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EX-32 - EX-32 - POTLATCHDELTIC CORPpch-ex32_6.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

 

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

 

For the quarterly period ended September 30, 2016

or

 

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      No  

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      No  

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

 

 

Accelerated filer

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

 

Smaller reporting company

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

The number of shares of common stock of the registrant outstanding as of October 21, 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

3

 

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

4

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 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)

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues

 

$

174,027

 

 

$

174,475

 

 

$

443,418

 

 

$

437,347

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

122,132

 

 

 

136,072

 

 

 

345,324

 

 

 

353,285

 

Selling, general and administrative expenses

 

 

12,901

 

 

 

10,689

 

 

 

39,734

 

 

 

35,010

 

Loss on sale of central Idaho timber and timberlands

 

 

 

 

 

 

 

 

48,522

 

 

 

 

 

 

 

135,033

 

 

 

146,761

 

 

 

433,580

 

 

 

388,295

 

Operating income

 

 

38,994

 

 

 

27,714

 

 

 

9,838

 

 

 

49,052

 

Interest expense, net

 

 

(7,786

)

 

 

(8,335

)

 

 

(22,017

)

 

 

(24,420

)

Income (loss) before income taxes

 

 

31,208

 

 

 

19,379

 

 

 

(12,179

)

 

 

24,632

 

Income tax (provision) benefit

 

 

(3,562

)

 

 

2,419

 

 

 

8,744

 

 

 

3,533

 

Net income (loss)

 

$

27,646

 

 

$

21,798

 

 

$

(3,435

)

 

$

28,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.68

 

 

$

0.53

 

 

$

(0.08

)

 

$

0.69

 

Diluted

 

$

0.68

 

 

$

0.53

 

 

$

(0.08

)

 

$

0.69

 

Dividends per share

 

$

0.375

 

 

$

0.375

 

 

$

1.125

 

 

$

1.125

 

Weighted-average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

40,740

 

 

 

40,846

 

 

 

40,807

 

 

 

40,831

 

Diluted

 

 

40,933

 

 

 

40,985

 

 

 

40,807

 

 

 

40,967

 

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

 

2


 

 

Potlatch Corporation and Consolidated Subsidiaries

Consolidated Statements of Comprehensive Income

Unaudited (Dollars in thousands)

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income (loss)

 

$

27,646

 

 

$

21,798

 

 

$

(3,435

)

 

$

28,165

 

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), $(850), $(2,445) and $(2,547)

 

 

(1,275

)

 

 

(1,327

)

 

 

(3,824

)

 

 

(3,983

)

Amortization of actuarial loss included in net periodic cost, net of tax of $1,760, $2,009, $5,281 and $5,846

 

 

2,753

 

 

 

3,139

 

 

 

8,260

 

 

 

9,142

 

Cash flow hedge, net of tax of $72, $-, $(297) and $-

 

 

112

 

 

 

 

 

 

(465

)

 

 

 

Other comprehensive income, net of tax

 

 

1,590

 

 

 

1,812

 

 

 

3,971

 

 

 

5,159

 

Comprehensive income

 

$

29,236

 

 

$

23,610

 

 

$

536

 

 

$

33,324

 

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)

 

 

 

 

September 30, 2016

 

 

December 31, 2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

32,734

 

 

$

7,886

 

Short-term investments

 

 

40,121

 

 

 

39

 

Receivables, net

 

 

37,175

 

 

 

13,420

 

Inventories

 

 

41,006

 

 

 

35,162

 

Other assets

 

 

9,940

 

 

 

14,246

 

Total current assets

 

 

160,976

 

 

 

70,753

 

Property, plant and equipment, net

 

 

73,259

 

 

 

75,285

 

Timber and timberlands, net

 

 

647,875

 

 

 

816,599

 

Deferred tax assets, net

 

 

42,393

 

 

 

46,600

 

Other assets

 

 

8,622

 

 

 

7,375

 

Total assets

 

$

933,125

 

 

$

1,016,612

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Revolving line of credit borrowings

 

$

 

 

$

30,000

 

Current portion of long-term debt

 

 

5,053

 

 

 

5,007

 

Accounts payable and accrued liabilities

 

 

52,838

 

 

 

39,740

 

Current portion of pension and other postretirement employee benefits

 

 

5,973

 

 

 

5,973

 

Total current liabilities

 

 

63,864

 

 

 

80,720

 

Long-term debt

 

 

580,317

 

