UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 20222023
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-32729
PotlatchDeltic Corporation
(Exact name of registrant as specified in its charter)
Delaware | 82-0156045 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
601 West First Avenue, Suite 1600 |
|
Spokane, Washington | 99201 |
(Address of principal executive offices) | (Zip Code) |
(509) 835-1500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock ($1 par value) | PCH | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ☒ | Accelerated Filer | ☐ | Non-accelerated Filer | ☐ |
Smaller Reporting Company | ☐ | Emerging Growth Company | ☐ |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange act).
Yes ☐ No ☒
The number of shares of common stock of the registrant outstanding as of April 26, 202225, 2023, was 69,372,30479,915,922.
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
Table of Contents
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|
| ||
Page | ||||
PART I. - FINANCIAL INFORMATION |
| |||
ITEM 1. | Financial Statements (unaudited) |
| ||
3 | ||||
Condensed Consolidated Statements of Comprehensive (Loss) Income | 4 | |||
5 | ||||
6 | ||||
| 8 | |||
| Index for the Notes to Condensed Consolidated Financial Statements | 9 | ||
10 | ||||
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
| ||
ITEM 3. |
| |||
ITEM 4. |
| |||
|
|
| ||
PART II. - OTHER INFORMATION |
| |||
ITEM 1. |
| |||
ITEM 1A. |
| |||
ITEM 2. |
| |||
ITEM 6. |
| |||
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| ||
| ||||
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| |||
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|
Part I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
|
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||
(in thousands, except per share amounts) |
| 2022 |
|
| 2021 |
| 2023 |
|
| 2022 |
| ||||
Revenues |
| $ | 411,350 |
|
| $ | 354,193 |
| $ | 257,962 |
|
| $ | 411,350 |
|
Costs and expenses: |
|
|
|
|
|
|
| ||||||||
Cost of goods sold |
|
| 179,847 |
|
|
| 169,302 |
|
| 224,350 |
|
|
| 179,847 |
|
Selling, general and administrative expenses |
|
| 16,294 |
|
|
| 16,758 |
|
| 18,230 |
|
|
| 16,294 |
|
Net loss on fire damage |
|
| 276 |
|
|
| — |
| |||||||
CatchMark merger-related expenses |
| 2,209 |
|
| — |
| |||||||||
Loss on fire damage |
| — |
|
|
| 276 |
| ||||||||
|
|
| 196,417 |
|
|
| 186,060 |
|
| 244,789 |
|
|
| 196,417 |
|
Operating income |
|
| 214,933 |
|
|
| 168,133 |
|
| 13,173 |
|
|
| 214,933 |
|
Interest expense, net |
|
| (2,894 | ) |
|
| (3,574 | ) |
| (199 | ) |
|
| (2,894 | ) |
Pension settlement charge |
|
| (14,165 | ) |
|
| — |
|
| — |
|
|
| (14,165 | ) |
Non-operating pension and other postretirement employee |
|
| (1,929 | ) |
|
| (3,414 | ) |
| (228 | ) |
|
| (1,929 | ) |
Other |
| 10 |
|
|
| — |
| ||||||||
Income before income taxes |
|
| 195,945 |
|
|
| 161,145 |
|
| 12,756 |
|
|
| 195,945 |
|
Income taxes |
|
| (32,065 | ) |
|
| (30,039 | ) |
| 3,504 |
|
|
| (32,065 | ) |
Net income |
| $ | 163,880 |
|
| $ | 131,106 |
| $ | 16,260 |
|
| $ | 163,880 |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income per share: |
|
|
|
|
|
|
|
|
| ||||||
Basic |
| $ | 2.36 |
|
| $ | 1.95 |
| $ | 0.20 |
|
| $ | 2.36 |
|
Diluted |
| $ | 2.35 |
|
| $ | 1.94 |
| $ | 0.20 |
|
| $ | 2.35 |
|
Dividends per share |
| $ | 0.44 |
|
| $ | 0.41 |
| $ | 0.45 |
|
| $ | 0.44 |
|
Weighted-average shares outstanding (in thousands) |
|
|
|
|
| ||||||||||
Weighted-average shares outstanding |
|
|
|
| |||||||||||
Basic |
|
| 69,419 |
|
|
| 67,207 |
|
| 80,027 |
|
|
| 69,419 |
|
Diluted |
|
| 69,623 |
|
|
| 67,607 |
|
| 80,167 |
|
|
| 69,623 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2022 |
|
| 2021 |
| ||
Net income |
| $ | 163,880 |
|
| $ | 131,106 |
|
Other comprehensive income (loss): |
|
|
|
|
|
| ||
Pension and other postretirement employee benefits: |
|
|
|
|
|
| ||
Net loss arising during the period, net of tax benefit of $1,570 and $0 |
|
| (4,587 | ) |
|
| 0 |
|
Effect of pension settlement, net of tax expense of $3,612 and $0 |
|
| 10,553 |
|
|
| 0 |
|
Amortization of actuarial loss included in net income, net of tax expense of $475 and $1,109 |
|
| 1,384 |
|
|
| 3,157 |
|
Amortization of prior service cost (credit) included in net income, net of tax expense (benefit) of $44 and $(73) |
|
| 130 |
|
|
| (204 | ) |
Cash flow hedges, net of tax expense of $2,249 and $4,031 |
|
| 43,276 |
|
|
| 64,107 |
|
Other comprehensive income, net of tax |
|
| 50,756 |
|
|
| 67,060 |
|
Comprehensive income |
| $ | 214,636 |
|
| $ | 198,166 |
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Net income |
| $ | 16,260 |
|
| $ | 163,880 |
|
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
| ||
Pension and other postretirement employee benefits |
|
| (131 | ) |
|
| 7,480 |
|
Cash flow hedges |
|
| (17,335 | ) |
|
| 43,276 |
|
Other comprehensive (loss) income, net of tax |
|
| (17,466 | ) |
|
| 50,756 |
|
Comprehensive (loss) income |
| $ | (1,206 | ) |
| $ | 214,636 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share amounts) |
| March 31, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 470,918 |
| $ | 296,151 |
|
| $ | 325,632 |
|
| $ | 343,809 |
| |
Customer receivables, net |
| 40,094 |
| 31,028 |
|
|
| 29,565 |
|
|
| 22,813 |
| |||
Inventories, net |
| 67,673 |
| 72,369 |
|
|
| 66,189 |
|
|
| 67,958 |
| |||
Other current assets |
|
| 21,938 |
|
|
| 21,630 |
|
|
| 44,698 |
|
|
| 36,955 |
|
Total current assets |
| 600,623 |
|
|
| 421,178 |
|
|
| 466,084 |
|
|
| 471,535 |
| |
Property, plant and equipment, net |
| 297,710 |
| 292,320 |
|
|
| 312,791 |
|
|
| 318,184 |
| |||
Investment in real estate held for development and sale |
| 61,562 |
| 65,604 |
|
|
| 54,945 |
|
|
| 55,490 |
| |||
Timber and timberlands, net |
| 1,671,330 |
| 1,682,671 |
|
|
| 2,488,956 |
|
|
| 2,508,372 |
| |||
Intangible assets, net |
| 15,296 |
| 15,491 |
|
|
| 16,975 |
|
|
| 17,420 |
| |||
Other long-term assets |
|
| 87,095 |
|
|
| 57,951 |
|
|
| 160,019 |
|
|
| 179,554 |
|
Total assets |
| $ | 2,733,616 |
|
| $ | 2,535,215 |
|
| $ | 3,499,770 |
|
| $ | 3,550,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable and accrued liabilities |
| $ | 101,589 |
| $ | 78,209 |
|
| $ | 78,268 |
|
| $ | 94,861 |
| |
Current portion of long-term debt |
| 39,983 |
|
|
| 42,977 |
|
|
| 39,985 |
|
|
| 39,979 |
| |
Current portion of pension and other postretirement employee benefits |
|
| 4,993 |
|
|
| 4,993 |
|
|
| 4,926 |
|
|
| 4,926 |
|
Total current liabilities |
| 146,565 |
|
|
| 126,179 |
|
|
| 123,179 |
|
|
| 139,766 |
| |
Long-term debt |
| 715,499 |
| 715,279 |
|
|
| 992,988 |
|
|
| 992,701 |
| |||
Pension and other postretirement employee benefits |
| 90,359 |
| 83,674 |
|
|
| 78,096 |
|
|
| 77,396 |
| |||
Deferred tax liabilities, net |
| 37,642 |
| 34,874 |
|
|
| 41,756 |
|
|
| 41,790 |
| |||
Other long-term obligations |
|
| 31,353 |
|
|
| 49,076 |
|
|
| 35,488 |
|
|
| 35,749 |
|
Total liabilities |
|
| 1,021,418 |
|
|
| 1,009,082 |
|
|
| 1,271,507 |
|
|
| 1,287,402 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stock, authorized 4,000 shares, 0 shares issued |
| — |
| — |
| |||||||||||
Common stock, $1 par value, authorized 100,000 shares, issued and outstanding 69,372 and 69,064 shares |
| 69,372 |
| 69,064 |
| |||||||||||
Preferred stock, authorized 4,000 shares, no shares issued |
|
| — |
|
|
| — |
| ||||||||
Common stock, $1 par value, authorized 100,000 shares, issued and outstanding 79,916 and 79,683 shares |
|
| 79,916 |
|
|
| 79,683 |
| ||||||||
Additional paid-in capital |
| 1,782,940 |
| 1,781,217 |
|
|
| 2,296,927 |
|
|
| 2,294,797 |
| |||
Accumulated deficit |
| (147,632 | ) |
| (280,910 | ) |
|
| (228,766 | ) |
|
| (208,979 | ) | ||
Accumulated other comprehensive income (loss) |
|
| 7,518 |
|
|
| (43,238 | ) | ||||||||
Accumulated other comprehensive income |
|
| 80,186 |
|
|
| 97,652 |
| ||||||||
Total stockholders’ equity |
|
| 1,712,198 |
|
|
| 1,526,133 |
|
|
| 2,228,263 |
|
|
| 2,263,153 |
|
Total liabilities and stockholders' equity |
| $ | 2,733,616 |
|
| $ | 2,535,215 |
|
| $ | 3,499,770 |
|
| $ | 3,550,555 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 163,880 |
| $ | 131,106 |
|
| $ | 16,260 |
|
| $ | 163,880 |
| |
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation, depletion and amortization |
| 19,874 |
| 18,399 |
|
|
| 32,173 |
|
|
| 19,874 |
| |||
Basis of real estate sold |
| 10,854 |
| 8,823 |
|
|
| 10,631 |
|
|
| 10,854 |
| |||
Change in deferred taxes |
| (2,123 | ) |
| 1,490 |
|
|
| 394 |
|
|
| (2,123 | ) | ||
Pension and other postretirement employee benefits |
| 3,857 |
| 5,627 |
|
|
| 1,611 |
|
|
| 3,857 |
| |||
Pension settlement charge |
| 14,165 |
| — |
|
|
| — |
|
|
| 14,165 |
| |||
Equity-based compensation expense |
| 2,056 |
| 1,930 |
|
|
| 2,279 |
|
|
| 2,056 |
| |||
Net loss on fire damage |
| 276 |
| — |
| |||||||||||
Loss on fire damage |
|
| — |
|
|
| 276 |
| ||||||||
Other, net |
| (291 | ) |
| (387 | ) |
|
| (3,509 | ) |
|
| (291 | ) | ||
Change in working capital and operating-related activities, net |
| 21,208 |
| 6,713 |
|
|
| (17,205 | ) |
|
| 21,208 |
| |||
Real estate development expenditures |
| (2,161 | ) |
| (2,315 | ) |
|
| (2,408 | ) |
|
| (2,161 | ) | ||
Funding of pension and other postretirement employee benefits |
|
| (1,296 | ) |
|
| (1,421 | ) |
|
| (1,087 | ) |
|
| (1,296 | ) |
Net cash from operating activities |
|
| 230,299 |
|
|
| 169,965 |
|
|
| 39,139 |
|
|
| 230,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property, plant and equipment additions |
| (12,566 | ) |
| (7,762 | ) |
|
| (4,255 | ) |
|
| (12,566 | ) | ||
Timberlands reforestation and roads |
| (4,648 | ) |
| (3,956 | ) |
|
| (6,118 | ) |
|
| (4,648 | ) | ||
Interest received under swaps with other-than-insignificant financing element |
|
| 5,055 |
|
|
| — |
| ||||||||
Other, net |
|
| 92 |
|
|
| 189 |
|
|
| 422 |
|
|
| 92 |
|
Net cash from investing activities |
|
| (17,122 | ) |
|
| (11,529 | ) |
|
| (4,896 | ) |
|
| (17,122 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
| �� |
|
|
| ||||
Distributions to common stockholders |
| (30,524 | ) |
| (27,484 | ) |
|
| (35,962 | ) |
|
| (30,524 | ) | ||
Repayment of long-term debt |
| (3,000 | ) |
| — |
|
|
| — |
|
|
| (3,000 | ) | ||
Other, net |
|
| (1,071 | ) |
|
| (591 | ) |
|
| (838 | ) |
|
| (1,071 | ) |
Net cash from financing activities |
|
| (34,595 | ) |
|
| (28,075 | ) |
|
| (36,800 | ) |
|
| (34,595 | ) |
Change in cash, cash equivalents and restricted cash |
| 178,582 |
| 130,361 |
|
|
| (2,557 | ) |
|
| 178,582 |
| |||
Cash, cash equivalents and restricted cash at beginning of period |
|
| 296,772 |
|
|
| 252,340 |
|
|
| 345,591 |
|
|
| 296,772 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 475,354 |
|
| $ | 382,701 |
|
| $ | 343,034 |
|
| $ | 475,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accrued property, plant and equipment additions |
| $ | 1,516 |
| $ | 2,263 |
|
| $ | 1,835 |
|
| $ | 1,516 |
| |
Accrued timberlands reforestation and roads |
| $ | 98 |
| $ | 813 |
|
| $ | 1,041 |
|
| $ | 98 |
|
6
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the amounts shown above in the Condensed Consolidated Statements of Cash Flows.
