bcc-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended	September 30, 2020

☐	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, Idaho 83702-5389

(Address of principal executive offices) (Zip Code)

(208) 384-6161

(Registrant's telephone number, including area code)

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. Yes x 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). Yes x 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 filer x 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

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

There were 39,201,226 shares of the registrant's common stock, $0.01 par value per share, outstanding on October 23, 2020.

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PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Notes to Unaudited Quarterly Consolidated Financial Statements	8
	1. Nature of Operations and Consolidation	8
	2. Summary of Significant Accounting Policies	8
	3. Income Taxes	12
	4. Net Income Per Common Share	13
	5. Curtailment of Manufacturing Facility	13
	6. Debt	14
	7. Leases	16
	8. Retirement and Benefit Plans	18
	9. Stock-Based Compensation	19
	10. Stockholders' Equity	20
	11. Transactions With Related Party	21
	12. Segment Information	22
	13. Commitments, Legal Proceedings and Contingencies, and Guarantees	23
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	Understanding Our Financial Information	24
	Executive Overview	24
	Factors That Affect Our Operating Results and Trends	25
	Our Operating Results	27
	Industry Mergers and Acquisitions	31
	Liquidity and Capital Resources	31
	Contractual Obligations	34
	Off-Balance-Sheet Activities	34
	Guarantees	34
	Seasonal Influences	35
	Employees	35
	Disclosures of Financial Market Risks	35
	Financial Instruments	36
	Environmental	36
	Critical Accounting Estimates	36
	New and Recently Adopted Accounting Standards	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41
	Signatures	42

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Boise Cascade Company

Consolidated Statements of Operations

(unaudited)


	Three Months Ended September 30				Nine Months Ended September 30
	2020		2019		2020		2019
	(thousands, except per-share data)
Sales	$	1,589,313	$	1,269,524	$	4,002,607	$	3,541,691

Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)	1,261,697		1,078,924		3,302,869		3,026,401
Depreciation and amortization	20,029		20,969		75,260		59,640
Selling and distribution expenses	122,884		106,567		325,913		292,459
General and administrative expenses	26,060		18,603		60,899		52,064
Loss on curtailment of facility	—		—		1,707		—
Other (income) expense, net	71		(437)		70		(557)
	1,430,741		1,224,626		3,766,718		3,430,007

Income from operations	158,572		44,898		235,889		111,684

Foreign currency exchange gain (loss)	265		(200)		(199)		210
Pension expense (excluding service costs)	(302)		(1,613)		(991)		(2,202)
Interest expense	(7,002)		(6,532)		(20,056)		(19,455)
Interest income	113		837		958		1,745
Change in fair value of interest rate swaps	147		(569)		(2,681)		(3,103)
Loss on extinguishment of debt	(13,968)		—		(13,968)		—
	(20,747)		(8,077)		(36,937)		(22,805)

Income before income taxes	137,825		36,821		198,952		88,879
Income tax provision	(34,633)		(9,650)		(49,974)		(22,601)
Net income	$	103,192	$	27,171	$	148,978	$	66,278

Weighted average common shares outstanding:
Basic	39,315		39,087		39,264		39,020
Diluted	39,526		39,292		39,396		39,202

Net income per common share:
Basic	$	2.62	$	0.70	$	3.79	$	1.70
Diluted	$	2.61	$	0.69	$	3.78	$	1.69

Dividends declared per common share	$	1.70	$	0.09	$	1.90	$	0.27

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

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Boise Cascade Company

Consolidated Statements of Comprehensive Income

(unaudited)


	Three Months Ended September 30				Nine Months Ended September 30
	2020		2019		2020		2019
	(thousands)
Net income	$	103,192	$	27,171	$	148,978	$	66,278
Other comprehensive income, net of tax
Defined benefit pension plans

Amortization of actuarial (gain) loss, net of tax of $51, $(12), $153, and $(34), respectively	151		(32)		452		(97)
Effect of settlements, net of tax of $—, $341, $22 and $341, respectively	—		1,001		64		1,001
Other comprehensive income, net of tax	151		969		516		904
Comprehensive income	$	103,343	$	28,140	$	149,494	$	67,182

