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 2021 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 nonhistorical 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 2021 Form 10-K, as well as those factors listed in other documents we file with theSecurities and Exchange Commission (theSEC ). 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 inBoise, Idaho . As used in this Form 10-Q, the terms "Boise Cascade," "we," and "our" refer toBoise Cascade Company and its consolidated subsidiaries. Boise Cascade is a large, vertically-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$299.4 million during the three months endedSeptember 30, 2022 , compared with income from operations of$129.4 million during the three months endedSeptember 30, 2021 . In our Wood Products segment, income increased$33.9 million to$156.0 million for the three months endedSeptember 30, 2022 , from$122.1 million for the three months endedSeptember 30, 2021 , due primarily to higher EWP sales prices, offset partially by lower sales prices of plywood, as well as higher manufacturing costs. In addition, depreciation and amortization expense increased$7.0 million due to the acquisition of two plywood facilities onJuly 25, 2022 . In our BMD segment, income increased$137.8 million to$154.4 million for the three months endedSeptember 30, 2022 , from$16.6 million for the three months endedSeptember 30, 2021 , driven by a gross margin increase of$166.1 million , resulting primarily from margin improvements on commodity products, offset partially by increased selling and distribution expenses of$25.7 million . These changes are discussed further in "Our Operating Results" below. OnJuly 25, 2022 , our wholly-owned subsidiary,Boise Cascade Wood Products, L.L.C. , completed the acquisition of 100% of the equity interest inCoastal Plywood Company (Coastal Plywood), and its plywood manufacturing operations located inHavana, Florida , andChapman, Alabama , (the Acquisition) for a purchase price of$516.9 million , inclusive of estimated working capital at closing of approximately$27 million , which is subject to post-closing adjustments. We funded the Acquisition and related costs with cash on hand. These facilities will provide incremental stress-rated veneer needed to optimize and expand our southeasternU.S. EWP production capacity. In addition, theHavana plywood operation improves our mix of specialty plywood products and is well positioned geographically to support plywood demand in the southeasternU.S. We ended third quarter 2022 with$867.1 million of cash and cash equivalents and$396.2 million of undrawn committed bank line availability, for total available liquidity of$1,263.2 million . We had$444.2 million of outstanding debt atSeptember 30, 2022 . We generated$118.2 million of cash during the nine months endedSeptember 30, 2022 , as cash provided by operations was offset partially by funding the Acquisition, capital spending, and dividends paid on our common stock. 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. Consensus forecasts for 2022 single- and multi-family housing starts in theU.S are between 1.5 million and 1.6 million units, or essentially flat compared to 2021. In addition, the age ofU.S. housing stock and elevated levels of homeowner equity provide a favorable backdrop for repair-and-remodel spending. However, continued actions by theFederal Reserve to increase interest rates to combat high levels of inflation have significantly increased mortgage rates and created a great deal of uncertainty broadly across theU.S. economy. As such, due to home affordability constraints and a weakening economy, the pace of new residential construction has slowed and we expect demand to continue to decline for the remainder of 2022 and into 2023. Consensus forecasts for 2023 single- and multi-family housing starts in theU.S. are estimated to be 15% to 20% below 2022 levels. 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. 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 expect future price erosion on our EWP and general line products as economic activity slows and demand weakens for new residential construction.
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, 25 -------------------------------------------------------------------------------- Table of Contents 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;
•declines in demand for our products due to competing technologies or materials, as well as changes in building code provisions;
•the duration and magnitude of impacts of the ongoing COVID-19 pandemic and related variants, including the impact of any government mandates relating to vaccines and testing;
•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;
•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 successfully and efficiently complete and integrate acquisitions;
•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;
•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;
•the enactment of tax reform legislation;
•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 2021 Form 10-K.
