10-Q 1 bcc-20220930.htm 10-Q bcc-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to                       
 
Commission File Number:  001-35805 
Boise Cascade Company
(Exact name of registrant as specified in its charter)
 
Delaware20-1496201
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
 
1111 West Jefferson Street Suite 300
BoiseIdaho 83702-5389
(Address of principal executive offices) (Zip Code)
 
(208) 384-6161
(Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareBCCNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x     No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes x     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x    Accelerated filer o    Non-accelerated filer o    Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       
Yes   No x
 
There were 39,447,709 shares of the registrant's common stock, $0.01 par value per share, outstanding on October 28, 2022.



Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ii

PART I—FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 

Boise Cascade Company
Consolidated Statements of Operations
(unaudited)
 Three Months Ended
September 30
Nine Months Ended
September 30
 2022202120222021
 (thousands, except per-share data)
Sales$2,154,647 $1,879,451 $6,759,001 $6,143,928 
Costs and expenses    
Materials, labor, and other operating expenses (excluding depreciation)1,655,979 1,594,405 5,183,823 4,909,362 
Depreciation and amortization28,374 20,299 69,611 60,258 
Selling and distribution expenses142,176 114,466 423,106 366,119 
General and administrative expenses27,622 21,002 81,375 64,252 
Other (income) expense, net1,126 (107)(987)(485)
 1,855,277 1,750,065 5,756,928 5,399,506 
Income from operations299,370 129,386 1,002,073 744,422 
Foreign currency exchange loss(1,674)(353)(2,041)(52)
Pension expense (excluding service costs)(41)(19)(253)(57)
Interest expense(6,398)(6,279)(18,969)(18,501)
Interest income3,238 63 4,688 173 
Change in fair value of interest rate swaps1,134 59 3,594 1,058 
 (3,741)(6,529)(12,981)(17,379)
Income before income taxes295,629 122,857 989,092 727,043 
Income tax provision(76,042)(31,158)(248,794)(183,632)
Net income$219,587 $91,699 $740,298 $543,411 
Weighted average common shares outstanding:
Basic39,544 39,442 39,521 39,413 
Diluted39,776 39,661 39,762 39,623 
Net income per common share:
Basic$5.55 $2.32 $18.73 $13.79 
Diluted$5.52 $2.31 $18.62 $13.71 
Dividends declared per common share$0.12 $0.10 $2.86 $2.30 
 
See accompanying condensed notes to unaudited quarterly consolidated financial statements.



1



Boise Cascade Company
Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Ended
September 30
Nine Months Ended
September 30
2022202120222021
(thousands)
Net income$219,587 $91,699 $740,298 $543,411 
Other comprehensive income (loss), net of tax
  Defined benefit pension plans
Amortization of actuarial (gain) loss, net of tax of $6, $(2), $16, and $(4), respectively
15 (3)47 (10)
Effect of settlements, net of tax of $, $, $32, and $, respectively
  98  
Other comprehensive income (loss), net of tax15 (3)145 (10)
Comprehensive income$219,602 $91,696 $740,443 $543,401 

See accompanying condensed notes to unaudited quarterly consolidated financial statements.




































2




Boise Cascade Company
Consolidated Balance Sheets
(unaudited)
 September 30,
2022
December 31,
2021
 (thousands)
ASSETS  
Current  
Cash and cash equivalents$867,064 $748,907 
Receivables 
Trade, less allowances of $3,165 and $2,054
511,047 444,325 
Related parties191 211 
Other18,004 17,692 
Inventories767,187 660,671 
Prepaid expenses and other17,944 14,072 
Total current assets2,181,437 1,885,878 
Property and equipment, net744,547 495,240 
Operating lease right-of-use assets59,631 62,663 
Finance lease right-of-use assets27,151 29,057 
Timber deposits9,563 9,461 
Goodwill134,356 60,382 
Intangible assets, net169,538 15,351 
Deferred income taxes7,852 6,589 
Other assets14,459 8,019 
Total assets$3,348,534 $2,572,640 
 
See accompanying condensed notes to unaudited quarterly consolidated financial statements.



