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POTLATCHDELTIC CORP - Quarter Report: 2021 September (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 September 30, 2021

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 1-32729

PotlatchDeltic Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

82-0156045

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

601 West First Avenue, Suite 1600

 

Spokane, Washington

99201

(Address of principal executive offices)

(Zip Code)

 

(509) 835-1500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock ($1 par value)

PCH

Nasdaq Global Select Market

 

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

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

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

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

 

 

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

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

Yes No

The number of shares of common stock of the registrant outstanding as of October 27, 2021 was 67,100,706.

 

 


 

POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES

Table of Contents

 

 

 

 

 

 

 

 

Page
Number

PART I. - FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements (unaudited)

 

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Comprehensive Income

4

 

Condensed Consolidated Balance Sheets

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Condensed Consolidated Statements of Stockholders’ Equity

8

 

Index for the Notes to Condensed Consolidated Financial Statements

9

 

Notes to Condensed Consolidated Financial Statements

10

ITEM 2.

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

21

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

36

ITEM 4.

Controls and Procedures

36

 

 

 

PART II. - OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

37

ITEM 1A.

Risk Factors

37

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

ITEM 6.

Exhibits

37

 

 

 

SIGNATURE

38

 

 

 

 

 

 

 


Table of Contents

 

Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands, except per share amounts)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues

 

$

287,330

 

 

$

313,046

 

 

$

1,089,029

 

 

$

703,481

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

190,602

 

 

 

182,039

 

 

 

537,683

 

 

 

503,921

 

Selling, general and administrative expenses

 

 

18,512

 

 

 

21,046

 

 

 

54,782

 

 

 

52,064

 

Net gain on insurance recoveries

 

 

(4,394

)

 

 

 

 

 

(4,394

)

 

 

 

 

 

 

204,720

 

 

 

203,085

 

 

 

588,071

 

 

 

555,985

 

Operating income

 

 

82,610

 

 

 

109,961

 

 

 

500,958

 

 

 

147,496

 

Interest expense, net

 

 

(8,641

)

 

 

(8,557

)

 

 

(20,414

)

 

 

(20,594

)

Pension settlement charge

 

 

 

 

 

 

 

 

 

 

 

(42,988

)

Non-operating pension and other postretirement employee
benefit costs

 

 

(3,271

)

 

 

(3,557

)

 

 

(9,956

)

 

 

(10,670

)

Income before income taxes

 

 

70,698

 

 

 

97,847

 

 

 

470,588

 

 

 

73,244

 

Income taxes

 

 

(5,031

)

 

 

(16,840

)

 

 

(85,910

)

 

 

(6,431

)

Net income

 

$

65,667

 

 

$

81,007

 

 

$

384,678

 

 

$

66,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.98

 

 

$

1.21

 

 

$

5.72

 

 

$

0.99

 

Diluted

 

$

0.97

 

 

$

1.20

 

 

$

5.69

 

 

$

0.99

 

Dividends per share

 

$

0.41

 

 

$

0.40

 

 

$

1.23

 

 

$

1.20

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

67,315

 

 

 

67,149

 

 

 

67,275

 

 

 

67,263

 

Diluted

 

 

67,648

 

 

 

67,528

 

 

 

67,588

 

 

 

67,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

3


Table of Contents

 

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income

 

$

65,667

 

 

$

81,007

 

 

$

384,678

 

 

$

66,813

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement employee benefits:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

(19,402

)

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

 

 

 

 

 

 

 

 

 

 

 

31,811

 

Amortization of prior service credit included in net income, net of tax benefit of $73, $75, $217 and $227

 

 

(204

)

 

 

(215

)

 

 

(614

)

 

 

(645

)

Amortization of actuarial loss included in net income, net of tax expense of $1,073, $1,111, $3,254, and $3,334

 

 

3,050

 

 

 

3,163

 

 

 

9,258

 

 

 

9,489

 

Cash flow hedges, net of tax expense (benefit) of $397, $763, $2,249 and $(1,043)

 

 

6,636

 

 

 

11,332

 

 

 

39,580

 

 

 

(29,040

)

Other comprehensive income (loss), net of tax

 

 

9,482

 

 

 

14,280

 

 

 

48,224

 

 

 

(7,787

)

Comprehensive income

 

$

75,149

 

 

$

95,287

 

 

$

432,902

 

 

$

59,026

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4


Table of Contents

 

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

(in thousands, except per share amounts)

 

September 30, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

592,767

 

 

$

252,340

 

Customer receivables, net

 

 

27,789

 

 

 

26,606

 

Inventories, net

 

 

69,862

 

 

 

62,036

 

Other current assets

 

 

24,460

 

 

 

16,136

 

Total current assets

 

 

714,878

 

 

 

357,118

 

Property, plant and equipment, net

 

 

286,034

 

 

 

288,544

 

Investment in real estate held for development and sale

 

 

65,048

 

 

 

72,355

 

Timber and timberlands, net

 

 

1,572,475

 

 

 

1,600,061

 

Intangible assets, net

 

 

15,685

 

 

 

16,270

 

Other long-term assets

 

 

63,747

 

 

 

46,717

 

Total assets

 

$

2,717,867

 

 

$

2,381,065

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

87,819

 

 

$

93,279

 

Current portion of long-term debt

 

 

42,996

 

 

 

39,981

 

Current portion of pension and other postretirement employee benefits

 

 

6,574

 

 

 

6,574

 

Total current liabilities

 

 

137,389

 

 

 

139,834

 

Long-term debt

 

 

715,122

 

 

 

717,366

 

Pension and other postretirement employee benefits

 

 

126,154

 

 

 

128,807

 

Deferred tax liabilities, net

 

 

26,247

 

 

 

17,740

 

Other long-term obligations

 

 

52,849

 

 

 

72,365

 

Total liabilities

 

 

1,057,761

 

 

 

1,076,112

 

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 67,100 and 66,876 shares

 

 

67,100

 

 

 

66,876

 

Additional paid-in capital

 

 

1,679,332

 

 

 

1,674,576

 

Accumulated deficit

 

 

(13,561

)

 

 

(315,510

)

Accumulated other comprehensive loss

 

 

(72,765

)

 

 

(120,989

)

Total stockholders’ equity

 

 

1,660,106

 

 

 

1,304,953

 

Total liabilities and stockholders' equity

 

$

2,717,867

 

 

$

2,381,065

 

 

 

 

 

 

 

 

 

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

 

5


Table of Contents

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

384,678

 

 

$

66,813

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

57,365

 

 

 

57,809

 

Basis of real estate sold

 

 

22,733

 

 

 

14,440

 

Change in deferred taxes

 

 

3,221

 

 

 

(14,387

)

Pension and other postretirement employee benefits

 

 

16,595

 

 

 

17,750

 

Pension settlement charge

 

 

 

 

 

42,988

 

Equity-based compensation expense

 

 

6,345

 

 

 

5,928

 

Net gain on insurance recoveries

 

 

(4,394

)

 

 

 

Other, net

 

 

633

 

 

 

(544

)

Change in working capital and operating-related activities, net

 

 

(20,082

)

 

 

12,706

 

Real estate development expenditures

 

 

(6,434

)

 

 

(4,200

)

Funding of pension and other postretirement employee benefits

 

 

(7,418

)

 

 

(8,458

)

