QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2021
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35805
Boise Cascade Company
(Exact name of registrant as specified in its charter)
Delaware
20-1496201
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1111 West Jefferson Street Suite 300
Boise, Idaho83702-5389
(Address of principal executive offices) (Zip Code)
(208) 384-6161
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
BCC
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesx No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerx Accelerated filer o Non-accelerated filer o Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
There were 39,330,807 shares of the registrant's common stock, $0.01 par value per share, outstanding on October 29, 2021.
Condensed Notes to Unaudited Quarterly Consolidated Financial Statements
1. Nature of Operations and Consolidation
Nature of Operations
Boise Cascade Company is a building products company headquartered in Boise, Idaho. As used in this Form 10-Q, the terms "Boise Cascade," "we," and "our" refer to Boise Cascade Company and its consolidated subsidiaries. We are one of the largest producers of engineered wood products (EWP) and plywood in North America and a leading United States wholesale distributor of building products.
We operate our business using two reportable segments: (1) Wood Products, which primarily manufactures EWP and plywood, and (2) Building Materials Distribution (BMD), which is a wholesale distributor of building materials. For more information, see Note 12, Segment Information.
Consolidation
The accompanying quarterly consolidated financial statements have not been audited by an independent registered public accounting firm but, in the opinion of management, include all adjustments necessary to present fairly the financial position, results of operations, cash flows, and stockholders' equity for the interim periods presented. Except as disclosed within these condensed notes to unaudited quarterly consolidated financial statements, the adjustments made were of a normal, recurring nature. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. The quarterly consolidated financial statements include the accounts of Boise Cascade and its subsidiaries after elimination of intercompany balances and transactions. Quarterly results are not necessarily indicative of results that may be expected for the full year. These condensed notes to unaudited quarterly consolidated financial statements should be read in conjunction with our 2020 Form 10-K and the other reports we file with the Securities and Exchange Commission.
2. Summary of Significant Accounting Policies
Accounting Policies
The complete summary of significant accounting policies is included in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2020 Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, inventories, goodwill, intangible assets, and other long-lived assets; legal contingencies; guarantee obligations; indemnifications; assumptions used in retirement, medical, and workers' compensation benefits; assumptions used in the determination of right-of-use (ROU) assets and related lease liabilities; stock-based compensation; fair value measurements; income taxes; and vendor and customer rebates, among others. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. For revenue disaggregated by major product line for each reportable segment, see Note 12, Segment Information.
Fees for shipping and handling charged to customers for sales transactions are included in "Sales" in our Consolidated Statements of Operations. When control over products has transferred to the customer, we have elected to recognize costs related to shipping and handling as fulfillment costs. For our Wood Products segment, costs related to shipping and handling are included in "Materials, labor, and other operating expenses (excluding depreciation)" in our Consolidated Statements of Operations. In our Wood Products segment, we view our shipping and handling costs as a cost of the manufacturing process and the movement of product to our end customers. For our BMD segment, costs related to shipping and handling of $48.3 million and $49.2 million, for the three months ended September 30, 2021 and 2020, respectively, and $144.5 million and $134.1 million for the nine months ended September 30, 2021 and 2020, respectively, are included in "Selling and distribution expenses" in our Consolidated Statements of Operations. In our BMD segment, our activities relate to the purchase and resale of finished product, and excluding shipping and handling costs from “Materials, labor, and other operating expenses (excluding depreciation)” provides us a clearer view of our operating performance and the effectiveness of our sales and purchasing functions.
Customer Rebates and Allowances
Rebates are provided to our customers and our customers' customers based on the volume of their purchases, among other factors such as customer loyalty, conversion, and commitment, as well as temporary protection from price increases. We provide the rebates to increase the sell-through of our products. Rebates are generally estimated based on the expected amount to be paid and recorded as a decrease in "Sales." At September 30, 2021, and December 31, 2020, we had $131.5 million and $56.3 million, respectively, of rebates payable to our customers recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets. We adjust our estimate of revenue at the earlier of when the probability of rebates paid changes or when the amounts become fixed. There have not been significant changes to our estimates of rebates, although it is reasonably possible that a change in the estimate may occur.
Vendor Rebates and Allowances
We receive rebates and allowances from our vendors under a number of different programs, including vendor marketing programs. At September 30, 2021, and December 31, 2020, we had $12.3 million and $9.9 million, respectively, of vendor rebates and allowances recorded in "Receivables, Other" on our Consolidated Balance Sheets. Rebates and allowances received from our vendors are recognized as a reduction of "Materials, labor, and other operating expenses (excluding depreciation)" when the product is sold, unless the rebates and allowances are linked to a specific incremental cost to sell a vendor's product. Amounts received from vendors that are linked to specific selling and distribution expenses are recognized as a reduction of "Selling and distribution expenses" in the period the expense is incurred.
Leases
We primarily lease land, building, and equipment under operating and finance leases. We determine if an arrangement is a lease at inception and assess lease classification as either operating or finance at lease inception or upon modification. Substantially all of our leases with initial terms greater than one year are for real estate, including distribution centers, corporate headquarters, land, and other office space. Substantially all of these lease agreements have fixed payment terms based on the passage of time and are recorded in our BMD segment. Many of our leases include fixed escalation clauses, renewal options and/or termination options that are factored into our determination of lease term and lease payments when appropriate. Renewal options generally range from one to ten years with fixed payment terms similar to those in the original lease agreements. Some lease agreements provide us with the option to purchase the leased property at market value. Our lease agreements do not contain any residual value guarantees.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term. The current portion of our operating and finance lease liabilities are recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets.