3

Boise Cascade Company
Consolidated Balance Sheets (continued)
(unaudited)
September 30,
2022
December 31,
2021
(thousands, except per-share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable
Trade$398,397 $334,985 
Related parties1,988 1,498 
Accrued liabilities 
Compensation and benefits147,548 128,518 
Income taxes payable12,365  
Interest payable5,081 9,886 
Other174,084 165,859 
Total current liabilities739,463 640,746 
Debt
Long-term debt444,175 444,628 
Other
Compensation and benefits30,562 28,365 
Operating lease liabilities, net of current portion51,992 55,263 
Finance lease liabilities, net of current portion30,547 31,898 
Deferred income taxes50,884 3,641 
Other long-term liabilities17,839 15,480 
 181,824 134,647 
Commitments and contingent liabilities  
Stockholders' equity
Preferred stock, $0.01 par value per share; 50,000 shares authorized, no shares issued and outstanding
  
Common stock, $0.01 par value per share; 300,000 shares authorized, 44,815 and 44,698 shares issued, respectively
448 447 
Treasury stock, 5,367 shares at cost
(138,909)(138,909)
Additional paid-in capital548,035 543,249 
Accumulated other comprehensive loss(902)(1,047)
Retained earnings1,574,400 948,879 
Total stockholders' equity1,983,072 1,352,619 
Total liabilities and stockholders' equity$3,348,534 $2,572,640 

See accompanying condensed notes to unaudited quarterly consolidated financial statements.


4


Boise Cascade Company
Consolidated Statements of Cash Flows
(unaudited)
 Nine Months Ended
September 30
 20222021
 (thousands)
Cash provided by (used for) operations  
Net income$740,298 $543,411 
Items in net income not using (providing) cash
Depreciation and amortization, including deferred financing costs and other71,213 61,559 
Stock-based compensation8,690 5,684 
Pension expense253 57 
Deferred income taxes45,365 (12,017)
Change in fair value of interest rate swaps(3,594)(1,058)
Other(830)928 
Decrease (increase) in working capital, net of acquisitions
Receivables(51,027)(99,881)
Inventories(83,539)(142,171)
Prepaid expenses and other(5,901)(7,007)
Accounts payable and accrued liabilities78,444 186,090 
Pension contributions(922)(229)
Income taxes payable14,970 (7,927)
Other705 (348)
Net cash provided by operations814,125 527,091 
Cash provided by (used for) investment  
Expenditures for property and equipment(61,835)(51,460)
Acquisitions of businesses and facilities(516,881) 
Proceeds from sales of assets and other3,094 636 
Net cash used for investment(575,622)(50,824)
Cash provided by (used for) financing
Borrowings of long-term debt, including revolving credit facility 28,000 
Payments of long-term debt, including revolving credit facility (28,000)
Payments of deferred financing costs(1,170) 
Dividends paid on common stock(114,025)(90,969)
Tax withholding payments on stock-based awards(3,930)(2,729)
Other(1,221)(1,065)
Net cash used for financing(120,346)(94,763)
Net increase in cash and cash equivalents118,157 381,504 
Balance at beginning of the period748,907 405,382 
Balance at end of the period$867,064 $786,886 
 
See accompanying condensed notes to unaudited quarterly consolidated financial statements.
5


Boise Cascade Company
Consolidated Statements of Stockholders' Equity
(unaudited)
 Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal
 SharesAmountSharesAmount
 (thousands)
Balance at December 31, 202144,698 $447 5,367 $(138,909)$543,249 $(1,047)$948,879 $1,352,619 
Net income302,600 302,600 
Other comprehensive income114 114 
Common stock issued117 1 1 
Stock-based compensation2,392 2,392 
Common stock dividends ($0.12 per share)
(5,133)(5,133)
Tax withholding payments on stock-based awards(3,930)(3,930)
Proceeds from exercise of stock options27 27 
Other(1)(1)
Balance at March 31, 202244,815 $448 5,367 $(138,909)$541,737 $(933)$1,246,346 $1,648,689 
Net income218,111 218,111 
Other comprehensive income16 16 
Stock-based compensation3,011 3,011 
Common stock dividends ($2.62 per share)
(104,842)(104,842)
Balance at June 30, 202244,815 $448 5,367 $(138,909)$544,748 $(917)$1,359,615 $1,764,985 
Net income219,587 219,587 
Other comprehensive income15 15 
Stock-based compensation3,287 3,287 
Common stock dividends ($0.12 per share)
(4,802)(4,802)
Balance at September 30, 202244,815 $448 5,367 $(138,909)$548,035 $(902)$1,574,400 $1,983,072 

See accompanying condensed notes to unaudited quarterly consolidated financial statements.


