|
|
Item 1.
|
Financial Statements.
|
CONSOLIDATED BALANCE SHEETS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(AMOUNTS IN MILLIONS) (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
ASSETS
|
|
|
|
Cash and cash equivalents
|
$
|
1,000.9
|
|
|
$
|
928.0
|
|
Receivables, net of allowance for doubtful accounts of $0.9 million at June 30, 2018 and December 31, 2017
|
162.3
|
|
|
142.5
|
|
Inventories
|
286.4
|
|
|
259.1
|
|
Prepaid expenses and other current assets
|
13.0
|
|
|
7.8
|
|
Current portion of notes receivable from asset sales
|
—
|
|
|
22.2
|
|
Total current assets
|
1,462.6
|
|
|
1,359.6
|
|
Timber and timberlands
|
56.0
|
|
|
55.7
|
|
Property, plant and equipment, net
|
946.6
|
|
|
926.1
|
|
Goodwill and other intangible assets
|
26.4
|
|
|
26.7
|
|
Investments in and advances to affiliates
|
53.9
|
|
|
7.8
|
|
Restricted cash
|
13.3
|
|
|
13.3
|
|
Other assets
|
59.5
|
|
|
56.8
|
|
Deferred tax asset
|
2.5
|
|
|
2.5
|
|
Total assets
|
$
|
2,620.8
|
|
|
$
|
2,448.5
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current portion of long-term debt
|
$
|
27.3
|
|
|
$
|
25.1
|
|
Accounts payable and accrued liabilities
|
211.1
|
|
|
237.1
|
|
Income taxes payable
|
15.7
|
|
|
4.5
|
|
Current portion of contingency reserves
|
3.4
|
|
|
3.4
|
|
Total current liabilities
|
257.5
|
|
|
270.1
|
|
Long-term debt, excluding current portion
|
348.4
|
|
|
350.8
|
|
Deferred income taxes
|
58.9
|
|
|
33.4
|
|
Contingency reserves, excluding current portion
|
9.4
|
|
|
11.7
|
|
Other long-term liabilities
|
180.8
|
|
|
178.0
|
|
Stockholders’ equity:
|
|
|
|
Common stock, $1 par value, 200,000,000 shares authorized, 153,358,542 shares issued
|
153.4
|
|
|
153.4
|
|
Additional paid-in capital
|
457.5
|
|
|
470.6
|
|
Retained earnings
|
1,508.4
|
|
|
1,280.1
|
|
Treasury stock, 9,423,230 shares and 8,462,949 shares, at cost
|
(206.2
|
)
|
|
(177.5
|
)
|
Accumulated comprehensive loss
|
(147.3
|
)
|
|
(122.1
|
)
|
Total stockholders’ equity
|
1,765.8
|
|
|
1,604.5
|
|
Total liabilities and stockholders’ equity
|
$
|
2,620.8
|
|
|
$
|
2,448.5
|
|
The accompanying notes are an integral part of these unaudited financial statements.
CONSOLIDATED STATEMENTS OF INCOME
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net sales
|
$
|
810.8
|
|
|
$
|
694.1
|
|
|
$
|
1,502.1
|
|
|
$
|
1,305.0
|
|
Cost of sales
|
550.2
|
|
|
511.8
|
|
|
1,064.7
|
|
|
994.6
|
|
Gross profit
|
260.6
|
|
|
182.3
|
|
|
437.4
|
|
|
310.4
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
50.1
|
|
|
47.2
|
|
|
100.7
|
|
|
95.9
|
|
Gain on sale or impairment of long lived assets, net
|
—
|
|
|
(3.1
|
)
|
|
(0.6
|
)
|
|
(2.5
|
)
|
Other operating credits and charges, net
|
(4.5
|
)
|
|
2.0
|
|
|
(4.9
|
)
|
|
5.4
|
|
Income from operations
|
215.0
|
|
|
136.2
|
|
|
342.2
|
|
|
211.6
|
|
|
|
|
|
|
|
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
Interest expense, net of capitalized interest
|
(4.4
|
)
|
|
(4.9
|
)
|
|
(8.8
|
)
|
|
(9.9
|
)
|
Investment income
|
4.8
|
|
|
2.3
|
|
|
8.0
|
|
|
4.3
|
|
Other non-operating items
|
(0.7
|
)
|
|
(3.1
|
)
|
|
(2.1
|
)
|
|
(5.0
|
)
|
Total non-operating income (expense)
|
(0.3
|
)
|
|
(5.7
|
)
|
|
(2.9
|
)
|
|
(10.6
|
)
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes and equity in loss of unconsolidated affiliate
|
214.7
|
|
|
130.5
|
|
|
339.3
|
|
|
201.0
|
|
Provision for income taxes
|
51.2
|
|
|
36.0
|
|
|
80.9
|
|
|
51.5
|
|
Equity in loss of unconsolidated affiliate
|
0.6
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
Income from continuing operations
|
162.9
|
|
|
94.5
|
|
|
257.8
|
|
|
149.5
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before taxes
|
(0.3
|
)
|
|
—
|
|
|
(5.6
|
)
|
|
—
|
|
Benefit for income taxes
|
(0.1
|
)
|
|
—
|
|
|
(1.4
|
)
|
|
—
|
|
Loss from discontinued operations
|
(0.2
|
)
|
|
—
|
|
|
(4.2
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
162.7
|
|
|
$
|
94.5
|
|
|
$
|
253.6
|
|
|
$
|
149.5
|
|
|
|
|
|
|
|
|
|
Net income per share of common stock:
|
|
|
|
|
|
|
|
Income per share continuing operations
|
$
|
1.13
|
|
|
$
|
0.65
|
|
|
$
|
1.78
|
|
|
$
|
1.04
|
|
Loss per share discontinued operations
|
—
|
|
|
—
|
|
|
(0.03
|
)
|
|
—
|
|
Net income per share - basic
|
$
|
1.13
|
|
|
$
|
0.65
|
|
|
$
|
1.75
|
|
|
$
|
1.04
|
|
Diluted net income per share of common stock:
|
|
|
|
|
|
|
|
Income per share continuing operations
|
$
|
1.11
|
|
|
$
|
0.65
|
|
|
$
|
1.76
|
|
|
$
|
1.02
|
|
Loss per share discontinued operations
|
—
|
|
|
—
|
|
|
$
|
(0.03
|
)
|
|
—
|
|
Net income per share - diluted
|
$
|
1.11
|
|
|
$
|
0.65
|
|
|
$
|
1.73
|
|
|
$
|
1.02
|
|
|
|
|
|
|
|
|
|
Weighted average shares of stock outstanding - basic
|
144.6
|
|
|
144.5
|
|
|
144.7
|
|
|
144.3
|
|
Weighted average shares of stock outstanding - diluted
|
146.2
|
|
|
146.2
|
|
|
146.4
|
|
|
146.0
|
|
The accompanying notes are an integral part of these unaudited financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(AMOUNTS IN MILLIONS) (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income
|
$
|
162.7
|
|
|
$
|
94.5
|
|
|
$
|
253.6
|
|
|
$
|
149.5
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(13.8
|
)
|
|
(8.5
|
)
|
|
(11.5
|
)
|
|
(5.7
|
)
|
Unrealized gain (loss) on investments, net of tax
|
(0.1
|
)
|
|
0.1
|
|
|
0.1
|
|
|
0.4
|
|
Defined benefit pension plans:
|
|
|
|
|
|
|
|
Change in benefit obligations, translation adjustment
|
0.1
|
|
|
(0.2
|
)
|
|
0.3
|
|
|
(0.4
|
)
|
Amortization of amounts included in net periodic benefit cost:
|
|
|
|
|
|
|
|
Actuarial loss, net of tax
|
1.2
|
|
|
0.8
|
|
|
2.3
|
|
|
1.7
|
|
Prior service cost, net of tax
|
0.1
|
|
|
0.2
|
|
|
0.2
|
|
|
0.4
|
|
Other
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
Other comprehensive loss
|
(12.4
|
)
|
|
(7.6
|
)
|
|
(8.5
|
)
|
|
(3.6
|
)
|
Comprehensive income
|
$
|
150.3
|
|
|
$
|
86.9
|
|
|
$
|
245.1
|
|
|
$
|
145.9
|
|
The accompanying notes are an integral part of these unaudited financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(AMOUNTS IN MILLIONS) (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net income
|
$
|
162.7
|
|
|
$
|
94.5
|
|
|
$
|
253.6
|
|
|
$
|
149.5
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
30.1
|
|
|
29.6
|
|
|
61.1
|
|
|
60.2
|
|
Equity in (income) loss of unconsolidated affiliates, including dividends
|
(0.3
|
)
|
|
(0.4
|
)
|
|
(1.1
|
)
|
|
(1.0
|
)
|
Gain on sale or impairment of long-lived assets, net
|
—
|
|
|
(3.1
|
)
|
|
(0.6
|
)
|
|
(2.5
|
)
|
Other operating credits and charges, net
|
(0.3
|
)
|
|
2.0
|
|
|
(0.7
|
)
|
|
5.4
|
|
Stock-based compensation related to stock plans
|
2.6
|
|
|
1.9
|
|
|
4.8
|
|
|
6.0
|
|
Exchange loss on remeasurement
|
0.1
|
|
|
1.5
|
|
|
—
|
|
|
1.7
|
|
Cash settlements of warranties, net of accruals
|
(0.6
|
)
|
|
(2.4
|
)
|
|
(1.5
|
)
|
|
(5.6
|
)
|
Cash settlements of contingencies, net of accruals
|
(5.3
|
)
|
|
(0.3
|
)
|
|
(1.5
|
)
|
|
(0.3
|
)
|
Pension contributions, net of expense
|
(2.1
|
)
|
|
(2.1
|
)
|
|
(0.5
|
)
|
|
(0.7
|
)
|
Other adjustments, net
|
(1.2
|
)
|
|
(0.2
|
)
|
|
0.7
|
|
|
0.2
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
Increase in receivables
|
(16.2
|
)
|
|
(5.1
|
)
|
|
(45.4
|
)
|
|
(44.8
|
)
|
(Increase) decrease in inventories
|
40.6
|
|
|
37.8
|
|
|
(13.4
|
)
|
|
13.0
|
|
Increase in prepaid expenses
|
(4.0
|
)
|
|
(2.7
|
)
|
|
(5.2
|
)
|
|
(3.3
|
)
|
Increase (decrease) in accounts payable and accrued liabilities
|
18.5
|
|
|
14.6
|
|
|
(19.5
|
)
|
|
(5.3
|
)
|
Increase (decrease) in income taxes
|
12.7
|
|
|
(24.8
|
)
|
|
37.2
|
|
|
(10.9
|
)
|
Net cash provided by operating activities
|
237.3
|
|
|
140.8
|
|
|
268.0
|
|
|
161.6
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Property, plant and equipment additions
|
(44.4
|
)
|
|
(19.6
|
)
|
|
(87.6
|
)
|
|
(45.7
|
)
|
Proceeds from sales of assets
|
0.1
|
|
|
3.2
|
|
|
0.9
|
|
|
3.2
|
|
Investments in unconsolidated affiliate
|
(45.0
|
)
|
|
—
|
|
|
(45.0
|
)
|
|
—
|
|
Payment of long-term deposit
|
—
|
|
|
(32.0
|
)
|
|
—
|
|
|
(32.0
|
)
|
Receipt of proceeds from notes receivable from asset sales
|
22.2
|
|
|
—
|
|
|
22.2
|
|
|
—
|
|
Other investing activities
|
(0.1
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
0.2
|
|
Net cash used in investing activities
|
(67.2
|
)
|
|
(48.4
|
)
|
|
(109.8
|
)
|
|
(74.3
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
(0.2
|
)
|
|
(0.1
|
)
|
|
(0.3
|
)
|
|
(1.3
|
)
|
Payment of cash dividends
|
(18.7
|
)
|
|
—
|
|
|
(37.6
|
)
|
|
—
|
|
Purchase of treasury stock
|
(38.9
|
)
|
|
—
|
|
|
(38.9
|
)
|
|
—
|
|
Sale of common stock, net of cash payments under equity plans
|
—
|
|
|
(0.8
|
)
|
|
0.1
|
|
|
(0.4
|
)
|
Taxes paid related to net share settlement of equity awards
|
(2.1
|
)
|
|
(0.1
|
)
|
|
(7.8
|
)
|
|
(4.8
|
)
|
Other financing activities
|
—
|
|
|
—
|
|
|
3.1
|
|
|
—
|
|
Net cash used in financing activities
|
(59.9
|
)
|
|
(1.0
|
)
|
|
(81.4
|
)
|
|
(6.5
|
)
|
EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
(5.1
|
)
|
|
(0.8
|
)
|
|
(3.9
|
)
|
|
(0.1
|
)
|
Net increase in cash, cash equivalents and restricted cash
|
105.1
|
|
|
90.6
|
|
|
72.9
|
|
|
80.7
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
909.1
|
|
|
662.6
|
|
|
941.3
|
|
|
672.5
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
1,014.2
|
|
|
$
|
753.2
|
|
|
$
|
1,014.2
|
|
|
$
|
753.2
|
|
The accompanying notes are an integral part of these unaudited financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(AMOUNTS IN MILLIONS) (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Comprehensive
Loss
|
|
Total
Stockholders'
Equity
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Balance, December 31, 2017
|
153.4
|
|
|
$
|
153.4
|
|
|
8.4
|
|
|
$
|
(177.5
|
)
|
|
$
|
470.6
|
|
|
$
|
1,280.1
|
|
|
$
|
(122.1
|
)
|
|
$
|
1,604.5
|
|
Effect of adoption of ASU 2014-09
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.4
|
)
|
|
|
|
|
(4.4
|
)
|
Effect of adoption of ASU 2018-02
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.7
|
|
|
(16.7
|
)
|
|
—
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253.6
|
|
|
|
|
|
253.6
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37.6
|
)
|
|
|
|
|
(37.6
|
)
|
Issuance of shares for stock plans and stock-based compensation
|
|
|
|
|
|
|
(0.8
|
)
|
|
18.0
|
|
|
(17.9
|
)
|
|
|
|
|
|
|
|
0.1
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
1.4
|
|
|
(38.9
|
)
|
|
|
|
|
|
|
|
|
|
(38.9
|
)
|
Compensation expense associated with stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
4.8
|
|
Taxes paid related to net settlement of stock-based awards
|
|
|
|
|
|
|
0.4
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
|
|
|
(7.8
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.5
|
)
|
|
(8.5
|
)
|
Balance, June 30, 2018
|
153.4
|
|
|
$
|
153.4
|
|
|
9.4
|
|
|
$
|
(206.2
|
)
|
|
$
|
457.5
|
|
|
$
|
1,508.4
|
|
|
$
|
(147.3
|
)
|
|
$
|
1,765.8
|
|
1
See Note 2 for additional detail regarding the adoption of new accounting standards.