We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. In determining our incremental borrowing rates, we
give consideration to publicly available interest rates for instruments with similar characteristics, including credit rating, term, and collateralization.
For purposes of determining straight-line rent expense, the lease term is calculated from the date we first take possession of the facility, including any periods of free rent and any renewal option periods we are reasonably certain of exercising. Variable lease expense generally includes reimbursement of actual costs for common area maintenance, property taxes, and insurance on leased real estate and are recorded as incurred. Most of our operating lease expense is recorded in "Selling and distribution expenses" in our Consolidated Statements of Operations. In addition, we do not separate lease and non-lease components for all of our leases.
Our short-term leases primarily include equipment rentals with lease terms on a month-to-month basis, which provide for our seasonal needs and flexibility in the use of equipment. Our short-term leases also include certain real estate for which either party has the right to cancel upon providing notice of 30 to 90 days. We do not recognize ROU assets or lease liabilities for short-term leases.
Inventories
Inventories included the following (work in process is not material):
September 30, 2021
December 31, 2020
(thousands)
Finished goods and work in process
$
556,123
$
431,663
Logs
50,344
35,622
Other raw materials and supplies
37,903
36,195
$
644,370
$
503,480
Property and Equipment
Property and equipment consisted of the following asset classes:
September 30, 2021
December 31, 2020
(thousands)
Land
$
47,099
$
47,099
Buildings
154,984
151,718
Improvements
65,570
64,178
Mobile equipment, information technology, and office furniture
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy under GAAP gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value (Level 1). If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly (Level 2). If quoted prices for identical or similar assets are not available or are unobservable, we may use internally developed valuation models, whose inputs include bid prices, and third-party valuations utilizing underlying asset assumptions (Level 3).
Financial Instruments
Our financial instruments are cash and cash equivalents, accounts receivable, accounts payable, long-term debt, and interest rate swaps. Our cash is recorded at cost, which approximates fair value, and our cash equivalents are money market funds. As of September 30, 2021, and December 31, 2020, we held $710.7 million and $371.8 million, respectively, in money market funds that are measured at fair value on a recurring basis using Level 1 inputs. The recorded values of accounts receivable and accounts payable approximate fair values based on their short-term nature. At September 30, 2021, and December 31, 2020, the book value of our fixed-rate debt for each period was $400.0 million, and the fair value was estimated to be $428.0 million and $432.0 million, respectively. The difference between the book value and the fair value is derived from the difference between the period-end market interest rate and the stated rate of our fixed-rate, long-term debt. We estimated the fair value of our fixed-rate debt using quoted market prices of our debt in inactive markets (Level 2 inputs). The interest rate on our variable-rate debt is based on market conditions such as the London Interbank Offered Rate (LIBOR) or a base rate. Because the interest rate on the variable-rate debt is based on current market conditions, we believe that the estimated fair value of the outstanding balance on our variable-rate debt approximates book value. As discussed below, we also have interest rate swaps to mitigate our variable interest rate exposure, the fair value of which is measured based on Level 2 inputs.
Interest Rate Risk and Interest Rate Swaps
We are exposed to interest rate risk arising from fluctuations in variable-rate LIBOR on our term loan and when we have loan amounts outstanding on our Revolving Credit Facility. At September 30, 2021, we had $50.0 million of variable-rate debt outstanding based on one-month LIBOR. Our objective is to limit the variability of interest payments on our debt. To meet this objective, we enter into receive-variable, pay-fixed interest rate swaps to change the variable-rate cash flow exposure to fixed-rate cash flows. In accordance with our risk management strategy, we actively monitor our interest rate exposure and use derivative instruments from time to time to manage the related risk. We do not speculate using derivative instruments.
At September 30, 2021, we had two interest rate swap agreements. Under the interest rate swaps, we receive one-month LIBOR-based variable interest rate payments and make fixed interest rate payments, thereby fixing the interest rate on $50.0 million of variable rate debt exposure. Payments on one interest rate swap, entered into in 2016, with a notional principal amount of $50.0 million are due on a monthly basis at an annual fixed rate of 1.007%, and this swap expires in February 2022 (Initial Swap). During second quarter 2020, we entered into another forward interest rate swap agreement which commences on the expiration date of the Initial Swap. Payments on this interest rate swap with a notional principal amount of $50.0 million will be due on a monthly basis at an annual fixed rate of 0.39%, and this swap expires in June 2025.
The interest rate swap agreements were not designated as cash flow hedges, and as a result, all changes in the fair value are recognized in "Change in fair value of interest rate swaps" in our Consolidated Statements of Operations rather than through other comprehensive income. At September 30, 2021, we recorded a long-term asset of $0.7 million in "Other assets" on our Consolidated Balance Sheets, and we also recorded a long-term liability of $0.2 million in "Other long-term liabilities" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreements. At December 31, 2020, we recorded a long-term liability of $0.6 million in "Other long-term liabilities" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreements. The swaps were valued based on observable inputs for similar assets and liabilities and other observable inputs for interest rates and yield curves (Level 2 inputs).
We are exposed to credit risk related to customer accounts receivable. In order to manage credit risk, we consider customer concentrations and current economic trends and monitor the creditworthiness of significant customers based on ongoing credit evaluations. At September 30, 2021, receivables from two customers accounted for approximately 19% and 12% of total receivables. At December 31, 2020, receivables from these two customers accounted for approximately 13% and 12% of total receivables. No other customer accounted for 10% or more of total receivables.
New and Recently Adopted Accounting Standards
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of Topic 848 and clarifies some of its guidance as it related to recent rate reform activities. Our current contracts that reference LIBOR include certain debt instruments and interest rate swaps. The amendments are effective for eligible contract modifications subsequent to March 12, 2020, and through December 31, 2022. The adoption of these standards did not and are not expected to have a material effect on our financial statements, but we will assess any eligible contract modifications in the future.