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

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Boise Cascade Company

Consolidated Balance Sheets

(unaudited)


	September 30, 2020		December 31, 2019
	(thousands)
ASSETS
Current
Cash and cash equivalents	$	503,935	$	285,237

Receivables
Trade, less allowances of $1,629 and $591	425,585		215,894
Related parties	375		568
Other	11,929		15,184
Inventories	454,327		497,596

Prepaid expenses and other	17,368		8,285
Total current assets	1,413,519		1,022,764

Property and equipment, net	447,330		476,949
Operating lease right-of-use assets	63,231		64,228
Finance lease right-of-use assets	30,033		21,798
Timber deposits	13,945		12,287

Goodwill	60,382		60,382
Intangible assets, net	16,880		17,797
Deferred income taxes	7,619		7,952
Other assets	6,897		9,194
Total assets	$	2,059,836	$	1,693,351

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

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Boise Cascade Company

Consolidated Balance Sheets (continued)

(unaudited)


	September 30, 2020		December 31, 2019
	(thousands, except per-share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current

Accounts payable
Trade	$	381,038	$	222,930
Related parties	1,654		1,624
Accrued liabilities
Compensation and benefits	118,437		83,943
Income taxes payable	16,606		—
Interest payable	3,596		6,723
Dividends payable	62,722		—
Other	92,335		69,772
Total current liabilities	676,388		384,992

Debt
Long-term debt	443,583		440,544

Other
Compensation and benefits	32,005		45,586
Operating lease liabilities, net of current portion	57,494		58,029
Finance lease liabilities, net of current portion	31,923		23,419
Deferred income taxes	24,275		26,694
Other long-term liabilities	16,032		12,757
	161,729		166,485

Commitments and contingent liabilities

Stockholders' equity
Preferred stock, $0.01 par value per share; 50,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value per share; 300,000 shares authorized, 44,568 and 44,353 shares issued, respectively	446		444
Treasury stock, 5,367 shares at cost	(138,909)		(138,909)
Additional paid-in capital	536,025		533,345
Accumulated other comprehensive loss	(49,732)		(50,248)
Retained earnings	430,306		356,698
Total stockholders' equity	778,136		701,330
Total liabilities and stockholders' equity	$	2,059,836	$	1,693,351

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

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Boise Cascade Company

Consolidated Statements of Cash Flows

(unaudited)


	Nine Months Ended September 30
	2020		2019
	(thousands)
Cash provided by (used for) operations
Net income	$	148,978	$	66,278
Items in net income not using (providing) cash
Depreciation and amortization, including deferred financing costs and other	76,784		61,340
Stock-based compensation	5,839		6,016
Pension expense	1,492		2,687
Deferred income taxes	(2,460)		10,008
Change in fair value of interest rate swaps	2,681		3,103
Loss on curtailment of facility (excluding severance)	1,476		—
Other	205		(235)
Loss on extinguishment of debt	13,968		—
Decrease (increase) in working capital, net of acquisitions
Receivables	(205,995)		(77,811)
Inventories	42,904		45,184
Prepaid expenses and other	(9,641)		(3,516)
Accounts payable and accrued liabilities	213,935		66,130
Pension contributions	(12,659)		(1,324)
Income taxes payable	17,121		19,109

Other	(857)		(2,219)
Net cash provided by operations	293,771		194,750

Cash provided by (used for) investment
Expenditures for property and equipment	(46,994)		(53,249)
Acquisitions of businesses and facilities	—		(15,676)
Proceeds from sale of facilities	—		2,493
Proceeds from sales of assets and other	563		1,644
Net cash used for investment	(46,431)		(64,788)

Cash provided by (used for) financing
Borrowings of long-term debt, including revolving credit facility	400,000		5,500
Payments of long-term debt, including revolving credit facility	(405,774)		(5,500)


Payments of deferred financing costs	(6,222)		—
Dividends paid on common stock	(12,553)		(11,070)
Tax withholding payments on stock-based awards	(3,309)		(3,575)


Other	(784)		(545)
Net cash used for financing	(28,642)		(15,190)