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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 endedSeptember 30, 2022 and 2021: Three Months Ended Nine Months Ended September 30 September 30 2022 2021 2022 2021 (millions) Sales$ 2,154.6 $ 1,879.5 $ 6,759.0 $ 6,143.9 Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 1,656.0 1,594.4 5,183.8 4,909.4 Depreciation and amortization 28.4 20.3 69.6 60.3 Selling and distribution expenses 142.2 114.5 423.1 366.1 General and administrative expenses 27.6 21.0 81.4 64.3 Other (income) expense, net 1.1 (0.1) (1.0) (0.5) 1,855.3 1,750.1 5,756.9 5,399.5 Income from operations$ 299.4 $ 129.4 $ 1,002.1 $ 744.4 (percentage of sales) Sales 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 76.9 % 84.8 % 76.7 % 79.9 % Depreciation and amortization 1.3 1.1 1.0 1.0 Selling and distribution expenses 6.6 6.1 6.3 6.0 General and administrative expenses 1.3 1.1 1.2 1.0 Other (income) expense, net 0.1 - - - 86.1 % 93.1 % 85.2 % 87.9 % Income from operations 13.9 % 6.9 % 14.8 % 12.1 % 27
-------------------------------------------------------------------------------- Table of Contents Sales Volumes and Prices Set forth below are historicalU.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 endedSeptember 30, 2022 and 2021. Three Months Ended Nine Months Ended September 30 September 30 2022 2021 2022 2021 (thousands)U.S. Housing Starts (a) Single-family 242.2 296.1 812.3 860.9 Multi-family 146.0 123.0 415.4 351.5 388.2 419.1 1,227.7 1,212.4 (thousands) Segment Sales Wood Products$ 595,320
1,956,802 1,721,244 6,199,835 5,528,765 Intersegment eliminations (397,475) (339,109) (1,131,128) (909,057) Total sales$ 2,154,647 $ 1,879,451 $ 6,759,001 $ 6,143,928 Wood Products (millions) Sales Volumes Laminated veneer lumber (LVL) (cubic feet) 5.2 4.6 14.4 13.7 I-joists (equivalent lineal feet) 64 76 199 224 Plywood (sq. ft.) (3/8" basis) 329 314 926 955 Wood Products (dollars per unit) Average Net Selling Prices Laminated veneer lumber (LVL) (cubic foot)$ 33.82
2,429 1,575 2,121 1,421 Plywood (1,000 sq. ft.) (3/8" basis) 477 561 577 672 (percentage of Building Materials Distribution sales)Building Materials Distribution Product Line Sales Commodity 39.6 % 44.8 % 45.7 % 54.0 % General line 35.3 % 33.7 % 32.4 % 29.3 % Engineered wood 25.1 % 21.5 % 21.9 % 16.7 % Gross margin percentage (b) 15.4 % 7.9 % 15.8 % 13.1 %
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(a) Actual
(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 endedSeptember 30, 2022 , total sales increased$275.1 million , or 15%, to$2,154.6 million from$1,879.5 million during the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , total sales increased$615.1 million , or 10%, to$6,759.0 million from$6,143.9 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 2022, totalU.S. housing starts decreased 7%, driven by a decrease in single-family housing starts of 18% compared with the same period in 2021. On a year-to-date basis throughSeptember 2022 , total housing starts increased 1%, driven by an increase in multi-family housing starts compared to the same period in 2021. However, single-family housing starts decreased 6% when compared with the same period in 2021. Average composite lumber prices were 25% higher, while average composite panel prices were 15% lower for the three months endedSeptember 30, 2022 compared to the same period in the prior year, as reflected by Random Lengths composite lumber and panel pricing. For the nine months endedSeptember 30, 2022 , average composite panel and average composite lumber prices were 17% and 2% lower, respectively, compared with the same period in the prior year. Wood Products. Sales, including sales to our BMD segment, increased$98.0 million , or 20%, to$595.3 million for the three months endedSeptember 30, 2022 , from$497.3 million for the three months endedSeptember 30, 2021 . The increase in sales was driven by higher sales prices for I-joists and LVL (collectively referred to as EWP) of 54% and 52%, respectively, resulting in increased sales of$55.0 million and$59.8 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. In addition, higher sales volumes for LVL and plywood of 12% and 5%, respectively, resulted in increased sales of$12.1 million and$8.3 million , respectively. Plywood sales volumes increased due to the Acquisition. These increases were offset partially by lower plywood sales prices of 15%, resulting in decreased sales of$27.6 million . In addition, I-joist sales volumes decreased 15%, resulting in decreased sales of$18.6 million , due to a decline in housing starts and continued strong demand for LVL. For the nine months endedSeptember 30, 2022 , sales, including sales to our BMD segment, increased$166.1 million , or 11%, to$1,690.3 million from$1,524.2 million for the same period in the prior year. The increase in sales was driven by higher sales prices for I-joists and LVL of 49% and 46%, respectively, resulting in increased sales of$139.4 million and$135.4 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 LVL of 5% resulted in increased sales of$14.3 million . In addition, price increases for laminated beam and OSB rimboard combined increased sales by$24.7 million . These increases were offset partially by lower sales prices and sales volumes for plywood of 14% and 3%, respectively, resulting in decreased sales of$87.4 million and$19.2 million , respectively. In addition, lower