Net cash provided by operating activities

 

 

453,242

 

 

 

190,845

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Property, plant and equipment additions

 

 

(26,291

)

 

 

(14,666

)

Timberlands reforestation and roads

 

 

(12,236

)

 

 

(12,345

)

Acquisition of timber and timberlands

 

 

(2,450

)

 

 

(4,738

)

Proceeds from insurance recoveries - property, plant & equipment

 

 

13,250

 

 

 

 

Other, net

 

 

993

 

 

 

3,484

 

Net cash used in investing activities

 

 

(26,734

)

 

 

(28,265

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Distributions to common stockholders

 

 

(82,462

)

 

 

(80,434

)

Repurchase of common stock

 

 

 

 

 

(15,364

)

Other, net

 

 

(3,619

)

 

 

(1,032

)

Net cash used in financing activities

 

 

(86,081

)

 

 

(96,830

)

Change in cash, cash equivalents and restricted cash

 

 

340,427

 

 

 

65,750

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

252,340

 

 

 

84,254

 

Cash, cash equivalents and restricted cash at end of period

 

$

592,767

 

 

$

150,004

 

 

 

 

 

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

Accrued property, plant and equipment additions

 

$

2,695

 

 

$

3,785

 

Accrued timberlands reforestation and roads

 

$

1,590

 

 

$

1,536

 

 

6


Table of Contents

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the amounts shown in the Condensed Consolidated Statements of Cash Flows.

 

(in thousands)

 

September 30, 2021

 

 

September 30, 2020

 

Cash and cash equivalents

 

$

592,767

 

 

$

148,919

 

Restricted cash included in other long-term assets1

 

 

 

 

 

1,085

 

Total cash, cash equivalents, and restricted cash

 

$

592,767

 

 

$

150,004

 

 

 

 

 

 

 

 

 

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.

7


Table of Contents

 

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, 2020

 

 

66,876

 

 

$

66,876

 

 

$

1,674,576

 

 

$

(315,510

)

 

$

(120,989

)

 

$

1,304,953

 

Net income

 

 

 

 

 

 

 

 

 

 

 

131,106

 

 

 

 

 

 

131,106

 

Shares issued for stock compensation

 

 

166

 

 

 

166

 

 

 

(166

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

1,930

 

 

 

 

 

 

 

 

 

1,930

 

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,953

 

 

 

2,953

 

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64,107

 

 

 

64,107

 

Dividends on common stock, $0.41 per share

 

 

 

 

 

 

 

 

 

 

 

(27,484

)

 

 

 

 

 

(27,484

)

Other transactions, net

 

 

 

 

 

 

 

 

81

 

 

 

(97

)

 

 

 

 

 

(16

)

Balance, March 31, 2021

 

 

67,042

 

 

$

67,042

 

 

$

1,676,421

 

 

$

(211,985

)

 

$

(53,929

)

 

$

1,477,549

 

Net income

 

 

 

 

 

 

 

 

 

 

 

187,905

 

 

 

 

 

 

187,905

 

Shares issued for stock compensation

 

 

3

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

2,140

 

 

 

 

 

 

 

 

 

2,140

 

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,845

 

 

 

2,845

 

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,163

)

 

 

(31,163

)

Dividends on common stock, $0.41 per share

 

 

 

 

 

 

 

 

 

 

 

(27,489

)

 

 

 

 

 

(27,489

)

Other transactions, net

 

 

 

 

 

 

 

 

103

 

 

 

(101

)

 

 

 

 

 

2

 

Balance, June 30, 2021

 

 

67,045

 

 

$

67,045

 

 

$

1,678,661

 

 

$

(51,670

)

 

$

(82,247

)

 

$

1,611,789

 

Net income

 

 

 

 

 

 

 

 

 

 

 

65,667

 

 

 

 

 

 

65,667

 

Shares issued for stock compensation

 

 

55

 

 

 

55

 

 

 

(55

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

2,275

 

 

 

 

 

 

 

 

 

2,275

 

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,846

 

 

 

2,846

 

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,636

 

 

 

6,636

 

Dividends on common stock, $0.41 per share

 

 

 

 

 

 

 

 

 

 

 

(27,489

)

 

 

 

 

 

(27,489

)

Other transactions, net

 

 

 

 

 

 

 

 

(1,549

)

 

 

(69

)

 

 

 

 

 

(1,618

)

Balance, September 30, 2021

 

 

67,100

 

 

$

67,100

 

 

$

1,679,332

 

 

$

(13,561

)

 

$

(72,765

)

 

$

1,660,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,578

 

 

 

15,578

 

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,525

)

 

 

(38,525

)

Dividends on common stock, $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

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,638

 

 

 

 

 

 

2,638

 

Shares issued for stock compensation

 

 

9

 

 

 

9

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

1,980

 

 

 

 

 

 

 

 

 

1,980

 

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,727

 

 

 

2,727

 

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,847

)

 

 

(1,847

)

Dividends on common stock, $0.40 per share

 

 

 

 

 

 

 

 

 

 

 

(26,744

)

 

 

 

 

 

(26,744

)

Repurchase of common stock

 

 

(89

)

 

 

(89

)

 

 

 

 

 

(2,920

)

 

 

 

 

 

(3,009

)

Other transactions, net

 

 

 

 

 

 

 

 

91

 

 

 

26

 

 

 

 

 

 

117

 

Balance, June 30, 2020

 

 

66,871

 

 

$

66,871

 

 

$

1,670,184

 

 

$

(442,153

)

 

$

(169,426

)

 

$

1,125,476

 

Net income

 

 

 

 

 

 

 

 

 

 

 

81,007

 

 

 

 

 

 

81,007

 

Shares issued for stock compensation

 

 

1

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

2,063

 

 

 

 

 

 

 

 

 

2,063

 

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,948

 

 

 

2,948

 

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,332

 

 

 

11,332

 

Dividends on common stock, $0.40 per share

 

 

 

 

 

 

 

 

 

 

 

(26,749

)

 

 

 

 

 

(26,749

)

Other transactions, net

 

 

 

 

 

 

 

 

105

 

 

 

(105

)

 

 

 

 

 

 

Balance, September 30, 2020

 

 

66,872

 

 

$

66,872

 

 

$

1,672,351

 

 

$

(388,000

)

 

$

(155,146

)

 

$

1,196,077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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Table of Contents

 

INDEX FOR THE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

Note 1: Basis of Presentation

10

Note 2: Segment Information

11

Note 3: Earnings Per Share

13

Note 4: Certain Balance Sheet Components

13

Note 5: Debt

15

Note 6: Derivative Instruments

15

Note 7: Fair Value Measurements

16

Note 8: Equity-Based Compensation

17

Note 9: Income Taxes

18

Note 10: Leases

18

Note 11: Pension and Other Postretirement Employee Benefits

19

Note 12: Components of Accumulated Other Comprehensive Loss

20

 

9


Table of Contents

 

Notes to Condensed Consolidated Financial Statements

NOTE 1. BASIS OF PRESENTATION

General

PotlatchDeltic Corporation and its subsidiaries (collectively referred to in this report as the company, us, we or our) is a leading timberland Real Estate Investment Trust (REIT) with ownership of approximately 1.8 million acres of timberlands. Our timberland activities include the sale of timber, the purchase of timberlands and the operation of a rural timberland sales program. We are also engaged in the manufacturing and sale of wood products and operate a residential and commercial real estate development business. Our timberlands, real estate development projects and all of our wood products facilities are located within the continental United States.