6


Boise Cascade Company
Consolidated Statements of Stockholders' Equity (continued)
(unaudited)
 Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal
 SharesAmountSharesAmount
 (thousands)
Balance at December 31, 202044,568 $446 5,367 $(138,909)$538,006 $(1,078)$452,334 $850,799 
Net income149,156 149,156 
Other comprehensive loss(4)(4)
Common stock issued130 1 1 
Stock-based compensation2,092 2,092 
Common stock dividends ($0.10 per share)
(4,116)(4,116)
Tax withholding payments on stock-based awards(2,729)(2,729)
Proceeds from exercise of stock options63 63 
Other(1)(1)
Balance at March 31, 202144,698 $447 5,367 $(138,909)$537,431 $(1,082)$597,374 $995,261 
Net income302,556 302,556 
Other comprehensive loss(3)(3)
Stock-based compensation1,411 1,411 
Common stock dividends ($2.10 per share)
(83,514)(83,514)
Other(1)(1)
Balance at June 30, 202144,698 $447 5,367 $(138,909)$538,841 $(1,085)$816,416 $1,215,710 
Net income91,699 91,699 
Other comprehensive loss(3)(3)
Stock-based compensation2,181 2,181 
Common stock dividends ($0.10 per share)
(3,982)(3,982)
Balance at September 30, 202144,698 $447 5,367 $(138,909)$541,022 $(1,088)$904,133 $1,305,605 

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

7


Condensed Notes to Unaudited Quarterly Consolidated Financial Statements

1.    Nature of Operations and Consolidation
 
Nature of Operations
 
    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. We are one of the largest producers of engineered wood products (EWP) and plywood in North America and a leading United States wholesale distributor of building products.

    We operate our business using two reportable segments: (1) Wood Products, which primarily manufactures EWP and plywood, and (2) Building Materials Distribution (BMD), which is a wholesale distributor of building materials. For more information, see Note 12, Segment Information.
 
Consolidation
 
    The accompanying quarterly consolidated financial statements have not been audited by an independent registered public accounting firm but, in the opinion of management, include all adjustments necessary to present fairly the financial position, results of operations, cash flows, and stockholders' equity for the interim periods presented. Except as disclosed within these condensed notes to unaudited quarterly consolidated financial statements, the adjustments made were of a normal, recurring nature. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. The quarterly consolidated financial statements include the accounts of Boise Cascade and its subsidiaries after elimination of intercompany balances and transactions. Quarterly results are not necessarily indicative of results that may be expected for the full year. These condensed notes to unaudited quarterly consolidated financial statements should be read in conjunction with our 2021 Form 10-K and the other reports we file with the Securities and Exchange Commission.

2.    Summary of Significant Accounting Policies

Accounting Policies

    The complete summary of significant accounting policies is included in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2021 Form 10-K.

Use of Estimates

    The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, inventories, goodwill, intangible assets, and other long-lived assets; legal contingencies; guarantee obligations; indemnifications; assumptions used in retirement, medical, and workers' compensation benefits; assumptions used in the determination of right-of-use (ROU) assets and related lease liabilities; stock-based compensation; fair value measurements; income taxes; and vendor and customer rebates, among others. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.  

8

Revenue Recognition

    Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. For revenue disaggregated by major product line for each reportable segment, see Note 12, Segment Information.

