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, 20232024
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)Act).
Yes ☐ No ☒
The number of shares of common stock of the registrant outstanding as of(in thousands) at April 25, 2023,30, 2024, was 79,915,92279,508.
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
Table of Contents
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| Page |
PART I. - FINANCIAL INFORMATION |
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ITEM 1. | Financial Statements (unaudited) |
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3 | ||
Condensed Consolidated Statements of Comprehensive Income (Loss) | 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 |
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ITEM 3. |
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ITEM 4. |
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PART II. - OTHER INFORMATION |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 5. | 33 | |
ITEM 6. | 34 | |
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35 | ||
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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) | 2023 |
|
| 2022 |
| 2024 |
|
| 2023 |
| ||||
Revenues | $ | 257,962 |
|
| $ | 411,350 |
| $ | 228,127 |
|
| $ | 257,962 |
|
Costs and expenses: |
|
|
|
| ||||||||||
Cost of goods sold |
| 224,350 |
|
|
| 179,847 |
|
| 212,160 |
|
|
| 224,350 |
|
Selling, general and administrative expenses |
| 18,230 |
|
|
| 16,294 |
|
| 20,727 |
|
|
| 18,230 |
|
CatchMark merger-related expenses |
| 2,209 |
|
| — |
|
| — |
|
| 2,209 |
| ||
Loss on fire damage |
| — |
|
|
| 276 |
| |||||||
|
| 244,789 |
|
|
| 196,417 |
|
| 232,887 |
|
|
| 244,789 |
|
Operating income |
| 13,173 |
|
|
| 214,933 |
| |||||||
Operating income (loss) |
| (4,760 | ) |
|
| 13,173 |
| |||||||
Interest expense, net |
| (199 | ) |
|
| (2,894 | ) |
| 282 |
|
|
| (199 | ) |
Pension settlement charge |
| — |
|
|
| (14,165 | ) | |||||||
Non-operating pension and other postretirement employee benefit costs |
| (228 | ) |
|
| (1,929 | ) | |||||||
Non-operating pension and other postretirement employee benefits |
| 201 |
|
|
| (228 | ) | |||||||
Other |
| 10 |
|
|
| — |
|
| (145 | ) |
|
| 10 |
|
Income before income taxes |
| 12,756 |
|
|
| 195,945 |
| |||||||
Income (loss) before income taxes |
| (4,422 | ) |
|
| 12,756 |
| |||||||
Income taxes |
| 3,504 |
|
|
| (32,065 | ) |
| 4,117 |
|
|
| 3,504 |
|
Net income | $ | 16,260 |
|
| $ | 163,880 |
| |||||||
Net income (loss) | $ | (305 | ) |
| $ | 16,260 |
| |||||||
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Net income per share: |
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Net income (loss) per share: |
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|
| ||||||||||
Basic | $ | 0.20 |
|
| $ | 2.36 |
| $ | — |
|
| $ | 0.20 |
|
Diluted | $ | 0.20 |
|
| $ | 2.35 |
| $ | — |
|
| $ | 0.20 |
|
Dividends per share | $ | 0.45 |
|
| $ | 0.44 |
| $ | 0.45 |
|
| $ | 0.45 |
|
Weighted-average shares outstanding |
|
|
|
|
|
|
|
| ||||||
Basic |
| 80,027 |
|
|
| 69,419 |
|
| 79,677 |
|
|
| 80,027 |
|
Diluted |
| 80,167 |
|
|
| 69,623 |
|
| 79,677 |
|
|
| 80,167 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2024 |
|
| 2023 |
| ||
Net income (loss) |
| $ | (305 | ) |
| $ | 16,260 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
| ||
Pension and other postretirement employee benefits |
|
| (229 | ) |
|
| (131 | ) |
Cash flow hedges |
|
| 15,925 |
|
|
| (17,335 | ) |
Other comprehensive income (loss), net of tax |
|
| 15,696 |
|
|
| (17,466 | ) |
Comprehensive income (loss) |
| $ | 15,391 |
|
| $ | (1,206 | ) |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
4
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
|
| 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, 2023 |
|
| December 31, 2022 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||
ASSETS |
|
|
|
|
|
|
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|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 325,632 |
|
| $ | 343,809 |
|
| $ | 180,150 |
|
| $ | 230,118 |
|
Customer receivables, net |
|
| 29,565 |
|
|
| 22,813 |
|
|
| 27,132 |
|
|
| 21,892 |
|
Inventories, net |
|
| 66,189 |
|
|
| 67,958 |
|
|
| 77,572 |
|
|
| 78,665 |
|
Other current assets |
|
| 44,698 |
|
|
| 36,955 |
|
|
| 84,844 |
|
|
| 46,258 |
|
Total current assets |
|
| 466,084 |
|
|
| 471,535 |
|
|
| 369,698 |
|
|
| 376,933 |
|
Property, plant and equipment, net |
|
| 312,791 |
|
|
| 318,184 |
|
|
| 375,891 |
|
|
| 372,832 |
|
Investment in real estate held for development and sale |
|
| 54,945 |
|
|
| 55,490 |
|
|
| 55,524 |
|
|
| 56,321 |
|
Timber and timberlands, net |
|
| 2,488,956 |
|
|
| 2,508,372 |
|
|
| 2,415,818 |
|
|
| 2,440,398 |
|
Intangible assets, net |
|
| 16,975 |
|
|
| 17,420 |
|
|
| 15,196 |
|
|
| 15,640 |
|
Other long-term assets |
|
| 160,019 |
|
|
| 179,554 |
|
|
| 176,812 |
|
|
| 169,132 |
|
Total assets |
| $ | 3,499,770 |
|
| $ | 3,550,555 |
|
| $ | 3,408,939 |
|
| $ | 3,431,256 |
|
|
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|
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
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|
|
|
|
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|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable and accrued liabilities |
| $ | 78,268 |
|
| $ | 94,861 |
|
| $ | 80,697 |
|
| $ | 82,383 |
|
Current portion of long-term debt |
|
| 39,985 |
|
|
| 39,979 |
|
|
| 175,654 |
|
|
| 175,615 |
|
Current portion of pension and other postretirement employee benefits |
|
| 4,926 |
|
|
| 4,926 |
|
|
| 4,535 |
|
|
| 4,535 |
|
Total current liabilities |
|
| 123,179 |
|
|
| 139,766 |
|
|
| 260,886 |
|
|
| 262,533 |
|
Long-term debt |
|
| 992,988 |
|
|
| 992,701 |
|
|
| 858,365 |
|
|
| 858,113 |
|
Pension and other postretirement employee benefits |
|
| 78,096 |
|
|
| 77,396 |
|
|
| 68,391 |
|
|
| 67,856 |
|
Deferred tax liabilities, net |
|
| 41,756 |
|
|
| 41,790 |
|
|
| 32,546 |
|
|
| 36,641 |
|
Other long-term obligations |
|
| 35,488 |
|
|
| 35,749 |
|
|
| 35,479 |
|
|
| 35,015 |
|
Total liabilities |
|
| 1,271,507 |
|
|
| 1,287,402 |
|
|
| 1,255,667 |
|
|
| 1,260,158 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 |
| ||||||||
Common stock, $1 par value, 200,000 shares authorized, 79,508 and 79,365 shares issued and outstanding |
|
| 79,508 |
|
|
| 79,365 |
| ||||||||
Additional paid-in capital |
|
| 2,296,927 |
|
|
| 2,294,797 |
|
|
| 2,306,499 |
|
|
| 2,303,992 |
|
Accumulated deficit |
|
| (228,766 | ) |
|
| (208,979 | ) |
|
| (351,463 | ) |
|
| (315,291 | ) |
Accumulated other comprehensive income |
|
| 80,186 |
|
|
| 97,652 |
|
|
| 118,728 |
|
|
| 103,032 |
|
Total stockholders’ equity |
|
| 2,228,263 |
|
|
| 2,263,153 |
|
|
| 2,153,272 |
|
|
| 2,171,098 |
|
Total liabilities and stockholders' equity |
| $ | 3,499,770 |
|
| $ | 3,550,555 |
|
| $ | 3,408,939 |
|
| $ | 3,431,256 |
|
|
|
|
|
|
|
|
|
|
|
|
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) |
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 16,260 |
|
| $ | 163,880 |
| ||||||||
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
| ||||||||||
Net income (loss) |
| $ | (305 | ) |
| $ | 16,260 |
| ||||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: |
|
|
|
|
|
| ||||||||||
Depreciation, depletion and amortization |
|
| 32,173 |
|
|
| 19,874 |
|
|
| 30,802 |
|
|
| 32,173 |
|
Basis of real estate sold |
|
| 10,631 |
|
|
| 10,854 |
|
|
| 4,092 |
|
|
| 10,631 |
|
Change in deferred taxes |
|
| 394 |
|
|
| (2,123 | ) |
|
| (4,145 | ) |
|
| 394 |
|
Pension and other postretirement employee benefits |
|
| 1,611 |
|
|
| 3,857 |
|
|
| 1,143 |
|
|
| 1,611 |
|
Pension settlement charge |
|
| — |
|
|
| 14,165 |
| ||||||||
Equity-based compensation expense |
|
| 2,279 |
|
|
| 2,056 |
|
|
| 2,560 |
|
|
| 2,279 |
|
Loss on fire damage |
|
| — |
|
|
| 276 |
| ||||||||
Interest received under swaps with other-than-insignificant financing element |
|
| (7,458 | ) |
|
| (5,454 | ) | ||||||||
Other, net |
|
| (3,509 | ) |
|
| (291 | ) |
|
| 2,961 |
|
|
| 1,945 |
|
Change in working capital and operating-related activities, net |
|
| (17,205 | ) |
|
| 21,208 |
|
|
| (13,252 | ) |
|
| (17,205 | ) |
Real estate development expenditures |
|
| (2,408 | ) |
|
| (2,161 | ) |
|
| (1,135 | ) |
|
| (2,408 | ) |
Funding of pension and other postretirement employee benefits |
|
| (1,087 | ) |
|
| (1,296 | ) |
|
| (914 | ) |
|
| (1,087 | ) |
Proceeds from insurance recoveries |
|
| 1,680 |
|
|
| — |
| ||||||||
Net cash from operating activities |
|
| 39,139 |
|
|
| 230,299 |
|
|
| 16,029 |
|
|
| 39,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property, plant and equipment additions |
|
| (4,255 | ) |
|
| (12,566 | ) |
|
| (4,995 | ) |
|
| (4,255 | ) |
Timberlands reforestation and roads |
|
| (6,118 | ) |
|
| (4,648 | ) |
|
| (7,874 | ) |
|
| (6,118 | ) |
Acquisition of timber and timberlands |
|
| (31,438 | ) |
|
| — |
| ||||||||
Interest received under swaps with other-than-insignificant financing element |
|
| 5,055 |
|
|
| — |
|
|
| 6,938 |
|
|
| 5,055 |
|
Other, net |
|
| 422 |
|
|
| 92 |
|
|
| 373 |
|
|
| 422 |
|
Net cash from investing activities |
|
| (4,896 | ) |
|
| (17,122 | ) |
|
| (36,996 | ) |
|
| (4,896 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
| �� |
|
|
|
|
|
|
|
|
| ||||
Distributions to common stockholders |
|
| (35,962 | ) |
|
| (30,524 | ) |
|
| (35,779 | ) |
|
| (35,962 | ) |
Repayment of long-term debt |
|
| — |