The accompanying notes are an integral part of these unaudited financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS FOR PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position, results of operations and cash flows of us and our subsidiaries for the interim periods presented. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2017
.
NOTE 2 - NEW ACCOUNTING STANDARDS AND CERTAIN RECLASSIFICATIONS
On January 1, 2018, we adopted ASU 2014-09, "Revenue from Contracts with Customers" (ASC 606), and all the related amendments to all contracts using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new revenue standard to be immaterial to our net income on an ongoing basis. Recognition of a portion of our sales revenue has been delayed due to the timing of satisfying the performance obligations. The new revenue standard also provided additional clarity that resulted in reclassifications to or from net sales and selling, general and administrative expenses.
On January 1, 2018, we adopted ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The guidance allows us to reclassify the stranded tax effects within Accumulated other comprehensive income to Retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (the Tax Act) is recorded.
The cumulative effect of the changes made to our Consolidated Balance Sheet as of January 1, 2018 for the adoption of ASU 2014-09 and ASU 2018-02, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar amounts in millions
|
Balance at December 31, 2017
|
|
ASU 2014-09
|
|
ASU 2018-02
|
|
Balance at January 1, 2018
|
Receivables, net of allowance for doubtful accounts
|
$
|
142.5
|
|
|
$
|
(21.7
|
)
|
|
$
|
—
|
|
|
$
|
120.8
|
|
Inventories
|
259.1
|
|
|
15.8
|
|
|
—
|
|
|
274.9
|
|
Deferred tax asset
|
2.5
|
|
|
1.5
|
|
|
—
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
1,280.1
|
|
|
(4.4
|
)
|
|
16.7
|
|
|
1,292.4
|
|
Accumulated comprehensive loss
|
(122.1
|
)
|
|
—
|
|
|
(16.7
|
)
|
|
(138.8
|
)
|
In accordance with the new revenue standard requirements, the disclosure of the impact on our Consolidated Statement of Income and Consolidated Balance Sheet is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
Dollar amounts in millions
|
As reported
|
|
Balances without adoption of ASC 606
|
|
Effect of Change Higher (Lower)
|
|
As reported
|
|
Balances without adoption of ASC 606
|
|
Effect of Change Higher (Lower)
|
Consolidated Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
810.8
|
|
|
818.4
|
|
|
$
|
(7.6
|
)
|
|
$
|
1,502.1
|
|
|
$
|
1,520.8
|
|
|
$
|
(18.7
|
)
|
Cost of sales
|
550.2
|
|
|
554.0
|
|
|
(3.8
|
)
|
|
1,064.7
|
|
|
1,075.0
|
|
|
(10.3
|
)
|
Selling, general and administrative expenses
|
50.1
|
|
|
51.2
|
|
|
(1.1
|
)
|
|
100.7
|
|
|
102.6
|
|
|
(1.9
|
)
|
Provision for income taxes
|
51.2
|
|
|
51.9
|
|
|
(0.7
|
)
|
|
80.9
|
|
|
82.5
|
|
|
(1.6
|
)
|
Net income
|
162.7
|
|
|
164.7
|
|
|
(2.0
|
)
|
|
253.6
|
|
|
258.5
|
|
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet
|
June 30, 2018
|
|
|
|
|
|
|
Receivables, net of allowance for doubtful accounts
|
$
|
162.3
|
|
|
$
|
200.8
|
|
|
$
|
38.5
|
|
|
|
|
|
|
|
Inventory
|
$
|
286.4
|
|
|
$
|
260.3
|
|
|
$
|
(26.1
|
)
|
|
|
|
|
|
|
Income taxes payable
|
$
|
15.7
|
|
|
$
|
18.8
|
|
|
$
|
3.1
|
|
|
|
|
|
|
|
Retained earnings
|
$
|
1,508.4
|
|
|
$
|
1,517.7
|
|
|
$
|
9.3
|
|
|
|
|
|
|
|
On January 1, 2018, we adopted ASU 2017-07, "Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" (an amendment to ASC 715) to improve the presentation of net periodic pension and postretirement benefit costs. We retrospectively adopted the presentation of service cost separate from the other components of net periodic costs. The interest cost, expected return on assets, amortization of prior service costs, amortization of net actuarial losses and settlement costs have been reclassified from Cost of sales, Selling, general and administrative expenses and Other operating credits and charges to Non-operating income (expense). We elected to apply the practical expedient which allows us to reclassify amounts disclosed previously in the retirement benefits note as the basis for applying retrospective presentation for comparative periods as it is impracticable to determine the disaggregation of the cost components for amounts capitalized and amortized in those periods. On a prospective basis, the other components of net periodic benefit costs (excluding service cost) will not be included in amounts capitalized in inventory or property, plant, and equipment. In addition to the effects of ASU 2017-07, we have reclassified depreciation and amortization into the financial statement caption that reflects the category of the expense to be more comparable with our peers.
The effect of the retrospective presentation change related to the net periodic cost of our defined benefit pension and reclassification of depreciation and amortization on our Consolidated Statement of Income for the quarter and
six
months ended
June 30, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2017
|
Dollar amounts in millions
|
As reported
|
|
ASU 2017-07
|
|
Reclassi- fications
|
|
As adjusted
|
Consolidated Statement of Income
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown separately below)
|
$
|
484.0
|
|
|
$
|
(1.0
|
)
|
|
$
|
28.8
|
|
|
$
|
511.8
|
|
Depreciation and amortization
|
29.6
|
|
|
—
|
|
|
(29.6
|
)
|
|
—
|
|
Selling, general and administrative expenses
|
47.0
|
|
|
(0.6
|
)
|
|
0.8
|
|
|
47.2
|
|
Income from operations
|
134.6
|
|
|
1.6
|
|
|
—
|
|
|
136.2
|
|
Total non-operating income (expense)
|
(4.1
|
)
|
|
(1.6
|
)
|
|
—
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
Dollar amounts in millions
|
As reported
|
|
ASU 2017-07
|
|
Reclassi- fications
|
|
As adjusted
|
Consolidated Statement of Income
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown separately below)
|
$
|
937.9
|
|
|
$
|
(2.0
|
)
|
|
58.7
|
|
|
$
|
994.6
|
|
Depreciation and amortization
|
60.2
|
|
|
—
|
|
|
(60.2
|
)
|
|
—
|
|
Selling, general and administrative expenses
|
95.6
|
|
|
(1.2
|
)
|
|
1.5
|
|
|
95.9
|
|
Income from operations
|
208.4
|
|
|
3.2
|
|
|
—
|
|
|
211.6
|
|
Total non-operating income (expense)
|
(7.4
|
)
|
|
(3.2
|
)
|
|
—
|
|
|
(10.6
|
)
|
On January 1, 2018, we adopted ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash." The adoption of this standard requires the inclusion of the change in amounts described as restricted cash or restricted cash equivalents to be included as part of our Consolidated Statement of Cash Flows.
In accordance with
disclosure requirements of this new accounting standard, the impact of adoption on our Consolidated Statement of Cash Flows for the quarter and
six
months ended
June 30, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2017
|
Dollar amounts in millions
|
As reported
|
|
ASU 2016-18
|
|
As adjusted
|
Consolidated Statement of Cash Flows
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
$
|
(48.5
|
)
|
|
$
|
0.1
|
|
|
$
|
(48.4
|
)
|
Effect of exchange rate on cash, cash equivalents and restricted cash
|
(0.8
|
)
|
|
—
|
|
|
(0.8
|
)
|
Net increase in cash, cash equivalents and restricted cash
|
90.5
|
|
|
0.1
|
|
|
90.6
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
649.5
|
|
|
13.1
|
|
|
662.6
|
|
Cash, cash equivalents and restricted cash at end of period
|
740.0
|
|
|
13.2
|
|
|
753.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
Dollar amounts in millions
|
As reported
|
|
ASU 2016-18
|
|
As adjusted
|
Consolidated Statement of Cash Flows
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
$
|
(74.5
|
)
|
|
$
|
0.2
|
|
|
$
|
(74.3
|
)
|
Effect of exchange rate on cash, cash equivalents and restricted cash
|
0.1
|
|
|
(0.2
|
)
|
|
(0.1
|
)
|
Net increase in cash, cash equivalents and restricted cash
|
80.7
|
|
|
—
|
|
|
80.7
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
659.3
|
|
|
13.2
|
|
|
672.5
|
|
Cash, cash equivalents and restricted cash at end of period
|
740.0
|
|
|
13.2
|
|
|
753.2
|
|
In March 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, "Leases (Topic 842)", which supersedes the lease accounting requirements in ASC Topic 840, "Leases". The new standard requires entities to recognize, separately from each other, an asset for its right to use (ROU) the underlying asset equal to the liability for its finance and operating lease obligations. Further, the entity is required to present separately the current and non-current portion of the ROU asset and corresponding lease liability. We will adopt the standard on January 1, 2019, using the optional prospective method approved by the FASB in March 2018. This method allows us to not restate comparative periods and instead apply the new standard on a prospective basis as of the date of adoption. While our evaluation is still in process, we expect the adoption to have a significant impact on our Consolidated Balance Sheet and an immaterial impact on our Consolidated Statement of Income.
NOTE 3 - REVENUE
Revenue is recognized when obligations under the terms of a contract (purchase orders) with our customers are satisfied; generally, this occurs with the transfer of control of our products. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Shipping cost incurred by us to deliver products to our customers are recorded in cost of sales. The expected costs associated with our warranties continue to be recognized as expense when the products are sold. We recognize revenue as of a point in time.
Customer programs and incentives are a common practice in our businesses. Our businesses incur customer program costs to obtain favorable product placement, to promote sales of products and to maintain competitive pricing. Customer program costs and incentives, including rebates and promotion and volume allowances, are accounted for as deductions from net sales at the time the program is initiated. These reductions from revenue are recorded at the later of the time of sale or the implementation of the program based on management’s best estimates. Estimates are based on historical and projected experience for each type of program or customer. Volume allowances are accrued based on management’s estimates of customer volume achievement and other factors incorporated into customer agreements, such as new product purchases, store sell-through and merchandising support. Management periodically reviews accruals for these rebates and allowances, and adjusts accruals when circumstances indicate (typically as a result of a change in volume expectations). As of
June 30, 2018
and
December 31, 2017
, we had $
23.5 million
and $
24.2 million
accrued as customer rebates recorded in Accounts payable and accrued liabilities on our Consolidated Balance Sheets.
We ship some of our products to customers' distribution centers on a consignment basis. We retain title to our products stored at the distribution centers. As our products are removed from the distribution centers by retailers and shipped to retailers’ stores, title passes from us to the retailers. At that time, we invoice the retailers and recognize revenue for these consignment transactions. We do not offer a right of return for products shipped to the retailers’ stores from the distribution centers. The amount of consignment inventory as of
June 30, 2018
and
December 31, 2017
was
$18.1 million
and
$18.3 million
.
