What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-01 compared with 2021-08-02 · 136 added, 123 removed, 204 unchanged (56% of the section changed)

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

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

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

Demand for the products we manufacture, as well as the products we purchase and distribute, is closely correlated with new residential construction in the United States (U.S.) To a lesser extent, demand for our products correlates with residential repair-and-remodeling activity and light commercial construction.

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

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Executive Overview

We recorded income from operations of $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.

We recorded income from operations of $129.4 million during the three months ended September 30, 2021, compared with income from operations of $158.6 million during the three months ended September 30, 2020.

In our Wood Products segment, income increased $56.0 million to $122.1 million for the three months ended September 30, 2021, from $66.0 million for the three months ended September 30, 2020, due primarily to higher EWP, plywood, and lumber sales prices, as well as higher EWP sales volumes, offset partially by higher wood fiber costs and lower margins on inventory purchased for resale through certain customer programs.

In our BMD segment, income decreased $91.3 million to $16.6 million for the three months ended September 30, 2021, from $107.9 million for the three months ended September 30, 2020, driven primarily by a gross margin decrease of $100.5 million, resulting from a sharp decline in commodity prices during third quarter 2021.

The negative impacts from commodity price declines were offset partially by higher sales volumes and gross margin percentages for EWP and general line products, as well as decreased selling and distribution expenses of $7.8 million.

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

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.

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.

We ended third quarter 2021 with $786.9 million of cash and cash equivalents and $345.3 million of undrawn committed bank line availability, for total available liquidity of $1,132.2 million.

We had $444.4 million of outstanding debt at September 30, 2021.

We generated $381.5 million of cash during the nine months ended September 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 nine month comparative periods are discussed in "Liquidity and Capital Resources" below.

After seeing fewer pandemic-related disruptions during second quarter 2021, we experienced short-term disruptions at many locations during the third quarter as COVID-19 variants spread throughout the United States.

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.

Furthermore, we are monitoring the development of government mandates that companies ensure workers are vaccinated or tested regularly for COVID-19.

While we educate our associates on the effectiveness of vaccines and strongly encourage vaccination for its long-term health benefits, the new regulation may have the near-term effect of increasing costs, straining company resources, interrupting operations, reducing employee morale, or increasing employee turnover, which could adversely affect our business, results of operations, or financial condition.

Economic uncertainty due to the pandemic continues.

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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.

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.

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

were 1.59 million and 1.57 million units, respectively, compared with actual housing starts of 1.38 million in 2020, as reported by the U.S.

Census Bureau.

In addition, 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.

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, 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.

demographics support a 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, the pace of residential construction and repair-and-remodeling activity may be affected by the economic impact of the cost of building materials and construction, housing affordability, mortgage interest rates, wage growth, prospective home buyers' access to financing, consumer confidence, as well as other factors.

As a manufacturer of certain commodity products, we have sales and profitability exposure to declines in commodity product prices and rising input costs.

Our distribution business 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.

Reflected in our operating results, lumber and panel pricing was very volatile during second and third quarters 2021, with rapidly rising prices in April and most of May followed by sharp price declines through the month of August before stabilizing in September.

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.

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• the need to successfully formulate and implement succession plans for key members of our management team;

• the enactment of tax reform legislation;

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

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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 and six months ended June 30, 2021 and 2020:

The following tables set forth our operating results in dollars and as a percentage of sales for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

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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 and six months ended June 30, 2021 and 2020.

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 BMD segment for the three and nine months ended September 30, 2021 and 2020.

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

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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.

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.

For the three months ended September 30, 2021, total sales increased $290.1 million, or 18%, to $1,879.5 million from $1,589.3 million during the three months ended September 30, 2020.

For the nine months ended September 30, 2021, total sales increased by $2,141.3 million, or 53%, to $6,143.9 million from $4,002.6 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 2021, U.S.

In third quarter 2021, U.S.

housing starts increased 8%, with single-family starts up 5% from the same period in 2020.

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.

On a year-to-date basis through September 2021, total and single-family housing starts both increased 20% compared with the same period in 2020.

Average composite panel prices for the three months ended September 30, 2021 were 29% higher than in the same period in the prior year, as reflected by Random Lengths composite panel pricing.

Average composite lumber prices for the three months ended September 30, 2021 were 34% lower than in the same period in the prior year, as reflected by Random Lengths composite lumber pricing.