sales volumes for I-joists of 11% resulted in decreased sales of$34.5 million . Building Materials Distribution. Sales increased$235.6 million , or 14%, to$1,956.8 million for the three months endedSeptember 30, 2022 , from$1,721.2 million for the three months endedSeptember 30, 2021 . Compared with the same quarter in the prior year, the overall increase in sales was driven by a sales price increase of 15%, offset partially by a sales volume decrease of 1%. By product line, commodity sales increased 1%, or$4.2 million ; general line product sales increased 19%, or$110.2 million ; and sales of EWP (substantially all of which are sourced through our Wood Products segment) increased 33%, or$121.2 million . During the nine months endedSeptember 30, 2022 , sales increased$671.0 million , or 12%, to$6,199.8 million from$5,528.8 million for the same period in the prior year. Compared with the same period in the prior year, the overall increase in sales was driven by a sales price increase of 13%, offset partially by a sales volume decrease of 1%. By product line, commodity sales decreased 5%, or$152.1 million ; general line product sales increased 24%, or$386.4 million ; and sales of EWP increased 47%, or$436.7 million .
Costs and Expenses
Materials, labor, and other operating expenses (excluding depreciation) increased$61.6 million , or 4%, to$1,656.0 million for the three months endedSeptember 30, 2022 , compared with$1,594.4 million during the same period in 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 4%, compared with third quarter 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 315 basis points. The decrease in MLO rate was primarily the result of higher EWP sales prices, resulting in improved leveraging of wood fiber costs and 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 higher product prices for the majority of the 29 -------------------------------------------------------------------------------- Table of Contents period, compared with third quarter 2021. The BMD segment MLO rate improved by 755 basis points compared with third quarter 2021, driven primarily by higher commodity prices in the current year compared to sharp declines in third quarter 2021. 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 endedSeptember 30, 2022 , materials, labor, and other operating expenses (excluding depreciation) increased$274.4 million or 6%, to$5,183.8 million , compared with$4,909.4 million in the same period in 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 the first nine months of 2021, as well as increased labor and other manufacturing costs. However, the MLO rate in our Wood Products segment decreased by 165 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 the first nine months of 2021. However, the BMD segment MLO rate improved 270 basis points due to improved margins on all product lines compared with the first nine months of 2021. Depreciation and amortization expenses increased$8.1 million , or 40%, to$28.4 million for the three months endedSeptember 30, 2022 , compared with$20.3 million during the same period in the prior year. For the nine months endedSeptember 30, 2022 , these expenses increased$9.3 million , or 15%, to$69.6 million , compared with$60.3 million in the same period in the prior year. The increases in both periods were due primarily to the Acquisition and other capital expenditures. Selling and distribution expenses increased$27.7 million , or 24%, to$142.2 million for the three months endedSeptember 30, 2022 , compared with$114.5 million during the same period in the prior year, due primarily to higher employee-related expenses of$13.9 million , most of which relates to sales and incentive compensation, as well as higher shipping and handling costs of$8.3 million . In addition, discretionary expenses related to travel and entertainment and professional fees increased$1.8 million . For the nine months endedSeptember 30, 2022 , selling and distribution expenses increased$57.0 million , or 16%, to$423.1 million , compared with$366.1 million during the same period in 2021, due primarily to higher employee-related expenses, including base pay increases, special bonuses, and sales and incentive compensation of$26.6 million , as well as higher shipping and handling costs of$19.2 million . In addition, travel and entertainment expenses and occupancy expenses increased$4.1 million and$3.9 million , respectively. General and administrative expenses increased$6.6 million , or 31%, to$27.6 million for the three months endedSeptember 30, 2022 , compared with$21.0 million for the same period in the prior year, due to higher employee-related expenses of$4.0 million , including base pay increases and incentive compensation. In addition, we purchased acquisition-related insurance for$1.8 million . Discretionary expenses related to professional fees and travel and entertainment also increased during the three months endedSeptember 30, 2022 compared with the same period in the prior year. For the nine months endedSeptember 30, 2022 , general and administrative expenses increased$17.1 million , or 27%, to$81.4 million , compared with$64.3 million during the same period in 2021. The increase was primarily the result of higher employee-related expenses, including base pay increases, special bonuses, and incentive compensation of$11.2 million , as well as a$3.0 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.