The following tables disaggregate our revenue by product line and product type by segment for the quarter and six months ended
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2018
|
By Product family:
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Inter-segment
|
|
Total
|
SmartSide
®
Strand siding
|
$
|
193.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
200.4
|
|
SmartSide
®
Fiber siding
|
27.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27.9
|
|
CanExel
®
siding
|
12.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12.5
|
|
OSB - commodity
|
12.4
|
|
|
231.4
|
|
|
5.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
249.0
|
|
OSB - value-add
|
12.4
|
|
|
154.9
|
|
|
3.8
|
|
|
37.2
|
|
|
—
|
|
|
—
|
|
|
208.3
|
|
LVL
|
—
|
|
|
—
|
|
|
40.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40.4
|
|
LSL
|
—
|
|
|
—
|
|
|
17.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17.4
|
|
I-joist
|
—
|
|
|
—
|
|
|
31.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31.5
|
|
Plywood
|
—
|
|
|
—
|
|
|
8.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8.0
|
|
Other
|
2.9
|
|
|
1.1
|
|
|
2.8
|
|
|
1.2
|
|
|
7.4
|
|
|
—
|
|
|
15.4
|
|
|
$
|
261.6
|
|
|
$
|
387.4
|
|
|
$
|
109.1
|
|
|
$
|
45.3
|
|
|
$
|
7.4
|
|
|
$
|
—
|
|
|
$
|
810.8
|
|
By Product type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
$
|
12.4
|
|
|
$
|
231.4
|
|
|
$
|
13.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
257.0
|
|
Value-add
|
246.3
|
|
|
154.9
|
|
|
93.1
|
|
|
44.1
|
|
|
—
|
|
|
—
|
|
|
538.4
|
|
Other
|
2.9
|
|
|
1.1
|
|
|
2.8
|
|
|
1.2
|
|
|
7.4
|
|
|
—
|
|
|
15.4
|
|
|
$
|
261.6
|
|
|
$
|
387.4
|
|
|
$
|
109.1
|
|
|
$
|
45.3
|
|
|
$
|
7.4
|
|
|
$
|
—
|
|
|
$
|
810.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
By Product family:
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Inter-segment
|
|
Total
|
SmartSide
®
Strand siding
|
$
|
358.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
372.3
|
|
SmartSide
®
Fiber siding
|
53.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53.8
|
|
CanExel
®
siding
|
26.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26.4
|
|
OSB - commodity
|
21.1
|
|
|
412.5
|
|
|
8.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
441.6
|
|
OSB - value-add
|
21.6
|
|
|
284.0
|
|
|
7.9
|
|
|
72.1
|
|
|
—
|
|
|
—
|
|
|
385.6
|
|
LVL
|
—
|
|
|
—
|
|
|
77.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
77.0
|
|
LSL
|
—
|
|
|
—
|
|
|
30.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30.7
|
|
I-joist
|
—
|
|
|
—
|
|
|
63.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
63.6
|
|
Plywood
|
—
|
|
|
—
|
|
|
15.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15.6
|
|
Other
|
7.1
|
|
|
4.2
|
|
|
7.0
|
|
|
1.9
|
|
|
15.3
|
|
|
—
|
|
|
35.5
|
|
|
$
|
488.6
|
|
|
$
|
700.7
|
|
|
$
|
209.8
|
|
|
$
|
87.7
|
|
|
$
|
15.3
|
|
|
$
|
—
|
|
|
$
|
1,502.1
|
|
By Product type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
$
|
21.1
|
|
|
$
|
412.5
|
|
|
$
|
23.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
457.2
|
|
Value-add
|
460.4
|
|
|
284.0
|
|
|
179.2
|
|
|
85.8
|
|
|
—
|
|
|
—
|
|
|
1,009.4
|
|
Other
|
7.1
|
|
|
4.2
|
|
|
7.0
|
|
|
1.9
|
|
|
15.3
|
|
|
—
|
|
|
35.5
|
|
|
$
|
488.6
|
|
|
$
|
700.7
|
|
|
$
|
209.8
|
|
|
$
|
87.7
|
|
|
$
|
15.3
|
|
|
$
|
—
|
|
|
$
|
1,502.1
|
|
The following tables disaggregate our revenue by product line and product type by segment for the quarter and six months ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2017
|
By Product family:
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Inter-segment
|
|
Total
|
SmartSide
®
Strand siding
|
$
|
164.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4.6
|
|
|
$
|
—
|
|
|
$
|
(1.8
|
)
|
|
$
|
167.1
|
|
SmartSide
®
Fiber siding
|
29.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29.3
|
|
CanExel
®
siding
|
14.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14.2
|
|
OSB - commodity
|
21.0
|
|
|
190.7
|
|
|
4.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
215.7
|
|
OSB - value-add
|
—
|
|
|
132.1
|
|
|
3.6
|
|
|
33.2
|
|
|
—
|
|
|
—
|
|
|
168.9
|
|
LVL
|
—
|
|
|
—
|
|
|
37.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37.2
|
|
LSL
|
—
|
|
|
—
|
|
|
12.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12.0
|
|
I-joist
|
—
|
|
|
—
|
|
|
30.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30.4
|
|
Plywood
|
—
|
|
|
—
|
|
|
5.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
Other
|
2.2
|
|
|
2.2
|
|
|
1.2
|
|
|
0.9
|
|
|
7.1
|
|
|
(0.1
|
)
|
|
13.5
|
|
|
$
|
231.0
|
|
|
$
|
325.0
|
|
|
$
|
94.2
|
|
|
$
|
38.7
|
|
|
$
|
7.1
|
|
|
$
|
(1.9
|
)
|
|
$
|
694.1
|
|
By Product type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
$
|
21.0
|
|
|
$
|
190.7
|
|
|
$
|
9.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
221.5
|
|
Value-add
|
207.8
|
|
|
132.1
|
|
|
83.2
|
|
|
37.8
|
|
|
—
|
|
|
(1.8
|
)
|
|
459.1
|
|
Other
|
2.2
|
|
|
2.2
|
|
|
1.2
|
|
|
0.9
|
|
|
7.1
|
|
|
(0.1
|
)
|
|
13.5
|
|
|
$
|
231.0
|
|
|
$
|
325.0
|
|
|
$
|
94.2
|
|
|
$
|
38.7
|
|
|
$
|
7.1
|
|
|
$
|
(1.9
|
)
|
|
$
|
694.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
By Product family:
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Inter-segment
|
|
Total
|
SmartSide
®
Strand siding
|
$
|
320.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10.8
|
|
|
$
|
—
|
|
|
$
|
(1.8
|
)
|
|
$
|
329.4
|
|
SmartSide
®
Fiber siding
|
58.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
58.0
|
|
CanExel
®
siding
|
28.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28.5
|
|
OSB - commodity
|
33.4
|
|
|
342.0
|
|
|
5.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
380.5
|
|
OSB - value-add
|
—
|
|
|
245.2
|
|
|
6.5
|
|
|
63.8
|
|
|
—
|
|
|
—
|
|
|
315.5
|
|
LVL
|
—
|
|
|
—
|
|
|
70.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
70.2
|
|
LSL
|
—
|
|
|
—
|
|
|
22.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22.6
|
|
I-joist
|
—
|
|
|
—
|
|
|
56.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56.1
|
|
Plywood
|
—
|
|
|
—
|
|
|
10.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.6
|
|
Other
|
4.7
|
|
|
6.2
|
|
|
5.2
|
|
|
1.9
|
|
|
15.8
|
|
|
(0.2
|
)
|
|
33.6
|
|
|
$
|
445.0
|
|
|
$
|
593.4
|
|
|
$
|
176.3
|
|
|
$
|
76.5
|
|
|
$
|
15.8
|
|
|
$
|
(2.0
|
)
|
|
$
|
1,305.0
|
|
By Product type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
$
|
33.4
|
|
|
$
|
342.0
|
|
|
$
|
15.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
391.1
|
|
Value-add
|
406.9
|
|
|
245.2
|
|
|
155.4
|
|
|
74.6
|
|
|
—
|
|
|
(1.8
|
)
|
|
880.3
|
|
Other
|
4.7
|
|
|
6.2
|
|
|
5.2
|
|
|
1.9
|
|
|
15.8
|
|
|
(0.2
|
)
|
|
33.6
|
|
|
$
|
445.0
|
|
|
$
|
593.4
|
|
|
$
|
176.3
|
|
|
$
|
76.5
|
|
|
$
|
15.8
|
|
|
$
|
(2.0
|
)
|
|
$
|
1,305.0
|
|
NOTE 4 - STOCK-BASED COMPENSATION
We have a Management Incentive Plan (MIP) that is administered by the Compensation Committee of the Board of Directors. The Compensation Committee authorizes the grants of restricted stock (shares or units), performance share awards payable in stock based upon the attainment of specified performance goals and stock settled stock appreciation rights (SSARs). As of
June 30, 2018
,
2.6 million
shares were available for grant under the 2013 Omnibus Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
Dollar amounts in millions
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Total stock-based compensation expense (cost of sales, selling, general and administrative and other operating credits and charges, net)
|
$
|
2.6
|
|
|
$
|
1.9
|
|
|
$
|
4.8
|
|
|
$
|
6.0
|
|
Income tax provision related to stock-based compensation
|
$
|
(0.6
|
)
|
|
$
|
0.3
|
|
|
$
|
(2.8
|
)
|
|
$
|
0.3
|
|
Impact on cash flow due to taxes paid related to net share settlement of equity awards
|
$
|
2.1
|
|
|
$
|
0.1
|
|
|
$
|
7.8
|
|
|
$
|
4.8
|
|
At
June 30, 2018
,
$17.2 million
of compensation cost related to unvested performance shares, restricted stock and SSARs attributable to future service had not yet been recognized.
During the first
six
months of 2018, we granted
159,054
performance units at an average grant date fair value of
$29.31
per share and
308,190
restricted stock units at an average grant date fair value of
$26.93
per share.
NOTE 5 – FAIR VALUE MEASUREMENTS
We estimated our Senior Notes due in 2024 to have a fair value of
$345.6 million
at
June 30, 2018
and
$363.9 million
at
December 31, 2017
based upon market quotations.
Carrying amounts reported on the balance sheet for cash and cash equivalents, accounts receivables, accounts payable and current portion of long-term debt approximate fair value due to the short-term maturity of these items.
NOTE 6 – EARNINGS PER SHARE
Basic earnings per share are based upon the weighted-average number of shares of common stock outstanding. Diluted earnings per share are based upon the weighted-average number of shares of common stock outstanding, plus all potentially dilutive securities that were assumed to be converted into common shares at the beginning of the period under the treasury stock method. Our potentially dilutive securities consist of restricted stock, restricted stock units, performance share awards and SSARs.
|
|
|
|
|
|
|
|
|
|
|
|
|
Share amounts in millions
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Denominator for basic earnings per share:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
144.6
|
|
|
144.5
|
|
|
144.7
|
|
|
144.3
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Dilutive effect of employee stock plans
|
1.6
|
|
|
1.7
|
|
|
1.7
|
|
|
1.7
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted
|
146.2
|
|
|
146.2
|
|
|
146.4
|
|
|
146.0
|
|
For the quarter and
six
months ended
June 30, 2018
, there were
no
SSARs that were considered not in-the-money for purposes of our earnings per share calculation.
For the quarter and
six
months ended
June 30, 2017
, SSARs relating to approximately
0.2 million
shares of our common stock were considered not in-the-money for purposes of our earnings per share calculation.
NOTE 7 – RECEIVABLES
Receivables consist of the following:
|
|
|
|
|
|
|
|
|
Dollar amounts in millions
|
June 30, 2018
|
|
December 31, 2017
|
Trade receivables
|
$
|
148.3
|
|
|
$
|
124.6
|
|
Income tax receivable
|
1.6
|
|
|
2.2
|
|
Other receivables
|
13.3
|
|
|
16.6
|
|
Allowance for doubtful accounts
|
(0.9
|
)
|
|
(0.9
|
)
|
Total
|
$
|
162.3
|
|
|
$
|
142.5
|
|
Other receivables at
June 30, 2018
and
December 31, 2017
primarily consist of sales tax receivables, a receivable associated with an affiliate, receivables for tax credits and other miscellaneous receivables.