There were no other accounting standards recently issued that had or are expected to have a material impact on our consolidated financial statements and associated disclosures.
3. Income 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.
During the nine months ended September 30, 2021 and 2020, cash paid for taxes, net of refunds received, were $203.5 million and $35.3 million, respectively.
4. Net Income Per Common Share
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Weighted average common shares outstanding for the basic net income per common share calculation includes certain vested restricted stock units (RSUs) and performance stock units (PSUs) as there are no conditions under which those shares will not be issued. Diluted net income per common share is computed by dividing net income by the combination of the weighted average number of common shares outstanding during the period and other potentially dilutive weighted average common shares. Other potentially dilutive weighted average common shares include the dilutive effect of stock options, RSUs, and PSUs for each period using the treasury stock method. Under the treasury stock method, the exercise price of a share and the amount of compensation expense, if any, for future service that has not yet been recognized are assumed to be used to repurchase shares in the current period.
The following table sets forth the computation of basic and diluted net income per common share:
Three Months Ended September 30
Nine Months Ended September 30
2021
2020
2021
2020
(thousands, except per-share data)
Net income
$
91,699
$
103,192
$
543,411
$
148,978
Weighted average common shares outstanding during the period (for basic calculation)
39,442
39,315
39,413
39,264
Dilutive effect of other potential common shares
219
211
210
132
Weighted average common shares and potential common shares (for diluted calculation)
39,661
39,526
39,623
39,396
Net income per common share - Basic
$
2.32
$
2.62
$
13.79
$
3.79
Net income per common share - Diluted
$
2.31
$
2.61
$
13.71
$
3.78
The computation of the dilutive effect of other potential common shares excludes stock awards representing no shares of common stock in both the three months ended September 30, 2021 and 2020, and 0.1 million and 0.2 million shares of common stock, respectively, in the nine months ended September 30, 2021 and 2020. Under the treasury stock method, the inclusion of these stock awards would have been antidilutive.
5. Curtailment of Manufacturing Facility
On February 20, 2020, we decided to permanently curtail I-joist production at our Roxboro, North Carolina facility by March 31, 2020. As a result of the curtailment, we recorded $15.0 million of accelerated depreciation during first quarter 2020 to fully depreciate the curtailed I-joist assets. In addition, we recorded $1.7 million of various closure-related costs in "Loss on curtailment of facility" in our Consolidated Statements of Operations.
6. Debt
Long-term debt consisted of the following:
September 30, 2021
December 31, 2020
(thousands)
Asset-based revolving credit facility due 2025
$
—
$
—
Asset-based credit facility term loan due 2025
50,000
50,000
4.875% senior notes due 2030
400,000
400,000
Deferred financing costs
(5,581)
(6,208)
Long-term debt
$
444,419
$
443,792
Asset-Based Credit Facility
On May 15, 2015, Boise Cascade and its principal operating subsidiaries, Boise Cascade Wood Products, L.L.C., and Boise Cascade Building Materials Distribution, L.L.C., as borrowers, and Boise Cascade Wood Products Holdings Corp., as guarantor, entered into an Amended and Restated Credit Agreement, as amended, (Amended Agreement) with Wells Fargo Capital Finance, LLC, as administrative agent, and the banks named therein as lenders. The Amended Agreement includes a $350 million senior secured asset-based revolving credit facility (Revolving Credit Facility) and a $50.0 million term loan (ABL Term Loan) maturing on March 13, 2025. Interest on borrowings under our Revolving Credit Facility and ABL Term Loan are payable monthly. Borrowings under the Amended Agreement are constrained by a borrowing base formula dependent upon levels of eligible receivables and inventory reduced by outstanding borrowings and letters of credit (Availability).
The Amended Agreement is secured by a first-priority security interest in substantially all of our assets, except for property and equipment. The proceeds of borrowings under the agreement are available for working capital and other general corporate purposes.
The Amended Agreement contains customary nonfinancial covenants, including a negative pledge covenant and restrictions on new indebtedness, investments, distributions to equity holders, asset sales, and affiliate transactions, the scope of which are dependent on the Availability existing from time to time. The Amended Agreement also contains a requirement that we meet a 1:1 fixed-charge coverage ratio (FCCR), applicable only if Availability falls below 10% of the aggregate revolving lending commitments (or $35 million). Availability exceeded the minimum threshold amounts required for testing of the FCCR at all times since entering into the Amended Agreement, and Availability at September 30, 2021, was $345.3 million.
The Amended Agreement permits us to pay dividends only if at the time of payment (i) no default has occurred or is continuing (or would result from such payment) under the Amended Agreement, and (ii) pro forma Excess Availability (as defined in the Amended Agreement) is equal to or exceeds 25% of the aggregate Revolver Commitments (as defined in the Amended Agreement) or (iii) (x) pro forma Excess Availability is equal to or exceeds 15% of the aggregate Revolver Commitment and (y) our fixed-charge coverage ratio is greater than or equal to 1:1 on a pro forma basis.
Revolving Credit Facility
Interest rates under the Revolving Credit Facility are based, at our election, on either LIBOR or a base rate, as defined in the Amended Agreement, plus a spread over the index elected that ranges from 1.25% to 1.50% for loans based on LIBOR and from 0.25% to 0.50% for loans based on the base rate. The spread is determined on the basis of a pricing grid that results in a higher spread as average quarterly Availability declines. Letters of credit are subject to a fronting fee payable to the issuing bank and a fee payable to the lenders equal to the LIBOR margin rate. In addition, we are required to pay an unused commitment fee at a rate of 0.25% per annum of the average unused portion of the lending commitments.