Condensed Consolidated Financial Statements

The accompanying unaudited Condensed Consolidated Financial Statements provide an overall view of our results and financial condition and reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Except as otherwise disclosed in these Notes to Condensed Consolidated Financial Statements, such adjustments are of a normal, recurring nature. Intercompany transactions and accounts have been eliminated in consolidation. The Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. Certain disclosures normally provided in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on February 18, 2021. Results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the full year.

Use of Estimates

The preparation of our Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and requires judgments affecting the amounts reported in the financial statements and the accompanying notes. Actual results may differ materially from our estimates.

Commitments and 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 material adverse effect on our consolidated financial position or net cash flow.

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 U.S. 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, which companies can apply immediately, is optional and may be elected over time as reference rate reform activities occur. Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity was expected to be completed. A number of our debt instruments and associated interest rate derivative agreements have an interest rate tied to LIBOR. We are monitoring the developments regarding the alternative rates, will work with our lenders and counterparties to identify a suitable replacement rate and may amend certain debt and interest rate derivative agreements to accommodate those rates if the contract does not already specify a replacement rate. While the notional value of our agreements indexed to LIBOR is material, we are not yet able to reasonably estimate any expected impact to our Condensed Consolidated Financial Statements and related disclosures. 

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NOTE 2. SEGMENT INFORMATION

Our operations are organized into three reportable segments: Timberlands, Wood Products and Real Estate. Management activities in the Timberlands segment include planting and harvesting trees and building and maintaining roads. The Timberlands segment also generates revenues from non-timber resources such as hunting leases, recreation permits and leases, mineral rights contracts, oil and gas royalties and carbon sequestration. The Wood Products segment manufactures and markets lumber and plywood. Activities in the Real Estate segment include our rural timberland-holdings sales program, master planned community development and a country club.

Our Timberlands segment supplies our Wood Products segment with a portion of its wood fiber needs. These intersegment revenues are based on prevailing market prices and typically represent a sizeable portion of the Timberlands segment’s total revenues. Our other segments generally do not generate intersegment revenues. These intercompany transactions are eliminated in consolidation.

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

The following table presents our revenues by major product:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

2021

 

 

2020

 

 

2021

 

 

2020

 

Timberlands

 

 

 

 

 

 

 

 

 

 

 

Northern region

 

 

 

 

 

 

 

 

 

 

 

Sawlogs

$

88,244

 

 

$

72,815

 

 

$

251,198

 

 

$

144,860

 

Pulpwood

 

119

 

 

 

1,243

 

 

 

815

 

 

 

3,914

 

Stumpage

 

 

 

 

 

 

 

 

 

 

316

 

Other

 

205

 

 

 

855

 

 

 

740

 

 

 

1,450

 

Total Northern revenues

 

88,568

 

 

 

74,913

 

 

 

252,753

 

 

 

150,540

 

Southern region

 

 

 

 

 

 

 

 

 

 

 

Sawlogs

 

22,191

 

 

 

25,462

 

 

 

65,620

 

 

 

70,606

 

Pulpwood

 

13,843

 

 

 

13,413

 

 

 

33,167

 

 

 

35,486

 

Stumpage

 

2,275

 

 

 

770

 

 

 

3,310

 

 

 

2,416

 

Other

 

2,666

 

 

 

2,427

 

 

 

7,825

 

 

 

7,707

 

Total Southern revenues

 

40,975

 

 

 

42,072

 

 

 

109,922

 

 

 

116,215

 

Total Timberlands revenues

 

129,543

 

 

 

116,985

 

 

 

362,675

 

 

 

266,755

 

Wood Products

 

 

 

 

 

 

 

 

 

 

 

Lumber

 

141,255

 

 

 

185,558

 

 

 

679,417

 

 

 

400,290

 

Residuals and Panels

 

46,505

 

 

 

32,733

 

 

 

135,312

 

 

 

89,217

 

Total Wood Products revenues

 

187,760

 

 

 

218,291

 

 

 

814,729

 

 

 

489,507

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

Rural real estate

 

6,939

 

 

 

13,284

 

 

 

28,469

 

 

 

30,455

 

Development real estate

 

4,260

 

 

 

2,157

 

 

 

14,087

 

 

 

6,121

 

Other

 

2,298

 

 

 

2,710

 

 

 

7,252

 

 

 

5,649

 

Total Real Estate revenues

 

13,497

 

 

 

18,151

 

 

 

49,808

 

 

 

42,225

 

Total segment revenues

 

330,800

 

 

 

353,427

 

 

 

1,227,212

 

 

 

798,487

 

Intersegment Timberlands revenues1

 

(43,470

)

 

 

(40,381

)

 

 

(138,183

)

 

 

(95,006

)

Total consolidated revenues

$

287,330

 

 

$

313,046

 

 

$

1,089,029

 

 

$

703,481

 

 

1

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

 

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

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Adjusted EBITDDA:

 

 

 

 

 

 

 

 

 

 

 

 

Timberlands

 

$

76,023

 

 

$

59,649

 

 

$

221,140

 

 

$

120,290

 

Wood Products

 

 

26,566

 

 

 

81,644

 

 

 

356,654

 

 

 

105,780

 

Real Estate

 

 

9,069

 

 

 

13,466

 

 

 

37,450

 

 

 

30,062

 

Corporate

 

 

(11,496

)

 

 

(15,361

)

 

 

(35,028

)

 

 

(34,567

)

Eliminations and adjustments

 

 

7,021

 

 

 

(4,012

)

 

 

(3,063

)

 

 

(3,235

)

Total Adjusted EBITDDA

 

 

107,183

 

 

 

135,386

 

 

 

577,153

 

 

 

218,330

 

Interest expense, net1

 

 

(8,641

)

 

 

(8,557

)

 

 

(20,414

)

 

 

(20,594

)

Depreciation, depletion and amortization

 

 

(21,131

)

 

 

(20,187

)

 

 

(56,156

)

 

 

(56,590

)

Basis of real estate sold

 

 

(6,697

)

 

 

(5,249

)

 

 

(22,733

)

 

 

(14,440

)

Net gain on insurance recoveries

 

 

4,394

 

 

 

 

 

 

4,394

 

 

 

 

Pension settlement charge

 

 

 

 

 

 

 

 

 

 

 

(42,988

)

Non-operating pension and other postretirement employee benefits

 

 

(3,271

)

 

 

(3,557

)

 

 

(9,956

)

 

 

(10,670

)

(Loss) gain on disposal of fixed assets

 

 

(1,139

)

 

 

11

 

 

 

(1,700

)

 

 

196

 

Income before income taxes

 

$

70,698

 

 

$

97,847

 

 

$

470,588

 

 

$

73,244

 

Depreciation, depletion and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

Timberlands

 

$

11,893

 

 

$

13,821

 

 

$

33,792

 

 

$

37,978

 

Wood Products

 

 

8,879

 

 

 

5,983

 

 

 

21,261

 

 

 

17,411

 

Real Estate

 

 

162

 

 

 

149

 

 

 

477

 

 

 

465

 

Corporate

 

 

197

 

 

 

234

 

 

 

626

 

 

 

736

 

 

 

 