 

 

598,874

 

Pension and other postretirement employee benefits

 

 

118,679

 

 

 

119,369

 

Other long-term obligations

 

 

14,502

 

 

 

13,913

 

Total liabilities

 

 

777,362

 

 

 

812,876

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $1 par value

 

 

40,519

 

 

 

40,681

 

Additional paid-in capital

 

 

353,702

 

 

 

350,541

 

Accumulated deficit

 

 

(127,926

)

 

 

(72,983

)

Accumulated other comprehensive loss

 

 

(110,532

)

 

 

(114,503

)

Total stockholders’ equity

 

 

155,763

 

 

 

203,736

 

Total liabilities and stockholders' equity

 

$

933,125

 

 

$

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)

 

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(3,435

)

 

$

28,165

 

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

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

25,723

 

 

 

28,154

 

Basis of real estate sold

 

 

6,686

 

 

 

3,389

 

Change in deferred taxes

 

 

1,375

 

 

 

(2,786

)

Employee benefit plans

 

 

7,988

 

 

 

4,774

 

Equity-based compensation expense

 

 

3,290

 

 

 

3,589

 

Loss on sale of central Idaho timber and timberlands

 

 

48,522

 

 

 

 

Other, net

 

 

(1,141

)

 

 

(675

)

Change in working capital and operating-related activities, net

 

 

(13,318

)

 

 

(9,462

)

Funding of qualified pension plans

 

 

(1,300

)

 

 

 

Net cash from operating activities

 

 

74,390

 

 

 

55,148

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Change in short-term investments

 

 

(40,082

)

 

 

26,328

 

Property, plant and equipment

 

 

(4,262

)

 

 

(16,240

)

Timberlands reforestation and roads

 

 

(10,421

)

 

 

(11,155

)

Acquisition of timber and timberlands

 

 

(1,180

)

 

 

(9,320

)

Net proceeds from sale of central Idaho timber and timberlands

 

 

111,460

 

 

 

 

Other, net

 

 

525

 

 

 

644

 

Net cash from investing activities

 

 

56,040

 

 

 

(9,743

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Dividends to common stockholders

 

 

(45,647

)

 

 

(45,761

)

Repayment of revolving line of credit borrowings

 

 

(30,000

)

 

 

 

Repayment of long-term debt

 

 

(113,335

)

 

 

 

Proceeds from issuance of long-term debt

 

 

93,235

 

 

 

 

Repurchase of common stock

 

 

(5,956

)

 

 

 

Change in book overdrafts

 

 

(2,836

)

 

 

(1,440

)

Other, net

 

 

(1,043

)

 

 

(1,542

)

Net cash from financing activities

 

 

(105,582

)

 

 

(48,743

)

Change in cash

 

 

24,848

 

 

 

(3,338

)

Cash at beginning of period

 

 

7,886

 

 

 

4,644

 

Cash at end of period

 

$

32,734

 

 

$

1,306

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid (received) during the period for:

 

 

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

19,690

 

 

$

18,067

 

Income taxes, net

 

$

(1,828

)

 

$

1,528

 

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. We expect our right-of-use asset and lease liability will approximate our current future minimum lease payments required under our operating leases, which were $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. The guidance provides 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.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which reduces diversity in practice where the FASB was either unclear or did not provide specific guidance for classifying cash payments and receipts in the statement of cash flows for eight specific transactions. The ASU currently applies to our proceeds from the settlement of corporate-owned life insurance policies, which require cash proceeds received from the settlement of corporate-owned life insurance policies to be classified as cash inflows from investing activities. This ASU is effective for us retrospectively on January 1, 2018, with early adoption permitted. We report our cash flow activity consistent with the new ASU and, therefore, the adoption of this guidance will have no effect on our consolidated financial statements.

6


 

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which reduces the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. This amendment should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. There are no new disclosure requirements. This ASU is effective for us on January 1, 2018. Early option is permitted in the first interim period of 2017.  We are currently evaluating the impact of this ASU on our consolidated financial statements, which includes assessing the timing of certain asset sales to outside parties.