(in thousands) |
| March 31, 2022 |
|
| March 31, 2021 |
|
| March 31, 2023 |
|
| March 31, 2022 |
| ||||
Cash and cash equivalents |
| $ | 470,918 |
| $ | 382,032 |
|
| $ | 325,632 |
|
| $ | 470,918 |
| |
Restricted cash included in other long-term assets1 |
|
| 4,436 |
|
|
| 669 |
| ||||||||
Restricted cash included in other current and long-term assets1 |
|
| 17,402 |
|
|
| 4,436 |
| ||||||||
Total cash, cash equivalents, and restricted cash |
| $ | 475,354 |
|
| $ | 382,701 |
|
| $ | 343,034 |
|
| $ | 475,354 |
|
|
|
|
|
|
|
1 | Amounts included in restricted cash represent proceeds held by a qualified intermediary that were or are intended to be reinvested in timber and timberlands. At March 31, 2023 and 2022, $14.0 million and $0, respectively, was classified in Other current assets. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
|
| Common Stock |
|
| Additional Paid- |
|
| Accumulated |
|
| Accumulated Other |
|
| Total Stockholders' |
|
| Common Stock |
|
| Additional Paid- |
|
| Accumulated |
|
| Accumulated Other |
|
| Total Stockholders' |
| ||||||||||||||||||
(in thousands, except per share amounts) |
| Shares |
|
| Amount |
|
| in Capital |
|
| Deficit |
|
| Income (Loss) |
|
| Equity |
|
| Shares |
|
| Amount |
|
| in Capital |
|
| Deficit |
|
| Income (Loss) |
|
| Equity |
| ||||||||||||
Balance, December 31, 2021 |
| 69,064 |
| $ | 69,064 |
| $ | 1,781,217 |
| $ | (280,910 | ) |
| $ | (43,238 | ) |
| $ | 1,526,133 |
| ||||||||||||||||||||||||||||
Balance, December 31, 2022 |
|
| 79,683 |
|
| $ | 79,683 |
|
| $ | 2,294,797 |
|
| $ | (208,979 | ) |
| $ | 97,652 |
|
| $ | 2,263,153 |
| ||||||||||||||||||||||||
Net income |
| — |
| — |
| — |
| 163,880 |
| — |
| 163,880 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,260 |
|
|
| — |
|
|
| 16,260 |
| |||||||||||
Shares issued for stock compensation |
| 308 |
| 308 |
| (308 | ) |
| — |
| — |
| — |
|
|
| 233 |
|
|
| 233 |
|
|
| (233 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||
Equity-based compensation expense |
| — |
| — |
| 2,056 |
| — |
| — |
| 2,056 |
|
|
| — |
|
|
| — |
|
|
| 2,279 |
|
|
| — |
|
|
| — |
|
|
| 2,279 |
| |||||||||||
Pension plans and OPEB obligations, net of tax |
| — |
| — |
| — |
| — |
| 7,480 |
| 7,480 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (131 | ) |
|
| (131 | ) | |||||||||||
Cash flow hedges, net of tax |
| — |
| — |
| — |
| — |
| 43,276 |
| 43,276 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17,335 | ) |
|
| (17,335 | ) | |||||||||||
Dividends on common stock, $0.44 per share |
| — |
| — |
| — |
| (30,524 | ) |
| — |
| (30,524 | ) | ||||||||||||||||||||||||||||||||||
Common dividends, $0.45 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (35,962 | ) |
|
| — |
|
|
| (35,962 | ) | ||||||||||||||||||||||||
Other transactions, net |
|
| — |
|
|
| — |
|
|
| (25 | ) |
|
| (78 | ) |
|
| — |
|
|
| (103 | ) |
|
| — |
|
|
| — |
|
|
| 84 |
|
|
| (85 | ) |
|
| — |
|
|
| (1 | ) |
Balance, March 31, 2022 |
|
| 69,372 |
|
| $ | 69,372 |
|
| $ | 1,782,940 |
|
| $ | (147,632 | ) |
| $ | 7,518 |
|
| $ | 1,712,198 |
| ||||||||||||||||||||||||
Balance, March 31, 2023 |
|
| 79,916 |
|
| $ | 79,916 |
|
| $ | 2,296,927 |
|
| $ | (228,766 | ) |
| $ | 80,186 |
|
| $ | 2,228,263 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
| Additional Paid- |
|
| Accumulated |
|
| Accumulated Other |
|
| Total Stockholders' |
|
| Common Stock |
|
| Additional Paid- |
|
| Accumulated |
|
| Accumulated Other |
|
| Total Stockholders' |
| ||||||||||||||||||
(in thousands, except per share amounts) |
| Shares |
|
| Amount |
|
| in Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
|
| Shares |
|
| Amount |
|
| in Capital |
|
| Deficit |
|
| Income (Loss) |
|
| Equity |
| ||||||||||||
Balance, December 31, 2020 |
| 66,876 |
| $ | 66,876 |
| $ | 1,674,576 |
| $ | (315,510 | ) |
| $ | (120,989 | ) |
| $ | 1,304,953 |
| ||||||||||||||||||||||||||||
Balance, December 31, 2021 |
|
| 69,064 |
|
| $ | 69,064 |
|
| $ | 1,781,217 |
|
| $ | (280,910 | ) |
| $ | (43,238 | ) |
| $ | 1,526,133 |
| ||||||||||||||||||||||||
Net income |
| — |
| — |
| — |
| 131,106 |
| — |
| 131,106 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 163,880 |
|
|
| — |
|
|
| 163,880 |
| |||||||||||
Shares issued for stock compensation |
| 166 |
| 166 |
| (166 | ) |
| — |
| — |
| — |
|
|
| 308 |
|
|
| 308 |
|
|
| (308 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||
Equity-based compensation expense |
| — |
| — |
| 1,930 |
| — |
| — |
| 1,930 |
|
|
| — |
|
|
| — |
|
|
| 2,056 |
|
|
| — |
|
|
| — |
|
|
| 2,056 |
| |||||||||||
Pension plans and OPEB obligations, net of tax |
| — |
| — |
| — |
| — |
| 2,953 |
| 2,953 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,480 |
|
|
| 7,480 |
| |||||||||||
Cash flow hedges, net of tax |
| — |
| — |
| — |
| — |
| 64,107 |
| 64,107 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 43,276 |
|
|
| 43,276 |
| |||||||||||
Dividends on common stock, $0.41 per share |
| — |
| — |
| — |
| (27,484 | ) |
| — |
| (27,484 | ) | ||||||||||||||||||||||||||||||||||
Common dividends, $0.44 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30,524 | ) |
|
| — |
|
|
| (30,524 | ) | ||||||||||||||||||||||||
Other transactions, net |
|
| — |
|
|
| — |
|
|
| 81 |
|
|
| (97 | ) |
|
| — |
|
|
| (16 | ) |
|
| — |
|
|
| — |
|
|
| (25 | ) |
|
| (78 | ) |
|
| — |
|
|
| (103 | ) |
Balance, March 31, 2021 |
|
| 67,042 |
|
| $ | 67,042 |
|
| $ | 1,676,421 |
|
| $ | (211,985 | ) |
| $ | (53,929 | ) |
| $ | 1,477,549 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 |
|
| 69,372 |
|
| $ | 69,372 |
|
| $ | 1,782,940 |
|
| $ | (147,632 | ) |
| $ | 7,518 |
|
| $ | 1,712,198 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
INDEX FOR THE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
10 | |
11 | |
13 | |
13 | |
14 | |
15 | |
| |
16 | |
17 | |
| |
| |
Note 12: Components of Accumulated Other Comprehensive (Loss) Income | 19 |
19 | |
20 |
9
Notes to Condensed Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION
General
PotlatchDeltic Corporation and its subsidiaries (collectively referred to in this report as the company, us, we or our) is a leading timberland Real Estate Investment Trust (REIT) with operations in sevennine states. We are engaged in activities associated with timberland management, including the sale of timber, the management of approximatelynearly 1.82.2 million acres of timberlands and the purchase and sale of timberlands. We are also engaged in the manufacturing and sale of wood products and the development of real estate. Our timberlands, real estate development projects and all of our wood products facilities are located within the continental United States. The primary market for our products is the United States. We converted to a REIT effective January 1, 2006.
Condensed Consolidated Financial Statements
The accompanying unaudited Condensed Consolidated Financial Statements provide an overall view of our results and financial condition and reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Except as otherwise disclosed in these Notes to Condensed Consolidated Financial Statements, such adjustments are of a normal, recurring nature. Intercompany transactions and accounts have been eliminated in consolidation. The Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. Certain disclosures normally provided in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021,2022, as filed with the Securities and Exchange Commission on February 17, 2022.16, 2023. Results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the full year.
Use of Estimates
The preparation of our Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and requires judgments affecting the amounts reported in the financial statements and the accompanying notes.Actual results may differ materially from our estimates.
Commitments and ContingenciesRecent Accounting Standards
At any givenFrom time weto time, new accounting pronouncements are subject to claims and actions incidental toissued by the operations of our business. Based on information currently available, we do not expect that any sums we may receive or have to pay in connection with any legal proceeding would have a material adverse effect on our consolidated financial position, operating results or net cash flow.
NewFinancial Accounting Standards Being Evaluated
In March 2020,Board or other standard setting bodies and are adopted by the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitationcompany as of the Effectsspecified effective date. For the three months ended March 31, 2023, there were no new accounting pronouncements that management believes materially affect the company’s present or future results of Reference Rate Reform on Financial Reporting. ASU 2020-04 contains practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by this guidance apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR)operations, overall financial condition, liquidity or another reference rate expected to be discontinued as a result of reference rate reform. The guidance in ASU 2020-04, which can be applied immediately, is optional and may be elected over time as reference rate reform activities occur. This guidance is not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity was expected to be completed. Our credit agreement, variable rate term loans with $403.5 million in principal, and interest rate derivative agreements have an interest rate tied to LIBOR. We continue to evaluate the impact of the guidance, are monitoring the developments regarding the alternative rates, will work with our lenders and counterparties to identify a suitable replacement rate, may amend certain debt and interest rate derivative agreements to accommodate those rates, and may apply elections allowed under the standard as applicable as additional changes in the market occur.disclosures.
10
NOTE 2. SEGMENT INFORMATION
Our operations are organized into 3three reportable 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 and carbon sequestration. The Wood Products segment manufactures and markets lumber and plywood. Activities in theThe Real Estate segment include our rural timberland-holdings sales program,includes the sale of land holdings deemed non-strategic or identified as having higher and better use alternatives, a master planned community development and a country club.
Our Timberlands segment supplies our Wood Products segment with a portion of its wood fiber needs. These intersegment revenues are based on prevailing market prices and typically represent a sizeable portion of the Timberlands segment’s total revenues. Our other segments generally do not generate intersegment revenues. These intercompany transactions are eliminated in consolidation.
The reportable segments follow the same accounting policies used for our Condensed Consolidated Financial Statements, with the exception of the valuation of inventories, which are reported using the average cost method for purposes of reporting segment results.
The following table presents our revenues by major product:
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||
(in thousands) | 2022 |
|
| 2021 |
| 2023 |
|
| 2022 |
| ||||
Timberlands |
|
|
|
|
|
|
|
| ||||||
Northern region |
|
|
|
|
|
|
|
|
|
| ||||
Sawlogs | $ | 81,504 |
| $ | 76,181 |
| $ | 53,325 |
|
| $ | 81,504 |
| |
Pulpwood |
| 392 |
| 499 |
|
| 403 |
|
|
| 392 |
| ||
Other |
| 303 |
|
|
| 300 |
|
| 261 |
|
|
| 303 |
|
Total Northern revenues |
| 82,199 |
|
|
| 76,980 |
|
| 53,989 |
|
|
| 82,199 |
|
|
|
|
|
|
|
|
|
| ||||||
Southern region |
|
|
|
|
|
|
|
|
|
| ||||
Sawlogs |
| 23,381 |
| 22,416 |
|
| 31,754 |
|
|
| 23,381 |
| ||
Pulpwood |
| 11,627 |
| 9,161 |
|
| 16,132 |
|
|
| 11,627 |
| ||
Stumpage |
| 3,358 |
| 764 |
|
| 9,233 |
|
|
| 3,358 |
| ||
Other |
| 3,092 |
|
|
| 2,595 |
|
| 4,130 |
|
|
| 3,092 |
|
Total Southern revenues |
| 41,458 |
|
|
| 34,936 |
|
| 61,249 |
|
|
| 41,458 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Timberlands revenues |
| 123,657 |
|
|
| 111,916 |
|
| 115,238 |
|
|
| 123,657 |
|
|
|
|
|
|
|
|
|
| ||||||
Wood Products |
|
|
|
|
|
|
|
| ||||||
Lumber |
| 250,764 |
| 229,682 |
|
| 113,798 |
|
|
| 250,764 |
| ||
Residuals and Panels |
| 44,978 |
|
|
| 39,614 |
|
| 38,997 |
|
|
| 44,978 |
|
Total Wood Products revenues |
| 295,742 |
|
|
| 269,296 |
|
| 152,795 |
|
|
| 295,742 |
|
|
|
|
|
|
|
|
|
| ||||||
Real Estate |
|
|
|
|
|
|
|
| ||||||
Rural real estate |
| 21,646 |
| 10,025 |
|
| 17,819 |
|
|
| 21,646 |
| ||
Development real estate |
| 10,278 |
| 8,053 |
|
| 2,800 |
|
|
| 10,278 |
| ||
Other |
| 2,141 |
|
|
| 2,235 |
|
| 3,244 |
|
|
| 2,141 |
|
Total Real Estate revenues |
| 34,065 |
|
|
| 20,313 |
|
| 23,863 |
|
|
| 34,065 |
|
|
|
|
|
|
|
|
|
| ||||||
Total segment revenues |
| 453,464 |
| 401,525 |
|
| 291,896 |
|
|
| 453,464 |
| ||
Intersegment Timberlands revenues1 |
| (42,114 | ) |
|
| (47,332 | ) |
| (33,934 | ) |
|
| (42,114 | ) |
Total consolidated revenues | $ | 411,350 |
|
| $ | 354,193 |
| $ | 257,962 |
|
| $ | 411,350 |
|
1 | Intersegment revenues represent logs sold by our Timberlands segment to our Wood Products segment. |
11
Management uses Adjusted EBITDDA to evaluate the operating performance and effectiveness of operating strategies of our segments and allocation of resources to them. Our calculation of Adjusted EBITDDA may not be comparable to that reported by other companies. EBITDDA is calculated as net income 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 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 March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Adjusted EBITDDA: |
|
|
|
|
|
|
|
|
|
|
| |||||
Timberlands |
| $ | 76,434 |
| $ | 67,858 |
|
| $ | 46,639 |
|
| $ | 76,434 |
| |
Wood Products |
| 149,951 |
| 125,555 |
|
|
| (31 | ) |
|
| 149,951 |
| |||
Real Estate |
| 30,124 |
| 16,593 |
|
|
| 19,465 |
|
|
| 30,124 |
| |||
Corporate |
| (9,584 | ) |
| (10,710 | ) |
|
| (10,741 | ) |
|
| (9,584 | ) | ||
Eliminations and adjustments |
|
| (1,363 | ) |
|
| (4,310 | ) |
|
| 2,445 |
|
|
| (1,363 | ) |
Total Adjusted EBITDDA |
| 245,562 |
| 194,986 |
|
|
| 57,777 |
|
|
| 245,562 |
| |||
Interest expense, net1 |
| (2,894 | ) |
| (3,574 | ) |
|
| (199 | ) |
|
| (2,894 | ) | ||
Depreciation, depletion and amortization |
| (19,502 | ) |
| (17,996 | ) |
|
| (31,764 | ) |
|
| (19,502 | ) | ||
Basis of real estate sold |
| (10,854 | ) |
| (8,823 | ) |
|
| (10,631 | ) |
|
| (10,854 | ) | ||
Net loss on fire damage |
| (276 | ) |
| — |
| ||||||||||
CatchMark merger-related expenses |
|
| (2,209 | ) |
|
| — |
| ||||||||
Loss on fire damage |
|
| — |
|
|
| (276 | ) | ||||||||
Pension settlement charge |
| (14,165 | ) |
| — |
|
|
| — |
|
|
| (14,165 | ) | ||
Non-operating pension and other postretirement employee benefits |
| (1,929 | ) |
| (3,414 | ) | ||||||||||
Gain (loss) on disposal of fixed assets |
|
| 3 |
|
|
| (34 | ) | ||||||||
Non-operating pension and other postretirement employee benefit costs |
|
| (228 | ) |
|
| (1,929 | ) | ||||||||
Gain on disposal of fixed assets |
|
| — |
|
|
| 3 |
| ||||||||
Other |
|
| 10 |
|
|
| — |
| ||||||||
Income before income taxes |
| $ | 195,945 |
|
| $ | 161,145 |
|
| $ | 12,756 |
|
| $ | 195,945 |
|
|
|
|
|
|
|
| ||||||||||
Depreciation, depletion and amortization: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Timberlands |
| $ | 12,161 |
| $ | 11,417 |
|
| $ | 20,461 |
|
| $ | 12,161 |
| |
Wood Products |
| 7,021 |
| 6,203 |
|
|
| 11,035 |
|
|
| 7,021 |
| |||
Real Estate |
| 170 |
|
|
| 155 |
|
|
| 156 |
|
|
| 170 |
| |
Corporate |
|
| 150 |
|
|
| 221 |
|
|
| 112 |
|
|
| 150 |
|
|
| 19,502 |
| 17,996 |
|
|
| 31,764 |
|
|
| 19,502 |
| |||
Bond discounts and deferred loan fees1 |
|
| 372 |
|
|
| 403 |
|
|
| 409 |
|
|
| 372 |
|
Total depreciation, depletion and amortization |
| $ | 19,874 |
|
| $ | 18,399 |
|
| $ | 32,173 |
|
| $ | 19,874 |
|
|
|
|
|
|
| |||||||||||
Basis of real estate sold: |
|
|
|
|
|
|
|
|
|
|
| |||||
Real Estate |
| $ | 10,860 |
| $ | 8,829 |
|
| $ | 10,631 |
|
| $ | 10,860 |
| |
Eliminations and adjustments |
|
| (6 | ) |
|
| (6 | ) |
|
| — |
|
|
| (6 | ) |
Total basis of real estate sold |
| $ | 10,854 |
|
| $ | 8,823 |
|
| $ | 10,631 |
|
| $ | 10,854 |
|
1 | Bond discounts and deferred loan fees are reported within interest expense, net on the Condensed Consolidated Statements of Operations. |
12
NOTE 3. EARNINGS PER SHARE
The following table reconciles the number of shares used in calculating basic and diluted earnings per share:
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Basic weighted-average shares outstanding |
| 69,419 |
| 67,207 |
|
|
| 80,027 |
|
|
| 69,419 |
| |||
Incremental shares due to: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Performance shares |
| 140 |
| 326 |
|
|
| 97 |
|
|
| 140 |
| |||
Restricted stock units |
|
| 64 |
|
|
| 74 |
|
|
| 43 |
|
|
| 64 |
|
Diluted weighted-average shares outstanding |
|
| 69,623 |
|
|
| 67,607 |
|
|
| 80,167 |
|
|
| 69,623 |
|
For stock-based awards, the dilutive effect is calculated using the treasury stock method. Under this method, the dilutive effect is computed as if the awards were exercised at the beginning of the period (or at time of issuance, if later) and assumes the related proceeds were used to repurchase common stock at the average market price during the period. Related proceeds include future compensation cost associated with the stock award.
