Segment Information

6 Months Ended

Jun. 30, 2019

NOTE 6. SEGMENT INFORMATION

During the second quarter of 2019, we changed the name of our Resource segment to Timberlands. There were no changes in the segment’s business activities, components or information provided to our chief operating decision makers as a result of the change.

Our businesses are organized into three reportable operating segments: Timberlands, Wood Products and Real Estate. Management activities in the Timberlands segment include planting and harvesting trees and building and maintaining roads. The Timberlands segment also generates revenues from non-timber resources such as hunting leases, recreation permits and leases, mineral rights contracts, oil and gas royalties, biomass production and carbon sequestration. The Wood Products segment manufactures and markets lumber and plywood. The business of our Real Estate segment includes the sale of land holdings deemed non-strategic or identified as having higher and better use alternatives. The Real Estate segment also engages in master planned communities, development activities and includes the Chenal Country Club.

The reportable segments follow the same accounting policies used for our Condensed Consolidated Financial Statements, with the exception of the valuation of inventories. For most of our operations, we use the last-in, first-out (LIFO) method of valuing inventory. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Interim LIFO calculations are based on management’s best estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. Inventories not valued under LIFO are recorded at the lower of average cost or net realizable value. All segment inventories are reported using the average cost method. The LIFO reserve and intersegment eliminations are recorded at the corporate level.

Management primarily evaluates the performance of its segments and allocates resources to them based upon Adjusted EBITDDA. EBITDDA is calculated as net income (loss) before interest expense, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses. Our calculation of Adjusted EBITDDA may not be comparable to that reported by other companies.

The following table summarizes information on revenues, intersegment eliminations, Adjusted EBITDDA, depreciation, depletion and amortization, basis of real estate sold and total assets for each of the company’s reportable segments and includes a reconciliation of Total Adjusted EBITDDA to income before income taxes. Corporate information is included to reconcile segment data to the Condensed Consolidated Financial Statements.

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Revenues:
Timberlands	$	66,881		$	92,511		$	135,039		$	169,017
Wood Products		138,030			193,585			270,336			333,400
Real Estate		36,432			16,431			42,596			26,986
		241,343			302,527			447,971			529,403
Intersegment Timberlands revenues¹		(25,762	)		(34,294	)		(50,674	)		(61,273	)
Consolidated revenues	$	215,581		$	268,233		$	397,297		$	468,130

Adjusted EBITDDA:
Timberlands	$	26,131		$	43,691		$	52,981		$	81,388
Wood Products		(2,071	)		51,566			5,155			80,516
Real Estate		31,316			12,300			34,019			20,302
Corporate		(9,346	)		(11,264	)		(20,000	)		(19,980	)
Eliminations and adjustments		3,050			(2,085	)		5,177			(3,286	)
Total Adjusted EBITDDA		49,080			94,208			77,332			158,940
Basis of real estate sold		(7,427	)		(2,820	)		(8,983	)		(6,425	)
Depreciation, depletion and amortization		(16,727	)		(20,950	)		(32,524	)		(33,146	)
Interest expense, net²		(7,882	)		(9,356	)		(13,346	)		(15,016	)
Loss on extinguishment of debt		—			—			(5,512	)		—
Non-operating pension and other postretirement employee benefits		(889	)		(1,908	)		(1,869	)		(3,765	)
Gain (loss) on fixed assets		30			(3	)		62			1
Gain on sale of facility		—			—			9,176			—
Inventory purchase price adjustment in cost of goods sold³		—			—			—			(1,849	)
Deltic merger-related costs⁴		—			(1,018	)		—			(20,273	)
Income before income taxes	$	16,185		$	58,153		$	24,336		$	78,467

Depreciation, depletion and amortization:
Timberlands	$	10,469		$	14,598		$	20,734		$	23,244
Wood Products		5,861			6,069			10,903			9,423
Real Estate		147			77			356			117
Corporate		250			206			531			362
		16,727			20,950			32,524			33,146
Bond discounts and deferred loan fees²		410			655			887			1,094
Total depreciation, depletion and amortization	$	17,137		$	21,605		$	33,411		$	34,240

Basis of real estate sold:
Real Estate	$	7,455		$	2,896		$	9,043		$	6,619
Eliminations and adjustments		(28	)		(76	)		(60	)		(194	)
Total basis of real estate sold	$	7,427		$	2,820		$	8,983		$	6,425

¹	^{Intersegment revenues represent logs sold by our Timberlands segment to our Wood Products segment.}

²	^{Bond discounts and deferred loan fees are reported within interest expense, net on the Condensed Consolidated Statements of Income.}

³	^{The effect on cost of goods sold for fair value adjustments to the carrying amounts of inventory acquired in the Deltic merger.}

⁴	^{For integration and restructuring costs related to the merger with Deltic see Note 3: Merger with Deltic.}

A reconciliation of our business segment total assets to total assets in the Condensed Consolidated Balance Sheets is as follows:

(in thousands)	June 30, 2019		December 31, 2018
Total assets:
Timberlands¹	$	1,680,766	$	1,693,162
Wood Products		379,370		456,306
Real Estate²		93,519		93,208
		2,153,655		2,242,676
Corporate		105,286		83,176
Total consolidated assets	$	2,258,941	$	2,325,852

¹	^{We do not report rural real estate separate from Timberlands as we do not report these assets separately to management.}

²	^{Real Estate assets primarily consist of real estate development acquired with the Deltic merger.}