At both September 30, 2021, and December 31, 2020, we had no borrowings outstanding under the Revolving Credit Facility and $4.7 million and $4.8 million, respectively, of letters of credit outstanding. These letters of credit and borrowings, if any, reduce Availability under the Revolving Credit Facility by an equivalent amount. During the nine months ended September 30, 2021, the minimum and maximum borrowings under the Revolving Credit Facility were zero and $28.0 million, respectively, and the average interest rate on borrowings was approximately 1.37%.
ABL Term Loan
The ABL Term Loan was provided by institutions within the Farm Credit system. Borrowings under the ABL Term Loan may be repaid from time to time at the discretion of the borrowers without premium or penalty. However, any principal amount of ABL Term Loan repaid may not be subsequently re-borrowed.
Interest rates under the ABL Term Loan are based, at our election, on either LIBOR or a base rate, as defined in the Amended Agreement, plus a spread over the index elected that ranges from 1.75% to 2.00% for LIBOR rate loans and from 0.75% to 1.00% for base rate loans, both dependent on the amount of Average Excess Availability (as defined in the Amended Agreement). During the nine months ended September 30, 2021, the average interest rate on the ABL Term Loan was approximately 1.85%.
We have received and expect to continue receiving patronage credits under the ABL Term Loan. Patronage credits are distributions of profits from banks in the Farm Credit system, which are cooperatives that are required to distribute profits to their members. Patronage distributions, which are generally made in cash, are received in the year after they are earned. Patronage credits are recorded as a reduction to interest expense in the year earned. After giving effect to expected patronage distributions, the effective average net interest rate on the ABL Term Loan was approximately 0.9% during the nine months ended September 30, 2021.
On July 27, 2020, we issued $400 million of 4.875% senior notes due July 1, 2030 (2030 Notes) through a private placement that was exempt from the registration requirements of the Securities Act. Interest on our 2030 Notes is payable semiannually in arrears on January 1 and July 1. The 2030 Notes are guaranteed by each of our existing and future direct or indirect domestic subsidiaries that is a guarantor under our Amended Agreement.
The 2030 Notes are senior unsecured obligations and rank equally with all of the existing and future senior indebtedness of Boise Cascade Company and of the guarantors, senior to all of their existing and future subordinated indebtedness, effectively subordinated to all of their present and future senior secured indebtedness (including all borrowings with respect to our Amended Agreement to the extent of the value of the assets securing such indebtedness), and structurally subordinated to the indebtedness of any subsidiaries that do not guarantee the 2030 Notes.
The terms of the indenture governing the 2030 Notes, among other things, limit the ability of Boise Cascade and our restricted subsidiaries to: incur additional debt; declare or pay dividends; redeem stock or make other distributions to stockholders; make investments; create liens on assets; consolidate, merge or transfer substantially all of their assets; enter into transactions with affiliates; and sell or transfer certain assets. The indenture governing the 2030 Notes permits us to pay dividends only if at the time of payment (i) no default has occurred or is continuing (or would result from such payment) under the indenture, and (ii) our consolidated leverage ratio is no greater than 3.5:1, or (iii) the dividend, together with other dividends since the issue date, would not exceed our "builder" basket under the indenture. In addition, the indenture includes certain specific baskets for the payment of dividends.
The indenture governing the 2030 Notes provides for customary events of default and remedies.
Interest Rate Swaps
For information on interest rate swaps, see Interest Rate Risk and Interest Rate Swaps of Note 2, Summary of Significant Accounting Policies.
Cash Paid for Interest
For the nine months ended September 30, 2021 and 2020, cash payments for interest were $20.4 million and $21.2 million, respectively.
The following table presents the pension benefit costs:
Three Months Ended September 30
Nine Months Ended September 30
2021
2020
2021
2020
(thousands)
Service cost
$
—
$
167
$
—
$
501
Interest cost
24
1,474
71
4,420
Expected return on plan assets
—
(1,374)
—
(4,120)
Amortization of actuarial (gain) loss
(5)
202
(14)
605
Plan settlement loss
—
—
—
86
Net periodic benefit expense
$
19
$
469
$
57
$
1,492
Service cost is recorded in the same income statement line items as other employee compensation costs arising from services rendered, and the other components of net periodic benefit expense are recorded in "Pension expense (excluding service costs)" in our Consolidated Statements of Operations.
During the nine months ended September 30, 2021, we paid $0.2 million in cash to the nonqualified pension plan participants. For the remainder of 2021, we expect to make approximately $0.1 million in cash payments to our nonqualified pension plan participants.
9. Stock-Based Compensation
In first quarter 2021 and 2020, we granted two types of stock-based awards under our incentive plan: performance stock units (PSUs) and restricted stock units (RSUs).
PSU and RSU Awards
During the nine months ended September 30, 2021, we granted 73,265 PSUs to our officers and other employees, subject to performance and service conditions. For the officers, the number of shares actually awarded will range from 0% and 200% of the target amount, depending upon Boise Cascade's 2021 return on invested capital (ROIC), as approved by our Compensation Committee in accordance with the related grant agreement. For the other employees, the number of shares actually awarded will range from 0% to 200% of the target amount, depending upon Boise Cascade’s 2021 EBITDA, defined as income before interest (interest expense and interest income), income taxes, and depreciation and amortization, determined in accordance with the related grant agreement. Because the ROIC and EBITDA components contain a performance condition, we record compensation expense over the requisite service period based on the most probable number of shares expected to vest.