NOTE 8 – INVENTORIES
Inventories are valued at the lower of cost or net realizable value. Inventory cost includes materials, labor and operating overhead. The major types of inventories are as follows (work in process is not material):
|
|
|
|
|
|
|
|
|
Dollar amounts in millions
|
June 30, 2018
|
|
December 31, 2017
|
Logs
|
$
|
57.1
|
|
|
$
|
60.3
|
|
Other raw materials
|
25.2
|
|
|
20.8
|
|
Semi-finished inventory
|
23.4
|
|
|
24.3
|
|
Finished products
|
180.7
|
|
|
153.7
|
|
Total
|
$
|
286.4
|
|
|
$
|
259.1
|
|
NOTE 9 - INVESTMENTS IN AND ADVANCES TO AFFILIATES
During the second quarter of 2018, we invested
$45.0 million
in Entekra Holdings, LLC (Entekra), a start-up design, engineering and manufacturing company that provides off-site framing for both residential and commercial construction. This investment is recorded as an equity investment based upon the joint control of Entekra’s operations. We own 81.8% of the A units and 55% of the B units of this operation. Our portion of the earnings and losses of Entekra is included in our Consolidated Statement of Income as income (loss) from unconsolidated affiliate.
At
June 30, 2018
, we have an investment in a joint venture with Resolute Forest Products to operate jointly owned I-Joist facilities in Quebec. We are the exclusive distributor of the I-joists produced and sold by the joint venture and these operations are considered an integral part of our operations. Our portion of the earnings and losses of these operations are classified as a reduction in cost of sales.
NOTE 10 – INCOME TAXES
Accounting standards state that companies account for income taxes using the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. This method also requires the recognition of future tax benefits, such as net operating loss carryforwards and other tax credits. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Valuation allowances are recorded as necessary to reduce deferred tax assets to the amount thereof that is more likely than not to be realized. The likelihood of realizing deferred tax assets is evaluated by, among other things, estimating future taxable income, considering the future reversal of existing deferred tax liabilities to which the deferred tax assets may be applied and assessing the impact of tax planning strategies.
For interim periods, accounting standards require that income tax expense be determined by applying the estimated annual effective income tax rate to year-to-date results unless this method does not result in a reliable estimate of year-to-date income tax expense. Each period, the income tax accrual is adjusted to the latest estimate and the difference from the previously accrued year-to-date balance is adjusted to the current quarter. Changes in the profitability estimates in various jurisdictions will impact our quarterly effective income tax rates.
For the first
six
months of
2018
, the primary differences between the U.S. statutory rate of
21%
and the
24%
effective rate applicable to our income from continuing operations relate to state income tax, discretionary pension payments, foreign tax rates and tax deductions related to stock-based compensation. For the first
six
months of
2017
, the primary differences between the U.S. statutory rate of
35%
and the
26%
effective rate applicable to our continuing operations relate to foreign tax rates, changes in Canadian valuation allowances, and the deduction for U.S. Domestic production activities.
During the second quarter of 2017, we deposited $
32.0 million
with U.S. I.R.S. to suspend the running of interest on potential underpayments of disputable income tax amounts for the year 2016.
We periodically review the need for valuation allowances against deferred tax assets and recognize these deferred tax assets to the extent that the realization is more likely than not. As part of our review, we consider all positive and negative evidence, including earnings history, the future reversal of deferred tax liabilities, and the relevant expirations of carryforwards. We believe the valuation allowances provided are appropriate. If in future periods our earnings estimates differ from the estimates used to establish these valuation allowances, or other objective positive or negative evidence arises, we may be required to record an adjustment resulting in an impact on tax expense (benefit) for that period.
At the end of 2017, we recorded a provisional benefit of $
18.4 million
resulting from the reduction in the carrying value of our US deferred tax liabilities to reflect the change in the US corporate income tax rate from
35%
to
21%
under the Tax Act. During the second quarter of 2018, we revised our estimate of the amount of deferred taxes related to discretionary pension contributions, and have recorded an additional benefit of $
3.1 million
related to that change as a discrete item in the quarter.
We continue to evaluate the other provisions of the Tax Act, specifically the Global Intangible Low-taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII) provisions. Due to the complexity and uncertainty involved and our continued evaluation, to date we have not recorded any provisional amounts for these items.
NOTE 11 - OTHER OPERATING CREDITS AND CHARGES
During the second quarter of 2018, we recorded a gain of $
8.3 million
related to the settlement of previously-paid environmental costs or the liability for future environmental costs to be paid by a third party associated with a non-operating site. Additionally, we recorded
$3.8 million
in severance and other charges related to certain reorganizations within the corporate offices, including the costs associated with the retirement of our previous chief financial officer.
During the first quarter of 2018, we recorded a gain of
$0.4 million
related to a previously-settled claim associated with our hardboard siding.
During the second quarter of
2017
, we recorded an expense of $
2.0 million
related to an increase in product-related warranty reserves associated with CanExel products sold in specific geographic locations and for a specific time period.
During the first quarter of 2017, we recorded an expense of $
3.4 million
related to an increase in product-related warranty reserves associated with CanExel products sold in specific geographic locations and for a specific time period.
NOTE 12 – LEGAL AND ENVIRONMENTAL MATTERS
Certain environmental matters and legal proceedings are discussed below.
Environmental Matters
We maintain a reserve for undiscounted estimated environmental loss contingencies. This reserve is primarily for estimated future costs of remediation of hazardous or toxic substances at numerous sites currently or previously owned by the Company. Our estimates of our environmental loss contingencies are based on various assumptions and judgments, the specific nature of which varies in light of the particular facts and circumstances surrounding each environmental loss contingency. These estimates typically reflect assumptions and judgments as to the probable nature, magnitude and timing of required investigation, remediation and/or monitoring activities and the probable cost of these activities, and in some cases reflect assumptions and judgments as to the obligation or willingness and ability of third parties to bear a proportionate or allocated share of the cost of these activities. Due to the numerous uncertainties and variables associated with these assumptions and judgments, and the effects of changes in governmental regulation and environmental technologies, both the precision and reliability of the resulting estimates of the related contingencies are subject to substantial uncertainties. We regularly monitor our estimated exposure to environmental loss contingencies and, as additional information becomes known, may change our estimates significantly. However, no estimate of the range of any such change can be made at this time.
The activity in our reserve for estimated environmental loss contingency reserves for the quarter and
six
months ended
June 30, 2018
and
2017
is summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
Dollar amounts in millions
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Beginning balance
|
$
|
12.8
|
|
|
$
|
15.8
|
|
|
$
|
15.0
|
|
|
$
|
15.9
|
|
Adjusted to expense
|
—
|
|
|
0.1
|
|
|
(0.8
|
)
|
|
0.1
|
|
Payments made
|
(0.3
|
)
|
|
(0.2
|
)
|
|
(1.7
|
)
|
|
(0.3
|
)
|
Ending balance
|
$
|
12.5
|
|
|
$
|
15.7
|
|
|
$
|
12.5
|
|
|
$
|
15.7
|
|
Recorded in Other assets is
$2.6 million
related to a receivable for reimbursements of environmental costs associated with a non-operating site.
Other Proceedings
We and our subsidiaries are parties to other legal proceedings. Based on the information currently available, management believes the resolution of such proceedings will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity.
NOTE 13 – SELECTED SEGMENT DATA
We operate in four segments: Siding, OSB, EWP and South America. Our business units have been aggregated into these four segments based upon the similarity of economic characteristics, customers and distribution methods. Our results of operations are summarized below for each of these segments separately as well as for the “other” category which comprises other products that are not individually significant. Segment information was prepared in accordance with the same accounting principles as those described in Note 1 of the Notes to the financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
Dollar amounts in millions
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net sales
|
|
|
|
|
|
|
|
Siding
|
$
|
261.6
|
|
|
$
|
231.0
|
|
|
$
|
488.6
|
|
|
$
|
445.0
|
|
OSB
|
387.4
|
|
|
325.0
|
|
|
700.7
|
|
|
593.4
|
|
EWP
|
109.1
|
|
|
94.2
|
|
|
209.8
|
|
|
176.3
|
|
South America
|
45.3
|
|
|
38.7
|
|
|
87.7
|
|
|
76.5
|
|
Other
|
7.4
|
|
|
7.1
|
|
|
15.3
|
|
|
15.8
|
|
Intersegment sales
|
—
|
|
|
(1.9
|
)
|
|
—
|
|
|
(2.0
|
)
|
|
$
|
810.8
|
|
|
$
|
694.1
|
|
|
$
|
1,502.1
|
|
|
$
|
1,305.0
|
|
Operating profit (loss):
|
|
|
|
|
|
|
|
Siding
|
$
|
62.7
|
|
|
$
|
49.0
|
|
|
$
|
108.0
|
|
|
$
|
89.7
|
|
OSB
|
157.4
|
|
|
103.0
|
|
|
254.8
|
|
|
163.8
|
|
EWP
|
8.6
|
|
|
5.3
|
|
|
11.4
|
|
|
6.1
|
|
South America
|
9.6
|
|
|
5.5
|
|
|
18.5
|
|
|
10.6
|
|
Other
|
(0.8
|
)
|
|
(0.9
|
)
|
|
(1.7
|
)
|
|
(1.1
|
)
|
Other operating credits and charges, net
|
4.5
|
|
|
(2.0
|
)
|
|
4.9
|
|
|
(5.4
|
)
|
Gain on sale or impairment of long-lived assets, net
|
—
|
|
|
3.1
|
|
|
0.6
|
|
|
2.5
|
|
General corporate and other expenses, net
|
(27.6
|
)
|
|
(26.8
|
)
|
|
(54.9
|
)
|
|
(54.6
|
)
|
Interest expense, net of capitalized interest
|
(4.4
|
)
|
|
(4.9
|
)
|
|
(8.8
|
)
|
|
(9.9
|
)
|
Investment income
|
4.8
|
|
|
2.3
|
|
|
8.0
|
|
|
4.3
|
|
Other non-operating items
|
(0.7
|
)
|
|
(3.1
|
)
|
|
(2.1
|
)
|
|
(5.0
|
)
|
Income from continuing operations before taxes
|
214.1
|
|
|
130.5
|
|
|
338.7
|
|
|
201.0
|
|
Provision for income taxes
|
51.2
|
|
|
36.0
|
|
|
80.9
|
|
|
51.5
|
|
Income from continuing operations
|
$
|
162.9
|
|
|
$
|
94.5
|
|
|
$
|
257.8
|
|
|
$
|
149.5
|
|
NOTE 14 – POTENTIAL IMPAIRMENTS
We continue to review certain operations and investments for potential impairments. We currently believe we have adequate support for the carrying value of each of these operations and investments based upon the anticipated cash flows that result from estimates of future demand, pricing and production costs assuming certain levels of planned capital expenditures.
We also review from time to time possible dispositions of various assets in light of current and anticipated economic and industry conditions, its strategic plan and other relevant circumstances. Because a determination to dispose of particular assets can require management to make assumptions regarding the transaction structure of the disposition and to estimate the net sales proceeds, which may be less than previous estimates of undiscounted future net cash flows, we may be required to record impairment charges in connection with decisions to dispose of assets.
NOTE 15 – PRODUCT WARRANTY
We provide warranties on the sale of most of our products and records an accrual for estimated future claims. Such accruals are based upon historical experience and management’s estimate of the level of future claims. The activity in warranty reserves for the quarter and
six
months ended
June 30, 2018
and
2017
are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
Dollar amounts in millions
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Beginning balance
|
$
|
24.2
|
|
|
$
|
24.5
|
|
|
$
|
24.7
|
|
|
$
|
24.1
|
|
Accrued to expense
|
0.4
|
|
|
0.2
|
|
|
0.6
|
|
|
0.4
|
|
Accrued to other operating credits and charges
|
—
|
|
|
2.0
|
|
|
—
|
|
|
5.4
|
|
Foreign currency translation
|
(0.8
|
)
|
|
1.2
|
|
|
(0.4
|
)
|
|
1.4
|
|
Payments made
|
(1.0
|
)
|
|
(2.6
|
)
|
|
(2.1
|
)
|
|
(6.0
|
)
|
Total warranty reserves
|
22.8
|
|
|
25.3
|
|
|
22.8
|
|
|
25.3
|
|
Current portion of warranty reserves
|
(4.0
|
)
|
|
(9.0
|
)
|
|
(4.0
|
)
|
|
(9.0
|
)
|
Long-term portion of warranty reserves
|
$
|
18.8
|
|
|
$
|
16.3
|
|
|
$
|
18.8
|
|
|
$
|
16.3
|
|
We continue to monitor warranty and other claims associated with these products and believe as of
June 30, 2018
that the reserves associated with these matters are adequate. However, it is possible that additional changes may be required in the future.
The current portion of the warranty reserve is included in the caption “Accounts payable and accrued liabilities” and the long-term portion is included in the caption “Other long-term liabilities” on our Consolidated Balance Sheets.
