What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-02 compared with 2021-05-06 · 137 added, 102 removed, 190 unchanged (56% of the section changed)

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Executive Overview

We recorded income from operations of $205.3 million during the three months ended March 31, 2021, compared with income from operations of $25.5 million during the three months ended March 31, 2020.

In our Wood Products segment, income increased $93.3 million to $97.1 million for the three months ended March 31, 2021, from $3.8 million for the three months ended March 31, 2020, due primarily to higher plywood, lumber and EWP sales prices, higher I-joists sales volumes, and lower depreciation and amortization expense, offset partially by higher wood fiber and other manufacturing costs.

In our Building Materials Distribution segment, income increased $90.9 million to $120.2 million for the three months ended March 31, 2021, from $29.3 million for the three months ended March 31, 2020, driven by a gross margin increase of $115.3 million, resulting primarily from improved sales volumes and gross margins on substantially all products lines, particularly commodity products, compared with first quarter 2020.

The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $20.5 million and $3.4 million, respectively.

We recorded income from operations of $409.8 million during the three months ended June 30, 2021, compared with income from operations of $51.8 million during the three months ended June 30, 2020.

In our Wood Products segment, income increased $196.7 million to $213.8 million for the three months ended June 30, 2021, from $17.1 million for the three months ended June 30, 2020, due primarily to higher plywood, EWP, and lumber sales prices, as well as higher EWP sales volumes, offset partially by higher wood fiber costs.

In our Building Materials Distribution segment, income increased $163.1 million to $206.3 million for the three months ended June 30, 2021, from $43.2 million for the three months ended June 30, 2020, driven by a gross margin increase of $187.9 million, resulting primarily from improved sales volumes and gross margins on substantially all products lines, particularly commodity products, compared with second quarter 2020.

The margin improvement was offset partially by increased selling and distribution expenses of $25.9 million.

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

We ended first quarter 2021 with $457.0 million of cash and cash equivalents and $345.3 million of undrawn committed bank line availability, for total available liquidity of $802.3 million.

We had $444.0 million of outstanding debt at March 31, 2021.

We generated $51.6 million of cash during the three months ended March 31, 2021, 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.

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

As both a manufacturer and a distributor, our first quarter 2021 financial results were favorably impacted by higher commodity wood products pricing compared to pricing in the same period last year.

The momentum of robust construction activity experienced in the latter half of 2020 continued throughout first quarter 2021, with stronger than typical demand during the winter months.

Across commodity product lines, product demand in the first quarter exceeded supply, and certain producers also struggled with production due to raw material constraints or winter storms, causing significant increases in commodity

products prices.

We ended second quarter 2021 with $653.8 million of cash and cash equivalents and $345.3 million of undrawn committed bank line availability, for total available liquidity of $999.1 million.

We had $444.2 million of outstanding debt at June 30, 2021.

We generated $248.4 million of cash during the six months ended June 30, 2021, 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.

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

As both a manufacturer and a distributor, our second quarter 2021 financial results were favorably impacted by higher commodity wood products pricing compared to pricing in the same period last year, driven by continued robust construction activity during second quarter 2021.

While not subject to the significant price fluctuations of commodity products, demand also exceeded supply for many of the general line and EWP products distributed by BMD.

Our BMD warehouse sales were strong throughout the first quarter as our retail lumberyard customers relied on our broad base of inventory and high service levels to minimize their working capital investment given historically high 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.

Wood Products continues to experience periodic short-term disruptions at many locations due to COVID-19 as we continue efforts to increase production rates in response to strong end-product demand, particularly for our EWP.

In addition, we have experienced COVID-19 related short-term disruptions at our BMD locations, and our activity levels across our distribution network continue to vary widely as COVID-19 or weather impacts geographies across the U.S.

to differing degrees.

Furthermore, supply side constraints across product lines and lean inventories throughout the supply chain have limited the industry's ability to meet underlying demand.

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.

While there continues to be a heightened level of economic uncertainty due to the pandemic, low mortgage rates, continuation of work-from-home practices by many in the economy, and demographics in the U.S.

Lumber pricing peaked in May 2021, then dropped sharply driven by declining repair and remodel and "do-it-yourself" activity, causing hesitancy in the marketplace

because of expectations for potential price erosion.

