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EX-32 - EX-32 - POTLATCHDELTIC CORPpch-ex32_6.htm
EX-31 - EX-31 - POTLATCHDELTIC CORPpch-ex31_7.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

 

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2016

or

 

o

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 1-32729

POTLATCH CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

82-0156045

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

601 West First Avenue, Suite 1600

 

Spokane, Washington

99201

(Address of principal executive offices)

(Zip Code)

 

(509) 835-1500

(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

 

Accelerated filer

o

Non-accelerated filer

 

o  (Do not check if a smaller reporting company)

 

Smaller reporting company

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

The number of shares of common stock of the registrant outstanding as of July 25, 2016 was 40,518,533.

 

 

 

 


POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

Table of Contents

 

 

 

 

Page
Number

PART I. - FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements (unaudited)

 

 

Consolidated Statements of Income (Loss)

2

 

Consolidated Statements of Comprehensive Income (Loss)

3

 

Condensed Consolidated Balance Sheets at June 30, 2016 and December 31, 2015

4

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015

5

 

Notes to Condensed Consolidated Financial Statements

6

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

15

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

24

ITEM 4.

Controls and Procedures

24

 

 

 

PART II. - OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

25

ITEM 1A.

Risk Factors

25

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

ITEM 6.

Exhibits

25

 

 

 

SIGNATURE

26

 

 

EXHIBIT INDEX

27

 


 

Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

 

Potlatch Corporation and Consolidated Subsidiaries

Consolidated Statements of Income (Loss)

Unaudited (Dollars in thousands, except per share amounts)

 

 

 

 

Quarters Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues

 

$

141,495

 

 

$

128,747

 

 

$

269,391

 

 

$

262,872

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

113,377

 

 

 

109,441

 

 

 

223,192

 

 

 

217,213

 

Selling, general and administrative expenses

 

 

13,824

 

 

 

11,995

 

 

 

26,833

 

 

 

24,321

 

Loss on sale of central Idaho timber and timberlands

 

 

48,522

 

 

 

 

 

 

48,522

 

 

 

 

 

 

 

175,723

 

 

 

121,436

 

 

 

298,547

 

 

 

241,534

 

Operating income (loss)

 

 

(34,228

)

 

 

7,311

 

 

 

(29,156

)

 

 

21,338

 

Interest expense, net

 

 

(8,206

)

 

 

(8,016

)

 

 

(14,231

)

 

 

(16,085

)

Income (loss) before income taxes

 

 

(42,434

)

 

 

(705

)

 

 

(43,387

)

 

 

5,253

 

Income tax benefit

 

 

11,196

 

 

 

1,416

 

 

 

12,306

 

 

 

1,114

 

Net income (loss)

 

$

(31,238

)

 

$

711

 

 

$

(31,081

)

 

$

6,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.77

)

 

$

0.02

 

 

$

(0.76

)

 

$

0.16

 

Diluted

 

$

(0.77

)

 

$

0.02

 

 

$

(0.76

)

 

$

0.16

 

Dividends per share

 

$

0.375

 

 

$

0.375

 

 

$

0.75

 

 

$

0.75

 

Weighted-average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

40,784

 

 

 

40,843

 

 

 

40,837

 

 

 

40,822

 

Diluted

 

 

40,784

 

 

 

40,963

 

 

 

40,837

 

 

 

40,933

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

2


 

 

Potlatch Corporation and Consolidated Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

Unaudited (Dollars in thousands)

 

 

 

 

Quarters Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income (loss)

 

$

(31,238

)

 

$

711

 

 

$

(31,081

)

 

$

6,367

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement employee benefits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service credit included in net

   periodic cost, net of tax of $(815), $(848), $(1,630)

   and $(1,697)

 

 

(1,274

)

 

 

(1,328

)

 

 

(2,549

)

 

 

(2,656

)

Amortization of actuarial loss included in net

   periodic cost, net of tax of $1,826, $1,900, $3,521

   and $3,837

 

 

2,857

 

 

 

2,974

 

 

 

5,507

 

 

 

6,003

 