During the nine months ended September 30, 2020, we granted 94,850 PSUs to our officers and other employees, subject to performance and service conditions. During the 2020 performance period, officers and other employees both earned 200% of the target based on Boise Cascade’s 2020 ROIC and EBITDA, determined by our Compensation Committee in accordance with the related grant agreement.
The PSUs granted to officers generally vest in a single installment three years from the date of grant, while the PSUs granted to other employees vest in three equal tranches each year after the grant date.
During the nine months ended September 30, 2021 and 2020, we granted an aggregate of 101,059 and 125,716 RSUs, respectively, to our officers, other employees, and nonemployee directors with only service conditions. The RSUs granted to officers and other employees vest in three equal tranches each year after the grant date. The RSUs granted to nonemployee directors vest over a one year period.
We based the fair value of PSU and RSU awards on the closing market price of our common stock on the grant date. During the nine months ended September 30, 2021 and 2020, the total fair value of PSUs and RSUs vested was $9.2 million and $11.1 million, respectively.
The following summarizes the activity of our PSUs and RSUs awarded under our incentive plan for the nine months ended September 30, 2021:
PSUs
RSUs
Number of shares
Weighted Average Grant-Date Fair Value
Number of shares
Weighted Average Grant-Date Fair Value
Outstanding, December 31, 2020
196,340
$
35.34
212,766
$
34.24
Granted
73,265
52.45
101,059
52.95
Performance condition adjustment (a)
94,850
36.45
—
—
Vested
(68,223)
38.70
(106,200)
35.64
Forfeited
(50,022)
37.43
(46,325)
34.07
Outstanding, September 30, 2021
246,210
$
39.50
161,300
$
45.08
_______________________________
(a) Represents additional PSUs granted during the nine months ended September 30, 2021, related to the 2020 performance condition adjustment described above.
Compensation Expense
We record compensation expense over the awards' vesting period and account for share-based award forfeitures as they occur, rather than making estimates of future forfeitures. Any shares not vested are forfeited. We recognize stock awards with only service conditions on a straight-line basis over the requisite service period. Most of our share-based compensation expense was recorded in "General and administrative expenses" in our Consolidated Statements of Operations. Total stock-based compensation recognized from PSUs and RSUs, net of forfeitures, was as follows:
Three Months Ended September 30
Nine Months Ended September 30
2021
2020
2021
2020
(thousands)
PSUs
$
1,190
$
1,503
$
3,024
$
2,804
RSUs
991
991
2,660
3,035
Total
$
2,181
$
2,494
$
5,684
$
5,839
The related tax benefit for the nine months ended September 30, 2021 and 2020, was $1.4 million and $1.5 million respectively. As of September 30, 2021, total unrecognized compensation expense related to nonvested share-based compensation arrangements was $12.7 million. This expense is expected to be recognized over a weighted-average period of 1.9 years.
10. Stockholders' Equity
Dividends
On November 14, 2017, we announced that our board of directors approved a dividend policy to pay quarterly cash dividends to holders of our common stock. For more information regarding our dividend declarations and payments made during each of the nine months ended September 30, 2021 and 2020, see "Common stock dividends" on our Consolidated Statements of Stockholders' Equity.
On October 28, 2021, our board of directors declared a quarterly dividend of $0.12 per share on our common stock, as well as a supplemental dividend of $3.00 per share on our common stock, both payable on December 15, 2021, to stockholders of record on December 1, 2021. For a description of the restrictions in our asset-based credit facility and the indenture governing our senior notes on our ability to pay dividends, see Note 6, Debt.
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.
Accumulated Other Comprehensive Loss
The following table details the changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended September 30
Nine Months Ended September 30
2021
2020
2021
2020
(thousands)
Beginning balance, net of taxes
$
(1,085)
$
(49,883)
$
(1,078)
$
(50,248)
Amortization of actuarial (gain) loss, before taxes (a)
(5)
202
(14)
605
Effect of settlements, before taxes (a)
—
—
—
86
Income taxes
2
(51)
4
(175)
Ending balance, net of taxes
$
(1,088)
$
(49,732)
$
(1,088)
$
(49,732)
___________________________________
(a) Represents amounts reclassified from accumulated other comprehensive loss. These amounts are included in the computation of net periodic pension cost. For additional information, see Note 8, Retirement and Benefit Plans.
11. Transactions With Related Party
Louisiana Timber Procurement Company, L.L.C. (LTP) is an unconsolidated variable-interest entity that is 50% owned by us and 50% owned by Packaging Corporation of America (PCA). LTP procures sawtimber, pulpwood, residual chips, and other residual wood fiber to meet the wood and fiber requirements of us and PCA in Louisiana. We are not the primary beneficiary of LTP as we do not have power to direct the activities that most significantly affect the economic performance of LTP. Accordingly, we do not consolidate LTP's results in our financial statements.
Sales
Related-party sales to LTP from our Wood Products segment in our Consolidated Statements of Operations were $3.6 million and $2.8 million, respectively, during the three months ended September 30, 2021 and 2020, and $10.2 million and $9.5 million, respectively, during the nine months ended September 30, 2021 and 2020. These sales are recorded in "Sales" in our Consolidated Statements of Operations.
Costs and Expenses
Related-party wood fiber purchases from LTP were $22.3 million and $15.6 million, respectively, during the three months ended September 30, 2021 and 2020, and $63.3 million and $52.0 million, respectively, during the nine months ended September 30, 2021 and 2020. These costs are recorded in "Materials, labor, and other operating expenses (excluding depreciation)" in our Consolidated Statements of Operations.
We operate our business using two reportable segments: Wood Products and BMD. Unallocated corporate costs are presented as reconciling items to arrive at operating income. There are no differences in our basis of measurement of segment profit or loss from those disclosed in Note 17, Segment Information, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2020 Form 10-K.