With COVID-19 vaccines and easing pandemic restrictions, people are spending less time at home on home improvement projects, resulting in reduced demand from our home center customers.

In recent months, the effects of the COVID-19 vaccine and COVID-19 safety protocols have resulted in fewer pandemic-related disruptions to both our manufacturing and distribution locations.

Although many restrictions related to COVID-19 have been lightened, we continue to conduct business with certain 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, including the impact of COVID-19 variants, 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.

Economic uncertainty due to the pandemic continues.

However, low mortgage rates, continuation of work-from-home practices by many in the economy, and demographics in the U.S.

have created a favorable demand environment for new residential construction, particularly single-family housing starts, which we expect to continue in 2021 and into next year.

Furthermore, with homeowners spending more time at home, repair and remodel spending may remain elevated as homeowners invest in existing homes.

As of April 2021, the Blue Chip Economic Indicators consensus forecast for 2021 and 2022 single- and multi-family housing starts in the U.S.

As of July 2021, the Blue Chip Economic Indicators consensus forecast for 2021 and 2022 single- and multi-family housing starts in the U.S.

were 1.60 million and 1.58 million units, respectively, compared with actual housing starts of 1.38 million in 2020, as reported by the U.S.

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Although we believe that current U.S.

demographics support the higher level of forecasted housing starts, and many national home builders are reporting strong near-term backlogs, supply induced constraints on residential construction and repair-and-remodeling activity may continue to extend build times and limit activity.

Strong demand when coupled with capacity constraints in first quarter 2021 created supply/demand imbalances in the marketplace and historically high pricing levels for commodity lumber and panel products.

Future commodity product pricing 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.

As a wholesale distributor of a broad mix of commodity products and a manufacturer of certain commodity products, our sales and profitability are influenced by changes in commodity product prices.

demographics support the higher level of forecasted housing starts, and many national home builders are reporting strong near-term backlogs, labor shortages and supply induced constraints on residential construction activity may continue to extend build times and limit activity.

In addition, while the age of the U.S.

housing stock and limited home inventory availability will continue to provide a favorable backdrop for repair and remodel spending, we expect the recent decline in home improvement demand to continue near-term as travel restrictions are rescinded and pent-up demand for leisure spending occurs.

As a wholesale distributor of a broad mix of commodity products and a manufacturer of certain commodity products, we have sales and profitability exposure to declines in commodity product prices.

Lumber pricing was very volatile during second quarter 2021, with rapidly rising prices in April and most of May followed by sharp price declines during the remainder of the quarter.

Our BMD segment purchases and resells a broad mix of commodity products with periods of increasing prices providing the opportunity for higher sales and increased margins, while declining price environments expose us to declines in sales and profitability.

Current composite panel and lumber prices have declined by approximately 53% and 48% from levels at the end of second quarter 2021.

Future commodity product pricing and commodity input costs could be volatile in response to capacity restoration and industry operating rates, the impact of COVID-19 on residential construction, 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;

• the duration and magnitude of impacts of the COVID-19 pandemic and related variants;

• the highly competitive nature of our industry;

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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, 2021 and 2020:

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, 2021 and 2020:

Three Months Ended

June 30 Six Months Ended

2021 2020 2021 2020

Sales $ 2,443.2 $ 1,242.8 $ 4,264.5 $ 2,413.3

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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, 2021 and 2020.

Three Months Ended

June 30 Six Months Ended

2021 2020 2021 2020

Housing Starts (a)

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Multi-family 120.4 81.4 223.0 196.2

428.5 298.8 786.4 628.0

Segment Sales

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Gross margin percentage is gross margin as a percentage of segment sales.

For the three months ended March 31, 2021, total sales increased $650.8 million, or 56%, to $1,821.3 million from $1,170.5 million during the three months ended March 31, 2020.

For the three months ended June 30, 2021, total sales increased $1,200.4 million, or 97%, to $2,443.2 million from $1,242.8 million during the three months ended June 30, 2020.

For the six months ended June 30, 2021, total sales increased by $1,851.2 million, or 77%, to $4,264.5 million from $2,413.3 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 2021, U.S.

In second quarter 2021, U.S.

housing starts increased 43%, with single-family starts up 42% from the same period in 2020.