Net increase in cash and cash equivalents	218,698		114,772

Balance at beginning of the period	285,237		191,671

Balance at end of the period	$	503,935	$	306,443

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

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Boise Cascade Company

Consolidated Statements of Stockholders' Equity

(unaudited)


	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total
	Shares	Amount		Shares	Amount
	(thousands)
Balance at December 31, 2019	44,353	$	444	5,367	$	(138,909)	$	533,345	$	(50,248)	$	356,698	$	701,330
Net income											12,200		12,200
Other comprehensive income									215				215
Common stock issued	211	2											2

Stock-based compensation							1,674						1,674
Common stock dividends ($0.10 per share)											(3,866)		(3,866)
Tax withholding payments on stock-based awards							(3,309)						(3,309)
Proceeds from exercise of stock options							27						27
Other							(2)						(2)
Balance at March 31, 2020	44,564	$	446	5,367	$	(138,909)	$	531,735	$	(50,033)	$	365,032	$	708,271
Net income											33,586		33,586
Other comprehensive income									150				150


Stock-based compensation							1,671						1,671
Common stock dividends ($0.10 per share)											(3,970)		(3,970)



Balance at June 30, 2020	44,564	$	446	5,367	$	(138,909)	$	533,406	$	(49,883)	$	394,648	$	739,708
Net income											103,192		103,192
Other comprehensive income									151				151
Common stock issued	4	—											—

Stock-based compensation							2,494						2,494
Common stock dividends ($1.70 per share)											(67,534)		(67,534)

Proceeds from exercise of stock options							125						125

Balance at September 30, 2020	44,568	$	446	5,367	$	(138,909)	$	536,025	$	(49,732)	$	430,306	$	778,136

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

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Boise Cascade Company

Consolidated Statements of Stockholders' Equity (continued)

(unaudited)


	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total
	Shares	Amount		Shares	Amount
	(thousands)
Balance at December 31, 2018	44,076	$	441	5,367	$	(138,909)	$	528,654	$	(47,652)	$	330,056	$	672,590
Net income											11,389		11,389
Other comprehensive loss									(32)				(32)
Common stock issued	265	2											2

Stock-based compensation							2,200						2,200
Common stock dividends ($0.09 per share)											(3,561)		(3,561)
Tax withholding payments on stock-based awards							(3,569)						(3,569)

Other							(2)						(2)
Balance at March 31, 2019	44,341	$	443	5,367	$	(138,909)	$	527,283	$	(47,684)	$	337,884	$	679,017
Net income											27,718		27,718
Other comprehensive loss									(33)				(33)
Common stock issued	1	—											—

Stock-based compensation							1,869						1,869
Common stock dividends ($0.09 per share)											(3,545)		(3,545)
Tax withholding payments on stock-based awards							(5)						(5)


Balance at June 30, 2019	44,342	$	443	5,367	$	(138,909)	$	529,147	$	(47,717)	$	362,057	$	705,021
Net income											27,171		27,171
Other comprehensive income									969				969
Common stock issued	1	—											—

Stock-based compensation							1,947						1,947
Common stock dividends ($0.09 per share)											(3,567)		(3,567)
Tax withholding payments on stock-based awards							(1)						(1)
Proceeds from exercise of stock options							27						27
Other							(1)						(1)
Balance at September 30, 2019	44,343	$	443	5,367	$	(138,909)	$	531,119	$	(46,748)	$	385,661	$	731,566

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

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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 (U.S.) 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 2019 Form 10-K and the other reports we file with the Securities and Exchange Commission (SEC).

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 2019 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 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.

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Revenue Recognition

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 Building Materials Distribution segment, costs related to shipping and handling of $49.2 million and $46.9 million, for the three months ended September 30, 2020 and 2019, respectively, and $134.1 million and $127.3 million for the nine months ended September 30, 2020 and 2019, respectively, are included in "Selling and distribution expenses" in our Consolidated Statements of Operations. In our Building Materials Distribution 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. 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, 2020, and December 31, 2019, we had $62.7 million and $49.4 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, 2020, and December 31, 2019, we had $7.7 million and $9.2 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 Building Materials Distribution 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.