NOTE 16 - OTHER COMPREHENSIVE INCOME
Other comprehensive income activity, net of tax, is provided in the following table for the quarter and
six
months ended
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Adjustments
|
|
|
|
|
|
|
Dollar amounts in millions
|
|
Foreign currency translation adjustments
|
|
Actuarial losses
|
|
Prior service costs
|
|
Unrealized gain (loss) on investments
|
|
Other
|
|
Total
|
Balance at March 31, 2018
|
|
$
|
(37.4
|
)
|
|
$
|
(95.6
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
4.4
|
|
|
$
|
(1.5
|
)
|
|
$
|
(134.9
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(13.8
|
)
|
|
0.1
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(13.8
|
)
|
Income taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net other comprehensive income (loss) before reclassifications
|
|
(13.8
|
)
|
|
0.1
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(13.8
|
)
|
Amounts reclassified from accumulated comprehensive income (loss)
|
|
—
|
|
|
1.6
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
1.8
|
|
Income taxes
|
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.4
|
)
|
Net amounts reclassified from cumulative other comprehensive income (loss)
|
|
—
|
|
|
1.2
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
1.4
|
|
Total other comprehensive income (loss)
|
|
(13.8
|
)
|
|
1.3
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
0.1
|
|
|
(12.4
|
)
|
Balance at June 30, 2018
|
|
$
|
(51.2
|
)
|
|
$
|
(94.3
|
)
|
|
$
|
(4.7
|
)
|
|
$
|
4.3
|
|
|
$
|
(1.4
|
)
|
|
$
|
(147.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Adjustments
|
|
|
|
|
|
|
Dollar amounts in millions
|
|
Foreign currency translation adjustments
|
|
Actuarial losses
|
|
Prior service costs
|
|
Unrealized gain (loss) on investments
|
|
Other
|
|
Total
|
Balance at December 31, 2017
|
|
$
|
(39.7
|
)
|
|
$
|
(79.5
|
)
|
|
$
|
(4.9
|
)
|
|
$
|
3.5
|
|
|
$
|
(1.5
|
)
|
|
$
|
(122.1
|
)
|
Effect of adoption of ASU 2018-02
|
|
—
|
|
|
(17.4
|
)
|
|
—
|
|
|
0.7
|
|
|
—
|
|
|
(16.7
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(11.5
|
)
|
—
|
|
0.3
|
|
—
|
|
—
|
|
—
|
|
0.1
|
|
—
|
|
—
|
|
|
(11.1
|
)
|
Income taxes
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Net other comprehensive income (loss) before reclassifications
|
|
(11.5
|
)
|
|
0.3
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
(11.1
|
)
|
Amounts reclassified from accumulated comprehensive income (loss)
|
|
—
|
|
|
3.1
|
|
|
0.2
|
|
|
—
|
|
|
0.1
|
|
|
3.4
|
|
Income taxes
|
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
Net amounts reclassified from cumulative other comprehensive income (loss)
|
|
—
|
|
|
2.3
|
|
|
0.2
|
|
|
—
|
|
|
0.1
|
|
|
2.6
|
|
Total other comprehensive income (loss)
|
|
(11.5
|
)
|
|
2.6
|
|
|
0.2
|
|
|
0.1
|
|
|
0.1
|
|
|
(8.5
|
)
|
Balance at June 30, 2018
|
|
$
|
(51.2
|
)
|
|
$
|
(94.3
|
)
|
|
$
|
(4.7
|
)
|
|
$
|
4.3
|
|
|
$
|
(1.4
|
)
|
|
$
|
(147.3
|
)
|
Other comprehensive income activity, net of tax, is provided in the following table for the quarter and
six
months ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Adjustments
|
|
|
|
|
|
|
Dollar amounts in millions
|
|
Foreign currency translation adjustments
|
|
Actuarial losses
|
|
Prior service costs
|
|
Unrealized gain (loss) on investments
|
|
Other
|
|
Total
|
Balance at March 31, 2017
|
|
$
|
(43.5
|
)
|
|
$
|
(87.0
|
)
|
|
$
|
(5.0
|
)
|
|
$
|
3.0
|
|
|
$
|
(0.7
|
)
|
|
$
|
(133.2
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(8.5
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
(8.5
|
)
|
Income taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Net other comprehensive income (loss) before reclassifications
|
|
(8.5
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
(8.6
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
1.4
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
Income taxes
|
|
—
|
|
|
(0.6
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
(0.7
|
)
|
Net amounts reclassified from cumulative other comprehensive income (loss)
|
|
—
|
|
|
0.8
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
Total other comprehensive income (loss)
|
|
(8.5
|
)
|
|
0.6
|
|
|
0.2
|
|
|
0.1
|
|
|
—
|
|
|
(7.6
|
)
|
Balance at June 30, 2017
|
|
$
|
(52.0
|
)
|
|
$
|
(86.4
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
3.1
|
|
|
$
|
(0.7
|
)
|
|
$
|
(140.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Adjustments
|
|
|
|
|
|
|
Dollar amounts in millions
|
|
Foreign currency translation adjustments
|
|
Actuarial losses
|
|
Prior service costs
|
|
Unrealized gain (loss) on investments
|
|
Other
|
|
Total
|
Balance at December 31, 2016
|
|
$
|
(46.3
|
)
|
|
$
|
(87.7
|
)
|
|
$
|
(5.2
|
)
|
|
$
|
2.7
|
|
|
$
|
(0.7
|
)
|
|
$
|
(137.2
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(5.7
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
0.7
|
|
|
—
|
|
|
(5.4
|
)
|
Income taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
Net other comprehensive income (loss) before reclassifications
|
|
(5.7
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
(5.7
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
2.8
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
3.4
|
|
Income taxes
|
|
—
|
|
|
(1.1
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
(1.3
|
)
|
Net amounts reclassified from cumulative other comprehensive income (loss)
|
|
—
|
|
|
1.7
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
Total other comprehensive income (loss)
|
|
(5.7
|
)
|
|
1.3
|
|
|
0.4
|
|
|
0.4
|
|
|
—
|
|
|
(3.6
|
)
|
Balance at June 30, 2017
|
|
$
|
(52.0
|
)
|
|
$
|
(86.4
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
3.1
|
|
|
$
|
(0.7
|
)
|
|
$
|
(140.8
|
)
|
The amounts reclassified from accumulated other comprehensive income (loss) are included in the computation of net periodic pension cost; see Note 17 for additional details. The net periodic pension cost is included in the captions "Cost of sales", "Selling, general and administrative expenses" and "Other non-operating items" in the Consolidated Statements of Income.
During the first
six
months of
2018
, the strengthening of the U.S. dollar as compared to the functional currencies of our South American operations resulted in LP recording a loss on foreign currency adjustment in other comprehensive income of $
11.5 million
. During the first
six
months of
2018
, the Brazilian real weakened
17%
and the Chilean peso weakened
6%
as compared to the U.S. dollar.
NOTE 17 – DEFINED BENEFIT PENSION PLANS
The following table sets forth the net periodic pension cost for our defined benefit pension and postretirement plans during the quarter and
six
months ended
June 30, 2018
and
2017
. In accordance with ASU 2017-07, "Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" (an amendment to ASC 715), all non-service related costs associated with our pension and post retirement plans are recorded outside of operating income. The net periodic pension cost included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
Dollar amounts in millions
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Service cost
|
$
|
1.1
|
|
|
$
|
1.4
|
|
|
$
|
2.2
|
|
|
$
|
2.7
|
|
Other components of net periodic pension cost:
|
|
|
|
|
|
|
|
Interest cost
|
2.9
|
|
|
3.3
|
|
|
5.8
|
|
|
6.5
|
|
Expected return on plan assets
|
(3.3
|
)
|
|
(3.3
|
)
|
|
(6.7
|
)
|
|
(6.5
|
)
|
Amortization of prior service cost
1
|
0.1
|
|
|
0.2
|
|
|
0.2
|
|
|
0.4
|
|
Amortization of net loss
1
|
1.5
|
|
|
1.4
|
|
|
3.1
|
|
|
2.8
|
|
Net periodic pension cost
|
$
|
2.3
|
|
|
$
|
3.0
|
|
|
$
|
4.6
|
|
|
$
|
5.9
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost included in cost of sales
|
$
|
0.6
|
|
|
$
|
0.9
|
|
|
$
|
1.3
|
|
|
$
|
1.7
|
|
Net periodic pension cost included in selling, general, and administrative expenses
|
0.5
|
|
|
0.5
|
|
|
0.9
|
|
|
1.0
|
|
Net periodic pension cost included in other non-operating items
|
1.2
|
|
|
1.6
|
|
|
2.4
|
|
|
3.2
|
|
|
$
|
2.3
|
|
|
$
|
3.0
|
|
|
$
|
4.6
|
|
|
$
|
5.9
|
|
1
The amortization of prior service costs and net loss are included in the amounts reclassified from accumulated other comprehensive income (loss). See Note 16 for additional details.
During the
six
months ended
June 30, 2018
, we made
$5.0 million
in pension contributions to our defined benefit pension plans. We expect to contribute about
$40.0 million
to our defined benefit pension plans in the remaining months of 2018.
NOTE 18 - DISCONTINUED OPERATIONS
LP has adopted and implemented plans to sell selected businesses and assets in order to improve its operating results. For all periods presented, these operations include residual losses of mills divested in past years and associated warranty and other liabilities associated with these operations.
Included in the operating losses of discontinued operations is an increase in reserves associated with our discontinued composite decking products of $
5.0 million
for the six months ended
June 30, 2018
.
NOTE 19 - SUBSEQUENT EVENT
On
July 2, 2018
, we repaid $
22.0 million
of the limited recourse senior notes at maturity. These notes were secured by $
22.2 million
in notes receivable from assets sales which matured and were received on June 30, 2018.
|
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
GENERAL
LP is a leading building products solutions company that manufactures sustainable, quality engineered wood building materials including siding, oriented strand board and engineered wood products. Our products are used primarily in new home construction, repair and remodeling, and outdoor structures. We also market and sell our products in light industrial and commercial construction and we have a modest export business. Our manufacturing facilities are primarily located in the U.S. and Canada, but we also operate two facilities in Chile and one facility in Brazil.
To serve these markets, we operate in four segments: Siding; North America Oriented Strand Board (OSB); Engineered Wood Products (EWP); and South America.
Demand for our products correlates to a significant degree to the level of new home construction activity in North America, which historically has been characterized by significant cyclicality. The U.S. Department of Census reported that U.S. single and multi-family housing starts were
8%
higher than for the
second
quarter and
8%
higher for the first
six
months of
2018
as compared to the same periods of
2017
.
OSB is sold as a commodity for which sales prices fluctuate daily based on market factors over which we have little or no control. We cannot predict whether the prices of our OSB products will remain at current levels or increase or decrease in the future. OSB prices (NC 7/16"), as reported by Random Lengths, were
30%
higher for the
second
quarter and
28%
higher for the first
six
months of
2018
compared to the same periods in
2017
.
For additional factors affecting our results, refer to the Management Discussion and Analysis of Financial Condition and Results of Operations overview contained in our Annual Report on Form 10-K for the year ended
December 31, 2017
and to “About Forward-Looking Statements” and “Risk Factors” in this report.
EXECUTIVE SUMMARY
We recorded a
17%
increase in sales to
$810.8 million
for the quarter ended
June 30, 2018
from
$694.1 million
reported for the quarter ended
June 30, 2017
. We recorded income from continuing operations of
$162.9 million
for the quarter ended
June 30, 2018
compared to
$94.5 million
for the quarter ended
June 30, 2017
. We recorded net income of
$162.7 million
(
$1.11
per diluted share) for the quarter ended
June 30, 2018
compared to
$94.5 million
(
$0.65
per diluted share) for the quarter ended
June 30, 2017
. We reported an increase of
$75.4 million
in Adjusted EBITDA from continuing operations for the
second
quarter of
2018
as compared to the
second
quarter of
2017
. Improvements in OSB pricing in all North American operations had a positive impact on our operating results of
$84.8 million
for the quarter ended
June 30, 2018
as compared to the quarter ended
June 30, 2017
.
We recorded a
15%
increase in sales to
$1.5 billion
for the
six
months ended
June 30, 2018
from
$1.3 billion
reported for the
six
months ended
June 30, 2017
. We recorded income from continuing operations of
$257.8 million
for the
six
months ended
June 30, 2018
compared to
$149.5 million
for the
six
months ended
June 30, 2017
. We recorded net income of
$253.6 million
($
1.73
per diluted share) for the
six
months ended
June 30, 2018
compared to
$149.5 million
(
$1.02
per diluted share) for the
six
months ended
June 30, 2017
. We reported an increase of
$120.7 million
in Adjusted EBITDA from continuing operations for the
six
months ended of
2018
as compared to the first
six
months of
2017
. Improvements in OSB pricing in all North American operations had a positive impact on our operating results of
$134.2 million
for the
six
months ended
June 30, 2018
as compared to the
six
months ended
June 30, 2017
.