    Fees for shipping and handling charged to customers for sales transactions are included in "Sales" in our Consolidated Statements of Operations. When control over products has transferred to the customer, we have elected to recognize costs related to shipping and handling as fulfillment costs. For our Wood Products segment, costs related to shipping and handling are included in "Materials, labor, and other operating expenses (excluding depreciation)" in our Consolidated Statements of Operations. In our Wood Products segment, we view our shipping and handling costs as a cost of the manufacturing process and the movement of product to our end customers. For our BMD segment, costs related to shipping and handling of $59.5 million and $48.3 million, for the three months ended September 30, 2022 and 2021, respectively, and $171.9 million and $144.5 million for the nine months ended September 30, 2022 and 2021, respectively, are included in "Selling and distribution expenses" in our Consolidated Statements of Operations. In our BMD segment, our activities relate to the purchase and resale of finished product, and excluding shipping and handling costs from "Materials, labor, and other operating expenses (excluding depreciation)" provides us a clearer view of our operating performance and the effectiveness of our sales and purchasing functions.

Customer Rebates and Allowances

    Rebates are provided to our customers and our customers' customers based on the volume of their purchases, among other factors such as customer loyalty, conversion, and commitment, as well as temporary protection from price increases. We provide the rebates to increase the sell-through of our products. Rebates are generally estimated based on the expected amount to be paid and recorded as a decrease in "Sales." At September 30, 2022 and December 31, 2021, we had $136.1 million and $138.1 million, respectively, of rebates payable to our customers recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets. We adjust our estimate of revenue at the earlier of when the probability of rebates paid changes or when the amounts become fixed. There have not been significant changes to our estimates of rebates, although it is reasonably possible that a change in the estimate may occur.

Vendor Rebates and Allowances
 
    We receive rebates and allowances from our vendors under a number of different programs, including vendor marketing programs. At September 30, 2022 and December 31, 2021, we had $12.8 million and $13.0 million, respectively, of vendor rebates and allowances recorded in "Receivables, Other" on our Consolidated Balance Sheets. Rebates and allowances received from our vendors are recognized as a reduction of "Materials, labor, and other operating expenses (excluding depreciation)" when the product is sold, unless the rebates and allowances are linked to a specific incremental cost to sell a vendor's product. Amounts received from vendors that are linked to specific selling and distribution expenses are recognized as a reduction of "Selling and distribution expenses" in the period the expense is incurred.

Leases

    We primarily lease land, building, and equipment under operating and finance leases. We determine if an arrangement is a lease at inception and assess lease classification as either operating or finance at lease inception or upon modification. Substantially all of our leases with initial terms greater than one year are for real estate, including distribution centers, corporate headquarters, land, and other office space. Substantially all of these lease agreements have fixed payment terms based on the passage of time and are recorded in our BMD segment. Many of our leases include fixed escalation clauses, renewal options and/or termination options that are factored into our determination of lease term and lease payments when appropriate. Renewal options generally range from one to ten years with fixed payment terms similar to those in the original lease agreements. Some lease agreements provide us with the option to purchase the leased property at market value. Our lease agreements do not contain any residual value guarantees.

    ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term. The current portion of our operating and finance lease liabilities are recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets.
    
    We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. In determining our incremental borrowing rates, we
9

give consideration to publicly available interest rates for instruments with similar characteristics, including credit rating, term, and collateralization.
    
    For purposes of determining straight-line rent expense, the lease term is calculated from the date we first take possession of the facility, including any periods of free rent and any renewal option periods we are reasonably certain of exercising. Variable lease expense generally includes reimbursement of actual costs for common area maintenance, property taxes, and insurance on leased real estate and are recorded as incurred. Most of our operating lease expense was recorded in "Selling and distribution expenses" in our Consolidated Statements of Operations. In addition, we do not separate lease and non-lease components for all of our leases.

    Our short-term leases primarily include equipment rentals with lease terms on a month-to-month basis, which provide for our seasonal needs and flexibility in the use of equipment. Our short-term leases also include certain real estate for which either party has the right to cancel upon providing notice of 30 to 90 days. We do not recognize ROU assets or lease liabilities for short-term leases.

