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BOISE CASCADE CO - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

May 8, 2014

Understanding Our Financial Information

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes in "Item 1. Financial Statements" of this Form 10-Q, as well as our 2013 Form 10-K. The following discussion includes statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other nonhistorical statements in the discussion, are forward-looking. These forward-looking statements include, without limitation, any statement that may predict, indicate, or imply future results, performance, or achievements and may contain the words "may," "will," "expect," "believe," "should," "plan," "anticipate," and other similar expressions. All of these forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Item 1A. Risk Factors" in our 2013 Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission (SEC). We do not assume an obligation to update any forward-looking statement. Our future actual results may differ materially from those contained in or implied by any of the forward-looking statements in this Form 10-Q.

Background

Boise Cascade Company is a building products company headquartered in Boise, Idaho. As used in this Form 10-Q, the terms "Boise Cascade," "we," and "our" refer to Boise Cascade Company (formerly known as Boise Cascade, L.L.C.) and its consolidated subsidiaries. Boise Cascade completed an initial public offering of its common stock on February 11, 2013, discussed in Note 1, Nature of Operations and Consolidation, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q.

Boise Cascade is a large, vertically-integrated wood products manufacturer and building materials distributor. We have three reportable segments: (i) Wood Products, which manufactures plywood, engineered wood products (EWP), studs, particleboard, and ponderosa pine lumber; (ii) Building Materials Distribution, which is a wholesale distributor of building materials; and (iii) Corporate and Other, which includes corporate support staff services, related assets and liabilities, and foreign currency exchange gains and losses. For more information, see Note 12, Segment Information, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q.

On September 30, 2013, we completed the acquisition of Wood Resources LLC Southeast Operations for an aggregate purchase price of $103.0 million, including a post-closing adjustment of $1.0 million based upon a working capital target. These operations consist of two plywood manufacturing facilities located in North Carolina and South Carolina. These facilities complement our existing Wood Products business and enable us to better serve our customers in the eastern and southeastern United States.

Executive Overview

We recorded income from operations of $14.6 million during the three months ended March 31, 2014, compared with income from operations of $24.6 million during the three months ended March 31, 2013. Our results of operations in both our Wood Products and Building Materials Distribution segments were negatively affected by severe winter weather in various parts of the U.S., resulting in weak end-market demand for the products we manufacture and distribute and product transportation challenges. In addition, commodity wood product prices in first quarter 2013, including those for structural panels and lumber, were well above 5-year average historical levels, which resulted in a challenging year-over-year earnings comparison.

In our Wood Products segment, income decreased $7.8 million to $13.0 million for the three months ended March 31, 2014, from $20.8 million for the three months ended March 31, 2013. The decline was due primarily to lower plywood sales prices and higher wood fiber costs, as well as an increase in depreciation and amortization expenses from the acquisition of two plywood manufacturing facilities on September 30, 2013, offset partially by higher EWP and lumber sales prices. In our Building Materials Distribution segment, income decreased $2.1 million to $5.9 million for the three months ended March 31, 2014, from $8.0 million for the three months ended March 31, 2013. The decrease in segment income was driven primarily by lower gross margin dollars mostly as a result of lower sales prices. In addition, a $1.9 million increase in selling and

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distribution expenses was partially offset by a $1.6 million gain recorded in other income from the sale of two surplus properties. These changes are discussed further in "Our Operating Results" below.

At March 31, 2014, we had $86.0 million of cash and cash equivalents and $341.3 million of unused committed bank line availability. Cash decreased $32.3 million during the three months ended March 31, 2014, principally to fund seasonal working capital increases and capital spending, as discussed further in "Liquidity and Capital Resources" below.

Demand for our products correlates with the level of residential construction activity in the U.S., which has historically been cyclical. As of April 2014, the Blue Chip Economic Indicators consensus forecast for 2014 single- and multi-family housing starts in the U.S. was 1.08 million units, compared with actual housing starts of 0.92 million in 2013 and 0.78 million in 2012, as reported by the U.S. Census Bureau. These amounts are below historical trends of approximately 1.4 million units per year over the 20 years prior to 2014. Single-family housing starts are a primary driver of our sales, and although 2014 housing starts are projected to be higher than in 2013, the mix of housing starts in recent years has included a lower proportion of single-family detached units, which typically have higher building product utilization per start than multi-family units. We estimate that a detached single-family unit uses approximately three times more building products than a typical multi-family unit, based on higher square footage per unit as well as greater materials usage per square foot.