Average composite panel and average composite lumber prices for the three months ended March 31, 2021, were 151% and 143% higher, respectively, than in the same period in the prior year, as reflected by Random Lengths composite lumber and panel pricing.

On a year-to-date basis through June 2021, total and single-family housing starts increased 25% and 30%, respectively, compared with the same period in 2020.

Average composite panel and average composite lumber prices for the three months ended June 30, 2021, were 280% and 210% higher, respectively, than in the same period in the prior year, as reflected by Random Lengths composite panel and lumber pricing.

For the six months ended June 30, 2021, average composite panel and average composite lumber prices were 217% and 177% higher, respectively, compared with the same period in the prior year.

Wood Products.

Sales, including sales to our BMD segment, increased $112.3 million, or 35%, to $432.3 million for the three months ended March 31, 2021, from $320.1 million for the three months ended March 31, 2020.

Sales, including sales to our BMD segment, increased $313.1 million, or 111%, to $594.6 million for the three months ended June 30, 2021, from $281.5 million for the three months ended June 30, 2020.

The increase in sales was driven primarily by higher plywood prices of 206%, resulting in increased sales of $199.5 million.

Plywood demand in the first quarter far outpaced industry production levels, driving the favorable pricing.

Higher sales volumes for I-joists of 20% resulted in increased sales of $15.4 million and higher sales prices for lumber of 88% resulted in increased sales of $8.8 million.

In addition, sales prices for I-joists and LVL each increased 3%, resulting in increased sales of $3.1 million and $2.2 million, respectively.

These increases were offset partially by lower sales volumes for LVL and plywood of 7% and 5%, respectively, resulting in decreased sales of $5.8 million and $3.9 million, respectively.

The lower volume for plywood sales reflects our continued work to optimize veneer into EWP production, as well as rolling curtailments at our Elgin plywood facility as we manage environmental permits and log supply availability, periodic short-term disruptions related to COVID-19, and a significant winter storm in Louisiana during February 2021.

Plywood demand in the second quarter outpaced industry production levels, driving the favorable pricing.

Higher sales volumes for I-joists and LVL of 53% and 22%, respectively, resulted in increased sales of $33.0 million and $15.7 million, respectively.

In addition, sales prices for I-joists and LVL increased 8% and 7%, respectively, resulting in increased sales of $7.8 million and $5.9 million, respectively.

Improved lumber sales prices and plywood sales volumes of 124% and 8%, respectively, contributed $14.0 million and $6.8 million, respectively, to the increase in sales.

For the six months ended June 30, 2021, sales, including sales to our BMD segment, increased $425.3 million, or 71%, to $1,026.9 million from $601.6 million for the same period in the prior year.

The increase in sales was driven primarily by higher plywood prices of 162%, resulting in increased sales of $287.5 million.

Higher sales volumes for I-joists and LVL of 35% and 6%, respectively, resulted in increased sales of $48.6 million and $10.0 million, respectively.

In addition, sales prices for I-joists and LVL increased 6% and 5%, respectively, resulting in increased sales of $10.8 million and $8.0 million, respectively.

Improved lumber sales prices and plywood sales volumes of 107% and 1%, respectively, contributed $22.8 million and $2.5 million, respectively, to the increase in sales.

Building Materials Distribution.

Sales increased $584.8 million, or 56%, to $1,634.8 million for the three months ended March 31, 2021, from $1,050.0 million for the three months ended March 31, 2020.

Compared with the same quarter in the prior year, the overall increase in sales was driven by sales volume and sales price increases of 34% and 22%, respectively.

Sales increased $1,038.5 million, or 92%, to $2,172.7 million for the three months ended June 30, 2021, from $1,134.3 million for the three months ended June 30, 2020.

Compared with the same quarter in the prior year, the overall increase in sales was driven by sales price and volume increases of 83% and 9%, respectively.

By product line, commodity sales increased 167%, or $818.8 million;

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and sales of EWP (substantially all of which are sourced through our Wood Products segment) increased 52%, or $101.2 million.

During the six months ended June 30, 2021, sales increased $1,623.3 million, or 74%, to $3,807.5 million from $2,184.3 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 price and volume increases of 67% and 7%, respectively.