Right-of-use (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

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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, 2020		December 31, 2019
	(thousands)
Finished goods and work in process	$	385,310	$	413,020
Logs	28,549		45,574
Other raw materials and supplies	40,468		39,002
	$	454,327	$	497,596

Property and Equipment

Property and equipment consisted of the following asset classes:


	September 30, 2020		December 31, 2019
	(thousands)
Land	$	38,274	$	39,304
Buildings	144,845		140,008
Improvements	63,033		61,187
Mobile equipment, information technology, and office furniture	175,931		165,445
Machinery and equipment	681,230		666,467
Construction in progress	36,377		34,846
	1,139,690		1,107,257
Less accumulated depreciation	(692,360)		(630,308)
	$	447,330	$	476,949

Long-Lived Asset Impairment

We review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable (triggering event). An impairment of long-lived assets exists when the carrying value is not recoverable through future undiscounted cash flows from operations and when the carrying value of an asset or asset group exceeds its fair value. No triggering event was identified during the quarter ended September 30, 2020.

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Fair Value

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, 2020, and December 31, 2019, we held $466.0 million and $259.5 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, 2020, and December 31, 2019, the book value of our fixed-rate debt was $400.0 million and $350.0 million, respectively, and the fair value was estimated to be $430.0 million and $364.7 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, 2020, we had $50.0 million of variable-rate debt outstanding based on one-month LIBOR after the pay-off of our $45.0 million term loan in July 2020, described in Note 6, Debt. During the three months ended September 30, 2020, we liquidated our interest rate swap agreements with notional principal amounts of $45.0 million in conjunction with the pay-off of the $45.0 million term loan. 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, 2020, 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 is due on a monthly basis at an annual fixed rate of 1.007% and expires in February 2022 (Initial Swap). During the three months ended June 30, 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 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, 2020, we recorded a long-term liability of $0.8 million in "Other long-term liabilities" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreements. At December 31, 2019, we recorded a long-term asset of $0.8 million in "Other assets" 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).

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Concentration of Credit Risk

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, 2020, receivables from two customers accounted for approximately 13% and 11% of total receivables. At December 31, 2019, receivables from these two customers accounted for approximately 14% 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 generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. 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 this standard did not have a material effect on our financial statements, but we will assess any eligible contract modifications in the future.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to reduce complexity in accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. We currently do not expect the adoption of the guidance to have a material effect on our financial statements, but will continue to monitor the standard through the effective date.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU amends ASC 715 to remove disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant related to defined benefit pension and other postretirement plans. The ASU's changes related to disclosures are part of the FASB's disclosure framework project. The updated guidance is effective retrospectively for annual reporting periods ending after December 15, 2020, with early adoption permitted. We are currently evaluating the effects of this ASU on our disclosures in the notes to our financial statements.

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, 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 the three and nine months ended September 30, 2019, we recorded $9.7 million and $22.6 million, respectively, of income tax expense and had an effective rate of 26.2% and 25.4%, respectively. 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, 2020, cash paid for taxes, net of refunds received were $35.3 million. During the nine months ended September 30, 2019, refunds received, net of cash taxes paid, were $7.1 million.

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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
	2020		2019		2020		2019
	(thousands, except per-share data)
Net income	$	103,192	$	27,171	$	148,978	$	66,278
Weighted average common shares outstanding during the period (for basic calculation)	39,315		39,087		39,264		39,020
Dilutive effect of other potential common shares	211		205		132		182
Weighted average common shares and potential common shares (for diluted calculation)	39,526		39,292		39,396		39,202

Net income per common share - Basic	$	2.62	$	0.70	$	3.79	$	1.70
Net income per common share - Diluted	$	2.61	$	0.69	$	3.78	$	1.69

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, 2020 and 2019, and 0.2 million of common stock shares in both the nine months ended September 30, 2020 and 2019. 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.

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6. Debt

Long-term debt consisted of the following:


	September 30, 2020		December 31, 2019
	(thousands)
Asset-based revolving credit facility due 2025	$	—	$	—
Asset-based credit facility term loan due 2025	50,000		50,000
Term loan due 2026	—		45,000
4.875% senior notes due 2030	400,000		—
5.625% senior notes due 2024	—		350,000
Deferred financing costs	(6,417)		(4,456)
Long-term debt	$	443,583	$	440,544

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. On March 13, 2020, we entered into the sixth amendment to the Amended Agreement to reduce the maximum amount available for revolving loans from $370 million to $350 million (Revolving Credit Facility) and to extend the maturity date of the Credit Agreement from May 1, 2022, to March 13, 2025. The term loan within the Amended Agreement remains at $50.0 million (ABL Term Loan). 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, 2020, was $345.4 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.

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At both September 30, 2020, and December 31, 2019, we had no borrowings outstanding under the Revolving Credit Facility and $4.6 million of letters of credit outstanding. These letters of credit and borrowings, if any, reduce Availability under the Revolving Credit Facility by an equivalent amount.

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, 2020, the average interest rate on the ABL Term Loan was approximately 2.47%.

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 1.5% during the nine months ended September 30, 2020.

Term Loan

On March 30, 2016 (Closing Date), 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 the guarantors party thereto, entered into a term loan agreement, as amended, (Term Loan Agreement) with American AgCredit, PCA, as administrative agent and sole lead arranger, and other banks in the Farm Credit system named therein as lenders. The original Term Loan Agreement was for a $75.0 million secured term loan (Term Loan). In December 2016, we repaid $30 million of the Term Loan. In July 2020, we paid off the remaining balance on the Term Loan of $45.0 million, thus satisfying and discharging our obligations under the Term Loan.

Interest rates under the Term Loan Agreement were based, at our election, on either the LIBOR or a base rate, as defined in the Term Loan Agreement, plus a spread over the index. The applicable spread for the Term Loan ranged from 1.875% to 2.125% for LIBOR rate loans, and 0.875% to 1.125% for base rate loans, both dependent on our Interest Coverage Ratio (as defined in the Term Loan Agreement). During the nine months ended September 30, 2020, the average interest rate on the Term Loan was approximately 2.82%. We have received and expect to receive patronage credits through the period in which the Term Loan was outstanding. After giving effect to expected patronage distributions, the effective average net interest rate on the Term Loan was approximately 1.8%.

2024 Notes

On August 29, 2016, Boise Cascade issued $350 million of 5.625% senior notes due September 1, 2024 (2024 Notes), through a private placement that was exempt from the registration requirements of the Securities Act of 1933, as amended (Securities Act). Interest on our 2024 Notes was payable semiannually in arrears on March 1 and September 1.

In connection with the issuance of the $400 million of 4.875% senior notes due July 1, 2030 (2030 Notes) described below, we commenced a tender offer to purchase any and all of our $350 million aggregate principal amount of 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 and our obligations under the indenture, pursuant to which the 2024 Notes were issued, were satisfied and discharged. In connection with these transactions, we recognized a pre-tax loss on the extinguishment of debt of $14.0 million during the three months ended September 30, 2020. The loss includes $10.8 million of debt extinguishment premium payments and $3.2 million for the write-off of unamortized deferred financing costs.

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2030 Notes

On July 27, 2020, we issued the 2030 Notes through a private placement that was exempt from the registration requirements of the Securities Act. The 2030 Notes mature on July 1, 2030, with interest payable semiannually in arrears on January 1 and July 1, commencing on January 1, 2021. 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.

Following the sale of our 2030 Notes, as noted above, we used the net proceeds of the sale to repurchase or redeem any and all of our 2024 Notes, to pay off our Term Loan of $45.0 million, and to pay related financings fees and expenses related to the offering of the 2030 Notes and incurred in connection with the repurchase or redemption of the 2024 Notes.

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, 2020 and 2019, cash payments for interest were $21.2 million and $22.7 million, respectively.

7. Leases

Lease Costs

The components of lease expense were as follows:


	Three Months Ended September 30				Nine Months Ended September 30
	2020		2019		2020		2019
	(thousands)
Operating lease cost	$	3,313	$	3,442	$	10,020	$	10,150
Finance lease cost
Amortization of right-of-use assets	603		410