Unemployment rates in the U.S. improved to 6.7% as of March 31, 2014, from 7.5% as of March 31, 2013. We believe continued employment growth and improved consumer confidence will be necessary to increase household formation rates. Improved household formation rates in turn will help stimulate new construction.

We expect to continue to experience demand below 20-year average historical levels for the products we manufacture and distribute. However, the housing industry in the U.S. improved in 2013 and 2012, and although first quarter 2014 housing starts were below expectations, we remain optimistic that the overall demand for our products will improve in 2014. Future commodity product pricing could be volatile in response to industry capacity restarts and operating rates, inventory levels in various distribution channels, and seasonal demand patterns. We expect to manage our production levels to our sales demand, which will likely result in operating some of our facilities below their capacity until demand improves further.

Factors That Affect Our Operating Results

Our results of operations and financial performance are influenced by a variety of factors, including the following:

the commodity nature of our products and their price movements, which are driven largely by capacity utilization rates and industry cycles that affect supply and demand; general economic conditions, including but not limited to housing starts, repair-and-remodeling activity, and light commercial construction, inventory levels of new and existing homes for sale, foreclosure rates, interest rates, unemployment rates, household formation rates, and mortgage availability and pricing, as well as other consumer financing mechanisms, that ultimately affect demand for our products;



the highly competitive nature of our industry;

availability and affordability of raw materials, including wood fiber and glues and resins; the impact of actuarial assumptions and regulatory activity on pension costs and pension funding requirements; substantial ongoing capital investment costs and the difficulty in offsetting fixed costs related to our recent capital investments if the housing market does not recover; material disruptions and/or major equipment failure at our manufacturing facilities;



the financial condition and creditworthiness of our customers;

concentration of our sales among a relatively small group of customers;

our substantial indebtedness, including the possibility that we may not generate sufficient cash flows from operations or that future borrowings may not be available in amounts sufficient to fulfill our debt obligations and fund other liquidity needs; cost of compliance with government regulations, in particular environmental regulations; 27



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labor disruptions, shortages of skilled and technical labor, or increased labor costs;



impairment of our long-lived assets, goodwill, and/or intangible assets;

the need to successfully implement succession plans for certain members of our senior management team;



restrictive covenants contained in our debt agreements;

our ability to successfully complete potential acquisitions or integrate efficiently acquired operations; our reliance on Packaging Corporation of America (PCA) for many of our administrative services; disruptions to information systems used to process and store customer, employee, and vendor information, as well as the technology that manages our operations and other business processes;



severe weather phenomena such as drought, hurricanes, tornadoes, and fire;

fluctuations in the market for our equity; and

the other factors described in "Item 1A. Risk Factors" in our 2013 Form 10-K.

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Table of Contents Our Operating Results



The following tables set forth our operating results in dollars and as a percentage of sales for the three months ended March 31, 2014 and 2013:

Three Months Ended March 31 2014 2013 (millions) Sales $ 767.2$ 744.9



Costs and expenses Materials, labor, and other operating expenses (excluding depreciation)

672.6 644.8 Depreciation and amortization 12.3 8.5 Selling and distribution expenses 58.9 57.0 General and administrative expenses 10.7 10.0 Other (income) expense, net (1.9 ) (0.1 ) 752.6 720.2 Income from operations $ 14.6$ 24.6 (percentage of sales) Sales 100.0 % 100.0 %



Costs and expenses Materials, labor, and other operating expenses (excluding depreciation)

87.7 % 86.6 % Depreciation and amortization 1.6 1.1 Selling and distribution expenses 7.7 7.7 General and administrative expenses 1.4 1.3 Other (income) expense, net (0.2 ) - 98.1 % 96.7 % Income from operations 1.9 % 3.3 % 29



