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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, 2017

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, 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

 

 

Accelerated filer

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

 

Smaller reporting company

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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).    

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 19, 2017 was 40,610,865.

 

 

 

 


POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

Table of Contents

 

 


 

Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

 

Potlatch Corporation and Consolidated Subsidiaries

Consolidated Statements of Income (Loss)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands, except per share amount)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues

 

$

190,441

 

 

$

174,027

 

 

$

503,351

 

 

$

443,418

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

124,971

 

 

 

122,132

 

 

 

349,310

 

 

 

345,324

 

Selling, general and administrative expenses

 

 

14,619

 

 

 

12,901

 

 

 

41,773

 

 

 

38,712

 

Environmental charges for Avery Landing

 

 

4,978

 

 

 

 

 

 

4,978

 

 

 

1,022

 

Loss (gain) on lumber price swap

 

 

2,080

 

 

 

 

 

 

(1,185

)

 

 

 

Loss on sale of central Idaho timber and timberlands

 

 

 

 

 

 

 

 

 

 

 

48,522

 

 

 

 

146,648

 

 

 

135,033

 

 

 

394,876

 

 

 

433,580

 

Operating income

 

 

43,793

 

 

 

38,994

 

 

 

108,475

 

 

 

9,838

 

Interest expense, net

 

 

(7,336

)

 

 

(7,786

)

 

 

(19,654

)

 

 

(22,017

)

Income (loss) before income taxes

 

 

36,457

 

 

 

31,208

 

 

 

88,821

 

 

 

(12,179

)

Income tax (provision) benefit

 

 

(2,757

)

 

 

(3,562

)

 

 

(13,956

)

 

 

8,744

 

Net income (loss)

 

$

33,700

 

 

$

27,646

 

 

$

74,865

 

 

$

(3,435

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.83

 

 

$

0.68

 

 

$

1.83

 

 

$

(0.08

)

Diluted

 

$

0.82

 

 

$

0.68

 

 

$

1.82

 

 

$

(0.08

)

Dividends per share

 

$

0.375

 

 

$

0.375

 

 

$

1.125

 

 

$

1.125

 

Weighted-average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

40,829

 

 

 

40,740

 

 

 

40,814

 

 

 

40,807

 

Diluted

 

 

41,250

 

 

 

40,933

 

 

 

41,183

 

 

 

40,807

 

 

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)

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income (loss)

 

$

33,700

 

 

$

27,646

 

 

$

74,865

 

 

$

(3,435

)

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 benefit of $(838), $(815), $(2,513) and $(2,445)

 

 

(1,309

)

 

 

(1,275

)

 

 

(3,929

)

 

 

(3,824

)

Amortization of actuarial loss included in net periodic cost, net of tax expense of $1,562, $1,760, $4,686 and $5,281

 

 

2,443

 

 

 

2,753

 

 

 

7,330

 

 

 

8,260

 

Cash flow hedge, net of tax of $0, $72, $(87) and $(297)

 

 

 

 

 

112

 

 

 

(137

)

 

 

(465

)

Other comprehensive income, net of tax

 

 

1,134

 

 

 

1,590

 

 

 

3,264

 

 

 

3,971

 

Comprehensive income

 

$

34,834

 

 

$

29,236

 

 

$

78,129

 

 

$

536

 

 

See Note 5: Derivative Instruments and Note 7: 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, 2017

 

 

December 31, 2016

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

116,803

 

 

$

82,584

 

Receivables, net

 

 

23,461

 

 

 

17,284

 

Inventories

 

 

39,261

 

 

 

52,622

 

Other assets

 

 

8,820

 

 

 

11,155

 

Total current assets

 

 

188,345

 

 

 

163,645

 

Property, plant and equipment, net

 

 

76,138

 

 

 

72,820

 

Timber and timberlands, net

 

 

657,546

 

 

 

641,856

 

Deferred tax assets, net

 

 

40,889

 

 

 

42,051

 

Other assets

 

 

8,075

 

 

 

7,309

 

Total assets

 

$

970,993

 

 

$

927,681

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

20,304

 

 

$

11,032

 

Accounts payable and accrued liabilities

 

 

60,741

 

 

 

43,710

 

Current portion of pension and other postretirement employee benefits

 

 

5,839

 

 

 

5,839

 

Total current liabilities

 

 

86,884

 

 

 

60,581

 

Long-term debt

 

 

559,019

 

 

 

572,956

 

Pension and other postretirement employee benefits

 

 

118,505

 

 

 

123,284

 