21,131

 

 

 

20,187

 

 

 

56,156

 

 

 

56,590

 

Bond discounts and deferred loan fees1

 

 

403

 

 

 

407

 

 

 

1,209

 

 

 

1,219

 

Total depreciation, depletion and amortization

 

$

21,534

 

 

$

20,594

 

 

$

57,365

 

 

$

57,809

 

Basis of real estate sold:

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

$

6,703

 

 

$

5,257

 

 

$

22,751

 

 

$

14,973

 

Eliminations and adjustments

 

 

(6

)

 

 

(8

)

 

 

(18

)

 

 

(533

)

Total basis of real estate sold

 

$

6,697

 

 

$

5,249

 

 

$

22,733

 

 

$

14,440

 

 

1

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

 

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NOTE 3. EARNINGS PER SHARE

The following table reconciles the number of shares used in calculating basic and diluted earnings per share:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Basic weighted-average shares outstanding

 

 

67,315

 

 

 

67,149

 

 

 

67,275

 

 

 

67,263

 

Incremental shares due to:

 

 

 

 

 

 

 

 

 

 

 

 

Performance shares

 

 

272

 

 

 

320

 

 

 

257

 

 

 

238

 

Restricted stock units

 

 

61

 

 

 

59

 

 

 

56

 

 

 

34

 

Diluted weighted-average shares outstanding

 

 

67,648

 

 

 

67,528

 

 

 

67,588

 

 

 

67,535

 

 

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 and nine months ended September 30, 2021, there were approximately 101,000 and 88,000 stock-based awards, respectively, that were excluded from the calculation of diluted earnings per share as they were anti-dilutive. For the three and nine months ended September 30, 2020, there were approximately 0 and 47,000 stock-based awards, respectively, 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 Repurchase Program). Shares under the Repurchase Program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan). The timing, manner, price and amount of repurchases will be determined according to, and subject to, the terms of the Trading Plan, and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason.

We did not repurchase any shares during the nine months ended September 30, 2021. No shares were repurchased during the three months ended September 30, 2020. During the nine months ended September 30, 2020, we repurchased 489,850 shares of common stock at a total consideration of $15.4 million under the Repurchase Program, all of which were made in open-market transactions. At September 30, 2021, we had remaining authorization of $59.5 million for future stock repurchases under the 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. We retire shares upon repurchase. Any excess repurchase price over par is recorded in accumulated deficit.

NOTE 4. CERTAIN BALANCE SHEET COMPONENTS

Inventories

 

(in thousands)

 

September 30, 2021

 

 

December 31, 2020

 

Logs

 

$

34,980

 

 

$

31,210

 

Lumber, panels and veneer

 

 

35,716

 

 

 

34,136

 

Materials and supplies

 

 

17,415

 

 

 

14,939

 

Total inventories

 

 

88,111

 

 

 

80,285

 

Less: LIFO reserve

 

 

(18,249

)

 

 

(18,249

)

Total inventories, net

 

$

69,862

 

 

$

62,036

 

 

 

 

 

 

 

 

 

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Table of Contents

 

Property, plant and equipment

 

(in thousands)

 

September 30, 2021

 

 

December 31, 2020

 

Property, plant and equipment

 

$

521,271

 

 

$

517,711

 

Less: accumulated depreciation

 

 

(235,237

)

 

 

(229,167

)

Total property, plant and equipment, net

 

$

286,034

 

 

$

288,544

 

 

 

 

 

 

 

 

Ola Arkansas sawmill fire

 

(in thousands)

 

Three Months Ended September 30, 2021

 

 

Nine Months Ended September 30, 2021

 

Fixed asset write-offs

 

$

(7,436

)

 

$

(9,544

)

Disposal costs

 

 

(1,061

)

 

 

(1,061

)

Total fixed asset loss on disposal

 

 

(8,498

)

 

 

(10,606

)

 

 

 

 

 

 

 

Insurance recoveries

 

 

12,892

 

 

 

15,000

 

Net gain on insurance recoveries

 

$

4,394

 

 

$

4,394

 

On June 13, 2021, a fire occurred at our Ola, Arkansas sawmill. There were no injuries or environmental issues from the fire. The damage was principally limited to the large log primary breakdown area of the mill. The planer mill, kiln, and shipping department were not affected. We have adequate property damage and business interruption insurance, subject to an applicable deductible. Based on our initial damage assessment, we wrote-off $2.1 million of net book value for property initially identified as destroyed and recognized a corresponding $2.1 million of insurance recoveries at June 30, 2021.

 

During the quarter ended September 30, 2021, we were able to fully access the sawmill, further assess the damage and solidify a reconstruction plan for the sawmill. As a result, during the three months ended September 30, 2021, we wrote-off an additional $1.1 million of damaged equipment and $6.3 million of obsolete equipment due to the reconstruction plan and incurred approximately $1.1 million of disposal costs. Additionally, we recorded $12.9 million of insurance recoveries during the quarter ended September 30, 2021, resulting in the recognition of a $4.4 million net gain on insurance recoveries for the three and nine months ended September 30, 2021. No business interruption recoveries were recorded during the three or nine months ended September 30, 2021 as discussions with the insurance carriers are ongoing. Business interruption recoveries will be recorded when deemed probable and reasonably estimable.

Timber and timberlands

 

(in thousands)

 

September 30, 2021

 

 

December 31, 2020

 

Timber and timberlands

 

$

1,488,727

 

 

$

1,516,788

 

Logging roads

 

 

83,748

 

 

 

83,273

 

Total timber and timberlands, net

 

$

1,572,475

 

 

$

1,600,061

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

(in thousands)

 

September 30, 2021

 

 

December 31, 2020

 

Accrued payroll and benefits

 

$

26,266

 

 

$

29,675

 

Accounts payable

 

 

15,795

 

 

 

9,724

 

Deferred revenue1

 

 

9,806

 

 

 

8,789

 

Other accrued taxes

 

 

8,957

 

 

 

6,025

 

Income taxes payable

 

 

6,778

 

 

 

14,755

 

Accrued interest

 

 

5,040

 

 

 

6,485

 

Other current liabilities

 

 

15,177

 

 

 

17,826

 

Total accounts payable and accrued liabilities

 

$

87,819

 

 

$

93,279

 

 

 

 

 

 

 

 

 

1

Deferred revenue predominately relates to hunting and other access rights on our timberlands, payments received for lumber shipments where control of goods have not transferred, member related activities at an owned country club and certain post-close obligations for real estate sales. These contract liabilities are recognized over the term of the contracts, which is typically twelve months or less, except for country club initiation fees which are recognized over the average life of club membership.

 

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NOTE 5. DEBT

At September 30, 2021, 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. Included in the Amended Term Loan Agreement is a $40.0 million term loan maturing in December 2021. 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 2.10%. We have entered into interest rate swaps for these variable rate term loans to fix the interest rate. See Note: 6 Derivative Instruments for additional information.

At September 30, 2021, 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 September 30, 2021.

NOTE 6. DERIVATIVE INSTRUMENTS

From time to time, we enter into derivative financial instruments to manage certain cash flow and fair value risks.