By product line, commodity sales increased 138%, or $1,285.0 million;

general line product sales increased 23%, or $193.6 million;

and sales of EWP increased 35%, or $144.7 million.

Costs and Expenses

Materials, labor, and other operating expenses (excluding depreciation) increased $458.2 million, or 46%, to $1,450.4 million for the three months ended March 31, 2021, compared with $992.3 million during the same period in the prior year.

In our Wood Products segment, materials, labor, and other operating expenses increased, due to higher per-unit costs of OSB (used in the manufacture of I-joists) and logs of approximately 42% and 11%, compared with first quarter 2020.

However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 1,420 basis points, which was primarily due to higher plywood sales prices, resulting in improved leveraging of wood fiber costs, labor costs, and other manufacturing costs.

In BMD, materials, labor, and other operating expenses increased, driven by higher purchased materials costs as a result of higher sales volumes and higher commodity prices, compared with first quarter 2020.

However, the BMD segment MLO rate improved 250 basis points compared with the first quarter 2020 due primarily to improved sales volumes and gross margin percentages for substantially all product lines, particularly commodity product sales, driven by an increasing commodity price environment during first quarter 2021.

Depreciation and amortization expenses decreased $15.8 million, or 45%, to $19.5 million for the three months ended March 31, 2021, compared with $35.3 million during the same period in the prior year, 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.

Materials, labor, and other operating expenses (excluding depreciation) increased $815.6 million, or 78%, to $1,864.5 million for the three months ended June 30, 2021, compared with $1,048.9 million during the same period in the prior year.

In our Wood Products segment, materials, labor, and other operating expenses increased, due to higher sales volumes, as well as higher per-unit costs of OSB (used in the manufacture of I-joists) and logs of approximately 28% and 17%, compared with second quarter 2020.

However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 2,560 basis points, which was primarily due to higher plywood, EWP, and lumber sales prices, resulting in improved leveraging of labor costs, wood fiber costs, and other manufacturing costs.

However, the BMD segment MLO rate improved 220 basis points compared with second quarter 2020 due primarily to improved sales volumes and gross margin percentages for commodity products, driven by an increasing commodity price environment during most of second quarter 2021.

In addition, higher sales volumes and gross margin percentages for EWP contributed to the improved MLO rate.

For the six months ended June 30, 2021, materials, labor, and other operating expenses (excluding depreciation), increased $1,273.8 million or 62%, to $3,315.0 million, compared with $2,041.2 million in the same period in the prior year.

In our Wood Products segment, materials, labor, and other operating expenses increased, due to higher sales volumes, as well as higher per-unit costs of OSB and logs of approximately 36% and 15%, compared with the first half of 2020.

However, the MLO rate in our Wood Products segment decreased by 2,090 basis points, which was primarily due to higher plywood, EWP, and lumber sales prices, resulting in improved leveraging of labor costs, wood fiber costs, and other manufacturing 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 2020.

However, the BMD segment MLO rate improved 240 basis points compared with the first half of 2020 due primarily to improved sales volumes and gross margin percentages for our commodity products, driven by an increasing commodity price environment during most of the first half of 2021.

In addition, higher sales volumes and gross margin percentages for EWP contributed to the improved MLO rate.

Depreciation and amortization expenses increased $0.5 million, or 3%, to $20.4 million for the three months ended June 30, 2021, compared with $19.9 million during the same period in the prior year.

For the six months ended June 30, 2021.

these expenses decreased $15.3 million, or 28%, to $40.0 million, compared with $55.2 million in the same period in the prior year, 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.

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 $21.5 million, or 22%, to $120.9 million for the three months ended March 31, 2021, compared with $99.5 million during the same period in the prior year, due primarily to higher employee-related expenses of $21.6 million, most of which relates to incentive compensation, as well as higher shipping and handling costs of $2.2 million.

These increases were offset partially by lower travel and entertainment expenses of $1.7 million.

General and administrative expenses increased $9.2 million, or 57%, to $25.3 million for the three months ended March 31, 2021, compared with $16.1 million for the same period in the prior year.

The increase was primarily a result of higher employee-related expenses of $9.8 million, most of which relates to incentive compensation, offset partially by lower travel and entertainment expenses.

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.

