BOISE CASCADE Co 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 2019 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 2019 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 and its consolidated subsidiaries. Boise Cascade is a large, vertically-integrated wood products manufacturer and building materials distributor. We have two reportable segments: (i) Wood Products, which primarily manufactures engineered wood products (EWP) and plywood; 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. Financial Statements" of this Form 10-Q. Executive Overview 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 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 24 Table of Contents 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 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. Although we believe that current U.S. 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 Our results of operations and financial performance are influenced by a variety of factors, including the following: • the duration and magnitude of impacts of the COVID-19 pandemic; • the commodity nature of our products and their price movements, which are driven largely by industry capacity and operating rates, industry cycles that affect supply and demand, and net import and export activity; • general economic conditions, including but not limited to housing starts, repair-and-remodeling activity, light commercial construction, inventory levels of new and existing homes for sale, foreclosure rates, interest rates, unemployment rates, household formation rates, prospective home buyers' access to and cost of financing, and housing affordability, that ultimately affect demand for our products; • labor disruptions, shortages of skilled and technical labor, or increased labor costs; • impairment of our long-lived assets, goodwill, and/or intangible assets; • the highly competitive nature of our industry; 25 Table of Contents • the need to successfully formulate and implement succession plans for key members of our management team; • material disruptions and/or major equipment failure at our manufacturing facilities; • 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; • concentration of our sales among a relatively small group of customers, as well as the financial condition and creditworthiness of our customers; • product shortages, loss of key suppliers, and our dependence on third-party suppliers and manufacturers; • cost and availability of raw materials, including wood fiber and glues and resins; • cost of compliance with government regulations, in particular environmental regulations; • our ability to successfully and efficiently complete and integrate acquisitions; • declines in demand for our products due to competing technologies or materials, as well as changes in building code provisions; • substantial ongoing capital investment costs, including those associated with recent acquisitions, and the difficulty in offsetting fixed costs related to those investments; • the cost and availability of third-party transportation services used to deliver the goods we manufacture and distribute, as well as our raw materials; • exposure to product liability, product warranty, casualty, construction defect, and other claims; • the impact of actuarial assumptions, investment return on pension assets, and regulatory activity on pension costs and pension funding requirements, • our 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; • change in interest rate of our debt; • restrictive covenants contained in our debt agreements; • fluctuations in the market for our equity; and • the other factors described in "Item 1A. Risk Factors" in our 2019 Form 10-K. 26 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 and six months ended June 30, 2020 and 2019: Three Months Ended June 30 Six Months Ended June 30 2020 2019 2020 2019 (millions) Sales $ 1,242.8 $ 1,230.1 $ 2,413.3 $ 2,272.2 Costs and expenses Materials, labor, and other operating expenses (excluding depreciation) 1,048.9 1,049.7 2,041.2 1,947.5 Depreciation and amortization 19.9 19.5 55.2 38.7 Selling and distribution expenses 103.6 98.9 203.0 185.9 General and administrative expenses 18.8 16.8 34.8 33.5 Loss on curtailment of facility — — 1.7 — 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 Materials, labor, and other operating expenses (excluding depreciation) 84.4 % 85.3 % 84.6 % 85.7 % Depreciation and amortization 1.6 1.6 2.3 1.7 Selling and distribution expenses 8.3 8.0 8.4 8.2 General and administrative expenses 1.5 1.4 1.4 1.5 Loss on curtailment of facility — — 0.1 — Other (income) expense, net — — — — 95.8 % 96.3 % 96.8 % 97.1 % Income from operations 4.2 % 3.7 % 3.2 % 2.9 % 27 Table of Contents 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 and six months ended June 30, 2020 and 2019. Three Months Ended June 30 Six Months Ended June 30 2020 2019 2020 2019 (thousands) U.S. 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 (thousands) Segment Sales Wood Products $ 281,505 $ 334,256 $ 601,566 $ 653,779 Building Materials Distribution 1,134,260 1,097,421 2,184,257 2,005,129 Intersegment eliminations (173,005) (201,596) (372,529) (386,741) Total sales $ 1,242,760 $ 1,230,081 $ 2,413,294 $ 2,272,167 Wood Products (millions) Sales Volumes Laminated veneer lumber (LVL) (cubic feet) 3.8 4.6 8.5 9.0 I-joists (equivalent lineal feet) 50 60 109 113 Plywood (sq. ft.) (3/8" basis) 314 343 632 679 Wood Products (dollars per unit) Average Net Selling Prices Laminated veneer lumber (LVL) (cubic foot) $ 18.36 $ 18.70 $ 18.44 $ 18.78 I-joists (1,000 equivalent lineal feet) 1,260 1,279 1,268 1,273 Plywood (1,000 sq. ft.) (3/8" basis) 287 272 277 279 (percentage of Building Materials Distribution sales) Building Materials Distribution 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 % Gross margin percentage (b) 13.4 % 12.4 % 13.0 % 12.1 % _______________________________________ (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. 28 Table of Contents Sales 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 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, 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, 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 $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) 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) 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 29 Table of Contents 2019. 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 $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. 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. 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 $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 $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. 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 EWP, plywood, and lumber prices. These decreases were offset partially by lower manufacturing and wood fiber costs. 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. 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 30 Table of Contents 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. Corporate. 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. Other Change in fair value of interest rate swaps. For information related to our interest rate swaps, see the discussion under "Interest Rate Risk and Interest Rate Swaps" of Note 2, Summary of Significant Accounting Policies, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q. Income Tax Provision 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 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. 31 Table of Contents Sources and Uses of Cash We generate cash primarily from sales of our products, as well as short-term and long-term borrowings. 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, service our debt and pension obligations, pay dividends, repurchase our common stock, and meet our contractual obligations and commercial commitments. Below is a discussion of our sources and uses of cash for operating activities, investing activities, and financing activities. Six Months Ended June 30 2020 2019 (thousands) Net cash provided by operations $ 118,276 $ 66,852 Net cash used for investment (28,443) (44,611) Net cash used for financing (13,634) (11,505) Operating Activities 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. 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 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. Included in our 2020 capital spending is the completion of the log utilization center improvement project at our plywood and veneer facility in Florien, Louisiana, as well as BMD's door shop expansion in Dallas, Texas. This level of capital expenditures could increase or decrease as a result of a number of factors, including our financial results and future economic conditions. 32 Table of Contents Financing Activities 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 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. For more information related to our debt structure and dividend policy, see the discussion in Note 6, Debt, and Note 10, Stockholders' Equity, respectively, 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 2019 Form 10-K. 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 June 30, 2020, and December 31, 2019, we had no material off-balance-sheet arrangements with unconsolidated entities. Guarantees 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 June 30, 2020, there have been no material changes to the guarantees disclosed in our 2019 Form 10-K. 33 Table of Contents Seasonal 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 costs, at most of our manufacturing facilities. 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 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. Labor disruptions or shortages could prevent us from meeting customer demands or result in increased costs, thereby reducing our sales and profitability. Disclosures of Financial Market Risks 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 June 30, 2020, there have been no material changes to financial market risks disclosed in our 2019 Form 10-K. Environmental 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. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 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 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 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. 34 Table of Contents