Boise Cascade(BCC) - 2020 Q4 - Annual Report

PART I Business Boise Cascade manufactures engineered wood products and plywood, and distributes building materials, operating a vertically integrated model - Boise Cascade operates through two vertically integrated segments: Wood Products (manufacturing) and Building Materials Distribution (BMD), with BMD being the largest customer of the Wood Products segment, purchasing 61% of its sales in 2020[21][26][67] - Key business strategies include increasing earnings and stability by growing EWP sales and expanding BMD's product lines and geographic reach[30] - The company leverages its integrated model to capture margin at both manufacturing and distribution levels, with 80% of EWP sales volume going through BMD in 2020[46] - Operational excellence is driven through process improvement and logistics optimization to enhance efficiency[47] - Innovation and technology are accelerated through new product development, particularly in mass timber, and implementation of a central data repository[47] - The company serves a diverse customer base including retail lumberyards, home improvement centers, wholesalers, and industrial converters, with Home Depot and Builders FirstSource as the largest customers[26][77] - As of February 12, 2021, the company had approximately 6,040 associates, with 23% covered by collective bargaining agreements[83][127] Wood Products Segment The Wood Products segment manufactures engineered wood products and plywood, with 2020 sales of $1,323.9 million driven by higher plywood prices Wood Products Segment Financials (in millions) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Segment Sales | $1,323.9 | $1,275.2 | $1,533.3 | | Segment Income (Loss) | $127.7 | $54.2 | $(10.0) | | Segment EBITDA | $198.9 | $111.9 | $117.0 | Wood Products Sales & Production Volumes (millions) | Product (unit) | 2020 Sales Volume | 2020 Production Volume | | :--- | :--- | :--- | | LVL (cubic feet) | 17.3 | 26.0 | | I-joists (lineal feet) | 241 | 237 | | Plywood (sq. ft. 3/8") | 1,253 | 1,637 | - Wood fiber is the primary raw material, accounting for approximately 42% of operating expenses in 2020, with logs making up 73% of wood fiber costs[61][62] - The Building Materials Distribution (BMD) segment is the largest customer, representing 61% of Wood Products' sales in 2020, with 80% of EWP and 24% of plywood sales volumes to BMD[67] Building Materials Distribution (BMD) Segment The BMD segment operates 38 distribution facilities, with 2020 sales reaching $4,952.0 million and income doubling due to higher prices and volumes BMD Segment Financials (in millions) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Segment Sales | $4,952.0 | $4,137.7 | $4,287.7 | | Segment Income | $247.5 | $116.2 | $112.5 | | Segment EBITDA | $270.0 | $137.0 | $130.8 | BMD Sales Mix by Product (2020) | Product Line | % of Sales | | :--- | :--- | | Commodity | 46.6% | | General Line | 35.6% | | Engineered Wood Products | 17.8% | - The segment operates a nationwide network of 38 distribution facilities and has grown through acquisitions in Tennessee, Oregon, Ohio, and Alabama in 2018-2019[71] - BMD markets products to retail lumberyards, home improvement centers, and specialty distributors, utilizing both warehouse sales and direct-from-manufacturer sales channels[72][74] Risk Factors The company faces significant risks from the COVID-19 pandemic, cyclical product demand, intense competition, and supply chain vulnerabilities - Pandemic & Economic Risks: The full impact of the COVID-19 pandemic remains unknown and could adversely affect operations, demand, and financial results; demand is closely tied to cyclical U.S. new residential construction, influenced by interest rates, unemployment, and consumer confidence[107][108][111] - Operational & Supply Chain Risks: The business is exposed to risks from volatile commodity pricing, intense competition, potential cybersecurity breaches, and material disruptions at manufacturing facilities, with 42% of 2020 sales concentrated among the top ten customers[109][114][120][123] - Financial & Strategic Risks: The company faces risks of non-cash impairment charges on long-lived assets and goodwill, difficulty obtaining wood fiber at favorable prices, environmental compliance costs, challenges in integrating acquisitions, and restrictive debt covenants[131][134][137][150] Properties The company owns all Wood Products manufacturing facilities and operates 38 owned and leased BMD warehouse facilities totaling 5.0 million square feet Wood Products Facilities (as of Feb 12, 2021) | Facility Type | Number of Facilities | | :--- | :--- | | Plywood and veneer plants | 8 | | LVL/I-joist/laminated beam plants | 5 | | Sawmills | 2 | - The Building Materials Distribution business operates 38 warehouse facilities across the U.S. with approximately 5.0 million square feet of space, of which 2.2 million square feet is owned[166] Legal Proceedings The company is party to various ordinary course legal proceedings, none of which are expected to have a material adverse financial effect - The company is involved in ordinary course legal proceedings but does not expect them to have a material adverse effect on its financials[167] PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Boise Cascade's common stock trades on the NYSE under BCC, with 39.2 million shares outstanding and an active stock repurchase program - Common stock is traded on the NYSE under the symbol BCC[170] - A stock repurchase program allows for the purchase of up to 2 million shares, with 496,989 shares still available for purchase as of year-end 2020[175] Selected Financial Data The company's 2020 financial performance improved significantly, with sales increasing to $5,475 million and net income more than doubling to $175 million Selected Consolidated Financial Data (in millions, except per-share data) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Sales | $5,475 | $4,643 | $4,995 | | Net Income | $175 | $81 | $20 | | Net Income per Share – Diluted | $4.44 | $2.06 | $0.52 | | Adjusted EBITDA | $423 | $215 | $193 | | Cash and Cash Equivalents | $405 | $285 | $192 | | Total Long-Term Debt | $444 | $441 | $439 | Reconciliation of Net Income to Adjusted EBITDA (in millions) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Income | $175 | $81 | $20 | | Interest Expense | 26 | 26 | 26 | | Interest Income | (1) | (3) | (2) | | Income Tax Provision | 111 | 27 | 2 | | Depreciation and Amortization | 95 | 80 | 147 | | EBITDA | $407 | $212 | $193 | | Change in fair value of interest rate swaps | 2 | 3 | (1) | | Loss on extinguishment of debt | 14 | — | — | | Adjusted EBITDA | $423 | $215 | $193 | - Net income in 2020 was negatively impacted by a $14.0 million loss on debt extinguishment, $16.7 million in costs related to the Roxboro facility curtailment, a $6.2 million pension settlement charge, and a $38.8 million incremental income tax expense from the pension plan elimination[177][178][179] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, income from operations surged to $335.0 million due to robust construction activity and higher commodity prices, with strong liquidity maintained Our Operating Results Total sales increased 18% to $5,474.8 million in 2020, driven by higher prices and volumes, leading to improved gross margins in both segments Year-over-Year Sales Comparison (2020 vs 2019) | Segment | 2020 Sales (B) | 2019 Sales (B) | % Change | | :--- | :--- | :--- | :--- | | Wood Products | $1.32 | $1.28 | +4% | | Building Materials Distribution | $4.95 | $4.14 | +20% | | Total Company | $5.47 | $4.64 | +18% | Wood Products - Average Net Selling Price Changes (2020 vs 2019) | Product | Price Change | | :--- | :--- | | Plywood | +30% | | LVL | -2% | | I-joists | -2% | - BMD's 20% sales growth was driven by a 13% increase in sales prices and a 7% increase in sales volume compared to 2019[220] - Income from operations rose to $335.0 million in 2020 from $136.5 million in 2019, with Wood Products income increasing by $73.5 million and BMD income by $131.3 million[192][225][226] Liquidity and Capital Resources The company ended 2020 with strong liquidity, including $405.4 million in cash, primarily from operations, and refinanced debt by issuing $400 million in new notes Summary of Cash Flows (in millions) | Activity | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by operations | $294.5 | $245.6 | $163.6 | | Net cash used for investment | $(78.7) | $(94.1) | $(89.3) | | Net cash used for financing | $(95.7) | $(58.0) | $(59.8) | - In July 2020, the company refinanced its debt by issuing $400 million of 4.875% senior notes due 2030 and used proceeds to retire $350 million of 5.625% notes due 2024 and a $45 million term loan, resulting in a $14.0 million pre-tax loss on debt extinguishment[231][267] - Capital expenditures were $79.4 million in 2020, with projected capital expenditures of $80 million to $90 million for 2021[263][264] - The company paid $79.2 million in dividends in 2020, including a regular quarterly dividend of $0.10 per share and a supplemental dividend of $1.60 per share[267][481] Critical Accounting Estimates Management identifies critical accounting estimates for EWP rebates and long-lived asset impairment, both requiring significant judgment and assumptions - EWP Rebates and Allowances: Estimating rebates for EWP is difficult due to program complexity and data time lags; the accrued liability for EWP rebates was $40.7 million at December 31, 2020[311] - Long-Lived Asset Impairment: The company reviews assets for impairment upon a triggering event, requiring significant assumptions about future cash flows, pricing, and costs; no triggering event was identified in 2020[312][313] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the three-year period ended December 31, 2020, including detailed notes Consolidated Statement of Operations Highlights (in millions) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Sales | $5,474.8 | $4,643.4 | $4,995.3 | | Income from Operations | $335.0 | $136.5 | $72.0 | | Net Income | $175.0 | $80.9 | $20.5 | Consolidated Balance Sheet Highlights (in millions) | Metric | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $1,308.9 | $1,022.8 | | Total Assets | $1,965.7 | $1,693.4 | | Total Current Liabilities | $524.0 | $385.0 | | Long-Term Debt | $443.8 | $440.5 | | Total Stockholders' Equity | $850.8 | $701.3 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, segment information, debt refinancing, and the termination of the pension plan - Note 6: The company permanently curtailed I-joist production at its Roxboro, NC facility, resulting in $15.0 million of accelerated depreciation and $1.7 million in other closure costs in 2020[394] - Note 10: The company issued $400 million of 4.875% senior notes due 2030 and used proceeds to retire its $350 million 5.625% notes due 2024, incurring a $14.0 million loss on debt extinguishment[418][419] - Note 12: The company terminated its qualified defined benefit pension plan in December 2020, resulting in a $6.2 million non-cash settlement charge and the release of $38.8 million in stranded tax effects into income tax expense[228][437] - Note 17: In 2020, one customer accounted for 11% of total sales; intersegment sales from Wood Products to BMD were $801.1 million[496][500] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that as of December 31, 2020, the company's disclosure controls and procedures were effective[532] - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2020, with an unqualified opinion from KPMG LLP[535] PART III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - This section incorporates information by reference from the company's Proxy Statement for its 2021 annual meeting of stockholders[540] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the 2021 Proxy Statement - This section incorporates information by reference from the company's Proxy Statement for its 2021 annual meeting of stockholders[541] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the 2021 Proxy Statement - This section incorporates information by reference from the company's Proxy Statement for its 2021 annual meeting of stockholders[542] Certain Relationships and Related Transactions, and Director Independence Information on related-person transactions and director independence is incorporated by reference from the 2021 Proxy Statement - This section incorporates information by reference from the company's Proxy Statement for its 2021 annual meeting of stockholders[543] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement - This section incorporates information by reference from the company's Proxy Statement for its 2021 annual meeting of stockholders[544] PART IV Exhibits and Financial Statement Schedules This section lists all documents filed as part of the Form 10-K, including consolidated financial statements and an index of exhibits - This section contains a list of all financial statements and exhibits filed with the Form 10-K[546][547]