Selling and distribution expenses increased $27.2 million, or 26%, to $130.7 million for the three months ended June 30, 2021, compared with $103.6 million during the same period in the prior year, due primarily to higher employee-related expenses of $19.7 million, most of which relates to incentive compensation.

In addition, the increase in selling and distribution expenses was driven by an increase in shipping and handling costs of $2.8 million, as well increased other costs associated with higher sales volumes.

For the six months ended June 30, 2021, selling and distribution expenses increased $48.6 million, or 24%, to $251.7 million, compared with $203.0 million during the same period in 2020, due primarily to higher employee-related expenses of $41.3 million, most of which relates to incentive compensation, as well as higher shipping and handling costs of $5.0 million.

General and administrative expenses decreased $0.8 million, or 4%, to $18.0 million for the three months ended June 30, 2021, compared with $18.8 million for the same period in the prior year, due primarily to lower incentive compensation expenses driven by the departure of two officers and related forfeiture of accrued incentive compensation.

For the six months ended June 30, 2021, general and administrative expenses increased $8.4 million, or 24%, to $43.3 million, compared with $34.8 million during the same period in 2020.

The increase was primarily a result of higher employee-related expenses of $9.0 million, most of which relates to incentive compensation.

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.

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Income From Operations

Income from operations increased $179.7 million to $205.3 million for the three months ended March 31, 2021, compared with $25.5 million for the three months ended March 31, 2020.

Income from operations increased $358.0 million to $409.8 million for the three months ended June 30, 2021, compared with $51.8 million for the three months ended June 30, 2020.

Income from operations increased $537.7 million to $615.0 million for the six months ended June 30, 2021, compared with $77.3 million for the six months ended June 30, 2020.

Wood Products.

Segment income increased $93.3 million to $97.1 million for the three months ended March 31, 2021, compared with $3.8 million for the three months ended March 31, 2020.

The increase in segment income was due primarily to higher plywood, lumber and EWP sales prices, as well as higher I-joists sales volumes.

Segment income increased $196.7 million to $213.8 million for the three months ended June 30, 2021, compared with $17.1 million for the three months ended June 30, 2020.

The increase in segment income was due primarily to higher plywood, EWP, and lumber sales prices, as well as higher EWP sales volumes.

These increases in segment income were offset partially by higher wood fiber costs, as well as increased selling and distribution expenses of $1.3 million.

For the six months ended June 30, 2021, segment income increased $290.0 million to $310.8 million from $20.8 million for the six months ended June 30, 2020.

The increase in segment income was due primarily to higher plywood, EWP, and lumber sales prices, as well as higher EWP sales volumes.

In addition, first quarter 2020 results included accelerated depreciation and amortization expense and loss on curtailment of facility of $15.0 million and $1.7 million, respectively, related to the permanent curtailment of I-joist production at our Roxboro, North Carolina facility.

These increases in segment income were offset partially by higher wood fiber and other manufacturing costs.

These increases were offset partially by higher wood fiber and other manufacturing costs.

In addition, selling and distribution expenses and general and administrative expenses increased $2.3 million and $1.7 million, respectively.

Building Materials Distribution.

Segment income increased $90.9 million to $120.2 million for the three months ended March 31, 2021, from $29.3 million for the three months ended March 31, 2020.

The increase in segment income was driven by a gross margin increase of $115.3 million, resulting primarily from improved sales volumes and gross margins on substantially all product lines, particularly commodity products, compared with first quarter 2020.

The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $20.5 million and $3.4 million, respectively.

Unallocated corporate expenses increased $4.5 million to $12.0 million for the three months ended March 31, 2021, from $7.5 million for the same period in the prior year.

The increase was due primarily to higher employee-related expenses, most of which relates to incentive compensation.

Segment income increased $163.1 million to $206.3 million for the three months ended June 30, 2021, from $43.2 million for the three months ended June 30, 2020.

The increase in segment income was driven by a gross margin increase of $187.9 million, resulting from improved sales volumes and gross margins on substantially all product lines, particularly commodity products, compared with second quarter 2020.

The margin improvement was offset partially by increased selling and distribution expenses of $25.9 million.

For the six months ended June 30, 2021, segment income increased $254.0 million to $326.6 million from $72.5 million for the six months ended June 30, 2020.