Cash flow hedge, net of tax of $(264), $-, $(369) and $-

 

 

(413

)

 

 

 

 

 

(577

)

 

 

 

Other comprehensive income, net of tax

 

 

1,170

 

 

 

1,646

 

 

 

2,381

 

 

 

3,347

 

Comprehensive income (loss)

 

$

(30,068

)

 

$

2,357

 

 

$

(28,700

)

 

$

9,714

 

 

See Note 7: Derivative Instruments and Note 9: Pension and Other Postretirement Employee Benefits for additional information. Amortization of prior service credit and amortization of actuarial loss are included in the computation of net periodic cost (benefit).

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

3


 

 

Potlatch Corporation and Consolidated Subsidiaries

Condensed Consolidated Balance Sheets

Unaudited (Dollars in thousands)

 

 

 

 

June 30, 2016

 

 

December 31, 2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

25,301

 

 

$

7,886

 

Short-term investments

 

 

40,077

 

 

 

39

 

Receivables, net

 

 

22,531

 

 

 

13,420

 

Inventories

 

 

30,045

 

 

 

35,162

 

Other assets

 

 

17,162

 

 

 

14,246

 

Total current assets

 

 

135,116

 

 

 

70,753

 

Property, plant and equipment, net

 

 

74,558

 

 

 

75,285

 

Timber and timberlands, net

 

 

643,814

 

 

 

816,599

 

Deferred tax assets, net

 

 

51,569

 

 

 

46,600

 

Other assets

 

 

9,088

 

 

 

7,375

 

Total assets

 

$

914,145

 

 

$

1,016,612

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Revolving line of credit borrowings

 

$

 

 

$

30,000

 

Current portion of long-term debt

 

 

5,082

 

 

 

5,007

 

Accounts payable and accrued liabilities

 

 

48,290

 

 

 

39,740

 

Current portion of pension and other postretirement employee benefits

 

 

5,973

 

 

 

5,973

 

Total current liabilities

 

 

59,345

 

 

 

80,720

 

Long-term debt

 

 

581,205

 

 

 

598,874

 

Pension and other postretirement employee benefits

 

 

119,590

 

 

 

119,369

 

Other long-term obligations

 

 

13,462

 

 

 

13,913

 

Total liabilities

 

 

773,602

 

 

 

812,876

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $1 par value

 

 

40,519

 

 

 

40,681

 

Additional paid-in capital

 

 

352,497

 

 

 

350,541

 

Accumulated deficit

 

 

(140,351

)

 

 

(72,983

)

Accumulated other comprehensive loss

 

 

(112,122

)

 

 

(114,503

)

Total stockholders’ equity

 

 

140,543

 

 

 

203,736

 

Total liabilities and stockholders' equity

 

$

914,145

 

 

$

1,016,612

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


 

 

Potlatch Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Cash Flows

Unaudited (Dollars in thousands)

 

 

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(31,081

)

 

$

6,367

 

Adjustments to reconcile net income (loss) to net cash from operating activities:

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

16,474

 

 

 

15,597

 

Basis of real estate sold

 

 

5,421

 

 

 

1,008

 

Change in deferred taxes

 

 

(6,784

)

 

 

(1,707

)

Employee benefit plans

 

 

6,416

 

 

 

3,166

 

Equity-based compensation expense

 

 

2,176

 

 

 

2,259

 

Loss on sale of central Idaho timber and timberlands

 

 

48,522

 

 

 

 

Other, net

 

 

(1,280

)

 

 

(5,496

)

Change in working capital and operating-related activities, net

 

 

5,797

 

 

 

(4,538

)

Net cash from operating activities

 

 

45,661

 

 

 

16,656

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Change in short-term investments

 

 

(40,038

)

 

 

24,537

 

Property, plant and equipment

 

 

(3,488

)

 

 

(12,248

)

Timberlands reforestation and roads

 

 

(5,544

)

 

 

(6,004

)

Acquisition of timber and timberlands

 

 

(1,161

)

 

 

 

Net proceeds from sale of central Idaho timber and timberlands

 

 

111,460

 

 

 