Derivatives designated and qualifying as a hedge of the exposure to variability in the cash flows of a specific asset or liability that is attributable to a particular risk, such as interest rate risk, are considered cash flow hedges. As of September 30, 2021, we have interest rate swaps associated with $403.5 million of term loan debt. These swaps are cash flow hedges that convert variable rates ranging from three-month and one-month LIBOR plus 1.85% to 2.10%, to fixed rates ranging from 3.04% to 4.77%. Our cash flow hedges are expected to be highly effective in achieving offsetting cash flows attributable to the hedged interest rate risk through the term of the hedges. At September 30, 2021, the amount of net losses expected to be reclassified into earnings in the next 12 months is approximately $8.0 million. However, this expected amount to be reclassified into earnings is subject to volatility as the ultimate amount recognized in earnings is based on the LIBOR rate at the time of net swap cash payments.

We also hold $607.5 million of forward starting interest rate swaps designated as cash flow hedges. These forward starting interest rate swaps effectively hedge the variability in future benchmark interest payments attributable to changes in interest rates on $607.5 million of future debt refinances through January 2029 by converting the benchmark interest rates to fixed interest rates. In addition, the cash flow hedges for future debt refinances require settlement on the stated maturity date. At September 30, 2021, we have recorded derivative assets of $40.8 million associated with these forward starting interest rate swaps.

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

 

 

 

 

 

Asset Derivatives

 

 

 

 

Liability Derivatives

 

(in thousands)

 

Location

 

September 30, 2021

 

 

December 31, 2020

 

 

Location

 

September 30, 2021

 

 

December 31, 2020

 

Derivatives designated in cash flow hedging relationships:

 

 

 

 

 

 

 

 

 

   Interest rate contracts

 

Other assets, current1

 

$

1,890

 

 

$

63

 

 

Accounts payable and accrued liabilities1

 

$

189

 

 

$

1,010

 

Interest rate contracts

 

Other assets, non-current

 

 

40,480

 

 

 

18,466

 

 

Other long-term obligations

 

 

27,933

 

 

 

45,100

 

 

 

 

 

$

42,370

 

 

$

18,529

 

 

 

 

$

28,122

 

 

$

46,110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Derivative instruments that mature within one year, as a whole, are classified as current.

 

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The following table details the effect of derivatives on our Condensed Consolidated Statements of Operations:

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

Location

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Derivatives designated in cash flow hedging relationships:

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) recognized in other comprehensive income, net of tax

 

 

 

$

4,310

 

 

$

8,920

 

 

$

32,741

 

 

$

(34,112

)

Amounts reclassified from accumulated other comprehensive loss, net of tax1

 

Interest expense

 

$

(2,326

)

 

$

(2,412

)

 

$

(6,839

)

 

$

(5,072

)

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

$

8,641

 

 

$

8,557

 

 

$

20,414

 

 

$

20,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Realized losses on interest rate contracts consist of net cash received or paid and interest accruals on the interest rate swaps during the periods. Net cash received or paid is included in the supplemental cash flow information within interest, net of amounts capitalized in the Condensed Consolidated Statements of Cash Flows.

 

NOTE 7. FAIR VALUE MEASUREMENTS

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

 

 

 

September 30, 2021

 

 

December 31, 2020

 

(in thousands)

 

Carrying
Amount

 

 

Fair
Value

 

 

Carrying
Amount

 

 

Fair
Value

 

Derivative assets related to interest rate swaps (Level 2)

 

$

42,370

 

 

$

42,370

 

 

$

18,529

 

 

$

18,529

 

Derivative liabilities related to interest rate swaps (Level 2)

 

$

(28,122

)

 

$

(28,122

)

 

$

(46,110

)

 

$

(46,110

)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Term loans

 

$

(690,957

)

 

$

(709,351

)

 

$

(690,469

)

 

$

(716,631

)

Revenue bonds

 

 

(65,735

)

 

 

(69,508

)

 

 

(65,735

)

 

 

(67,885

)

Medium-term notes

 

 

(3,000

)

 

 

(3,050

)

 

 

(3,000

)

 

 

(3,545

)

Total long-term debt1

 

$

(759,692

)

 

$

(781,909

)

 

$

(759,204

)

 

$

(788,061

)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

3,857

 

 

$

3,857

 

 

$

3,328

 

 

$

3,328

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

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NOTE 8. EQUITY-BASED COMPENSATION

At September 30, 2021, approximately 1.0 million shares are available for future use under our long-term incentive plans.

Share-based compensation activity during the nine months ended September 30, 2021 included the following:

 

(Shares in thousands)

 

Granted

 

 

Vested

 

 

Forfeited

 

Performance Share Awards (PSAs)

 

 

88,128

 

 

 

 

 

 

1,450

 

Restricted Stock Units (RSUs)

 

 

65,607

 

 

 

24,599

 

 

 

1,484

 

 

 

 

 

 

 

 

 

 

 

Approximately 0.1 million shares of common stock were issued to employees during the nine months ended September 30, 2021 as a result of PSA and RSU vesting during 2020 and 2021.

Issuance of RSUs awarded to certain directors, officers and employees may be deferred at the individual's election. All deferred RSUs are credited with dividend equivalents. During the nine months ended September 30, 2021, approximately 0.1 million shares of common stock were issued for employees and directors where issuance had been deferred.

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Equity-based compensation expense:

 

 

 

 

 

 

 

 

 

 

 

 

Performance share awards

 

$

1,416

 

 

$

1,315

 

 

$

4,012

 

 

$

3,716

 

Restricted stock units

 

 

805

 

 

 

729

 

 

 

2,197

 

 

 

2,155

 

Deferred compensation stock equivalent units expense

 

 

54

 

 

 

19

 

 

 

136

 

 

 

57

 

Total equity-based compensation expense

 

$

2,275

 

 

$

2,063

 

 

$

6,345

 

 

$

5,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total tax benefit recognized for equity-based expense

 

$

125

 

 

$

97

 

 

$

321

 

 

$

273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Share Awards

The weighted average grant date fair value of PSAs granted in 2021 was $69.72 per share. PSAs granted under the stock incentive plans have a three-year performance period and shares are issued at the end of the period if the performance measures are met. The number of shares actually issued, as a percentage of the amount subject to the PSA, could range from 0% to 200%. PSAs granted under the stock incentive plans do not have voting rights unless and until shares are issued upon settlement. If shares are issued at the end of the performance measurement period, the recipients will receive dividend equivalents in the form of additional shares 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 following table presents the key inputs used in the Monte Carlo simulation to calculate the fair value of the performance share awards granted in 2021:

 

Stock price as of valuation date

 

$

53.53

 

Risk-free rate

 

 

0.18

%

Expected volatility

 

 

45.56

%

Expected dividend yield1

 

 

 

Expected term (years)

 

 

3.00

 

 

 

 

 

 

1

Full dividend reinvestment assumed.

 

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Restricted Stock Units

The weighted average fair value of all RSUs granted during the nine months ended September 30, 2021 was $54.53 per share. The fair value of RSUs granted equaled our common share price on the date of grant factoring in any required post-vesting holding periods. The RSU awards granted accrue dividend equivalents based on dividends paid during the RSU vesting period. The dividend equivalents will be converted into additional RSUs that vest in the same manner as the underlying RSU to which they relate. The terms of the awards state that the RSUs will vest in a given time period of one to four years. The vesting provisions for RSUs granted in 2021 were consistent with prior year grants.

