What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-31 compared with 2020-05-07 · 165 added, 111 removed, 169 unchanged (62% of the section changed)

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and (ii) Building Materials Distribution (BMD), which is a wholesale distributor of building materials.

Demand for the products we manufacture, as well as the products we purchase and distribute, is closely correlated with new residential construction in the U.S.

To a lesser extent, demand for our products correlates with residential repair-and-remodeling activity and light commercial construction.

For more information, see Note 12, Segment Information, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1.

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Executive Overview

We recorded income from operations of $25.5 million during the three months ended March 31, 2020 , compared with income from operations of $21.7 million during the three months ended March 31, 2019 .

In our Wood Products segment, income decreased $7.9 million to $3.8 million for the three months ended March 31, 2020 , from $11.6 million for the three months ended March 31, 2019 .

The decrease in segment income was due primarily to accelerated depreciation of $15.0 million and other closure-related costs of $1.7 million at our Roxboro, North Carolina facility, as well as lower plywood prices.

These decreases were offset partially by lower manufacturing costs and higher EWP volumes.

In our Building Materials Distribution segment, income increased $11.8 million to $29.3 million for the three months ended March 31, 2020 , from $17.5 million for the three months ended March 31, 2019 , driven primarily by a gross margin increase of $24.6 million , resulting from improved gross margins on commodity products and higher sales of general line and EWP products compared with first quarter 2019, offset partially by increased selling and distribution expenses of $12.2 million .

We recorded income from operations of $51.8 million during the three months ended June 30, 2020, compared with income from operations of $45.1 million during the three months ended June 30, 2019.

In our Wood Products segment, income decreased $1.8 million to $17.1 million for the three months ended June 30, 2020, from $18.9 million for the three months ended June 30, 2019.

The decrease in segment income was due primarily to lower sales volumes and prices of EWP, as well as lower lumber sales prices.

These decreases were offset partially by higher plywood sales prices and lower wood fiber costs.

In our Building Materials Distribution segment, income increased $9.4 million to $43.2 million for the three months ended June 30, 2020, from $33.8 million for the three months ended June 30, 2019, driven primarily by a gross margin increase of $16.3 million, resulting from improved gross margins on commodity products compared with second quarter 2019.

This improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $5.0 million and $1.2 million, respectively.

These changes are discussed further in "Our Operating Results" below.

We ended first quarter 2020 with $215.0 million of cash and cash equivalents and $345.4 million of undrawn committed bank line availability, for total available liquidity of $560.4 million .

We had $439.9 million of outstanding debt at March 31, 2020 , with no maturities prior to 2024.

We used $70.2 million of cash during the three months ended March 31, 2020 , principally to fund seasonal working capital increases and capital spending, dividends paid on our common stock, and tax withholding payments on stock-based awards.

A further description of our cash sources and uses for the three month comparative periods are discussed further in "Liquidity and Capital Resources" below.

The full impacts of the global emergence of COVID-19 on our business and financial results are currently unknown.

We are conducting business with modifications to our manufacturing production levels, mill and distribution center housekeeping and cleanliness protocols, employee travel, employee work locations, and virtualization or cancellation of certain sales and marketing events, among other modifications.

We have observed other companies as well as various governmental agencies taking precautionary and preemptive actions to address COVID-19, and further actions may yet be taken that alter our normal business operations as well as those in our industry.

Department of Homeland Security (DHS) has designated the forest products industry, and thereby wood products manufacturing and building materials distribution, as part of the

Essential Critical Infrastructure Workforce.

However, state and local agencies are not mandated to follow the DHS designations, and in certain geographies across the U.S., additional restrictions have been imposed that further limit or preclude residential construction activity.

Given the current outlook and with sufficient inventory on hand, our Wood Products segment has implemented changes to reduce the volume of EWP and plywood it will produce.

In April 2020, we temporarily curtailed or reduced operating schedules at essentially all of our manufacturing facilities, and we expect to continue temporary curtailment of certain operations until market conditions improve.

All of our distribution facilities continue to operate, but at reduced activity levels, particularly at locations whose trade areas have been subject to additional state or local restrictions.

We expect activity levels across our distribution network to continue to vary widely as COVID-19 impacts geographies across the U.S.

We ended second quarter 2020 with $361.4 million of cash and cash equivalents and $345.4 million of undrawn committed bank line availability, for total available liquidity of $706.8 million.

We had $440.2 million of outstanding debt at June 30, 2020.

In addition, on July 27, 2020, we issued $400 million of 4.875% senior notes to fund the redemption of our $350 million aggregate principal amount of 5.625% senior notes due 2024 (2024 Notes), to pay off our American AgCredit Term Loan of $45.0 million, and to pay related financing fees and expenses.

We generated $76.2 million of cash during the six months ended June 30, 2020, as cash provided by operations was offset by capital spending, dividends paid on our common stock, and tax withholding payments on stock-based awards.

A further description of our cash sources and uses for the six month comparative periods are discussed further in "Liquidity and Capital Resources" below.