 

Other, net

 

 

109

 

 

 

433

 

Net cash from investing activities

 

 

61,338

 

 

 

6,718

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Dividends to common stockholders

 

 

(30,453

)

 

 

(30,507

)

Repayment of revolving line of credit borrowings

 

 

(30,000

)

 

 

 

Proceeds from revolving line of credit borrowings

 

 

 

 

 

15,000

 

Repayment of long-term debt

 

 

(47,600

)

 

 

 

Proceeds from issuance of long-term debt

 

 

27,500

 

 

 

 

Repurchase of common stock

 

 

(5,956

)

 

 

 

Change in book overdrafts

 

 

(2,836

)

 

 

(2,246

)

Employee tax withholdings on vested performance share awards

 

 

(102

)

 

 

(1,445

)

Other, net

 

 

(137

)

 

 

(37

)

Net cash from financing activities

 

 

(89,584

)

 

 

(19,235

)

Increase in cash

 

 

17,415

 

 

 

4,139

 

Cash at beginning of period

 

 

7,886

 

 

 

4,644

 

Cash at end of period

 

$

25,301

 

 

$

8,783

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid (received) during the period for:

 

 

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

13,791

 

 

$

13,702

 

Income taxes, net

 

$

(1,740

)

 

$

1,512

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

5


 

Notes to Condensed Consolidated Financial Statements

 

NOTE 1. BASIS OF PRESENTATION

For purposes of this report, any reference to “Potlatch,” “the company,” “we,” “us,” and “our” means Potlatch Corporation and all of its wholly-owned subsidiaries, except where the context indicates otherwise.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements; certain disclosures normally provided in accordance with generally accepted accounting principles in the United States have been omitted. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission on February 12, 2016. We believe that all adjustments necessary for a fair statement of the results of such interim periods have been included and all such adjustments are of a normal recurring nature.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases, which, among other things, requires lessees to recognize most leases on the balance sheet. We have operating leases covering office space, equipment, land and vehicles expiring at various dates through 2028, which would require a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, to be recognized in the statement of financial position. Lease costs would generally continue to be recognized on a straight-line basis. The future minimum payments required under our operating leases totaled $9.6 million at December 31, 2015. The ASU is effective for us on January 1, 2019.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which changes several aspects of the accounting for share-based payment award transactions, including accounting for income taxes, diluted shares outstanding, classification of excess tax benefits on the statement of cash flows, forfeitures and minimum statutory tax withholding requirements. This ASU is effective for us on January 1, 2017. The adoption of this guidance is not expected to have a significant effect on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which eliminates the probable recognition threshold for credit impairments. The new guidance broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually to include forecasted information, as well as past events and current conditions. There is no specified method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. This ASU is effective for us on January 1, 2020. Our credit loss estimates are reflected in our allowance for doubtful accounts on accounts receivables, which had a balance of $0.4 million at December 31, 2015. The adoption of this guidance is not expected to have a significant effect on our consolidated financial statements.

6


 

NOTE 3. EARNINGS PER SHARE

The following table reconciles the number of shares used in calculating basic and diluted earnings per share:

 

 

 

Quarters Ended June 30,

 

 

Six Months Ended June 30,

 

(Dollars in thousands, except per share amounts)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income (loss)

 

$

(31,238

)

 

$

711

 

 

$

(31,081

)

 

$

6,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

40,784,129

 

 

 

40,842,672

 

 

 

40,836,503

 

 

 

40,822,326

 

Incremental shares due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance shares

 

 

 

 

 

100,915

 

 

 

 

 

 

92,130

 

Restricted stock units

 

 

 

 

 

19,901

 

 

 

 

 

 

18,396

 

Diluted weighted-average shares outstanding

 

 

40,784,129

 

 

 

40,963,488

 

 

 

40,836,503

 

 

 

40,932,852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share

 

$

(0.77

)

 

$

0.02

 

 

$

(0.76

)

 

$

0.16

 

Diluted net income (loss) per share

 

$

(0.77

)

 

$

0.02

 

 

$

(0.76

)

 

$

0.16

 

 

No dilutive potential shares were included in the computation of diluted net income (loss) per share for the three and six months ended 2016 due to the net loss. For the three months ended June 30, 2016 and 2015, there were 107,769 and 1,000 stock-based awards that were excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the six months ended June 30, 2016 and 2015, there were 67,846 and 80,726 anti-dilutive stock-based awards. Anti-dilutive stock-based awards could be dilutive in future periods.

