Boise Cascade(US:BCC)2022-02-21 16:00Part I Business Boise Cascade is a leading North American producer of engineered wood products and building materials, operating through two integrated segments - Boise Cascade is one of the largest producers of engineered wood products (EWP) and plywood in North America and a leading U.S. wholesale distributor of building products18 - The company operates through two reportable segments: Wood Products and Building Materials Distribution (BMD), which are highly vertically integrated21 - Key business strategies focus on increasing earnings and stability by growing EWP sales, expanding distribution capabilities through acquisitions and organic growth, leveraging the integrated model, driving operational excellence, and accelerating innovation, digital technology, and diversity & inclusion efforts23383940 Wood Products Segment The Wood Products segment manufactures engineered wood products, plywood, and lumber, with 2021 sales of $1,970.8 million and segment income of $531.2 million Wood Products Segment Financials (in millions) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Segment sales | $1,970.8 | $1,323.9 | $1,275.2 | | Segment income (loss) | $531.2 | $127.7 | $54.2 | | Segment EBITDA | $586.5 | $198.9 | $111.9 | Wood Products Sales Volumes (in millions) | Product | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | LVL (cubic feet) | 18.2 cubic feet | 17.3 | 17.9 | | I-joists (lineal feet) | 290 lineal feet | 241 | 227 | | Plywood (sq. ft. 3/8" basis) | 1,259 sq. ft. 3/8" basis | 1,253 | 1,337 | - In 2021, EWP and plywood accounted for 51% and 40% of Wood Products sales, respectively. The BMD segment is the largest customer, representing 62% of the segment's sales58 - Wood fiber is the primary raw material, accounting for approximately 45% of operating expenses (excluding depreciation) in 2021. Logs make up 66% of wood fiber costs5253 Building Materials Distribution (BMD) Segment The BMD segment operates a nationwide network of 38 distribution facilities, achieving $7,174.3 million in sales and $481.1 million in segment income in 2021 BMD Segment Financials (in millions) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Segment sales | $7,174.3 | $4,952.0 | $4,137.7 | | Segment income | $481.1 | $247.5 | $116.2 | | Segment EBITDA | $505.1 | $270.0 | $137.0 | BMD Product Line Sales Mix (% of Sales) | Product Line | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Commodity | 51.6% | 46.6% | 41.7% | | General line | 30.2% | 35.6% | 38.2% | | Engineered wood products | 18.2% | 17.8% | 20.1% | - The segment operates a nationwide network of 38 building materials distribution facilities and one component manufacturing plant62 - The segment markets products to dealers, home improvement centers, and specialty distributors through a decentralized sales force, utilizing both warehouse and direct sales channels636566 Customers and Competition The company's largest customers are Builders FirstSource and Home Depot, competing in fragmented markets based on price, quality, and service - Builders FirstSource and Home Depot are the company's largest customers68 - Wood Products competes with major North American producers such as Weyerhaeuser, Louisiana-Pacific, and Georgia-Pacific, primarily on price, quality, and availability69 - BMD competes in a highly fragmented market against national and local distributors like BlueLinx Holdings and Weyerhaeuser, based on pricing, product availability, service, and geographic coverage70 Human Capital Management Boise Cascade employed 6,110 associates in 2021, prioritizing safety and offering a comprehensive Total Rewards program for talent retention - The company employed 6,110 associates and prioritizes health and safety as a core value, implementing programs for hazard identification and COVID-19 mitigation73 - A comprehensive Total Rewards program is in place, offering competitive pay, health benefits, 401(k) plans, and career development to support talent retention and development7475 Risk Factors The company faces significant risks related to its business, regulations, and stock ownership, including commodity price volatility and operational disruptions - A portion of products are commodities (OSB, plywood, lumber) with volatile pricing dependent on supply and demand, which is closely tied to cyclical U.S. new residential construction969798 - Operational risks include potential disruptions from the COVID-19 pandemic, cyber security breaches, equipment failure at manufacturing facilities, labor shortages (with 23% of employees under collective bargaining agreements), and dependence on third-party transportation107109111114119 - Financial risks include significant customer concentration (top ten customers were 42% of 2021 sales), credit risk, potential impairment of long-lived assets and goodwill, and restrictive covenants in debt agreements that limit dividends and investments129130131139 - Regulatory risks include compliance costs for environmental laws, potential impacts from climate change legislation, and evolving data privacy laws141142145 Unresolved Staff Comments The company reports no unresolved comments from the SEC staff - The company reports no unresolved comments from the SEC staff159 Properties Boise Cascade owns all Wood Products manufacturing facilities and operates 38 BMD warehouse facilities, with a portion owned and the rest leased - The Wood Products segment owns all its manufacturing facilities, including 8 plywood/veneer plants, 5 LVL/I-joist/laminated beam plants, and 2 sawmills across the U.S. and Canada161162 - The BMD segment operates 38 warehouse facilities with a total of 5.5 million square feet, of which 2.4 million is owned and the rest is leased163 Legal Proceedings The company is involved in ordinary course legal proceedings but does not believe any will have a material adverse effect on its financials - The company is involved in ordinary course legal proceedings but does not believe any will have a material adverse effect on its financials164 Mine Safety Disclosures This item is not applicable to the company - Not applicable165 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 a common stock repurchase program having 496,989 shares remaining available as of December 31, 2021 - Common stock is traded on the New York Stock Exchange (NYSE) under the symbol BCC167 - A stock repurchase program allows for the purchase of up to two million shares; as of December 31, 2021, 496,989 shares may still be purchased under the program171 Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, income from operations surged to $971.8 million on $7.9 billion sales, driven by strong demand and favorable pricing, with $667.0 million cash from operations Results of Operations