Inventories
 
    Inventories included the following (work in process is not material):
 
 September 30,
2022
December 31,
2021
 (thousands)
Finished goods and work in process $669,615 $573,908 
Logs 54,028 47,401 
Other raw materials and supplies 43,544 39,362 
 $767,187 $660,671 

Property and Equipment
 
    Property and equipment consisted of the following asset classes:
 
 September 30,
2022
December 31,
2021
 (thousands)
Land$57,631 $51,564 
Buildings210,843 178,323 
Improvements70,806 66,492 
Mobile equipment, information technology, and office furniture202,713 191,134 
Machinery and equipment 964,377 735,979 
Construction in progress 50,131 35,912 
 1,556,501 1,259,404 
Less: accumulated depreciation(811,954)(764,164)
 $744,547 $495,240 

    As of September 30, 2022, $251.3 million of property and equipment relates to two plywood facilities acquired by us on July 25, 2022. For more information, see Note 5, Acquisition.

10

Fair Value

    Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy under GAAP gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value (Level 1). If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly (Level 2). If quoted prices for identical or similar assets are not available or are unobservable, we may use internally developed valuation models, whose inputs include bid prices, and third-party valuations utilizing underlying asset assumptions (Level 3).

Financial Instruments
 
    Our financial instruments are cash and cash equivalents, accounts receivable, accounts payable, long-term debt, and interest rate swaps. Our cash is recorded at cost, which approximates fair value, and our cash equivalents are money market funds. As of September 30, 2022 and December 31, 2021, we held $804.3 million and $701.6 million, respectively, in money market funds that are measured at fair value on a recurring basis using Level 1 inputs. The recorded values of accounts receivable and accounts payable approximate fair values based on their short-term nature. At September 30, 2022 and December 31, 2021, the book value of our fixed-rate debt for each period was $400.0 million, and the fair value was estimated to be $332.5 million and $420.0 million, respectively. The difference between the book value and the fair value is derived from the difference between the period-end market interest rate and the stated rate of our fixed-rate, long-term debt. We estimated the fair value of our fixed-rate debt using quoted market prices of our debt in inactive markets (Level 2 inputs). The interest rate on our variable-rate debt is based on market conditions such as the Secured Overnight Financing Rate (SOFR) or a base rate. Because the interest rate on the variable-rate debt is based on current market conditions, we believe that the estimated fair value of the outstanding balance on our variable-rate debt approximates book value. As discussed below, we also have interest rate swaps to mitigate our variable interest rate exposure, the fair value of which is measured based on Level 2 inputs.

Interest Rate Risk and Interest Rate Swaps

    We are exposed to interest rate risk arising from fluctuations in variable-rate SOFR on our term loan and when we have loan amounts outstanding on our Revolving Credit Facility. At September 30, 2022, we had $50.0 million of variable-rate debt outstanding based on one-month term SOFR. Our objective is to limit the variability of interest payments on our debt. To meet this objective, we enter into receive-variable, pay-fixed interest rate swaps to change the variable-rate cash flow exposure to fixed-rate cash flows. In accordance with our risk management strategy, we actively monitor our interest rate exposure and use derivative instruments from time to time to manage the related risk. We do not speculate using derivative instruments.

    At December 31, 2021, we had two interest rate swap agreements. Under the interest rate swaps, we receive one-month LIBOR-based variable interest rate payments and make fixed interest rate payments, thereby fixing the interest rate on $50.0 million of variable rate debt exposure. Payments on one interest rate swap, entered into in 2016, with a notional principal amount of $50.0 million were due on a monthly basis at an annual fixed rate of 1.007%, and this swap expired in February 2022 (the Initial Swap). During 2020, we entered into another forward interest rate swap agreement which commenced on the expiration date of the Initial Swap. In September 2022, we amended our interest rate swap to receive variable interest rate payments based on one-month SOFR plus a spread adjustment of 0.10% and make fixed interest rate payments. Payments on this interest rate swap with a notional principal amount of $50.0 million are due on a monthly basis at an annual fixed rate. The interest rate swap amendment increased the annual fixed rate from 0.39% to 0.41%, and this swap expires in June 2025.

    The interest rate swap agreements were not designated as cash flow hedges, and as a result, all changes in the fair value are recognized in "Change in fair value of interest rate swaps" in our Consolidated Statements of Operations rather than through other comprehensive income. At September 30, 2022, we recorded a long-term asset of $4.8 million in "Other assets" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreement. At December 31, 2021, we recorded a long-term asset of $1.2 million in "Other assets" on our Consolidated Balance Sheets, and we also recorded a long-term liability of $0.1 million in "Other long-term liabilities" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreements. The swaps were valued based on observable inputs for similar assets and liabilities and other observable inputs for interest rates and yield curves (Level 2 inputs).

