# Builders FirstSource, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Builders FirstSource, Inc.](/companies/bldr.md) (CIK 1316835)
- Form: 10-Q
- Filed: 2023-08-02
- Accepted by EDGAR: Aug 2, 2023, 12:08 ET
- Period: 2023-06-30
- Accession: 0000950170-23-036892
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1316835/000095017023036892/bldr-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1316835/000095017023036892/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $4.53bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $8.41bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $2.93bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $5.45bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $1.59bn | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $2.97bn | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $1.02bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $1.92bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $577.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $1.04bn | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $119.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $210.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $404.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $738.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $3.16 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $5.54 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $3.19 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $5.59 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 128,066,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 133,247,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $1.05bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $231.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $1.41bn | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $89.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $3.61bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $10.73bn | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $1.96bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $6.39bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $4.34bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 24,277 characters.

The following discussion of our financial condition and results of operations should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto for the year ended December 31, 2022, included in our 2022 Form 10-K. The following discussion and analysis should also be read in conjunction with the unaudited condensed consolidated financial statements appearing elsewhere in this report.

### Cautionary Statement

Statements in this report and the schedules hereto that are not purely historical facts or that necessarily depend upon future events, including statements about expected market share gains, forecasted financial performance, industry and business outlook or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on forward-looking statements. In addition, oral statements made by our directors, officers and employees to the investor and analyst communities, media representatives and others, depending upon their nature, may also constitute forward-looking statements. All forward-looking statements are based upon currently available information and the Company’s current assumptions, expectations and projections about future events. Forward-looking statements are by nature inherently uncertain, and actual results or events may differ materially from the results or events described in the forward-looking statements as a result of many factors. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements involve risks and uncertainties, many of which are beyond the Company’s control or may be currently unknown to the Company, that could cause actual events or results to differ materially from the events or results described in the forward-looking statements; such risks or uncertainties include those related to the Company’s growth strategies, including acquisitions, organic growth and digital strategies, or the dependence of the Company’s revenues and operating results on, among other things, the homebuilding industry and, to a lesser extent, repair and remodel activity, which in each case is dependent on economic conditions, including inflation, interest rates, consumer confidence, labor and supply shortages, and also lumber and other commodity prices. The Company may not succeed in addressing these and other risks. Further information regarding the risk factors that could affect our financial and other results can be found in the risk factors section of the Company’s 2022 Form 10-K filed with the Securities and Exchange Commission. Consequently, all forward-looking statements in this report are qualified by the factors, risks and uncertainties contained therein.

### COMPANY OVERVIEW

We are a leading supplier and manufacturer of building materials, manufactured components and construction services to professional contractors, sub-contractors and consumers. The Company operates approximately 570 locations in 42 states across the United States, which are internally organized into geographic operating divisions. Due to the similar economic characteristics, categories of products, distribution methods and customers, our operating divisions are aggregated into one reportable segment.

We offer an integrated solution to our customers, providing manufacturing, supply and installation of a full range of structural and related building products. Our manufactured products include our factory-built roof and floor trusses, wall panels and stairs, vinyl windows, custom millwork and trim, as well as engineered wood that we design, cut, and assemble for each home. We also assemble interior and exterior doors into pre-hung units. Additionally, we supply our customers with a broad offering of professional-grade building products not manufactured by us, such as dimensional lumber and lumber sheet goods and various window, door and millwork lines. Our full range of construction-related services includes professional installation, turn-key framing and shell construction, and spans our product categories.

### RECENT DEVELOPMENTS

#### Business Combinations

During the period, we completed the acquisitions of Noltex, BMS, and JBM for a total purchase price of $96.6 million. These acquisitions further expand our market footprint and provide additional operations in our value-add product categories and our multi-family customer segment. These transactions are described in further detail in Note 2 to these condensed consolidated financial statements included in Item 1 of this quarterly report on Form 10-Q.

#### Company Shares Repurchases

During 2022, the Company’s board of directors authorized the repurchase of an aggregate of $3.0 billion of its shares of common stock. In April 2023, the board of directors approved an additional share repurchase authorization in the amount of $1.0 billion of the Company's shares of common stock. During the six months ended June 30, 2023, the Company repurchased 14.5 million shares at a weighted average price of $93.02 per share, for a total cost of approximately $1.4 billion, inclusive of fees and taxes.