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Sales Volumes and Prices

Set forth below are historical U.S. housing starts data, segment sales volumes and average net selling prices for the principal products sold by our Wood Products segment, and sales mix and gross margin information for our Building Materials Distribution segment for the three months ended March 31, 2014 and 2013. Three Months Ended March 31 2014 2013 (thousands) U.S. Housing Starts (a) Single-family 133.9 136.1 Multi-family 69.2 71.9 203.1 208.0 (millions) Segment Sales Wood Products $ 293.3 $ 269.2 Building Materials Distribution 585.5 581.1 Intersegment eliminations (111.6 ) (105.5 ) $ 767.2 $ 744.9 (millions) Wood Products Sales Volumes Laminated veneer lumber (LVL) (cubic feet) 2.6 2.7 I-joists (equivalent lineal feet) 40 41 Plywood (sq. ft.) (3/8" basis) 414 346 Lumber (board feet) 46 50 (dollars per unit) Wood Products Average Net Selling Prices Laminated veneer lumber (LVL) (cubic foot) $ 16.00 $ 15.25 I-joists (1,000 equivalent lineal feet) 1,016 964 Plywood (1,000 sq. ft.) (3/8" basis) 294 331 Lumber (1,000 board feet) 569 463 (percentage of Building Materials Distribution sales) Building Materials Distribution Product Line Sales Commodity 52.2 % 54.1 % General line 31.9 % 31.0 % Engineered wood 15.9 % 14.9 % Gross margin percentage (b) 10.6 % 11.0 %



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(a) Actual U.S. housing starts data reported by the U.S. Census Bureau.

(b) We define gross margin as "Sales" less "Materials, labor, and other operating expenses (excluding depreciation)." Substantially all costs included in "Materials, labor, and other operating expenses (excluding depreciation)" for our Building Materials Distribution segment are for inventory purchased for resale. Gross margin percentage is gross margin as a percentage of segment sales. 30



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Sales

For the three months ended March 31, 2014, total sales increased $22.3 million, or 3%, to $767.2 million from $744.9 million during the three months ended March 31, 2013. Excluding the effect of the acquisition of two plywood plants, our total company sales were relatively flat compared with the same period in the prior year. Product demand and sales volumes in both our Wood Products and Building Materials Distribution segments were negatively affected by severe winter weather in various parts of the U.S. In addition, the severe winter weather negatively affected product transportation, including lack of truck and rail car availability, which hindered our sales volumes. Total U.S. housing starts decreased 2% in first quarter 2014, compared with the same period in the prior year. Single-family housing starts, which are a primary driver of our sales and typically result in higher building product utilization per start than multi-family units, also experienced a decrease of 2% for the quarter, compared with the same period in 2013. Average composite panel and average composite lumber prices for the three months ended March 31, 2014, were 27% and 5% lower, respectively, than in the same period in the prior year, as reflected by Random Lengths composite panel and lumber pricing. Decreases in the prices of oriented strand board (OSB) and dimension lumber were the primary drivers of the decreases within the composite price indexes.

Wood Products. Sales, including sales to our Building Materials Distribution segment, increased $24.1 million, or 9%, to $293.3 million for the three months ended March 31, 2014, from $269.2 million for the three months ended March 31, 2013. Our acquisition of two plywood manufacturing facilities on September 30, 2013, was the primary factor behind 20% higher plywood sales volumes. The higher plywood sales volumes increased sales by $22.7 million. Price increases of 5% in EWP and 23% in lumber resulted in sales increases of $5.3 million and $4.9 million, respectively. These increases were offset partially by a decrease of $15.2 million due to 11% lower plywood prices.

Building Materials Distribution. Sales increased $4.4 million, or 1%, to $585.5 million for the three months ended March 31, 2014, from $581.1 million for the three months ended March 31, 2013. Compared with the same quarter in the prior year, the overall increase in sales was driven primarily by improvements in sales volumes of 5%, offset partially by a decrease in sales prices of 4%. By product line, sales of EWP (substantially all of which is sourced through our Wood Products segment) increased 7%, or $6.5 million, and general line product sales increased 4%, or $6.4 million, offset partially by a decrease in commodity sales of 3%, or $8.5 million.

Costs and Expenses

Materials, labor, and other operating expenses (excluding depreciation) increased $27.8 million, or 4%, to $672.6 million for the three months ended March 31, 2014, compared with $644.8 million during the same period in the prior year. In our Wood Products segment, the increase in materials, labor, and other operating expenses primarily reflects higher manufacturing costs, including costs for wood, labor, glues and resins, and energy. These increases were driven by higher sales volumes of plywood in our Wood Products segment, as well as higher per-unit log costs, which increased approximately 5%, compared with the same period in 2013. However, costs of oriented strand board (OSB), which is used as the vertical web to assemble I-joists, decreased 33% on a per-unit basis. Materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment increased by 230 basis points. The increase in the MLO rate was primarily the result of lower plywood sales prices and increases in wood fiber and labor costs, offset partially by a decrease in other manufacturing costs. In our Building Materials Distribution segment, the increase was driven by higher purchased materials costs as a result of higher sales volumes, compared with first quarter 2013. In addition, the Building Materials Distribution segment MLO rate increased 40 basis points as commodity prices were relatively stable during first quarter 2014, compared with a steady upward trajectory in commodity prices during first quarter 2013.