11

Concentration of Credit Risk
 
    We are exposed to credit risk related to customer accounts receivable. In order to manage credit risk, we consider customer concentrations and current economic trends and monitor the creditworthiness of significant customers based on ongoing credit evaluations. At September 30, 2022, receivables from two customers accounted for approximately 18% and 12% of total receivables. At December 31, 2021, receivables from these two customers accounted for approximately 20% and 12% of total receivables. No other customer accounted for 10% or more of total receivables.

New and Recently Adopted Accounting Standards

    In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. This ASU requires an acquirer to account for revenue contracts in accordance with Topic 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired revenue contracts. This ASU is applicable to our fiscal year beginning January 1, 2023, and the impact of its adoption on our consolidated financial statements will depend on the contract assets and liabilities acquired in business combinations after that date.
    
    There were no other accounting standards recently issued that had or are expected to have a material impact on our consolidated financial statements and associated disclosures.

3.    Income Taxes

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

    During the nine months ended September 30, 2022 and 2021, cash paid for taxes, net of refunds received, were $189.0 million and $203.5 million, respectively.

4.    Net Income Per Common Share
 
    Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Weighted average common shares outstanding for the basic net income per common share calculation includes certain vested restricted stock units (RSUs) and performance stock units (PSUs) as there are no conditions under which those shares will not be issued. Diluted net income per common share is computed by dividing net income by the combination of the weighted average number of common shares outstanding during the period and other potentially dilutive weighted average common shares. Other potentially dilutive weighted average common shares include the dilutive effect of stock options, RSUs, and PSUs for each period using the treasury stock method. Under the treasury stock method, the exercise price of a share and the amount of compensation expense, if any, for future service that has not yet been recognized are assumed to be used to repurchase shares in the current period.

12

    The following table sets forth the computation of basic and diluted net income per common share:
 Three Months Ended
September 30
Nine Months Ended
September 30
 2022202120222021
 (thousands, except per-share data)
Net income$219,587 $91,699 $740,298 $543,411 
Weighted average common shares outstanding during the period (for basic calculation)39,544 39,442 39,521 39,413 
Dilutive effect of other potential common shares232 219 241 210 
Weighted average common shares and potential common shares (for diluted calculation)39,776 39,661 39,762 39,623 
Net income per common share - Basic$5.55 $2.32 $18.73 $13.79 
Net income per common share - Diluted$5.52 $2.31 $18.62 $13.71 

    The computation of the dilutive effect of other potential common shares excludes stock awards representing 0.1 million and no shares of common stock, respectively, in the three months ended September 30, 2022 and 2021, and 0.1 million shares of common stock for both the nine months ended September 30, 2022 and 2021. Under the treasury stock method, the inclusion of these stock awards would have been antidilutive.

5.    Acquisition

    We account for acquisition transactions in accordance with ASC 805, Business Combinations. Accordingly, the results of operations of the acquiree are included in our consolidated financial statements from the acquisition date. The consideration transferred is allocated to the identifiable assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with any excess recorded as goodwill. Transaction-related costs are expensed in the period the costs are incurred. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill.

    On July 25, 2022, our wholly-owned subsidiary, Boise Cascade Wood Products, L.L.C., completed the acquisition of 100% of the equity interest in Coastal Plywood Company (Coastal Plywood), and its plywood manufacturing operations located in Havana, Florida, and Chapman, Alabama 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 (the Acquisition). We funded the Acquisition and related costs with cash on hand. Acquisition-related costs of $0.1 million and $1.3 million are recorded in "General and administrative expenses" in our Consolidated Statements of Operations for the three and nine months ended September 30, 2022.