Income From Operations
Income from operations increased
Wood Products. Segment income increased$33.9 million to$156.0 million for the three months endedSeptember 30, 2022 , compared with$122.1 million for the three months endedSeptember 30, 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, as well as higher manufacturing costs. In addition, depreciation and amortization expense increased$7.0 million related to the Acquisition, and we purchased acquisition-related insurance for$1.8 million . 30
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For the nine months endedSeptember 30, 2022 , segment income increased$67.3 million to$500.2 million from$432.9 million for the nine months endedSeptember 30, 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 plywood and EWP sales volumes, and higher wood fiber costs and other manufacturing costs. In addition, depreciation and amortization expense increased$7.0 million related to the Acquisition, we purchased$1.8 million of acquisition-related insurance, and incurred$1.3 million of acquisition-related expenses. Building Materials Distribution. Segment income increased$137.8 million to$154.4 million for the three months endedSeptember 30, 2022 , from$16.6 million for the three months endedSeptember 30, 2021 . The increase in segment income was driven primarily by a gross margin increase of$166.1 million , resulting primarily from margin improvements on commodity products. In addition, selling and distribution expenses increased$25.7 million . For the nine months endedSeptember 30, 2022 , segment income increased$191.5 million to$534.6 million from$343.1 million for the nine months endedSeptember 30, 2021 . The increase in segment income was driven by a gross margin increase of$255.2 million , resulting from improved gross margins across all product lines. The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of$53.2 million and$6.6 million , respectively. Corporate. Unallocated corporate expenses increased$1.8 million to$11.0 million for the three months endedSeptember 30, 2022 , from$9.2 million for the same period in the prior year. The increase was primarily due to higher employee-related expenses. For the nine months endedSeptember 30, 2022 , unallocated corporate expenses increased$1.2 million to$32.8 million from$31.6 million for the nine months endedSeptember 30, 2021 . The increase was primarily due to higher employee-related expenses offset partially by lower self-insurance losses during the first nine months of 2022.
Other
Change in fair value of interest rate swaps. For information related to our interest rate swaps, see the discussion under "Interest Rate Risk and Interest Rate Swaps" 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 endedSeptember 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 the three and nine months endedSeptember 30, 2021 , we recorded$31.2 million and$183.6 million , respectively, of income tax expense and had an effective rate of 25.4% and 25.3%, 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.
Industry Mergers and Acquisitions
OnJune 21, 2022 , Pacific Woodtech, a manufacturer of engineered wood products, announced an agreement to acquire Louisiana-Pacific Corporation's EWP division. The acquisition closed in earlyAugust 2022 . Pacific Woodtech is a competitor to our Wood Products segment. This transaction has not, and we do not expect it to have, a material impact on our future results of operations. OnJuly 11, 2022 ,US LBM , a distributor of specialty building materials, announced an agreement to acquireFoxworth-Galbraith Lumber , a building products supplier and manufacturer in theSouthwest U.S. The acquisition closed in earlyAugust 2022 .US LBM and Foxworth-Galbraith are both customers of ours. This transaction has not, and we do not expect it to have, a material impact on our future results of operations.
Liquidity and Capital Resources
We ended third quarter 2022 with$867.1 million of cash and cash equivalents and$444.2 million of debt. AtSeptember 30, 2022 , we had$1,263.2 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability). We generated$118.2 million of cash during the nine months endedSeptember 30, 2022 , as cash provided by 31 -------------------------------------------------------------------------------- Table of Contents operations was offset partially by funding the Acquisition, capital spending, and dividends paid on our common stock. 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 2022 from cash on hand and, if necessary, borrowings under our revolving credit facility.