|
|
| (3,000 | ) | ||||||||
Other, net |
|
| (838 | ) |
|
| (1,071 | ) |
|
| (792 | ) |
|
| (838 | ) |
Net cash from financing activities |
|
| (36,800 | ) |
|
| (34,595 | ) |
|
| (36,571 | ) |
|
| (36,800 | ) |
Change in cash, cash equivalents and restricted cash |
|
| (2,557 | ) |
|
| 178,582 |
|
|
| (57,538 | ) |
|
| (2,557 | ) |
Cash, cash equivalents and restricted cash at beginning of period |
|
| 345,591 |
|
|
| 296,772 |
|
|
| 237,688 |
|
|
| 345,591 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 343,034 |
|
| $ | 475,354 |
|
| $ | 180,150 |
|
| $ | 343,034 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
| ||||||||||
NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accrued property, plant and equipment additions |
| $ | 1,835 |
|
| $ | 1,516 |
|
| $ | 10,401 |
|
| $ | 1,835 |
|
Accrued timberlands reforestation and roads |
| $ | 1,041 |
|
| $ | 98 |
|
| $ | 1,028 |
|
| $ | 1,041 |
|
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, 2023 |
|
| March 31, 2022 |
|
| March 31, 2024 |
|
| March 31, 2023 |
| ||||
Cash and cash equivalents |
| $ | 325,632 |
|
| $ | 470,918 |
|
| $ | 180,150 |
|
| $ | 325,632 |
|
Restricted cash included in other current and long-term assets1 |
|
| 17,402 |
|
|
| 4,436 |
|
|
| — |
|
|
| 17,402 |
|
Total cash, cash equivalents, and restricted cash |
| $ | 343,034 |
|
| $ | 475,354 |
|
| $ | 180,150 |
|
| $ | 343,034 |
|
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, 2024 and 2023, $0and |
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 |
|
| Equity |
| ||||||||||||
Balance, December 31, 2022 |
|
| 79,683 |
|
| $ | 79,683 |
|
| $ | 2,294,797 |
|
| $ | (208,979 | ) |
| $ | 97,652 |
|
| $ | 2,263,153 |
| ||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,260 |
|
|
| — |
|
|
| 16,260 |
| ||||||||||||||||||||||||
Balance, December 31, 2023 |
|
| 79,365 |
|
| $ | 79,365 |
|
| $ | 2,303,992 |
|
| $ | (315,291 | ) |
| $ | 103,032 |
|
| $ | 2,171,098 |
| ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (305 | ) |
|
| — |
|
|
| (305 | ) | ||||||||||||||||||||||||
Shares issued for stock compensation |
|
| 233 |
|
|
| 233 |
|
|
| (233 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 143 |
|
|
| 143 |
|
|
| (143 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Equity-based compensation expense |
|
| — |
|
|
| — |
|
|
| 2,279 |
|
|
| — |
|
|
| — |
|
|
| 2,279 |
|
|
| — |
|
|
| — |
|
|
| 2,560 |
|
|
| — |
|
|
| — |
|
|
| 2,560 |
|
Pension plans and OPEB obligations, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (131 | ) |
|
| (131 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (229 | ) |
|
| (229 | ) |
Cash flow hedges, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17,335 | ) |
|
| (17,335 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,925 |
|
|
| 15,925 |
|
Common dividends, $0.45 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (35,962 | ) |
|
| — |
|
|
| (35,962 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (35,779 | ) |
|
| — |
|
|
| (35,779 | ) |
Other transactions, net |
|
| — |
|
|
| — |
|
|
| 84 |
|
|
| (85 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| 90 |
|
|
| (88 | ) |
|
| — |
|
|
| 2 |
|
Balance, March 31, 2023 |
|
| 79,916 |
|
| $ | 79,916 |
|
| $ | 2,296,927 |
|
| $ | (228,766 | ) |
| $ | 80,186 |
|
| $ | 2,228,263 |
| ||||||||||||||||||||||||
Balance, March 31, 2024 |
|
| 79,508 |
|
| $ | 79,508 |
|
| $ | 2,306,499 |
|
| $ | (351,463 | ) |
| $ | 118,728 |
|
| $ | 2,153,272 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
| 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 | ) |
Common dividends, $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 |
|
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 | |
18 | |
Note 12: Components of Accumulated Other Comprehensive |
|
19 | |
|
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 nine states. We are engaged in activities associated with timberland management, including the sale of timber, the management of nearly 2.2 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, 2022,2023, as filed with the Securities and Exchange Commission on February 16, 2023.15, 2024. 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.
RecentRecently Adopted Accounting Standards
From time to time, new accounting pronouncements are issued byIn November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 provides updates to qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expense categories that are regularly reported to the chief operating decision maker and included in each reported measure of a segment’s profit or other standard setting bodiesloss and are adoptedincreased interim disclosure requirements, among others. The adoption of this ASU on January 1, 2024, including the required retrospective application for all periods presented in the financial statements, will be reflected in our annual financial statements for the year ended December 31, 2024, and interim financial statements beginning in 2025. Management is currently evaluating the impact of this ASU on the company's financial statement disclosures.
Recent Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. The ASU is effective for fiscal years beginning after December 15, 2024. The amendments may be applied prospectively or retrospectively, and early adoption is permitted. Management is currently evaluating this ASU to determine its impact on the companycompany's financial statement disclosures.
Reclassifications
Certain prior period reclassifications were made to conform with the current period presentation. These reclassifications had no effect on reported net income (loss), net income (loss) per share, comprehensive income (loss), cash flows, total assets, total liabilities, or shareholders' equity as of the specified 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 operations, overall financial condition, liquidity or disclosures.previously reported.
10
NOTE 2. SEGMENT INFORMATION
Our operations are organized into three 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 marketssells lumber and plywood. The Real Estate segment 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 sizeablesizable 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) | 2023 |
|
| 2022 |
| 2024 |
|
| 2023 |
| ||||
Timberlands |
|
|
|
|
|
|
|
| ||||||
Northern region |
|
|
|
|
|
|
|
|
|
| ||||
Sawlogs | $ | 53,325 |
|
| $ | 81,504 |
| $ | 33,806 |
|
| $ | 53,325 |
|
Pulpwood |
| 403 |
|
|
| 392 |
|
| 65 |
|
|
| 403 |
|
Other |
| 261 |
|
|
| 303 |
|
| 311 |
|
|
| 261 |
|
Total Northern revenues |
| 53,989 |
|
|
| 82,199 |
|
| 34,182 |
|
|
| 53,989 |
|
|
|
|
|
|
|
|
|
| ||||||
Southern region |
|
|
|
|
|
|
|
|
|
| ||||
Sawlogs |
| 31,754 |
|
|
| 23,381 |
|
| 31,216 |
|
|
| 31,754 |
|
Pulpwood |
| 16,132 |
|
|
| 11,627 |
|
| 15,648 |
|
|
| 16,132 |
|
Stumpage |
| 9,233 |
|
|
| 3,358 |
|
| 7,632 |
|
|
| 9,233 |
|
Other |
| 4,130 |
|
|
| 3,092 |
|
| 4,272 |
|
|
| 4,130 |
|
Total Southern revenues |
| 61,249 |
|
|
| 41,458 |
|
| 58,768 |
|
|
| 61,249 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Timberlands revenues |
| 115,238 |
|
|
| 123,657 |
|
| 92,950 |
|
|
| 115,238 |
|
|
|
|
|
|
|
|
|
| ||||||
Wood Products |
|
|
|
|
|
|
|
| ||||||
Lumber |
| 113,798 |
|
|
| 250,764 |
|
| 116,723 |
|
|
| 113,798 |
|
Residuals and Panels |
| 38,997 |
|
|
| 44,978 |
|
| 31,875 |
|
|
| 38,997 |
|
Total Wood Products revenues |
| 152,795 |
|
|
| 295,742 |
|
| 148,598 |
|
|
| 152,795 |
|
|
|
|
|
|
|
|
|
| ||||||
Real Estate |
|
|
|
|
|
|
|
| ||||||
Rural real estate |
| 17,819 |
|
|
| 21,646 |
|
| 5,526 |
|
|
| 17,819 |
|
Development real estate |
| 2,800 |
|
|
| 10,278 |
|
| 2,874 |
|
|
| 2,800 |
|
Other |
| 3,244 |
|
|
| 2,141 |
|
| 2,707 |
|
|
| 3,244 |
|
Total Real Estate revenues |
| 23,863 |
|
|
| 34,065 |
|
| 11,107 |
|
|
| 23,863 |
|
|
|
|
|
|
|
|
|
| ||||||
Total segment revenues |
| 291,896 |
|
|
| 453,464 |
|
| 252,655 |
|
|
| 291,896 |
|
Intersegment Timberlands revenues1 |
| (33,934 | ) |
|
| (42,114 | ) |
| (24,528 | ) |
|
| (33,934 | ) |
Total consolidated revenues | $ | 257,962 |
|
| $ | 411,350 |
| $ | 228,127 |
|
| $ | 257,962 |
|
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. EBITDDA is calculated as net income (loss) 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. 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 (loss) 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) |
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Adjusted EBITDDA: |
|
|
|
|
|
|
|
|
|
| ||||||
Timberlands |
| $ | 46,639 |
|
| $ | 76,434 |
|
| $ | 34,748 |
|
| $ | 46,639 |
|
Wood Products |
|
| (31 | ) |
|
| 149,951 |
|
|
| (139 | ) |
|
| (31 | ) |
Real Estate |
|
| 19,465 |
|
|
| 30,124 |
|
|
| 6,228 |
|
|
| 19,465 |
|
Corporate |
|
| (10,741 | ) |
|
| (9,584 | ) |
|
| (12,665 | ) |
|
| (10,741 | ) |
Eliminations and adjustments |
|
| 2,445 |
|
|
| (1,363 | ) |
|
| 1,550 |
|
|
| 2,445 |
|
Total Adjusted EBITDDA |
|
| 57,777 |
|
|
| 245,562 |
|
|
| 29,722 |
|
|
| 57,777 |
|
Interest expense, net1 |
|
| (199 | ) |
|
| (2,894 | ) |
|
| 282 |
|
|
| (199 | ) |
Depreciation, depletion and amortization |
|
| (31,764 | ) |
|
| (19,502 | ) |
|
| (30,395 | ) |
|
| (31,764 | ) |
Basis of real estate sold |
|
| (10,631 | ) |
|
| (10,854 | ) |
|
| (4,092 | ) |
|
| (10,631 | ) |
CatchMark merger-related expenses |
|
| (2,209 | ) |
|
| — |
|
|
| — |
|
|
| (2,209 | ) |
Loss on fire damage |
|
| — |
|
|
| (276 | ) | ||||||||
Pension settlement charge |
|
| — |
|
|
| (14,165 | ) | ||||||||