Wood Products and BMD segment sales to external customers, including related parties, by product line are as follows:
Three Months Ended September 30
Nine Months Ended September 30
2021
2020
2021
2020
(millions)
Wood Products (a)
LVL (b)
$
(5.1)
$
4.3
$
4.6
$
15.6
I-joists (b)
(9.3)
3.3
(1.4)
10.4
Other engineered wood products (b)
9.6
5.6
32.8
17.2
Plywood and veneer
119.2
105.1
443.2
234.2
Lumber
21.3
13.3
65.9
37.9
Byproducts
17.7
16.1
54.3
52.5
Other
4.9
3.9
15.8
12.9
158.3
151.6
615.3
380.7
Building Materials Distribution
Commodity
770.9
718.9
2,985.3
1,649.1
General line
580.8
483.0
1,620.2
1,328.5
Engineered wood products
369.5
235.8
923.1
644.3
1,721.1
1,437.7
5,528.6
3,621.9
$
1,879.5
$
1,589.3
$
6,143.9
$
4,002.6
___________________________________
(a) Amounts represent sales to external customers. Sales are calculated after intersegment sales eliminations to our BMD segment.
(b) Sales of EWP to external customers are net of the cost of all EWP rebates and sales allowances provided at various stages of the supply chain (including distributors, retail lumberyards, and professional builders). For the nine months ended September 30, 2021 and 2020, approximately 78% and 80%, respectively, of Wood Products' EWP sales volumes were to our BMD segment.
An analysis of our operations by segment is as follows:
Three Months Ended September 30
Nine Months Ended September 30
2021
2020
2021
2020
(thousands)
Net sales by segment
Wood Products
$
497,316
$
363,674
$
1,524,220
$
965,240
Building Materials Distribution
1,721,244
1,437,683
5,528,765
3,621,940
Intersegment eliminations (a)
(339,109)
(212,044)
(909,057)
(584,573)
Total net sales
$
1,879,451
$
1,589,313
$
6,143,928
$
4,002,607
Segment operating income
Wood Products (b)
$
122,056
$
66,035
$
432,869
$
86,872
Building Materials Distribution
16,565
107,901
343,122
180,413
Total segment operating income
138,621
173,936
775,991
267,285
Unallocated corporate costs
(9,235)
(15,364)
(31,569)
(31,396)
Income from operations
$
129,386
$
158,572
$
744,422
$
235,889
___________________________________
(a) Primarily represents intersegment sales from our Wood Products segment to our BMD segment.
(b) Wood Products segment operating income for the nine months ended September 30, 2020, included $15.0 million of accelerated depreciation and $1.7 million of other closure-related costs due to the permanent curtailment of I-joist production at our Roxboro, North Carolina facility. For more information, see Note 5, Curtailment of Manufacturing Facility.
13. Commitments, Legal Proceedings and Contingencies, and Guarantees
Commitments
We are a party to a number of long-term log supply agreements that are discussed in 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. In addition, we have purchase obligations for goods and services, capital expenditures, and raw materials entered into in the normal course of business. As of September 30, 2021, there have been no material changes to the above commitments disclosed in the 2020 Form 10-K.
Legal Proceedings and Contingencies
We are a party to legal proceedings that arise in the ordinary course of our business, including commercial liability claims, premises claims, environmental claims, and employment-related claims, among others. As of the date of this filing, we believe it is not reasonably possible that any of the legal actions against us will, individually or in the aggregate, have a material adverse effect on our financial position, results of operations, or cash flows.
Guarantees
We provide guarantees, indemnifications, and assurances to others. 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 describes 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 September 30, 2021, there have been no material changes to the guarantees disclosed in the 2020 Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Understanding Our Financial Information
This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes in "Item 1. Financial Statements" of this Form 10-Q, as well as our 2020 Form 10-K. The following discussion includes statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other nonhistorical statements in the discussion, are forward-looking. These forward-looking statements include, without limitation, any statement that may predict, indicate, or imply future results, performance, or achievements and may contain the words "may," "will," "expect," "believe," "should," "plan," "anticipate," and other similar expressions. All of these forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Item 1A. Risk Factors" in our 2020 Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission (SEC). We do not assume an obligation to update any forward-looking statement. Our future actual results may differ materially from those contained in or implied by any of the forward-looking statements in this Form 10-Q.
Background
Boise Cascade Company is a building products company headquartered in Boise, Idaho. As used in this Form 10-Q, the terms "Boise Cascade," "we," and "our" refer to Boise Cascade Company and its consolidated subsidiaries. Boise Cascade is a large, vertically-integrated wood products manufacturer and building materials distributor. We have two reportable segments: (i) Wood Products, which primarily manufactures engineered wood products (EWP) and plywood; and (ii) Building Materials Distribution (BMD), which is a wholesale distributor of building materials. Demand for the products we manufacture, as well as the products we purchase and distribute, is closely correlated with new residential construction in the 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. Financial Statements" of this Form 10-Q.
Executive Overview
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 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. 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. 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 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.