For the three months ended March 31, 20222023 and 2021,2022, there were approximately 114,400134,000 and 63,000114,400 stock-based awards, respectively, that were excluded from the calculation of diluted earnings per share as they were anti-dilutive. Anti-dilutive stock-based awards could be dilutive in future periods.
Share Repurchase Program
On August 30, 2018,31, 2022, our board of directors authorized management to repurchase up to $100.0200.0 million of our common stock with no set time limit set for the repurchase (the 2022 Repurchase Program). Concurrently, the board of directors terminated the remaining repurchase authorization under a previously approved share repurchase plan.
Shares under the 2022 Repurchase Program may be repurchased under the Repurchase Program in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan). The timing, manner, price and amount of repurchases will be determined according to, and, subject to the terms of the Trading Plan, and, subject to the terms of the Trading Plan, the2022 Repurchase Program may be suspended, terminated or modified at any time for any reason.
We did 0Not repurchase any shares were repurchased during the three months ended March 31, 2022 or 2021.2023 and 2022. At March 31, 2022,2023, we had remaining authorization of $59.5150.0 million for future stock repurchases under the 2022 Repurchase Program. Transaction costs are not counted against authorized funds.
We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability to account for repurchases that have not been cash settled. We retire shares upon repurchase. Any excess repurchase price over par is recorded in accumulated deficit.
NOTE 4. CERTAIN BALANCE SHEET COMPONENTS
Inventories
(in thousands) |
| March 31, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
Logs |
| $ | 32,794 |
| $ | 41,199 |
|
| $ | 24,428 |
|
| $ | 30,586 |
| |
Lumber, panels and veneer |
| 37,539 |
| 34,528 |
|
|
| 38,526 |
|
|
| 35,888 |
| |||
Materials and supplies |
|
| 18,478 |
|
|
| 17,780 |
|
|
| 23,013 |
|
|
| 21,262 |
|
Total inventories |
| 88,811 |
| 93,507 |
|
|
| 85,967 |
|
|
| 87,736 |
| |||
Less: LIFO reserve |
|
| (21,138 | ) |
|
| (21,138 | ) |
|
| (19,778 | ) |
|
| (19,778 | ) |
Total inventories, net |
| $ | 67,673 |
|
| $ | 72,369 |
|
| $ | 66,189 |
|
| $ | 67,958 |
|
|
|
|
|
|
|
Property, plant and equipment
(in thousands) |
| March 31, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
Property, plant and equipment |
| $ | 545,163 |
| $ | 532,324 |
|
| $ | 594,574 |
|
| $ | 588,935 |
| |
Less: accumulated depreciation |
|
| (247,453 | ) |
|
| (240,004 | ) |
|
| (281,783 | ) |
|
| (270,751 | ) |
Total property, plant and equipment, net |
| $ | 297,710 |
|
| $ | 292,320 |
|
| $ | 312,791 |
|
| $ | 318,184 |
|
|
|
|
|
|
|
13
Ola, Arkansas sawmill fire
On June 13, 2021, a fire occurred at our Ola, Arkansas sawmill. There were no injuries or environmental issues from the fire. The damage was principally limited to the large log primary breakdown area of the mill. The planer mill, kiln, and shipping department were not affected. The new equipment has been installed and the large log line restarted in September 2022. We have adequate property damage and business interruption insurance and expect to be reimbursed for both property damage and business interruption losses by our insurance carriers, subject to an applicable deductible. We recognizeda $2.0 million deductible, under which we filed a claim with the insurance carriers. Through December 31, 2022, we received a total of $15.050.0 million in initialfrom the insurance recoveriescarriers for both property damage associated with the fireand business interruption proceeds at the sawmill during the third quarter of 2021.Ola sawmill. NaNNo insurance recoveries for property damage or business interruption lossesproceeds were received for the fire at the sawmill were recordedclaim during the three months ended March 31, 2022 as discussions with2023. We are in the process of finalizing our insurance carriers are ongoing.claim and expect to receive the remaining insurance proceeds in 2023. Insurance recoveries will beare recorded when deemed probable and reasonably estimable.
Timber and timberlands
(in thousands) |
| March 31, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
Timber and timberlands |
| $ | 1,586,628 |
| $ | 1,597,011 |
|
| $ | 2,397,681 |
|
| $ | 2,416,134 |
| |
Logging roads |
|
| 84,702 |
|
|
| 85,660 |
|
|
| 91,275 |
|
|
| 92,238 |
|
Total timber and timberlands, net |
| $ | 1,671,330 |
|
| $ | 1,682,671 |
|
| $ | 2,488,956 |
|
| $ | 2,508,372 |
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
(in thousands) |
| March 31, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
Income taxes payable |
| $ | 35,421 |
| $ | 1,134 |
| |||||||||
Accrued payroll and benefits |
| 19,084 |
| 28,944 |
|
| $ | 15,920 |
|
| $ | 29,051 |
| |||
Accounts payable |
| 10,419 |
| 12,749 |
|
|
| 11,510 |
|
|
| 12,241 |
| |||
Deferred revenue1 |
| 9,671 |
| 8,392 |
|
|
| 8,606 |
|
|
| 10,860 |
| |||
Other accrued taxes |
| 7,310 |
| 5,714 |
| |||||||||||
Accrued interest |
| 4,468 |
| 6,046 |
|
|
| 6,603 |
|
|
| 7,778 |
| |||
Accrued taxes |
|
| 8,629 |
|
|
| 7,161 |
| ||||||||
Other current liabilities |
|
| 15,216 |
|
|
| 15,230 |
|
|
| 27,000 |
|
|
| 27,770 |
|
Total accounts payable and accrued liabilities |
| $ | 101,589 |
|
| $ | 78,209 |
|
| $ | 78,268 |
|
| $ | 94,861 |
|
|
|
|
|
|
|
1 | Deferred revenue predominately relates to hunting and other access rights on our timberlands, payments received for lumber shipments where control of goods has not transferred, member-related activities at an owned country club and certain post-close obligations for real estate sales. These contract liabilities are recognized over the term of the contracts, which is typically twelve months or less, except for country club initiation fees which are recognized over the average life of club membership. |
NOTE 5. DEBT
TERM LOANS
At March 31, 2022,2023, our total outstanding principal on our long-term debt of $1.0 billion included $693.5971.0 million of term loans under our Second Amended and Restated Term Loan Agreement (Amended Term Loan Agreement) with our primary lender. Included in the Amended Term Loan Agreement is a $40.0 million term loan that we expect to refinance upon its maturity in December 2022. Certain borrowings under the Amended Term Loan Agreement are at one-month SOFR-indexed variable rates, of one or three-month LIBOR plus a spread between 1.681.66% and 2.102.30%. We have entered into SOFR-indexed interest rate swaps forto fix the interest rate on these variable rate term loans to fix the interest rate.loans. See Note: 6 Derivative Instruments for additional information.
CREDIT AGREEMENT
At March 31, 2022,2023, there were no borrowings under our $300.0 million revolving line of credit andapproximately $1.00.9 million of our revolving line of credit was utilized for outstanding letters of credit. As provided in the revolving line of credit agreement, borrowings may be increased by up to an additional $500.0 million. The revolving line of credit agreement also includes a sublimit of $75.0 million for the issuance of standby letters of credit and a sublimit of $25.0 million for swing line loans. Usage under either or both subfacilitiessub facilities reduces availability under the revolving line of credit. We may utilize borrowings under the credit facility to, among other things, refinance existing indebtedness and provide funding for working capital requirements, capital projects, acquisitions and other general corporate expenditures.
We were in compliance with all debt and credit agreement covenants at March 31, 2022.2023.
14
NOTE 6. DERIVATIVE INSTRUMENTS
From time to time, we enter into derivative financial instruments to manage certain cash flow and fair value risks.
Derivatives designated and qualifying as a hedge of the exposure to variability in the cash flows of a specific asset or liability that is attributable to a particular risk, such as interest rate risk, are considered cash flow hedges. As of March 31, 2022, we have interest rate swaps associated with $403.5 million of term loan debt. These swaps are cash flow hedges that convert variable rates ranging from one-month and three-month LIBOR plus 1.68% to 2.10%, to fixed rates ranging from 3.04% to 4.75%. OurAll our cash flow hedges are expected to be highly effective in achieving offsetting cash flows attributable to the hedged interest rate risk through the term of the hedges.
At March 31, 2023, we have interest rate swaps associated with $721.0 million of SOFR-indexed term loan debt. These cash flow hedges convert variable rates ranging from one-month SOFR plus 1.66% to 2.30%, to fixed rates ranging from 2.19% to 4.79% before patronage credits from lenders. At March 31, 2023, we also have $250.0 million of forward-starting interest rate swaps designated as cash flow hedges for expected future debt refinances that require settlement on the stated maturity date.
The gross fair values of derivative instruments at March 31, 2023 and December 31, 2022, were $124.3 million and $144.6 million, respectively, all of which were classified in Other assets, non-current on our Condensed Consolidated Balance Sheets. Derivative instruments that mature within one year, as a whole, are classified as current.
The following table details the effect of derivatives on our Condensed Consolidated Statements of Operations:
|
|
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| Location |
| 2023 |
|
| 2022 |
| ||
Derivatives designated in cash flow hedging relationships: |
|
|
|
| ||||||
Interest rate contracts |
|
|
|
|
|
|
|
| ||
(Loss) income recognized in other comprehensive (loss) income, net of tax |
|
|
| $ | (13,591 | ) |
| $ | 41,330 |
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax1 |
| Interest expense, net |
| $ | 3,744 |
|
| $ | (1,946 | ) |
|
|
|
|
|
|
|
|
| ||
Interest expense, net |
|
|
| $ | 199 |
|
| $ | 2,894 |
|
1 Realized gains and losses on interest rate contracts consist of realized net cash received or paid and interest accruals on the interest rate swaps during the periods in addition to amortization of amounts out of other comprehensive (loss) income related to certain terminated hedges and adjustments to interest expense resulting from amortization of inception value of certain off-market designated hedges. Net cash received or paid is included within Interest expense, net in the Condensed Consolidated Statements of Operations.
At March 31, 2023, the amount of net lossesgains expected to be reclassified into earnings in the next 12 months is approximately $1.415.6 million. However, this expected amount to be reclassified into earnings is subject to volatility as the ultimate amount recognized in earnings is based on the LIBOR rateSOFR rates at the time of net swap cash payments.
As of March 31, 2022, we have $567.5 million of forward starting interest rate swaps designated as cash flow hedges. These forward starting interest rate swaps effectively hedge the variability in future benchmark interest payments attributable to changes in interest rates on $567.5 million of future debt refinances through January 2029 by converting the benchmark interest rates to fixed interest rates. In addition, the cash flow hedges for future debt refinances require settlement on the stated maturity date.