These changes are discussed further in "Our Operating Results" below.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
Presented in Note 1 of the Notes to the financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2017
is a discussion of our significant accounting policies and significant accounting estimates and judgments. Throughout the preparation of the financial statements, we employ significant judgments in the application of accounting principles and methods. These judgments are primarily related to the assumptions used to arrive at various estimates. For
2018
, these significant accounting estimates and judgments include:
Long-lived Assets
Long-lived assets (including amortizable identifiable intangible assets) or asset group held for use is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. When such events occur, we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of a long-lived asset or asset group. The cash flows are based on our best estimate of future cash flows derived from the most recent business projections. If this comparison indicates that there is an impairment, the amount of the impairment is calculated based on fair value. Fair value is estimated primarily using discounted expected future cash flows on a market-participant basis.
Defined Benefit Plans
We have a number of pension plans in the U.S. and Canada, covering many of the Company’s employees. Benefit accruals under our defined benefit pension plan in the U.S. were frozen as of January 1, 2010.
We account for the consequences of our sponsorship of these plans based upon assumptions that are used to calculate the related assets, liabilities and expenses recorded in our financial statements. Net actuarial gains and losses occur when actual experience differs from any of the assumptions used to value defined benefit plans or when assumptions change as they may each year. The primary factors contributing to actuarial gains and losses are changes in the discount rate used to value obligations as of the measurement date and the differences between expected and actual returns on pension plan assets. This accounting method results in the potential for volatile and difficult to forecast gains and losses.
We record amounts relating to these defined benefit plans based on various actuarial assumptions, including discount rates, assumed rates of return, compensation increases and life expectancy. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current economic conditions and trends. We believe that the assumptions utilized in recording our obligations under our plans are reasonable based on our experience and on advice from our independent actuaries; however, differences in actual experience or changes in the assumptions may materially affect our financial condition or results of operations.
Income Taxes
We establish deferred tax liabilities or assets for temporary differences between financial and tax reporting bases and subsequently adjust them to reflect changes in tax rates expected to be in effect when the temporary differences reverse. We record a valuation allowance reducing deferred tax assets when it is more likely than not that such assets will not be realized.
We record liabilities for uncertain income tax positions based on a two-step process. The first step is recognition, where we evaluate whether an individual tax position has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have a less than 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, we perform the second step of measuring the benefit (expense) to be recorded. The actual benefits (expense) ultimately realized may differ from our estimates. In future periods, changes in facts, circumstances, and new information may require us to
change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in the consolidated statement of income and consolidated balance sheet in the period in which such changes occur. As of
June 30, 2018
and
December 31, 2017
, we had liabilities for unrecognized tax benefits (including interest) pertaining to uncertain tax positions totaling $
41.7 million
and $
42.3 million
.
Customer Program Costs
Customer programs and incentives are a common practice in our businesses. Our businesses incur customer program costs to obtain favorable product placement, to promote sales of products and to maintain competitive pricing. Customer program costs and incentives, including rebates and promotion and volume allowances, are accounted for in either sales or the category selling and administrative expenses at the time the program is initiated and/or the revenue is recognized. The costs are predominantly recognized in sales and include, but are not limited to, volume allowances and rebates, promotional allowances, and cooperative advertising programs. These costs are recorded at the later of the time of sale or the implementation of the program based on management’s best estimates. Estimates are based on historical and projected experience for each type of program or customer. Volume allowances are accrued based on management’s estimates of customer volume achievement and other factors incorporated into customer agreements, such as new products, store sell-through, merchandising support and customer training. Management periodically reviews accruals for these rebates and allowances, and adjusts accruals when circumstances indicate (typically as a result of a change in volume expectations). As of
June 30, 2018
and December 31, 2017, we had $
23.5 million
and $
24.2 million
accrued as customer rebates.
NON-GAAP FINANCIAL MEASURES
In evaluating our business, we utilize several non-GAAP financial measures. A non-GAAP financial measure is generally defined by the SEC as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so excluded or included under applicable GAAP guidance. In this report, we disclose segment earnings (loss) from continuing operations before interest expense, taxes, depreciation and amortization (EBITDA from continuing operations) which is a non-GAAP financial measure. Additionally, we disclose Adjusted segment EBITDA from continuing operations (Adjusted EBITDA from continuing operations) which further adjusts EBITDA from continuing operations to exclude stock-based compensation expense, (gain) loss on sales or impairment of long-lived assets, other operating credits and charges, net, investment income and other non-operating items. We also disclose adjusted income from continuing operations which excludes (gain) loss on sale or impairment of long-lived assets, other operating credits and charges, net and adjusts for a normalized tax rate. Neither EBITDA from continuing operations, Adjusted EBITDA from continuing operations nor adjusted income from continuing operations are a substitute for the GAAP measure of net income or for any other GAAP measures of operating performance.
We have included EBITDA from continuing operations and Adjusted EBITDA from continuing operations in this report because we use them as important supplemental measures of our performance and believe they are frequently used by securities analysts, investors and other interested persons in the evaluation of companies in our industry, some of which present EBITDA when reporting their results. We use EBITDA from continuing operations and Adjusted EBITDA from continuing operations to evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates. It should be noted companies calculate EBITDA and Adjusted EBITDA differently and, therefore, our EBITDA and Adjusted EBITDA measures may not be comparable to EBITDA and Adjusted EBITDA reported by other companies. Our EBITDA and Adjusted EBITDA measures have material limitations as performance measures because they exclude interest expense, income tax expense and depreciation and amortization which are necessary to operate our business or which we otherwise incur or experience in connection with the operation of our business.
We believe adjusted income from continuing operations, which excludes (gain) loss on sale or impairment of long-lived assets and other operating credits and charges, net, adjusted for a normalized tax rate is a useful measure for evaluating our ability to generate earnings and that providing this measure will allow investors to more readily compare the earnings for past and future periods. It should be noted that other companies may present similarly-titled measures differently and, therefore, as presented by us may not be comparable to similarly-titled measures
reported by other companies. In addition, adjusted income from continuing operations has material limitations as a performance measure because it excludes items that are actually incurred or experienced in connection with the operations of our business.
The following table represents significant items by operating segment and reconciles earnings results to EBITDA from continuing operations and Adjusted EBITDA from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2018 (Dollar amounts in millions)
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Corporate
|
|
Total
|
Income from continuing operations
|
$
|
62.7
|
|
|
$
|
157.4
|
|
|
$
|
8.6
|
|
|
$
|
9.6
|
|
|
$
|
(0.8
|
)
|
|
$
|
(74.6
|
)
|
|
$
|
162.9
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51.2
|
|
|
51.2
|
|
Interest expense, net of capitalized interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.4
|
|
|
4.4
|
|
Depreciation and amortization
|
8.4
|
|
|
13.6
|
|
|
4.3
|
|
|
2.3
|
|
|
0.7
|
|
|
0.8
|
|
|
30.1
|
|
EBITDA from continuing operations
|
71.1
|
|
|
171.0
|
|
|
12.9
|
|
|
11.9
|
|
|
(0.1
|
)
|
|
(18.2
|
)
|
|
248.6
|
|
Stock-based compensation expense
|
0.3
|
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
1.5
|
|
|
2.0
|
|
Investment income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.8
|
)
|
|
(4.8
|
)
|
Other operating credits and charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.5
|
)
|
|
(4.5
|
)
|
Other non-operating items
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
0.7
|
|
Adjusted EBITDA from continuing operations
|
$
|
71.4
|
|
|
$
|
171.1
|
|
|
$
|
13.0
|
|
|
$
|
11.9
|
|
|
$
|
(0.1
|
)
|
|
$
|
(25.3
|
)
|
|
$
|
242.0
|
|
Adjusted EBITDA Margin
|
27
|
%
|
|
44
|
%
|
|
12
|
%
|
|
26
|
%
|
|
(1
|
)%
|
|
NA
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2017
(Dollar amounts in millions)
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Corporate
|
|
Total
|
Income from continuing operations
|
$
|
49.0
|
|
|
$
|
103.0
|
|
|
$
|
5.3
|
|
|
$
|
5.5
|
|
|
$
|
(0.9
|
)
|
|
$
|
(67.4
|
)
|
|
$
|
94.5
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36.0
|
|
|
36.0
|
|
Interest expense, net of capitalized interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.9
|
|
|
4.9
|
|
Depreciation and amortization
|
7.5
|
|
|
14.9
|
|
|
3.7
|
|
|
2.2
|
|
|
0.5
|
|
|
0.8
|
|
|
29.6
|
|
EBITDA from continuing operations
|
56.5
|
|
|
117.9
|
|
|
9.0
|
|
|
7.7
|
|
|
(0.4
|
)
|
|
(25.7
|
)
|
|
165.0
|
|
Stock-based compensation expense
|
0.2
|
|
|
0.2
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
|
1.9
|
|
Gain on sale or impairment of long-lived assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.1
|
)
|
|
(3.1
|
)
|
Investment income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.3
|
)
|
|
(2.3
|
)
|
Other operating credits and charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
|
2.0
|
|
Other non-operating items
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.1
|
|
|
3.1
|
|
Adjusted EBITDA from continuing operations
|
$
|
56.7
|
|
|
$
|
118.1
|
|
|
$
|
9.1
|
|
|
$
|
7.7
|
|
|
$
|
(0.4
|
)
|
|
$
|
(24.6
|
)
|
|
$
|
166.6
|
|
Adjusted EBITDA Margin
|
25
|
%
|
|
36
|
%
|
|
10
|
%
|
|
20
|
%
|
|
(6
|
)%
|
|
NA
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018 (Dollar amounts in millions)
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Corporate
|
|
Total
|
Income from continuing operations
|
$
|
108.0
|
|
|
$
|
254.8
|
|
|
$
|
11.4
|
|
|
$
|
18.5
|
|
|
$
|
(1.7
|
)
|
|
$
|
(133.2
|
)
|
|
$
|
257.8
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
80.9
|
|
|
80.9
|
|
Interest expense, net of capitalized interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8.8
|
|
|
8.8
|
|
Depreciation and amortization
|
16.6
|
|
|
28.4
|
|
|
8.7
|
|
|
4.6
|
|
|
1.2
|
|
|
1.6
|
|
|
61.1
|
|
EBITDA from continuing operations
|
124.6
|
|
|
283.2
|
|
|
20.1
|
|
|
23.1
|
|
|
(0.5
|
)
|
|
(41.9
|
)
|
|
408.6
|
|
Stock-based compensation expense
|
0.5
|
|
|
0.4
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
3.1
|
|
|
4.2
|
|
Gain on sale or impairment of long-lived assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
|
(0.6
|
)
|
Investment income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8.0
|
)
|
|
(8.0
|
)
|
Other operating credits and charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.9
|
)
|
|
(4.9
|
)
|
Other non-operating items
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
|
2.1
|
|
Adjusted EBITDA from continuing operations
|
$
|
125.1
|
|
|
$
|
283.6
|
|
|
$
|
20.3
|
|
|
$
|
23.1
|
|
|
$
|
(0.5
|
)
|
|
$
|
(50.2
|
)
|
|
$
|
401.4
|
|
Adjusted EBITDA Margin
|
26
|
%
|
|
40
|
%
|
|
10
|
%
|
|
26
|
%
|
|
(3
|
)%
|
|
NA
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017 (Dollar amounts in millions)
|
Siding
|
|
OSB
|
|
EWP
|
|
South America
|
|
Other
|
|
Corporate
|
|
Total
|
Income from continuing operations
|
$
|
89.7
|
|
|
$
|
163.8
|
|
|
$
|
6.1
|
|
|
$
|
10.6
|
|
|
$
|
(1.1
|
)
|
|
$
|
(119.6
|
)
|
|
$
|
149.5
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51.5
|
|
|
51.5
|
|
Interest expense, net of capitalized interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.9
|
|
|
9.9
|
|
Depreciation and amortization
|
15.6
|
|
|
29.6
|
|
|
7.6
|
|
|
4.4
|
|
|
1.4
|
|
|
1.6
|
|
|
60.2
|
|
EBITDA from continuing operations
|
105.3
|
|
|
193.4
|
|
|
13.7
|
|
|
15.0
|
|
|
0.3
|
|
|
(56.6
|
)
|
|
271.1
|
|
Stock-based compensation expense
|
0.4
|
|
|
0.4
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
5.1
|
|
|
6.0
|
|
Gain on sale or impairment of long-lived assets, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.5
|
)
|
|
(2.5
|
)
|
Investment income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.3
|
)
|
|
(4.3
|
)
|
Other operating credits and charges, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.4
|
|
|
5.4
|
|
Other non-operating items
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.0
|
|
|
5.0
|
|
Adjusted EBITDA from continuing operations
|
$
|
105.7
|
|
|
$
|
193.8
|
|
|
$
|
13.8
|
|
|
$
|
15.0
|
|
|
$
|
0.3
|
|
|
$
|
(47.9
|
)
|
|
$
|
280.7
|
|
Adjusted EBITDA Margin
|
24
|
%
|
|
33
|
%
|
|
8
|
%
|
|
20
|
%
|
|
2
|
%
|
|
NA
|
|
|
22
|
%
|
The following table provides the reconciliation of net income to adjusted income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income
|
$
|
162.7
|
|
|
$
|
94.5
|
|
|
$
|
253.6
|
|
|
$
|
149.5
|
|
Add (deduct):
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
0.2
|
|
|
—
|
|
|
4.2
|
|
|
—
|
|
Gain on sale or impairment of long-lived assets, net
|
—
|
|
|
(3.1
|
)
|
|
(0.6
|
)
|
|
(2.5
|
)
|
Other operating credits and charges, net
|
(4.5
|
)
|
|
2.0
|
|
|
(4.9
|
)
|
|
5.4
|
|
Reported tax provision
|
51.2
|
|
|
36.0
|
|
|
80.9
|
|
|
51.5
|
|
Normalized tax provision at 25% for 2018 and 35% for 2017
|
(52.4
|
)
|
|
(45.3
|
)
|
|
(83.3
|
)
|
|
(71.4
|
)
|
Adjusted income from continuing operations
|
$
|
157.2
|
|
|
$
|
84.1
|
|
|
$
|
249.9
|
|
|
$
|
132.5
|
|
Diluted shares outstanding
|
146.2
|
|
|
146.2
|
|
|
146.4
|
|
|
146.0
|
|
Adjusted income from continuing operations per diluted share
|
$
|
1.08
|
|
|
$
|
0.58
|
|
|
$
|
1.71
|
|
|
$
|
0.91
|
|
OUR OPERATING RESULTS
Our results of operations for each of our segments are discussed below, as are results of operations for the “other” category which comprises other products that are not individually significant. See Note 13 of the Notes to the consolidated financial statements included in item 1 of this report for further information regarding our segments.