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 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;
•disruptions to information systems used to process and store customer, employee, and vendor information, as well as the technology that manages our operations and other business processes;
•material disruptions and/or major equipment failure at our manufacturing facilities;
•concentration of our sales among a relatively small group of customers, as well as the financial condition and creditworthiness of our customers;
•product shortages, loss of key suppliers, and our dependence on third-party suppliers and manufacturers;
•labor disruptions, shortages of skilled and technical labor, or increased labor costs;
•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;
•cost and availability of raw materials, including wood fiber and glues and resins;
•cost of compliance with government regulations, in particular environmental regulations;
•our ability to successfully and efficiently complete and integrate acquisitions;
•declines in demand for our products due to competing technologies or materials, as well as changes in building code provisions;
•substantial ongoing capital investment costs, including those associated with acquisitions, and the difficulty in offsetting fixed costs related to those investments;
•the cost and availability of third-party transportation services used to deliver the goods we manufacture and distribute, as well as our raw materials;
•exposure to product liability, product warranty, casualty, construction defect, and other claims;
•our indebtedness, including the possibility that we may not generate sufficient cash flows from operations or that future borrowings may not be available in amounts sufficient to fulfill our debt obligations and fund other liquidity needs;
•restrictive covenants contained in our debt agreements;
•fluctuations in the market for our equity; and
•the other factors described in "Item 1A. Risk Factors" in our 2020 Form 10-K.
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 September 30
Nine Months Ended September 30
2021
2020
2021
2020
(millions)
Sales
$
1,879.5
$
1,589.3
$
6,143.9
$
4,002.6
Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)
1,594.4
1,261.7
4,909.4
3,302.9
Depreciation and amortization
20.3
20.0
60.3
75.3
Selling and distribution expenses
114.5
122.9
366.1
325.9
General and administrative expenses
21.0
26.1
64.3
60.9
Loss on curtailment of facility
—
—
—
1.7
Other (income) expense, net
(0.1)
0.1
(0.5)
0.1
1,750.1
1,430.7
5,399.5
3,766.7
Income from operations
$
129.4
$
158.6
$
744.4
$
235.9
(percentage of sales)
Sales
100.0
%
100.0
%
100.0
%
100.0
%
Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)
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 BMD segment for the three and nine months ended September 30, 2021 and 2020.
Three Months Ended September 30
Nine Months Ended September 30
2021
2020
2021
2020
(thousands)
U.S. Housing Starts (a)
Single-family
294.4
281.3
859.0
713.1
Multi-family
125.9
106.2
354.7
302.4
420.3
387.5
1,213.7
1,015.5
(thousands)
Segment Sales
Wood Products
$
497,316
$
363,674
$
1,524,220
$
965,240
Building Materials Distribution
1,721,244
1,437,683
5,528,765
3,621,940
Intersegment eliminations
(339,109)
(212,044)
(909,057)
(584,573)
Total sales
$
1,879,451
$
1,589,313
$
6,143,928
$
4,002,607
Wood Products
(millions)
Sales Volumes
Laminated veneer lumber (LVL) (cubic feet)
4.6
4.6
13.7
13.1
I-joists (equivalent lineal feet)
76
63
224
172
Plywood (sq. ft.) (3/8" basis)
314
316
955
948
Wood Products
(dollars per unit)
Average Net Selling Prices
Laminated veneer lumber (LVL) (cubic foot)
$
22.30
$
18.14
$
20.33
$
18.33
I-joists (1,000 equivalent lineal feet)
1,575
1,237
1,421
1,257
Plywood (1,000 sq. ft.) (3/8" basis)
561
428
672
328
(percentage of Building Materials Distribution sales)
Building Materials Distribution
Product Line Sales
Commodity
44.8
%
50.0
%
54.0
%
45.5
%
General line
33.7
%
33.6
%
29.3
%
36.7
%
Engineered wood
21.5
%
16.4
%
16.7
%
17.8
%
Gross margin percentage (b)
7.9
%
16.4
%
13.1
%
14.4
%
_______________________________________
(a) Actual U.S. housing starts data reported by the U.S. Census Bureau.
(b) We define gross margin as "Sales" less "Materials, labor, and other operating expenses (excluding depreciation)." Substantially all costs included in "Materials, labor, and other operating expenses (excluding depreciation)" for our BMD segment are for inventory purchased for resale. Gross margin percentage is gross margin as a percentage of segment sales.
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 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 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 $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. Higher sales volumes for I-joists and LVL of 30% and 5%, respectively, resulted in increased sales of $64.7 million and $11.6 million, respectively. In addition, sales prices for I-joists and LVL increased 13% and 11%, respectively, resulting in increased sales of $36.8 million and $27.4 million, respectively. Improved lumber sales prices and plywood sales volumes of 104% and 1%, respectively, contributed $33.1 million and $2.2 million, respectively, to the increase in sales.
Building Materials Distribution. 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; general line product sales increased 20%, or $97.9 million; and sales of EWP (substantially all of which are sourced through our Wood Products segment) increased 57%, or $133.7 million.
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. By product line, commodity sales increased 81%, or $1,336.2 million; general line product sales increased 22%, or $291.8 million; and sales of EWP increased 43%, or $278.8 million.
Costs and Expenses
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. 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 27% and 16%, compared with the first nine months of 2020. 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 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 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. Financial Statements" of this Form 10-Q.
Income From Operations
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 $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 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 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. 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.
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.
Corporate. 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.
Other
Change in fair value of interest rate swaps. For information related to our interest rate swaps, see the discussion under "Interest Rate Risk and Interest Rate Swaps" of Note 2, Summary of Significant Accounting Policies, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q.
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 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
On August 27, 2020, Builders FirstSource, Inc. (BFS) and BMC Stock Holdings (BMC) announced a definitive merger agreement. The merger closed in early January 2021. Prior to the merger, BFS and BMC were both customers of ours. 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.
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). 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. 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. 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
We generate cash primarily from sales of our products, as well as short-term and long-term borrowings. Our primary uses of cash are for expenses related to the manufacture and distribution of building products, including inventory purchased for resale, wood fiber, labor, energy, and glues and resins. In addition to paying for ongoing operating costs, we use cash to invest in our business, service our debt, pay dividends, repurchase our common stock, and meet our contractual obligations and commercial commitments. Below is a discussion of our sources and uses of cash for operating activities, investing activities, and financing activities.