NOTE 9. INCOME TAXES

As a REIT, we generally are not subject to federal and state corporate income taxes on income from investments in real estate, including our timberlands, that we distribute to our shareholders. We conduct certain activities through our PotlatchDeltic taxable REIT subsidiaries (TRS) which are subject to corporate level federal and state income taxes. These activities are principally comprised of our wood products manufacturing operations and certain real estate investments. Therefore, income tax expense or benefit is primarily due to pre-tax book income or loss of the TRS, as well as permanent book versus tax differences.

NOTE 10. LEASES

We lease certain equipment, office space and land. Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

The following table presents supplemental balance sheet information related to lease assets and liabilities:

 

(in thousands)

Classification

 

September 30, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

Operating lease assets

Other long-term assets

 

$

7,790

 

 

$

11,081

 

Finance lease assets1

Property, plant and equipment, net

 

 

9,166

 

 

 

7,206

 

Total lease assets

 

 

$

16,956

 

 

$

18,287

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

Operating lease liabilities

Accounts payable and accrued liabilities

 

$

2,988

 

 

$

4,304

 

Finance lease liabilities

Accounts payable and accrued liabilities

 

 

3,004

 

 

 

2,202

 

Noncurrent:

 

 

 

 

 

 

 

Operating lease liabilities

Other long-term obligations

 

 

4,873

 

 

 

6,835

 

Finance lease liabilities

Other long-term obligations

 

 

6,066

 

 

 

4,914

 

Total lease liabilities

 

 

$

16,931

 

 

$

18,255

 

 

 

 

 

 

 

 

 

 

1

Finance lease assets are presented net of accumulated amortization of $3.7 million and $1.7 million as of September 30, 2021 and December 31, 2020, respectively.

The following table presents the components of lease expense:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating lease costs1

 

$

1,156

 

 

$

1,413

 

 

$

3,769

 

 

$

4,252

 

Finance lease costs:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of leased assets

 

 

741

 

 

 

432

 

 

 

1,963

 

 

 

905

 

Interest on lease liabilities

 

 

60

 

 

 

44

 

 

 

162

 

 

 

103

 

Net lease costs

 

$

1,957

 

 

$

1,889

 

 

$

5,894

 

 

$

5,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

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

 

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

 

 

 

 

Nine Months Ended September 30,

 

(in thousands)

 

 

2021

 

 

2020

 

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

 

 

 

 

 

 

Operating cash flows for operating leases

 

$

3,723

 

 

$

4,244

 

Operating cash flows for finance leases

 

$

162

 

 

$

103

 

Financing cash flows for finance leases

 

$

1,963

 

 

$

968

 

Leased assets exchanged for new lease liabilities:

 

 

 

 

 

 

Operating leases

 

$

213

 

 

$

255

 

Finance leases

 

$

3,916

 

 

$

5,630

 

 

 

 

 

 

 

 

 

 

NOTE 11. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS

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

 

 

 

Three Months Ended September 30,

 

 

 

Pension

 

 

OPEB

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Service cost

 

$

2,045

 

 

$

2,233

 

 

$

168

 

 

$

127

 

Interest cost

 

 

2,633

 

 

 

3,066

 

 

 

317

 

 

 

376

 

Expected return on plan assets

 

 

(3,525

)

 

 

(3,869

)

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

 

21

 

 

 

29

 

 

 

(298

)

 

 

(319

)

Amortization of actuarial loss

 

 

3,578

 

 

 

3,856

 

 

 

545

 

 

 

418

 

Total net periodic cost

 

$

4,752

 

 

$

5,315

 

 

$

732

 

 

$

602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

Pension

 

 

OPEB

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Service cost

 

$

6,135

 

 

$

6,699

 

 

$

504

 

 

$

381

 

Interest cost

 

 

7,899

 

 

 

9,198

 

 

 

951

 

 

 

1,127

 

Expected return on plan assets

 

 

(10,575

)

 

 

(11,606

)

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

 

63

 

 

 

85

 

 

 

(894

)

 

 

(957

)

Amortization of actuarial loss

 

 

10,877

 

 

 

11,569

 

 

 

1,635

 

 

 

1,254

 

Net periodic cost before pension settlement charge

 

 

14,399

 

 

 

15,945

 

 

 

2,196

 

 

 

1,805

 

Pension settlement charge

 

 

 

 

 

42,988

 

 

 

 

 

 

 

Net periodic cost

 

$

14,399

 

 

$

58,933

 

 

$

2,196

 

 

$

1,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the nine months ended September 30, 2021 and 2020, funding of pension and other postretirement employee benefit plans was $7.4 million and $8.5 million, respectively.

Pension Annuitization

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 amounts. The settlement triggered a remeasurement of plan assets and liabilities resulting in a reduction in the funded status of our qualified pension plans of approximately $26.2 million during the first quarter of 2020. In connection with this transaction, we recorded a non-cash pretax settlement charge of $43.0 million during the first quarter of 2020 in non-operating expense, net, as a result of accelerating the recognition of actuarial losses included in accumulated other comprehensive loss that would have been recognized in future periods.

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NOTE 12. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table details changes in amounts included in our accumulated other comprehensive loss (AOCL) by component on our Condensed Consolidated Balance Sheets, net of tax:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Pension Plans

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

73,592

 

 

$

98,870

 

 

$

79,025

 

 

$

117,028

 

Amounts arising during the period

 

 

 

 

 

 

 

 

 

 

 

19,402

 

Effect of pension settlement

 

 

 

 

 

 

 

 

 

 

 

(31,811

)

Amounts reclassified from AOCL to earnings

 

 

(2,664

)

 

 

(2,874

)

 

 

(8,097

)

 

 

(8,623

)

Balance at end of period

 

$

70,928

 

 

$

95,996

 

 

$

70,928

 

 

$

95,996

 

Other Postretirement Benefit Plans

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

14,418

 

 

$

10,184

 

 

$

14,783

 

 

$

10,331

 

Amounts reclassified from AOCL to earnings

 

 

(182

)

 

 

(74

)

 

 

(547

)

 

 

(221

)

Balance at end of period

 

$

14,236

 

 

$

10,110

 

 

$

14,236

 

 

$

10,110

 

Cash Flow Hedges

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(5,763

)

 

$

60,372

 

 

$

27,181

 

 

$

20,000

 

Amounts arising during the period

 

 

(4,310

)

 

 

(8,920

)

 

 

(32,741

)

 

 

34,112

 

Amounts reclassified from AOCL to earnings

 

 

(2,326

)

 

 

(2,412

)

 

 

(6,839

)

 

 

(5,072

)

Balance at end of period

 

$

(12,399

)

 

$

49,040

 

 

$

(12,399

)

 

$

49,040

 

Accumulated other comprehensive loss, end of period

 

$

72,765

 

 

$

155,146

 

 

$

72,765

 

 

$

155,146

 

 

See Note 11: Pension and Other Postretirement Employee Benefits and Note 6: Derivative Instruments for additional information.