Non-operating pension and other postretirement employee benefit costs |
|
| (228 | ) |
|
| (1,929 | ) | ||||||||
Non-operating pension and other postretirement employee benefits |
|
| 201 |
|
|
| (228 | ) | ||||||||
Gain on disposal of fixed assets |
|
| — |
|
|
| 3 |
|
|
| 5 |
|
|
| — |
|
Other |
|
| 10 |
|
|
| — |
|
|
| (145 | ) |
|
| 10 |
|
Income before income taxes |
| $ | 12,756 |
|
| $ | 195,945 |
| ||||||||
Income (loss) before income taxes |
| $ | (4,422 | ) |
| $ | 12,756 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation, depletion and amortization: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Timberlands |
| $ | 20,461 |
|
| $ | 12,161 |
|
| $ | 17,625 |
|
| $ | 20,461 |
|
Wood Products |
|
| 11,035 |
|
|
| 7,021 |
|
|
| 12,516 |
|
|
| 11,035 |
|
Real Estate |
|
| 156 |
|
|
| 170 |
|
|
| 138 |
|
|
| 156 |
|
Corporate |
|
| 112 |
|
|
| 150 |
|
|
| 116 |
|
|
| 112 |
|
|
| 31,764 |
|
|
| 19,502 |
|
|
| 30,395 |
|
|
| 31,764 |
| |
Bond discounts and deferred loan fees1 |
|
| 409 |
|
|
| 372 |
|
|
| 407 |
|
|
| 409 |
|
Total depreciation, depletion and amortization |
| $ | 32,173 |
|
| $ | 19,874 |
|
| $ | 30,802 |
|
| $ | 32,173 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basis of real estate sold: |
|
|
|
|
|
|
|
|
|
| ||||||
Real Estate |
| $ | 10,631 |
|
| $ | 10,860 |
|
| $ | 4,094 |
|
| $ | 10,631 |
|
Eliminations and adjustments |
|
| — |
|
|
| (6 | ) |
|
| (2 | ) |
|
| — |
|
Total basis of real estate sold |
| $ | 10,631 |
|
| $ | 10,854 |
|
| $ | 4,092 |
|
| $ | 10,631 |
|
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) |
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Basic weighted-average shares outstanding |
|
| 80,027 |
|
|
| 69,419 |
|
|
| 79,677 |
|
|
| 80,027 |
|
Incremental shares due to: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Performance shares |
|
| 97 |
|
|
| 140 |
|
|
| — |
|
|
| 97 |
|
Restricted stock units |
|
| 43 |
|
|
| 64 |
|
|
| — |
|
|
| 43 |
|
Diluted weighted-average shares outstanding |
|
| 80,167 |
|
|
| 69,623 |
|
|
| 79,677 |
|
|
| 80,167 |
|
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, 20232024 and 2022,2023, there were approximately 134,000421,500 and 114,400134,000 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 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 terminated the remaining repurchase authorization under a previously approved share repurchase plan.
Shares under the 2022 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)., or through privately negotiated transactions. 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 2022 Repurchase Program may be suspended, terminated or modified at any time for any reason. No shares were repurchased under the 2022 Repurchase Program during the three months ended March 31, 20232024 and 2022.2023. At March 31, 2023,2024, we had remaining authorization of $150.0125.0 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.date. 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, 2023 |
|
| December 31, 2022 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||
Logs |
| $ | 24,428 |
|
| $ | 30,586 |
|
| $ | 31,379 |
|
| $ | 39,011 |
|
Lumber, panels and veneer |
|
| 38,526 |
|
|
| 35,888 |
|
|
| 39,613 |
|
|
| 34,621 |
|
Materials and supplies |
|
| 23,013 |
|
|
| 21,262 |
|
|
| 25,260 |
|
|
| 23,713 |
|
Total inventories |
|
| 85,967 |
|
|
| 87,736 |
|
|
| 96,252 |
|
|
| 97,345 |
|
Less: LIFO reserve |
|
| (19,778 | ) |
|
| (19,778 | ) |
|
| (18,680 | ) |
|
| (18,680 | ) |
Total inventories, net |
| $ | 66,189 |
|
| $ | 67,958 |
|
| $ | 77,572 |
|
| $ | 78,665 |
|
Property, plant and equipment
(in thousands) |
| March 31, 2023 |
|
| December 31, 2022 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||
Property, plant and equipment |
| $ | 594,574 |
|
| $ | 588,935 |
|
| $ | 697,182 |
|
| $ | 681,914 |
|
Less: accumulated depreciation |
|
| (281,783 | ) |
|
| (270,751 | ) |
|
| (321,291 | ) |
|
| (309,082 | ) |
Total property, plant and equipment, net |
| $ | 312,791 |
|
| $ | 318,184 |
|
| $ | 375,891 |
|
| $ | 372,832 |
|
Timber and timberlands
(in thousands) |
| March 31, 2024 |
|
| December 31, 2023 |
| ||
Timber and timberlands |
| $ | 2,324,815 |
|
| $ | 2,347,300 |
|
Logging roads |
|
| 91,003 |
|
|
| 93,098 |
|
Total timber and timberlands, net |
| $ | 2,415,818 |
|
| $ | 2,440,398 |
|
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 limitedIn January 2024, we entered into an agreement to the large log primary breakdown areasell approximately 34,000 acres 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 reimbursedfour-year average age Southern timberlands for both property damage and business interruption losses by our insurance carriers, subject to aapproximately $2.058.0 million deductible, under which we filed a claimto Forest Investment Associates (FIA), subject to certain adjustments as defined in the agreement. The transaction is subject to customary closing conditions and is expected to close in the second quarter of 2024. At March 31, 2024, $42.8 million of timber and timberlands basis associated with the insurance carriers. Through December 31, 2022,pending sale to FIA was classified as real estate held for sale and is included in Other current assets on the Condensed Consolidated Balance Sheets. We generally consider assets to be held for sale at the point at which a sale contract is executed, the buyer has made a significant non-refundable earnest money deposit against the contracted purchase price, and there is a high degree of certainty a transaction will close. Additionally, in January 2024, we received a totalacquired 16,000 acres of timberlands in Arkansas for $50.031.4 million, fromincluding transaction costs. We funded the insurance carriers for both property damage and business interruption proceeds at the Ola sawmill. No insurance proceeds were received for the claim during the three months ended March 31, 2023. We are in the process of finalizing our insurance claim and expect to receive the remaining insurance proceeds in 2023. Insurance recoveries are recorded when deemed probable and reasonably estimable.
Timber and timberlandsacquisition with cash on hand.
(in thousands) |
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Timber and timberlands |
| $ | 2,397,681 |
|
| $ | 2,416,134 |
|
Logging roads |
|
| 91,275 |
|
|
| 92,238 |
|
Total timber and timberlands, net |
| $ | 2,488,956 |
|
| $ | 2,508,372 |
|
Accounts payable and accrued liabilities
(in thousands) |
| March 31, 2023 |
|
| December 31, 2022 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||
Accrued payroll and benefits |
| $ | 15,920 |
|
| $ | 29,051 |
|
| $ | 16,692 |
|
| $ | 24,473 |
|
Accounts payable |
|
| 11,510 |
|
|
| 12,241 |
|
|
| 11,258 |
|
|
| 12,521 |
|
Deferred revenue1 |
|
| 8,606 |
|
|
| 10,860 |
|
|
| 8,000 |
|
|
| 10,455 |
|
Accrued taxes |
|
| 7,222 |
|
|
| 5,712 |
| ||||||||
Accrued interest |
|
| 6,603 |
|
|
| 7,778 |
|
|
| 6,836 |
|
|
| 8,344 |
|
Accrued taxes |
|
| 8,629 |
|
|
| 7,161 |
| ||||||||
Other current liabilities |
|
| 27,000 |
|
|
| 27,770 |
|
|
| 30,689 |
|
|
| 20,878 |
|
Total accounts payable and accrued liabilities |
| $ | 78,268 |
|
| $ | 94,861 |
|
| $ | 80,697 |
|
| $ | 82,383 |
|
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 |
NOTE 5. DEBT
TERM LOANS
At March 31, 2023,2024 our total outstanding principal on our long-term debt of $1.0 billion included $971.0 million of term loans under our Second Amended and Restated Term Loan Agreement (Amended Term Loan Agreement) with our primary lender. Certain borrowings under the Amended Term Loan Agreement are at the one-month SOFR-indexedSecured Overnight Financing Rate (SOFR)-indexed variable rates, plus a spread between 1.661.61% and 2.30%. We have entered into SOFR-indexed interest rate swaps to fix the interest rate on these variable rate term loans. See Note: 6 Derivative Instruments for additional information. Approximately $175.7 million of our outstanding long-term debt was classified as current at March 31, 2024 on our accompanying Condensed Consolidated Balance Sheets, including a $110.0 million term loan and a $65.7 million revenue bond that mature during 2024.
CREDIT AGREEMENT
At March 31,On May 18, 2023, there were we entered into a First Amendment to the Third Amended and Restated Credit Agreement (Amended Credit Agreement). The Amended Credit Agreement provides for loans based on SOFR instead of the London Inter-Bank Offered Rate, or LIBOR, provides us the option to borrow based on a daily SOFR or term SOFR basis, and provides mechanics relating to the transition from the use of SOFR to a replacement benchmark rate upon the occurrence of certain transition events.no
borrowings under ourThe Amended Credit Agreement provides for a $300.0 million revolving line of credit andthat matures February 14, 2027approximately $0.9million of our revolving line of credit was utilized for outstanding letters of credit.. As provided in the revolving line of credit agreement, borrowingsAmended Credit Agreement, borrowing capacity 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 sub facilities reduces availability under the revolving line of credit. We may utilize borrowings under the credit facilityAmended 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, 2024, there were no borrowings under the revolving line of credit andapproximately $0.7million of our revolving line of credit was utilized for outstanding letters of credit.