#### Debt Transactions

On January 17, 2023, the Company amended the Revolving Facility to extend the maturity on a portion of the total commitments by 13 months to January 17, 2028, and to include additional pricing tiers for the applicable margin. Subsequently, on April 3, 2023, the Company further amended the Revolving Facility to extend the remaining portion of the total commitments to January 17, 2028, and include the additional pricing tiers for the applicable margin.

These transactions are described in Note 8 to the condensed consolidated financial statements included in Item 1 of this quarterly report on Form 10-Q. From time to time, based on market conditions and other factors and subject to compliance with applicable laws and regulations, the Company may repurchase or call its notes, repay debt, repurchase shares of its common stock or otherwise enter into transactions regarding its capital structure.

### CURRENT OPERATING CONDITIONS AND OUTLOOK

According to the U.S. Census Bureau, actual U.S. total housing starts were 0.4 million for the second quarter of 2023, a decrease of 11.3% compared to the second quarter of 2022. Actual U.S. single-family starts for the second quarter of 2023 were 0.3 million, a decrease of 13.8% compared to the second quarter of 2022. A composite of third-party sources, including the NAHB, are forecasting 1.4 million U.S. total housing starts and 0.9 million U.S single-family housing starts for 2023, which are projected decreases of 9.3% and 9.0%, respectively, from 2022. In addition, the Home Improvement Research Institute is forecasting sales in the professional repair and remodel end market to decrease approximately 2.6% in 2023 compared to 2022.

Our net sales for the second quarter of 2023 decreased 34.6% from the same period last year. The decrease was driven by a decrease in core organic sales of 22.3%, primarily in lumber and lumber sheet goods, with commodity price deflation accounting for another 16.2%, offset by sales growth from acquisitions of 3.9%. Our gross margin percentage in the second quarter of 2023 increased by 0.4% compared to the second quarter of 2022, driven by an improved product mix toward our value-add products primarily attributable to our recent strategic investments in multi-family value-add operations as well as relative sales strength of all value-add operations against decreased housing starts. Our selling, general and administrative expenses, as a percentage of net sales, were 22.5% in the second quarter of 2023, a 7.4% increase from 15.1% in the second quarter of 2022, largely due to decreased cost leverage on lower sales.

We believe the long-term outlook for the housing industry is positive and that the housing industry remains underbuilt due to growth in the underlying demographics compared to historical new construction levels. However, rising interest rates and inflation have dampened, and may continue to dampen, near term demand as homes become less affordable for consumers, investors and builders. We believe we are well-positioned to take advantage of favorable long-term industry trends and to strategically increase our market share, both organically and through acquisitions. We will continue to focus on working capital by closely monitoring the credit exposure of our customers, remaining focused on maintaining the right level of inventory and by working with our vendors to improve payment terms and pricing on our products. We strive to achieve the appropriate balance of short-term expense control while maintaining the expertise and capacity to grow the business as market conditions expand.

### SEASONALITY AND OTHER FACTORS

Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather causing reduced construction activity during these quarters. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following:

- The volatility of lumber prices;
- The cyclical nature of the homebuilding industry;
- General economic conditions in the markets in which we compete;
- The pricing policies of our competitors;
- Disruptions in our supply chain;
- The production schedules of our customers; and
- The effects of weather.

The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables. Working capital levels typically increase in the first and second quarters of the year due to higher sales during the peak residential construction season. These increases may result in negative operating cash flows during this peak season, which historically have been financed through available cash and borrowing availability under credit facilities. Generally, collection of receivables and reduction in inventory levels following the peak building and construction season positively impact cash flow.

### RESULTS OF OPERATIONS

The following table sets forth the percentage relationship to net sales of certain costs, expenses and income items:

|  | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of sales | 64.8% | 65.2% | 64.7% | 66.3% |
| Gross margin | 35.2% | 34.8% | 35.3% | 33.7% |
| Selling, general and administrative expenses | 22.5% | 15.1% | 22.8% | 16.0% |
| Income from operations | 12.7% | 19.7% | 12.5% | 17.7% |
| Interest expense, net | 1.2% | 1.0% | 1.1% | 0.9% |
| Income tax expense | 2.6% | 4.4% | 2.5% | 3.9% |
| Net income | 8.9% | 14.3% | 8.9% | 12.9% |

### Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022

*Net Sales.* Net sales for the three months ended June 30, 2023, were $4.5 billion, a 34.6% decrease over net sales of $6.9 billion for the three months ended June 30, 2022. Core organic sales, primarily in the single-family customer segment, and commodity price deflation decreased net sales by 22.3% and 16.2%, respectively. These decreases were partially offset by increased net sales from acquisitions of 3.9%

The following table shows net sales classified by product category:

*(in millions)*

|  | Three Months Ended June 30, 2023 Net Sales | % of Net Sales | 2022 Net Sales | % of Net Sales | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Lumber & lumber sheet goods | $1,059.0 | 23.4% | $2,836.2 | 41.0% | (62.7)% |
| Manufactured products | 1,288.1 | 28.4% | 1,678.6 | 24.2% | (23.3)% |
| Windows, doors & millwork | 1,105.2 | 24.4% | 1,218.3 | 17.6% | (9.3)% |
| Specialty building products & services | 1,076.6 | 23.8% | 1,193.2 | 17.2% | (9.8)% |
| Net sales | $4,528.9 | 100.0% | $6,926.3 | 100.0% | (34.6)% |

We experienced decreased net sales in all of our product categories primarily due to a slowing economy, a decline in core organic sales as a result of declining housing starts, and commodity deflation.

*Gross Margin.* Gross margin decreased $0.8 billion to $1.6 billion due to decreased sales. Our gross margin percentage increased to 35.2% in the second quarter of 2023 from 34.8% in the second quarter of 2022, a 0.4% increase. This increase was driven by improved product mix toward our value-add products primarily attributable to our recent strategic investments in multi-family value-add operations as well as relative sales strength of all value-add operations against decreased housing starts.

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses decreased by $28.4 million, or 2.7%, primarily due to decreased variable compensation as a result of decreased sales, partially offset by higher amortization expense and additional operating expenses from locations acquired within the last twelve months.

As a percentage of net sales, selling, general and administrative expenses increased to 22.5%, up from 15.1% in the second quarter of 2022. This increase was primarily due to decreased cost leverage on lower net sales during the period.

*Interest Expense, Net.* Interest expense was $53.0 million in the second quarter of 2023, a decrease of $17.7 million from the second quarter of 2022. The decrease was primarily due to the loss on extinguishment of $27.4 million recognized in the second quarter of 2022, partially offset by higher balances and increased interest rates during the second quarter of 2023 compared to the second quarter of 2022.

*Income Tax Expense.* We recorded income tax expense of $119.4 million and $307.9 million in the second quarters of 2023 and 2022, respectively. Our effective tax rate was 22.8% in the second quarter of 2023 and 23.8% in the second quarter of 2022. The decrease in the tax expense was primarily driven by a decrease in income before income taxes in the current period, while the decrease in the tax rate was primarily related to a reduction in our blended state tax rate and an increase in our stock-based compensation windfall benefit this quarter.

### Six Months ended June 30, 2023 Compared with the Six Months ended June 30, 2022

*Net Sales.* Net sales for the six months ended June 30, 2023, were $8.4 billion, a 33.3% decrease over net sales of $12.6 billion for the six months ended June 30, 2022. Core organic sales, primarily in the single-family customer segment, and commodity price deflation decreased net sales by 24.2% and 14.2% respectively. These decreases were partially offset by increased net sales from acquisitions and one additional selling day of 4.6% and 0.5%, respectively.

The following table shows net sales classified by product category:

*(in millions)*

|  | Six Months Ended June 30, 2023 Net Sales | % of Net Sales | 2022 Net Sales | % of Net Sales | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Lumber & lumber sheet goods | $1,934.6 | 23.0% | $5,172.7 | 41.0% | (62.6)% |
| Manufactured products | 2,400.5 | 28.5% | 3,032.4 | 24.1% | (20.8)% |
| Windows, doors & millwork | 2,146.3 | 25.5% | 2,244.2 | 17.8% | (4.4)% |
| Specialty | 1,930.8 | 23.0% | 2,158.1 | 17.1% | (10.5)% |
| Net sales | $8,412.2 | 100.0% | $12,607.4 | 100.0% | (33.3)% |

We experienced decreased net sales in all of our product categories primarily due to a slowing economy, a decline in core organic sales as a result of declining housing starts, and commodity deflation.