For the nine months ended September 30, 2021, average composite panel and average composite lumber prices were 130% and 76% higher, respectively, compared with the same period in the prior year.

Wood Products.

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 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.

Sales, including sales to our BMD segment, increased $133.6 million, or 37%, to $497.3 million for the three months ended September 30, 2021, from $363.7 million for the three months ended September 30, 2020.

The increase in sales was driven by higher plywood prices of 31%, resulting in increased sales of $41.6 million.

Higher sales prices for I-joists and LVL of 27% and 23%, respectively, resulted in increased sales of $25.8 million and $19.4 million, respectively.

In addition, sales volumes for I-joists and LVL increased 21% and 2%, respectively, resulting in increased sales of $16.4 million and $1.6 million, respectively.

Improved lumber sales prices of 99% contributed $10.4 million to the increase in sales.

Plywood volumes were flat compared with the same period in the prior year.

For the nine months ended September 30, 2021, sales, including sales to our BMD segment, increased $559.0 million, or 58%, to $1,524.2 million from $965.2 million for the same period in the prior year.

The increase in sales was driven primarily by higher plywood prices of 105%, resulting in increased sales of $328.4 million.

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Building Materials Distribution.

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.

Sales increased $283.6 million, or 20%, to $1,721.2 million for the three months ended September 30, 2021, from $1,437.7 million for the three months ended September 30, 2020.

Compared with the same quarter in the prior year, the overall increase in sales was driven by a sales price increase of 23%, offset partially by a sales volume decrease of 3%.

By product line, commodity sales increased 7%, or $52.0 million;

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and sales of EWP (substantially all of which are sourced through our Wood Products segment) increased 57%, or $133.7 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.

During the nine months ended September 30, 2021, sales increased $1,906.8 million, or 53%, to $5,528.8 million from $3,621.9 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 50% and 3%, respectively.

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Costs and Expenses

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.

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 second quarter 2020.

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.

Materials, labor, and other operating expenses (excluding depreciation) increased $332.7 million, or 26%, to $1,594.4 million for the three months ended September 30, 2021, compared with $1,261.7 million during the same period in the prior year.

In our Wood Products segment, materials, labor, and other operating expenses increased, due to higher EWP sales volumes, as well as higher per-unit costs of logs and OSB (used in the manufacture of I-joists) of approximately 19% and 13%, compared with third quarter 2020.

However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment decreased by 390 basis points, which was primarily due to higher plywood, EWP, and lumber sales prices, resulting in improved leveraging of labor and wood fiber costs.

In BMD, materials, labor, and other operating expenses increased, driven by higher purchased materials costs across all product lines.

In addition, BMD's MLO rate increased by 850 basis points compared with third quarter 2020.

This increase in MLO rate was driven primarily by a sharp decline in commodity prices during the third quarter 2021, offset partially by improved gross margins on our EWP and general line sales.

In our BMD Segment, periods of increasing prices provide the opportunity for higher sales and increased margins, while declining price environments generally result in declines in sales and profitability, as we experienced in commodity products during third quarter 2021.

For the nine months ended September 30, 2021, materials, labor, and other operating expenses (excluding depreciation), increased $1,606.5 million or 49%, to $4,909.4 million, compared with $3,302.9 million in the same period in the prior year.

However, the MLO rate in our Wood Products segment decreased by 1,480 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.

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

In addition, BMD's MLO rate increased by 130 basis points compared with the first nine months of 2020.

Our MLO rate for the nine months ended September 30, 2021, was negatively impacted by the sharp decline in commodity prices during the third quarter 2021, offset partially by improved gross margin percentages on our EWP and general line sales.

Depreciation and amortization expenses increased $0.3 million, or 1%, to $20.3 million for the three months ended September 30, 2021, compared with $20.0 million during the same period in the prior year.

For the nine months ended September 30, 2021, these expenses decreased $15.0 million, or 20%, to $60.3 million, compared with $75.3 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 $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.

Selling and distribution expenses decreased $8.4 million, or 7%, to $114.5 million for the three months ended September 30, 2021, compared with $122.9 million during the same period in the prior year, due primarily to lower employee-related expenses of $13.0 million, most of which relates to incentive compensation.

The decrease in selling and distribution expenses was offset partially by an increase in occupancy expenses, as well increased discretionary expenses, including travel and entertainment and professional fees.