NOTE 3. EARNINGS PER SHARE

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands, except per share amounts)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income (loss)

 

$

27,646

 

 

$

21,798

 

 

$

(3,435

)

 

$

28,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

40,739,730

 

 

 

40,846,315

 

 

 

40,807,028

 

 

 

40,831,296

 

Incremental shares due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance shares

 

 

157,145

 

 

 

118,149

 

 

 

 

 

 

115,534

 

Restricted stock units

 

 

36,476

 

 

 

20,624

 

 

 

 

 

 

20,039

 

Diluted weighted-average shares outstanding

 

 

40,933,351

 

 

 

40,985,088

 

 

 

40,807,028

 

 

 

40,966,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share

 

$

0.68

 

 

$

0.53

 

 

$

(0.08

)

 

$

0.69

 

Diluted net income (loss) per share

 

$

0.68

 

 

$

0.53

 

 

$

(0.08

)

 

$

0.69

 

 

No dilutive potential shares were included in the computation of diluted net loss per share for the first nine months of 2016 due to the net loss. For the three months ended September 30, 2016 and 2015, there were 12,139 and 36 stock-based awards that were excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the nine months ended September 30, 2016 there were 139,216 anti-dilutive stock-based awards. For the nine months ended September 30, 2015, there were no 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 second 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)

 

September 30, 2016

 

 

December 31, 2015

 

Inventories:

 

 

 

 

 

 

 

 

Logs

 

$

13,748

 

 

$

9,920

 

Lumber, plywood and veneer

 

 

18,633

 

 

 

16,932

 

Materials and supplies

 

 

8,625

 

 

 

8,310

 

Total inventories

 

$

41,006

 

 

$

35,162

 

PROPERTY, PLANT AND EQUIPMENT

 

(Dollars in thousands)

 

September 30, 2016

 

 

December 31, 2015

 

Property, plant and equipment

 

$

249,721

 

 

$

248,750

 

Less: accumulated depreciation

 

 

(176,462

)

 

 

(173,465

)

Total property, plant and equipment, net

 

$

73,259

 

 

$

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 recreational parcels.  In the recession of 2008 the central Idaho rural recreational real estate market collapsed and has not recovered. The sale freed up capital without having to wait for the rural recreational 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 were positive, but not material.

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.

In August 2016, we refinanced $65.7 million of revenue bonds at a rate of 2.75%. The original bonds, which carried a rate of 6.0%, were extinguished and a new debt obligation was simultaneously issued. The principal balance and maturity date in 2024 remain unchanged.

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 five 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 September 30, 2016, the amount of net losses expected to be reclassified into earnings in the next 12 months is $0.2 million.

The following table presents the gross fair values of our interest rate contracts designated as hedging instruments on our Condensed Consolidated Balance Sheets:

 

(Dollars in thousands)

 

Asset Derivatives

 

 

 

 

Liability Derivatives

 

Location

 

September 30, 2016

 

 

December 31, 2015

 

 

Location

 

September 30, 2016

 

 

December 31, 2015

 

Other assets, current

 

$

53

 

 

$

7

 

 

 

 

$

 

 

$

 

Other assets, non-current

 

 

1,053

 

 

 

574

 

 

Long-term debt

 

 

762

 

 

 

 

 

 

$

1,106

 

 

$

581

 

 

 

 

$

762

 

 

$

 

 

8


 

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

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

Location

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Derivatives designated in fair value hedging relationships:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gain on interest rate contracts1

 

Interest expense

 

$

186

 

 

$

385

 

 

$

642

 

 

$

1,173

 

Derivatives designated in cash flow hedging relationships:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) recognized in other comprehensive income, net of tax (effective portion)

 

 

 

$

36

 

 

$

 

 

$

(618

)

 

$

 

Loss reclassified from accumulated other comprehensive income into interest expense (effective portion)1

 

Interest expense

 

 

76

 

 

 

 

 

 

153

 

 

 

 

Net effect on other comprehensive income

 

 

 

$

112

 

 

$

 

 

$

(465

)

 

$

 

1 Realized gain and losses on interest rate contracts consist of net cash received or paid and interest accruals on the interest rate swaps during the periods. Net cash received or paid is 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:

 

 

 

September 30, 2016

 

 

December 31, 2015

 

(Dollars in thousands)

 

Carrying

Amount

 

 

Fair

Value

 

 

Carrying

Amount

 

 

Fair

Value

 

Cash and short-term investments (Level 1)

 

$

72,855

 

 

$

72,855

 

 

$

7,925

 

 

$

7,925

 

Revolving line of credit borrowings (Level 1)

 

$

 

 

$

 

 

$

30,000

 

 

$

30,000

 

Asset related to interest rate swaps (Level 2)

 

$

1,106

 

 

$

1,106

 

 