Depreciation and amortization expenses increased $3.8 million, or 45%, to $12.3 million for the three months ended March 31, 2014, compared with $8.5 million during the same period in the prior year. The increase was due primarily to the acquisition of two plywood manufacturing facilities on September 30, 2013, and purchases of property and equipment.

Selling and distribution expenses increased $1.9 million, or 3%, to $58.9 million for the three months ended March 31, 2014, compared with $57.0 million for the same period in the prior year. The increase was due primarily to higher payroll, transportation, and lease costs of $1.0 million, $0.6 million, and $0.4 million, respectively, offset partially by lower incentive compensation expenses of $0.4 million.

General and administrative expenses increased $0.7 million, or 6%, to $10.7 million for the three months ended March 31, 2014, compared with $10.0 million for the same period in the prior year.

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Other (income) expense, net, for the three months ended March 31, 2014 was $1.9 million of income, including $1.6 million of gain from the sale of two surplus properties in our Building Materials Distribution segment. Other (income) expense, net, for the three months ended March 31, 2013, was insignificant.

Income (Loss) From Operations

Income from operations decreased $10.0 million to $14.6 million for the three months ended March 31, 2014, compared with $24.6 million for the three months ended March 31, 2013.

Wood Products. Segment income decreased $7.8 million to $13.0 million for the three months ended March 31, 2014, from $20.8 million for the three months ended March 31, 2013. The decline was due primarily to lower plywood sales prices and higher wood fiber costs, as well as an increase in depreciation and amortization expenses from the acquisition of two plywood manufacturing facilities on September 30, 2013, offset partially by higher EWP and lumber sales prices.

Building Materials Distribution. Segment income decreased $2.1 million to $5.9 million for the three months ended March 31, 2014, from $8.0 million for the three months ended March 31, 2013. The decrease in segment income was driven primarily by a lower gross margin of $1.9 million mostly as a result of lower sales prices. In addition, a $1.9 million increase in selling and distribution expenses was partially offset by a $1.6 million gain recorded in other income from the sale of two surplus properties.

Interest Expense

Interest expense increased $0.6 million, or 13%, to $5.5 million for the three months ended March 31, 2014, compared with $4.9 million for the three months ended March 31, 2013. The increase in interest expense was primarily due to the issuance of an additional $50 million of Senior Notes on August 15, 2013. For more information related to our Senior Notes, see Note 6, Debt, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q.

Income Tax (Provision) Benefit

For the three months ended March 31, 2014, we recorded $3.5 million of income tax expense and had an effective rate of 38.3%. For the three months ended March 31, 2013, excluding the discrete establishment of net deferred tax assets discussed below, we recorded $7.6 million of income tax expense and had an effective tax rate of 38.3%. During the three months ended March 31, 2014 and 2013, the primary reason for the difference between the federal statutory income tax rate of 35% and the effective tax rate, excluding the deferred discrete item, was the effect of state taxes.

On February 4, 2013, we converted from a limited liability company to a corporation. In addition, we elected to be treated as a corporation for federal and state income tax purposes effective as of January 1, 2013. Therefore, we became subject to federal and state income tax expense beginning January 1, 2013. As a result of our conversion to a corporation, we recorded deferred tax assets, net of deferred tax liabilities, of $68.7 million on our Consolidated Balance Sheet, the effect of which was recorded as an income tax benefit in our Consolidated Statement of Operations during the three months ended March 31, 2013.

Liquidity and Capital Resources

We ended first quarter 2014 with $86.0 million of cash and cash equivalents and $301.6 million of long-term debt. At March 31, 2014, we had $427.3 million of available liquidity (cash and cash equivalents and unused borrowing capacity under our Revolving Credit Facility). We used $32.3 million of cash during the three months ended March 31, 2014, principally to fund seasonal working capital increases and capital spending, as further discussed below.

We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations, working capital, and pension contributions for at least the next 12 months. Compared to the past, we expect that we will fund a larger portion of our intra-month working capital requirements in 2014 from borrowings under our Revolving Credit Facility, rather than from cash on hand.