In response to rapidly evolving market conditions and economic uncertainties surrounding the impact of COVID-19, our Wood Products segment implemented certain production changes early in the second quarter, including temporary curtailments and reduced operating schedules at essentially all of our manufacturing facilities, to respond to weaker anticipated demand for the products we manufacture.

Activity through the building products supply chain was weak early in the second quarter in response to COVID-19 uncertainties, including shelter-in-place orders in effect in many states, guidelines limiting

activity for non-essential businesses, and other rules that limited the number of trade workers that can be on a residential construction site at one time.

As restrictions were loosened or rescinded, construction activity resumed mid-quarter and continued at a robust pace through the end of the quarter.

Our BMD warehouse sales were particularly strong as our retail lumberyard customers are relying on our broad base of inventory and high service levels to minimize their working capital investment given COVID-19 related uncertainties and elevated commodity product prices.

In addition, we have had strong demand from our home center customers in response to elevated repair and remodel and "do-it-yourself" activity as people are spending more time at home during the pandemic.

As we begin the third quarter, Wood Products is in the process of attempting to restore production rates to pre-COVID-19 levels in response to strong end-product demand.

However, we continue to experience periodic short-term disruptions at many locations due to COVID-19.

In addition, we expect activity levels across our distribution network to continue to vary widely as COVID-19 impacts geographies across the U.S.

to differing degrees, and federal, state, or local restrictions are implemented or rescinded.

To date, we have not experienced disruptions to our supply chain and have been able to source the necessary raw materials and finished goods needed by our operations.

We continue to actively monitor evolving developments and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers and stockholders.

Demand for the products we manufacture, as well as the products we purchase and distribute, is closely correlated with new residential construction in the U.S., which has been historically cyclical.

To a lesser extent, demand for our products correlates with residential repair-and-remodeling activity and light commercial construction.

The full impacts of the global emergence of COVID-19 on housing starts, residential repair-and-remodeling activity, and light commercial construction is uncertain.

However, economists predict that housing starts will be negatively impacted compared to expectations prior to the COVID-19 outbreak.

As of April 2020, the Blue Chip Economic Indicators consensus forecast for 2020 and 2021 single- and multi-family housing starts in the U.S.

To date, we have not experienced significant supply chain disruptions that would limit our ability to meet customer delivery commitments or source the necessary raw materials and finished goods needed by our operations.

We continue to conduct business with modifications to mill and distribution center housekeeping and cleanliness protocols, employee travel, employee work locations, and virtualization or cancellation of certain sales and marketing events, among other modifications.

In addition, we continue to actively monitor evolving developments and may take actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, suppliers, communities, and stockholders.

As of July 2020, the Blue Chip Economic Indicators consensus forecast for 2020 and 2021 single- and multi-family housing starts in the U.S.

were 1.19 million and 1.27 million units, respectively, compared with actual housing starts of 1.29 million in 2019, as reported by the U.S.

Census Bureau.

Based upon current housing market indices, among other indicators, housing start levels for the second quarter of 2020 are likely to be below 1.00 million on a seasonally adjusted annual basis.

Although we believe that current U.S.

demographics are supportive of higher levels of housing starts, we expect the economic consequences of COVID-19 to negatively impact residential construction.

In particular, COVID-19 is expected to adversely affect the pace of household formation rates and residential repair-and-remodeling activity due to high unemployment rates, lower wages, low consumer confidence, prospective home buyers' lack of ability to view homes in person, prospective home buyers' access to and cost of financing, and housing affordability, as well as other factors.

Household formation rates in turn will be a key factor behind the demand for new construction.

Robust construction activity in the first two months of 2020, as evidenced by seasonally adjusted annual rates of housing starts around 1.6 million, drove sharp increases in commodity products pricing that peaked in mid-March.

However, concerns and uncertainty about the impacts of COVID-19 since then have negatively impacted residential construction activity and building products demand, resulting in curtailments of production across the industry and a sharp decline in commodity prices.

Current composite panel and lumber prices are approximately 15% below the peaks of mid-March 2020 and are at similar levels to those experienced in second quarter 2019.

We anticipate that commodity products pricing in the second quarter of 2020 will remain at current low levels, with the balance of the year subject to price volatility that will be dependent on the impact of COVID-19 on residential construction, industry operating rates, net import and export activity, transportation constraints or disruptions, inventory levels in various distribution channels, and seasonal demand patterns.

demographics support a higher level of housing starts, the impacts of COVID-19 on residential construction are uncertain.

In particular, the economic consequences of COVID-19 may adversely affect the pace of household formation rates and residential repair-and-remodeling activity due to high unemployment rates, lower wages, reduced consumer confidence, prospective home buyers' lack of ability to view homes in person, homebuyers' access to and cost of financing, and housing affordability, as well as other factors.

Beyond economic uncertainties, the pandemic may improve the demand for single-family residential construction as homeowners consider a transition to less densely populated geographies.

Furthermore, with homeowners spending more time at home, repair and remodel spending may continue to strengthen as homeowners invest in existing homes.

Increased construction activity in May and June of 2020, when coupled with second quarter capacity curtailments of commodity products across the industry, have created supply/demand imbalances in the marketplace.