$

581

 

 

$

581

 

Liability related to interest rate swaps (Level 2)

 

$

762

 

 

$

762

 

 

$

 

 

$

 

Long-term debt, including fair value adjustments related to hedging instruments (Level 2)

 

$

585,370

 

 

$

607,766

 

 

$

603,881

 

 

$

626,021

 

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

 

$

1,793

 

 

$

1,793

 

 

$

687

 

 

$

687

 

 

For cash and short-term investments and revolving line of credit borrowings, 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):

 

 

 

Three Months Ended September 30,

 

 

 

Pension

 

 

OPEB

 

(Dollars in thousands)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Service cost

 

$

1,627

 

 

$

1,559

 

 

$

3

 

 

$

5

 

Interest cost

 

 

4,255

 

 

 

4,241

 

 

 

355

 

 

 

364

 

Expected return on plan assets

 

 

(4,750

)

 

 

(5,220

)

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

 

130

 

 

 

151

 

 

 

(2,220

)

 

 

(2,328

)

Amortization of actuarial loss

 

 

4,083

 

 

 

4,636

 

 

 

430

 

 

 

512

 

Net periodic cost (benefit)

 

$

5,345

 

 

$

5,367

 

 

$

(1,432

)

 

$

(1,447

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

Pension

 

 

OPEB

 

(Dollars in thousands)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Service cost

 

$

4,881

 

 

$

4,620

 

 

$

10

 

 

$

16

 

Interest cost

 

 

12,765

 

 

 

12,759

 

 

 

1,065

 

 

 

1,092

 

Expected return on plan assets

 

 

(14,250

)

 

 

(15,603

)

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

 

389

 

 

 

454

 

 

 

(6,658

)

 

 

(6,984

)

Amortization of actuarial loss

 

 

12,253

 

 

 

13,452

 

 

 

1,288

 

 

 

1,536

 

Net periodic cost (benefit)

 

$

16,038

 

 

$

15,682

 

 

$

(4,295

)

 

$

(4,340

)

During the nine months ended September 30, 2016, we made a qualified pension plan contribution of $1.3 million. During the nine months ended September 30, 2016 and 2015, we paid non-qualified supplemental pension benefits of $1.3 million and $1.4 million and OPEB benefits of $2.6 million and $2.9 million, respectively.

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

 

 

 

Three Months Ended September 30, 2016

 

(Dollars in thousands)

 

Pension

 

 

OPEB

 

 

Total

 

Balance at June 30

 

$

123,103

 

 

$

(11,558

)

 

$

111,545

 

Amortization of defined benefit items, net of tax:1

 

 

 

 

 

 

 

 

 

 

 

 

Prior service credit (cost)

 

 

(79

)

 

 

1,354

 

 

 

1,275

 

Actuarial loss

 

 

(2,492

)

 

 

(261

)

 

 

(2,753

)

Total reclassification for the period

 

 

(2,571

)

 

 

1,093

 

 

 

(1,478

)

Balance at September 30

 

$

120,532

 

 

$

(10,465

)

 

$

110,067

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2015

 

(Dollars in thousands)

 

Pension

 

 

OPEB

 

 

Total

 

Balance at June 30

 

$

128,699

 

 

$

(13,654

)

 

$

115,045

 

Amortization of defined benefit items, net of tax:1

 

 

 

 

 

 

 

 

 

 

 

 

Prior service credit (cost)

 

 

(93

)

 

 

1,420

 

 

 

1,327

 

Actuarial loss

 

 

(2,828

)

 

 

(311

)

 

 

(3,139

)

Total reclassification for the period

 

 

(2,921

)

 

 

1,109

 

 

 

(1,812

)

Balance at September 30

 

$

125,778

 

 

$

(12,545

)

 

$

113,233

 

1 Amortization of prior service credit (cost) and amortization of actuarial loss are included in the computation of net periodic cost (benefit).

10


 

 

 

 

Nine Months Ended September 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)

 

 

(237

)

 

 

4,061

 

 

 

3,824

 

Actuarial loss

 

 

(7,475

)

 

 

(785

)

 

 

(8,260

)

Total reclassification for the period

 

 

(7,712

)

 

 

3,276

 

 

 

(4,436

)

Balance at September 30

 

$

120,532

 

 

$

(10,465

)

 

$

110,067

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2015

 

(Dollars in thousands)

 

Pension

 

 

OPEB

 

 

Total

 

Balance at January 1

 

$