The gross fair values of derivative instruments on our Condensed Consolidated Balance Sheets are as follows:
|
|
|
| Asset Derivatives |
|
|
|
| Liability Derivatives |
| ||||||||||
(in thousands) |
| Location |
| March 31, 2022 |
|
| December 31, 2021 |
|
| Location |
| March 31, 2022 |
|
| December 31, 2021 |
| ||||
Derivatives designated in cash flow hedging relationships: |
|
|
|
|
|
|
|
|
| |||||||||||
Interest rate contracts |
| Other assets, current1 |
| $ | 4,673 |
|
| $ | 2,191 |
|
| Accounts payable and accrued liabilities1 |
| $ | 0 |
|
| $ | — |
|
Interest rate contracts |
| Other assets, non-current |
|
| 57,487 |
|
|
| 31,306 |
|
| Other long-term obligations |
|
| 7,197 |
|
|
| 24,060 |
|
|
|
|
| $ | 62,160 |
|
| $ | 33,497 |
|
|
|
| $ | 7,197 |
|
| $ | 24,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details the effect of derivatives on our Condensed Consolidated Statements of Operations:
|
|
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| Location |
| 2022 |
|
| 2021 |
| ||
Derivatives designated in cash flow hedging relationships: |
|
|
|
| ||||||
Interest rate contracts |
|
|
|
|
|
|
|
| ||
Income recognized in other comprehensive income, net of tax |
|
|
| $ | 41,243 |
|
| $ | 61,875 |
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax1 |
| Interest expense |
| $ | (2,033 | ) |
| $ | (2,232 | ) |
|
|
|
|
| ||||||
Interest expense, net |
|
|
| $ | 2,894 |
|
| $ | 3,574 |
|
|
|
|
|
|
|
|
|
|
|
|
15
NOTE 7. FAIR VALUE MEASUREMENTS
The following table presents the estimated fair values of our financial instruments:
|
| March 31, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||||
(in thousands) |
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||||||
Derivative assets related to interest rate swaps (Level 2) |
| $ | 62,160 |
| $ | 62,160 |
| $ | 33,497 |
| $ | 33,497 |
|
| $ | 124,328 |
|
| $ | 124,328 |
|
| $ | 144,583 |
|
| $ | 144,583 |
| |||
Derivative liabilities related to interest rate swaps (Level 2) |
| $ | (7,197 | ) |
| $ | (7,197 | ) |
| $ | (24,060 | ) |
| $ | (24,060 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Long-term debt, including current portion (Level 2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Term loans |
| $ | (691,282 | ) |
| $ | (694,353 | ) |
| $ | (691,119 | ) |
| $ | (705,135 | ) |
| $ | (969,432 | ) |
| $ | (963,277 | ) |
| $ | (969,269 | ) |
| $ | (961,632 | ) |
Revenue bonds |
| (65,735 | ) |
| (66,754 | ) |
| (65,735 | ) |
| (69,278 | ) |
|
| (65,735 | ) |
|
| (64,788 | ) |
|
| (65,735 | ) |
|
| (64,602 | ) | ||||
Medium-term notes |
|
| — |
|
|
| — |
|
|
| (3,000 | ) |
|
| (3,007 | ) | ||||||||||||||||
Total long-term debt1 |
| $ | (757,017 | ) |
| $ | (761,107 | ) |
| $ | (759,854 | ) |
| $ | (777,420 | ) |
| $ | (1,035,167 | ) |
| $ | (1,028,065 | ) |
| $ | (1,035,004 | ) |
| $ | (1,026,234 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Company owned life insurance asset (COLI) (Level 3) |
| $ | 4,002 |
| $ | 4,002 |
| $ | 3,923 |
| $ | 3,923 |
|
| $ | 4,512 |
|
| $ | 4,512 |
|
| $ | 4,311 |
|
| $ | 4,311 |
| |||
|
|
|
|
|
|
|
|
|
|
1 | The carrying amount of long-term debt includes principal and unamortized discounts. |
The fair value of interest rate swaps areis determined using a discounted cash flow analysis, based on third partythird-party sources, on the expected cash flows of each derivative. The analysis reflects the contractual terms of the derivatives, including the period to maturity and uses observable market-based inputs, including interest rate forward curves.
The fair value of our long-term debt is estimated based upon quoted market prices for similar debt issues or estimated based on average market prices for comparable debt when there is no quoted market price.
The contract value of our company owned life insurance is based on the amount at which it could be redeemed and, accordingly, approximates fair value.
15
We believe that our other financial instruments, including cash and cash equivalents, restricted cash, receivables and payables have net carrying values that approximate their fair values with only insignificant differences. This is primarily due to the short-term nature of these instruments.
NOTE 8. EQUITY-BASED COMPENSATION
We issue new shares of common stock to settle performance stock awards (PSAs), restricted stock units (RSUs) and deferred compensation stock equivalent units. At March 31, 2022,2023, approximately 0.71.9 million shares are available for future use under our long-term incentive plans.
Share-based compensation activity during the three months ended March 31, 20222023, included the following:
(Shares in thousands) |
| Granted |
|
| Vested |
|
| Forfeited |
| |||||||||||||||
|
| Granted |
|
| Vested |
|
| Forfeited |
| |||||||||||||||
Performance Share Awards (PSAs) |
| 92,490 |
| — |
| 971 |
|
|
| 106,342 |
|
|
| — |
|
|
| 751 |
| |||||
Restricted Stock Units (RSUs) |
| 34,324 |
| 500 |
| 1,323 |
|
|
| 70,901 |
|
|
| — |
|
|
| 250 |
| |||||
|
|
|
|
|
|
|
|
Approximately 0.30.2 million shares of common stock as a result of PSA and RSU vesting during 2022 were issued to employees during the three months ended March 31, 2022 as a result of PSA and RSU vesting during 2021 and 2022.2023.
The following table details equity-based compensation expense and the related income tax benefit:benefit for company specific equity-based awards:
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2022 |
|
| 2021 |
| ||
Equity-based compensation expense: |
|
|
|
|
|
| ||
Performance share awards |
| $ | 1,298 |
|
| $ | 1,224 |
|
Restricted stock units |
|
| 709 |
|
|
| 665 |
|
Deferred compensation stock equivalent units expense |
|
| 49 |
|
|
| 41 |
|
Total equity-based compensation expense |
| $ | 2,056 |
|
| $ | 1,930 |
|
|
|
|
|
|
|
| ||
Total tax benefit recognized for equity-based expense |
| $ | 100 |
|
| $ | 89 |
|
|
|
|
|
|
|
|
16
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Equity-based compensation expense: |
|
|
|
|
|
| ||
Performance share awards |
| $ | 1,421 |
|
| $ | 1,298 |
|
Restricted stock units |
|
| 809 |
|
|
| 709 |
|
Deferred compensation stock equivalent units expense |
|
| 49 |
|
|
| 49 |
|
Total equity-based compensation expense |
| $ | 2,279 |
|
| $ | 2,056 |
|
|
|
|
|
|
|
| ||
Total tax benefit recognized for equity-based expense |
| $ | 122 |
|
| $ | 100 |
|
Performance Share Awards
The weighted average grant date fair value of PSAs granted in 20222023 was $76.1861.21 per share. PSAs granted under the stock incentive plans have a three-year performance period and shares are issued at the end of the period if the performance measures are met. The number of shares actually issued, as a percentage of the amount subject to the PSA, could range from 0% to 200%. PSAs granted under the stock incentive plans do not have voting rights unless and until shares are issued upon settlement. If shares are issued at the end of the performance measurement period, the recipients will receive dividend equivalents in the form of additional shares of common stock at the timedate of paymentsettlement equal to the dividends that would have been paid on the shares earned had the recipients owned the shares during the three-year period. Therefore, the shares are not considered participating securities.
The following table presents the key inputs used in the Monte Carlo simulation to calculate the fair value of the performance share awards granted in 2022:2023:
Stock price as of valuation date |
| $ | 55.02 |
|
| $ | 47.55 |
|
Risk-free rate |
| 1.79 | % |
|
| 4.14 | % | |
Expected volatility |
| 45.69 | % |
|
| 36.24 | % | |
Expected dividend yield1 |
| — |
|
|
| — |
| |
Expected term (years) |
| 3.00 |
|
|
| 3.00 |
| |
|
|
|
|
1 | Full dividend reinvestment assumed. |
Restricted Stock Units
The weighted average fair value of all RSUs granted during the three months ended March 31, 20222023, was $54.7947.55 per share. The fair value of RSUs granted equaled our common share price on the date of grant factoring in any required post-vesting holding periods. The RSU awards granted accrue dividend equivalents based on dividends paid during the RSU vesting period. Recipients will receive dividend equivalents in the form of additional shares of common stock at the date the vested RSUs are settled. Any forfeited RSUs will not receive dividends. Therefore, the shares are not considered participating securities.
16
NOTE 9. INCOME TAXES
As a REIT, we generally are not subject to federal and state corporate income taxes on income from investments in real estate, including our timberlands, that we distribute to our shareholders. We conduct certain activities through our PotlatchDeltic taxable REIT subsidiaries (TRS) which are subject to corporate level federal and state income taxes. These activities are principally comprised of our wood products manufacturing operations and certain real estate investments. Therefore, income tax expense or benefit is primarily due to pre-tax book income or loss of the TRS, as well as permanent book versus tax differences.differences and discrete items.
17
NOTE 10. LEASES
We lease certain equipment, office space and land. Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
The following table presents supplemental balance sheet information related to lease assets and liabilities:
(in thousands) | Classification |
| March 31, 2022 |
|
| December 31, 2021 |
| Classification |
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating lease assets | Other long-term assets |
| $ | 7,794 |
| $ | 8,514 |
| Other long-term assets |
| $ | 8,497 |
|
| $ | 9,306 |
| |
Finance lease assets1 | Property, plant and equipment, net |
|
| 10,012 |
|
|
| 10,663 |
| Property, plant and equipment, net |
|
| 12,416 |
|
|
| 13,213 |
|
Total lease assets |
| $ | 17,806 |
|
| $ | 19,177 |
|
| $ | 20,913 |
|
| $ | 22,519 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
| ||||||||
Current: |
|
|
|
|
|
|
|
|
|
| ||||||||
Operating lease liabilities | Accounts payable and accrued liabilities |
| $ | 2,845 |
| $ | 3,021 |
| Accounts payable and accrued liabilities |
| $ | 2,293 |
|
| $ | 2,570 |
| |
Finance lease liabilities | Accounts payable and accrued liabilities |
| 3,550 |
| 3,577 |
| Accounts payable and accrued liabilities |
|
| 4,559 |
|
|
| 4,834 |
| |||
Noncurrent: |
|
|
|
|
|
|
|
|
|
| ||||||||
Operating lease liabilities | Other long-term obligations |
| 5,013 |
| 5,598 |
| Other long-term obligations |
|
| 6,199 |
|
|
| 6,716 |
| |||
Finance lease liabilities | Other long-term obligations |
|
| 6,342 |
|
|
| 6,972 |
| Other long-term obligations |
|
| 7,626 |
|
|
| 8,179 |
|
Total lease liabilities |
| $ | 17,750 |
|
| $ | 19,168 |
|
| $ | 20,677 |
|
| $ | 22,299 |
| ||
|
|
|
|
|
|
1 | Finance lease assets are presented net of accumulated amortization of $ |
The following table presents the components of lease expense:
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Operating lease costs1 |
| $ | 947 |
| $ | 1,328 |
|
| $ | 886 |
|
| $ | 947 |
| |
Finance lease costs: |
|
|
|
|
|
|
|
|
|
| ||||||
Amortization of leased assets |
| 929 |
| 589 |
|
|
| 1,231 |
|
|
| 929 |
| |||
Interest on lease liabilities |
|
| 67 |
|
|
| 51 |
| ||||||||
Interest expense |
|
| 111 |
|
|
| 67 |
| ||||||||
Net lease costs |
| $ | 1,943 |
|
| $ | 1,968 |
|
| $ | 2,228 |
|
| $ | 1,943 |
|
|
|
|
|
|
|
1 | Excludes short-term leases and variable lease costs, which are immaterial. |
The following table presents supplemental cash flow information related to leases:
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||
(in thousands) |
|
| 2022 |
|
| 2021 |
|
|
| 2023 |
|
| 2022 |
| ||||
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
| Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
| ||||
Operating cash flows for operating leases | Operating cash flows for operating leases |
| $ | 994 |
|
| $ | 1,368 |
| Operating cash flows for operating leases |
| $ | 891 |
|
| $ | 994 |
|
Operating cash flows for finance leases | Operating cash flows for finance leases |
| $ | 67 |
|
| $ | 51 |
| Operating cash flows for finance leases |
| $ | 111 |
|
| $ | 67 |
|
Financing cash flows for finance leases | Financing cash flows for finance leases |
| $ | 938 |
|
| $ | 577 |
| Financing cash flows for finance leases |
| $ | 1,237 |
|
| $ | 938 |
|
Leased assets exchanged for new lease liabilities: | Leased assets exchanged for new lease liabilities: |
|
|
|
|
|
| Leased assets exchanged for new lease liabilities: |
|
|
|
|
|
| ||||
Operating leases | Operating leases |
| $ | 154 |
|
| $ | 124 |
| Operating leases |
| $ | — |
|
| $ | 154 |
|
Finance leases | Finance leases |
| $ | 281 |
|
| $ | 801 |
| Finance leases |
| $ | 526 |
|
| $ | 281 |
|
|
|
|
|
|
|
1817
NOTE 11. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS
The following table details the components of net periodic cost (benefit) of our pension plans and other postretirement employee benefits (OPEB):
|
| Three Months Ended March 31, |
| |||||||||||||
|
| Pension |
|
| OPEB |
| ||||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Service cost |
| $ | 1,356 |
|
| $ | 1,849 |
|
| $ | 27 |
|
| $ | 79 |
|
Interest cost |
|
| 3,138 |
|
|
| 2,812 |
|
|
| 294 |
|
|
| 229 |
|
Expected return on plan assets |
|
| (3,028 | ) |
|
| (3,145 | ) |
|
| — |
|
|
| — |
|
Amortization of prior service cost |
|
| 11 |
|
|
| 18 |
|
|
| — |
|
|
| 156 |
|
Amortization of actuarial (gain) loss |
|
| (21 | ) |
|
| 1,954 |
|
|
| (166 | ) |
|
| (95 | ) |
Net periodic cost before pension settlement charge |
|
| 1,456 |
|
|
| 3,488 |
|
|
| 155 |
|
|
| 369 |
|
Pension settlement charge |
|
| — |
|
|
| 14,165 |
|
|
| — |
|
|
| — |
|
Total net periodic cost |
| $ | 1,456 |
|
| $ | 17,653 |
|
| $ | 155 |
|
| $ | 369 |
|
During the three months ended March 31, 2023 and 2022, funding of pension and other postretirement employee benefit plans was $1.1 million and $1.3 million,respectively.