Other long-term obligations

 

 

15,395

 

 

 

14,586

 

Total liabilities

 

 

779,803

 

 

 

771,407

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $1 par value

 

 

40,611

 

 

 

40,519

 

Additional paid-in capital

 

 

357,736

 

 

 

355,274

 

Accumulated deficit

 

 

(99,677

)

 

 

(128,775

)

Accumulated other comprehensive loss

 

 

(107,480

)

 

 

(110,744

)

Total stockholders’ equity

 

 

191,190

 

 

 

156,274

 

Total liabilities and stockholders' equity

 

$

970,993

 

 

$

927,681

 

 

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)

 

 

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

 

$

74,865

 

 

$

(3,435

)

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

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

21,908

 

 

 

25,723

 

Basis of real estate sold

 

 

6,351

 

 

 

6,686

 

Change in deferred taxes

 

 

(925

)

 

 

1,375

 

Pension and other postretirement employee benefits

 

 

9,863

 

 

 

11,743

 

Equity-based compensation expense

 

 

3,536

 

 

 

3,290

 

Loss on sale of central Idaho timber and timberlands

 

 

 

 

 

48,522

 

Other, net

 

 

(1,467

)

 

 

(1,141

)

Funding of qualified pension plans

 

 

(5,275

)

 

 

(1,300

)

Change in working capital and operating-related activities, net

 

 

20,489

 

 

 

(17,073

)

Net cash from operating activities

 

 

129,345

 

 

 

74,390

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(9,445

)

 

 

(4,262

)

Timberlands reforestation and roads

 

 

(11,577

)

 

 

(10,421

)

Acquisition of timber and timberlands

 

 

(22,033

)

 

 

(1,180

)

Net proceeds from sale of central Idaho timber and timberlands

 

 

 

 

 

111,460

 

Other, net

 

 

(106

)

 

 

525

 

Net cash from investing activities

 

 

(43,161

)

 

 

96,122

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Dividends to common stockholders

 

 

(45,686

)

 

 

(45,647

)

Repayment of revolving line of credit borrowings

 

 

 

 

 

(30,000

)

Repayment of long-term debt

 

 

(5,000

)

 

 

(113,335

)

Proceeds from issuance of long-term debt

 

 

 

 

 

93,235

 

Repurchase of common stock

 

 

 

 

 

(5,956

)

Other, net

 

 

(1,279

)

 

 

(3,879

)

Net cash from financing activities

 

 

(51,965

)

 

 

(105,582

)

Change in cash and cash equivalents

 

 

34,219

 

 

 

64,930

 

Cash and cash equivalents at beginning of period

 

 

82,584

 

 

 

7,925

 

Cash and cash equivalents at end of period

 

$

116,803

 

 

$

72,855

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid (received) during the period for:

 

 

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

17,381

 

 

$

19,690

 

Income taxes, net

 

$

13,923

 

 

$

(1,828

)

 

Certain 2016 amounts within cash flows from operating activities have been reclassified to conform to the 2017 presentation. There is no change to previously reported net cash from operating, investing or financing activities.

 

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, 2016, as filed with the Securities and Exchange Commission on February 17, 2017. 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.

Certain 2016 amounts on the Condensed Consolidated Statements of Cash Flows within cash flows from operating activities have been reclassified to conform to the 2017 presentation. There is no change to previously reported net cash from operating, investing or financing activities.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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. We prospectively adopted the provisions of this ASU on January 1, 2017, which include recording the tax effects related to share-based payments through the income statement. As a Real Estate Investment Trust (REIT), we are generally not subject to federal and state corporate income taxes, except through our taxable REIT subsidiaries. Therefore, the adoption of this guidance was not material to our consolidated financial statements. We will continue to estimate forfeitures each period. We consider many factors when estimating expected forfeitures, including types of awards, employee class and historical experience.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU No. 2014-09), which requires an entity to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 also included other guidance, including the presentation of a gain or loss recognized on the sale of a long-lived asset or a nonfinancial asset. Subsequent ASU’s have been issued that provide clarity, technical corrections and improvements to ASU No. 2014-09. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date, which deferred the effective date of ASU No. 2014-09 by one year. ASU No. 2014-09 is effective for us on January 1, 2018. For most of our sales, which consist of logs, manufactured wood products, residual by-products and real estate, we have identified no change to the timing or amount of revenue recognized because our contracts are legally enforceable, the transaction price is fixed and performance is completed at a point in time, typically when risk of loss and title pass. For our other sales, which include stumpage contracts, timber deeds, land use permits, and royalties, we have also identified no change to the timing or amount of revenue recognized. We will have minor refinements to our controls over financial reporting. Our expanded disclosures will disaggregate revenues along the lines of the sales categories mentioned above. The guidance permits a retrospective application of the new standard with certain practical expedients (contracts completed within the same annual reporting period need not be restated and other allowances for contracts with variable consideration) or retrospective application with a cumulative effect adjustment to the beginning balance of retained earnings. Upon adoption of this ASU on January 1, 2018, if there is a difference in the amount of revenue recorded for any of the prior reporting periods presented, while considering the practical expedients, we will restate that period to conform with the ASU. The adoption of this guidance is not expected to have a significant effect on our consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires an entity to present service cost within compensation expense and the other components of net benefit cost outside of income from operations. This ASU is effective for us on January 1, 2018. The amendments in this update require retrospective presentation in the income statement. Changes to the capitalized portion of both service cost and the other components of