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Sources and Uses of Cash

We generate cash primarily from sales of our products, short-term and long-term borrowings, and equity offerings. Our primary uses of cash are for expenses related to the manufacture and distribution of building products, including inventory purchased for resale, wood fiber, labor, energy, and glues and resins. In addition to paying for ongoing operating costs, we use cash to invest in our business, repay debt, and meet our contractual obligations and commercial commitments. Below is a discussion of our sources and uses of cash for operating activities, investment activities, and financing activities.

Three Months Ended March 31 2014 2013 (thousands) Net cash used for operations $ (23,950 )$ (57,443 ) Net cash used for investment (7,958 ) (4,805 )



Net cash provided by (used for) financing (356 ) 237,587

Operating Activities

For the three months ended March 31, 2014, our operating activities used $24.0 million of cash, compared with $57.4 million of cash used for operations in the same period in 2013. The $24.0 million of cash used for operations during the three months ended March 31, 2014, was due primarily to a $41.0 million increase in working capital, offset partially by $18.6 million of income (before noncash income and expenses). The $57.4 million of cash used for operations during the three months ended March 31, 2013, was due primarily to a $76.5 million increase in working capital and pension contributions of $9.7 million, offset partially by $24.4 million of income (before noncash income and expenses).

The increases in working capital in both periods were attributable primarily to higher receivables and inventories, offset partially by an increase in accounts payable and accrued liabilities. The increases in receivables in both periods primarily reflect increased sales of approximately 13% and 36%, comparing sales for the months of March 2014 and 2013 with sales for the months of December 2013 and 2012, respectively. The increase in inventories in both periods represents normal seasonal inventory build. The increase in accounts payable and accrued liabilities provided $48.3 million of cash during the three months ended March 31, 2014, compared with $53.8 million in the same period a year ago. During both periods, extended terms offered by major vendors to our Building Materials Distribution segment led to the increase in accounts payable.

Investment Activities

During the three months ended March 31, 2014 and 2013, we used approximately $12.5 million and $5.3 million, respectively, of cash for purchases of property and equipment, including business improvement and quality/efficiency projects, replacement and expansion projects, and ongoing environmental compliance. Excluding acquisitions, we expect capital expenditures in 2014 to total approximately $50 million to $60 million. This level of capital expenditures could increase or decrease as a result of a number of factors, including our financial results, future economic conditions, and timing of equipment purchases. For the three months ended March 31, 2014, we received proceeds of $4.5 million, primarily from the sale of two Building Materials Distribution locations.

Financing Activities

During the three months ended March 31, 2014, we borrowed $13.0 million under our Revolving Credit Facility to fund working capital needs, which was subsequently repaid during the same period with cash on hand, resulting in no borrowings outstanding at March 31, 2014.

On February 11, 2013, we issued 13,529,412 shares of common stock in our initial public offering. In connection with this initial public offering, we received proceeds of approximately $262.7 million, after deducting underwriting discounts and commissions of approximately $19.2 million and offering expenses of approximately $2.2 million.

During the three months ended March 31, 2013, we borrowed $55.0 million under our Revolving Credit Facility to fund working capital needs, which was subsequently repaid during the same period with cash on hand. We used $25.0 million of the net proceeds from our initial public offering to repay the remaining borrowings under our Revolving Credit Facility, resulting in no borrowings outstanding at March 31, 2013.

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Asset-Based Revolving Credit Facility

Boise Cascade and its principal operating subsidiaries, Boise Cascade Wood Products, L.L.C., and Boise Cascade Building Materials Distribution, L.L.C., are borrowers, and Boise Cascade Wood Products Holdings Corp. is guarantor under the $350 million Revolving Credit Facility. Borrowings under the Revolving Credit Facility are constrained by a borrowing base formula dependent upon levels of eligible receivables and inventory reduced by outstanding borrowings and letters of credit (Availability). On February 6, 2014, we entered into a sixth amendment to our Revolving Credit Facility that primarily provides more administrative flexibility and reduces the notice period we must provide to receive London Interbank Offered Rate based advances under the facility.