We were in compliance with all debt and credit agreement covenants at March 31, 2023.2024.
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. All 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.
14
At March 31, 2023,2024, we have interest rate swaps associated with $721.0761.0 million of SOFR-indexed term loan debt. These cash flow hedges convert variable rates ranging from one-month SOFR plus 1.661.61% to 2.30%, to fixed rates ranging from 2.192.14% to 4.794.83% before patronage credits from lenders. At March 31, 2023,2024, we also have $250.0200.0 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, 20232024 and December 31, 2022,2023, were $124.3142.6 million and $144.6129.1 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 Operationsand the Condensed Consolidated Statements of Comprehensive Income (Loss):
|
|
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| Location |
| 2024 |
|
| 2023 |
| ||
Derivatives designated in cash flow hedging relationships: |
|
|
|
| ||||||
Interest rate contracts |
|
|
|
|
|
|
|
| ||
Income (loss) recognized in other comprehensive income (loss), net of tax |
|
|
| $ | 21,520 |
|
| $ | (13,591 | ) |
Amounts reclassified from accumulated other comprehensive income to income, net of tax1 |
| Interest expense, net |
| $ | 5,595 |
|
| $ | 3,744 |
|
|
|
|
|
|
|
|
|
| ||
Interest expense, net |
|
|
| $ | 282 |
|
| $ | (199 | ) |
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 income (loss) related to certain terminated hedges and adjustments to interest expense resulting from amortization of inception value of certain off-market designated hedges. For the three months ended March 31, 2024 and 2023, we amortized approximately $2.6 million and $2.5 million, respectively, of the off-market designated hedges which is included in Other, net within operating activities in the Condensed Consolidated Statements of Cash Flows. Net cash received or paid is included within Interest expense, net in the Condensed Consolidated Statements of Operations. |
At March 31, 2023,2024, the amount of net gains expected to be reclassified into earnings in the next 12 months is approximately $15.619.6 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 SOFR rates at the time of net swap cash payments.
NOTE 7. FAIR VALUE MEASUREMENTS
The following table presents the estimated fair values of our financial instruments:
|
| March 31, 2023 |
|
| December 31, 2022 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||||||||||||||||||
(in thousands) |
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||||||
Derivative assets related to interest rate swaps (Level 2) |
| $ | 124,328 |
|
| $ | 124,328 |
|
| $ | 144,583 |
|
| $ | 144,583 |
|
| $ | 142,636 |
|
| $ | 142,636 |
|
| $ | 129,125 |
|
| $ | 129,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Long-term debt, including current portion (Level 2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Term loans |
| $ | (969,432 | ) |
| $ | (963,277 | ) |
| $ | (969,269 | ) |
| $ | (961,632 | ) |
| $ | (970,082 | ) |
| $ | (966,066 | ) |
| $ | (969,919 | ) |
| $ | (965,718 | ) |
Revenue bonds |
|
| (65,735 | ) |
|
| (64,788 | ) |
|
| (65,735 | ) |
|
| (64,602 | ) |
|
| (65,735 | ) |
|
| (64,786 | ) |
|
| (65,735 | ) |
|
| (64,786 | ) |
Total long-term debt1 |
| $ | (1,035,167 | ) |
| $ | (1,028,065 | ) |
| $ | (1,035,004 | ) |
| $ | (1,026,234 | ) |
| $ | (1,035,817 | ) |
| $ | (1,030,852 | ) |
| $ | (1,035,654 | ) |
| $ | (1,030,504 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Company owned life insurance asset (COLI) (Level 3) |
| $ | 4,512 |
|
| $ | 4,512 |
|
| $ | 4,311 |
|
| $ | 4,311 |
|
| $ | 5,361 |
|
| $ | 5,361 |
|
| $ | 5,220 |
|
| $ | 5,220 |
|
1 | The carrying amount of long-term debt includes principal and unamortized discounts. |
The fair value of interest rate swaps is determined using a discounted cash flow analysis, based on third-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.
15
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, 2023,2024, approximately 1.91.5 million shares arewere available for future use under our long-term incentive plans.
Share-based compensation activity during the three months ended March 31, 2023,2024, included the following:
|
| Granted |
|
| Vested |
|
| Forfeited |
|
| Granted |
|
| Vested |
|
| Forfeited |
| ||||||
Performance Share Awards (PSAs) |
|
| 106,342 |
|
|
| — |
|
|
| 751 |
|
|
| 130,536 |
|
|
| — |
|
|
| 1,344 |
|
Restricted Stock Units (RSUs) |
|
| 70,901 |
|
|
| — |
|
|
| 250 |
|
|
| 91,520 |
|
|
| 5,500 |
|
|
| 745 |
|
Approximately 0.20.1 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, 2023.2024, as a result of PSA and RSU vesting during 2023 and 2024.
The following table details compensation expense and the related income tax benefit for company specific equity-based awards:
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Equity-based compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Performance share awards |
| $ | 1,421 |
|
| $ | 1,298 |
|
| $ | 1,369 |
|
| $ | 1,421 |
|
Restricted stock units |
|
| 809 |
|
|
| 709 |
|
|
| 1,142 |
|
|
| 809 |
|
Deferred compensation stock equivalent units expense |
|
| 49 |
|
|
| 49 |
|
|
| 49 |
|
|
| 49 |
|
Total equity-based compensation expense |
| $ | 2,279 |
|
| $ | 2,056 |
|
| $ | 2,560 |
|
| $ | 2,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total tax benefit recognized for equity-based expense |
| $ | 122 |
|
| $ | 100 |
|
| $ | 159 |
|
| $ | 122 |
|
Performance Share Awards
The weighted averageweighted-average grant date fair value of PSAs granted in 2023during the three months ended March 31, 2024, was $61.2152.92 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 date of settlement 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 sharesThe share awards 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 2023:2024:
Stock price as of valuation date |
| $ | 47.55 |
|
| $ | 44.67 |
|
Risk-free rate |
|
| 4.14 | % |
|
| 4.20 | % |
Expected volatility |
|
| 36.24 | % |
|
| 27.71 | % |
Expected dividend yield1 |
|
| — |
|
|
| — |
|
Expected term (years) |
|
| 3.00 |
|
|
| 3.00 |
|
1 | Full dividend reinvestment assumed. |
Restricted Stock Units
The weighted averageweighted-average fair value of all RSUs granted during the three months ended March 31, 2023,2024, was $47.5544.72 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 sharesThe share awards 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.stockholders. 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 and discrete items.
16
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, 2023 |
|
| December 31, 2022 |
| Classification |
| March 31, 2024 |
|
| December 31, 2023 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating lease assets | Other long-term assets |
| $ | 8,497 |
|
| $ | 9,306 |
| Other long-term assets |
| $ | 9,810 |
|
| $ | 10,169 |
|
Finance lease assets1 | Property, plant and equipment, net |
|
| 12,416 |
|
|
| 13,213 |
| Property, plant and equipment, net |
|
| 11,895 |
|
|
| 11,281 |
|
Total lease assets |
| $ | 20,913 |
|
| $ | 22,519 |
|
| $ | 21,705 |
|
| $ | 21,450 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
| ||||||||
Current: |
|
|
|
|
|
|
|
|
|
| ||||||||
Operating lease liabilities | Accounts payable and accrued liabilities |
| $ | 2,293 |
|
| $ | 2,570 |
| Accounts payable and accrued liabilities |
| $ | 2,573 |
|
| $ | 2,575 |
|
Finance lease liabilities | Accounts payable and accrued liabilities |
|
| 4,559 |
|
|
| 4,834 |
| Accounts payable and accrued liabilities |
|
| 4,797 |
|
|
| 4,525 |
|
Noncurrent: |
|
|
|
|
|
|
|
|
|
| ||||||||
Operating lease liabilities | Other long-term obligations |
|
| 6,199 |
|
|
| 6,716 |
| Other long-term obligations |
|
| 7,181 |
|
|
| 7,590 |
|
Finance lease liabilities | Other long-term obligations |
|
| 7,626 |
|
|
| 8,179 |
| Other long-term obligations |
|
| 6,996 |
|
|
| 6,699 |
|
Total lease liabilities |
| $ | 20,677 |
|
| $ | 22,299 |
|
| $ | 21,547 |
|
| $ | 21,389 |
|
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) |
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Operating lease costs1 |
| $ | 886 |
|
| $ | 947 |
|
| $ | 839 |
|
| $ | 886 |
|
Finance lease costs: |
|
|
|
|
|
|
|
|
|
| ||||||
Amortization of leased assets |
|
| 1,231 |
|
|
| 929 |
|
|
| 1,269 |
|
|
| 1,231 |
|
Interest expense |
|
| 111 |
|
|
| 67 |
|
|
| 134 |
|
|
| 111 |
|
Net lease costs |
| $ | 2,228 |
|
| $ | 1,943 |
|
| $ | 2,242 |
|
| $ | 2,228 |
|
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) |
|
| 2023 |
|
| 2022 |
|
|
| 2024 |
|
| 2023 |
| ||||
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 |
| $ | 891 |
|
| $ | 994 |
| Operating cash flows for operating leases |
| $ | 887 |
|
| $ | 891 |
|
Operating cash flows for finance leases | Operating cash flows for finance leases |
| $ | 111 |
|
| $ | 67 |
| Operating cash flows for finance leases |
| $ | 134 |
|
| $ | 111 |
|
Financing cash flows for finance leases | Financing cash flows for finance leases |
| $ | 1,237 |
|
| $ | 938 |
| Financing cash flows for finance leases |
| $ | 1,312 |
|
| $ | 1,237 |
|
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 |
| Operating leases |
| $ | 393 |
|
| $ | — |
|
Finance leases | Finance leases |
| $ | 526 |
|
| $ | 281 |
| Finance leases |
| $ | 1,831 |
|
| $ | 526 |
|
|
|
17
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, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||||||||||
|
| Pension |
|
| OPEB |
|
| Pension |
|
| OPEB |
| ||||||||||||||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||||||
Service cost |
| $ | 1,356 |
|
| $ | 1,849 |
|
| $ | 27 |
|
| $ | 79 |
|
| $ | 1,321 |
|
| $ | 1,356 |
|
| $ | 23 |
|
| $ | 27 |
|
Interest cost |
|
| 3,138 |
|
|
| 2,812 |
|
|
| 294 |
|
|
| 229 |
|
|
| 3,123 |
|
|
| 3,138 |
|
|
| 219 |
|
|
| 294 |
|
Expected return on plan assets |
|
| (3,028 | ) |
|
| (3,145 | ) |
|
| — |
|
|
| — |
|
|
| (3,237 | ) |
|
| (3,028 | ) |
|
| — |
|
|
| — |
|
Amortization of prior service cost |
|
| 11 |
|
|
| 18 |
|
|
| — |
|
|
| 156 |
|
|
| 5 |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
Amortization of actuarial (gain) loss |
|
| (21 | ) |
|
| 1,954 |
|
|
| (166 | ) |
|
| (95 | ) |
|
| 20 |
|
|
| (21 | ) |
|
| (331 | ) |
|
| (166 | ) |
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 |
|
| $ | 1,232 |
|
| $ | 1,456 |
|
| $ | (89 | ) |
| $ | 155 |
|
During the three months ended March 31, 20232024 and 2022,2023, funding of pension and other postretirement employee benefit plans was $1.10.9 million and $1.31.1 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 no change to participants' pension benefits. We 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 plan assets and liabilities resulting in a reduction in the funded status of the Plan of approximately $6.2 million during the first quarter of 2022.