Total sales increased 45% to $7.9 billion in 2021, with income from operations rising to $971.8 million, driven by higher prices and volumes in both segments Consolidated Operations (in millions) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Sales | $7,926.1 | $5,474.8 | $4,643.4 | | Income from operations | $971.8 | $335.0 | $136.5 | | Net income | $712.5 | $175.0 | $80.9 | - 2021 vs. 2020: Total sales increased by $2,451.3 million (45%), driven by higher sales prices and a 16% increase in U.S. housing starts. Wood Products sales rose 49% due to higher prices for plywood (+75%) and EWP (+19-22%). BMD sales grew 45% from price (+42%) and volume (+3%) increases199200201 - 2020 vs. 2019: Total sales increased by $831.4 million (18% to $5.5 billion), driven by higher commodity prices and a 7% increase in U.S. housing starts. Wood Products sales rose 4% due to higher plywood prices (+30%) offsetting volume declines. BMD sales grew 20% from price (+13%) and volume (+7%) increases211212213214 Liquidity and Capital Resources The company ended 2021 with $748.9 million in cash and $1,094.9 million in total available liquidity, with 2022 capital expenditures projected at $110-$130 million - Ended 2021 with $748.9 million in cash and cash equivalents and total available liquidity of $1,094.9 million (including undrawn credit lines)228 Cash Flow Summary (in thousands) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operations | $666,984 | $294,516 | $245,647 | | Net cash used for investment | ($105,586) | ($78,716) | ($94,065) | | Net cash used for financing | ($217,873) | ($95,655) | ($58,016) | - Capital expenditures for 2022 are expected to be between $110 million and $130 million, focusing on business improvement, replacement, and expansion projects241 - In 2021, the company paid $213.7 million in dividends, including a regular quarterly dividend and supplemental dividends244 Critical Accounting Estimates Critical accounting estimates include EWP rebates and allowances, with a $117.5 million payable at year-end 2021, and long-lived asset impairment assessment - EWP Rebates and Allowances: Estimating rebates is inherently difficult due to the time lag of information as products move through the supply chain. The EWP rebates payable was $117.5 million at December 31, 2021282 - Long-Lived Asset Impairment: The company reviews assets for impairment when a triggering event occurs. This requires significant assumptions about future sales, pricing, and costs. No triggering events were identified in 2021283285 Financial Statements and Supplementary Data This section presents consolidated financial statements for 2019-2021, showing significant growth in 2021 with net income reaching $712.5 million Consolidated Financial Statements The consolidated financial statements show 2021 sales of $7.9 billion, net income of $712.5 million, and total assets of $2.57 billion Consolidated Statement of Operations Highlights (in thousands, except per-share data) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Sales | $7,926,111 | $5,474,838 | $4,643,404 | | Income from operations | $971,803 | $335,029 | $136,459 | | Net income | $712,486 | $174,979 | $80,925 | | Diluted EPS | $17.97 | $4.44 | $2.06 | Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $1,885,878 | $1,308,855 | | Total Assets | $2,572,640 | $1,965,718 | | Total Current Liabilities | $640,746 | $524,002 | | Long-term Debt | $444,628 | $443,792 | | Total Stockholders' Equity | $1,352,619 | $850,799 | Notes to Consolidated Financial Statements Notes detail accounting policies, segment information, debt, and retirement plans, including a $138.1 million rebate payable and $444.6 million long-term debt in 2021 - Revenue Recognition (Note 3): Revenue is recognized when control of goods transfers to the customer. Customer rebates, a significant estimate, are recorded as a reduction to sales. The rebate payable was $138.1 million at year-end 2021339342343 - Debt (Note 9): As of Dec 31, 2021, long-term debt totaled $444.6 million, consisting mainly of a $50 million ABL Term Loan due 2025 and $400 million in 4.875% Senior Notes due 2030. The company had $346.0 million of availability under its revolving credit facility363366 - Retirement Plans (Note 11): The company terminated its qualified defined benefit pension plan in December 2020, resulting in a non-cash settlement charge of $6.2 million. It continues to sponsor defined contribution (401k) and nonqualified deferred compensation plans383384 - Segment Information (Note 16): In 2021, Wood Products had segment operating income of $531.2 million on sales of $1.97 billion. BMD had segment operating income of $481.1 million on sales of $7.17 billion440 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with an unqualified auditor opinion - The CEO and CFO concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective at a reasonable assurance level466 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021. This assessment was audited by KPMG LLP, which also issued an unqualified opinion469 Part III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Required information regarding directors and corporate governance is incorporated by reference from the company's Proxy Statement for the 2022 annual meeting of stockholders474 Executive Compensation Information on executive and board compensation is incorporated by reference from the 2022 Proxy Statement - Required information regarding executive compensation is incorporated by reference from the company's Proxy Statement for the 2022 annual meeting of stockholders475 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 2022 Proxy Statement - Required information regarding security ownership is incorporated by reference from the company's Proxy Statement for the 2022 annual meeting of stockholders476 Certain Relationships and Related Transactions, and Director Independence Information on related-person transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Required information regarding related transactions and director independence is incorporated by reference from the company's Proxy Statement for the 2022 annual meeting of stockholders477 Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 'Audit Committee Report' section of the 2022 Proxy Statement - Required information regarding accountant fees and services is incorporated by reference from the company's Proxy Statement for the 2022 annual meeting of stockholders478 Part IV Exhibits and Financial Statement Schedules This section lists all financial statements and exhibits filed as part of the Form 10-K, including consolidated financial statements and various agreements - This section contains the list of all financial statements and exhibits filed as part of the Form 10-K479480