*Gross Margin.* Gross margin decreased $1.3 billion to $3.0 billion, and our gross margin percentage increased to 35.3% for the six months ended June 30, 2023, from 33.7% in the six months ended June 30, 2022, a 1.6% increase. This increase was driven by improved product mix toward our value-add products primarily attributable to our recent strategic investments in multi-family value-add operations as well as relative sales strength of all value-add operations against decreased housing starts.

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses decreased $0.1 billion, or 4.6%. This decrease was primarily due to decreased variable compensation as a result of decreased sales, partially offset by higher amortization expense and additional operating expenses from locations acquired within the last twelve months.

As a percentage of net sales, selling, general and administrative expenses increased to 22.8% in the six months ended June 30, 2023, from 16.0% in the six months ended June 30, 2022, largely driven by decreased cost leverage on lower net sales during the period.

*Interest Expense, Net.* Interest expense was $95.1 million in the six months ended June 30, 2023, a decrease of $16.9 million from the six months ended June 30, 2022. Interest expense decreased primarily due to the loss on extinguishment of $27.4 million recognized in the second quarter of 2022, partially offset by higher balances and increased interest rates during the second quarter of 2023 compared to the second quarter of 2022.

*Income Tax Expense.* We recorded income tax expense of $210.7 million and $490.8 million for the six months ended June 30, 2023, and six months ended June 30, 2022, respectively. The decrease in the tax expense was primarily driven by a decrease in income before income taxes in the current period. Our effective tax rate was 22.2% in the first six months ended June 30, 2023, a decrease from 23.2% in the first six months ended June 30, 2022, primarily related to a reduction in our blended state tax rate and an increase in our stock-based compensation windfall benefit.

### LIQUIDITY AND CAPITAL RESOURCES

Our primary capital requirements are to fund working capital needs and operating expenses, meet required interest and principal payments, and to fund capital expenditures and potential future growth opportunities. Our capital resources at June 30, 2023, consist of cash on hand and borrowing availability under our Revolving Facility.

Our Revolving Facility will be primarily used for working capital, general corporate purposes and funding capital expenditures and growth opportunities. In addition, we may use borrowings under the Revolving Facility to facilitate debt repayment and consolidation. Availability under the Revolving Facility is determined by a borrowing base. Our borrowing base consists of trade accounts receivable, inventory, other receivables, and qualified cash that all meet specific criteria contained within the credit agreement, minus agent specified reserves. Net excess borrowing availability is equal to the maximum borrowing amount minus outstanding borrowings and letters of credit.

The following table shows our borrowing base and excess availability as of:

*(in millions)*

|  | June 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Accounts receivable availability | $1,060.0 | $841.1 |
| Inventory availability | 1,025.8 | 1,064.7 |
| Other receivables availability | 79.2 | 48.1 |
| Gross availability | 2,165.0 | 1,953.9 |
| Less: |  |  |
| Agent reserves | (42.3) | (64.7) |
| Plus: |  |  |
| Cash in qualified accounts | 17.7 | 10.9 |
| Borrowing base | 2,140.4 | 1,900.1 |
| Aggregate revolving commitments | 1,800.0 | 1,800.0 |
| Maximum borrowing amount (lesser of borrowing base and aggregate revolving commitments) | 1,800.0 | 1,800.0 |
| Less: |  |  |
| Outstanding borrowings | (957.0) | (264.0) |
| Letters of credit | (70.4) | (128.9) |
| Net excess borrowing availability on revolving facility | $772.6 | $1,407.1 |

As of June 30, 2023, we had $1.0 billion in outstanding borrowings under our Revolving Facility, and our net excess borrowing availability was $0.8 billion after being reduced by outstanding letters of credit totaling $70.4 million. Excess availability must equal or exceed a minimum specified amount, currently $180.0 million, or we are required to meet a fixed charge coverage ratio of 1.00 to 1.00. We were not in violation of any covenants or restrictions imposed by any of our debt agreements at June 30, 2023.

### Liquidity

Our liquidity at June 30, 2023, was $0.9 billion, which consists of net borrowing availability under the Revolving Facility and cash on hand.

Our level of indebtedness results in significant interest expense and could have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions. From time to time, based on market conditions and other factors and subject to compliance with applicable laws and regulations, we may repurchase or call our notes, repay, refinance or modify our debt or otherwise enter into transactions regarding our capital structure.