18
NOTE 12. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
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, |
|
| Three Months Ended March 31, |
| ||||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Pension and Other Postretirement Employee Benefits |
|
|
|
|
|
|
|
|
|
| ||||||
Balance at beginning of period |
| $ | (28,494 | ) |
| $ | (51,369 | ) |
| $ | (18,925 | ) |
| $ | (28,494 | ) |
Unrecognized (losses) gains arising in AOCI during the period: |
|
|
|
|
|
| ||||||||||
Unrecognized losses 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 |
|
|
| (306 | ) |
|
| (176 | ) |
Tax effect |
|
| 45 |
|
|
| (4,131 | ) |
|
| 77 |
|
|
| 45 |
|
Net of tax amount |
|
| (131 | ) |
|
| 7,480 |
|
|
| (229 | ) |
|
| (131 | ) |
Balance at end of period |
|
| (28,625 | ) |
|
| (43,889 | ) |
|
| (19,154 | ) |
|
| (28,625 | ) |
Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at beginning of period |
|
| 126,146 |
|
|
| 8,131 |
|
|
| 121,957 |
|
|
| 126,146 |
|
Unrecognized (losses) gains arising in AOCI during the period: |
|
|
|
|
|
| ||||||||||
Unrecognized gains (losses) arising in AOCI during the period: |
|
|
|
|
|
| ||||||||||
Gross |
|
| (13,881 | ) |
|
| 43,492 |
|
|
| 21,872 |
|
|
| (13,881 | ) |
Tax effect |
|
| 290 |
|
|
| (2,162 | ) |
|
| (352 | ) |
|
| 290 |
|
Reclassifications from AOCI to earnings: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross2 |
|
| (3,837 | ) |
|
| 2,033 |
|
|
| (5,719 | ) |
|
| (3,837 | ) |
Tax effect |
|
| 93 |
|
|
| (87 | ) |
|
| 124 |
|
|
| 93 |
|
Net of tax amount |
|
| (17,335 | ) |
|
| 43,276 |
|
|
| 15,925 |
|
|
| (17,335 | ) |
Balance at end of period |
|
| 108,811 |
|
|
| 51,407 |
|
|
| 137,882 |
|
|
| 108,811 |
|
Accumulated other comprehensive income, end of period |
| $ | 80,186 |
|
| $ | 7,518 |
|
| $ | 118,728 |
|
| $ | 80,186 |
|
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.18
19
NOTE 14.13. 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.
Weremediation project at Thomson Reservoir (Project), and as a result, 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 ofProject.
In October 2023 we executed a Project Agreement betweenagreement with the EPA and the MPCA and us willmade a $3.4 million payment in November 2023 for our initial share of the Project costs. Our share of the total Project costs is estimated to be required.between $5.3 million and $5.9 million. At March 31, 2024, we have $2.2 million accrued for our estimated remaining contribution to the Project, all of which is included in accounts payable and accrued liabilities in our Condensed Consolidated Balance Sheets. While it is reasonably possible that wecosts may incur an additional liabilitychange as this project develops,the Project work progresses, we are unable to estimate at this time the amount of additional charges,change, if any, which may be required for our share of this matter in the future.
2019
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; expected seasonal fluctuations in our business 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; anticipated insurance coverage for the Ola, Arkansas sawmill fire and expected timing to receive the remaining insurance proceeds; expectations regarding debt obligations, interest payments and debt refinancing; maintenance of our investment grade credit rating; expectations regarding the U.S.United States (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 real estate development sales; including the closing of a sale of approximately 34,000 acres of timberland in 2024 sufficiency of cash and any necessary borrowings to meet operating requirements; expected 20232024 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 and reduction in operating costs resulting from the project; the expected dollar amount of our share of the total sediment remediation project costs related to the Thomson Reservoir; 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 anticipates, approximately, believes, continue, could, estimates, expects, future, intends, long-term, 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:
2120
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, 2022.2023. 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 nearly 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 sizeablesizable 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.
Our business segments have been and will continue to be influenced by a variety of 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 at our Wood Products facilities or 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 offsets, carbon capture and storage projects, selling or leasing timberlands to third parties for renewable energy projects such as solar for power generation facilities, selling pulpwood and sawmill residuals for green energy production, and other emerging technologies that allows wood fiber to be used in applications ranging from biofuels to bioplastics.
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 Total 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 Measuressection below. The presentation of these non-GAAP financial measures should be considered only as supplemental to, and are not intended to be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP. Our definitions of these non-GAAP measures may differ from similarly titled measures and may not be comparable to other similarly titled non-GAAP measures presented by other companies due to potential inconsistencies in methods of calculation.
See Note 2: Segment Information in the Notes to the Condensed Consolidated Financial Statements for information related to the use of Adjusted EBITDDA for our segments.
Business and Economic Trends Affecting Our Operations
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'sTimberland's segments 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.
Our 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.21
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 Measuressection 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.
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, 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 both demand for new homes and home improvement and repair of existing homes in the United States. Higher interestOur Timberlands segment is also influenced by the availability of harvestable timber. In general, our Idaho log market is typically in balance but can be tensioned from time to time, while Southern log markets have more available supply. However, additional mill capacity being added in the U.S. South has led to tightening of markets in certain geographies.
Rural real estate dispositions and acquisitions can also be adversely affected when access to any properties to be sold or considered for acquisition is limited due to adverse weather conditions. Development real estate sales occur throughout the year and are dependent upon when our development of residential neighborhoods and commercial lots are substantially completed. The timing of these sales can also be impacted by contractor availability to complete the necessary infrastructure and other improvements.
Interest rates impact our business primarily through their effect on mortgage rates and inflationthe broader U.S. economy, and their influence on our capital allocation activities. Speculation on the timing, number, and amount of interest rate reductions by the U.S. Federal Reserve during 2024 along with the overall condition of the economy, and fluctuations in financial markets are all factors that have caused consumer confidence andinfluenced long-term interest rates. Over the pace of housing starts to decline. Thepast decade, the average 30-year fixed mortgage rate was below 4.0% and began rising above this rate late in the first quarter of 2022 before peaking at approximately 7.8% in October 2023, and ending 2023 at approximately 6.6%. Rates have increased during the past twelve months from approximately 4.7% atsince the end of 2023, averaging nearly 6.8% during the first quarter of 2024. Inflation, which has remained persistently elevated so far in 2024, is expected to have a significant impact on the U.S. Federal Reserve’s decision to adjust interest rates.
The number of existing homes on the market remains historically low and housing affordability remains a barrier to home ownership. In April 2024, the U.S. Census Bureau reported total housing starts for March 20222024 were over 1.3 million on a seasonally-adjusted annual basis, which was down 15.6% from December 2023. However, single-family housing starts were above 1.0 million units on a seasonally-adjusted annual basis for March 2024, the fifth month in a row above 1.0 million units. Additionally, authorized building permits for single-family housing were above 970,000 units on a seasonally-adjusted annual basis for March 2024, the eleventh month in a row above 900,000 units. The new single-family housing market has provided a critical alternative for home buyers and has remained resilient into 2024, supported by homebuilders' ability to approximately 6.3% at the end of March 2023. On a positive note,construct smaller, more affordable home designs and offer mortgage rate buy-down incentives.
Further, the National Association of Home Builders (NAHB) reported the NAHB/Wells Fargo Housing Market Index (HMI) was 4551 in April 2024, up from 37 in December 2023, and the fourth straightsecond consecutive month builder confidenceabove the key breakeven point of 50. Even though there has increased. The repair and remodel sector, which is the largest market segmentbeen pent-up demand for lumber demand, continues to exhibit favorable underlying fundamentals and is expected tonew construction, builders continue to grow in 2023, but atface several supply-side challenges, including a slower rate than recent years.
While housing starts have declined in recent months,scarcity of buildable lots and skilled labor, along with higher material costs that continue to increase the cost of building homes. Overall, we believe long-term underlying housing fundamentals remain favorable due to a shortage of homes, lower than historical averagehistorical-average existing inventory for sale, the ongoing shift toward remote work, and a large millennial demographic in their prime home-buying years,years.
The repair and remodel sector is the largest market segment for lumber demand. In the current high-interest rate environment, prospective home buyers with lower mortgage rates on their existing home are more likely to stay and undertake remodeling projects versus move into a new home. While spending in the sector for owner-occupied homes has moderated, we believe long-term favorable underlying fundamentals, including solid household balance sheets, strong levels of home equity and an aging existing housing stock, supportingwill continue to support repair and remodel demand. These fundamentals are key driversdemand for our business.
Inflation, which appears to have peaked in 2022, has impacted our business, especially for fuel, energy, and repair and maintenance costs. The annual inflation rate in the U.S. slowed for a ninth consecutive period to 5.0% in March 2023, while the Producer Price Index (final demand) slowed to 2.7% on an unadjusted basis compared to 6.2% at the end of December 2022.products.
In our Timberlands segment, a significant portion of our Idaho sawlog prices are indexed on a four-week lag to lumber prices andprices. The Northern region experienced a declinedecrease in pricingsawlog prices during the first quarter dueof 2024 compared to the first quarter of 2023 because of lower indexed lumber prices. In the Southern region, sawlog and pulpwood prices remained relatively stable. Our total harvest volume of 2.11.9 million tons in the first quarter of 20232024 was considerably higherlower than the first quarter of 2022,2023, primarily due to the addition of the CatchMark timberlands in mid-September 2022, strong log demand in Arkansas and Mississippi, andless favorable harvestoperating conditions in Idaho.the Northern region during the first quarter of 2024. We expect to harvest approximately 1.6between 1.7 and 1.8 million tons during the second quarter of 2023,2024, with approximately 82% of the volume in the Southern region.
During the second quarter of 2021 we experienced a fire at our Ola, Arkansas 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. The new equipment has been installed and the large log line restarted in September 2022. The sawmill's operating run rate has reached its expected annual capacity of 150 million board feet.