 

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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 effectiveness of our hedging instruments and swaps; amount of net losses on cash flow hedges expected to be reclassified into earnings in the next 12 months; expected tax payments; anticipated share repurchases and dividend payments; expected interest rates; potential uses of our credit facility; expected debt refinancing; expectations regarding the U.S. housing market, the lumber and log markets, lumber shipment volumes and pricing; impact from the Ola, Arkansas sawmill fire and anticipated insurance coverage; timber harvest volumes and pricing; rural real estate and residential and commercial real estate development sales; expected 2021 capital expenditures; and similar matters. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often involve use of words such as expects, may, could, should, will, believes, anticipates, estimates, projects, intends, plans, targets or approximately, or similar words or terminology. These forward-looking statements reflect our current views regarding future events based on estimates and assumptions and are therefore subject to known and unknown risks and uncertainties and are not guarantees of future performance. 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:

the effect of general economic conditions, including employment rates, interest rate levels, discount rates, housing starts and the general availability of financing for home 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 timber prices and timberland values;
changes in silviculture, production and production capacity in the forest products industry;
competitive pricing pressures for our products;
unanticipated manufacturing disruptions;
the effect of weather on our harvesting and manufacturing activities;
the risk of loss from fire (such as the Ola, Arkansas sawmill fire and fires on our timberland), floods, windstorms, hurricanes, pest infestation or other natural disasters;
changes in the cost or availability of transportation;
changes in principle expenses;
unforeseen environmental liabilities or expenditures;
changes in general and industry-specific environmental laws and regulations, and interpretations thereof by regulatory agencies;
impact of the coronavirus (COVID-19 and its variants) outbreaks, governmental responses to such outbreaks, and anticipated recovery from the pandemic 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, 2020. Investors should not interpret the disclosure of a risk to imply that the risk has not already materialized.

Forward-looking statements contained in this report present our views only as of the date of this report. Except as required under applicable law, we do not intend to issue updates concerning any future revisions of our views to reflect events or circumstances occurring after the date of this report.

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Our Company

We are a leading timberland REIT with ownership of approximately 1.8 million acres of timberland. We also own six sawmills and an industrial grade plywood mill, a residential and commercial real estate development business and a rural timberland sales program.

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

The operating results of our Timberlands, Wood Products and Real Estate business segments have been and will continue to be affected by the cyclical nature of the forest products industry. Log and pulpwood sales volumes in our Timberlands segment are typically lower in the first half of each year as winter rains in the Southern region and spring thaw in the Northern region limit timber harvesting operations due to softened roadbeds and wet logging conditions that restrict access to logging sites. The third quarter is typically our Timberlands segment's strongest production quarter. Demand for our manufactured wood products typically decreases in the winter months when construction activity is slower, while demand typically increases during the spring, summer and fall when construction activity is generally higher. Rural real estate dispositions and acquisitions can be adversely affected when access to any properties to be sold or considered for acquisition are limited due to adverse weather conditions. Development real estate sales at Chenal Valley occur throughout the year, though historically most sales take place in the second half of the year as builders prepare for the following spring and summer traditional home building and buying season.

Additionally, our business segments have been and will continue to be influenced by a variety of other factors, including tariffs, quotas and trade agreements, changes in timber prices and in harvest levels from our timberlands, competition, timberland valuations, demand for our non-strategic timberland for higher and better use purposes, lumber prices, weather conditions, disruptions or inefficiencies in our supply chain including the availability of transportation, the efficiency and level of capacity utilization of our Wood Products manufacturing operations, changes in our principal expenses such as log costs, asset dispositions or acquisitions, impact of pandemics (such as COVID-19 and its variants), fires (such as the Ola, Arkansas sawmill fire and fires on our timberlands), other natural disasters and other factors.

Non-GAAP Measures

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

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

Our definition of EBITDDA and Adjusted EBITDDA may be different from similarly titled measures reported by other companies. We define EBITDDA as net income before interest expense, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses. See Note 2: Segment Information in the Notes to the Condensed Consolidated Financial Statements for information related to the use of segment Adjusted EBITDDA.

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Business and Economic Trends Affecting Our Operations

The demand for timber is directly affected by the underlying demand for lumber and other wood-products, as well as by the demand for pulp, paper and packaging. Our Timberlands and Wood Products segments are impacted by demand for new homes in the United States and by repair and remodeling activity.

In October 2021, the U.S. Census Bureau reported U.S. housing starts for September 2021 were 1.56 million units on a seasonally adjusted basis, an increase of 7.4% from September of 2020 and near the 2021 average. We believe supply chain challenges continue to moderate the pace of starts and have resulted in variable month-to-month housing start statistics. Homebuilder confidence remains very strong with the NAHB Homebuilder Index at 80 in October 2021. Housing fundamentals remain strong driven by low interest rates, a shortage of homes, large millennial demographic entering their prime home-buying years, remote work evolution and an aging existing housing stock supporting repair and remodel demand. Overall, the fundamentals that drive our business remain favorable and we continue to expect that lumber prices will remain structurally higher than long-term historical averages.

During the second quarter of 2021 we experienced a fire at our Ola, Arkansas sawmill, which had an annual capacity of 150 million board feet prior to the fire. The damage was principally limited to the large log primary breakdown machine center. The planer mill, kiln, and shipping department were not affected. We have adequate property damage and business interruption insurance, subject to an applicable deductible, and have begun the reconstruction process at the sawmill. We expect to install the new large-log line in the third quarter of 2022.

In our Wood Products segment, we shipped 265 million board feet of lumber during the third quarter of 2021. Lumber shipments in the third quarter were impacted by lower home center takeaway, the Ola sawmill fire, and COVID-19 related absences hampering startup at one of our sawmills following a capital project installation. We expect to ship approximately 240 to 250 million board feet of lumber during the fourth quarter of 2021.

In our Timberlands segment, Northern sawlog prices benefitted from Idaho sawlogs being indexed to lumber prices and continued strong cedar sawlog prices. Southern sawlog prices increased as wet weather led to log supply constraints. Our harvest volume of 1.5 million tons during the third quarter of 2021 was lower than the third quarter of 2020 primarily due to the closure of the Ola sawmill along with wet weather in the Southern region. In the Northern region we shifted harvest activity to the first half of 2021 due to market demand and favorable conditions. We expect total harvest volumes to be between 1.3 to 1.5 million tons during the fourth quarter of 2021.

Our Real Estate segment results for the first nine months of 2021 were driven by strong development sales demand and an increased per acre price realization from rural land sales. We expect to sell approximately 4,500 acres of rural land and approximately 35 residential development lots during the fourth quarter of 2021.

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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 September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

2021

 

 

2020

 

 

Change

 

 

2021

 

 

2020

 

 

Change

 

Revenues

$

287,330

 

 

$

313,046

 

 

$

(25,716

)

 

$

1,089,029

 

 

$

703,481

 

 

$

385,548

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

190,602

 

 

 

182,039

 

 

 

8,563

 

 

 

537,683

 

 

 

503,921

 

 

 

33,762

 

Selling, general and administrative expenses

 

18,512

 

 

 

21,046

 

 

 

(2,534

)

 

 

54,782

 

 

 

52,064

 

 

 

2,718

 

Net gain on insurance recoveries

 

(4,394

)

 

 

 

 

 

(4,394

)

 

 

(4,394

)

 

 

 

 

 

(4,394

)

 

 

204,720

 

 

 

203,085

 

 

 

1,635

 

 

 

588,071

 

 

 

555,985

 

 

 

32,086

 

Operating income

 

82,610

 

 

 

109,961

 

 

 

(27,351

)

 

 

500,958

 

 

 

147,496

 

 

 

353,462

 

Interest expense, net

 