As such, order files at the manufacturing level have extended, and composite lumber and panel prices at the end of the second quarter were 30-40% above price realizations early in the quarter.

We anticipate that commodity products pricing in the third quarter of 2020 will be subject to price volatility that will be dependent on the impact of COVID-19 on residential construction, capacity restoration and industry operating rates, net import and export activity, transportation constraints or disruptions, inventory levels in various distribution channels, and seasonal demand patterns.

Factors That Affect Our Operating Results and Trends

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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, 2020 and 2019 :

The following tables set forth our operating results in dollars and as a percentage of sales for the three and six months ended June 30, 2020 and 2019:

Three Months Ended

June 30 Six Months Ended

2020 2019 2020 2019

Sales $ 1,242.8 $ 1,230.1 $ 2,413.3 $ 2,272.2

Costs and expenses

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Other (income) expense, net (0.2) 0.2 — (0.1)

1,191.0 1,184.9 2,336.0 2,205.4

Income from operations $ 51.8 $ 45.1 $ 77.3 $ 66.8

(percentage of sales)

Sales 100.0 % 100.0 % 100.0 % 100.0 %

Costs and expenses

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Other (income) expense, net — — — —

95.8 % 96.3 % 96.8 % 97.1 %

Income from operations 4.2 % 3.7 % 3.2 % 2.9 %

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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, 2020 and 2019 .

Three Months Ended

June 30 Six Months Ended

2020 2019 2020 2019

Housing Starts (a)

Single-family 210.6 242.1 425.0 430.7

Multi-family 79.3 107.7 194.1 184.3

289.9 349.8 619.1 615.0

Segment Sales

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Intersegment eliminations (173,005) (201,596) (372,529) (386,741)

Wood Products

Total sales $ 1,242,760 $ 1,230,081 $ 2,413,294 $ 2,272,167

Wood Products (millions)

Sales Volumes

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ft.) (3/8" basis) 314 343 632 679

Wood Products

(dollars per unit)

Wood Products (dollars per unit)

Average Net Selling Prices

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Product Line Sales

Commodity 43.2 % 41.0 % 42.6 % 42.3 %

General line 39.5 % 39.2 % 38.7 % 37.6 %

Engineered wood 17.3 % 19.8 % 18.7 % 20.1 %

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_______________________________________

(a) Actual U.S.

housing starts data reported by the U.S.

Census Bureau.

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.

(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.

For the three months ended March 31, 2020 , total sales increased $128.4 million , or 12% , to $1,170.5 million from $1,042.1 million during the three months ended March 31, 2019 .

For the three months ended June 30, 2020, total sales increased $12.7 million, or 1%, to $1,242.8 million from $1,230.1 million during the three months ended June 30, 2019.

For the six months ended June 30, 2020, total sales increased by $141.1 million, or 6%, to $2,413.3 million from $2,272.2 million for the same period in the prior year.

As described below, the increase in sales was driven by the changes in sales prices and volumes for the products we manufacture and distribute with single-family residential construction activity being the key demand driver of our sales.

In first quarter 2020 , U.S.

housing starts increased 22% , with single-family starts up 12% from the same period in 2019 .

Average composite lumber and panel prices for the three months ended March 31, 2020 , were 12% and 3% higher, respectively, than in the same period in the prior year, as reflected by Random Lengths composite lumber and panel pricing.

In second quarter 2020, U.S.

housing starts decreased 17%, with single-family starts down 13% from the same period in 2019.

On a year-to-date basis through June 2020, total and single-family housing starts were relatively flat compared with the same period in 2019.

Average composite lumber and average composite panel prices for the three months ended June 30, 2020, were 18% and 14% higher, respectively, than in the same period in the prior year, as reflected by Random Lengths composite lumber and panel pricing.

For the six months ended June 30, 2020, average composite lumber and average composite panel prices were 15% and 8% higher, respectively, compared with the same period in the prior year.

Wood Products.

Sales, including sales to our BMD segment, increased $0.5 million to $320.1 million for the three months ended March 31, 2020 , from $319.5 million for the three months ended March 31, 2019 .

The modest increase in sales was driven primarily by higher sales volumes for I-joists and LVL of 14% and 8%, respectively, resulting in increased sales of $9.3 million and $6.5 million, respectively.

These increases were offset partially by decreases in sales prices and sales volumes for plywood of 7% and 5%, respectively, resulting in decreased sales of $6.2 million and $5.2 million, respectively.

Sales, including sales to our BMD segment, decreased $52.8 million, or 16%, to $281.5 million for the three months ended June 30, 2020, from $334.3 million for the three months ended June 30, 2019.

The decrease in sales was driven primarily by lower sales volumes for I-joists and LVL of 18% and 16%, respectively, resulting in decreased sales of $13.9 million and $14.0 million, respectively.

In addition, sales volumes for plywood decreased 8%, resulting in decreased sales of $7.9 million.

Lumber, LVL, and I-joists net sales prices decreased 16%, 2% and 1%, respectively, resulting in decreased sales of $2.2 million, $1.3 million, and $1.0 million, respectively.

These decreases were offset partially by increases in sales prices for plywood of 6%, resulting in increased sales of $4.8 million.