The increase in segment income was driven by a gross margin increase of $303.2 million, resulting from improved sales volumes and gross margins on substantially all product lines, particularly commodity products, compared with the first half of 2020.

This improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $46.4 million and $3.5 million, respectively.

Unallocated corporate expenses increased $1.8 million to $10.3 million for the three months ended June 30, 2021, from $8.5 million for the same period in the prior year.

As part of our self-insured risk retention program, corporate absorbed approximately $3.4 million of estimated insurance losses resulting from a fire at our BMD Phoenix location.

These losses were offset partially by lower incentive compensation driven by the departure of an officer and related forfeiture of accrued incentive compensation.

For the six months ended June 30, 2021, unallocated corporate expenses increased $6.3 million to $22.3 million from $16.0 million for the six months ended June 30, 2020.

The increase was due primarily to higher incentive compensation and $3.4 million of estimated insurance losses absorbed by corporate, as discussed above.

Change in fair value of interest rate swaps.

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Income Tax Provision

For the three months ended March 31, 2021 and 2020, we recorded $51.4 million and $4.0 million, respectively, of income tax expense and had an effective rate of 25.6% and 24.7%, respectively.

During the three months ended March 31, 2021, the primary reason for the difference between the federal statutory income tax rate of 21% and the effective tax rate was the effect of state taxes.

During the 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.

For the three and six months ended June 30, 2021, we recorded $101.0 million and $152.5 million, respectively, of income tax expense and had an effective rate of 25.0% and 25.2%, respectively.

During the three and six months ended June 30, 2021, 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, 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.

Industry Mergers and Acquisitions

On November 19, 2020, West Fraser Timber Co.

(West Fraser) and Norbord Inc.

(Norbord) announced a definitive agreement pursuant to which West Fraser would acquire all of the shares of Norbord.

The acquisition closed during the first quarter of 2021.

West Fraser supplies product to our BMD segment, and Norbord is a supplier to both our Wood Products and BMD segments.

We believe we have a good relationship with this vendor and we do not expect the transaction to have a material impact on our future results of operations.

On August 27, 2020, Builders FirstSource, Inc.

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We believe we have a good relationship with the combined company and we do not expect the transaction to have a material impact on our future results of operations.

The merger resulted in the combined company accounting for 17 % of total receivables as of March 31, 2021.

The merger resulted in the combined company accounting for 18 % of total receivables as of June 30, 2021.

Liquidity and Capital Resources

We ended first quarter 2021 with $457.0 million of cash and cash equivalents and $444.0 million of debt.

At March 31, 2021, we had $802.3 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.

We ended second quarter 2021 with $653.8 million of cash and cash equivalents and $444.2 million of debt.

At June 30, 2021, we had $999.1 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability).

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

We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations, working capital, income tax payments, 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 2021 from cash on hand and, if necessary, borrowings under our revolving credit facility.

We also estimate remitting between $130 million and $150 million of income tax payments during second quarter 2021 as we extend 2020 income tax filings and pay estimated payments on 2021 income.

We expect to fund our seasonal and intra-month working capital requirements in the remainder of 2021 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 provided by (used for) operations $ 72,251 $ (42,467)

Six Months Ended

Net cash provided by operations $ 291,179 $ 118,276

Net cash used for investment (31,002) (28,443)

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Operating Activities

For the three months ended March 31, 2021, our operating activities generated $72.3 million of cash, compared with $42.5 million of cash used in the same period in 2020.

For the six months ended June 30, 2021, our operating activities generated $291.2 million of cash, compared with $118.3 million of cash generated in the same period in 2020.

The $172.9 million increase in cash provided by operations was due primarily 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.

In addition, cash paid for taxes, net of refunds received, decreased $4.2 million, compared to the prior year.

Income taxes payable increased $52.6 million during the three months ended March 31, 2021, compared with a decrease of $2.1 million during the same period last year, resulting from the significant improvement in income from operations in first quarter 2021.

These increases in cash were offset partially by an increase in working capital of $147.4 million during the three months ended March 31, 2021, compared with a $94.9 million increase for the same period in the prior year.

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 46% and 29%, comparing sales for the months of March 2021 and 2020 with sales for the months of December 2020 and 2019, respectively.

The increase in accounts payable and accrued liabilities provided $125.1 million of cash during the three months ended March 31, 2021, compared with $55.6 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.