For the nine months ended September 30, 2021, selling and distribution expenses increased $40.2 million, or 12%, to $366.1 million, compared with $325.9 million during the same period in 2020, due primarily to higher employee-related expenses, including incentive compensation, of $28.3 million, as well as higher shipping and handling costs and occupancy expenses of $5.3 million and $3.4 million, respectively.

General and administrative expenses decreased $5.1 million, or 19%, to $21.0 million for the three months ended September 30, 2021, compared with $26.1 million for the same period in the prior year, due primarily to lower employee-related expenses of $5.9 million, most of which relates to incentive compensation.

The decreases were offset partially by increased discretionary expenses, including travel and entertainment expenses and professional fees.

For the nine months ended September 30, 2021, general and administrative expenses increased $3.4 million, or 6%, to $64.3 million, compared with $60.9 million during the same period in 2020.

The increase was primarily a result of higher employee-related expenses of $3.0 million.

For the nine months ended September 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 $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.

Income from operations decreased $29.2 million to $129.4 million for the three months ended September 30, 2021, compared with $158.6 million for the three months ended September 30, 2020.

Income from operations increased $508.5 million to $744.4 million for the nine months ended September 30, 2021, compared with $235.9 million for the nine months ended September 30, 2020.

Wood Products.

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.

Segment income increased $56.0 million to $122.1 million for the three months ended September 30, 2021, compared with $66.0 million for the three months ended September 30, 2020.

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

These increases in segment income were offset partially by higher wood fiber costs and lower margins on inventory purchased for resale through certain customer programs.

For the nine months ended September 30, 2021, segment income increased $346.0 million to $432.9 million from $86.9 million for the nine months ended September 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 were offset partially by higher wood fiber and other manufacturing costs.

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

In addition, selling and distribution expenses and general and administrative expenses increased $1.7 million and $0.7 million, respectively.

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.

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.

Segment income decreased $91.3 million to $16.6 million for the three months ended September 30, 2021, from $107.9 million for the three months ended September 30, 2020.

The decline in segment income was driven primarily by a gross margin decrease of $100.5 million, or a decline in gross margin percentage of 850 basis points, resulting from a sharp decline in commodity prices during third quarter 2021.

For the nine months ended September 30, 2021, segment income increased $162.7 million to $343.1 million from $180.4 million for the nine months ended September 30, 2020.

The increase in segment income was driven by a gross margin increase of $202.7 million, resulting from improved gross margins on EWP, general line, and commodity products compared with the first nine months of 2020.

This improvement was offset partially by increased selling and distribution expenses of $38.6 million.

Unallocated corporate expenses decreased $6.1 million to $9.2 million for the three months ended September 30, 2021, from $15.4 million for the same period in the prior year.

The decrease was due primarily to lower employee-related expenses of $3.0 million, most of which relates to incentive compensation.

In addition, as part of our self-insured risk retention program, corporate absorbed approximately $3.2 million of estimated business interruption losses at Wood Products facilities in third quarter 2020.

For the nine months ended September 30, 2021, unallocated corporate expenses increased $0.2 million to $31.6 million from $31.4 million for the nine months ended September 30, 2020.

The increase was due primarily to higher employee-related expenses, offset partially by lower self-insurance losses during the first nine months of 2021.

Change in fair value of interest rate swaps.

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Financial Statements" of this Form 10-Q.

Loss on extinguishment of debt.

In connection with the issuance of the $400 million of 4.875% senior notes due July 1, 2030 (2030 Notes), we commenced a tender offer to purchase any and all of our $350 million aggregate principal amount of 5.625% senior notes due September 1, 2024 (2024 Notes) then outstanding.

On July 27, 2020, we accepted for purchase an aggregate principal amount of $212.5 million of the 2024 Notes that were tendered.

On September 1, 2020, we redeemed the remaining $137.5 million in aggregate principal amount of the 2024 Notes outstanding.

In connection with these transactions, we recognized a pre-tax loss on the extinguishment of debt of $14.0 million during third quarter 2020.

The loss includes $10.8 million in debt extinguishment premium payments and $3.2 million for the write-off of unamortized deferred financing costs.

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

Financial Statements" of this Form 10-Q.

Income Tax Provision

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.

For the three and nine months ended September 30, 2021, we recorded $31.2 million and $183.6 million, respectively, of income tax expense and had an effective rate of 25.4% and 25.3%, respectively.

For the three and nine months ended September 30, 2020, we recorded $34.6 million and $50.0 million, respectively, of income tax expense and had an effective rate of 25.1% in both periods.