For the six months ended June 30, 2020, sales, including sales to our BMD segment, decreased $52.2 million, or 8%, to $601.6 million from $653.8 million for the same period in the prior year.

The decrease in sales was driven primarily by decreases in sales volumes and prices for plywood of 7% and 1%, respectively, resulting in decreased sales of $13.2 million and $1.4 million, respectively.

Excluding the impact of the Moncure plywood mill that was sold in first quarter 2019, plywood volumes decreased 5%.

In addition, LVL net sales prices decreased 2% resulting in decreased sales of $1.7 million.

I-joists net sales prices were relatively flat compared with the prior year quarter.

In addition, sales volumes for LVL and I-joists decreased 5% and 3%, respectively, resulting in decreased sales of $7.6 million and $4.5 million, respectively.

LVL net sales prices decreased 2% resulting in decreased sales of $2.9 million, while I-joists net sales prices were relatively flat compared with the prior year period.

In addition, lumber sales prices decreased 18%, resulting in decreased sales of $5.2 million.

Building Materials Distribution.

Sales increased $142.3 million , or 16% , to $1,050.0 million for the three months ended March 31, 2020 , from $907.7 million for the three months ended March 31, 2019 .

Compared with the same quarter in the prior year, the overall increase in sales was driven by a sales volume increase of 17% , offset partially by a sales price decrease of 1% .

Sales increased $36.8 million, or 3%, to $1,134.3 million for the three months ended June 30, 2020, from $1,097.4 million for the three months ended June 30, 2019.

Compared with the same quarter in the prior year, the overall increase in sales was driven by a sales price increase of 4%, offset partially by a sales volume decrease of 1%.

By product line, commodity sales increased 9%, or $39.3 million;

general line product sales increased 4%, or $18.5 million;

and sales of EWP (substantially all of which are sourced through our Wood Products segment) increased 14%, or $26.5 million.

and sales of EWP (substantially all of which are sourced through our Wood Products segment) decreased 10%, or $21.0 million.

During the six months ended June 30, 2020, sales increased $179.1 million, or 9%, to $2,184.3 million from $2,005.1 million for the same period in the prior year.

Compared with the same period in the prior year, the overall increase in sales was driven by sales volume and sales price increases of 6% and 3%, respectively.

By product line, commodity sales increased 10%, or $81.1 million;

general line product sales increased 12%, or $92.4 million;

and sales of EWP increased 1%, or $5.6 million.

Costs and Expenses

Materials, labor, and other operating expenses (excluding depreciation) increased $94.4 million , or 11% , to $992.3 million for the three months ended March 31, 2020 , compared with $897.8 million during the same period in the prior year.

In our Wood Products segment, materials, labor, and other operating expenses decreased, due to decreased manufacturing costs, offset partially by higher sales volumes of EWP, as well as higher per-unit costs of OSB (used in the manufacture of I-joists) of 9%, compared with first quarter 2019 .

Materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 300 basis points, which was primarily due to improved leveraging of manufacturing costs, offset partially by higher wood fiber costs.

In BMD, the increase in materials, labor, and other operating expenses was driven by higher purchased materials costs as a result of higher sales volumes.

However, the BMD segment MLO rate improved 70 basis points compared with the first quarter 2019 due primarily to improved gross margin percentages for our commodity product sales, driven by an increasing commodity price environment during most of the first quarter.

Materials, labor, and other operating expenses (excluding depreciation) decreased $0.8 million to $1,048.9 million for the three months ended June 30, 2020, compared with $1,049.7 million during the same period in the prior year.

In our Wood Products segment, materials, labor, and other operating expenses decreased, due to lower sales volumes and slightly lower log costs, offset partially by higher per-unit costs of OSB (used in the manufacture of I-joists) of 26%, compared with second quarter 2019.

Materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 150 basis points, which was primarily due to lower manufacturing and wood fiber costs.

In BMD, materials, labor, and other operating expenses increased, driven by higher purchased materials costs as a result of higher commodity prices.

However, the BMD segment MLO rate improved 100 basis points compared with the second quarter 2019 due primarily to improved gross margin percentages for our commodity product sales, driven by an increasing commodity price environment during the second quarter 2020.

For the six months ended June 30, 2020, materials, labor, and other operating expenses (excluding depreciation), increased $93.7 million or 5%, to $2,041.2 million, compared with $1,947.5 million in the same period in the prior year.

In our Wood Products segment, the decrease in materials, labor, and other operating expenses was primarily driven by lower sales volumes and slightly lower log costs, offset partially by higher per-unit costs of OSB of 17%, compared with the first half of

The MLO rate in our Wood Products segment decreased by 220 basis points, which was primarily due to lower manufacturing and wood fiber costs.

In BMD, the increase in materials, labor, and other operating expenses was driven by higher purchased materials costs as a result of higher sales volumes and higher commodity prices, compared with the first half of 2019.

However, the BMD segment MLO rate improved 90 basis points compared with the first half of 2019 due primarily to improved gross margin percentages for our commodity product sales, driven by an increasing commodity price environment during most of the first half of 2020.