    These facilities will provide incremental stress-rated veneer needed to optimize and expand our southeastern U.S. EWP production capacity. In addition, the Havana plywood operation will improve our mix of specialty plywood products and is well positioned geographically to support plywood demand in the southeastern U.S. Sales, including sales to our BMD segment, from these facilities of $43.0 million was reported as part of the Wood Products segment for the third quarter 2022. In addition, the Wood Products segment reported an operating loss of $0.8 million from these facilities for the third quarter 2022, which included $9.4 million of expense related to the sell-through of inventory recorded at fair market value in connection with the Acquisition.

    Goodwill represents the excess of the purchase price and related costs over the fair value of the net tangible and intangible assets of businesses acquired. The primary qualitative factor that contributed to the recognition of goodwill relates to the incremental stress-rated veneer and assembled workforce the facilities provide to allow us to expand our EWP capacity and improve our mix of plywood offerings to serve future and existing customers. The facilities are geographically located in an area that allows us to optimize our mill system and realize freight and other cost synergies. All of the goodwill was assigned to the Wood Products reporting unit and is deductible for U.S. income tax purposes.

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    The Acquisition purchase price allocations are preliminary and subject to post-closing adjustments. Our estimates and assumptions are subject to change as more information becomes available. The primary areas of the purchase price allocation that are not yet finalized relate to the valuation of fixed assets, working capital, customer relationships, and residual goodwill. The following table summarizes the allocations of the purchase price to the assets acquired and liabilities assumed, based on our current estimates of the fair value at the date of the Acquisition:

Acquisition Date Fair Value
(thousands)
Accounts receivable$18,216 
Inventories22,300 
Property and equipment251,329 
Other assets1,874 
Intangible assets:
   Trade name1,200 
   Customer relationships156,700 
Goodwill73,974 
Assets acquired525,593 
Accounts payable and accrued liabilities6,134 
Other long-term liabilities2,578 
Liabilities assumed8,712 
Net assets acquired$516,881 

Pro Forma Financial Information

    The following pro forma financial information presents the combined results of operations as if the two Coastal Plywood facilities had been combined with us on January 1, 2021. The pro forma results are intended for information purposes only and do not purport to represent what the combined companies' results of operations would actually have been had the related transaction in fact occurred on January 1, 2021. They also do not reflect any cost savings, operating synergies, or revenue enhancements that we may achieve or the costs necessary to achieve these cost savings, operating synergies, revenue enhancements, or integration efforts.

Pro Forma
Three Months Ended
September 30
Nine Months Ended
September 30
2022202120222021
(unaudited, thousands, except per share data)
Sales$2,175,930 $1,950,267 $6,989,799 $6,449,695 
Net income (a)$229,125 $100,109 $809,334 $638,834 
___________________________________ 
 
(a)    The pro forma financial information for the three and nine months ended September 30, 2022 was adjusted to exclude $0.1 million and $1.3 million, respectively, of acquisition-related costs for legal, accounting, and other advisory-related services.









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6.    Goodwill and Intangible Assets

    Goodwill represents the excess of the purchase price and related costs over the fair value of the net tangible and intangible assets of businesses acquired.
    The carrying amount of our goodwill by segment is as follows:
Building
Materials
Distribution

Wood
Products
Total
(thousands)
Balance at December 31, 2021$11,792 $48,590 $60,382 
Additions (a) 73,974 73,974 
Balance at September 30, 2022$11,792 $122,564 $134,356 
___________________________________ 
 
(a)    Represents the acquisition of two Coastal Plywood facilities. For additional information, see Note 5, Acquisition.

    At September 30, 2022 and December 31, 2021, intangible assets represented the values assigned to trade names, trademarks and customer relationships. We maintain trademarks for our manufactured wood products, particularly EWP. Our key registered trademarks are perpetual in duration as long as we continue to timely file all post registration maintenance documents related thereto. These trade names and trademarks have indefinite lives and are not amortized. In addition, we recently acquired a trade name and customer relationships as discussed in Note 5, Acquisition. This acquired trade name has a useful life of one year. The weighted-average useful life for customer relationships from the date of purchase is approximately 10 years. Amortization expense is expected to be approximately $16.8 million per year for the next five years.

    Intangible assets consisted of the following:
September 30, 2022
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
(thousands)
Trade names and trademarks$10,100 $(200)$9,900 
Customer relationships169,150 (