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

These increases in cash were offset partially by an increase in working capital of $203.4 million during the six months ended June 30, 2021, compared with a $0.1 million decrease for the same period in the prior year.

In addition, cash paid for taxes, net of refunds received, increased $146.6 million, compared to the prior year, resulting from the significant improvement in income from operations during the first half of 2021.

The increase in working capital during the six months ended June 30, 2021 was primarily attributable to higher receivables and inventories, offset by an increase in accounts payable and accrued liabilities.

The changes in working capital during the six months ended June 30, 2020 included an increase in receivables, offset by an increase in accounts payable and accrued liabilities and lower inventories.

The increases in receivables in both periods primarily reflect increased sales of approximately 69% and 47%, comparing sales for the months of June 2021 and 2020 with sales for the months of December 2020 and 2019, respectively.

Inventories increased during the six months ended June 30, 2021 primarily due to the growth of inventory for the building season, as well as elevated commodity prices.

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.

The increase in accounts payable and accrued liabilities provided $248.1 million of cash during the six months ended June 30, 2021, compared with $95.5 million in the same period a year ago.

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

During the six months ended June 30, 2021, an increase in accrued rebates contributed to the increase in accrued liabilities.

During the six months ended June 30, 2020, the increase in accounts payable was offset partially by a decrease in accrued liabilities, most notably annual employee incentive compensation payouts.

Investment Activities

During the three months ended March 31, 2021 and 2020, we used $13.3 million and $18.6 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.

During the six months ended June 30, 2021 and 2020, we used $31.5 million and $28.8 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.

We expect capital expenditures in 2021 to total approximately $90 million to $100 million.

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Financing Activities

During the three months ended March 31, 2021, our financing activities used $7.5 million of cash, including $4.4 million for common stock dividend payments and $2.7 million of tax withholding payments on stock-based awards.

During the three months ended March 31, 2021, we did not borrow under our revolving credit facility, and therefore have no borrowings outstanding on the facility as of March 31, 2021.

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.

During the six months ended June 30, 2021, our financing activities used $11.8 million of cash, including $8.4 million for common stock dividend payments and $2.7 million of tax withholding payments on stock-based awards.

During the six months ended June 30, 2021, we also borrowed $28.0 million under our revolving credit facility, which were subsequently repaid during the same period with cash on hand.

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.

Future 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 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 2020 Form 10-K.

As of March 31, 2021, there have been no material changes in contractual obligations outside the ordinary course of business since December 31, 2020.

As of June 30, 2021, there have been no material changes in contractual obligations outside the ordinary course of business since December 31, 2020.

Off-Balance-Sheet Activities

At March 31, 2021, and December 31, 2020, we had no material off-balance-sheet arrangements with unconsolidated entities.

At June 30, 2021, and December 31, 2020, 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 2020 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, 2021, there have been no material changes to the guarantees disclosed in our 2020 Form 10-K.

As of June 30, 2021, there have been no material changes to the guarantees disclosed in our 2020 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 2, 2021, we had approximately 6,060 employees.

As of July 25, 2021, we had approximately 6,130 employees.

Approximately 23% of these employees work pursuant to collective bargaining agreements.

As of May 2, 2021, we had ten collective bargaining agreements.

Two agreements covering approximately 760 employees at our Oakdale and Florien plywood plants are set to expire on July 15, 2021.

As of July 25, 2021, we had ten collective bargaining agreements.

Two agreements covering approximately 780 employees at our Oakdale and Florien plywood plants expired on July 15, 2021, but the terms and conditions of these 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.

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, 2021, there have been no material changes to financial market risks disclosed in our 2020 Form 10-K.

As of June 30, 2021, there have been no material changes to financial market risks disclosed in our 2020 Form 10-K.

Environmental

As of March 31, 2021, there have been no material changes to environmental issues disclosed in our 2020 Form 10-K.

As of June 30, 2021, there have been no material changes to environmental issues disclosed in our 2020 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 2020 Form 10-K.

At March 31, 2021, there have been no material changes to our critical accounting estimates from those disclosed in our 2020 Form 10-K.

At June 30, 2021, there have been no material changes to our critical accounting estimates from those disclosed in our 2020 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