In our Wood Products segment, lumber shipments benefitted from increased shipmentscompared to the first quarter of the prior year primarily due to increased lumber production at our Ola, Arkansas sawmill.Southern sawmills. We shipped 262271 million board feet of lumber during the first quarter of 20232024, and expect to ship between 270275 and 280285 million board feet of lumber during the second quarter of 2023.2024.
Our Real Estate segment first quarter 2023 results benefitted from rural land sales, including a conservation land sale in Alabama and land acquired in the CatchMark merger. We expect to sell approximately 2,60043,000 rural acres, of rural land and approximately 3524 residential lots in Chenal Valley during the second quarter of 2023.2024. Included in the expected rural acres to be sold in the second quarter are approximately 34,000 acres of four-year average age Southern timberlands for approximately $58.0 million to Forest Investment Associates. This transaction is subject to certain adjustments and customary closing conditions as defined in the purchase agreement.
23
22
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) | 2023 |
|
| 2022 |
|
| Change |
|
| 2024 |
|
| 2023 |
|
| Change |
| ||||||
Revenues | $ | 257,962 |
|
| $ | 411,350 |
|
| $ | (153,388 | ) |
| $ | 228,127 |
|
| $ | 257,962 |
|
| $ | (29,835 | ) |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cost of goods sold |
| 224,350 |
|
|
| 179,847 |
|
|
| 44,503 |
|
|
| 212,160 |
|
|
| 224,350 |
|
|
| (12,190 | ) |
Selling, general and administrative expenses |
| 18,230 |
|
|
| 16,294 |
|
|
| 1,936 |
|
|
| 20,727 |
|
|
| 18,230 |
|
|
| 2,497 |
|
CatchMark merger-related expenses |
| 2,209 |
|
|
| — |
|
|
| 2,209 |
|
|
| — |
|
|
| 2,209 |
|
|
| (2,209 | ) |
Loss on fire damage |
| — |
|
|
| 276 |
|
|
| (276 | ) | ||||||||||||
| 244,789 |
|
|
| 196,417 |
|
|
| 48,372 |
|
|
| 232,887 |
|
|
| 244,789 |
|
|
| (11,902 | ) | |
Operating income |
| 13,173 |
|
|
| 214,933 |
|
|
| (201,760 | ) | ||||||||||||
Operating income (loss) |
|
| (4,760 | ) |
|
| 13,173 |
|
|
| (17,933 | ) | |||||||||||
Interest expense, net |
| (199 | ) |
|
| (2,894 | ) |
|
| 2,695 |
|
|
| 282 |
|
|
| (199 | ) |
|
| 481 |
|
Pension settlement charge |
| — |
|
|
| (14,165 | ) |
|
| 14,165 |
| ||||||||||||
Non-operating pension and other postretirement employee benefit costs |
| (228 | ) |
|
| (1,929 | ) |
|
| 1,701 |
| ||||||||||||
Non-operating pension and other postretirement employee benefits |
|
| 201 |
|
|
| (228 | ) |
|
| 429 |
| |||||||||||
Other |
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| (145 | ) |
|
| 10 |
|
|
| (155 | ) |
Income before income taxes |
| 12,756 |
|
|
| 195,945 |
|
|
| (183,189 | ) | ||||||||||||
Income (loss) before income taxes |
|
| (4,422 | ) |
|
| 12,756 |
|
|
| (17,178 | ) | |||||||||||
Income taxes |
| 3,504 |
|
|
| (32,065 | ) |
|
| 35,569 |
|
|
| 4,117 |
|
|
| 3,504 |
|
|
| 613 |
|
Net income | $ | 16,260 |
|
| $ | 163,880 |
|
| $ | (147,620 | ) | ||||||||||||
Net income (loss) |
| $ | (305 | ) |
| $ | 16,260 |
|
| $ | (16,565 | ) | |||||||||||
Total Adjusted EBITDDA1 | $ | 57,777 |
|
| $ | 245,562 |
|
| $ | (187,785 | ) |
| $ | 29,722 |
|
| $ | 57,777 |
|
| $ | (28,055 | ) |
1 | See Liquidity and Performance Measures for a reconciliation of Total Adjusted EBITDDA to net income (loss), the closest comparable GAAP measure, for each of the periods presented. |
First Quarter 20232024 Compared with First Quarter 20222023
Revenues
Revenues were $258.0$228.1 million, a decrease of $153.4$29.8 million compared with the first quarter of 20222023 primarily due to lower lumber prices, lower Northern sawlog prices and harvest volume, along with fewer residential lot and commercial acre sales in Chenal Valley. These decreases were partially offset by increased harvest volumes and increased lumber shipments primarily at our Ola, Arkansas sawmill which restarted late in the third quarter of 2022 after a fire in June 2021.rural real estate acres sold.
Cost of goods sold
Cost of goods sold increased $44.5decreased $12.2 million compared with the first quarter of 20222023 mainly due to higher manufacturinglower logging and log and haulhauling costs primarily from inflationary price increases in areas such as diesel fuel, energy, repair and maintenance, and increased harvest volumes. Cost of goods sold also increased in the first quarter of 2023Northern region and fewer rural real estate acres sold. These decreases were partially offset by increased manufacturing costs as a result of increased shipments at our Ola, Arkansas sawmill.lumber shipments.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $1.9$2.5 million compared to the first quarter of 2022,2023 primarily due to inflationary price increasesemployee and incremental administrative activities following the CatchMark merger.employee-related costs and increased professional service fees.
CatchMark merger-related expenses
Merger-relatedThere were no CatchMark merger-related expenses duringfor the first quarterthree months ended March 31, 2024. CatchMark merger-related expenses for the three months ended March 31, 2023 of 2023 were $2.2 million primarily related to post-merger fees for professional services.service fees.
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 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, 2024, we recorded an income tax benefit of $4.1 million on TRS loss before tax of $16.3 million. For the three months ended March 31, 2023, we recorded an 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.
Total Adjusted EBITDDA
Total Adjusted EBITDDA for the first quarter of 20232024 decreased $187.8$28.1 million compared to the first quarter of 20222023 primarily due to fewer rural real estate acres sold, lower lumber and IdahoNorthern sawlog prices fewer development sales in Chenal Valley and higher manufacturingharvest volume, and logincreased general and haul costs.administrative expenses. The decrease in Total Adjusted EBITDDA was partially offset by increased lumber shipmentslower logging and harvest activity.hauling costs. 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 (loss), the closest comparable GAAP measure, for each of the periods presented.
23
Business Segment Results
Timberlands Segment
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
|
| 2024 |
|
| 2023 |
|
| Change |
| ||||||
Revenues1 |
| $ | 115,238 |
|
| $ | 123,657 |
|
| $ | (8,419 | ) |
| $ | 92,950 |
|
| $ | 115,238 |
|
| $ | (22,288 | ) |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Logging and hauling |
|
| 59,209 |
|
|
| 40,082 |
|
|
| 19,127 |
|
|
| 48,337 |
|
|
| 59,209 |
|
|
| (10,872 | ) |
Other |
|
| 7,536 |
|
|
| 5,403 |
|
|
| 2,133 |
|
|
| 7,774 |
|
|
| 7,536 |
|
|
| 238 |
|
Selling, general and administrative expenses |
|
| 1,854 |
|
|
| 1,738 |
|
|
| 116 |
|
|
| 2,091 |
|
|
| 1,854 |
|
|
| 237 |
|
Timberlands Adjusted EBITDDA2 |
| $ | 46,639 |
|
| $ | 76,434 |
|
| $ | (29,795 | ) |
| $ | 34,748 |
|
| $ | 46,639 |
|
| $ | (11,891 | ) |
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 theNotes to Condensed Consolidated Financial Statements. |
25
Timberlands Segment Statistics
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
Harvest Volumes (in tons) |
| 2023 |
|
| 2022 |
|
| Change |
|
| 2024 |
|
| 2023 |
|
| Change |
| ||||||
Northern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Sawlog |
|
| 470,790 |
|
|
| 385,290 |
|
|
| 85,500 |
|
|
| 327,423 |
|
|
| 470,790 |
|
|
| (143,367 | ) |
Pulpwood |
|
| 8,029 |
|
|
| 8,259 |
|
|
| (230 | ) |
|
| 1,863 |
|
|
| 8,029 |
|
|
| (6,166 | ) |
Total |
|
| 478,819 |
|
|
| 393,549 |
|
|
| 85,270 |
|
|
| 329,286 |
|
|
| 478,819 |
|
|
| (149,533 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Southern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sawlog |
|
| 661,588 |
|
|
| 490,093 |
|
|
| 171,495 |
|
|
| 654,623 |
|
|
| 661,588 |
|
|
| (6,965 | ) |
Pulpwood |
|
| 492,405 |
|
|
| 379,651 |
|
|
| 112,754 |
|
|
| 505,296 |
|
|
| 492,405 |
|
|
| 12,891 |
|
Stumpage |
|
| 444,279 |
|
|
| 196,513 |
|
|
| 247,766 |
|
|
| 433,895 |
|
|
| 444,279 |
|
|
| (10,384 | ) |
Total |
|
| 1,598,272 |
|
|
| 1,066,257 |
|
|
| 532,015 |
|
|
| 1,593,814 |
|
|
| 1,598,272 |
|
|
| (4,458 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total harvest volume |
|
| 2,077,091 |
|
|
| 1,459,806 |
|
|
| 617,285 |
|
|
| 1,923,100 |
|
|
| 2,077,091 |
|
|
| (153,991 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sales Price/Unit ($ per ton)1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Northern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sawlog |
| $ | 113 |
|
| $ | 212 |
|
| $ | (99 | ) |
| $ | 103 |
|
| $ | 113 |
|
| $ | (10 | ) |
Pulpwood |
| $ | 50 |
|
| $ | 47 |
|
| $ | 3 |
|
| $ | 35 |
|
| $ | 50 |
|
| $ | (15 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Southern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Sawlog |
| $ | 48 |
|
| $ | 48 |
|
| $ | — |
|
| $ | 48 |
|
| $ | 48 |
|
| $ | — |
|
Pulpwood |
| $ | 33 |
|
| $ | 31 |
|
| $ | 2 |
|
| $ | 31 |
|
| $ | 33 |
|
| $ | (2 | ) |
Stumpage |
| $ | 21 |
|
| $ | 17 |
|
| $ | 4 |
|
| $ | 18 |
|
| $ | 21 |
|
| $ | (3 | ) |
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. |
Timberlands Adjusted EBITDDA
The following table summarizes Timberlands Adjusted EBITDDA variances for the three months ended March 31, 2023,2024 compared with the three months ended March 31, 2022:2023:
(in thousands) |
| Three Months |
|
| Three Months |
| ||
Timberlands Adjusted EBITDDA - prior year |
| $ | 76,434 |
|
| $ | 46,639 |
|
Sales price and mix |
|
| (6,439 | ) | ||||
Harvest volume |
|
| 14,202 |
|
|
| (6,872 | ) |
Sales price and mix |
|
| (35,292 | ) | ||||
Logging and hauling costs per unit |
|
| (7,457 | ) |
|
| 1,710 |
|
Forest management, indirect and other |
|
| (1,248 | ) |
|
| (290 | ) |
Timberlands Adjusted EBITDDA - current year |
| $ | 46,639 |
|
| $ | 34,748 |
|
24
First Quarter 20232024 Compared with First Quarter 20222023
Timberlands Adjusted EBITDDA for the first quarter of 20232024 decreased $29.8$11.9 million compared with the first quarter of 2022,2023 primarily as a result of the following:
26
Wood Products Segment
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
|
| 2024 |
|
| 2023 |
|
| Change |
| ||||||
Revenues |
| $ | 152,795 |
|
| $ | 295,742 |
|
| $ | (142,947 | ) |
| $ | 148,598 |
|
| $ | 152,795 |
|
| $ | (4,197 | ) |
Costs and expenses1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fiber costs |
|
| 77,197 |
|
|
| 77,673 |
|
|
| (476 | ) |
|
| 73,460 |
|
|
| 77,197 |
|
|
| (3,737 | ) |
Freight, logging and hauling |
|
| 20,170 |
|
|
| 18,367 |
|
|
| 1,803 |
|
|
| 18,101 |
|
|
| 20,170 |
|
|
| (2,069 | ) |
Manufacturing costs |
|
| 52,890 |
|
|
| 50,793 |
|
|
| 2,097 |
|
|
| 57,709 |
|
|
| 52,890 |
|
|
| 4,819 |
|
Finished goods inventory change |
|
| (962 | ) |
|
| (4,579 | ) |
|
| 3,617 |
|
|
| (4,333 | ) |
|
| (962 | ) |
|
| (3,371 | ) |
Selling, general and administrative expenses |
|
| 3,436 |
|
|
| 3,408 |
|
|
| 28 |
|
|
| 3,709 |
|
|
| 3,436 |
|
|
| 273 |
|
Other |
|
| 95 |
|
|
| 129 |
|
|
| (34 | ) |
|
| 91 |
|
|
| 95 |
|
|
| (4 | ) |
Wood Products Adjusted EBITDDA2 |
| $ | (31 | ) |
| $ | 149,951 |
|
| $ | (149,982 | ) |
| $ | (139 | ) |
| $ | (31 | ) |
| $ | (108 | ) |
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 theNotes to Condensed Consolidated Financial Statements. |
Wood Products Segment Statistics
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| Change |
|
| 2024 |
|
| 2023 |
|
| Change |
| ||||||
Lumber shipments (MBF)1 |
|
| 261,633 |
|
|
| 233,188 |
|
|
| 28,445 |
|
|
| 271,148 |
|
|
| 261,633 |
|
|
| 9,515 |
|
Lumber sales prices ($ per MBF) |
| $ | 435 |
|
| $ | 1,075 |
|
| $ | (640 | ) |
| $ | 430 |
|
| $ | 435 |
|
| $ | (5 | ) |
1 | MBF stands for thousand board feet. |
Wood Products Adjusted EBITDDA
The following table summarizes Wood Products Adjusted EBITDDA variances for the three months ended March 31, 2023,2024 compared with the three months ended March 31, 2022:2023:
(in thousands) |
| Three Months |
|
| Three Months |
| ||
Wood Products Adjusted EBITDDA - prior year |
| $ | 149,951 |
|
| $ | (31 | ) |
Lumber: |
|
|
|
|
|
| ||
Price |
|
| (147,893 | ) |
|
| (1,542 | ) |
Log costs per unit |
|
| 5,538 |
| ||||
Manufacturing costs per unit |
|
| 3,786 |
|
|
| (734 | ) |
Log costs per unit |
|
| 678 |
| ||||
Volume |
|
| (805 | ) |
|
| (125 | ) |
Residuals, panels and other |
|
| (5,748 | ) |
|
| (3,245 | ) |
Wood Products Adjusted EBITDDA - current year |
| $ | (31 | ) |
| $ | (139 | ) |
First Quarter 20232024 Compared with First Quarter 20222023
Wood Products Adjusted EBITDDA for the first quarter of 2023 decreased $150.0 million compared2024 was consistent with the first quarter of 2022,2023, primarily as a result of the following:
25
27
Real Estate Segment
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
|
| 2024 |
|
| 2023 |
|
| Change |
| ||||||
Revenues |
| $ | 23,863 |
|
| $ | 34,065 |
|
| $ | (10,202 | ) |
| $ | 11,107 |
|
| $ | 23,863 |
|
| $ | (12,756 | ) |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Costs of goods sold |
|
| 2,865 |
|
|
| 2,879 |
|
|
| (14 | ) |
|
| 3,191 |
|
|
| 2,865 |
|
|
| 326 |
|
Selling, general and administrative expenses |
|
| 1,533 |
|
|
| 1,062 |
|
|
| 471 |
|
|
| 1,688 |
|
|
| 1,533 |
|
|
| 155 |
|
Real Estate Adjusted EBITDDA1 |
| $ | 19,465 |
|
| $ | 30,124 |
|
| $ | (10,659 | ) |
| $ | 6,228 |
|
| $ | 19,465 |
|
| $ | (13,237 | ) |
1 | Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in theNotes to Condensed Consolidated Financial Statements. |
Real Estate Segment Statistics
Rural Real Estate |
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Acres sold |
|
| 6,939 |
|
|
| 4,751 |
|
|
| 1,801 |
|
|
| 6,939 |
|
Average price per acre |
| $ | 2,568 |
|
| $ | 4,556 |
|
| $ | 3,069 |
|
| $ | 2,568 |
|
Development Real Estate |
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Residential lots |
|
| 24 |
|
|
| 64 |
|
|
| 24 |
|
|
| 24 |
|
Average price per lot |
| $ | 116,429 |
|
| $ | 112,725 |
|
| $ | 119,750 |
|
| $ | 116,429 |
|
|
|
|
|
|
| |||||||||||
Commercial acres |
|
| — |
|
|
| 3 |
| ||||||||
Average price per acre |
| $ | — |
|
| $ | 917,236 |
|
Real Estate Adjusted EBITDDA
The following table summarizes Real Estate Adjusted EBITDDA variances for the three months ended March 31, 2023,2024 compared with the three months ended March 31, 2022:2023:
(in thousands) |
| Three Months |
|
| Three Months |
| ||
Real Estate Adjusted EBITDDA - prior year |
| $ | 30,124 |
|
| $ | 19,465 |
|
Rural real estate sales |
|
| (3,482 | ) |
|
| (12,703 | ) |
Real estate development sales |
|
| (7,052 | ) |
|
| (378 | ) |
Selling, general and administrative expenses |
|
| (472 | ) |
|
| (154 | ) |
Other costs, net |
|
| 347 |
|
|
| (2 | ) |
Real Estate Adjusted EBITDDA - current year |
| $ | 19,465 |
|
| $ | 6,228 |
|
First Quarter 20232024 Compared with First Quarter 20222023
Real Estate Adjusted EBITDDA for the first quarter of 20232024 was $19.5$6.2 million, a decrease of $10.7$13.2 million compared withto the first quarter of 2022,2023 primarily as a result of the following:
26
28
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, 20232024 and 20222023 are presented by category as follows:
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
|
| 2024 |
|
| 2023 |
|
| Change |
| ||||||
Net cash from operating activities |
| $ | 39,139 |
|
| $ | 230,299 |
|
| $ | (191,160 | ) |
| $ | 16,029 |
|
| $ | 39,139 |
|
| $ | (23,110 | ) |
Net cash from investing activities |
| $ | (4,896 | ) |
| $ | (17,122 | ) |
| $ | 12,226 |
|
| $ | (36,996 | ) |
| $ | (4,896 | ) |
| $ | (32,100 | ) |
Net cash from financing activities |
| $ | (36,800 | ) |
| $ | (34,595 | ) |
| $ | (2,205 | ) |
| $ | (36,571 | ) |
| $ | (36,800 | ) |
| $ | 229 |
|
Net Cash Flows from Operating Activities
Net cash from operating activities decreased $191.2$23.1 million in the first quarter of 2023,2024 compared to the first quarter of 20222023 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 werewas primarily a resultdue to dividend payments of $35.8 million during the following:
Future Sources and Uses of Cash
At March 31, 2023,2024, we had cash and cash equivalents of $325.6$180.2 million. We expect cash and cash equivalents on hand, cash generated from our operating activities, and supplemented by borrowingsavailable borrowing capacity under our credit agreement, if needed, to be adequate to meet our future cash requirements. At March 31, 20232024, 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, 2022.2023.
2927
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 $135$100 million to $145$110 million for capital expenditures during 2023,2024, including capital expenditures for the Waldo 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 dimensional lumber to approximately 275 million board feet. The investment is also 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 the end of 2024. We expect to spend approximately $131.0 million on the project, of which $12.2a total of $87.0 million washas been spent in 2022through March 31, 2024, and approximately $74.0$44.0 million is expected to be spent in 2023.
During 2022, we completedduring the installationremainder 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 insurance carriers for both property damage and business interruption proceeds at the Ola sawmill. We are in the process of finalizing our insurance claim and expect to receive the remaining insurance proceeds in 2023.2024.
Share Repurchase Program
On August 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,Shares under the board2022 Repurchase Program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of directors terminated the remaining repurchase authorization under a repurchase program approved in August 2018.Securities Exchange Act of 1934 (the Trading Plan), or through privately negotiated transactions. At March 31, 2023,2024, we had remaining authorization of $150.0$125.0 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),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.
Term Loans and Credit Agreement
At March 31, 2023,2024, our total outstanding net long-term debt was $1.0 billion, including $971.0 million of term loans under our Second Amended and Restated Term Loan Agreement (Amended Term Loan Agreement) with our primary lender.billion. All interest rates on our outstanding long-term debt are fixed rateseither under fixed ratefixed-rate loans or variable ratevariable-rate loans with an associated interest rate swap that fixes the variable benchmark interest rate component. Approximately $175.7 million of our outstanding long-term debt was classified as current at March 31, 2024 on our accompanying Condensed Consolidated Balance Sheets, including a $110.0 million term loan and a $65.7 million revenue bond that mature during 2024. We are currently evaluating options to refinance all or a portion of the maturing term loan and revenue bond. We also have $200.0 million notional of forward-starting interest rate swaps available to reduce the interest rate on any future debt refinancings.
Of our total long-term debt outstanding at March 31, 2024, $971.0 million was drawn under an amended and restated credit agreement dated March 22, 2018 (Amended Term Loan Agreement) with our primary lender.
We have a $300.0 million revolving line of credit with a syndicate of lenders, that matures February 14, 2027.2027 (Amended Credit Agreement). Under the terms of our Thirdthe 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, 2023,2024, there were no borrowings under the revolving line of credit and approximately $0.9$0.7 million of the credit facility was utilized by outstanding letters of credit.
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.
3028
The following table presents the components and applicable limits of Total Asset Value (TAV), a component of the Leverage Ratio, at March 31, 2023:2024:
(in thousands) |
|
|
|
|
|
| ||
Estimated timberland fair value |
| $ | 4,835,534 |
|
| $ | 5,333,835 |
|
Wood Products manufacturing facilities book basis (limited to 10% of TAV) |
|
| 284,149 |
|
|
| 263,507 |
|
Cash and cash equivalents |
|
| 325,632 |
|
|
| 180,150 |
|
Other1 |
|
| 21,789 |
|
|
| 106,376 |
|
Total Asset Value |
| $ | 5,467,104 |
|
| $ | 5,883,868 |
|
1 | Includes, as applicable, Company Owned Life Insurance (limited to 5% of TAV), Construction in Progress (limited to 10% of TAV) and Investments in Affiliates (limited to 15% TAV) as defined in the Agreements. |
At March 31, 2023,2024, 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, 2023:2024:
|
| Covenant Requirement |
| Actual at |
| Covenant Requirement |
| Actual | ||||
Interest coverage ratio |
| ≥ |
| 3.00 to 1.00 |
| 16.1 |
| ≥ |
| 3.00 to 1.00 |
| 9.3 |
Leverage ratio |
| ≤ |
| 40% |
| 19% |
| ≤ |
| 40% |
| 18% |
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, 2023 |
|
| December 31, 2022 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||
Long-term debt (including current portion) |
| $ | 1,032,973 |
|
| $ | 1,032,680 |
|
| $ | 1,034,019 |
|
| $ | 1,033,728 |
|
Cash and cash equivalents |
|
| (325,632 | ) |
|
| (343,809 | ) |
|
| (180,150 | ) |
|
| (230,118 | ) |
Net debt |
|
| 707,341 |
|
|
| 688,871 |
|
|
| 853,869 |
|
|
| 803,610 |
|
Market capitalization1 |
|
| 3,955,838 |
|
|
| 3,505,255 |
|
|
| 3,738,466 |
|
|
| 3,896,822 |
|
Enterprise value |
| $ | 4,663,179 |
|
| $ | 4,194,126 |
|
| $ | 4,592,335 |
|
| $ | 4,700,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net debt to enterprise value |
|
| 15.2 | % |
|
| 16.4 | % |
|
| 18.6 | % |
|
| 17.1 | % |
Dividend yield2 |
|
| 3.6 | % |
|
| 4.1 | % |
|
| 3.8 | % |
|
| 3.7 | % |
Weighted-average cost of debt, after tax3 |
|
| 2.4 | % |
|
| 2.4 | % |
|
| 2.3 | % |
|
| 2.3 | % |
1 | Market capitalization is based on outstanding shares of |
2 | Dividend yield is based on annualized dividends per share of $1.80 and share prices 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: Total Adjusted EBITDDA and Cash Available for Distribution (CAD). These measures are not defined by GAAP and the discussion of Total Adjusted EBITDDA and CAD is not intended to conflict with or change any of the GAAP disclosures described herein. These non-GAAP financial measures should be considered only as supplemental to, are not intended to be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP. Additionally, these non-GAAP financial measures may not be the same as or comparable to other similarly titled non-GAAP financial measures presented by other companies due to potential inconsistencies in methods of calculation.
Total 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. Itsegments. Total Adjusted EBITDDA 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 and other interested parties by facilitating the comparability of our ongoing operating results over the periods presented and the ability to identifyidentification of trends in our underlying business,business. It also can be used to evaluate the operational performance of the assets under management and the comparisonto compare of our operating results against analyst financial models and against the operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.
29
Our definition of EBITDDA may be different from similarly titled measures reported by other companies.
We define EBITDDA as net income (loss) 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 (loss) for the consolidated company as it is the most comparable GAAP measure.
The following table provides a reconciliation of net income (loss) to Total Adjusted EBITDDA for the respective periods:
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Net income |
| $ | 16,260 |
|
| $ | 163,880 |
| ||||||||
Net income (loss) |
| $ | (305 | ) |
| $ | 16,260 |
| ||||||||
Interest expense, net |
|
| 199 |
|
|
| 2,894 |
|
|
| (282 | ) |
|
| 199 |
|
Income taxes |
|
| (3,504 | ) |
|
| 32,065 |
|
|
| (4,117 | ) |
|
| (3,504 | ) |
Depreciation, depletion and amortization |
|
| 31,764 |
|
|
| 19,502 |
|
|
| 30,395 |
|
|
| 31,764 |
|
Basis of real estate sold |
|
| 10,631 |
|
|
| 10,854 |
|
|
| 4,092 |
|
|
| 10,631 |
|
CatchMark merger-related expenses |
|
| 2,209 |
|
|
| — |
|
|
| — |
|
|
| 2,209 |
|
Loss on fire damage |
|
| — |
|
|
| 276 |
| ||||||||
Pension settlement charge |
|
| — |
|
|
| 14,165 |
| ||||||||
Non-operating pension and other postretirement employee benefit costs |
|
| 228 |
|
|
| 1,929 |
|
|
| (201 | ) |
|
| 228 |
|
Gain on disposal of fixed assets |
|
| — |
|
|
| (3 | ) |
|
| (5 | ) |
|
| — |
|
Other |
|
| (10 | ) |
|
| — |
|
|
| 145 |
|
|
| (10 | ) |
Total Adjusted EBITDDA |
| $ | 57,777 |
|
| $ | 245,562 |
|
| $ | 29,722 |
|
| $ | 57,777 |
|
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.
3230
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) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
|
| 2024 |
|
| 2023 |
| ||||||||
Net cash from operating activities1 |
| $ | 39,139 |
|
| $ | 230,299 |
|
| $ | 300,741 |
|
| $ | 565,220 |
| ||||||||||||||||
Capital expenditures2 |
|
| (10,373 | ) |
|
| (17,214 | ) |
|
| (177,963 | ) |
|
| (80,910 | ) | ||||||||||||||||
Net cash from operating activities1, 2 |
| $ | 16,029 |
|
| $ | 39,139 |
|
| $ | 136,001 |
|
| $ | 300,741 |
| ||||||||||||||||
Capital expenditures3 |
|
| (44,307 | ) |
|
| (10,373 | ) |
|
| (155,547 | ) |
|
| (177,963 | ) | ||||||||||||||||
CAD |
| $ | 28,766 |
|
| $ | 213,085 |
|
| $ | 122,778 |
|
| $ | 484,310 |
|
| $ | (28,278 | ) |
| $ | 28,766 |
|
| $ | (19,546 | ) |
| $ | 122,778 |
|
Net cash from investing activities3 |
| $ | (4,896 | ) |
| $ | (17,122 | ) |
| $ | (135,294 | ) |
| $ | (64,738 | ) | ||||||||||||||||
Net cash from investing activities4 |
| $ | (36,996 | ) |
| $ | (4,896 | ) |
| $ | (127,404 | ) |
| $ | (135,294 | ) | ||||||||||||||||
Net cash from financing activities |
| $ | (36,800 | ) |
| $ | (34,595 | ) |
| $ | (297,767 | ) |
| $ | (407,829 | ) |
| $ | (36,571 | ) |
| $ | (36,800 | ) |
| $ | (171,481 | ) |
| $ | (297,767 | ) |
1 | Net cash from operating activities for the three and twelve months ended March 31, 2024, includes cash paid for CatchMark merger-related expenses of $0 and $0.4 million, respectively, and cash paid for real estate development expenditures of $1.1 million and $10.2 million, respectively. 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. |
2 | Net cash from operating activities for the three and twelve months ended March 31, |
| The three and twelve months ended March 31, |
| 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
There have been no significant changes during 20232024 to our critical accounting policies or estimates as presented in our 20222023 Annual Report on Form 10-K.
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 reportAnnual Report on Form 10-K for the year ended December 31, 2022.2023. Our exposures to market risk have not changed materially since December 31, 2022.2023.
31
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, 2023.2024. 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, 2023.2024.
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, 2023,2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
33
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, 2022.2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On August 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 terminated the remaining repurchase authorization under a previously approved share repurchase plan. There were no shares repurchased during the first quarter of 2023.2024. At March 31, 2023,2024, we had remaining authorization of $150.0$125.0 million for future stock repurchases under the 2022 Repurchase Program.
We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability
32
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2024, the following company officers adopted Rule 10b5-1 trading arrangements (as such term is defined in Item 408(a) of Regulation S-K under the Exchange Act), each on the dates specified below. Each trading arrangement authorizes the automatic sale of the number of shares required to account for repurchasesgenerate sufficient proceeds to cover tax withholding obligations arising from the settlement of performance shares or restricted stock units, as applicable. The proceeds of the sales will be delivered to the company in satisfaction of the applicable withholding obligation, and the number of shares that have not been cash settled. We retire shares upon repurchase. Any excess repurchase price over parwill be sold to cover the tax withholding obligations is recordedindeterminable. The duration of each arrangement will be until final settlement of the performance share award or restricted stock unit award, as applicable, on or around February 16, 2027.
Name & Title | Date of Adoption | |
Eric J. Cremers | February 20, 2024 | |
Wayne Wasechek | March 6, 2024 | |
Ashlee Townsend Cribb | February 24, 2024 | |
Darin R. Ball | February 21, 2024 | |
William R. DeReu | February 20, 2024 | |
Michele L. Tyler | February 26, 2024 | |
Anna E. Torma | March 4, 2024 | |
Robert L. Schwartz | February 28, 2024 | |
Glen F. Smith | February 20, 2024 | |
No other officers or directors adopted, modified or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such term is defined in accumulated deficit.Item 408(a) of Regulation S-K under the Exchange Act) during the three months ended March 31, 2024.
33
ITEM 6. EXHIBITS
EXHIBIT NUMBER | DESCRIPTION |
3.1* | |
3.2* | |
4 | See Exhibits 3.1 and 3.2. The registrant undertakes to furnish to the Commission, upon request, any instrument defining the rights of holders of long-term debt. |
31 | |
32 | |
101 | The following financial information from PotlatchDeltic Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). |
* Incorporated by reference.
34
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/ | ||
| |||
Chief Accounting Officer (Duly Authorized; Principal Accounting Officer) | |||
| |||
Date: |
|
35