In addition, BMD sold a greater mix of general line products, which have higher gross margins than commodity products.

Depreciation and amortization expenses increased $16.1 million , or 84% , to $35.3 million for the three months ended March 31, 2020 , compared with $19.2 million during the same period in the prior year.

Depreciation and amortization expenses increased $0.4 million, or 2%, to $19.9 million for the three months ended June 30, 2020, compared with $19.5 million during the same period in the prior year.

For the six months ended June 30, 2020, these expenses increased $16.6 million, or 43%, to $55.2 million, compared with $38.7 million in the same period in the prior year.

The increase was due primarily to recording accelerated depreciation of $15.0 million in first quarter 2020 to fully depreciate the curtailed I-joist production assets at our Roxboro, North Carolina facility, as well as incremental depreciation on capital expenditures.

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Financial Statements" of this Form 10-Q.

Selling and distribution expenses increased $12.4 million , or 14% , to $99.5 million for the three months ended March 31, 2020 , compared with $87.0 million during the same period in the prior year, due primarily to higher employee-related expenses and shipping and handling costs of $7.6 million and $1.6 million, respectively.

General and administrative expenses decreased $0.6 million , or 4% , to $16.1 million for the three months ended March 31, 2020 , compared with $16.7 million for the same period in the prior year, primarily as a result of lower incentive compensation expenses.

We expect incentive compensation to be lower in 2020 than the prior year, based on our expectation of lower sales and income in the remainder of 2020 due to the impacts of COVID-19.

For the three months ended March 31, 2020 , loss on curtailment of facility was $1.7 million , representing various closure-related costs from the permanent curtailment of I-joist production at our Roxboro, North Carolina facility.

additional information, see Note 5, Curtailment of Manufacturing Facility , of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1.

Selling and distribution expenses increased $4.7 million, or 5%, to $103.6 million for the three months ended June 30, 2020, compared with $98.9 million during the same period in the prior year, due primarily to higher employee-related expenses of $6.3 million, offset partially by lower travel and entertainment expenses of $2.0 million.

For the six months ended June 30, 2020, selling and distribution expenses increased $17.1 million, or 9%, to $203.0 million, compared with $185.9 million during the same period in 2019, due primarily to higher employee-related expenses and shipping and handling costs of $13.6 million and $1.1 million, respectively.

General and administrative expenses increased $2.0 million, or 12%, to $18.8 million for the three months ended June 30, 2020, compared with $16.8 million for the same period in the prior year.

For the six months ended June 30, 2020, general and administrative expenses increased $1.4 million, or 4%, to $34.8 million, compared with $33.5 million during the same period in 2019.

The increases for both periods were primarily a result of higher employee-related expenses, offset partially by lower discretionary expenses, including travel and entertainment expenses and professional fees.

For the six months ended June 30, 2020, loss on curtailment of facility was $1.7 million, representing various closure-related costs from the permanent curtailment of I-joist production at our Roxboro, North Carolina facility.

For additional information, see Note 5, Curtailment of Manufacturing Facility, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1.

Financial Statements" of this Form 10-Q.

Income From Operations

Income from operations increased $3.9 million to $25.5 million for the three months ended March 31, 2020 , compared with $21.7 million for the three months ended March 31, 2019 .

Income from operations increased $6.6 million to $51.8 million for the three months ended June 30, 2020, compared with $45.1 million for the three months ended June 30, 2019.

Income from operations increased $10.5 million to $77.3 million for the six months ended June 30, 2020, compared with $66.8 million for the six months ended June 30, 2019.

Wood Products.

Segment income decreased $7.9 million to $3.8 million for the three months ended March 31, 2020 , compared with $11.6 million for the three months ended March 31, 2019 .

These decreases were offset partially by lower manufacturing costs and higher EWP volumes.

Segment income decreased $1.8 million to $17.1 million for the three months ended June 30, 2020, compared with $18.9 million for the three months ended June 30, 2019.

The decrease in segment income was due primarily to lower sales volumes and prices of EWP, as well as lower lumber sales prices.

These decreases were offset partially by higher plywood sales prices and lower wood fiber costs.

For the six months ended June 30, 2020, segment income decreased $9.7 million to $20.8 million from $30.5 million for the six months ended June 30, 2019.

These decreases were offset partially by lower manufacturing and wood fiber costs.

Building Materials Distribution.

Segment income increased $11.8 million to $29.3 million for the three months ended March 31, 2020 , from $17.5 million for the three months ended March 31, 2019 .

The increase in segment income was driven primarily by a gross margin increase of $24.6 million , resulting from improved gross margins on commodity products and higher sales of general line and EWP products compared with first quarter 2019.

This improvement was offset partially by increased selling and distribution expenses of $12.2 million .

Unallocated corporate expenses were $7.5 million for the three months ended March 31, 2020 , which is flat compared with the same period in the prior year.

Segment income increased $9.4 million to $43.2 million for the three months ended June 30, 2020, from $33.8 million for the three months ended June 30, 2019.

The increase in segment income was driven primarily by a gross margin increase of $16.3 million, resulting from improved gross margins on commodity products compared with second quarter 2019.

This improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $5.0 million and $1.2 million, respectively.

For the six months ended June 30, 2020, segment income increased $21.2 million to $72.5 million from $51.3 million for the six months ended June 30, 2019.

The increase in segment income was driven primarily by a gross margin increase of $41.0 million resulting from improved gross margins on commodity products and higher sales of general line products

compared with the first half of 2019.

This improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $17.2 million and $1.7 million, respectively.

Unallocated corporate expenses increased $0.9 million to $8.5 million from $7.6 million for the three months ended June 30, 2020, compared with the same period in the prior year.

For the six months ended June 30, 2020, unallocated corporate expenses increased $1.0 million to $16.0 million from $15.1 million for the six months ended June 30, 2019.

The increases for both periods were due primarily to higher employee-related expenses, including incentive compensation.

Change in fair value of interest rate swaps.

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Income Tax Provision

For the three months ended March 31, 2020 and 2019 , we recorded $4.0 million and $3.2 million , respectively, of income tax expense and had an effective rate of 24.7% and 21.9% , respectively.

During the three months ended March 31, 2020 , 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, offset by excess tax benefits of vested share-based payment awards and accounting for the tax impact of the CARES Act.

During the three months ended March 31, 2019 , 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, offset by excess tax benefits of vested share-based payment awards.

For the three and six months ended June 30, 2020, we recorded $11.3 million and $15.3 million, respectively, of income tax expense and had an effective rate of 25.2% and 25.1%, respectively.

During the three and six months ended June 30, 2020, 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.

For the three and six months ended June 30, 2019, we recorded $9.8 million and $13.0 million, respectively, of income tax expense and had an effective rate of 26.0% and 24.9%, respectively.

During the three and six months ended June 30, 2019, 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.

Liquidity and Capital Resources

We ended first quarter 2020 with $215.0 million of cash and cash equivalents and $439.9 million of debt.

At March 31, 2020 , we had $560.4 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability).

Further descriptions of our cash sources and uses for the three month comparative periods are noted below.

In response to the impacts of COVID-19, we have reduced our planned capital spending for 2020 from our previously expected range of $85-to-$95 million to $50-to-$70 million.

We have also reduced discretionary spending in response to the COVID-19 impact.

In addition, we have identified a number of other cash saving measures that may be implemented in the near term, the timing and extent of which will depend upon the depth and duration of COVID-19 and its impact on our operating results.

Although significant uncertainty remains regarding the impact of COVID-19 on our 2020 operating results and cash flows, 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, funding of acquisitions, lease obligations, working capital, pension contributions, and to pay cash dividends to holders of our common stock over the next 12 months.

We expect to fund our seasonal and intra-month working capital requirements in 2020 from cash on hand and, if necessary, borrowings under our revolving credit facility.

We ended second quarter 2020 with $361.4 million of cash and cash equivalents and $440.2 million of debt.

At June 30, 2020, we had $706.8 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability).

We generated $76.2 million of cash during the six months ended June 30, 2020, as cash provided by operations was offset partially by capital spending, dividends paid on our common stock, and tax withholding payments on stock-based awards.

Further descriptions of our cash sources and uses for the six month comparative periods are noted below.

On July 27, 2020, we issued $400 million of 4.875% senior notes due July 1, 2030 (2030 Notes) to fund the redemption of our 2024 Notes, to pay off our American AgCredit Term Loan of $45.0 million, and to pay related financing fees and expenses.

For more information related to these debt transactions, see the discussion in Note 14, Subsequent Events of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1.

Financial Statements" of this Form 10-Q.

In response to the uncertainty of the impacts of COVID-19, we have reduced our planned capital spending for 2020 from our previously expected range of $85-to-$95 million to $50-to-$70 million.

We have also reduced discretionary spending and have identified other cash saving measures that may be implemented in the near term, the timing and extent of which will depend upon the depth and duration of COVID-19 and its impact on our operating results.

Although significant uncertainty remains regarding the impact of COVID-19 on our operating results and cash flows for the remainder of 2020 and into 2021, 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, funding of acquisitions, lease obligations, working capital, pension contributions, and to pay cash dividends to holders of our common stock over the next 12 months.

We expect to fund our seasonal and intra-month working capital requirements in the remainder of 2020 from cash on hand and, if necessary, borrowings under our revolving credit facility.

Sources and Uses of Cash

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Below is a discussion of our sources and uses of cash for operating activities, investing activities, and financing activities.

Three Months Ended

Net cash used for operations

Six Months Ended

Net cash provided by operations $ 118,276 $ 66,852

Net cash used for investment (28,443) (44,611)

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Operating Activities

For the three months ended March 31, 2020 , our operating activities used $42.5 million of cash, compared with $37.0 million of cash used in the same period in 2019 .

The $5.5 million increase in cash used for operations was due primarily to an increase in working capital of $94.9 million during the three months ended March 31, 2020 , compared with a $87.2 million increase for the same period in the prior year.

In addition, cash paid for taxes, net of refunds received, was $5.3 million during the three months ended March 31, 2020 , compared with refunds received, net of cash taxes paid, of $11.0 million in the same period a year ago.