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 EndedSeptember 30 2022 2021 (thousands)
Net cash provided by operations
Operating Activities For the nine months endedSeptember 30, 2022 , our operating activities generated$814.1 million of cash, compared with$527.1 million of cash generated in the same period in 2021. The$287.0 million increase in cash provided by operations was due primarily to an improvement in income from operations. 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. In addition, cash paid for taxes, net of refunds received, decreased$14.5 million compared to the prior year. 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 increases in receivables in both periods primarily reflect increased sales of approximately 13% and 17%, comparing sales for the months ofSeptember 2022 and 2021 with sales for the months ofDecember 2021 and 2020, respectively. Inventories increased during the nine months endedSeptember 30, 2022 primarily due to increased cost of inventory purchased for resale for EWP and general line products, the acquisition of two plywood facilities during the third quarter, and higher production costs for our manufactured products. During the nine months endedSeptember 30, 2021 inventories increased primarily due to increased cost of inventory purchased for resale. The increase in accounts payable and accrued liabilities as ofSeptember 30, 2022 was primarily related to the increase in inventories. During the nine months endedSeptember 30, 2021 , seasonally higher purchase activity and extended terms offered by major vendors to our BMD segment led to an increase in accounts payable and an increase in accrued rebates contributed to the increase in accrued liabilities.
Investment Activities
During the nine months endedSeptember 30, 2022 , we used$516.9 million for the Acquisition. These facilities will provide incremental stress-rated veneer needed to optimize and expand our southeasternU.S. EWP production capacity and improve our mix of specialty plywood products. During the nine months endedSeptember 30, 2022 and 2021, we used$61.8 million and$51.5 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 endedSeptember 30, 2022 , we received$2.5 million of earn-out income related to a previous asset sale in our Wood Products segment. Excluding acquisitions, we expect capital expenditures in 2022 to total approximately$100 million to$120 million . We expect our capital spending in 2022 will be for business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance. Our 2022 capital expenditures range includes funding for our 32 -------------------------------------------------------------------------------- Table of Contents BMD organic expansions inOhio ,Kentucky , andMinnesota , replacement of a dryer at ourChester, South Carolina , veneer and plywood plant, and post-acquisition veneer equipment related spending at ourChapman, Alabama facility. We expect our capital spending, excluding acquisitions, to be approximately$120 million to$140 million in 2023. 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 endedSeptember 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 endedSeptember 30, 2022 , we did not borrow under our revolving credit facility, and therefore have no borrowing outstanding on the facility as ofSeptember 30, 2022 . During the nine months endedSeptember 30, 2021 , our financing activities used$94.8 million of cash, including$91.0 million for common stock dividend payments and$2.7 million of tax withholding payments on stock-based awards. During the nine months endedSeptember 30, 2021 , we also borrowed$28.0 million under our revolving credit facility, which was subsequently repaid during the same period with cash on hand. 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. OnSeptember 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 . OnJuly 28, 2022 , our board of directors authorized the repurchase of an additional 1.5 million shares of our common stock. This increase is in addition to the remaining authorized shares under our prior common stock repurchase program (the Program). The total combined authorization is approximately 2.0 million shares. Share repurchases may be made on an opportunistic basis through open market transactions, privately negotiated transactions, or by other means in accordance with applicable federal securities laws. We are not obligated to purchase any shares, and there is no set date that the program will expire. 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 nine months endedSeptember 30, 2022 , we did not purchase any shares under the Program. 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 2021 Form 10-K. As ofSeptember 30, 2022 , there have been no material changes in other material cash requirements outside the ordinary course of business sinceDecember 31, 2021 .
Guarantees
Note 9, Debt, and Note 17, Commitments, Legal Proceedings and Contingencies, and Guarantees, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2021 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 ofSeptember 30, 2022 , there have been no material changes to the guarantees disclosed in our 2021 Form 10-K. 33 -------------------------------------------------------------------------------- Table of Contents 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.
Employees
As ofOctober 16, 2022 , we had approximately 6,820 employees. Approximately 21% of these employees work pursuant to collective bargaining agreements. As ofOctober 16, 2022 , we had ten collective bargaining agreements. One agreement covering approximately 100 employees at our Canadian EWP facility is set to expire onDecember 31, 2022 . 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
Environmental
As of
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 2021 Form 10-K. AtSeptember 30, 2022 , there have been no material changes to our critical accounting estimates from those disclosed in our 2021 Form 10-K, except as noted below. 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. 34
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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.
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.
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