Nine Months Ended September 30
2021
2020
(thousands)
Net cash provided by operations
$
527,091
$
293,771
Net cash used for investment
(50,824)
(46,431)
Net cash used for financing
(94,763)
(28,642)
Operating Activities
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. 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.
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. We expect our capital spending in 2021 will be for business improvement and quality/efficiency projects, replacement projects, and ongoing environmental compliance. 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. 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 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.
For more information related to our debt transactions and structure, and our dividend policy, see the discussion in Note 6, Debt, and Note 10, Stockholders' Equity, respectively, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q.
Contractual Obligations
For information about contractual obligations, see Contractual Obligations in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Form 10-K. 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 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 September 30, 2021, there have been no material changes to the guarantees disclosed in our 2020 Form 10-K.
Seasonal Influences
We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors. These seasonal factors are common in the building products industry. Seasonal changes in levels of building activity affect our building products businesses, which are dependent on housing starts, repair-and-remodeling activities, and light commercial construction activities. We typically report lower sales volumes in the first and fourth quarters due to the impact of poor weather on the construction market, and we generally have higher sales volumes in the second and third quarters, reflecting an increase in construction due to more favorable weather conditions. We typically have higher working capital in the first and second quarters in preparation and response to the building season. Seasonally cold weather increases costs, especially energy consumption costs, at most of our manufacturing facilities.
Employees
As of October 17, 2021, we had approximately 6,020 employees. Approximately 23% of these employees work pursuant to 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. 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. Labor disruptions or shortages could prevent us from meeting customer demands or result in increased costs, thereby reducing our sales and profitability.
Disclosures of Financial Market Risks
In the normal course of business, we are exposed to financial risks such as changes in commodity prices, interest rates, and foreign currency exchange rates. As of September 30, 2021, there have been no material changes to financial market risks disclosed in our 2020 Form 10-K.
Environmental
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. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Form 10-K.
Critical Accounting Estimates
Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management's most difficult, subjective, or complex judgments, often as a result of the need to estimate matters that are inherently uncertain. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our board of directors. For information about critical accounting estimates, see Critical Accounting Estimates in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 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.
For information related to new and recently adopted accounting standards, see "New and Recently Adopted Accounting Standards" in Note 2, Summary of Significant Accounting Policies, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" in this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information relating to quantitative and qualitative disclosures about market risk, see the discussion under "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" and under the headings "Disclosures of Financial Market Risks" and "Financial Instruments" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Form 10-K. As of September 30, 2021, there have been no material changes in our exposure to market risk from those disclosed in our 2020 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as defined in Rule 13a-15(e) under the Exchange Act. We have designed these controls and procedures to reasonably assure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. We have also designed our disclosure controls to provide reasonable assurance that such information is accumulated and communicated to our senior management, including our chief executive officer (CEO) and our chief financial officer (CFO), as appropriate, to allow them to make timely decisions regarding our required disclosures. Based on their evaluation, our CEO and CFO have concluded that as of September 30, 2021, our disclosure controls and procedures were effective in meeting the objectives for which they were designed and were operating at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are a party to legal proceedings that arise in the ordinary course of our business, including commercial liability claims, premises claims, environmental claims, and employment-related claims, among others. As of the date of this filing, we believe it is not reasonably possible that any of the legal actions against us will, individually or in the aggregate, have a material adverse effect on our financial position, results of operations, or cash flows.
SEC regulations require us to disclose certain information about proceedings arising under federal, state or local environmental provisions if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to the SEC regulations, we use a threshold of $1 million or more for purposes of determining whether disclosure of any such proceedings is required.
ITEM 1A. RISK FACTORS
This report on Form 10-Q contains forward-looking statements. Statements that are not historical or current facts, including statements about our expectations, anticipated financial results, projected capital expenditures, and future business prospects, are forward-looking statements. You can identify these statements by our use of words such as "may," "will," "expect," "believe," "should," "plan," "anticipate," and other similar expressions. You can find examples of these statements throughout this report, including "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations." We cannot guarantee that our actual results will be consistent with the forward-looking statements we make in this report. You should review carefully the risk factors listed in "Item 1A. Risk Factors" in our 2020 Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission and the risk factors below. We do not assume an obligation to update any forward-looking statement.
The proposed new regulation concerning mandatory COVID-19 vaccination of employees could have a material adverse impact on our business and results of operations.
On September 9, 2021, new regulation was proposed requiring all employers with at least 100 employees to ensure that their employees are fully vaccinated or require unvaccinated workers to get a negative test at least once a week. The Department of Labor's Occupational Safety and Health Administration is drafting an emergency regulation to carry out this mandate, which is expected to be released in the coming weeks. Uncertainty remains regarding, among other things, whether the vaccine mandate will apply to all employees or only to employees who work at on-site locations, and how compliance will be monitored.
We are unable to predict the impact the new regulation would have on us. 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.
The enactment of tax reform legislation could adversely impact our financial position and results of operations.
Various levels of government are increasingly focused on tax reform and other legislative actions to increase tax revenue. For example, the current administration has proposed to increase the U.S. corporate income tax rate from 21%. Such proposed changes, as well as regulations and legal decisions interpreting and applying these changes, may have significant impacts on our effective tax rate, cash tax expenses, and net deferred tax attributes in future periods.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BOISE CASCADE COMPANY
/s/ Kelly E. Hibbs
Kelly E. Hibbs Senior Vice President, Chief Financial Officer and Treasurer