We repurchased 169,625 shares of common stock during the quarter at an average price of $35.08 per share totaling $6.0 million. The shares were retired and the excess repurchase price over par was allocated to accumulated deficit.

NOTE 4. CERTAIN BALANCE SHEET COMPONENTS

INVENTORIES

 

(Dollars in thousands)

 

June 30, 2016

 

 

December 31, 2015

 

Inventories:

 

 

 

 

 

 

 

 

Logs

 

$

4,882

 

 

$

9,920

 

Lumber, plywood and veneer

 

 

16,533

 

 

 

16,932

 

Materials and supplies

 

 

8,630

 

 

 

8,310

 

Total inventories

 

$

30,045

 

 

$

35,162

 

PROPERTY, PLANT AND EQUIPMENT

 

(Dollars in thousands)

 

June 30, 2016

 

 

December 31, 2015

 

Property, plant and equipment

 

$

250,502

 

 

$

248,750

 

Less: accumulated depreciation

 

 

(175,944

)

 

 

(173,465

)

Total property, plant and equipment, net

 

$

74,558

 

 

$

75,285

 

 

7


 

NOTE 5. LOSS ON SALE OF CENTRAL IDAHO TIMBER AND TIMBERLANDS

On April 21, 2016, we sold approximately 172,000 acres of timberlands located in central Idaho for $114 million. The company purchased the property in 2007 and 2008 for the purpose of growing and harvesting timber and selling rural recreation parcels.  In the recession of 2008 the central Idaho rural recreational real estate market collapsed and has not fully recovered. The sale frees up capital without having to wait for the rural recreation real estate market in central Idaho to recover. We recorded a loss of $48.5 million before taxes in our Real Estate segment in the second quarter of 2016. Historical earnings generated by the property have been positive, but not material.

The asset group was classified as held and used as of March 31, 2016.  Neither a signed letter of intent, nor an approved purchase agreement were in place as of that date. Because negotiations were underway with the buyer at the end of the first quarter, we believed that it was prudent to complete an undiscounted cash flow analysis to determine whether the asset group was impaired. Given the long period of time over which cash flows would be generated in the hold scenario and management’s belief that the likelihood that a sale would be completed was 20%, the undiscounted cash flows significantly exceeded the book basis of the asset group.  Therefore, at March 31, 2016 management concluded that the asset group was not impaired and recorded the loss on sale in the second quarter of 2016.  

NOTE 6. DEBT

In February 2016, we amended our term loan agreement to provide an additional loan in the amount of $27.5 million. This additional tranche refinanced $27.5 million of long-term debt that matured in December 2015 and February 2016. The new debt matures in 2026 and carries a rate equal to 3-month LIBOR plus 2.15% per annum.    

In June 2016, we repaid $42.6 million of revenue bonds.  The bonds carried a rate of 5.9% and had a maturity date in 2026.

NOTE 7. DERIVATIVE INSTRUMENTS

From time to time, we enter into derivative financial instruments to manage certain cash flow and fair value risks. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset or liability to a particular risk, such as interest rate risk, are considered fair value hedges. We have seven fair value interest rate swaps to convert interest payments on fixed-rate debt to variable-rate 3-month LIBOR plus a spread.

Derivatives designated and qualifying as a hedge of the exposure to variability in the cash flows of a specific asset or liability that is attributable to a particular risk, such as interest rate risk, are considered cash flow hedges. We have one interest rate swap to convert variable-rate debt, comprised of 3-month LIBOR plus a spread, to fixed-rate debt. Our cash flow hedge is expected to be highly effective in achieving offsetting cash flows attributable to the hedged interest rate risk through the term of the hedge. Therefore, changes in the fair value of the interest rate swap are recorded as a component of other comprehensive income and will be recognized in earnings when the hedged interest rate affects earnings. The amounts paid or received on this interest rate hedge will be recognized as adjustments to interest expense. As of June 30, 2016, the amount of net losses expected to be reclassified into earnings in the next 12 months is $0.3 million.