At both March 31, 2014, and December 31, 2013, we had no borrowings outstanding under the Revolving Credit Facility and $8.7 million and $8.4 million, respectively, of letters of credit outstanding. These letters of credit and borrowings, if any, reduced our borrowing capacity under the Revolving Credit Facility by an equivalent amount. The maximum borrowings outstanding under the Revolving Credit Facility was $13.0 million during the three months ended March 31, 2014. During the three months ended March 31, 2014, the average interest rate on borrowings was approximately 1.66%.

Senior Notes

On October 22, 2012, Boise Cascade and its wholly owned subsidiary, Boise Cascade Finance Corporation (Boise Finance and together with Boise Cascade, the Co-issuers), issued $250 million of Senior Notes through a private placement that was exempt from the registration requirements of the Securities Act of 1933, as amended (Securities Act). Interest on our Senior Notes is payable semiannually in arrears on May 1 and November 1, commencing on May 1, 2013. On March 28, 2013, Boise Finance was merged with and into Boise Cascade, with Boise Cascade as the surviving entity and sole issuer of the Senior Notes. The Senior Notes are guaranteed by each of our existing and future direct or indirect domestic subsidiaries that is a guarantor or co-borrower under our Revolving Credit Facility.

On August 15, 2013, we issued an additional $50 million in aggregate principal amount of Senior Notes in a private offering that was exempt from registration under the Securities Act. The additional $50 million of Senior Notes were priced at 103.5% of their principal amount plus accrued interest from May 1, 2013, and were issued as additional Senior Notes under the indenture dated as of October 22, 2012.

On May 8, 2013 and November 26, 2013, we completed an offer to exchange any and all of our $250 million and $50 million, respectively, outstanding Senior Notes for a like principal amount of new 6.375% Senior Notes due 2020 having substantially identical terms to those of the Senior Notes. $250 million and $49,990,000 in aggregate principal amount (or 100% and 99.98%, respectively) of the outstanding Senior Notes were tendered and accepted for exchange upon closing of the related exchange offers and have been registered under the Securities Act.

For more information related to our debt structure, see the discussion under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2013 Form 10-K and in Note 6, Debt, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q.

Contractual Obligations

For information about contractual obligations, see Contractual Obligations in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2013 Form 10-K. There have been no other material changes in contractual obligations outside the ordinary course of business since December 31, 2013.

Off-Balance-Sheet Activities

At March 31, 2014, and December 31, 2013, we had no material off-balance-sheet arrangements with unconsolidated entities.

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Guarantees

Note 7, Debt, and Note 16, Commitments, Legal Proceedings and Contingencies, and Guarantees, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2013 Form 10-K describe the nature of our guarantees, including the approximate terms of the guarantees, how the guarantees arose, the events or circumstances that would require us to perform under the guarantees, and the maximum potential undiscounted amounts of future payments we could be required to make. As of March 31, 2014, there have been no material changes to the guarantees disclosed in our 2013 Form 10-K.

Seasonal and Inflationary Influences

We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors. These seasonal factors are common in the building products industry. Seasonal changes in levels of building activity affect our building products businesses, which are dependent on housing starts, repair-and-remodeling activities, and light commercial construction activities. We typically report lower sales in the first and fourth quarters due to the impact of poor weather on the construction market, and we generally have higher sales in the second and third quarters, reflecting an increase in construction due to more favorable weather conditions. We typically have higher working capital in the first and second quarters in preparation and response to the building season. Seasonally cold weather increases costs, especially energy consumption, at most of our manufacturing facilities.

Our major costs of production are wood fiber, labor, and glue and resins. Wood fiber costs and glue and resin costs have been volatile in recent years.

Employees

As of April 27, 2014, we had approximately 5,390 employees. Approximately 27% of these employees work pursuant to collective bargaining agreements. As of April 27, 2014, we had nine collective bargaining agreements. Fewer than 1% of our total employees are working pursuant to a collective bargaining agreement that will expire within the next 12 months.

Environmental

For additional information about environmental issues, see Environmental in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2013 Form 10-K.

Critical Accounting Estimates

Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management's most difficult, subjective, or complex judgments, often as a result of the need to estimate matters that are inherently uncertain. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our board of directors. For information about critical accounting estimates, see Critical Accounting Estimates in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2013 Form 10-K. At March 31, 2014, there have been no material changes to our critical accounting estimates from those disclosed in our 2013 Form 10-K.

New and Recently Adopted Accounting Standards

For information related to new and recently adopted accounting standards, see "New and Recently Adopted Accounting Standards" in Note 2, Summary of Significant Accounting Policies, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" in this Form 10-Q.


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