These decreases were offset partially by an increase in income from operations.

For the six months ended June 30, 2020, our operating activities generated $118.3 million of cash, compared with $66.9 million of cash generated in the same period in 2019.

The $51.4 million increase in cash provided by operations was due primarily to a decrease in working capital of $0.1 million during the six months ended June 30, 2020, compared with a $40.1 million increase for the same period in the prior year.

In addition, cash provided by operations increased due to an improvement in income from operations.

See "Our Operating Results" in this Management's Discussion and Analysis of Financial Condition and Results of Operations for more information related to factors affecting our operating results.

The change in working capital in both periods was primarily attributable to higher receivables and inventories, offset by an increase in accounts payable and accrued liabilities.

The increases in receivables in both periods primarily reflect increased sales of approximately 29% and 19%, comparing sales for the months of March 2020 and 2019 with sales for the months of December 2019 and 2018, respectively.

The increase in accounts payable and accrued liabilities provided $55.6 million of cash during the three months ended March 31, 2020 , compared with $29.8 million in the same period a year ago.

During both periods, seasonal increases in inventory in preparation for the spring building season and extended terms offered by major vendors to our Building Materials Distribution segment led to the increase in accounts payable.

These increases were offset partially by cash paid for taxes, net of refunds received, of $8.9 million during the six months ended June 30, 2020, compared with refunds received, net of cash taxes paid, of $10.6 million in the same period a year ago.

The change in working capital during both periods was primarily attributable to higher receivables, offset by higher accounts payable and decreased inventories.

The increases in receivables in both periods primarily reflect increased sales of approximately 47% and 38%, comparing sales for the months of June 2020 and 2019 with sales for the months of December 2019 and 2018, respectively.

The increase in accounts payable and accrued liabilities provided $95.5 million of cash during the six months ended June 30, 2020, compared with $45.4 million in the same period a year ago.

During both periods, extended terms offered by major vendors to our Building Materials Distribution segment and seasonally higher purchasing activity contributed to the increase in accounts payable.

This increase in accounts payable was offset partially by decreases in accrued liabilities, most notably annual employee incentive compensation payouts made during both periods.

During the six months ended June 30, 2020, distribution inventories decreased due to stronger than expected demand and higher inventory turns, while manufacturing inventories decreased due to reduced production levels in response to lower market demand.

Both businesses have continued to manage their inventory levels in response to the volatility in demand caused by the COVID-19 pandemic.

During the six months ended June 30, 2019, inventories decreased, as inventory in our Building Materials Distribution segment did not increase at the same rate as the comparative prior year period as a result of weak commodity pricing in the first six months of 2019, and as inventory levels at the end of 2018 were seasonally higher than normal with slower sales in the second half of 2018 due to slower housing activity and declining commodity prices.

Investment Activities

During the three months ended March 31, 2020 and 2019 , we used $18.6 million and $14.3 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.

For the three months ended March 31, 2019, we received asset sale proceeds of $2.5 million from the sale of a hardwood plywood facility located in Moncure, North Carolina.

During the six months ended June 30, 2020 and 2019, we used $28.8 million and $32.8 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.

In addition, during the six months ended June 30, 2019, we used $15.7 million for acquisitions, offset partially by asset sale proceeds of $2.5 million from the sale of a hardwood plywood facility located in Moncure, North Carolina.

Excluding acquisitions, we expect capital expenditures in 2020 to total approximately $50 million to $70 million.

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Financing Activities

During the three months ended March 31, 2020 , our financing activities used $9.3 million of cash, including $4.6 million for common stock dividend payments and $3.3 million of tax withholding payments on stock-based awards.

During the three months ended March 31, 2020 , we did not borrow under our revolving credit facility, and therefore have no borrowings outstanding as of March 31, 2020 .

During the three months ended March 31, 2019 , our financing activities used $7.8 million of cash, including $4.1 million for common stock dividend payments and $3.6 million of tax withholding payments on stock-based awards.

During the three months ended March 31, 2019 , we did not borrow under our revolving credit facility.

During the six months ended June 30, 2020, our financing activities used $13.6 million of cash, including $8.6 million for common stock dividend payments and $3.3 million of tax withholding payments on stock-based awards.

During the six months ended June 30, 2020, we did not borrow under our revolving credit facility, and therefore have no borrowings outstanding on the facility as of June 30, 2020.

During the six months ended June 30, 2019, our financing activities used $11.5 million of cash, including $7.6 million for common stock dividend payments and $3.6 million of tax withholding payments on stock-based awards.

During the six months ended June 30, 2019, we also borrowed $5.5 million under our revolving credit facility to fund intra-month working capital needs, which were subsequently repaid during the same period with cash at hand.

On March 13, 2020, we negotiated an extension of our $350 million revolving credit agreement and our related $50 million term loan.

As of March 31, 2020, we have no debt maturities prior to 2024.

As of June 30, 2020, we have no debt maturities prior to 2024.