The following table presents the gross fair values of derivative instruments on our Condensed Consolidated Balance Sheets:

 

 

 

 

Asset Derivatives

 

 

 

 

Liability Derivatives

 

(Dollars in thousands)

 

Location

 

June 30, 2016

 

 

December 31, 2015

 

 

Location

 

June 30, 2016

 

 

December 31, 2015

 

Derivatives designated as

   hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Other assets, current

 

$

82

 

 

$

7

 

 

Long-term debt

 

$

946

 

 

$

 

Interest rate contracts

 

Other assets, non-current

 

 

1,610

 

 

 

574

 

 

 

 

 

 

 

 

 

 

 

Total derivatives designated

   as hedging instruments

 

 

 

$

1,692

 

 

$

581

 

 

 

 

$

946

 

 

$

 

 

8


 

The following table details the effect of derivatives on our Consolidated Statements of Income:

 

 

 

 

 

Quarters Ended June 30,

 

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

Location

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Derivatives designated in fair value

   hedging relationships:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gain on interest rate contracts1

 

Interest expense

 

$

214

 

 

$

409

 

 

$

456

 

 

$

788

 

Derivatives designated in cash flow

   hedging relationships:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) recognized on derivative,

   net of tax of $(264) and $(369) (effective

   portion)

 

Other Comprehensive Income

 

$

(490

)

 

$

 

 

$

(654

)

 

$

 

Gain (loss) reclassified into

   income (effective portion)

 

Interest expense

 

 

(77

)

 

 

 

 

 

(77

)

 

 

 

Net effect on other comprehensive income (loss)

 

 

 

$

(413

)

 

$

 

 

$

(577

)

 

$

 

 

1 Realized gain on hedging instruments consists of net cash settlements and interest accruals on the fair value interest rate swaps during the periods. Net cash settlements are included in the supplemental cash flow information within interest, net of amounts capitalized in the Condensed Consolidated Statements of Cash Flows.

NOTE 8. FINANCIAL INSTRUMENTS

The following table presents the estimated fair values of our financial instruments:

 

 

 

June 30, 2016

 

 

December 31, 2015

 

(Dollars in thousands)

 

Carrying

Amount

 

 

Fair

Value

 

 

Carrying

Amount

 

 

Fair

Value

 

Cash and short-term investments (Level 1)

 

$

65,378

 

 

$

65,378

 

 

$

7,925

 

 

$

7,925

 

Asset related to interest rate swaps (Level 2)

 

$

1,692

 

 

$

1,692

 

 

$

581

 

 

$

581

 

Liability related to interest rate swaps (Level 2)

 

$

946

 

 

$

946

 

 

$

 

 

$

 

Long-term debt, including fair value adjustments related to

   hedging instruments (Level 2)

 

$

586,287

 

 

$

609,232

 

 

$

603,881

 

 

$

626,021

 

Company owned life insurance asset (COLI) (Level 3)

 

$

1,683

 

 

$

1,683

 

 

$

687

 

 

$

687

 

 

For cash and short-term investments, the carrying amount approximates fair value due to the short-term nature of these financial instruments.

The fair value of the interest rate swaps were determined by discounting the expected cash flows of each derivative. The analysis reflects the contractual terms of the derivatives, including the period to maturity and uses observable market-based inputs, including interest rate forward curves.

The fair value of our long-term debt is estimated based upon the quoted market prices for the same or similar debt issues, or estimated based on average market prices for comparable debt when there is no quoted market price.

The contract value of our COLI, the amount at which it could be redeemed, is used as a practical expedient to estimate fair value because market prices are not readily available.