Pension Annuitization
In March 2022, we transferred $75.6 million of our qualified pension plan (the Plan) assets to an insurance company for the purchase of a group annuity contract. As a result of the transaction, the insurance company assumed responsibility for annuity administration and benefit payments to select retirees and terminated vested participants, with 0no change to participants' pension benefits. In connection with this transaction weWe recorded a non-cash pretax settlement charge of $14.2 million in non-operating expense, net, as a result of accelerating the recognition of actuarial losses included in Accumulated Other Comprehensive Income (Loss) that would have been recognized in future periods.
The settlement triggered a remeasurement of the Plan'splan assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the Plan as of March 31, 2022, and to calculate the related net periodic benefit cost for the remainder of 2022 to 3.95% from 3.00%. All other pension assumptions remain unchanged. The net effect of the remeasurement wasliabilities resulting in a $6.2 million reduction in the funded status of the Plan primarily driven by lower returns on Plan assets. This change in funded status was reflected in our Condensed Consolidated Balance Sheets as of March 31, 2022.
The following table details the components of net periodic cost (benefit) of our pension plans and other postretirement employee benefits (OPEB):
|
| Three Months Ended March 31, |
| |||||||||||||
|
| Pension |
|
| OPEB |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Service cost |
| $ | 1,849 |
|
| $ | 2,045 |
|
| $ | 79 |
|
| $ | 168 |
|
Interest cost |
|
| 2,812 |
|
|
| 2,633 |
|
|
| 229 |
|
|
| 317 |
|
Expected return on plan assets |
|
| (3,145 | ) |
|
| (3,382 | ) |
|
| — |
|
|
| — |
|
Amortization of prior service cost (credit) |
|
| 18 |
|
|
| 21 |
|
|
| 156 |
|
|
| (298 | ) |
Amortization of actuarial loss (gain) |
|
| 1,954 |
|
|
| 3,578 |
|
|
| (95 | ) |
|
| 545 |
|
Net periodic cost before pension settlement charge |
|
| 3,488 |
|
|
| 4,895 |
|
|
| 369 |
|
|
| 732 |
|
Pension settlement charge |
|
| 14,165 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total net periodic cost |
| $ | 17,653 |
|
| $ | 4,895 |
|
| $ | 369 |
|
| $ | 732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2022 and 2021, funding of pension and other postretirement employee benefit plans wasapproximately $1.36.2 million and $during the first quarter of 2022.1.4 million, respectively.
18
NOTE 12. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (LOSS)
The following table details changes in amounts included in our Accumulated Other Comprehensive Income (Loss) (AOCI) by component on our Condensed Consolidated Balance Sheets, net of tax:
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2022 |
|
| 2021 |
| ||
Pension Plans |
|
|
|
|
|
| ||
Balance at beginning of period |
| $ | 49,579 |
|
| $ | 79,025 |
|
Net loss arising during the period |
|
| 4,587 |
|
|
| — |
|
Effect of pension settlement |
|
| (10,553 | ) |
|
| — |
|
Amounts reclassified from AOCI to earnings |
|
| (1,469 | ) |
|
| (2,770 | ) |
Balance at end of period |
|
| 42,144 |
|
|
| 76,255 |
|
Other Postretirement Benefit Plans |
|
|
|
|
|
| ||
Balance at beginning of period |
|
| 1,790 |
|
|
| 14,783 |
|
Amounts reclassified from AOCI to earnings |
|
| (45 | ) |
|
| (183 | ) |
Balance at end of period |
|
| 1,745 |
|
|
| 14,600 |
|
Cash Flow Hedges |
|
|
|
|
|
| ||
Balance at beginning of period |
|
| (8,131 | ) |
|
| 27,181 |
|
Amounts arising during the period |
|
| (41,243 | ) |
|
| (61,875 | ) |
Amounts reclassified from AOCI to earnings |
|
| (2,033 | ) |
|
| (2,232 | ) |
Balance at end of period |
|
| (51,407 | ) |
|
| (36,926 | ) |
Accumulated other comprehensive (income) loss, end of period |
| $ | (7,518 | ) |
| $ | 53,929 |
|
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Pension and Other Postretirement Employee Benefits |
|
|
|
|
|
| ||
Balance at beginning of period |
| $ | (28,494 | ) |
| $ | (51,369 | ) |
Unrecognized (losses) gains arising in AOCI during the period: |
|
|
|
|
|
| ||
Gross |
|
| — |
|
|
| (6,157 | ) |
Tax effect |
|
| — |
|
|
| 1,570 |
|
Reclassifications from AOCI to earnings: |
|
|
|
|
|
| ||
Pension settlement1 |
|
| — |
|
|
| 14,165 |
|
Other1 |
|
| (176 | ) |
|
| 2,033 |
|
Tax effect |
|
| 45 |
|
|
| (4,131 | ) |
Net of tax amount |
|
| (131 | ) |
|
| 7,480 |
|
Balance at end of period |
|
| (28,625 | ) |
|
| (43,889 | ) |
Cash Flow Hedges |
|
|
|
|
|
| ||
Balance at beginning of period |
|
| 126,146 |
|
|
| 8,131 |
|
Unrecognized (losses) gains arising in AOCI during the period: |
|
|
|
|
|
| ||
Gross |
|
| (13,881 | ) |
|
| 43,492 |
|
Tax effect |
|
| 290 |
|
|
| (2,162 | ) |
Reclassifications from AOCI to earnings: |
|
|
|
|
|
| ||
Gross2 |
|
| (3,837 | ) |
|
| 2,033 |
|
Tax effect |
|
| 93 |
|
|
| (87 | ) |
Net of tax amount |
|
| (17,335 | ) |
|
| 43,276 |
|
Balance at end of period |
|
| 108,811 |
|
|
| 51,407 |
|
Accumulated other comprehensive income, end of period |
| $ | 80,186 |
|
| $ | 7,518 |
|
1 Included in the computation of net periodic pension costs.
2 Included in Interest expense, net on the Condensed Consolidated Statement of Operations.
See Note 11: Pension and Other Postretirement Employee Benefits and Note 6: Derivative Instruments for additional information.
NOTE 13. CATCHMARK MERGER
On September 14, 2022, CatchMark Timber Trust, Inc. (CatchMark) and CatchMark Timber Operating Partnership, L.P. (the Partnership) merged into a wholly owned subsidiary (Merger Sub) of PotlatchDeltic, pursuant to the terms of a merger agreement dated May 29, 2022, with the Merger Sub surviving the mergers. CatchMark owned approximately 348,000 acres of superior site index timberlands located in Alabama, Georgia and South Carolina. The CatchMark timber and timberlands assets and operations are included in our Timberlands segment within the Southern region.
As a result of the merger, we issued approximately 11.5 million shares of PotlatchDeltic common stock, including: (i) 11.3 million shares in exchange for the outstanding shares of CatchMark common stock, which included unvested CatchMark share-based awards that fully vested upon closing of the merger; and (ii) 0.2 million shares in exchange for the Partnership OP Units. We capitalized transaction costs of $9.3 million for items such as investment banking fees, legal services, and other professional fees directly attributable to the merger.
We accounted for the transaction as an asset acquisition as substantially all the value of the acquisition was concentrated in the acquired timber and timberlands. We allocated the cost of the acquisition to the net assets acquired based on their relative estimated fair value on the acquisition date. This resulted in an allocation of $782.3 million to timber and timberlands, $3.0 million to intangible assets, $32.0 million to other assets and $23.6 million for cash acquired in the merger. Additionally, we assumed $323.1 million of liabilities including $300.0 million of outstanding long-term debt. Immediately following the merger, we refinanced $277.5 million of the long-term debt assumed in the merger and repaid the remaining $22.5 million with cash on hand. We also entered into $277.5 million of interest rate swaps to fix the interest rates on the refinanced long-term debt.
During the three months ended March 31, 2023, we incurred non-capitalizable merger costs in connection with the CatchMark merger of approximately $2.2 million. These fees consisted primarily of post-merger period fees for professional services and are included in CatchMark merger-related expenses in our Condensed Consolidated Statements of Operations.
19
NOTE 14. COMMITMENTS AND CONTINGENCIES
At any given time, we are subject to claims and actions incidental to the operations of our business. Based on information currently available, we do not expect that any sums we may receive or have to pay in connection with any legal proceeding would have a materially adverse effect on our consolidated financial position, operating results or net cash flow.
ENVIRONMENTAL MATTER
Pursuant to the 2002 Asset Purchase Agreement under which Sappi Cloquet LLC (Sappi) purchased our Cloquet, Minnesota pulp and paper mill (the Plant), we agreed to indemnify Sappi from certain environmental liabilities accruing from the pre-sale operations of the Plant. In February 2021, we were notified by Sappi that the Environmental Protection Agency (EPA) contacted Sappi about the opportunity to participate with the Minnesota Pollution Control Agency (MPCA) and the EPA in a voluntary federal sediment remediation program under the Great Lakes Legacy Act (GLLA) for a project in the St. Louis River Area of Concern, which runs from Cloquet, Minnesota to Lake Superior. The GLLA is a sediment remediation program administered by EPA that provides up to 65% federal funding for the remediation of contaminated sediments in the Great Lakes region. The GLLA program requires at least 35% cash or in-kind contributions from non-federal sponsors (NFS). The EPA’s invitation to Sappi made no demands on or claims against Sappi, nor have EPA or MPCA made any demands or claims against PotlatchDeltic.
The identified sediment remediation project at Thomson Reservoir is downstream from the Plant. The Plant was identified for potential partnership with EPA and MPCA on this project based on the Plant’s historic direct discharges of wastewater and leachate from the Plant’s landfill into the St. Louis River prior to the re-routing of the discharges in 1979 to a public wastewater treatment facility. After multiple discussions with the MPCA and completion of our extensive due diligence on this matter, we informed the MPCA in January 2023 that we were interested in voluntarily participating in the program, subject to an equitable division with the MPCA of the NFS share of the costs. In March 2023, we reached an agreement in principle with MPCA on the division of NFS share of costs.
We accrued $5.6 million at December 31, 2022, for our estimated contribution to the remediation project. The project is still pending EPA approval and, if approved, negotiation of a Project Agreement between the EPA, the MPCA, and us will be required. While it is reasonably possible that we may incur an additional liability as this project develops, we are unable to estimate at this time the amount of additional charges, if any, which may be required for this matter in the future.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
This report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, expectations regarding economic conditions, including interest rates and our ability to offset the impact of inflation,inflation; expected seasonal fluctuations in our business segments,segments; expected effectiveness of our hedging instruments and swaps; amount of net earnings on cash flow hedges expected to be reclassified into earnings in the next 12 months; expected return on pension assets; anticipated share repurchases and dividend payments; anticipated cash balances, cash flows from operations and expected liquidity; potential uses of our credit facility; the expected impact fromanticipated insurance coverage for the Ola, Arkansas sawmill fire anticipated insurance coverage, and expected timing to complete reconstruction and installation activities and return to full operation;receive the remaining insurance proceeds; expectations regarding debt obligations, interest payments and debt refinancing; expectations regarding the market transition away from LIBOR and our ability to identify a suitable replacement rate; maintenance of our investment grade credit rating; expectations regarding the U.S. housing market and home repair and remodeling activity; the lumber and log markets and pricing; lumber shipment volumes; timber harvest volumes; rural real estate and residential and commercial real estate development sales; sufficiency of cash and any necessary borrowings to meet operating requirements; expected 20222023 and future capital expenditures; costs associated with the expansion and modernization of our Waldo, Arkansas sawmill, the expected timing of completion of the project, and expected increases in productivity resulting from the project; expectations regarding our ability to participate in the development of the natural climate solutions and forest carbon sequestration markets; and similar matters. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often involve use of words such as expects, may, could, should, will, believes, anticipates, estimates, projects, intends, plans, targets or approximately, or similar words or terminology. These forward-looking statements reflect our current views regarding future events based on estimates and assumptions and are therefore subject to known and unknown risks and uncertainties and are not guarantees of future performance. The realization of our expectations and the accuracy of our assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to:
2021
For a discussion of some of the factors that may affect our business, results and prospects and a nonexclusive listing of forward-looking statements, refer to Cautionary Statement Regarding Forward-Looking Information on page 1, and Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.2022. Investors should not interpret the disclosure of a risk to imply that the risk has not already materialized.
Forward-looking statements contained in this report present our views only as of the date of this report. Except as required under applicable law, we do not intend to issue updates concerning any future revisions of our views to reflect events or circumstances occurring after the date of this report.
Our Company
We are a leading timberland REIT with ownership of approximately 1.8nearly 2.2 million acres of timberland. We also own six sawmills and an industrial grade plywood mill, a residential and commercial real estate development business and a rural timberland sales program.
Our operations are organized into three business segments: Timberlands, Wood Products and Real Estate. Our Timberlands segment supplies our Wood Products segment with a portion of its wood fiber needs. These intersegment revenues are based on prevailing market prices and typically represent a sizeable portion of the Timberlands segment’s total revenues. Our other segments generally do not generate intersegment revenues. In the discussion of our consolidated results of operations, our revenues and expenses are reported after elimination of intersegment revenues and expenses. In the Business Segment Results discussion below, each segment’s revenues and expenses, as applicable, are presented before elimination of intersegment revenues and expenses.
The operating results of our Timberlands, Wood Products and Real Estate business segments have been and will continue to be affected by the cyclical nature of the forest products industry. Log and pulpwood sales volumes in our Timberlands segment are typically lower in the first half of each year as winter rains in the Southern region and spring thaw in the Northern region limit timber harvesting operations due to softened roadbeds and wet logging conditions that restrict access to logging sites. The third quarter is typically our Timberlands segment's strongest production quarter. Demand for our manufactured wood products typically decreases in the winter months when construction activity is slower, while demand typically increases during the spring, summer and fall when construction activity is generally higher. Rural real estate dispositions and acquisitions can be adversely affected when access to any properties to be sold or considered for acquisition are limited due to adverse weather conditions. Development real estate sales at Chenal Valley occur throughout the year, though historically most sales take place in the second half of the year as builders prepare for the following year's spring and summer traditional home building and buying season. The timing of development real estate sales can also be impacted by contractor availability needed to complete infrastructure and other improvements prior to bringing developed real estate to market.
Additionally, ourOur business segments have been and will continue to be influenced by a variety of other factors, including tariffs, quotas and trade agreements, changes in timber prices and in harvest levels from our timberlands, competition, timberland valuations, demand for our non-strategic timberland for higher and better use purposes, lumber prices, weather conditions, disruptions or inefficiencies in our supply chain including the availability of transportation, the efficiency and level of capacity utilization of our Wood Products manufacturing operations, changes in our principal expenses such as log costs, inflation, asset dispositions or acquisitions, impact of pandemics (such as COVID-19 and its variants), fires (such as the Ola, Arkansas sawmill fire and fires on our timberlands), other natural disasters and other factors.