For all periods, 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

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Prior to the merger, BFS and BMC were both customers of ours.

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 18 % of total receivables as of June 30, 2021.

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

The merger resulted in the combined company accounting for 19 % of total receivables as of September 30, 2021.

Liquidity and Capital Resources

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 ended third quarter 2021 with $786.9 million of cash and cash equivalents and $444.4 million of debt.

At September 30, 2021, we had $1,132.2 million of available liquidity (cash and cash equivalents and undrawn committed bank line availability).

Further descriptions of our cash sources and uses for the nine 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.

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

Six Months Ended

Nine Months Ended

Net cash provided by operations $ 527,091 $ 293,771

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Operating Activities

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.

For the nine months ended September 30, 2021, our operating activities generated $527.1 million of cash, compared with $293.8 million of cash generated in the same period in 2020.

The $233.3 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.

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.

In addition, pension contributions decreased $12.4 million compared to the prior year.

These increases in cash were offset partially by an increase in working capital of $63.0 million during the nine months ended September 30, 2021, compared with a $41.2 million decrease for the same period in the prior year.

In addition, cash paid for taxes, net of refunds received, increased $168.2 million, compared to the prior year, resulting from the significant improvement in income from operations during the first nine months of 2021.

The increase in working capital during the nine months ended September 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 nine months ended September 30, 2020 included an increase in receivables, which was more than 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 17% and 70%, comparing sales for the months of September 2021 and 2020 with sales for the months of December 2020 and 2019, respectively.

Inventories increased during the nine months ended September 30, 2021 primarily due to increased cost of inventory purchased for resale.

During the nine months ended September 30, 2020, distribution inventories decreased due to stronger than expected demand and higher inventory turns, while manufacturing inventories decreased due to strong-end product demand, lower log inventory, and reduced production levels in response to periodic short-term disruptions at many locations due to COVID-19 and hurricanes in the Southeastern U.S.

The increase in accounts payable and accrued liabilities provided $186.1 million of cash during the nine months ended September 30, 2021, compared with $213.9 million in the same period a year ago.

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

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

During the nine months ended September 30, 2020, accrued liabilities also increased due to higher incentive compensation accruals for 2020.

Investment Activities

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.

During the nine months ended September 30, 2021 and 2020, we used $51.5 million and $47.0 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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Included in our capital spending range is the completion of a log utilization center project at our Florien plywood and veneer plant, a new door assembly operation in Houston, and expansion of our distribution capabilities in the Nashville market.

This level of capital expenditures could increase or decrease as a result of a number of factors, including acquisitions, efforts to accelerate organic growth, exercise of lease purchase options, our financial results, future economic conditions, availability of engineering and construction resources, and timing and availability of equipment purchases.

We expect our capital spending, excluding acquisitions, to be approximately $100-to-$130 million in 2022.

These levels of capital expenditures could increase or decrease as a result of a number of factors, including acquisitions, efforts to accelerate organic growth, exercise of lease purchase options, our financial results, future economic conditions, availability of engineering and construction resources, and timing and availability of equipment purchases.

Financing Activities

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.

During the nine months ended September 30, 2021, our financing activities used $94.8 million of cash, including $91.0 million for common stock dividend payments and $2.7 million of tax withholding payments on stock-based awards.

During the nine months ended September 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 nine months ended September 30, 2020, our financing activities used $28.6 million of cash.

On July 27, 2020, we issued $400 million of 2030 Notes.

With proceeds from the 2030 Notes issuance, we retired our $350 million of 2024 Notes and paid-off our American AgCredit term loan of $45.0 million.

In connection with the retirement of the 2024 Notes, we made debt extinguishment premium payments of $10.8 million.

During the nine months ended September 30, 2020, our financing activities also used $12.6 million for common stock dividend payments, $6.2 million for financing costs related to the 2030 Notes, and $3.3 million of tax withholding payments on stock-based awards.

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

As of September 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 June 30, 2021, and December 31, 2020, we had no material off-balance-sheet arrangements with unconsolidated entities.

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

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

As of October 17, 2021, we had approximately 6,020 employees.

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

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

As of October 17, 2021, we had ten collective bargaining agreements.

Two agreements covering approximately 750 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.

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

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

Environmental

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

As of September 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 June 30, 2021, there have been no material changes to our critical accounting estimates from those disclosed in our 2020 Form 10-K.

At September 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