SIDING
Our siding segment manufacturers and markets wood-based siding (strand and fiber based) and related accessories and OSB products.
Segment sales, operating income and Adjusted EBITDA from continuing operations for this segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Net sales
|
$
|
261.6
|
|
|
$
|
231.0
|
|
|
13
|
%
|
|
$
|
488.6
|
|
|
$
|
445.0
|
|
|
10
|
%
|
Operating income
|
$
|
62.7
|
|
|
$
|
49.0
|
|
|
28
|
%
|
|
$
|
108.0
|
|
|
$
|
89.7
|
|
|
20
|
%
|
Adjusted EBITDA from continuing operations
|
$
|
71.4
|
|
|
$
|
56.7
|
|
|
26
|
%
|
|
$
|
125.1
|
|
|
$
|
105.7
|
|
|
18
|
%
|
Adjusted EBITDA margin
|
27
|
%
|
|
25
|
%
|
|
|
|
|
26
|
%
|
|
24
|
%
|
|
|
|
Sales in this segment by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
SmartSide
®
strand siding
|
$
|
193.5
|
|
|
$
|
164.3
|
|
|
18
|
%
|
|
358.6
|
|
|
$
|
320.4
|
|
|
12
|
%
|
SmartSide
®
fiber siding
|
27.9
|
|
|
29.3
|
|
|
(5
|
)%
|
|
53.8
|
|
|
58.0
|
|
|
(7
|
)%
|
CanExel siding
|
12.5
|
|
|
14.2
|
|
|
(12
|
)%
|
|
26.4
|
|
|
28.5
|
|
|
(7
|
)%
|
OSB - commodity
|
12.4
|
|
|
21.0
|
|
|
(41
|
)%
|
|
21.1
|
|
|
33.4
|
|
|
(37
|
)%
|
OSB - value add
|
12.4
|
|
|
—
|
|
|
100
|
%
|
|
21.6
|
|
|
—
|
|
|
100
|
%
|
Other
|
2.9
|
|
|
2.2
|
|
|
32
|
%
|
|
7.1
|
|
|
4.7
|
|
|
51
|
%
|
Total
|
$
|
261.6
|
|
|
$
|
231.0
|
|
|
13
|
%
|
|
$
|
488.6
|
|
|
$
|
445.0
|
|
|
10
|
%
|
Percent changes in average sales prices and unit shipments for the quarter and
six
months ended
June 30, 2018
compared to the quarter and
six
months ended
June 30, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
2018 versus 2017
|
|
Six Months Ended June 30,
2018 versus 2017
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
SmartSide
®
strand siding
|
4
|
%
|
|
15
|
%
|
|
4
|
%
|
|
7
|
%
|
SmartSide
®
fiber siding
|
11
|
%
|
|
(12
|
)%
|
|
8
|
%
|
|
(14
|
)%
|
CanExel siding
|
7
|
%
|
|
(18
|
)%
|
|
7
|
%
|
|
(14
|
)%
|
OSB
|
38
|
%
|
|
(15
|
)%
|
|
31
|
%
|
|
(3
|
)%
|
For the quarter and
six
months ended
June 30, 2018
compared to the corresponding periods in
2017
, sales volumes increased in our SmartSide strand product line due to increased market penetration in key markets. Sales prices in our SmartSide strand product line for the quarter and
six
months ended
June 30, 2018
as compared to the corresponding periods in
2017
were higher due to price increases which were implemented in the first quarter of 2018 and the second quarter of 2017.
For the quarter and
six
months ended
June 30, 2018
compared to the corresponding periods in
2017
, sales volumes declined in our SmartSide fiber product line due to our decision to raise prices which slowed demand. Sales prices in our SmartSide fiber product line for the quarter and
six
months ended
June 30, 2018
as compared to the corresponding periods in
2017
were higher due to a price increase implemented in the first quarter of 2018.
For CanExel, sales volumes decreased in the
second
quarter and first
six
months of
2018
as compared to the corresponding periods in
2017
due to decreased demand in Canada due to customers re-balancing their inventories after a stronger fourth quarter of 2017 and continued weakened demand in Europe. Sales prices were higher for the
second
quarter and first
six
months of
2018
as compared to the corresponding periods in
2017
due to changes in our product mix, price increases implemented in
2018
and the fluctuations in the U.S. to Canadian dollar as a majority of these sales are denominated in Canadian dollars.
For our OSB produced in the siding segment for the quarter and
six
months ended
June 30, 2018
compared to the corresponding periods in
2017
, sales prices increased, as discussed in the OSB segment below. Sales volumes were lower for the quarter ended
June 30, 2018
compared to the corresponding period in
2017
due to logistics challenges. We estimated Adjusted EBITDA from continuing operations associated with OSB produced and sold in the siding segment for the quarter and six months ended
June 30, 2018
was
$10.4 million
and
$15.1 million
as compared to the comparable periods in
2017
of
$4.7 million
and
$6.4 million
.
Overall, the improvement in the siding segment for the
second
quarter and first
six
months of
2018
compared to the same periods of
2017
was due to higher pricing and volume on our SmartSide strand products which were partially offset by increases in raw materials, primarily resin, expenses associated with the Dawson Creek conversion project, logistic challenges resulting in higher freight and lower throughput, principally at our Dawson Creek mill and increases in sales and marketing expenses.
OSB
Our OSB segment manufactures and distributes OSB structural panel products in North America and certain export markets.
Segment sales, operating income and Adjusted EBITDA from continuing operations for this segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Net sales
|
$
|
387.4
|
|
|
$
|
325.0
|
|
|
19
|
%
|
|
$
|
700.7
|
|
|
$
|
593.4
|
|
|
18
|
%
|
Operating income
|
$
|
157.4
|
|
|
$
|
103.0
|
|
|
53
|
%
|
|
$
|
254.8
|
|
|
$
|
163.8
|
|
|
56
|
%
|
Adjusted EBITDA from continuing operations
|
$
|
171.1
|
|
|
$
|
118.1
|
|
|
45
|
%
|
|
$
|
283.6
|
|
|
$
|
193.8
|
|
|
46
|
%
|
Adjusted EBITDA Margin
|
44
|
%
|
|
36
|
%
|
|
|
|
40
|
%
|
|
33
|
%
|
|
|
Sales in this segment by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
OSB - commodity
|
$
|
231.4
|
|
|
$
|
190.7
|
|
|
21
|
%
|
|
$
|
412.5
|
|
|
$
|
342.0
|
|
|
21
|
%
|
OSB - value add
|
154.9
|
|
|
132.1
|
|
|
17
|
%
|
|
284.0
|
|
|
245.2
|
|
|
16
|
%
|
Other
|
1.1
|
|
|
2.2
|
|
|
(50
|
)%
|
|
4.2
|
|
|
6.2
|
|
|
(32
|
)%
|
Total
|
$
|
387.4
|
|
|
$
|
325.0
|
|
|
19
|
%
|
|
$
|
700.7
|
|
|
$
|
593.4
|
|
|
18
|
%
|
Percent changes in average sales prices and unit shipments for the quarter and
six
months ended
June 30, 2018
compared to the quarter and
six
months ended
June 30, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
2018 versus 2017
|
|
Six Months Ended June 30,
2018 versus 2017
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
OSB - commodity
|
25
|
%
|
|
(3
|
)%
|
|
22
|
%
|
|
(1
|
)%
|
OSB - value-add
|
23
|
%
|
|
(4
|
)%
|
|
19
|
%
|
|
(3
|
)%
|
For the quarter and
six
months ended
June 30, 2018
, OSB prices increased compared to the corresponding periods in
2017
. The increase in OSB prices was likely due to the higher overall demand compared to the supply available in the market. Sales volumes for both the quarter and
six
months ended
June 30, 2018
are lower compared to the corresponding periods in
2017
due to weaker demand in the retail markets. The increase in selling price favorably impacted operating results and Adjusted EBITDA from continuing operations by
$76.2 million
for the quarter and by
$121.4 million
for the
six
months ended
June 30, 2018
as compared to the same periods in
2017
.
Overall the improvements in our OSB segment results for the quarter and
six
months ended
June 30, 2018
as compared to the same periods in
2017
were due to increased sales prices partially offset by increases in raw material costs (primarily resin) and increases in manufacturing costs due to downtime related to logistics associated with our Western Canadian operations.
EWP
Our EWP segment manufactures and distributes laminated veneer lumber (LVL), I-Joists, laminated strand lumber (LSL) and other related products. This segment also includes the sale of I-Joist and LVL products produced by our joint venture with Resolute Forest Products and LVL sold under a contract manufacturing relationship. A plywood mill associated with our LVL operations in British Columbia and minor amounts of OSB are included in this segment.
Segment sales, operating results and Adjusted EBITDA from continuing operations for this segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Net sales
|
$
|
109.1
|
|
|
$
|
94.2
|
|
|
16
|
%
|
|
$
|
209.8
|
|
|
$
|
176.3
|
|
|
19
|
%
|
Operating income
|
$
|
8.6
|
|
|
$
|
5.3
|
|
|
62
|
%
|
|
$
|
11.4
|
|
|
$
|
6.1
|
|
|
87
|
%
|
Adjusted EBITDA from continuing operations
|
$
|
13.0
|
|
|
$
|
9.1
|
|
|
43
|
%
|
|
$
|
20.3
|
|
|
$
|
13.8
|
|
|
47
|
%
|
Adjusted EBITDA margin
|
12
|
%
|
|
10
|
%
|
|
|
|
|
10
|
%
|
|
8
|
%
|
|
|
|
Sales in this segment by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
LVL
|
$
|
40.4
|
|
|
$
|
37.2
|
|
|
9
|
%
|
|
$
|
77.0
|
|
|
$
|
70.2
|
|
|
10
|
%
|
LSL
|
17.4
|
|
|
12.0
|
|
|
45
|
%
|
|
30.7
|
|
|
22.6
|
|
|
36
|
%
|
I-Joist
|
31.5
|
|
|
30.4
|
|
|
4
|
%
|
|
63.6
|
|
|
56.1
|
|
|
13
|
%
|
OSB - commodity
|
5.2
|
|
|
4.0
|
|
|
30
|
%
|
|
8.0
|
|
|
5.1
|
|
|
57
|
%
|
OSB - value add
|
3.8
|
|
|
3.6
|
|
|
6
|
%
|
|
7.9
|
|
|
6.5
|
|
|
22
|
%
|
Plywood
|
8.0
|
|
|
5.8
|
|
|
38
|
%
|
|
15.6
|
|
|
10.6
|
|
|
47
|
%
|
Other
|
2.8
|
|
|
1.2
|
|
|
133
|
%
|
|
7.0
|
|
|
5.2
|
|
|
35
|
%
|
Total
|
$
|
109.1
|
|
|
$
|
94.2
|
|
|
16
|
%
|
|
$
|
209.8
|
|
|
$
|
176.3
|
|
|
19
|
%
|
Percent changes in average sales prices and unit shipments for the quarter and
six
months ended
June 30, 2018
compared to the quarter and
six
months ended
June 30, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
2018 versus 2017
|
|
Six Months Ended June 30,
2018 versus 2017
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
LVL
|
10
|
%
|
|
(1
|
)%
|
|
10
|
%
|
|
1
|
%
|
LSL
|
8
|
%
|
|
34
|
%
|
|
9
|
%
|
|
26
|
%
|
I-Joist
|
11
|
%
|
|
(7
|
)%
|
|
9
|
%
|
|
5
|
%
|
OSB
|
23
|
%
|
|
(4
|
)%
|
|
19
|
%
|
|
16
|
%
|
Plywood
|
35
|
%
|
|
1
|
%
|
|
29
|
%
|
|
14
|
%
|
For the quarter ended
June 30, 2018
compared to the same period in
2017
, sales volumes decreased in LVL and I-joist in response to our price increases and certain regional market weakness. For the quarter and six months ended
June 30, 2018
compared to the same periods in
2017
, sales volumes increased in LSL due to continued penetration into new applications. Net average selling prices increased due to price increases implemented across all product lines. The increase in selling prices for OSB and plywood favorably impacted operating results and Adjusted EBITDA from continuing operations by
$1.7 million
for OSB and
$2.1 million
for plywood for the quarter and by
$2.5 million
and
$3.5 million
for the
six
months ended
June 30, 2018
as compared to the same periods in
2017
.