Additionally, governments and businesses across the globe are taking action on climate change and are making significant commitments towards reducing greenhouse gas emissions to net zero. Achieving these commitments will require governments and companies to take major steps to modify operations, invest in low-carbon activities and purchase offsets to reduce environmental impacts. We believe we are well positioned to help entities achieve these commitments through natural climate solutions, including forest carbon sequestration and carbon capture and storage activities.
Non-GAAP Measures
To supplement our financial statements presented in accordance with generally accepted accounting principles in the United States (GAAP), we present certain non-GAAP measures on a consolidated basis, including Adjusted EBITDDA and Cash Available for Distribution (CAD), which are defined and further explained and reconciled to the nearest GAAP measure in the Liquidity and Performance Measures section below. Our definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP.
22
Adjusted EBITDDA is a non-GAAP measure that management uses in evaluating performance and allocating resources between segments, and that investors can use to evaluate the operational performance of the assets under management. It removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis. This measure should not be considered in isolation from and is not intended to represent an alternative to our results reported in accordance with GAAP. Management believes that this non-GAAP measure, when read in conjunction with our GAAP financial statements, provides useful information to investors by facilitating the comparability of our ongoing operating results over the periods presented, the ability to identify trends in our underlying business and the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.
21
Our definition of EBITDDA and Adjusted EBITDDA may be different from similarly titled measures reported by other companies. We define EBITDDA as net income before interest expense, net, 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. See Note 2: Segment Information in the Notes to the Condensed Consolidated Financial Statements for information related to the use of segment Adjusted EBITDDA.
Business and Economic Trends Affecting Our Operations
The demand for timber is directly affected by the underlying demand for lumber and other wood-products,wood products, as well as by the demand for pulp, paper and packaging. Rising construction costs, a persistently tight labor pool, supply chain challenges and higher mortgage rates negatively impact the pace of housing starts and repair and remodel projects. Our Timberlands and Wood Products segments are impacted by demand for new homes in the United StatesStates. Higher interest rates and by repairinflation have caused consumer confidence and remodeling activity. In April 2022, the U.S. Census Bureau reportedpace of housing starts forto decline. The average 30-year fixed mortgage rate increased during the past twelve months from approximately 4.7% at the end of March 2022 were 1.8 million onto approximately 6.3% at the end of March 2023. On a seasonally adjusted annual basis, which was up 3.9% from March 2021. In April 2022,positive note, the National Association of Home Builders (NAHB) reported the NAHB/Wells Fargo Housing Market Index (HMI) was at 77. While45 in April 2023, the HMI continues to indicate homebuilderfourth straight month builder confidence in the market for newly built single-family homes remains strong, the HMI has experienced four straight months of decline and is the lowest level since last summer.increased. The repair and remodel sector, which has experienced steady growth duringis the pandemic-driven home improvement movement that began in early 2020,largest market segment for lumber demand, continues to exhibit favorable underlying fundamentals and is expected to returncontinue to grow in 2023, but at a more stable growthslower rate in 2022.than recent years.
Overall,While housing starts have declined in recent months, we believe long-term housing fundamentals remain strong, driven byfavorable, due to a shortage of homes, lowlower than historical average existing inventory for sale, a large millennial demographic enteringin their prime home-buying years, interest rates remaining below long-term historical averages, the continued remote work evolution, high home equity levels and an aging existing housing stock supporting repair and remodel demand. These fundamentals are key drivers for our business, and we continue to expect that lumber prices will remain structurally higher than long-term historical averages due to continued lumber demand and tight supply. Rising construction costs, a persistently tight labor pool, supply chain challenges and consumer concerns about rising mortgage rates could negatively impact the pace of housing starts and repair and remodel projects.business.
Inflation, which appears to have peaked in 2022, has impacted our business, especially for fuel, energy, and repair and maintenance costs, although we believe there are offsetting impacts including wood product prices and our timberland’s effectiveness as ancosts. The annual inflation hedge. Overrate in the last twelve months, the Consumer Price Index (all items) increased by 8.5 percent before seasonal adjustments,U.S. slowed for a ninth consecutive period to 5.0% in March 2023, while the Producer Price Index (final demand) increased by 11.2 percentslowed to 2.7% on an unadjusted basis. Additionally, transportation challenges rising from shortagebasis compared to 6.2% at the end of truck and railcar availability linger in certain markets. These transportation issues could lead to higher freight costs and shipping challenges through the foreseeable future.December 2022.
In our Timberlands segment, sawlog prices benefitted froma significant portion of our Idaho sawlog prices beingare indexed on a four-week lag to lumber prices continued strong Northern cedar sawlog prices, increased demand for Southern pine sawlogs and experienced a higher mix of prime sawlogs harvested on recently acquired timberlands.decline in pricing during the quarter due to lower lumber prices. Our Southern harvest volume of 1.12.1 million tons in the first quarter of 20222023 was considerably higher than the first quarter of 2021,2022, primarily due to the addition of the CatchMark timberlands in mid-September 2022, strong log demand in Arkansas and Mississippi, and favorable harvest conditions.conditions in Idaho. We expect to harvest between 1.1 and 1.3approximately 1.6 million tons during the second quarter of 2023, with approximately 73% of the volume in the Southern region. For 2022, we expect to harvest approximately 6.1 million tons, with approximately 70%82% of the volume in the Southern region.
During the second quarter of 2021 we experienced a fire at our Ola, Arkansas sawmill, which had an annual capacity of 150 million board feet prior to the fire.sawmill. The damage was principally limited to the large log primary breakdown machine center. The planer mill, kiln, and shipping department were not affected. We have adequate property damage and business interruption insurance, subject to an applicable deductible,deductible. The new equipment has been installed and have begun the reconstruction process at the sawmill. We expect to install the new large-loglarge log line restarted in the third quarterSeptember 2022. The sawmill's operating run rate has reached its expected annual capacity of 2022 and complete the start-up phase by early 2023.150 million board feet.
For the first quarter of 2022In our Wood Products segment, benefitedlumber shipments benefitted from increased price realizations. Lumber shipments continue to be impacted by theat our Ola, sawmill fire.Arkansas sawmill. We shipped approximately 233262 million board feet of lumber during the first quarter of 20222023 and expect to ship between 250270 and 260280 million board feet of lumber during the second quarter of 2022. For 2022, we expect to ship approximately 1.0 billion board feet of lumber. This estimate reflects the expected timing of the start-up of the large-log line at our Ola, Arkansas sawmill.2023.
Our Real Estate segment first quarter 20222023 results reflect strong Chenal Valley development sales and higherbenefitted from rural land sales, prices.including a conservation land sale in Alabama and land acquired in the CatchMark merger. We expect to sell approximately 12,0002,600 acres of rural land and 40approximately 35 residential lots during the second quarter of 2022. For 2022, we expect to sell approximately 20,000 acres of rural land and 165 residential lots.2023.
2223
Consolidated Results
The following table sets forth changes in our Condensed Consolidated Statements of Operations. Our Business Segment Results provide a more detailed discussion of our segments:
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||||||||||
(in thousands) | 2022 |
|
| 2021 |
|
| Change |
| 2023 |
|
| 2022 |
|
| Change |
| ||||||
Revenues | $ | 411,350 |
|
| $ | 354,193 |
|
| $ | 57,157 |
| $ | 257,962 |
|
| $ | 411,350 |
|
| $ | (153,388 | ) |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cost of goods sold |
| 179,847 |
| 169,302 |
| 10,545 |
|
| 224,350 |
|
|
| 179,847 |
|
|
| 44,503 |
| ||||
Selling, general and administrative expenses |
| 16,294 |
| 16,758 |
| (464 | ) |
| 18,230 |
|
|
| 16,294 |
|
|
| 1,936 |
| ||||
Net loss on fire damage |
| 276 |
|
|
| — |
|
|
| 276 |
| |||||||||||
CatchMark merger-related expenses |
| 2,209 |
|
|
| — |
|
|
| 2,209 |
| |||||||||||
Loss on fire damage |
| — |
|
|
| 276 |
|
|
| (276 | ) | |||||||||||
|
| 196,417 |
|
|
| 186,060 |
|
|
| 10,357 |
|
| 244,789 |
|
|
| 196,417 |
|
|
| 48,372 |
|
Operating income |
| 214,933 |
| 168,133 |
| 46,800 |
|
| 13,173 |
|
|
| 214,933 |
|
|
| (201,760 | ) | ||||
Interest expense, net |
| (2,894 | ) |
| (3,574 | ) |
| 680 |
|
| (199 | ) |
|
| (2,894 | ) |
|
| 2,695 |
| ||
Pension settlement charge |
| (14,165 | ) |
|
| — |
| (14,165 | ) |
| — |
|
|
| (14,165 | ) |
|
| 14,165 |
| ||
Non-operating pension and other postretirement benefit costs |
| (1,929 | ) |
|
| (3,414 | ) |
|
| 1,485 |
| |||||||||||
Non-operating pension and other postretirement employee benefit costs |
| (228 | ) |
|
| (1,929 | ) |
|
| 1,701 |
| |||||||||||
Other |
| 10 |
|
|
| — |
|
|
| 10 |
| |||||||||||
Income before income taxes |
| 195,945 |
| 161,145 |
| 34,800 |
|
| 12,756 |
|
|
| 195,945 |
|
|
| (183,189 | ) | ||||
Income taxes |
| (32,065 | ) |
|
| (30,039 | ) |
|
| (2,026 | ) |
| 3,504 |
|
|
| (32,065 | ) |
|
| 35,569 |
|
Net income | $ | 163,880 |
|
| $ | 131,106 |
|
| $ | 32,774 |
| $ | 16,260 |
|
| $ | 163,880 |
|
| $ | (147,620 | ) |
Total Adjusted EBITDDA1 | $ | 245,562 |
|
| $ | 194,986 |
|
| $ | 50,576 |
| $ | 57,777 |
|
| $ | 245,562 |
|
| $ | (187,785 | ) |
1 | See Liquidity and Performance Measures for a reconciliation of Total Adjusted EBITDDA to net income, the closest comparable GAAP measure, for each of the periods presented. |
First Quarter 20222023 Compared with First Quarter 20212022
Revenues
Revenues were $411.4$258.0 million, an increasea decrease of $57.2$153.4 million compared with the first quarter of 20212022 primarily due to higherlower lumber andprices, lower Northern sawlog prices, increased harvest volumesand fewer residential lot and commercial acre sales in the Southern region and a 1,760-acre rural land sale in the South for $7,500 per acre to an energy provider for a planned commercial solar farm.Chenal Valley. These increasesdecreases were partially offset by lowerincreased harvest volumes and increased lumber shipments in the first quarter of 2022, which was impacted by the loss of productionprimarily at our Ola, Arkansas sawmill followingwhich restarted late in the third quarter of 2022 after a fire in June 2021.
Cost of goods sold
Cost of goods sold increased $10.5$44.5 million compared with the first quarter of 2021 primarily2022 mainly due to higher manufacturing and log and haul costs primarily from inflationary price increases in areas such as diesel fuel, energy, and repair and maintenance.maintenance, and increased harvest volumes. Cost of goods sold also increased in the first quarter of 2023 as a result of increased shipments at our Ola, Arkansas sawmill.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $1.9 million compared to the first quarter of 2022, primarily due to inflationary price increases and incremental administrative activities following the CatchMark merger.
CatchMark merger-related expenses
Merger-related expenses during the first quarter of 2023 were $2.2 million primarily related to post-merger fees for professional services.
Interest expense
Interest expense, net, decreased $2.7 million compared to the first quarter of 2022, primarily due to higher interest income earned on cash and cash equivalents as a result of higher short-term interest rates, partially offset by increased net interest expense associated with $277.5 million in long-term debt assumed and refinanced at attractive interest rates in connection with the CatchMark merger in September 2022.
24
Pension settlement charge
In March 2022, we transferred $75.6 million of our qualified pension plan (the Plan) assets to an insurance company for the purchase of a group annuity contract. In connection with this transaction, we recorded a non-cash pretax settlement charge of $14.2 million.
Income taxes
Income taxes are primarily due to income or loss from our PotlatchDeltic taxable REIT subsidiaries (TRS). For the three months ended March 31, 2023, we recorded income tax benefit of $3.5 million on TRS loss before tax of $13.6 million. For the three months ended March 31, 2022, we recorded income tax expense of $32.1 million on TRS income before tax of $127.3 million, which included the $14.2 million pension settlement charge. For the three months ended March 31, 2021, we recorded an income tax expense of $30.0 million on TRS income before tax of $115.8 million.
23
Total Adjusted EBITDDA
Total Adjusted EBITDDA for the first quarter of 2022 increased $50.62023 decreased $187.8 million compared to the first quarter of 2021. The increase in Total Adjusted EBITDDA was2022 primarily driven by higherdue to lower lumber and Idaho sawlog prices, increased harvest volumesfewer development sales in the Southern region and the 1,760-acre rural land sale in the South. These increases were partially offset by lower lumber shipmentsChenal Valley and higher manufacturing and log and haul costs. The decrease in Adjusted EBITDDA was partially offset by increased lumber shipments and harvest activity. Refer to the Business Segment Results below for further discussions on activities for each of our segments. See Liquidity and Performance Measures for a reconciliation of Total Adjusted EBITDDA to net income, the closest comparable GAAP measure, for each of the periods presented.