9


 

NOTE 9. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS

The following tables detail the components of net periodic cost (benefit) of our pension plans and other postretirement employee benefits (OPEB):

 

 

 

Quarters Ended June 30,

 

 

 

Pension

 

 

OPEB

 

(Dollars in thousands)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Service cost

 

$

1,747

 

 

$

1,531

 

 

$

2

 

 

$

4

 

Interest cost

 

 

4,258

 

 

 

4,259

 

 

 

355

 

 

 

345

 

Expected return on plan assets

 

 

(4,734

)

 

 

(5,192

)

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

 

129

 

 

 

152

 

 

 

(2,218

)

 

 

(2,328

)

Amortization of actuarial loss

 

 

4,253

 

 

 

4,408

 

 

 

430

 

 

 

466

 

Net periodic cost (benefit)

 

$

5,653

 

 

$

5,158

 

 

$

(1,431

)

 

$

(1,513

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

Pension

 

 

OPEB

 

(Dollars in thousands)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Service cost

 

$

3,254

 

 

$

3,061

 

 

$

7

 

 

$

11

 

Interest cost

 

 

8,510

 

 

 

8,518

 

 

 

710

 

 

 

728

 

Expected return on plan assets

 

 

(9,500

)

 

 

(10,383

)

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

 

259

 

 

 

303

 

 

 

(4,438

)

 

 

(4,656

)

Amortization of actuarial loss

 

 

8,170

 

 

 

8,816

 

 

 

858

 

 

 

1,024

 

Net periodic cost (benefit)

 

$

10,693

 

 

$

10,315

 

 

$

(2,863

)

 

$

(2,893

)

 

During the six months ended June 30, 2016 and 2015, we paid non-qualified supplemental pension benefits of $0.7 million and $0.9 million.

During the six months ended June 30, 2016 and 2015, we paid OPEB benefits of $1.9 million and $1.8 million.

The following tables detail the pension and OPEB changes in accumulated other comprehensive loss (AOCL):

 

 

Quarter ended June 30, 2016

 

(Dollars in thousands)

 

Pension

 

 

OPEB

 

 

Total

 

Balance at March 31

 

$

125,776

 

 

$

(12,648

)

 

$

113,128

 

Amortization of defined benefit items, net of tax:1

 

 

 

 

 

 

 

 

 

 

 

 

Prior service credit (cost)

 

 

(79

)

 

 

1,353

 

 

 

1,274

 

Actuarial loss

 

 

(2,594

)

 

 

(263

)

 

 

(2,857

)

Total reclassification for the period

 

 

(2,673

)

 

 

1,090

 

 

 

(1,583

)

Balance at June 30

 

$

123,103

 

 

$

(11,558

)

 

$

111,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30, 2015

 

(Dollars in thousands)

 

Pension

 

 

OPEB

 

 

Total

 

Balance at March 31

 

$

131,480

 

 

$

(14,789

)

 

$

116,691

 

Amortization of defined benefit items, net of tax:1

 

 

 

 

 

 

 

 

 

 

 

 

Prior service credit (cost)

 

 

(92

)

 

 

1,420

 

 

 

1,328

 

Actuarial loss

 

 

(2,689

)

 

 

(285

)

 

 

(2,974

)

Total reclassification for the period

 

 

(2,781

)

 

 

1,135

 

 

 

(1,646

)

Balance at June 30

 

$

128,699

 

 

$

(13,654

)

 

$

115,045

 

 

10


 

 

 

Six Months Ended June 30, 2016

 

(Dollars in thousands)

 

Pension

 

 

OPEB

 

 

Total

 

Balance at January 1

 

$

128,244

 

 

$

(13,741

)

 

$

114,503

 

Amortization of defined benefit items, net of tax:1

 

 

 

 

 

 

 

 

 

 

 

 

Prior service credit (cost)

 

 

(158

)

 

 

2,707

 

 

 

2,549

 

Actuarial loss

 

 

(4,983

)

 

 

(524

)

 

 

(5,507

)

Total reclassification for the period

 

 

(5,141

)

 

 

2,183

 

 

 

(2,958

)

Balance at June 30

 

$

123,103

 

 

$

(11,558

)

 

$

111,545