For the quarter and
six
months ended
June 30, 2018
, compared to the same periods in
2017
, results of operations improved due to increase sales price increases and reductions in manufacturing costs due to higher utilization across all EWP mills partially offset by increases in raw material costs, principally, lumber, veneer and OSB.
SOUTH AMERICA
Our South America segment manufactures and distributes OSB structural panel and siding products in South America and selected export markets. This segment has manufacturing operations in two countries, Chile and Brazil and operates sales offices in Chile, Brazil, Peru and Argentina.
Segment sales, operating income and Adjusted EBITDA from continuing operations for this segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Net sales
|
$
|
45.3
|
|
|
$
|
38.7
|
|
|
17
|
%
|
|
$
|
87.7
|
|
|
$
|
76.5
|
|
|
15
|
%
|
Operating income
|
$
|
9.6
|
|
|
$
|
5.5
|
|
|
75
|
%
|
|
$
|
18.5
|
|
|
$
|
10.6
|
|
|
75
|
%
|
Adjusted EBITDA from continuing operations
|
$
|
11.9
|
|
|
$
|
7.7
|
|
|
55
|
%
|
|
$
|
23.1
|
|
|
$
|
15.0
|
|
|
54
|
%
|
Adjusted EBITDA margin
|
26
|
%
|
|
20
|
%
|
|
|
|
|
26
|
%
|
|
20
|
%
|
|
|
|
Sales in this segment by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
OSB - value add
|
$
|
37.2
|
|
|
$
|
33.2
|
|
|
12
|
%
|
|
$
|
72.1
|
|
|
$
|
63.8
|
|
|
13
|
%
|
SmartSide strand siding
|
6.9
|
|
|
4.6
|
|
|
50
|
%
|
|
13.7
|
|
|
10.8
|
|
|
27
|
%
|
Other
|
1.2
|
|
|
0.9
|
|
|
33
|
%
|
|
1.9
|
|
|
1.9
|
|
|
—
|
%
|
Total
|
$
|
45.3
|
|
|
$
|
38.7
|
|
|
17
|
%
|
|
$
|
87.7
|
|
|
$
|
76.5
|
|
|
15
|
%
|
Percent changes in average sales prices and unit shipments for the quarter and
six
months ended
June 30, 2018
compared to the quarter and
six
months ended
June 30, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
2018 versus 2017
|
|
Six Months Ended June 30,
2018 versus 2017
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
|
Average Net
Selling Price
|
|
Unit
Shipments
|
OSB
|
29
|
%
|
|
(6
|
)%
|
|
3
|
%
|
|
(7
|
)%
|
Siding
|
7
|
%
|
|
35
|
%
|
|
6
|
%
|
|
16
|
%
|
OSB sales volumes decreased for the quarter and
six
months ended
June 30, 2018
as compared to the corresponding periods in
2017
due to reduced imports from our North America operations. Sales prices for OSB increased for the quarter and
six
months ended
June 30, 2018
as compared to the corresponding periods in
2017
due to price increases implemented in South America. Siding volume increased due to increased market penetration in key markets between periods with sales prices increasing due to a price increase implemented during the first quarter of 2018.
For the quarter and
six
months ended
June 30, 2018
, compared to the same periods in
2017
, results of operations were higher due to increases in sales prices and a higher mix of siding products partially offset by increases in product costs, primarily resins.
OTHER PRODUCTS
Our other products segment includes our joint venture that provides off-site framing for both residential and commercial construction, remaining timber and timberlands and other minor products, services and closed operations which are not classified as discontinued operations.
Segment sales, operating losses and Adjusted EBITDA from continuing operations for this category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Net sales
|
$
|
7.4
|
|
|
$
|
7.1
|
|
|
4
|
%
|
|
$
|
15.3
|
|
|
$
|
15.8
|
|
|
(3
|
)%
|
Operating losses
|
$
|
(0.8
|
)
|
|
$
|
(0.9
|
)
|
|
11
|
%
|
|
$
|
(1.7
|
)
|
|
$
|
(1.1
|
)
|
|
(55
|
)%
|
Adjusted EBITDA from continuing operations
|
$
|
(0.1
|
)
|
|
$
|
(0.4
|
)
|
|
75
|
%
|
|
$
|
(0.5
|
)
|
|
$
|
0.3
|
|
|
NM
|
|
GENERAL CORPORATE AND OTHER EXPENSE, NET
General corporate expenses were
3%
higher for the the quarter and and about flat for the
six
months ended
June 30, 2018
compared to the same periods in
2017
. The increase in costs are associated with corporate initiatives related to supply chain activities partially offset by changes in our incentive compensation plans and lower stock compensation expense. General corporate and other expenses primarily consist of corporate overhead such as wages and benefits, professional fees, insurance and other expenses for corporate functions including certain executive officers, public company costs, information technology, financial services, environmental and safety, legal, supply management, human resources and other corporate functions.
NON-OPERATING INCOME AND EXPENSE
Components of non-operating income and expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
Dollar amounts in millions
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Interest income
|
$
|
4.7
|
|
|
$
|
2.1
|
|
|
$
|
8.2
|
|
|
$
|
3.8
|
|
SERP market adjustments
|
0.1
|
|
|
0.2
|
|
|
(0.2
|
)
|
|
0.5
|
|
Investment income
|
4.8
|
|
|
2.3
|
|
|
8.0
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(5.1
|
)
|
|
(5.1
|
)
|
|
(10.3
|
)
|
|
(10.3
|
)
|
Amortization of debt charges
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(0.4
|
)
|
|
(0.4
|
)
|
Capitalized interest
|
0.9
|
|
|
0.4
|
|
|
1.8
|
|
|
0.8
|
|
Interest expense, net of capitalized interest
|
(4.4
|
)
|
|
(4.9
|
)
|
|
(8.9
|
)
|
|
(9.9
|
)
|
|
|
|
|
|
|
|
|
Net periodic pension cost, excluding service cost
|
(1.2
|
)
|
|
(1.6
|
)
|
|
(2.3
|
)
|
|
(3.2
|
)
|
Foreign currency gain (loss)
|
0.5
|
|
|
(1.5
|
)
|
|
0.3
|
|
|
(1.8
|
)
|
Other non-operating items
|
(0.7
|
)
|
|
(3.1
|
)
|
|
(2.0
|
)
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
Total non-operating expense
|
$
|
(0.3
|
)
|
|
$
|
(5.7
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(10.6
|
)
|
INCOME TAXES
For the first
six
months of
2018
, we recorded an income tax expense on continuing operations of
24%
as compared to
26%
in the comparable period of
2017
. The primary differences between the U.S. statutory rate of
21%
and the effective rate applicable to our income from continuing operations for the first
six
months of
2018
relate to state income tax, foreign tax rates, discretionary pension payments and tax deductions related to stock-based compensation. For the first
six
months of
2017
, the primary differences between the U.S. statutory rate of 35% and the effective rate applied to our continuing operations relate to foreign tax rates, changes in Canadian valuation allowances and the deduction for U.S. domestic production activities.
Each quarter the income tax accrual is adjusted to the latest estimate and the difference from the previously accrued year-to-date balance is recorded in the current quarter.
OTHER COMPREHENSIVE INCOME (LOSS)
During the first
six
months of
2018
, the strengthening of the U.S. dollar as compared to the functional currencies of our South American operations resulted in a loss on foreign currency adjustment in other comprehensive income of $
11.5 million
as compared to a loss of $
5.7 million
during the comparable period of
2017
. During the first
six
months of
2018
, the Brazilian real and Chilean peso weakened
17%
and
6%
as compared to the U.S. dollar.
LEGAL AND ENVIRONMENTAL MATTERS
For a discussion of legal and environmental matters involving us and the potential impact thereof on our financial position, results of operations and cash flows, see Items 3, 7 and 8 in our Annual Report on Form 10-K for the year ended
December 31, 2017
and Note 12 to the Notes to the financial statements contained herein.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Our principal sources of liquidity are existing cash and investment balances, cash generated by our operations and our ability to borrow under such credit facilities as we may have in effect from time to time. We may also from time to time issue and sell equity, debt or hybrid securities or engage in other capital market transactions.
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness, paying dividends and making capital expenditures. We may also from time to time prepay or repurchase outstanding indebtedness, repurchase common stock or acquire assets or businesses that are complementary to our operations. Any such repurchases may be commenced, suspended, discontinued or resumed, and the method or methods of effecting any such repurchases may be changed, at any time or from time to time without prior notice.
OPERATING ACTIVITIES
During the first
six
months of
2018
, operating activities provided
$268.0 million
of cash compared to
$161.6 million
during the first
six
months of
2017
. This change was primarily related to improvements in operating results (higher OSB pricing and SmartSide strand volume) offset by increases in working capital. In the third quarter of 2018, we anticipate making a discretionary contribution to our defined benefit pension plan of approximately $33.2 million to maximize the tax savings allowed under the Tax Cuts and Jobs Act and lower our expenses associated with pension funding regulations going forward.
INVESTING ACTIVITIES
During the first
six
months of
2018
, cash used in investing activities was approximately
$109.8 million
. Capital expenditures in the first
six
months of
2018
were
$87.6 million
. We used $
45.0 million
to invest in an unconsolidated affiliate (see Note 9 for additional details). Additionally, we received a payment of $
22.2 million
on notes receivable from asset sales. Included in “Accounts payable” is
$17.0 million
related to capital expenditures that had not yet been paid as of
June 30, 2018
.
During the first
six
months of
2017
, cash used in investing activities was approximately
$74.3 million
. Capital expenditures in the first
six
months of
2017
were
$45.7 million
. We used $
32.0 million
to deposit cash with the U.S. I.R.S to suspend the running of interest on potential underpayments of disputable income tax amounts for the year 2016. Included in “Accounts payable” was
$8.9 million
related to capital expenditures that had not yet been paid as of
June 30, 2017
.
Capital expenditures in
2018
are expected to be approximately
$200 million
to
$250 million
related to expansions in our siding business, growth and maintenance projects and our South American expansion.
FINANCING ACTIVITIES
During the first
six
months of
2018
, cash used in financing activities was
$81.4 million
. We used
$37.6 million
to pay cash dividends,
$46.7 million
to repurchase stock either though a share repurchase program or in connection with income tax withholding requirements associated with our employee stock-based compensation plans. Additionally, during the first
six
months of 2018, we received a grant from the Investments in Forest Industry Transformation program in Canada for $
3.1 million
in connection with our conversion of the Dawson Creek OSB mill.
During the first
six
months of
2017
, cash used in financing activities was
$6.5 million
. We used
$1.3 million
to repay outstanding debt in the first
six
months of
2017
and
$4.8 million
to repurchase stock from employees in connection with income tax withholding requirements associated with our employee stock-based compensation plans.
POTENTIAL IMPAIRMENTS
We continue to review mills and investments for potential impairments. Management currently believes we have adequate support for the carrying value of each of these assets based upon the anticipated cash flows that result from our estimates of future demand, pricing and production costs assuming certain levels of planned capital expenditures. As of
June 30, 2018
, the fair value of facilities that have not been indefinitely curtailed was in excess of their carrying value and supports the conclusion that no impairment is necessary for those facilities.
We also review from time to time possible dispositions of various assets in light of current and anticipated economic and industry conditions, our strategic plan and other relevant factors. Because a determination to dispose of particular assets can require management to make assumptions regarding the transaction structure of the disposition and to estimate the net sales proceeds, which may be less than previous estimates of undiscounted future net cash flows, we may be required to record impairment charges in connection with decisions to dispose of assets.