Business Segment Results
Timberlands Segment
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2023 |
|
| 2022 |
|
| Change |
| ||||||
Revenues1 |
| $ | 123,657 |
| $ | 111,916 |
| $ | 11,741 |
|
| $ | 115,238 |
|
| $ | 123,657 |
|
| $ | (8,419 | ) | ||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Logging and hauling |
|
| 40,082 |
| 36,468 |
| 3,614 |
|
|
| 59,209 |
|
|
| 40,082 |
|
|
| 19,127 |
| ||||
Other |
|
| 5,403 |
| 5,888 |
| (485 | ) |
|
| 7,536 |
|
|
| 5,403 |
|
|
| 2,133 |
| ||||
Selling, general and administrative expenses |
|
| 1,738 |
|
|
| 1,702 |
|
|
| 36 |
|
|
| 1,854 |
|
|
| 1,738 |
|
|
| 116 |
|
Timberlands Adjusted EBITDDA2 |
| $ | 76,434 |
|
| $ | 67,858 |
|
| $ | 8,576 |
|
| $ | 46,639 |
|
| $ | 76,434 |
|
| $ | (29,795 | ) |
1 | Prior to elimination of intersegment fiber revenues of |
2 | Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in the Notes to Condensed Consolidated Financial Statements. |
25
Timberlands Segment Statistics
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
Harvest Volumes (in tons) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2023 |
|
| 2022 |
|
| Change |
| ||||||
Northern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Sawlog |
|
| 385,290 |
| 427,255 |
| (41,965 | ) |
|
| 470,790 |
|
|
| 385,290 |
|
|
| 85,500 |
| ||||
Pulpwood |
|
| 8,259 |
| 13,884 |
| (5,625 | ) |
|
| 8,029 |
|
|
| 8,259 |
|
|
| (230 | ) | ||||
Total |
|
| 393,549 |
|
|
| 441,139 |
|
|
| (47,590 | ) |
|
| 478,819 |
|
|
| 393,549 |
|
|
| 85,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Southern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sawlog |
|
| 490,093 |
| 508,073 |
| (17,980 | ) |
|
| 661,588 |
|
|
| 490,093 |
|
|
| 171,495 |
| ||||
Pulpwood |
|
| 379,651 |
| 326,429 |
| 53,222 |
|
|
| 492,405 |
|
|
| 379,651 |
|
|
| 112,754 |
| ||||
Stumpage |
|
| 196,513 |
|
|
| 58,413 |
|
|
| 138,100 |
|
|
| 444,279 |
|
|
| 196,513 |
|
|
| 247,766 |
|
Total |
|
| 1,066,257 |
|
|
| 892,915 |
|
|
| 173,342 |
|
|
| 1,598,272 |
|
|
| 1,066,257 |
|
|
| 532,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total harvest volume |
|
| 1,459,806 |
|
|
| 1,334,054 |
|
|
| 125,752 |
|
|
| 2,077,091 |
|
|
| 1,459,806 |
|
|
| 617,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sales Price/Unit ($ per ton)1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Northern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sawlog |
| $ | 212 |
| $ | 178 |
| $ | 34 |
|
| $ | 113 |
|
| $ | 212 |
|
| $ | (99 | ) | ||
Pulpwood |
| $ | 47 |
| $ | 36 |
| $ | 11 |
|
| $ | 50 |
|
| $ | 47 |
|
| $ | 3 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Southern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Sawlog |
| $ | 48 |
| $ | 44 |
| $ | 4 |
|
| $ | 48 |
|
| $ | 48 |
|
| $ | — |
| ||
Pulpwood |
| $ | 31 |
| $ | 28 |
| $ | 3 |
|
| $ | 33 |
|
| $ | 31 |
|
| $ | 2 |
| ||
Stumpage |
| $ | 17 |
| $ | 13 |
| $ | 4 |
|
| $ | 21 |
|
| $ | 17 |
|
| $ | 4 |
|
1 | Sawlog and pulpwood sales prices are on a delivered basis, which includes logging and hauling costs. Stumpage sales provide our customers the right to harvest standing timber. As such, the customer contracts the logging and hauling and bears such costs. |
24
Timberlands Adjusted EBITDDA
The following table summarizes Timberlands Adjusted EBITDDA variances for the three months ended March 31, 2022,2023, compared with the three months ended March 31, 2021:2022:
(in thousands) |
| Three Months |
|
| Three Months |
| ||
Adjusted EBITDDA - prior year |
| $ | 67,858 |
| ||||
Timberlands Adjusted EBITDDA - prior year |
| $ | 76,434 |
| ||||
Harvest volume |
|
| 14,202 |
| ||||
Sales price and mix |
| 10,205 |
|
|
| (35,292 | ) | |
Harvest volume |
| 1,388 |
| |||||
Logging and hauling costs per unit |
| (3,968 | ) |
|
| (7,457 | ) | |
Forest management, indirect and other |
|
| 951 |
|
|
| (1,248 | ) |
Timberlands Adjusted EBITDDA - current year |
| $ | 76,434 |
|
| $ | 46,639 |
|
First Quarter 20222023 Compared with First Quarter 20212022
Timberlands Adjusted EBITDDA for the first quarter of 2022 increased $8.62023 decreased $29.8 million compared with the same period in 2021,first quarter of 2022, primarily as a result of the following:
26
Wood Products Segment
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2023 |
|
| 2022 |
|
| Change |
| ||||||
Revenues |
| $ | 295,742 |
| $ | 269,296 |
| $ | 26,446 |
|
| $ | 152,795 |
|
| $ | 295,742 |
|
| $ | (142,947 | ) | ||
Costs and expenses1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fiber costs |
| 77,673 |
| 79,469 |
| (1,796 | ) |
|
| 77,197 |
|
|
| 77,673 |
|
|
| (476 | ) | |||||
Freight, logging and hauling |
| 18,367 |
| 18,197 |
| 170 |
|
|
| 20,170 |
|
|
| 18,367 |
|
|
| 1,803 |
| |||||
Manufacturing costs |
| 50,793 |
| 47,602 |
| 3,191 |
|
|
| 52,890 |
|
|
| 50,793 |
|
|
| 2,097 |
| |||||
Finished goods inventory change |
| (4,579 | ) |
| (4,019 | ) |
| (560 | ) |
|
| (962 | ) |
|
| (4,579 | ) |
|
| 3,617 |
| |||
Selling, general and administrative expenses |
| 3,408 |
| 2,522 |
| 886 |
|
|
| 3,436 |
|
|
| 3,408 |
|
|
| 28 |
| |||||
Other |
|
| 129 |
|
|
| (30 | ) |
|
| 159 |
|
|
| 95 |
|
|
| 129 |
|
|
| (34 | ) |
Wood Products Adjusted EBITDDA2 |
| $ | 149,951 |
|
| $ | 125,555 |
|
| $ | 24,396 |
|
| $ | (31 | ) |
| $ | 149,951 |
|
| $ | (149,982 | ) |
1 | Prior to elimination of intersegment fiber costs of |
2 | Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in the Notes to Condensed Consolidated Financial Statements. |
Wood Products Segment Statistics
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
|
| 2023 |
|
| 2022 |
|
| Change |
| ||||||
Lumber shipments (MBF)1 |
| 233,188 |
| 258,069 |
| (24,881 | ) |
|
| 261,633 |
|
|
| 233,188 |
|
|
| 28,445 |
| |||||
Lumber sales prices ($ per MBF) |
| $ | 1,075 |
| $ | 890 |
| $ | 185 |
|
| $ | 435 |
|
| $ | 1,075 |
|
| $ | (640 | ) |
1 | MBF stands for thousand board feet. |
25
Wood Products Adjusted EBITDDA
The following table summarizes Wood Products Adjusted EBITDDA variances for the three months ended March 31, 2022,2023, compared with the three months ended March 31, 2021:2022:
(in thousands) |
| Three Months |
|
| Three Months |
| ||
Wood Products Adjusted EBITDDA - prior year |
| $ | 125,555 |
|
| $ | 149,951 |
|
Lumber: |
|
|
|
|
|
| ||
Price |
| 41,212 |
|
|
| (147,893 | ) | |
Volume |
| (11,195 | ) | |||||
Manufacturing costs per unit |
| (7,081 | ) |
|
| 3,786 |
| |
Log costs per unit |
| (2,305 | ) |
|
| 678 |
| |
Volume |
|
| (805 | ) | ||||
Residuals, panels and other |
|
| 3,765 |
|
|
| (5,748 | ) |
Wood Products Adjusted EBITDDA - current year |
| $ | 149,951 |
|
| $ | (31 | ) |
First Quarter 20222023 Compared with First Quarter 20212022
Wood Products Adjusted EBITDDA for the first quarter of 2022 increased $24.42023 decreased $150.0 million compared with the same period in 2021,first quarter of 2022, primarily as a result of the following:
27
Real Estate Segment
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| Change |
|
| 2023 |
|
| 2022 |
|
| Change |
| ||||||
Revenues |
| $ | 34,065 |
| $ | 20,313 |
| $ | 13,752 |
|
| $ | 23,863 |
|
| $ | 34,065 |
|
| $ | (10,202 | ) | ||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Costs of goods sold |
| 2,879 |
| 2,468 |
| 411 |
|
|
| 2,865 |
|
|
| 2,879 |
|
|
| (14 | ) | |||||
Selling, general and administrative expenses |
|
| 1,062 |
|
|
| 1,252 |
|
|
| (190 | ) |
|
| 1,533 |
|
|
| 1,062 |
|
|
| 471 |
|
Real Estate Adjusted EBITDDA1 |
| $ | 30,124 |
|
| $ | 16,593 |
|
| $ | 13,531 |
|
| $ | 19,465 |
|
| $ | 30,124 |
|
| $ | (10,659 | ) |
1 | Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in the Notes to Condensed Consolidated Financial Statements. |
26
Real Estate Segment Statistics
Rural Real Estate |
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Acres sold |
| 4,751 |
| 7,083 |
|
|
| 6,939 |
|
|
| 4,751 |
| |||
Average price per acre |
| $ | 4,556 |
| $ | 1,415 |
|
| $ | 2,568 |
|
| $ | 4,556 |
|
Development Real Estate |
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Residential lots |
| 64 |
| 51 |
|
|
| 24 |
|
|
| 64 |
| |||
Average price per lot |
| $ | 112,725 |
| $ | 98,629 |
|
| $ | 116,429 |
|
| $ | 112,725 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial acres |
| 3 |
| 11 |
|
|
| — |
|
|
| 3 |
| |||
Average price per acre |
| $ | 917,236 |
| $ | 277,425 |
|
| $ | — |
|
| $ | 917,236 |
|
Real Estate Adjusted EBITDDA
The following table summarizes Real Estate Adjusted EBITDDA variances for the three months ended March 31, 20222023, compared with the three months ended March 31, 2021:2022:
(in thousands) |
| Three Months |
|
| Three Months |
| ||
Real Estate Adjusted EBITDDA - prior year |
| $ | 16,593 |
|
| $ | 30,124 |
|
Rural real estate sales |
| 11,812 |
|
|
| (3,482 | ) | |
Real estate development sales |
| 1,940 |
|
|
| (7,052 | ) | |
Selling, general and administrative expenses |
| 190 |
|
|
| (472 | ) | |
Other costs, net |
|
| (411 | ) |
|
| 347 |
|
Real Estate Adjusted EBITDDA - current year |
| $ | 30,124 |
|
| $ | 19,465 |
|
First Quarter 20222023 Compared with First Quarter 20212022
Real Estate Adjusted EBITDDA for the first quarter of 20222023 was $30.1$19.5 million, an increasea decrease of $13.5$10.7 million compared with the first quarter of 2021,2022, primarily as a result of the following:
2728
Liquidity and Capital Resources
Cash generated by our operations is highly dependent on the selling prices of our products and can vary from period to period. Changes in significant sources and uses of cash for the three months ended March 31, 20222023 and 20212022 are presented by category as follows:
|
| Three Months Ended March 31, |
| |||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| Change |
| |||
Net cash from operating activities |
| $ | 230,299 |
|
| $ | 169,965 |
|
| $ | 60,334 |
|
Net cash from investing activities |
| $ | (17,122 | ) |
| $ | (11,529 | ) |
| $ | (5,593 | ) |
Net cash from financing activities |
| $ | (34,595 | ) |
| $ | (28,075 | ) |
| $ | (6,520 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended March 31, |
| |||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
| |||
Net cash from operating activities |
| $ | 39,139 |
|
| $ | 230,299 |
|
| $ | (191,160 | ) |
Net cash from investing activities |
| $ | (4,896 | ) |
| $ | (17,122 | ) |
| $ | 12,226 |
|
Net cash from financing activities |
| $ | (36,800 | ) |
| $ | (34,595 | ) |
| $ | (2,205 | ) |
Net Cash Flows from Operating Activities
Net cash from operating activities increased $60.3decreased $191.2 million in the first quarter of 2022,2023, compared to the first quarter of 20212022 primarily as a result of the following:
Net Cash Flows from Investing Activities
Changes in cash flows from investing activities were primarily a result of the following:
Net Cash Flows from Financing Activities
Changes in cash flows from financing activities were primarily a result of the following:
Future Sources and Uses of Cash
At March 31, 2022,2023, we had cash and cash equivalents of $470.9$325.6 million. We expect cash and cash equivalents on hand, cash generated from our operating activities, and supplemented by borrowings under our credit agreement, if needed, to be adequate to meet our future cash requirements. At March 31, 2022,2023 there were no significant changes in our cash commitments arising in the normal course of business under our known contractual and other obligations as described in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
29
Capital Expenditures
We invest cash in maintenance and discretionary capital expenditures at our Wood Products facilities. We also invest cash in the reforestation of timberlands and construction of roads in our Timberlands operations and to develop land in our Real Estate development operations. We evaluate discretionary capital improvements based on an expected level of return on investment. We expect to spend a total of approximately $70$135 million to $75$145 million for capital expenditures during 2022.
Our 2022 planned capital spend includes approximately $15 million of2023, including capital expenditures for the reconstructionWaldo sawmill expansion and modernization project discussed below.
In June 2022, we announced a project to expand and modernize our Waldo, Arkansas sawmill. The project is expected to increase the mill’s annual capacity from 190 million board feet of our fire-damaged Ola sawmill, whichdimensional lumber to approximately 275 million board feet. The investment is largely coveredalso expected to reduce the mill’s operating costs significantly. The Waldo investment includes upgrades to the log yard and planer, a new saw line, and a new continuous dry kiln. The existing mill will continue to operate during the project and completion is expected by insurance.the end of 2024. We expect to installspend approximately $131.0 million on the new large-log lineproject, of which $12.2 million was spent in the third quarter of 2022 and completeapproximately $74.0 million is expected to be spent in 2023.
During 2022, we completed the start-up phase by early 2023. A determination regardinginstallation of new equipment at our fire damaged Ola, Arkansas sawmill. The large log line restarted in September 2022. Through December 31, 2022, we received a total of $50.0 million from the extent of downtime and costs to repair the Ola sawmill is on-going as the reconstruction progresses. We have adequateinsurance carriers for both property damage and business interruption insurance, subject to an applicable deductible. The timingproceeds at the Ola sawmill. We are in the process of expenditures incurred for the sawmill rebuild and economic losses is expected to vary based on when we receive proceeds fromfinalizing our insurance carriers.claim and expect to receive the remaining insurance proceeds in 2023.
28
Share Repurchase Program
On August 30, 2018,31, 2022, our board of directors authorized management to repurchase up to $200.0 million of our common stock with no set time limit for the repurchase (the 2022 Repurchase Program). Concurrently, the board of directors authorizedterminated the remaining repurchase of up to $100.0 million of common stock with no time limit set for theauthorization under a repurchase (the Repurchase Program).program approved in August 2018. At March 31, 2022,2023, we had remaining authorization of $59.5$150.0 million for future stock repurchases under the 2022 Repurchase Program. The timing, manner, price and amount of repurchases will be determined according to the trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan), and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason.
