improved gross margins on general line products, offset partially by lower gross margins on EWP and commodity products. In addition, general and administrative expenses decreased $3.1 million. Corporate. Unallocated corporate expenses increased $0.3 million to $11.3 million for the three months ended September 30, 2024, from $11.0 million for the same period in the prior year. For the nine months ended September 30, 2024, unallocated corporate expenses decreased $1.9 million to $33.2 million from $35.1 million for the nine months ended September 30, 2023. The decrease was due primarily to lower incentive compensation. Other Interest Income. Interest income decreased $3.6 million to $10.2 million for the three months ended September 30, 2024, from $13.8 million for the same period in the prior year. For the nine months ended September 30, 2024, interest income decreased $3.7 million to $31.3 million from $35.0 million for the nine months ended September 30, 2023. The decrease in both periods was due primarily to lower average balances of cash equivalents. Change in fair value of interest rate swaps. For information related to our interest rate swap, see the discussion under "Interest Rate Risk and Interest Rate Swap" of Note 2, Summary of Significant Accounting Policies, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. Income Tax Provision For the three and nine months ended September 30, 2024, we recorded $29.8 million and $101.1 million, respectively, of income tax expense and had an effective rate of 24.7% and 24.8%, respectively. 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 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. Liquidity and Capital Resources We ended third quarter 2024 with $761.6 million of cash and cash equivalents and $450.0 million of debt. At September 30, 2024, we had $1,157.3 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability). Our cash and cash equivalents decreased by $188.0 million during the nine months ended September 30, 2024, as cash provided by operations was offset by capital spending, dividends paid on our common stock, and treasury stock purchases. Further descriptions of our cash sources and uses for the nine-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 2024 from cash on hand and, if necessary, borrowings under our revolving credit facility. 31 Table of Contents Sources and Uses of Cash We generate cash primarily from sales of our products, as well as short-term and long-term borrowings. Our primary uses of cash are for expenses related to the manufacture and distribution of building products, including inventory purchased for resale, wood fiber, labor, energy, and glues and resins. In addition to paying for ongoing operating costs, we use cash to invest in our business, service our debt and lease obligations, and return cash to our shareholders through dividends or common stock repurchases. Below is a discussion of our sources and uses of cash for operating activities, investing activities, and financing activities. Nine Months Ended September 30 2024 2023 (thousands) Net cash provided by operations $ 343,752 $ 521,129 Net cash used for investment (140,144) (96,801) Net cash used for financing (391,583) (149,709) Operating Activities For the nine months ended September 30, 2024, our operating activities generated $343.8 million of cash, compared with $521.1 million of cash generated in the same period in 2023. The $177.4 million decrease in cash provided by operations was due primarily to an increase in working capital, as well as a decrease in income from operations, offset partially by a $13.7 million decrease in cash paid for taxes, net of refunds, compared to the same period in 2023. Working capital increased $94.1 million during the nine months ended September 30, 2024, compared with a $1.1 million decrease 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 increase in working capital during the nine months ended September 30, 2024 was primarily attributable to higher inventories and receivables, offset by an increase in accounts payable and accrued liabilities. 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 receivables in both periods primarily reflect increased sales of approximately 9% and 30%, comparing sales for the months of September 2024 and 2023 with sales for the months of December 2023 and 2022, respectively. During the nine months ended September 30, 2024 inventories increased in preparation and response to the building season. 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, 2024, the increase in accounts payable and accrued liabilities was primarily related to the increase in inventories, offset partially by employee incentive compensation payouts made during the period. 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. Investment Activities During the nine months ended September 30, 2024 and 2023, we used $135.8 million and $99.3 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, 2024, we also used $5.6 million of cash for acquisitions of businesses and facilities, which consisted of $3.4 million for post-transaction closing adjustments related to the BROSCO acquisition, as well as $2.2 million for acquired assets of a door and millwork operation in Boise, Idaho. For further discussion on these acquisitions, see Note 5, Acquisitions, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. During the nine months ended September 30, 2023, we received $1.0 million of earn-out income related to a previous asset sale in our Wood Products segment. Excluding potential acquisitions, we expect capital expenditures in 2024 to total approximately $220 million to $240 million. We expect our capital spending, excluding acquisitions, to be approximately $200 million to $220 million in 2025. Capital spending in 2024 and 2025 will be for business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance. In addition, our 2024 capital expenditures range includes spending on previously announced projects to convert a plywood layup line to a parallel laminated veneer line at our Chapman, Alabama plywood facility, as well as add I-joist production capabilities at our Thorsby, Alabama EWP mill which will be completed in 32 Table of Contents 2025. At our Oakdale, Louisiana facility, multiple investment projects are underway and planned for 2025 which include upgrade and redesign of the log utilization center, a new veneer dryer and press, and modification of an existing veneer dryer. Our 2024 and 2025 capital expenditures range also includes spending on the previously announced greenfield distribution centers in Texas and South Carolina in our BMD segment. These levels 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, 2024, our financing activities used $391.6 million of cash, including $220.5 million in common stock dividend payments, $158.5 million for the repurchase of 1,232,345 shares of our common stock, and $11.1 million of tax withholding payments on stock-based awards. During the nine months ended September 30, 2024, we did not borrow under our revolving credit facility and therefore have no borrowings outstanding on the facility as of September 30, 2024. During the nine months ended September 30, 2023, our financing activities used $149.7 million of cash, including $140.9 million in 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. 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. For more information related to our debt transactions and structure, our dividend policy, and our stock repurchase program, see the discussion in Note 7, Debt, and Note 10, Stockholders' Equity, respectively, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. Other Material Cash Requirements For information about other material cash requirements, see Liquidity and Capital Resources in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Form 10-K. As of September 30, 2024, there have been no material changes in other material cash requirements outside the ordinary course of business since December 31, 2023. Guarantees 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, 2024, there have been no material changes to the guarantees disclosed in our 2023 Form 10-K. Seasonal Influences We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors. These seasonal factors are common in the building products industry. Seasonal changes in levels of building activity affect our building products businesses, which are dependent on housing starts, repair-and-remodeling activities, and light commercial construction activities. We typically report lower sales volumes in the first and fourth quarters due to the impact of poor weather on the construction market, and we generally have higher sales volumes in the second and third quarters, reflecting an increase in construction due to more favorable weather conditions. We typically have higher working capital in the first and second quarters in preparation and response to the building season. Seasonally cold weather increases costs, especially energy consumption costs, at most of our manufacturing facilities. 33 Table of Contents Employees As of October 27, 2024, we had approximately 7,480 employees. Approximately 18% of these employees work pursuant to collective bargaining agreements. As of October 27, 2024, we had ten collective bargaining agreements. One agreement covering approximately 50 employees at our Woodinville BMD facility expired on May 31, 2024, but the terms and conditions of this agreement remain in effect pending negotiation of a new agreement. 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, and two agreements covering approximately 750 employees at our Oakdale and Florien plywood plants are set to expire on July 15, 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. If any of these agreements are not renewed or extended upon their termination, we could experience a material labor disruption, strike, or significantly increased labor costs at one or more of our facilities, either in the course of negotiations of a labor agreement or otherwise. Labor disruptions or shortages could prevent us from meeting customer demands or result in increased costs, thereby reducing our sales and profitability. Disclosures of Financial Market Risks 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, 2024, there have been no material changes to financial market risks disclosed in our 2023 Form 10-K. Environmental As of September 30, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Form 10-K. Critical Accounting Estimates Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management's most difficult, subjective, or complex judgments, often as a result of the need to estimate matters that are inherently uncertain. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our board of directors. For information about critical accounting estimates, see Critical Accounting Estimates in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Form 10-K. At September 30, 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 For information related to new and recently adopted accounting standards, see "New and Recently Adopted Accounting Standards" in Note 2, Summary of Significant Accounting Policies, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" in this Form 10-Q.