6


 

net benefit cost within inventory will be applied prospectively. In 2016, net periodic pension and other postretirement employee benefit cost reported within operating income totaled $15.7 million of which $6.5 million represented service cost.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, which is intended to better portray the economic results of an entity’s risk management activities in its financial statements through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for certain nonfinancial and financial risk components and align the recognition and presentation of the effects in the financial statements, particularly in the areas of measuring hedge ineffectiveness. This ASU is effective for us on January 1, 2019, with early application permitted in any interim period. The presentation and disclosure guidance is required prospectively upon adoption. Our cash flow hedges currently have no ineffectiveness, but in the event they did, as of the beginning of the fiscal year that we adopt this ASU, a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness would be recorded to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings.

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)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income (loss)

 

$

33,700

 

 

$

27,646

 

 

$

74,865

 

 

$

(3,435

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

40,829,399

 

 

 

40,739,730

 

 

 

40,814,135

 

 

 

40,807,028

 

Incremental shares due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance shares

 

 

378,149

 

 

 

157,145

 

 

 

331,082

 

 

 

 

Restricted stock units

 

 

42,909

 

 

 

36,476

 

 

 

37,578

 

 

 

 

Diluted weighted-average shares outstanding

 

 

41,250,457

 

 

 

40,933,351

 

 

 

41,182,795

 

 

 

40,807,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share

 

$

0.83

 

 

$

0.68

 

 

$

1.83

 

 

$

(0.08

)

Diluted net income (loss) per share

 

$

0.82

 

 

$

0.68

 

 

$

1.82

 

 

$

(0.08

)

 

For the three months ended September 30, 2017, there were no stock based awards that were anti-dilutive. For the nine months ended September 30, 2017, there were 167 stock-based awards that were excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the three months ended September 30, 2016, there were 12,139 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, no dilutive potential shares were included in the computation of diluted net income (loss) per share due to the net loss. Anti-dilutive stock-based awards could be dilutive in future periods.

NOTE 4. CERTAIN BALANCE SHEET COMPONENTS

INVENTORIES

 

(Dollars in thousands)

 

September 30, 2017

 

 

December 31, 2016

 

Logs

 

$

9,957

 

 

$

23,342

 

Lumber, plywood and veneer

 

 

20,484

 

 

 

20,500

 

Materials and supplies

 

 

8,820

 

 

 

8,780

 

Total inventories

 

$

39,261

 

 

$

52,622

 

PROPERTY, PLANT AND EQUIPMENT

 

(Dollars in thousands)

 

September 30, 2017

 

 

December 31, 2016

 

Property, plant and equipment

 

$

258,086

 

 

$

250,913

 

Less: accumulated depreciation

 

 

(181,948

)

 

 

(178,093

)

Total property, plant and equipment, net

 

$

76,138

 

 

$

72,820

 

7


 

TIMBER AND TIMBERLANDS

 

(Dollars in thousands)

 

September 30, 2017

 

 

December 31, 2016

 

Timber and timberlands

 

$

585,315

 

 

$

572,273

 

Logging roads

 

 

72,231

 

 

 

69,583

 

Total timber and timberlands, net

 

$

657,546

 

 

$

641,856

 

In the nine months ended September 30, 2017, we purchased approximately $22.0 million of timber and timberlands adjacent to our current operations in northern Idaho, Arkansas and Alabama.

 

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. The sale freed 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 were positive, but not material.

NOTE 5. 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, 2017, the amount of net losses expected to be reclassified into earnings in the next 12 months is $0.1 million.

Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, commodity price movements or other identified risks, but do not meet the strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly into income. In April 2017, we entered into a lumber price swap to fix the price on a total of 36 million board feet (mmbf) of southern yellow pine with an effective date of July 1, 2017 and a termination date of December 31, 2017. Under the contract, cash settlement on 6 mmbf occurs monthly.

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

 

September 30, 2017

 

 

December 31, 2016

 

 

Location

 

September 30, 2017

 

 

December 31, 2016

 

Derivatives designated in fair value hedging relationships:

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Other assets, current

 

$

54

 

 

$

32

 

 

 

 

$

 

 

$

 

Interest rate contracts

 

Other assets,

non-current

 

 

 

 

 

215

 

 

Other long-term obligations

 

 

186

 

 

 

91

 

 

 

 

 

$

54

 

 

$

247

 

 

 

 

$

186

 

 

$

91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated in cash flow hedging relationships:

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Other assets,

non-current

 

$

925

 

 

$

1,148

 

 

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

Lumber price swap

 

Other assets, current

 

$

199

 

 

$

 

 

 

 

$

 

 

$

 

 

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

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Derivatives designated in fair value hedging relationships:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gain on interest rate contracts1

 

Interest expense

 

$

76

 

 

$

186

 

 

$

366

 

 

$

642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives designated in cash flow hedging relationships:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

$

(30

)

 

$

36

 

 

$

(258

)

 

$

(618

)

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

 

Interest expense

 

$

(30

)

 

$

(76

)

 

$

(121

)

 

$

(153

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Lumber price contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gain on lumber price swap

 

 

 

$

986

 

 

$

 

 

$

986

 

 

$

 

Unrealized gain (loss) on lumber price swap

 

Gain (loss) on lumber price swap

 

 

(3,067

)

 

 

 

 

 

199

 

 

 

 

Net gain (loss) on lumber price contracts

 

 

 

$

(2,081

)

 

$

 

 

$

1,185

 

 

$

 

 

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 6. FINANCIAL INSTRUMENTS

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

 

 

 

September 30, 2017

 

 

December 31, 2016

 

(Dollars in thousands)

 

Carrying

Amount

 

 

Fair

Value

 

 

Carrying

Amount

 

 

Fair

Value

 

Cash and cash equivalents (Level 1)

 

$

116,803

 

 

$

116,803

 

 

$

82,584

 

 

$

82,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative assets related to interest rate swaps (Level 2)

 

$

979

 

 

$

979

 

 

$

1,395

 

 

$

1,395

 

Derivative liabilities related to interest rate swaps (Level 2)

 

$

(186

)

 

$

(186

)

 

$

(91

)

 

$

(91

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative asset related to lumber price swap (Level 2)

 

$

199

 

 

$

199

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, including current portion (Level 2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term loans

 

$

(349,500

)

 

$

(353,856

)

 

$

(349,500

)

 

$

(350,909

)

Senior notes

 

 

(149,464

)

 

 

(163,500

)

 

 

(149,271

)

 

 

(164,250

)

Revenue bonds

 

 

(65,735

)

 

 

(62,954

)

 

 

(65,735

)

 

 

(62,205

)

Medium-term notes

 

 

(17,250

)

 

 

(18,476

)

 

 

(22,250

)

 

 

(23,926

)

Total long-term debt1

 

$

(581,949

)

 

$

(598,786

)

 

$

(586,756

)

 

$

(601,290

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

1,642

 

 

$

1,642

 

 

$

70

 

 

$

70

 

 

1

The carrying amount of long-term debt includes principal and unamortized discounts.

 

For cash and cash equivalents and any 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 interest rate and lumber price swaps are determined using discounted cash flow analysis on 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 and commodity price forward curves.

9


 

The fair value of our long-term debt is estimated based upon quoted market prices for 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 to estimate fair value because market prices are not readily available.

NOTE 7. 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)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Service cost

 

$

1,688

 

 

$

1,627

 

 

$

3

 

 

$

3

 

Interest cost

 

 

4,024

 

 

 

4,255

 

 

 

316

 

 

 

355

 

Expected return on plan assets

 

 

(4,601

)

 

 

(4,750

)

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

 

72

 

 

 

130

 

 

 

(2,219

)

 

 

(2,220

)

Amortization of actuarial loss

 

 

3,621

 

 

 

4,083

 

 

 

384

 

 

 

430

 

Net periodic cost (benefit)

 

$

4,804

 

 

$

5,345

 

 

$

(1,516

)

 

$

(1,432

)