Long-Term DebtTerm Loans and Credit Agreement
At March 31, 2022,2023, our total outstanding net long-term debt was $755.5 million. We expect to refinance a $40.0$1.0 billion, including $971.0 million of term loan expiring in December 2022 at maturity, which is covered by a forward starting interest rate swap that hedges the variability in future benchmark interest payments attributable to changes in interest rates.loans under our Second Amended and Restated Term Loan Agreement (Amended Term Loan Agreement) with our primary lender. All interest rates on our outstanding long-term debt are fixed rates under fixed rate loans or variable rate loans with an associated interest rate swap that fixes the variable benchmark interest rate component.
We have a $300.0 million revolving line of credit with a syndicate of lenders that matures February 14, 2027. Under the terms of theour Third Amended and Restated Credit Agreement (Amended Credit Agreement), the amount of available principal may be increased up to an additional $500.0 million. We may also utilize borrowings under the Amended Credit Agreement to, among other things, refinance existing indebtedness and provide funding for working capital requirements, capital projects, acquisitions, and other general corporate expenditures. At March 31, 2022,2023, there were no borrowings under the revolving line of credit and approximately $1.0$0.9 million of the credit facility was utilized by outstanding letters of credit.
Our credit agreement, variable rate term loans with $403.5 million in principal and our interest rate derivative agreements have an interest rate tied to LIBOR. On March 5, 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that the US Dollar LIBOR will no longer be published after June 30, 2023. The market transition away from LIBOR to an alternative reference rate is complex. While we expect LIBOR to be available in substantially its current form until at least through June 30, 2023, it is possible that LIBOR will become unavailable prior to that point. We continue to evaluate and monitor market developments regarding the alternative rates, will work with our lenders and counterparties to identify a suitable replacement rate, and may amend certain debt and interest rate derivative agreements to accommodate those rates.
Financial Covenants
The Amended Term Loan Agreement and Amended Credit Agreement (collectively referred to as the Agreements) contain certain covenants that limit our ability and that of our subsidiaries to create liens, merge or consolidate, dispose of assets, incur indebtedness and guarantees, repurchase or redeem capital stock and indebtedness, make certain investments or acquisitions, enter into certain transactions with affiliates or change the nature of our business. The Agreements also contain financial maintenance covenants including the maintenance of a minimum interest coverage ratio and a maximum leverage ratio. We are permitted to pay dividends to our stockholders under the terms of the Agreements so long as we expect to remain in compliance with the financial maintenance covenants.
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The following table presents the components and applicable limits of Total Asset Value (TAV), a component of the Leverage Ratio, at March 31, 2022:2023:
(in thousands) |
|
|
| |
Estimated timberland fair value |
| $ | 3,974,991 |
|
Wood Products manufacturing facilities book basis (limited to 10% of TAV) |
|
| 283,361 |
|
Cash and cash equivalents |
|
| 470,918 |
|
Company owned life insurance (COLI) (limited to 5% of TAV) |
|
| 4,002 |
|
Total Asset Value1 |
| $ | 4,733,272 |
|
(in thousands) |
|
|
| |
Estimated timberland fair value |
| $ | 4,835,534 |
|
Wood Products manufacturing facilities book basis (limited to 10% of TAV) |
|
| 284,149 |
|
Cash and cash equivalents |
|
| 325,632 |
|
Other1 |
|
| 21,789 |
|
Total Asset Value |
| $ | 5,467,104 |
|
1 |
|
At March 31, 2022,2023, we were in compliance with all covenants under the Agreements. The following table sets forth the financial covenants for the Agreements and our status with respect to these covenants at March 31, 2022:2023:
|
| Covenant Requirement |
| Actual at | ||
Interest coverage ratio |
| ≥ |
| 3.00 to 1.00 |
| 24.5 |
Leverage ratio |
| ≤ |
| 40% |
| 16% |
|
|
|
|
|
|
|
|
| Covenant Requirement |
| Actual at | ||
Interest coverage ratio |
| ≥ |
| 3.00 to 1.00 |
| 16.1 |
Leverage ratio |
| ≤ |
| 40% |
| 19% |
See Note 5: Debt in the Notes to the Condensed Consolidated Financial Statements for additional information on our debt and credit agreements.
Credit Ratings
Two major debt rating agencies routinely evaluate our debt, and our cost of borrowing can increase or decrease depending on our credit rating. Both Moody’s and S&P rate our debt as investment grade.
Capital Structure
(in thousands) |
| March 31, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
Long-term debt (including current portion) |
| $ | 755,482 |
| $ | 758,256 |
|
| $ | 1,032,973 |
|
| $ | 1,032,680 |
| |
Cash and cash equivalents |
|
| (470,918 | ) |
|
| (296,151 | ) |
|
| (325,632 | ) |
|
| (343,809 | ) |
Net debt |
| 284,564 |
| 462,105 |
|
|
| 707,341 |
|
|
| 688,871 |
| |||
Market capitalization1 |
|
| 3,657,986 |
|
|
| 4,159,034 |
|
|
| 3,955,838 |
|
|
| 3,505,255 |
|
Enterprise value |
| $ | 3,942,550 |
|
| $ | 4,621,139 |
|
| $ | 4,663,179 |
|
| $ | 4,194,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net debt to enterprise value |
| 7.2 | % |
| 10.0 | % |
|
| 15.2 | % |
|
| 16.4 | % | ||
Dividend yield2 |
| 3.3 | % |
| 2.9 | % |
|
| 3.6 | % |
|
| 4.1 | % | ||
Weighted-average cost of debt, after tax3 |
| 3.1 | % |
| 3.1 | % |
|
| 2.4 | % |
|
| 2.4 | % | ||
|
|
|
|
|
|
1 | Market capitalization is based on outstanding shares of |
2 | Dividend yield is based on annualized dividends per share of |
3 | Weighted-average cost of debt excludes deferred debt costs and credit facility fees and includes estimated annual patronage credit on term loan debt. |
31
Liquidity and Performance Measures
The discussion below is presented to enhance the reader’s understanding of our operating performance, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures: Adjusted EBITDDA and Cash Available for Distribution (CAD). These measures are not defined by GAAP and the discussion of Adjusted EBITDDA and CAD is not intended to conflict with or change any of the GAAP disclosures described herein.
Adjusted EBITDDA is a non-GAAP measure that management uses in evaluating performance and to allocate resources between segments, and that investors can use to evaluate the operational performance of the assets under management. It removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis. This measure should not be considered in isolation from and is not intended to represent an alternative to our results reported in accordance with GAAP. Management believes that this non-GAAP measure, when read in conjunction with our GAAP financial statements, provides useful information to investors by facilitating the comparability of our ongoing operating results over the periods presented, the ability to identify trends in our underlying business, and the comparison of our operating results against analyst financial models and the operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.
30
Our definition of EBITDDA may be different from similarly titled measures reported by other companies. We define EBITDDA as net income before interest expense, net, 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.
We reconcile Total Adjusted EBITDDA to net income for the consolidated company as it is the most comparable GAAP measure.
The following table provides a reconciliation of net income to Total Adjusted EBITDDA for the respective periods:
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Net income |
| $ | 163,880 |
| $ | 131,106 |
|
| $ | 16,260 |
|
| $ | 163,880 |
| |
Interest expense, net |
| 2,894 |
| 3,574 |
|
|
| 199 |
|
|
| 2,894 |
| |||
Income taxes |
| 32,065 |
| 30,039 |
|
|
| (3,504 | ) |
|
| 32,065 |
| |||
Depreciation, depletion and amortization |
| 19,502 |
| 17,996 |
|
|
| 31,764 |
|
|
| 19,502 |
| |||
Basis of real estate sold |
| 10,854 |
| 8,823 |
|
|
| 10,631 |
|
|
| 10,854 |
| |||
Net loss on fire damage |
| 276 |
|
|
| — |
| |||||||||
CatchMark merger-related expenses |
|
| 2,209 |
|
|
| — |
| ||||||||
Loss on fire damage |
|
| — |
|
|
| 276 |
| ||||||||
Pension settlement charge |
| 14,165 |
|
|
| — |
|
|
| — |
|
|
| 14,165 |
| |
Non-operating pension and other postretirement benefit costs |
| 1,929 |
| 3,414 |
| |||||||||||
(Gain) loss on disposal of fixed assets |
|
| (3 | ) |
|
| 34 |
| ||||||||
Non-operating pension and other postretirement employee benefit costs |
|
| 228 |
|
|
| 1,929 |
| ||||||||
Gain on disposal of fixed assets |
|
| — |
|
|
| (3 | ) | ||||||||
Other |
|
| (10 | ) |
|
| — |
| ||||||||
Total Adjusted EBITDDA |
| $ | 245,562 |
|
| $ | 194,986 |
|
| $ | 57,777 |
|
| $ | 245,562 |
|
|
|
|
|
|
|
We define CAD as cash from operating activities adjusted for capital spending for purchases of property, plant and equipment, timberlands reforestation and roads and timberland acquisitions not classified as strategic. Management believes CAD is a useful indicator of the company’s overall liquidity, as it provides a measure of cash generated that is available for dividends to common stockholders (an important factor in maintaining our REIT status), repurchase of the company’s common shares, debt repayment, acquisitions and other discretionary and nondiscretionary activities. Our definition of CAD is limited in that it does not solely represent residual cash flows available for discretionary expenditures since the measure does not deduct the payments required for debt service and other contractual obligations. Therefore, we believe it is important to view CAD as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows. Our definition of CAD may be different from similarly titled measures reported by other companies, including those in our industry. CAD is not necessarily indicative of the CAD that may be generated in future periods.
32
The following table provides a reconciliation of cash from operating activities to CAD:
|
| Three Months Ended March 31, |
|
| Twelve Months Ended March 31, |
|
| Three Months Ended March 31, |
|
| Twelve Months Ended March 31, |
| ||||||||||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Net cash from operating activities1 |
| $ | 230,299 |
| $ | 169,965 |
| $ | 565,220 |
| $ | 457,090 |
|
| $ | 39,139 |
|
| $ | 230,299 |
|
| $ | 300,741 |
|
| $ | 565,220 |
| |||
Capital expenditures2 |
|
| (17,214 | ) |
|
| (11,718 | ) |
|
| (80,910 | ) |
|
| (43,964 | ) |
|
| (10,373 | ) |
|
| (17,214 | ) |
|
| (177,963 | ) |
|
| (80,910 | ) |
CAD |
| $ | 213,085 |
|
| $ | 158,247 |
|
| $ | 484,310 |
|
| $ | 413,126 |
|
| $ | 28,766 |
|
| $ | 213,085 |
|
| $ | 122,778 |
|
| $ | 484,310 |
|
Net cash from investing activities3 |
| $ | (17,122 | ) |
| $ | (11,529 | ) |
| $ | (64,738 | ) |
| $ | (42,688 | ) |
| $ | (4,896 | ) |
| $ | (17,122 | ) |
| $ | (135,294 | ) |
| $ | (64,738 | ) |
Net cash from financing activities |
| $ | (34,595 | ) |
| $ | (28,075 | ) |
| $ | (407,829 | ) |
| $ | (113,521 | ) |
| $ | (36,800 | ) |
| $ | (34,595 | ) |
| $ | (297,767 | ) |
| $ | (407,829 | ) |
|
|
|
|
|
|
|
|
|
|
1 | Net cash from operating activities for the three and twelve months ended March 31, 2023 includes cash paid for CatchMark merger-related expenses of $0.5 million and $18.3 million, respectively, and cash paid for real estate development expenditures of $2.4 million and $8.3 million, respectively. Net cash from operating activities for the three and twelve months ended March 31, 2022 |
2 | The three and twelve months ended March 31, 2023 include fire related capital expenditures for the Ola, Arkansas sawmill of $0 and $13.1 million, respectively, and exclude $0 and $8.8 million, respectively, of insurance proceeds for the Ola, Arkansas sawmill property losses. The three and twelve months ended March 31, 2022 |
3 | Net cash from investing activities includes payment for capital expenditures and acquisition of non-strategic timber and timberlands, which is also included in our reconciliation of CAD. |
Critical Accounting Policies and Estimates
In March 2022, we transferred $75.6 million of our qualified pension plan (the Plan) assets to an insurance company for the purchase of a group annuity contract. This transaction triggered a remeasurement of the Plan's assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the Plan as of March 31, 2022. All other pension assumptions remain unchanged. See Note 11: Pension and Other Postretirement Employee Benefits for further information on the pension settlement and change to the projected benefit obligation. There have been no other significant changes during 20222023 to our critical accounting policies or estimates as presented in our 20212022 Annual Report on Form 10-K.
31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk exposure on financial instruments includes interest rate risk on our bank credit facility, term loans and interest rate swap agreements and forward starting interest rate swap agreements. We are exposed to interest rate volatility on existing variable rate debt instruments and future incurrences of fixed or variable rate debt, which exposure primarily relates to movements in various interest rates. We use interest rate swaps and forward starting swaps to hedge our exposure to the impact of interest rate changes on existing debt and future debt issuances, respectively. All market risk sensitive instruments were entered into for purposes other than for trading purposes.
For quantitative and qualitative disclosures about market risk, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our annual report on Form 10-K for the year ended December 31, 2021.2022. Our exposures to market risk have not changed materially since December 31, 2021.2022.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act)), under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of March 31, 2022.2023. These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, the CEO and CFO have concluded that these disclosure controls and procedures were effective as of March 31, 2022.2023.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Internal Control over Financial Reporting
No changes occurred in our internal control over financial reporting during the three months ended March 31, 2022,2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
3233
Part II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We believe there is no pending or threatened litigation that could have a material adverse effect on our financial position, operations or liquidity.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors previously disclosed in Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On August 30, 2018,31, 2022, our board of directors authorized management to repurchase up to $100.0$200.0 million of our common stock with no set time limit set for the repurchase (the 2022 Repurchase Program). SharesConcurrently, the board of directors terminated the remaining repurchase authorization under the Repurchase Program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan). The timing, manner, price and amount of repurchases will be determined according to, and subject to, the terms of the Trading Plan, and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason.
previously approved share repurchase plan. There were no shares repurchased during the first quarter of 2022 under the Repurchase Program.2023. At March 31, 2022,2023, we had remaining authorization of $59.5$150.0 million for future stock repurchases under the 2022 Repurchase Program. Transaction costs are
We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability to account for repurchases that have not counted against authorized funds. All common stock purchases are madebeen cash settled. We retire shares upon repurchase. Any excess repurchase price over par is recorded in open-market transactions.accumulated deficit.
ITEM 6. EXHIBITS
EXHIBIT NUMBER | DESCRIPTION |
| |
| |
| See Exhibits |
| |
| |
| |
| The following financial information from PotlatchDeltic Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, |
| Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). |
* Incorporated by reference.
3334
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PotlatchDeltic Corporation | |||
(Registrant) | |||
By | /s/ WAYNE WASECHEK | ||
Wayne Wasechek | |||
Chief Accounting Officer (Duly Authorized; Principal Accounting Officer) | |||
| |||
Date: | April |
3435