If industry conditions deteriorate or if we pursue additional acquisitions, we may be required to raise additional funds through the sale of capital stock or debt in the public capital markets or in privately negotiated transactions. There can be no assurance that any of these financing options would be available on favorable terms, if at all. Alternatives to help supplement our liquidity position could include, but are not limited to, idling or permanently closing additional facilities, adjusting our headcount in response to current business conditions, attempts to renegotiate leases, managing our working capital and/or divesting of non-core businesses. There are no assurances that these steps would prove successful or materially improve our liquidity position.

### Consolidated Cash Flows

Cash provided by operating activities was $1.0 billion for the six months ended June 30, 2023, compared to cash provided by operating activities of $1.1 billion for the six months ended June 30, 2022. The decrease in cash provided by operating activities was largely the result of a decrease in net income, offset by an increase in net working capital, in the first six months of 2023.

For the six months ended June 30, 2023, the cash used for investing was relatively flat with $0.1 billion more cash used for net purchases of property and equipment, offset by $0.1 billion less cash used for the current period acquisitions.

Cash used in financing activities was $0.7 billion for the six months ended June 30, 2023, which consisted primarily of $1.4 billion in repurchases of common stock, offset by $0.7 billion net borrowings on the Revolving Facility. Cash used in financing activities was $0.7 billion for the six months ended June 30, 2022, which consisted of $1.3 billion repurchases of common stock and the redemption of our 6.75% senior unsecured notes due 2027 for $0.6 billion, offset by net proceeds from the issuance of $1.0 billion of 2032 notes, plus $0.2 billion in net borrowings under the Revolving Facility.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those that are both important to the accurate portrayal of a company’s financial condition and results, and require subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

To prepare financial statements that conform to generally accepted accounting principles, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations.

Refer to Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K for a discussion of our critical accounting estimates and assumptions.

### RECENT ACCOUNTING PRONOUNCEMENTS

Information regarding recent accounting pronouncements is discussed in Note 1 to the condensed consolidated financial statements included in Item 1 of this quarterly report on Form 10-Q.

## Market risk

As filed, 1,348 characters.

We may experience changes in interest expense if changes in our debt occur. Changes in market interest rates could also affect our interest expense. Our 5% 2030 notes, 4.25% 2032 notes, and 6.375% 2032 notes bear interest at a fixed rate, and therefore our interest expense related to these notes would not be affected by an increase in market interest rates. Borrowings under the Revolving Facility bear interest at either a base rate or SOFR, plus, in each case, an applicable margin. A 1.0% increase in interest rates on the Revolving Facility would result in approximately $9.6 million in additional interest expense annually based on our $1.0 billion in outstanding borrowings as of June 30, 2023. The Revolving Facility also assesses variable commitment and outstanding letter of credit fees based on quarterly average loan utilization.

We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for our manufactured products that we deliver. Short-term changes in the cost of these materials and the related in-bound freight costs, some of which are subject to significant fluctuations, are sometimes, but not always, passed on to our customers. Delays in our ability to pass on material price increases to our customers can adversely impact our operating results.

## Controls and procedures

As filed, 4,010 characters.

*Disclosure Controls Evaluation and Related CEO and CFO Certifications.* Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report.

Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), are attached as exhibits to this quarterly report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

*Limitations on the Effectiveness of Controls.* We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.

*Scope of the Controls Evaluation.* The evaluation of our disclosure controls and procedures included a review of their objectives and design, the Company’s implementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this quarterly report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our quarterly reports on Form 10-Q. Many of the components of our disclosure controls and procedures are also evaluated by our internal audit department, by our legal department and by personnel in our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures on an ongoing basis, and to maintain them as dynamic systems that change as conditions warrant.

*Conclusions Regarding Disclosure Controls.* Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of June 30, 2023, we maintained disclosure controls and procedures that were effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

*Changes in Internal Control Over Financial Reporting.* During the period covered by this report, there were no changes in our internal control over financial reporting identified in connection with the evaluation described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 660 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, “Item 1A. Risk Factors” in our 2022 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2022 Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

There were no material changes to the risk factors reported in Part 1, “Item 1A. Risk Factors” in our 2022 Form 10-K.

Filed Aug 2, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-036892. Last ingested by Listed: Oct 31, 2026, 12:34 ET. No prices; not investment advice.