Future quarterly dividend declarations, including amount per share, record date and payment date, will be made at the discretion of our board of directors and will depend upon, among other things, legal capital requirements and surplus, our future operations and earnings, general financial condition, contractual obligations, restrictions imposed by our asset-based credit facility, term loan, and the indenture governing our senior notes, applicable laws, and other factors that our board of directors may deem relevant.

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Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Form 10-K.

There have been no material changes in contractual obligations outside the ordinary course of business since December 31, 2019 , except for on March 13, 2020, we extended the maturity date of our asset-based revolving credit facility and related $50 million term loan to the earlier of (i) March 13, 2025 and (ii) 90 days prior to the maturity of our $350 million of 5.625% senior notes due September 1, 2024 (or the maturity date of any permitted refinancing indebtedness in respect thereof) and decreased the maximum amount available under our revolving credit facility from $370 million to $350 million.

For more information, see Note 6, Debt , of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1.

As of June 30, 2020, there have been no material changes in contractual obligations outside the ordinary course of business since December 31, 2019, except for on March 13, 2020, we extended the maturity date of our asset-based revolving credit facility and related $50 million term loan to March 13, 2025 and decreased the maximum amount available under our revolving credit facility from $370 million to $350 million.

Subsequent to June 30, 2020, we issued $400 million of 4.875% senior notes to fund the redemption of our $350 million of 5.625% senior notes due 2024 and to pay off our American AgCredit Term Loan of $45.0 million.

In addition, we announced to plan participants that we will freeze accrual of all benefits on our qualified defined benefit pension plan (Pension Plan) effective August 31, 2020, as well as our intention to terminate the Pension Plan (Plan Termination).

As part of the Plan Termination process, we expect to repurchase two BMD locations leased from the Pension Plan for approximately $12 million, and we do not expect the Plan Termination to result in a meaningful amount of additional cash contributions to the Pension Plan.

We intend to enter into an agreement with an insurance company to transfer all remaining assets and liabilities in the Pension Plan as soon as practicable.

For more information, see Note 6, Debt, Note 8, Retirement and Benefit Plans, and Note 14, Subsequent Events, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1.

Financial Statements" of this Form 10-Q.

Off-Balance-Sheet Activities

At March 31, 2020 , and December 31, 2019 , we had no material off-balance-sheet arrangements with unconsolidated entities.

At June 30, 2020, and December 31, 2019, we had no material off-balance-sheet arrangements with unconsolidated entities.

Note 10, Debt, and Note 18, Commitments, Legal Proceedings and Contingencies, and Guarantees, of the Notes to Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" in our 2019 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, 2020 , there have been no material changes to the guarantees disclosed in our 2019 Form 10-K.

As of June 30, 2020, there have been no material changes to the guarantees disclosed in our 2019 Form 10-K.

Seasonal Influences

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Seasonally cold weather increases costs, especially energy consumption costs, at most of our manufacturing facilities.

As of May 3, 2020 , we had approximately 5,870 employees.

As of July 26, 2020, we had approximately 5,780 employees.

Approximately 22% of these employees work pursuant to collective bargaining agreements.

As of May 3, 2020 , we had ten collective bargaining agreements.

Five agreements, covering approximately 470 employees at our Elgin plywood plant, Kettle Falls plywood plant, and Woodinville BMD facility, are set to expire on May 31, 2020.

In addition, an agreement covering approximately 35 employees at our Vancouver BMD facility is set to expire on December 31, 2020, and an agreement covering approximately 20 employees at our Billings BMD facility is set to expire on March 31, 2021.

As of July 26, 2020, we had ten collective bargaining agreements.

Five agreements, covering approximately 460 employees at our Elgin plywood plant, Kettle Falls plywood plant, and Woodinville BMD facility, expired on May 31, 2020, but the terms and conditions of those agreements remain in effect pending negotiation of new agreements.

We may not be able to renew these agreements or may renew them on terms that are less favorable to us than the current agreements.

In addition, an agreement covering approximately 20 employees at our Billings BMD facility is set to expire on March 31, 2021, and two agreements covering approximately 670 employees at our Oakdale and Florien plywood plants are set to expire on July 15, 2021.

If any of these agreements are not renewed or extended upon their termination, we could experience a material labor disruption, strike, or significantly increased labor costs at one or more of our facilities, either in the course of negotiations of a labor agreement or otherwise.

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In the normal course of business, we are exposed to financial risks such as changes in commodity prices, interest rates, and foreign currency exchange rates.

As of March 31, 2020 , there have been no material changes to financial market risks disclosed in our 2019 Form 10-K.

As of June 30, 2020, there have been no material changes to financial market risks disclosed in our 2019 Form 10-K.

Environmental

As of March 31, 2020 , there have been no material changes to environmental issues disclosed in our 2019 Form 10-K.

As of June 30, 2020, there have been no material changes to environmental issues disclosed in our 2019 Form 10-K.

For additional information, see Environmental in "Item 7.

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Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Form 10-K.

At March 31, 2020 , there have been no material changes to our critical accounting estimates from those disclosed in our 2019 Form 10-K.

At June 30, 2020, there have been no material changes to our critical accounting estimates from those disclosed in our 2019 Form 10-K.

New and Recently Adopted Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis