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POTLATCHDELTIC CORP - Quarter Report: 2020 March (Form 10-Q)

 

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, 2020 

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

PCH

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

 

Accelerated Filer

 

Non-accelerated Filer

 

Smaller Reporting Company

 

Emerging Growth Company          

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange act).

Yes      No  

The number of shares of common stock of the registrant outstanding as of April 28, 2020 was 66,951,628.

 

 


 

POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES

Table of Contents

 

 

 

 

 

 

 

 

Page
Number

PART I. - FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements (unaudited)

 

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Loss

3

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Condensed Consolidated Statements of Stockholders’ Equity

7

 

Index for the Notes to Condensed Consolidated Financial Statements

8

 

Notes to Condensed Consolidated Financial Statements

9

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

22

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

35

ITEM 4.

Controls and Procedures

35

 

 

 

PART II. - OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

36

ITEM 1A.

Risk Factors

36

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

ITEM 6.

Exhibits

38

 

 

 

SIGNATURE

39

 

 

 

 

 

 

 


Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

Three Months Ended March 31,

 

(in thousands, except per share amounts)

2020

 

 

2019

 

Revenues

$

208,880

 

 

$

181,716

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of goods sold

 

172,046

 

 

 

154,215

 

Selling, general and administrative expenses

 

14,207

 

 

 

16,570

 

Gain on sale of facility

 

 

 

 

(9,176

)

 

 

186,253

 

 

 

161,609

 

Operating income

 

22,627

 

 

 

20,107

 

Interest expense, net

 

(3,698

)

 

 

(5,464

)

Loss on extinguishment of debt

 

 

 

 

(5,512

)

Pension settlement charge

 

(42,988

)

 

 

 

Non-operating pension and other postretirement employee benefit costs

 

(3,635

)

 

 

(980

)

(Loss) income before income taxes

 

(27,694

)

 

 

8,151

 

Income taxes

 

10,862

 

 

 

(1,591

)

Net (loss) income

$

(16,832

)

 

$

6,560

 

 

 

 

 

 

 

 

 

Net (loss) income per share:

 

 

 

 

 

 

 

Basic

$

(0.25

)

 

$

0.10

 

Diluted

$

(0.25

)

 

$

0.10

 

Dividends per share

$

0.40

 

 

$

0.40

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

Basic

 

67,478

 

 

 

67,860

 

Diluted

 

67,478

 

 

 

67,916

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

 

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

 

2020

 

 

2019

 

Net (loss) income

 

 

$

(16,832

)

 

$

6,560

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

Pension and other postretirement employee benefits:

 

 

 

 

 

 

 

 

 

Net loss arising during the period, net of tax benefit of $6,817 and $0

 

 

 

(19,402

)

 

 

 

Effect of pension settlement, net of tax benefit of $11,177 and $0

 

 

 

31,811

 

 

 

 

Amortization of prior service credit included in net (loss) income, net of tax benefit of $76 and $561

 

 

 

(215

)

 

 

(1,597

)

Amortization of actuarial loss included in net (loss) income, net of tax expense of $1,189 and $971

 

 

 

3,384

 

 

 

2,763

 

Cash flow hedges, net of tax benefit of $1,810 and $364

 

 

 

(38,525

)

 

 

(8,513

)

Other comprehensive loss, net of tax

 

 

 

(22,947

)

 

 

(7,347

)

Comprehensive loss

 

 

$

(39,779

)

 

$

(787

)

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


 

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

(in thousands, except per share amounts)

 

March 31, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

79,484

 

 

$

83,310

 

Customer receivables, net

 

 

23,356

 

 

 

14,167

 

Inventories, net

 

 

55,707

 

 

 

65,781

 

Other current assets

 

 

15,626

 

 

 

20,183

 

Total current assets

 

 

174,173

 

 

 

183,441

 

Property, plant and equipment, net

 

 

286,881

 

 

 

286,383

 

Investment in real estate held for development and sale

 

 

72,582

 

 

 

74,233

 

Timber and timberlands, net

 

 

1,630,496

 

 

 

1,638,663

 

Intangible assets, net

 

 

16,854

 

 

 

17,049

 

Other long-term assets

 

 

31,896

 

 

 

35,290

 

Total assets

 

$

2,212,882

 

 

$

2,235,059

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

61,395

 

 

$

60,577

 

Current portion of long-term debt

 

 

45,981

 

 

 

45,974

 

Current portion of pension and other postretirement employee benefits

 

 

6,701

 

 

 

6,701

 

Total current liabilities

 

 

114,077

 

 

 

113,252

 

Long-term debt

 

 

710,748

 

 

 

710,495

 

Pension and other postretirement employee benefits

 

 

141,921

 

 

 

115,463

 

Deferred tax liabilities, net

 

 

11,445

 

 

 

20,165

 

Other long-term obligations

 

 

85,077

 

 

 

48,853

 

Total liabilities

 

 

1,063,268

 

 

 

1,008,228

 

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 66,951 and 67,221 shares

 

 

66,951

 

 

 

67,221

 

Additional paid-in capital

 

 

1,668,122

 

 

 

1,666,299

 

Accumulated deficit

 

 

(415,153

)

 

 

(359,330

)

Accumulated other comprehensive loss

 

 

(170,306

)

 

 

(147,359

)

Total stockholders’ equity

 

 

1,149,614

 

 

 

1,226,831

 

Total liabilities and stockholders' equity

 

$

2,212,882

 

 

$

2,235,059

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(16,832

)

 

$

6,560

 

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

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

19,044

 

 

 

16,274

 

Basis of real estate sold

 

 

6,498

 

 

 

1,556

 

Gain on sale of facility

 

 

 

 

 

(9,176

)

Loss on extinguishment of debt

 

 

 

 

 

5,512

 

Change in deferred taxes

 

 

(12,383

)

 

 

(16,099

)

Pension and other postretirement employee benefits

 

 

6,068

 

 

 

3,106

 

Pension settlement charge

 

 

42,988

 

 

 

 

Equity-based compensation expense

 

 

1,885

 

 

 

1,617

 

Other, net

 

 

237

 

 

 

(786

)

Change in working capital and operating-related activities, net

 

 

2,557

 

 

 

13,983

 

Real estate development expenditures

 

 

(378

)

 

 

(1,766

)

Funding of pension and other postretirement employee benefits

 

 

(1,546

)

 

 

(1,714

)

Net cash provided by operating activities

 

 

48,138

 

 

 

19,067

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Property, plant and equipment additions

 

 

(5,039

)

 

 

(3,760

)

Timberlands reforestation and roads

 

 

(4,310

)

 

 

(4,242

)

Acquisition of timber and timberlands

 

 

(4,190

)

 

 

 

Proceeds on sale of facility

 

 

1,000

 

 

 

60,045

 

Other, net

 

 

1,505

 

 

 

130

 

Net cash (used in) provided by investing activities

 

 

(11,034

)

 

 

52,173

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Distributions to common stockholders

 

 

(26,941

)

 

 

(27,065

)

Repurchase of common stock

 

 

(12,355

)

 

 

(10,158

)

Proceeds from issue of long-term debt

 

 

 

 

 

150,000

 

Repayment of long-term debt

 

 

 

 

 

(150,000

)

Premiums and fees on debt retirement

 

 

 

 

 

(4,865

)

Other, net

 

 

(242

)

 

 

(213

)

Net cash used in financing activities

 

 

(39,538

)

 

 

(42,301

)

Change in cash, cash equivalents and restricted cash

 

 

(2,434

)

 

 

28,939

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

84,254

 

 

 

79,441

 

Cash, cash equivalents and restricted cash at end of period

 

$

81,820

 

 

$

108,380

 

 

 

 

 

 

 

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Long-term debt assumed by buyer in sale of facility

 

$

 

 

$

29,000

 

Accrued property, plant and equipment additions

 

$

1,380

 

 

$

2,590

 

Accrued timberlands reforestation and roads

 

$

260

 

 

$

17

 

 

 

 

 

 

 

 

 

 

 

 

5


 

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 same such amounts shown in the Condensed Consolidated Statements of Cash Flows.

 

(in thousands)

 

March 31, 2020

 

 

March 31, 2019

 

Cash and cash equivalents

 

$

79,484

 

 

$

104,787

 

Restricted cash included in other short-term and long-term assets1

 

 

2,336

 

 

 

3,593

 

Total cash, cash equivalents, and restricted cash

 

$

81,820

 

 

$

108,380

 

 

 

 

 

 

 

 

 

 

 

1

Amounts included in restricted cash represent proceeds held by a qualified intermediary that are intended to be reinvested in timber and timberlands.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

6


 

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

 

 

 

Common Stock

 

 

Additional Paid-

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

Total Stockholders'

 

(in thousands, except per share amounts)

 

Shares

 

 

Amount

 

 

in Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance, December 31, 2019

 

 

67,221

 

 

$

67,221

 

 

$

1,666,299

 

 

$

(359,330

)

 

$

(147,359

)

 

$

1,226,831

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,832

)

 

 

 

 

 

(16,832

)

Shares issued for stock compensation

 

 

131

 

 

 

131

 

 

 

(131

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

1,885

 

 

 

 

 

 

 

 

 

1,885

 

Pension plans and OPEB obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,578

 

 

 

15,578

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,525

)

 

 

(38,525

)

Common dividends, $0.40 per share

 

 

 

 

 

 

 

 

 

 

 

(26,941

)

 

 

 

 

 

(26,941

)

Repurchase of common stock

 

 

(401

)

 

 

(401

)

 

 

 

 

 

(11,954

)

 

 

 

 

 

(12,355

)

Other transactions, net

 

 

 

 

 

 

 

 

69

 

 

 

(96

)

 

 

 

 

 

(27

)

Balance, March 31, 2020

 

 

66,951

 

 

$

66,951

 

 

$

1,668,122

 

 

$

(415,153

)

 

$

(170,306

)

 

$

1,149,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional Paid-

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

Total Stockholders'

 

(in thousands, except per share amounts)

 

Shares

 

 

Amount

 

 

in Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance, December 31, 2018

 

 

67,570

 

 

$

67,570

 

 

$

1,659,031

 

 

$

(282,391

)

 

$

(129,431

)

 

$

1,314,779

 

Net income

 

 

 

 

 

 

 

 

 

 

 

6,560

 

 

 

 

 

 

6,560

 

Shares issued for stock compensation

 

 

297

 

 

 

297

 

 

 

(297

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

1,617

 

 

 

 

 

 

 

 

 

1,617

 

Pension plans and OPEB obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,166

 

 

 

1,166

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,513

)

 

 

(8,513

)

Common dividends, $0.40 per share

 

 

 

 

 

 

 

 

 

 

 

(27,065

)

 

 

 

 

 

(27,065

)

Repurchase of common stock

 

 

(279

)

 

 

(279

)

 

 

 

 

 

(9,879

)

 

 

 

 

 

(10,158

)

Other transactions, net

 

 

 

 

 

 

 

 

99

 

 

 

(99

)

 

 

 

 

 

 

Balance, March 31, 2019

 

 

67,588

 

 

$

67,588

 

 

$

1,660,450

 

 

$

(312,874

)

 

$

(136,778

)

 

$

1,278,386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


 

INDEX FOR NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

Note 1: Basis of Presentation

9

Note 2: Recent Accounting Pronouncements

9

Note 3: Sale of Deltic MDF Facility

10

Note 4: Revenue Recognition

11

Note 5: Segment Information

12

Note 6: Earnings Per Share

14

Note 7: Certain Balance Sheet Components

14

Note 8: Debt

15

Note 9: Derivative Instruments

15

Note10: Fair Value Measurements

17

Note 11: Equity Based Compensation

17

Note 12: Income Taxes

18

Note 13: Leases

19

Note 14: Pension and Other Postretirement Benefits

19

Note 15: Components of Accumulated Other Comprehensive Loss

20

Note 16: Subsequent Event

21

 

8


 

Notes to Condensed Consolidated Financial Statements

NOTE 1. BASIS OF PRESENTATION

For purposes of this report, any reference to “PotlatchDeltic,” “Potlatch,” “the company,” “we,” “us” and “our” means PotlatchDeltic Corporation and all of its wholly owned subsidiaries, except where the context indicates otherwise.

We are primarily engaged in activities associated with timberland management, including the sale of timber, the management of approximately 1.9 million acres of timberlands and the purchase and sale of timberlands. We are also engaged in the manufacture and sale of wood products and the development of real estate.

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, 2019, as filed with the Securities and Exchange Commission on February 19, 2020. Results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the full year.

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 have to pay in connection with any legal proceeding would have a materially adverse effect on our consolidated financial position or net cash flow.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Standards Recently Adopted

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 clarifies that implementation costs incurred by customers in cloud computing arrangements are deferred if they would be capitalized by customers in software licensing arrangements under the internal-use software guidance. Additionally, ASU 2018-15 clarifies that all capitalized costs must be presented in the same financial statement line item as the cloud computing arrangement. The standard was effective, on either a prospective or retrospective basis, for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The prospective adoption of this standard on January 1, 2020 did not have a material impact our Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2018-14 was effective for fiscal years ending after December 15, 2020, including interim periods within those years and requires retrospective adoption; early adoption is permitted. The adoption of this standard on January 1, 2020 did not have a material impact on our defined benefit pension plan and other postretirement plan disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies certain disclosure requirements related to fair value measurements including (i) requiring disclosures on changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements; and (ii) a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 was effective for fiscal years beginning after December 15, 2019, including interim periods within those years. The adoption of this standard on January 1, 2020 did not have a material impact on our fair value measurement disclosures.

9


 

New Accounting Standards Being Evaluated

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 contains practical expedients and exceptions to US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting impacts related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. Companies can apply the ASU immediately. Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to be completed. We are currently evaluating the impact this guidance may have on our Condensed Consolidated Financial Statements and related disclosures.

NOTE 3. SALE OF DELTIC MDF FACILITY

On December 20, 2018, we entered into an Asset Purchase and Sale Agreement (the Agreement) with Roseburg Forest Products Co. to sell the Deltic MDF facility for $92.0 million, consisting of $63.0 million in cash and assumption of $29.0 million of revenue bonds. The purchase price was subject to post-closing adjustments for certain changes in working capital as defined in the Agreement. The transaction closed on February 12, 2019 resulting in a $9.2 million pre-tax gain on sale. Net proceeds received in February 2019 after closing costs and other expenses were $60.0 million. The net proceeds were reduced by $1.2 million during the second quarter of 2019 following the finalization of the post-closing working capital adjustments. A portion of the purchase price was escrowed pending satisfaction of certain covenants as outlined in the Agreement. These funds were fully released to us during the three months ended March 31, 2020. In addition, we had a carryover tax basis in the facility from the Deltic merger, and as a result, we recorded a reduction to deferred tax liabilities and increase to income taxes payable of $15.8 million at the date of sale. The sale of the MDF facility was not considered a strategic shift that has or will have a major effect on our operations or financial results and therefore did not meet the requirements for presentation as discontinued operations.

 

10


 

NOTE 4. REVENUE RECOGNITION

The following table represents our revenues by major product. For additional information regarding our segments, see Note 5: Segment Information.

 

 

Three Months Ended March 31,

 

(in thousands)

2020

 

 

2019

 

Timberlands

 

 

 

 

 

 

 

Northern region

 

 

 

 

 

 

 

Sawlogs

$

41,407

 

 

$

32,499

 

Pulpwood

 

1,435

 

 

 

2,061

 

Stumpage

 

316

 

 

 

106

 

Other

 

303

 

 

 

211

 

Total Northern revenues

 

43,461

 

 

 

34,877

 

 

 

 

 

 

 

 

 

Southern region

 

 

 

 

 

 

 

Sawlogs

 

23,939

 

 

 

18,437

 

Pulpwood

 

11,201

 

 

 

11,811

 

Stumpage

 

829

 

 

 

322

 

Other

 

2,995

 

 

 

2,711

 

Total Southern revenues

 

38,964

 

 

 

33,281

 

 

 

 

 

 

 

 

 

Total Timberlands revenues

 

82,425

 

 

 

68,158

 

 

 

 

 

 

 

 

 

Wood Products

 

 

 

 

 

 

 

Lumber

 

111,939

 

 

 

90,505

 

Residuals and Panels

 

33,061

 

 

 

41,801

 

Total Wood Products revenues

 

145,000

 

 

 

132,306

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

 

Rural real estate

 

7,292

 

 

 

4,219

 

Development real estate

 

2,292

 

 

 

673

 

Other

 

1,385

 

 

 

1,272

 

Total Real Estate revenues

 

10,969

 

 

 

6,164

 

 

 

 

 

 

 

 

 

Total Segment Revenues

 

238,394

 

 

 

206,628

 

Intersegment Timberlands revenues1

 

(29,514

)

 

 

(24,912

)

Total consolidated revenues

$

208,880

 

 

$

181,716

 

 

 

 

 

 

 

 

 

 

1

Intersegment revenues represent logs sold by our Timberlands segment to our Wood Products segment.

Contract Balances

In general, a customer receivable is recorded as we deliver wood products, logs and residuals. We generally receive payment shortly after products have been received by our customers. At March 31, 2020 and December 31, 2019, we recorded $4.8 million and $5.5 million, respectively, for contract liabilities recorded as deferred revenue. These contract liabilities predominately relate to hunting and other access rights on our timberlands and member related activities at the Chenal Country Club. These contract liabilities are recognized over the term of the contracts, which is typically twelve months or less, except membership initiation fees at the country club which typically are recognized up to 10 years. Other contract asset and liability balances, such as prepayments, are immaterial. For real estate sales, we typically receive the entire consideration in cash at closing.

11


 

NOTE 5. SEGMENT INFORMATION

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

The reportable segments follow the same accounting policies used for our Condensed Consolidated Financial Statements, with the exception of the valuation of inventories which are reported using the average cost method for purposes of reporting segment results.

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

12


 

The following table summarizes information for each of the company’s reportable segments and includes a reconciliation of Total Adjusted EBITDDA to (loss) income before income taxes. Corporate information is included to reconcile segment data to the Condensed Consolidated Financial Statements.

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Timberlands

 

$

82,425

 

 

$

68,158

 

Wood Products

 

 

145,000

 

 

 

132,306

 

Real Estate

 

 

10,969

 

 

 

6,164

 

 

 

 

238,394

 

 

 

206,628

 

Intersegment Timberlands revenues1

 

 

(29,514

)

 

 

(24,912

)

Consolidated revenues

 

$

208,880

 

 

$

181,716

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDDA:

 

 

 

 

 

 

 

 

Timberlands

 

$

34,982

 

 

$

26,850

 

Wood Products

 

 

13,229

 

 

 

7,226

 

Real Estate

 

 

7,340

 

 

 

2,703

 

Corporate

 

 

(8,672

)

 

 

(10,654

)

Eliminations and adjustments

 

 

692

 

 

 

2,127

 

Total Adjusted EBITDDA

 

 

47,571

 

 

 

28,252

 

Basis of real estate sold

 

 

(6,498

)

 

 

(1,556

)

Depreciation, depletion and amortization

 

 

(18,638

)

 

 

(15,797

)

Interest expense, net2

 

 

(3,698

)

 

 

(5,464

)

Loss on extinguishment of debt

 

 

 

 

 

(5,512

)

Pension settlement charge

 

 

(42,988

)

 

 

 

Non-operating pension and other postretirement employee benefits

 

 

(3,635

)

 

 

(980

)

Gain on disposal of fixed assets

 

 

192

 

 

 

32

 

Gain on sale of facility

 

 

 

 

 

9,176

 

(Loss) income before income taxes

 

$

(27,694

)

 

$

8,151

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization:

 

 

 

 

 

 

 

 

Timberlands

 

$

12,591

 

 

$

10,265

 

Wood Products

 

 

5,630

 

 

 

5,042

 

Real Estate

 

 

160

 

 

 

209

 

Corporate

 

 

257

 

 

 

281

 

 

 

 

18,638

 

 

 

15,797

 

Bond discounts and deferred loan fees2

 

 

406

 

 

 

477

 

Total depreciation, depletion and amortization

 

$

19,044

 

 

$

16,274

 

 

 

 

 

 

 

 

 

 

Basis of real estate sold:

 

 

 

 

 

 

 

 

Real Estate

 

$

6,504

 

 

$

1,588

 

Eliminations and adjustments

 

 

(6

)

 

 

(32

)

Total basis of real estate sold

 

$

6,498

 

 

$

1,556

 

 

 

 

 

 

 

 

 

 

1

Intersegment revenues represent logs sold by our Timberlands segment to our Wood Products segment.

2

Bond discounts and deferred loan fees are reported within interest expense, net on the Condensed Consolidated Statements of Operations.

13


 

NOTE 6. 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,

 

(in thousands, except per share amounts)

2020

 

 

2019

 

Net (loss) income

$

(16,832

)

 

$

6,560

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

67,478

 

 

 

67,860

 

Incremental shares due to:

 

 

 

 

 

 

 

Performance shares

 

 

 

 

36

 

Restricted stock units

 

 

 

 

20

 

Diluted weighted-average shares outstanding

 

67,478

 

 

 

67,916

 

 

 

 

 

 

 

 

 

Basic net (loss) income per share

$

(0.25

)

 

$

0.10

 

Diluted net (loss) income per share

$

(0.25

)

 

$

0.10

 

 

 

 

 

 

 

 

 

 

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, 2020 and 2019, there were approximately 317,000 and 90,000 stock-based awards that were excluded from the calculation of diluted earnings per share because they were anti-dilutive. Anti-dilutive stock-based awards could be dilutive in future periods.

Share Repurchase Program

On August 30, 2018, our board of directors authorized management to repurchase up to $100.0 million of common stock with no time limit set for the repurchase (the 2018 Repurchase Program). During the three months ended March 31, 2020 and 2019, we repurchased 400,917 and 278,947 shares of common stock (at a total consideration of $12.4 million and $10.2 million), respectively, under the 2018 Repurchase Program. All common stock purchases under the 2018 Repurchase Program were made in open-market transactions. At March 31, 2020, we had remaining authorization of $62.5 million for future stock repurchases under the 2018 Repurchase Program.

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. There were no unsettled repurchases as of March 31, 2020. We retire shares upon repurchase. Any excess repurchase price over par is recorded in accumulated deficit.

NOTE 7. CERTAIN BALANCE SHEET COMPONENTS

Inventories

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Logs

 

$

24,906

 

 

$

33,313

 

Lumber, panels and veneer

 

 

29,338

 

 

 

31,639

 

Materials and supplies

 

 

13,465

 

 

 

12,831

 

Total inventories

 

 

67,709

 

 

 

77,783

 

Less: LIFO reserve

 

 

(12,002

)

 

 

(12,002

)

Total inventories, net

 

$

55,707

 

 

$

65,781

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Property, plant and equipment

 

$

503,753

 

 

$

498,113

 

Less: accumulated depreciation

 

 

(216,872

)

 

 

(211,730

)

Total property, plant and equipment, net

 

$

286,881

 

 

$

286,383

 

 

 

 

 

 

 

 

 

 

14


 

 

Timber and timberlands

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Timber and timberlands

 

$

1,547,657

 

 

$

1,554,882

 

Logging roads

 

 

82,839

 

 

 

83,781

 

Total timber and timberlands, net

 

$

1,630,496

 

 

$

1,638,663

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Accrued payroll and benefits

 

$

16,080

 

 

$

12,920

 

Accounts payable

 

 

11,382

 

 

 

12,734

 

Accrued interest

 

 

5,488

 

 

 

6,946

 

Accrued taxes

 

 

8,620

 

 

 

6,638

 

Deferred revenue

 

 

4,758

 

 

 

5,514

 

Operating lease liabilities

 

 

4,885

 

 

 

4,998

 

Other current liabilities

 

 

10,182

 

 

 

10,827

 

Total accounts payable and accrued liabilities

 

$

61,395

 

 

$

60,577

 

 

 

 

 

 

 

 

 

 

 

NOTE 8. DEBT 

At March 31, 2020, our total outstanding long-term debt included $693.5 million of term loans under our Second Amended and Restated Term Loan Agreement (Amended Term Loan Agreement) with our primary lender, of which $46.0 million matures in December 2020. Certain borrowings under the Amended Term Loan Agreement are at variable rates of one or three-month LIBOR plus a spread between 1.85% and 2.15%. We have entered into interest rate swaps for these variable rate term loans to fix the interest rate. See Note: 9 Derivative Instruments for additional information.

At March 31, 2020 there were no borrowings under our $380.0 million revolving line of credit and approximately $1.0 million of our revolving line of credit was utilized for outstanding letters of credit. As provided in the revolving line of credit agreement, borrowings may be increased by up to an additional $420.0 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 subfacilities reduces availability under the revolving line of credit. We may utilize borrowings under the credit facility to, among other things, refinance existing indebtedness and provide funding for working capital requirements, capital projects, acquisitions and other general corporate expenditures.

We were in compliance with all debt and credit agreement covenants at March 31, 2020.

NOTE 9. DERIVATIVE INSTRUMENTS

From time to time, we enter into derivative financial instruments to manage certain cash flow and fair value risks. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset or liability to a particular risk are considered fair value hedges. 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.

15


 

At March 31, 2020, we have six interest rate swaps associated with $397.5 million of term loan debt. The cash flow hedges convert variable rates ranging from three-month and one-month LIBOR plus 1.85% to 2.15%, to fixed rates ranging from 3.17% to 4.82%. 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.

In March 2020, we entered into $653.5 million of forward starting interest rate swaps. These forward starting interest rate swaps effectively hedge the variability in future benchmark interest payments attributable to changes in interest rates on future debt refinancing. We entered into these forward starting interest rate swaps in order to lock in fixed rates on our anticipated future refinancing of $653.5 million of term loan debt maturing December 2020 through January 2029. The fixed interest rates for these forward swaps range from 0.85% to 1.17%. The variable rate component on these forward interest rate swaps is one-month LIBOR. Accordingly, the forward rate swaps were designated as cash flow hedges. In addition, these cash flow hedges require settlement on the stated maturity date for each respective term loan currently outstanding.  

The following table presents the gross fair values of derivative instruments on our Condensed Consolidated Balance Sheets:

 

 

 

 

 

Asset Derivatives

 

 

 

 

Liability Derivatives

 

(in thousands)

 

Location

 

March 31, 2020

 

 

December 31, 2019

 

 

Location

 

March 31, 2020

 

 

December 31, 2019

 

Derivatives designated in cash flow hedging relationships:

 

 

 

 

 

 

 

 

 

 

 

   Interest rate contracts

 

Other assets, current1

 

$

 

 

$

 

 

Accounts payable and accrued liabilities1

 

$

1,368

 

 

$

 

Interest rate contracts

 

Other assets, non-current

 

 

 

 

 

1,601

 

 

Other long-term obligations

 

 

59,764

 

 

 

22,398

 

 

 

 

 

$

 

 

$

1,601

 

 

 

 

$

61,132

 

 

$

22,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

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

2020

 

 

2019

 

Derivatives designated in fair value hedging relationships:

 

 

 

 

 

 

 

Interest rate contracts

 

 

 

 

 

 

 

 

 

Realized loss on interest rate contracts1

 

Interest expense

$

 

 

$

(18

)

Loss on hedged debt basis adjustment included in debt extinguishment

 

 

 

 

 

 

(165

)

 

 

 

$

 

 

$

(183

)

Derivatives designated in cash flow hedging relationships:

 

 

 

 

 

 

 

Interest rate contracts

 

 

 

 

 

 

 

 

 

Loss recognized in other comprehensive loss, net of tax

 

 

$

(39,363

)

 

$

(8,594

)

Loss reclassified from accumulated other comprehensive loss1

 

Interest expense

$

(838

)

 

$

(81

)

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

$

3,698

 

 

$

5,464

 

 

 

 

 

 

 

 

 

 

 

 

1Realized loss on hedging instruments consist of net cash settlements and interest accruals on interest rate swaps during the periods.

At March 31, 2020, approximately $8.3 million of net losses are expected to be reclassified into earnings over the next 12 months. However, this expected amount to be reclassified into earnings is subject to volatility as the ultimate amount recognized in earnings is based on the market LIBOR rate at the time of cash settlement.

16


 

NOTE 10. FAIR VALUE MEASUREMENTS

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

 

 

 

March 31, 2020

 

 

December 31, 2019

 

(in thousands)

 

Carrying

Amount

 

 

Fair

Value

 

 

Carrying

Amount

 

 

Fair

Value

 

Derivative assets related to interest rate swaps (Level 2)

 

$

 

 

$

 

 

$

1,601

 

 

$

1,601

 

Derivative liabilities related to interest rate swaps (Level 2)

 

$

(61,132

)

 

$

(61,132

)

 

$

(22,398

)

 

$

(22,398

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term loans

 

$

(689,982

)

 

$

(715,596

)

 

$

(689,820

)

 

$

(703,437

)

Revenue bonds

 

 

(65,735

)

 

 

(63,513

)

 

 

(65,735

)

 

 

(68,200

)

Medium-term notes

 

 

(3,000

)

 

 

(3,563

)

 

 

(3,000

)

 

 

(3,480

)

Total long-term debt1

 

$

(758,717

)

 

$

(782,672

)

 

$

(758,555

)

 

$

(775,117

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

3,014

 

 

$

3,014

 

 

$

4,157

 

 

$

4,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

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

The fair value of interest rate swaps are determined using a discounted cash flow analysis on the expected cash flows of each derivative. The analysis reflects the contractual terms of the derivatives, including the period to maturity and uses observable market-based inputs, including interest rate 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.

We believe that our other financial instruments, including cash and cash equivalents, receivables and payables have net carrying values that approximate their fair values with only insignificant differences. This is primarily due to the short-term nature of these instruments.

NOTE 11. EQUITY-BASED COMPENSATION

At March 31, 2020, approximately 1.2 million shares are available for future use under our long-term incentive plan.

Share-based compensation activity during the three months ended March 31, 2020 included the following:

 

(Shares in thousands)

 

Granted

 

 

Vested

 

 

Forfeited

 

Performance Share Awards (PSAs)

 

 

125,001

 

 

 

 

 

 

 

Restricted Stock Units (RSUs)

 

 

41,664

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Approximately 0.1 million shares of common stock were issued during the three months ended March 31, 2020 as a result of PSA and RSU vesting during 2019.

The following table details equity-based compensation expense and the related income tax benefit:

 

 

Three Months Ended March 31,

 

(in thousands)

2020

 

 

2019

 

Equity-based compensation expense:

 

 

 

 

 

 

 

Performance share awards

$

1,158

 

 

$

1,044

 

Restricted stock units

 

708

 

 

 

557

 

Deferred compensation stock equivalent units expense

 

19

 

 

 

16

 

Total equity-based compensation expense

$

1,885

 

 

$

1,617

 

 

 

 

 

 

 

 

 

Total tax benefit recognized for equity-based expense

$

83

 

 

$

72

 

 

 

 

 

 

 

 

 

17


 

Performance Share Awards

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 performance measures are based on the percentile ranking of our total shareholder return relative to the total shareholder return performance of both a selected peer group of companies and a larger group of indexed companies over the three-year performance period. 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 our 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 three-year performance measurement period, the recipients will receive dividend equivalents in the form of additional shares at the time of payment equal to the dividends that would have been paid on the shares earned had the recipients owned the shares during the three-year period. Therefore, the shares are not considered participating securities. The fair value of performance shares granted in 2020 was $45.04 per share.

The following table presents the key inputs used in the Monte Carlo simulation to calculate the fair value of the performance share awards in 2020:

 

Stock price as of valuation date

 

$

42.16

 

Risk-free rate

 

 

1.42

%

Expected volatility

 

 

25.74

%

Expected dividend yield (assuming full reinvestment)

 

 

 

Expected term (years)

 

 

3.00

 

 

 

 

 

 

Restricted Stock Units

RSU awards accrue dividend equivalents based on dividends paid during the RSU vesting period. The dividend equivalents will be converted into additional RSUs that will vest in the same manner as the underlying RSUs to which they relate. Therefore, the shares are not considered participating securities. The terms of the awards state that the RSUs will vest in a given time period of one to three years and the terms of certain awards follow a vesting schedule within the given time period. 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 weighted average fair value of all RSUs granted during the three months ended March 31, 2020 was $42.16.

NOTE 12. INCOME TAXES

As a real estate investment trust (REIT), we generally are not subject to federal and state corporate income taxes on income of the REIT that we distribute to our shareholders. We conduct certain activities through our taxable REIT subsidiaries (TRS), which are subject to corporate level federal and state income taxes. These taxable 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 income or loss of the TRS, as well as permanent book versus tax differences. During the three months ended March 31, 2020 we recorded an income tax benefit of approximately $11.2 million associated with the $43.0 million pension settlement charge. Additionally, we recorded an increase in deferred tax assets of $6.8 million associated with the $26.2 million remeasurement of our pension plan obligations. See Note 14: Pension and Other Postretirement Employee Benefits for further details. During the three months ended March 31, 2019 we recorded a reduction to deferred tax liabilities and an increase to income taxes payable of $15.8 million related to the sale of the Deltic MDF facility. See Note 3: Sale of Deltic MDF Facility for further details.

18


 

NOTE 13. 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, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

 

Operating lease assets

Other long-term assets

 

$

14,475

 

 

$

15,772

 

Finance lease assets1

Property, plant and equipment, net

 

 

3,673

 

 

 

2,360

 

Total lease assets

 

 

$

18,148

 

 

$

18,132

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

Operating lease liabilities

Accounts payable and accrued liabilities

 

$

4,885

 

 

$

4,998

 

Finance lease liabilities

Accounts payable and accrued liabilities

 

 

972

 

 

 

644

 

Noncurrent

 

 

 

 

 

 

 

 

 

Operating lease liabilities

Other long-term obligations

 

 

9,569

 

 

 

10,775

 

Finance lease liabilities

Other long-term obligations

 

 

2,676

 

 

 

1,703

 

Total lease liabilities

 

 

$

18,102

 

 

$

18,120

 

 

 

 

 

 

 

 

 

 

 

 

1     Finance lease assets are presented net of accumulated amortization of $0.5 million and $0.3 million as of March 31, 2020 and December 31, 2019, respectively.

The following table presents the components of lease expense:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Operating lease costs1

 

$

1,425

 

 

$

1,410

 

Finance lease costs

 

 

 

 

 

 

 

 

Amortization of leased assets

 

213

 

 

21

 

Interest on lease liabilities

 

27

 

 

5

 

Net lease costs

 

$

1,665

 

 

$

1,436

 

 

 

 

 

 

 

 

 

 

 

1     Excludes short-term leases and variable lease costs, which are immaterial

The following tables presents supplemental cash flow information related to leases:

 

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

 

2020

 

 

2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows for operating leases

 

$

1,506

 

 

$

1,522

 

Operating cash flows for finance leases

 

$

27

 

 

$

5

 

Financing cash flows for finance leases

 

$

215

 

 

$

27

 

Leased assets exchanged for new lease liabilities

 

 

 

 

 

 

 

 

Operating leases

 

$

38

 

 

$

268

 

Finance leases

 

$

1,517

 

 

$

508

 

 

 

 

 

 

 

 

 

 

 

 

NOTE 14. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS

In February 2020 we purchased a group annuity contract from an insurance company to transfer $101.1 million of our outstanding pension benefit obligation related to our qualified pension plans to the insurance company. This transaction was funded with plan assets. As a result of the transaction, the insurance company assumed responsibility for annuity administration and benefit payments to select retirees, with no change to their monthly retirement benefit payment

19


 

amounts. In connection with this transaction we recorded a non-cash pretax settlement charge of $43.0 million during the three months ended March 31, 2020 in non-operating expense, net, accelerating the recognition of actuarial losses included in accumulated other comprehensive loss that would have been recognized in future periods.

The settlement triggered a remeasurement of plan assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the qualified pension plans as of February 29, 2020 and to calculate the related net periodic benefit cost for the remainder of 2020 to 2.95% from 3.40%. All other pension assumptions remain unchanged. The net effect of the remeasurement was a reduction in the funded status of our qualified pension plans of approximately $26.2 million, primarily driven by the decrease in the discount rate.  

The following tables detail the components of net periodic cost (benefit) of our pension plans and other postretirement employee benefits (OPEB):

 

 

Three Months Ended March 31,

 

 

 

Pension

 

 

OPEB

 

(in thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Service cost

 

$

2,290

 

 

$

2,021

 

 

$

143

 

 

$

105

 

Interest cost

 

 

3,564

 

 

 

4,539

 

 

 

375

 

 

 

419

 

Expected return on plan assets

 

 

(4,586

)

 

 

(5,554

)

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

 

28

 

 

 

53

 

 

 

(319

)

 

 

(2,211

)

Amortization of actuarial loss

 

 

4,154

 

 

 

3,427

 

 

 

419

 

 

 

307

 

Net periodic cost (benefit) before pension settlement charge

 

 

5,450

 

 

 

4,486

 

 

 

618

 

 

 

(1,380

)

Pension settlement charge

 

 

42,988

 

 

 

 

 

 

 

 

 

 

Total net periodic cost (benefit)

 

$

48,438

 

 

$

4,486

 

 

$

618

 

 

$

(1,380

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the three months ended March 31, 2020 and 2019, funding of pension and other postretirement employee benefit plans was $1.5 million and $1.7 million, respectively. Further, as allowed under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed in March 2020, we will defer approximately $4.4 million of required 2020 contributions for our qualified pension plans until 2021.

NOTE 15. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS

During 2020, changes in amounts included in our accumulated other comprehensive loss (AOCL) by component on our Condensed Consolidated Balance Sheets, net of tax, are:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Pension Plans

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

117,028

 

 

$

129,253

 

Net loss arising during the period

 

 

19,402

 

 

 

 

Effect of pension settlement

 

 

(31,811

)

 

 

 

Amounts reclassified from AOCL to earnings

 

 

(3,095

)

 

 

(2,575

)

Balance at end of period

 

$

101,524

 

 

$

126,678

 

Other Postretirement Benefit Plans

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

10,331

 

 

$

(1,382

)

Amounts reclassified from AOCL to earnings

 

 

(74

)

 

 

1,409

 

Balance at end of period

 

$

10,257

 

 

$

27

 

Cash Flow Hedges

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

20,000

 

 

$

1,560

 

Net loss arising during the period

 

 

39,363

 

 

 

8,594

 

Amounts reclassified from AOCL to earnings

 

 

(838

)

 

 

(81

)

Balance at end of period

 

$

58,525

 

 

$

10,073

 

Accumulated other comprehensive loss, end of period

 

$

170,306

 

 

$

136,778

 

See Note 14: Pension and Other Postretirement Employee Benefits and Note 9: Derivative Instruments for additional information.

20


 

NOTE 16. SUBSEQUENT EVENT

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and all states and several municipalities have declared public health emergencies. For the first quarter of 2020 each of our business segments produced strong results, however the COVID-19 pandemic has introduced significant economic and business uncertainty, along with volatile financial market conditions. 

Our Timberlands and Wood Products businesses have been deemed an essential business in states that have issued stay-at-home orders and as such, we plan to continue to operate each of our businesses at full capacity where market conditions allow while maintaining the health and safety of our employees, contractors, suppliers and customers. In our Wood Products segment, our industrial grade plywood product line has been more adversely impacted. As a result of decreased demand, we temporarily suspended operations at our St. Maries, Idaho industrial plywood facility beginning April 20, 2020. We will re-start our plywood facility when we have received enough orders to justify re-opening the facility, which we estimate to be sometime in May 2020.  Further, we expect the economic impacts from COVID-19 to negatively impact our Chenal Valley real estate development.

Additionally, we anticipate our current cash balances, cash flows from operations and our available sources of liquidity will be sufficient to meet our cash requirements. At March 31, 2020 we had approximately $79.5 million in cash and cash equivalents and availability of $379.0 million on our revolving line of credit. As the impact of COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. In the event of a sustained market deterioration, we may be required to assess liquidity options available to us, including accessing our revolving line of credit, reassessing our capital allocation strategy including the funding of our quarterly dividend, or take appropriate actions such as only proceeding with operating and capital spending that is critical.

 

21


 

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, expected impacts of COVID-19 on our business and our ability to continue operations during the pandemic, fair value of hedging instruments and swaps, expected return on pension assets, recognition of compensation costs relating to our performance share awards and RSUs, required contributions to pension plans, expected amortization of unrecognized compensation cost of performance share awards and RSUs, amount of net losses on cash flow hedges expected to be reclassified into earnings in the next 12 months, expected tax payments and deferrals, anticipated share repurchases and dividend payments, potential uses of our credit facility, the U.S. housing market, home repair and remodeling activity, the lumber and log markets, expected harvest volumes, expected lumber shipments, expected rural real estate and residential real estate development sales, sufficiency of cash to meet operating requirements, 2020 capital expenditures and similar matters. Words such as “anticipate,” “expect,” “will,” “intend,” “plan,” “target,” “project,” “believe,” “seek,” “schedule,” “estimate,” “could,” “can,” “may” and similar expressions are intended to identify such forward-looking statements. 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. Our actual results of operations could differ materially from our historical results or those expressed or implied by forward-looking statements contained in this report. Important factors that could cause or contribute to such differences include, but are not limited to, the following: 

 

changes in the United States and international economies;

 

changes in interest rates and discount rates;

 

credit availability including homebuyers’ ability to qualify for mortgages;

 

availability of labor and developable land;

 

changes in the level of residential and commercial construction and remodeling activity;

 

changes in tariffs, quotas and trade agreements involving wood products;

 

changes in demand for our products and real estate;

 

changes in production and production capacity in the forest products industry;

 

competitive pricing pressures for our products;

 

unanticipated manufacturing disruptions;

 

weather;

 

changes in principle expenses;

 

impact of the recent coronavirus (COVID-19) outbreak on our business, suppliers, consumers, customers and employees; and

 

disruptions or inefficiencies in our supply chain and/or operations

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, 2019 and Risk Factors in Part II, Item 1A in this Form 10-Q.

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 real estate investment trust (REIT) with operations in seven states where we own approximately 1.9 million acres of timberland, six sawmills, an industrial grade plywood mill and real estate development projects.

22


 

Our business is organized into three business segments: Timberlands, Wood Products and Real Estate. Our Timberlands segment supplies our Wood Products segment with a portion of its wood fiber needs. These intersegment revenues are based on prevailing market prices and typically represent a sizeable portion of the Timberlands segment’s total revenues. Our other segments generally do not generate intersegment revenues. In the discussion of our consolidated results of operations, our revenues and expenses are reported after elimination of intersegment revenues and expenses. In the business segment discussions, each segment’s revenues and expenses, as applicable, are presented before elimination of intersegment revenues and expenses.

The operating results of our Timberlands, Wood Products and Real Estate business segments have been and will continue to be influenced by a variety of factors, including the cyclical nature of the forest products industry, 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, asset dispositions or acquisitions, impact of pandemics and other factors. 

Non-GAAP Measures

To supplement our financial statements presented in accordance with generally accepted accounting principles in the United States (GAAP), we use certain non-GAAP measures on a consolidated basis, including Adjusted EBITDDA and Cash Available for Distribution (CAD), which are defined and further explained and reconciled to the nearest GAAP measure in the Liquidity and Performance Measures section below. Our definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to and not a substitute for, financial information prepared in accordance with GAAP.

Adjusted EBITDDA is a non-GAAP measure that management uses in evaluating performance, 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 (loss) before interest expense, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses. See Note 5: 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

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. Our Timberlands and Wood Products segments are impacted by demand for new homes in the United States and by repair and remodeling activity.

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and all states and several municipalities have declared public health emergencies. Along with these declarations, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the U.S., including quarantines, “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

For the first quarter of 2020, each of our business segments produced strong results; however, the COVID-19 pandemic has introduced significant economic and business uncertainty, along with volatile financial market conditions. Our Timberlands and Wood Products businesses have been deemed an essential business in states that have issued stay-at-home orders and as such, we plan to continue to operate each of our businesses at full capacity where market conditions allow while maintaining the health and safety of our employees, contractors, suppliers and customers. We have introduced measures to protect the health and well-being of these groups. Such measures include encouraging office

23


 

employees to work remotely where their duties allow, restricting travel and group meetings, increasing the frequency of cleaning and disinfecting, screening visitors and vendors at our locations, and enabling physical distancing where it is practicable. We have plans and provisions in place in the event we have COVID-19 exposure in the workplace. Although we have not had to do so to date, we may be required to temporarily shut down certain operations for additional cleaning and disinfecting if an exposure occurs.  

In several locations across the United States homebuilding has been deemed “non-essential” leading to the temporary suspension of building projects in those states, further contributing to reduced overall market demand and pricing for lumber. The home center demand for repair and remodel activity continues to be a bright spot during the COVID-19 outbreak as more people are able to focus on home renovation projects while remaining at home. In our Wood Products segment, our industrial grade plywood product line has been more adversely impacted as these products are used in boat, recreational vehicle and furniture industries, many of which have been forced to temporarily shut down. As a result of this decreased demand, we temporarily suspended operations at our St. Maries, Idaho industrial plywood facility beginning April 20, 2020. We will re-start our plywood facility when we have received enough orders to justify re-opening the facility, which we estimate to be sometime in May 2020. For our sawmills, we expect to continue to operate and adjust production as necessary to match demand. We have reduced our estimated range of lumber shipment volume to approximately 1.0 to 1.1. billion board feet during 2020 to reflect our best estimate of business conditions in the current environment.

In our Timberlands segment, we index a significant portion of our Idaho sawlogs to the price of lumber under long-term supply agreements. The Northern region experienced an increase in sawlog pricing and volume in the first quarter of 2020 because of higher indexed lumber prices and favorable harvest conditions compared to the prior year. We continue to expect Northern harvest volumes to total about 1.8 million tons for the year, and we expect log prices to be relatively stable and similar to last year. Southern pine sawlog prices have normalized and our harvest volumes improved in the first quarter of 2020 compared to the prior year as a result of favorable harvest conditions. Our Southern region has been adversely impacted by third-party mill closures due to COVID-19 and weather-related downtime. We expect this to result in a reduction in Southern sawlog and pulpwood volumes in the second quarter of 2020 which we do not anticipate recovering during the remainder of 2020. As such, we have revised our expected total harvest volumes to be between 5.5 and 5.8 million tons in 2020.

Our Real Estate segment benefitted during the first quarter of 2020 from increased rural acres sold and increased lot sales at Chenal Valley. Residential and commercial sales in Chenal Valley mainly follow the national housing market trends but do experience microeconomic factors for the area including economic growth and the availability of builders, contractors and workforce to support development efforts. We expect the economic impacts from COVID-19 to negatively impact our Chenal Valley real estate development. We estimate that we will sell between 100 and 120 residential development lots during 2020. For our rural real estate business, we anticipate there will be continued stability and therefore we expect to sell between 20,000 and 23,000 rural real estate acres during 2020. 

Finally, we anticipate our current cash balances, cash flows from operations and our available sources of liquidity will be sufficient to meet our cash requirements. At March 31, 2020 we had approximately $79.5 million in cash and cash equivalents and availability of $379.0 million on our revolving line of credit. As the impact of COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. In the event of a sustained market deterioration, we may be required to assess liquidity options available to us, including accessing our revolving line of credit, reassessing our capital allocation strategy including the funding of our quarterly dividend, or take appropriate actions such as only proceeding with operating and capital spending that is critical. See Liquidity and Capital Resources section below for further discussion of our liquidity.

24


 

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,

 

(in thousands)

 

2020

 

 

2019

 

 

Change

 

Revenues

 

$

208,880

 

 

$

181,716

 

 

$

27,164

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

172,046

 

 

 

154,215

 

 

 

17,831

 

Selling, general and administrative expenses

 

 

14,207

 

 

 

16,570

 

 

 

(2,363

)

Gain on sale of facility

 

 

 

 

 

(9,176

)

 

 

9,176

 

 

 

 

186,253

 

 

 

161,609

 

 

 

24,644

 

Operating income

 

 

22,627

 

 

 

20,107

 

 

 

2,520

 

Interest expense, net

 

 

(3,698

)

 

 

(5,464

)

 

 

1,766

 

Loss on extinguishment of debt

 

 

 

 

 

(5,512

)

 

 

5,512

 

Pension settlement charge

 

 

(42,988

)

 

 

 

 

 

(42,988

)

Non-operating pension and other postretirement benefit costs

 

 

(3,635

)

 

 

(980

)

 

 

(2,655

)

(Loss) income before income taxes

 

 

(27,694

)

 

 

8,151

 

 

 

(35,845

)

Income taxes

 

 

10,862

 

 

 

(1,591

)

 

 

12,453

 

Net (loss) income

 

$

(16,832

)

 

$

6,560

 

 

$

(23,392

)

Total Adjusted EBITDDA1

 

$

47,571

 

 

$

28,252

 

 

$

19,319

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

See Liquidity and Performance Measures for a reconciliation of Total Adjusted EBITDDA to net (loss) income, the closest comparable GAAP measure, for each of the periods presented.

First Quarter 2020 Compared with First Quarter 2019

Revenues

Revenues were $208.9 million, an increase of $27.2 million compared with the first quarter of 2019. Revenues increased as a result of higher lumber prices, increased lumber shipments, higher sawlog prices in the Northern Region and increased harvest volumes in both the Northern and Southern regions. Revenues also benefitted from increased rural and development real estate sales. These increases were partially offset by revenue related to our Deltic Medium Density Fiberboard (MDF) facility that was sold in February 2019.

Cost of goods sold

Cost of goods sold increased $17.8 million compared with the first quarter of 2019 primarily due to increased harvest activities, increased lumber shipments, and increased rural and development real estate sales. Cost of goods sold for 2019 included approximately 1.5 months of activity related to the Deltic MDF facility.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased $2.4 million compared with the first quarter of 2019 primarily due to mark-to-market adjustments for deferred incentive compensation plans.

Gain on sale of facility

In February 2019 we closed on the sale of our Deltic MDF facility to Roseburg Forest Products Co. for $92.0 million, before certain working capital adjustments, resulting in a $9.2 million pre-tax gain on sale.

Interest expense, net

Net interest expense decreased $1.8 million compared with the first quarter of 2019 primarily due to the refinancing of $150.0 million of 7.5% Senior Notes (Senior Notes) during the first quarter of 2019.

Loss on extinguishment of debt

As part of a $150.0 million Senior Notes redemption during the first quarter of 2019 we incurred a redemption premium of $4.9 million and wrote off certain unamortized debt costs.

25


 

Pension settlement charge

In February 2020 we purchased a group annuity contract from an insurance company to transfer $101.1 million of our outstanding pension benefit obligation related to our qualified pension plans. This transaction was funded with plan assets. In connection with this transaction, we recorded a non-cash pretax settlement charge of $43.0 million.

Non-operating pension and other postretirement benefit costs

Non-operating pension and other postretirement benefit costs increased $2.7 million compared to the first quarter of 2019. This increase was primarily due to restructuring of OPEB plans which resulted in the recognition of prior service credits of $1.9 million per quarter through the end of 2019. Non-operating pension and other postretirement benefit costs were also impacted by a decrease year-on-year in the discount rate used to determine the benefit obligations.

Income taxes

Income taxes for the first quarter 2020 was a $10.9 million income tax benefit compared with $1.6 million income tax provision for the first quarter of 2019. Income taxes are primarily due to income or loss from our taxable REIT subsidiaries (TRS). For the three months ended March 31, 2020, the TRS’s loss before income tax was $42.8 million, which included a $43.0 million pension settlement charge. For the same period in 2019, the TRS’s income before income tax was $7.2 million which included the gain on sale of the Deltic MDF facility.

Total Adjusted EBITDDA

Total Adjusted EBITDDA for the first quarter of 2020 increased $19.3 million compared to the first quarter of 2019. The increase in Total Adjusted EBITDDA was driven primarily by increased operating results in our business segments. Refer to the Business Segment Results below for further discussions on activities for each of our segments.

26


 

Business Segment Results

Timberlands Segment

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

 

Change

 

Revenues1

 

$

82,425

 

 

$

68,158

 

 

$

14,267

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Logging and hauling

 

 

38,604

 

 

 

32,916

 

 

 

5,688

 

Other

 

 

7,291

 

 

 

6,664

 

 

 

627

 

Selling, general and administrative expenses

 

 

1,548

 

 

 

1,728

 

 

 

(180

)

Timberlands Adjusted EBITDDA2

 

$

34,982

 

 

$

26,850

 

 

$

8,132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Prior to elimination of intersegment fiber revenues of $29.5 million and $24.9 million for the three months ended March 31, 2020 and 2019 respectively.

2

Management uses Adjusted EBITDDA to evaluate the performance of the company. See Note 5: Segment Information in the Notes to Condensed Consolidated Financial Statements.

Timberlands Segment Statistics

 

 

 

Three Months Ended March 31,

 

Harvest Volumes (in tons)

 

2020

 

 

2019

 

 

Change

 

Northern region

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

 

433,870

 

 

 

373,865

 

 

 

60,005

 

Pulpwood

 

 

37,801

 

 

 

48,643

 

 

 

(10,842

)

Stumpage

 

 

23,178

 

 

 

7,376

 

 

 

15,802

 

Total

 

 

494,849

 

 

 

429,884

 

 

 

64,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southern region

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

 

548,467

 

 

 

412,834

 

 

 

135,633

 

Pulpwood

 

 

367,099

 

 

 

373,264

 

 

 

(6,165

)

Stumpage

 

 

90,237

 

 

 

42,349

 

 

 

47,888

 

Total

 

 

1,005,803

 

 

 

828,447

 

 

 

177,356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total harvest volume

 

 

1,500,652

 

 

 

1,258,331

 

 

 

242,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Price/Unit ($ per ton)

 

 

 

 

 

 

 

 

 

 

 

 

Northern region1

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

$

95

 

 

$

87

 

 

$

8

 

Pulpwood

 

$

38

 

 

$

42

 

 

$

(4

)

Stumpage

 

$

14

 

 

$

14

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southern region1

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

$

44

 

 

$

45

 

 

$

(1

)

Pulpwood

 

$

31

 

 

$

32

 

 

$

(1

)

Stumpage

 

$

9

 

 

$

8

 

 

$

1

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

1

Sawlog and pulpwood sales prices are on a delivered basis, which includes contracted logging and hauling costs charged to the customer. Stumpage sales provide our customers the right to harvest standing timber. As such, the customer contracts the logging and hauling and bears such costs.

27


 

Timberlands Adjusted EBITDDA

The following table summarizes Timberlands Adjusted EBITDDA variances for the three months ended March 31, 2020 compared with the three months ended March 31, 2019:

 

(in thousands)

 

Three Months Ended

 

Timberlands Adjusted EBITDDA March 31, 2019

 

$

26,850

 

Sales price and mix

 

 

3,485

 

Harvest volume

 

 

5,491

 

Other revenue

 

 

376

 

Logging and hauling costs per unit

 

 

(773

)

Forest management

 

 

(555

)

Administrative, indirect and overhead costs

 

 

108

 

Timberlands Adjusted EBITDDA March 31, 2020

 

$

34,982

 

 

 

 

 

 

First Quarter 2020 Compared with First Quarter 2019

Timberlands Adjusted EBITDDA for the first quarter of 2020 increased $8.1 million compared with the same period in 2019, primarily as a result of the following:

 

Sales Price and Mix: Sawlog prices in the Northern region increased 9.2%, to $95 per ton resulting from the effect of higher lumber price realization on indexed sawlogs and favorable cedar prices in Idaho. Sawlog prices in the Southern region were down slightly quarter on quarter because timber supply constraints caused by wet weather drove up pricing during the first quarter of 2019.

 

Harvest Volume: We harvested 1.0 million tons in the Southern region during the first quarter of 2020, which was up 21.4% compared to the first quarter of 2019. The increase was primarily due to improved harvest conditions during the first quarter of 2020 compared to the first quarter of 2019 which experienced wet weather conditions. Harvest volume increased 15.1% in the Northern region as a result of favorable harvest conditions as compared to the prior year.

Wood Products Segment

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

 

Change

 

Revenues

 

$

145,000

 

 

$

132,306

 

 

$

12,694

 

Costs and expenses1

 

 

 

 

 

 

 

 

 

 

 

 

Fiber costs

 

 

65,012

 

 

 

69,027

 

 

 

(4,015

)

Freight, logging and hauling

 

 

17,402

 

 

 

16,224

 

 

 

1,178

 

Manufacturing costs

 

 

45,004

 

 

 

47,441

 

 

 

(2,437

)

Finished goods inventory change

 

 

1,891

 

 

 

(10,092

)

 

 

11,983

 

Selling, general and administrative expenses

 

 

2,271

 

 

 

2,450

 

 

 

(179

)

Other

 

 

191

 

 

 

30

 

 

 

161

 

Wood Products Adjusted EBITDDA2

 

$

13,229

 

 

$

7,226

 

 

$

6,003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Prior to elimination of intersegment fiber costs of $29.5 million and $24.9 million for the three months ended March 31, 2020 and 2019, respectively.

2

Management uses Adjusted EBITDDA to evaluate the performance of the company. See Note 5: Segment Information in the Notes to Condensed Consolidated Financial Statements.

28


 

Wood Products Segment Statistics

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

Change

 

Lumber shipments (MBF)1

 

 

282,967

 

 

 

238,403

 

 

 

44,564

 

Lumber sales prices ($ per MBF)

 

$

396

 

 

$

380

 

 

$

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2020 compared with the three months ended March 31, 2019:

 

(in thousands)

 

Three Months Ended

 

Wood Products Adjusted EBITDDA March 31, 2019

 

$

7,226

 

Lumber:

 

 

 

 

Price

 

 

3,848

 

Manufacturing costs per unit

 

 

(1,659

)

Log costs per unit

 

 

1,192

 

Inventory charge

 

 

514

 

Residuals, panels and other

 

 

2,108

 

Wood Products Adjusted EBITDDA March 31, 2020

 

$

13,229

 

 

 

 

 

 

First Quarter 2020 Compared with First Quarter 2019

Wood Products Adjusted EBITDDA for the first quarter of 2020 increased $6.0 million compared with the first quarter of 2019 primarily as a result of the following:

 

Lumber Price: Average lumber sales prices increased to $396 per MBF compared with $380 per MBF during the first quarter of 2019.

 

Manufacturing Cost Per Unit: Reduced overtime the last half of March at several of our mills in response to changing market conditions, combined with planned downtime for annual maintenance at one of our mills, led to higher manufacturing costs per unit during the first quarter of 2020 compared to 2019.

 

Log Costs Per Unit: Log inventories in Idaho are built during the third and fourth quarter of each year to ensure an adequate level of log inventories for spring breakup in the first quarter of the following year when harvest activities are restricted. During the first quarter of 2019, log costs per-unit in Idaho were higher than during the first quarter of 2020 because indexed sawlog prices were higher during the 2018 log inventory build utilized in the first quarter of 2019 compared to the 2019 log inventory build utilized in the first quarter of 2020. In addition, our Southern mills experienced higher log costs during the first quarter of 2019 because unusually wet weather resulted in supply constraints leading to increased log prices.

 

Residual Sales, Panels and Other: Increased residual revenue quarter on quarter positively contributed to EBITDDA. In addition, the operations at the Deltic MDF facility, which we sold in February 2019, negatively impacted EBITDDA during the first quarter of 2019.

29


 

Real Estate Segment

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

 

Change

 

Revenues

 

$

10,969

 

 

$

6,164

 

 

$

4,805

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

Costs of goods sold

 

 

2,431

 

 

 

2,254

 

 

 

177

 

Selling, general and administrative expenses

 

 

1,198

 

 

 

1,207

 

 

 

(9

)

Real Estate Adjusted EBITDDA1

 

$

7,340

 

 

$

2,703

 

 

$

4,637

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Management uses Adjusted EBITDDA to evaluate the performance of the company. See Note 5: Segment Information in the Notes to Condensed Consolidated Financial Statements.

Real Estate Segment Statistics

 

Rural Real Estate

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

Acres Sold

 

 

Average

Price/Acre

 

 

Acres Sold

 

 

Average

Price/Acre

 

Higher and better use (HBU)

 

 

630

 

 

$

3,147

 

 

 

759

 

 

$

3,195

 

Recreation real estate

 

 

880

 

 

$

1,504

 

 

 

1,143

 

 

$

1,221

 

Non-strategic timberland

 

 

2,929

 

 

$

1,361

 

 

 

440

 

 

$

903

 

Total

 

 

4,439

 

 

$

1,643

 

 

 

2,342

 

 

$

1,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development Real Estate

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

Lots Sold

 

Average

Price/ Lot

 

 

Lots Sold

 

Average

Price/ Lot

 

Residential lots

 

23

 

$

99,652

 

 

7

 

$

96,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Adjusted EBITDDA

The following table summarizes Real Estate Adjusted EBITDDA variances for the three months ended March 31, 2020 compared with the three months ended March 31, 2019:

 

(in thousands)

 

Three Months Ended

 

Real Estate Adjusted EBITDDA March 31, 2019

 

$

2,703

 

Rural real estate sales

 

 

3,072

 

Development real estate sales

 

 

1,704

 

Selling, general and administrative expenses

 

 

24

 

Other costs, net

 

 

(163

)

Real Estate Adjusted EBITDDA March 31, 2020

 

$

7,340

 

 

 

 

 

 

 

First Quarter 2020 Compared with First Quarter 2019

Real Estate Adjusted EBITDDA for the first quarter of 2020 increased $4.6 million compared with the same period in 2019 primarily as a result of the following:

 

Rural Real Estate Sales: The first quarter of 2020 benefitted from a 2,850-acre non-strategic timberland sale in Arkansas at an average price of approximately $1,400 per acre. Rural real estate sales can vary quarter-to-quarter with the average price per acre fluctuating based on both the geographic area of the real estate and product mix.

 

Development Real Estate Sales: During the first quarter of 2020 we sold 23 residential lots at an average lot price of approximately $99,700 compared to 7 lots at an average lot price of approximately $96,100 during the first quarter of 2019.

 

30


 

Liquidity and Capital Resources

Changes in significant sources of cash for the three months ended March 31, 2020 and 2019 are presented by categories as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Net cash provided by operating activities

 

$

48,138

 

 

$

19,067

 

Net cash (used in) provided by investing activities

 

$

(11,034

)

 

$

52,173

 

Net cash used in financing activities

 

$

(39,538

)

 

$

(42,301

)

 

 

 

 

 

 

 

 

 

Net Cash from Operations

Net cash provided by operating activities increased $29.1 million compared to the first three months of 2019. Changes in cash provided by operating activities was impacted by the following:

 

Cash received from customers increased $33.0 million due to increased harvest activities in both the Northern and Southern regions, increased lumber prices and lumber shipments, and increased rural and development real estate sales. These increases were partially offset by cash receipts from operations at the Deltic MDF facility prior to its sale.

 

Cash payments to vendors increased $6.2 million primarily due to increased harvest activities and production at our wood product facilities. Operations in 2019 included 1.5 months of operations at the Deltic MDF facility prior to its sale.

 

Net cash paid for interest decreased $2.8 million primarily due to increased patronage dividends from our lenders and lower net interest costs as a result of refinancing our $150.0 million Senior Notes during the first quarter of 2019.

Net Cash Flows from Investing Activities

Changes in cash flows from investing activities were primarily a result of the following:

 

We spent $13.5 million on capital expenditures for property, plant and equipment, timberland acquisitions, timberlands reforestation and road construction projects during the first three months of 2020 compared to $8.0 million during the first three months of 2019.

 

We received $60.0 million of net cash proceeds, which was subject to post closing working capital adjustments from the Deltic MDF facility sale in February 2019. Additionally, we received $1.0 million in the first quarter of 2020 related to the satisfaction of certain covenants associated with the Deltic MDF facility sale.

Net Cash Flows from Financing Activities

Changes in cash flows from financing activities were primarily a result of the following:

 

During the first three months of 2020 we repurchased 400,917 shares of our common stock totaling $12.4 million compared to 278,947 shares repurchased totaling $10.2 million during the first three months of 2019.

 

In January 2019, we refinanced $150.0 million of Senior Notes due in 2019 with a $150.0 million variable rate term loan that will mature in 2029. Upon the refinancing, we redeemed and paid all outstanding Senior Notes, including a redemption premium of $4.9 million.

Future Cash Requirements

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. Additionally, in a response to the COVID-19 pandemic and in order to further strategically manage our liquidity, we reassessed our 2020 capital plan. We are focusing our capital expenditures to the most critical sustaining projects and therefore we expect to spend a total of approximately $40 to $44 million for capital expenditures during 2020.

In further managing our cash position and liquidity, we expect to defer payments of approximately $8.4 million for our 2020 employer portion of social security payroll tax and contributions to qualified pension plans as allowed under the

31


 

Coronavirus Aid, Relief, and Economic Security Act (CARES Act). These payments will be funded in 2021 and 2022 as required under the CARES Act.

On August 30, 2018, the board of directors authorized the repurchase of up to $100.0 million of common stock with no time limit set for the repurchase. At March 31, 2020, we had remaining authorization of $62.5 million for future stock repurchase under the 2018 Repurchase Program. Stock repurchases in the future will depend on a variety of factors including our cash position, our desired level of liquidity, debt covenant restrictions and our stock price.

On March 31, 2020 we paid our quarterly cash dividend of $0.40 per share, or $27.0 million. While we have no near-term concerns regarding our ability to fund the quarterly cash dividend, we will continually assess our liquidity requirements and capital allocation strategy.

Capital Structure

 

 

 

March 31,

 

 

December 31,

 

(in thousands)

 

2020

 

 

2019

 

Long-term debt

 

$

756,729

 

 

$

756,469

 

Cash and cash equivalents

 

 

(79,484

)

 

 

(83,310

)

Net debt

 

 

677,245

 

 

 

673,159

 

Market capitalization1

 

 

2,101,585

 

 

 

2,908,653

 

Enterprise value

 

$

2,778,830

 

 

$

3,581,812

 

 

 

 

 

 

 

 

 

 

Net debt to enterprise value

 

 

24.4

%

 

 

18.8

%

Dividend yield2

 

 

5.1

%

 

 

3.7

%

Weighted-average cost of debt, after tax3

 

 

3.3

%

 

 

3.3

%

 

 

 

 

 

 

 

 

 

 

1

Market capitalization is based on outstanding shares of 67.0 million and 67.2 million times closing share prices of $31.39 and $43.27 as of March 31, 2020, and December 31, 2019, respectively.

2

Dividend yield is based on annualized dividends per share of $1.60 and share prices of $31.39 and $43.27 as of March 31, 2020, and December 31, 2019, respectively.

3

Weighted-average cost of debt excludes deferred debt costs and credit facility fees and includes estimated annual patronage credit on term loan debt.

Liquidity and Performance Measures

The discussion below is presented to enhance the reader’s understanding of our operating performance, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures: Adjusted EBITDDA and Cash Available for Distribution (CAD). These measures are not defined by GAAP and the discussion of Adjusted EBITDDA and CAD is not intended to conflict with or change any of the GAAP disclosures described herein.

Adjusted EBITDDA is a non-GAAP measure that management uses in evaluating performance, to allocate resources between segments, and that investors can use to evaluate the operational performance of the assets under management. It removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis. This measure should not be considered in isolation from and is not intended to represent an alternative to our results reported in accordance with GAAP. Management believes that this non-GAAP measure, when read in conjunction with our GAAP financial statements, provides useful information to investors by facilitating the comparability of our ongoing operating results over the periods presented, the ability to identify trends in our underlying business and the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.

Our definition of EBITDDA may be different from similarly titled measures reported by other companies. We define EBITDDA as net (loss) income before interest expense, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses.

We reconcile Total Adjusted EBITDDA to net (loss) income for the consolidated company as it is the most comparable GAAP measure.

32


 

The following table provides a reconciliation of net (loss) income to Total Adjusted EBITDDA for the respective periods:

 

 

Three Months Ended March 31,

 

(in thousands)

2020

 

 

2019

 

Net (loss) income

$

(16,832

)

 

$

6,560

 

Interest expense, net

 

3,698

 

 

 

5,464

 

Income taxes

 

(10,862

)

 

 

1,591

 

Depreciation, depletion and amortization

 

18,638

 

 

 

15,797

 

Basis of real estate sold

 

6,498

 

 

 

1,556

 

Loss on extinguishment of debt

 

 

 

 

5,512

 

Pension settlement charge

 

42,988

 

 

 

 

Non-operating pension and other postretirement benefit costs

 

3,635

 

 

 

980

 

Gain on sale of facility

 

 

 

 

(9,176

)

Gain on disposal of fixed assets

 

(192

)

 

 

(32

)

Total Adjusted EBITDDA

$

47,571

 

 

$

28,252

 

 

 

 

 

 

 

 

 

 

We define CAD as cash provided by 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.

The following table provides a reconciliation of cash provided by operating activities to CAD:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Cash provided by operating activities1

 

$

48,138

 

 

$

19,067

 

Capital expenditures

 

 

(13,539

)

 

 

(8,002

)

CAD

 

$

34,599

 

 

$

11,065

 

Net cash (used in) provided by investing activites2

 

$

(11,034

)

 

$

52,173

 

Net cash used in financing activities

 

$

(39,538

)

 

$

(42,301

)

 

 

 

 

 

 

 

 

 

 

1

Cash from operating activities for the three months ended March 31, 2020 and 2019 includes cash paid for real estate development expenditures of $0.4 million and $1.8 million, respectively.

2

Net cash from investing activities includes payments for capital expenditures and acquisition of timber and timberlands, which is also included in our reconciliation of CAD.

Sources of Financing

Credit and Term Loan Agreements

At March 31, 2020, our total outstanding long-term debt was $756.7 million, of which $46.0 million matures in December 2020. Included in total outstanding long-term debt was $693.5 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 variable rates of one or three-month LIBOR plus a spread between 1.85% and 2.15%. We have entered into interest rate swaps for these variable rate term loans to fix the interest rates.

At March 31, 2020 there were no borrowings under our $380.0 million revolving line of credit and approximately $1.0 million of the revolving line of credit was utilized for outstanding letters of credit. As provided in the revolving line of credit agreement, borrowings may be increased by up to an additional $420.0 million. We may utilize borrowings under the credit facility to, among other things, refinance existing indebtedness and provide funding for working capital requirements, capital projects, acquisitions and other general corporate expenditures.

33


 

As of March 31, 2020, we were in compliance with all debt and credit agreement covenants. The following table sets forth the financial covenants in the credit and term loan agreements and our status with respect to these covenants as of March 31, 2020:

 

 

 

Covenant Requirement

 

 

Actual at

March 31, 2020

 

Interest coverage ratio

 

 

3.00 to 1.00

 

 

6.95

 

Leverage ratio

 

 

40%

 

 

21%

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual Obligations

In March 2020, we entered into $653.5 million of forward starting interest rate swaps. These forward starting interest rate swaps effectively hedge the variability in future benchmark interest payments attributable to changes in interest rates on future debt refinancing. We entered into these forward starting interest rate swaps in order to lock in fixed interest rates on our anticipated future refinancing of $653.5 million of term loan debt maturing December 2020 through January 2029. The fixed interest rates for these forward starting interest rate swaps range from 0.85% to 1.17%. The variable rate component on these forward starting interest rate swaps is 1-month LIBOR. Accordingly, the forward starting rate swaps were designated as cash flow hedges. In addition, these cash flow hedges require settlement on the stated maturity date for each respective term loan currently outstanding. See Note 9: Derivatives in the Notes to Condensed Consolidated Financial Statements for additional information.

Other than these new forward starting interest rate swaps there have been no material changes to our contractual obligations during the three months ended March 31, 2020 outside the ordinary course of business.

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 lists our debt rating at investment grade. There have been no changes in our credit rating during the three months ended March 31, 2020. Additionally, in April 2020, Moody’s reaffirmed our credit rating.

Off-Balance Sheet Arrangements

We currently are not a party to off-balance sheet arrangements that would require disclosure under this section.

Critical Accounting Policies and Estimates

There have been no significant changes during 2020 to our critical accounting policies presented in our 2019 Annual Report on Form 10-K.

34


 

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, interest rate swap agreements and forward-starting interest rate swap agreements. We are exposed to interest rate volatility with regards to 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 interest rate 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 trading purposes.  

At March 31, 2020, we have six interest rate swaps associated with $397.5 million of term loan debt. The cash flow hedges convert variable rates ranging from three-month and one-month LIBOR plus 1.85% to 2.15%, to fixed rates ranging from 3.17% to 4.82%. 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 hedge.  

In March 2020, we entered into $653.5 million of forward starting interest rate swaps. These forward starting interest rate swaps effectively hedge the variability in future benchmark interest payments attributable to changes in interest rates on future debt refinancing. We entered into these forward starting interest rate swaps in order to lock in fixed interest rates on our anticipated future refinancing of $653.5 million of term loan debt maturing December 2020 through January 2029. The fixed interest rates for these forward starting interest rate swaps range from 0.85% to 1.17%. The variable rate component on these forward starting interest rate swaps is one-month LIBOR. Accordingly, the forward starting rate swaps were designated as cash flow hedges. In addition, these cash flow hedges require settlement on the stated maturity date for each respective term loan currently outstanding.

At March 31, 2020, we had $762.2 million in principal debt outstanding. Interest rates on all outstanding debt is fixed, either through a fixed interest rate or corresponding interest rate swap.

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, 2020. 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, 2020.

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, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II – OTHER INFORMATION

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

Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our control. 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, 2019 except for the addition of the risk factor discussed below. In addition to the risks related to the COVID-19 pandemic discussed in the risk factor below, the COVID-19 pandemic may have the effect of increasing other risks disclosed in the Risk Factors section included in our Annual Report on Form 10-K for the year-ended December 31, 2019. The impacts of the COVID-19 pandemic on the economy is adversely affecting and is expected to continue to adversely affect our business and financial results and should be considered carefully, in addition to the information set forth elsewhere in this Form 10-Q and the Annual Report on Form 10-K for the year-ended December 31, 2019, including under Management’s Discussion and Analysis of Financial Condition and Results of Operations

Events beyond our control such as pandemics (including the COVID-19 outbreak) could negatively impact our business.

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and all states and several municipalities have declared public health emergencies. Along with these declarations, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the U.S., including quarantines, and “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. These restrictions have prevented or significantly restricted us, our employees, vendors and customers from conducting some or all business activities for an indefinite period of time. Under the governmental restrictions in place to date, our Timberlands and Wood Products segments have been designated as an essential business in state that have issued stay-at-home orders and as such, we plan to continue to operate each of our businesses at full capacity where market conditions allow while maintaining the health and safety of our employees, contractors, suppliers and customers. These governmental restrictions are subject to change, however, and may, depending on direction from local authorities and the pandemic’s effects on our workforce, require us to limit or suspend operations.

Pandemics, such as COVID-19, that bring about widespread national or global economic hardship, have had and will have negative impacts on pricing and demand for our timber, lumber, and real estate businesses. We have experienced and expect to continue to experience unpredictable reductions in demand for certain of our products. As a result of reduced demand, we have had to suspend certain production, and we expect to continue to adjust production as necessary to match demand. A recession, further market correction, or depression resulting from the spread of COVID-19 could materially affect the business, financial condition, results of operations, liquidity, our stock price and access to capital markets. 

Additionally, although we have not had to do so to date, we may be required to temporarily shut down certain operations for cleaning and disinfecting if an exposure occurs. We have introduced measures to protect the health and well-being of our workforce and customers. Such measures include encouraging office employees to work remotely where their duties allow, restrict travel and group meetings, increased frequency of cleaning and disinfecting, screening visitors and vendors at our locations, and physical distancing where it is practical. We have plans and provisions in place in the event we have COVID-19 exposure in the workplace. However, such measures may not be sufficient to eliminate all exposure to the COVID-19 virus.

We are actively monitoring the recent COVID-19 outbreak and its potential impact on our supply chain and our consolidated results of operations. The impact from the COVID-19 outbreak is expected to negatively impact our consolidated financial statements in the second quarter and in later periods of 2020 as we believe pricing and demand will continue to be under pressure in the near term. However, due to various uncertainties, including the severity of the virus’s impact on the economy, the duration of the outbreak, and actions that may be taken by governmental authorities our predictions about the impact that COVID-19 will have on our business, financial condition, or results of operations may not be accurate.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

On August 30, 2018, our board of directors authorized management to repurchase up to $100.0 million of common stock with no time limit set for the repurchase (the 2018 Repurchase Program). During the three months ended March 31, 2020, we repurchased 400,917 shares of common stock for $12.4 million (including transaction costs) under the 2018 Repurchase Program. Transaction costs are not counted against authorized funds. All common stock purchases were made in open-market transactions. At March 31, 2020, we had remaining authorization of $62.5 million for future stock repurchases under the 2018 Repurchase Program.

 

Common Share Purchases

 

Total Number of Shares Purchased

 

 

Average Price Paid Per Share

 

 

Total Number of Shares Purchased as Part of a Publicly Announced Plan

 

 

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan

 

January 1 - January 31

 

 

 

 

$

 

 

 

 

 

$

74,847,525

 

February 1 - February 29

 

 

9,760

 

 

$

35.72

 

 

 

9,760

 

 

$

74,498,905

 

March 1 - March 31

 

 

391,157

 

 

$

30.66

 

 

 

391,157

 

 

$

62,504,102

 

Total

 

 

400,917

 

 

 

 

 

 

 

400,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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ITEM 6. EXHIBITS

 

EXHIBIT

NUMBER

DESCRIPTION

(3)(a)*

 

Third Restated Certificate of Incorporation of the Registrant, effective February 20, 2018, filed as Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on February 21, 2018. 

(3)(b)*

Bylaws of the Registrant, as amended through February 18, 2009, filed as Exhibit (3)(b) to the Current Report on Form 8-K filed by the Registrant on February 20, 2009.

(4)

See Exhibits (3)(a) and (3)(b). The registrant undertakes to furnish to the Commission, upon request, any instrument defining the rights of holders of long-term debt.

10(a)

Third Amendment to Second Amended and Restated Term Loan Agreement and Incremental Term Loan Agreement dated April 14, 2020, by and among the Registrant and its wholly-owned subsidiaries as borrowers and Northwest Farm Credit Services, PCA, as Administrative Agent, the Guarantors party thereto, and the Lenders party thereto.

(31)

Rule 13a-14(a)/15d-14(a) Certifications.

(32)

Furnished statements of the Chief Executive Officer and Chief Financial Officer under 18 U.S.C. Section 1350.

(101)

The following financial information from PotlatchDeltic Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, filed on May 1, 2020 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019, (ii) the Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and 2019, (iii) the Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019, (v) the Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019 and (vi) the Notes to Condensed Consolidated Financial Statements.

(104)

Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).

* Incorporated by reference.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

PotlatchDeltic Corporation

 

 

(Registrant)

 

 

 

 

 

 

By

 /s/ WAYNE WASECHEK

 

 

 

Wayne Wasechek

 

 

 

Corporate Controller

(Duly Authorized; Principal Accounting Officer)

 

 

 

 

 

 

 

 

Date:

May 1, 2020

 

 

 

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