(8,641

)

 

 

(8,557

)

 

 

(84

)

 

 

(20,414

)

 

 

(20,594

)

 

 

180

 

Pension settlement charge

 

 

 

 

 

 

 

 

 

 

 

 

 

(42,988

)

 

 

42,988

 

Non-operating pension and other postretirement benefit costs

 

(3,271

)

 

 

(3,557

)

 

 

286

 

 

 

(9,956

)

 

 

(10,670

)

 

 

714

 

Income before income taxes

 

70,698

 

 

 

97,847

 

 

 

(27,149

)

 

 

470,588

 

 

 

73,244

 

 

 

397,344

 

Income taxes

 

(5,031

)

 

 

(16,840

)

 

 

11,809

 

 

 

(85,910

)

 

 

(6,431

)

 

 

(79,479

)

Net income

$

65,667

 

 

$

81,007

 

 

$

(15,340

)

 

$

384,678

 

 

$

66,813

 

 

$

317,865

 

Total Adjusted EBITDDA1

$

107,183

 

 

$

135,386

 

 

$

(28,203

)

 

$

577,153

 

 

$

218,330

 

 

$

358,823

 

 

1

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

 

Third Quarter 2021 Compared with Third Quarter 2020

 

Revenues

 

Revenues were $287.3 million, a decrease of $25.7 million compared with the third quarter of 2020 primarily due to lower harvest volumes and lower lumber shipments and prices. Lumber shipments were impacted primarily as a result of lower home center takeaway in the third quarter of 2021 and the loss of production at our Ola, Arkansas sawmill following a fire in June 2021. These decreases were partially offset by higher sawlog prices.

 

Cost of goods sold

 

Cost of goods sold increased $8.6 million compared with the third quarter of 2020 primarily due to higher log and manufacturing costs on lower lumber shipments in our Wood Products segment, partially offset by lower harvest volumes.

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses decreased $2.5 million compared with the third quarter of 2020 primarily as a result of a year-to-date adjustment to incentive compensation in the third quarter of 2020 to reflect strong 2020 company performance.

 

Net gain on insurance recoveries

 

In June 2021, a fire occurred at our Ola, Arkansas sawmill. During the third quarter of 2021, we recorded an $8.5 million charge for the write-off of damaged and obsolete equipment and disposal costs. Additionally, we recognized insurance recoveries of $12.9 million for these property losses and costs, resulting in a $4.4 million net gain on insurance recoveries.

 

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Income taxes

 

Income taxes are primarily due to income from our PotlatchDeltic taxable REIT subsidiaries (TRS). For the third quarter of 2021, we recorded income tax expense of $5.0 million on TRS income before tax of $18.2 million. For the third quarter of 2020, we recorded an income tax expense of approximately $16.8 million on TRS income before tax of $65.2 million.

 

Total Adjusted EBITDDA

 

Total Adjusted EBITDDA for the third quarter of 2021 decreased $28.2 million compared to the third quarter of 2020. The decrease in Total Adjusted EBITDDA was primarily driven by lower harvest volumes and lumber shipments and prices, partially offset by higher sawlog prices. Refer to the Business Segment Results below for further discussions on activities for each of our segments. See Liquidity and Performance Measures for a reconciliation of Total Adjusted EBITDDA to net income, the closest comparable GAAP measure, for each of the periods presented.

 

Year to Date 2021 Compared with Year to Date 2020

 

Revenues

 

Revenues were $1.1 billion, an increase of $385.5 million compared with the first nine months of 2020, primarily due to historically high lumber and Idaho sawlog prices in 2021. These increases were partially offset by lower lumber shipments as a result of lower home center takeaway in the third quarter of 2021 and the loss of production at our Ola, Arkansas sawmill following a fire in June 2021. Additionally, the first nine months of 2020 includes the impact of the temporary curtailment and reduced operating posture at our industrial plywood facility.

 

Cost of goods sold

 

Cost of goods sold increased $33.8 million compared with the first nine months of 2020, primarily due to higher log and manufacturing costs on lower lumber shipments in our Wood Products segment. Additionally, the first nine months of 2020 includes the impact of the temporary curtailment and reduced operating posture at our industrial plywood facility.

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses increased $2.7 million compared with the first nine months of 2020, primarily as a result of increased employee related costs, including travel and information technology services.

 

Net gain on insurance recoveries

 

In June 2021, a fire occurred at our Ola, Arkansas sawmill. For the first nine months of 2021, we recorded a $10.6 million charge for the write-off of damaged and obsolete equipment and disposal costs. Additionally, we recognized insurance recoveries of $15.0 million for these property losses and costs, resulting in a $4.4 million net gain on insurance recoveries.

 

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 in 2020.

 

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Table of Contents

 

Income taxes

 

Income taxes are primarily due to income from our TRS. For the nine months ended September 30, 2021, we recorded income tax expense of $85.9 million on TRS income before tax of $329.4 million primarily due to historically high lumber prices. For the nine months ended September 30, 2020, we recorded income tax expense of $6.4 million on TRS income before tax of $23.9 million, which included the $43.0 million pension settlement charge.

 

Total Adjusted EBITDDA

 

Total Adjusted EBITDDA for the first nine months of 2021 increased $358.8 million compared to the first nine months of 2020. The increase in Total Adjusted EBITDDA was primarily due to historically high lumber and Idaho sawlog prices. Refer to the Business Segment Results below for further discussions on activities for each of our segments. See Liquidity and Performance Measures for a reconciliation of Total Adjusted EBITDDA to net income, the closest comparable GAAP measure, for each of the periods presented.

 

Business Segment Results

 

Timberlands Segment

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

Change

 

 

2021

 

 

2020

 

 

Change

 

Revenues1

 

$

129,543

 

 

$

116,985

 

 

$

12,558

 

 

$

362,675

 

 

$

266,755

 

 

$

95,920

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Logging and hauling

 

 

42,397

 

 

 

47,158

 

 

 

(4,761

)

 

 

112,168

 

 

 

117,417

 

 

 

(5,249

)

Other

 

 

9,108

 

 

 

8,539

 

 

 

569

 

 

 

23,792

 

 

 

24,107

 

 

 

(315

)

Selling, general and administrative expenses

 

 

2,015

 

 

 

1,639

 

 

 

376

 

 

 

5,575

 

 

 

4,941

 

 

 

634

 

 Timberlands Adjusted EBITDDA2

 

$

76,023

 

 

$

59,649

 

 

$

16,374

 

 

$

221,140

 

 

$

120,290

 

 

$

100,850

 

 

1

Prior to elimination of intersegment fiber revenues of $43.5 million and $40.4 million for the three months ended September 30, 2021 and 2020, and $138.2 million and $95.0 million for the nine months ended September 30, 2021 and 2020, respectively.

2

Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in the Notes to Condensed Consolidated Financial Statements.

 

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Timberlands Segment Statistics

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Harvest Volumes (in tons)

 

2021

 

 

2020

 

 

Change

 

 

2021

 

 

2020

 

 

Change

 

Northern region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

 

462,492

 

 

 

554,845

 

 

 

(92,353

)

 

 

1,243,539

 

 

 

1,291,632

 

 

 

(48,093

)

Pulpwood

 

 

4,039

 

 

 

29,910

 

 

 

(25,871

)

 

 

24,736

 

 

 

99,174

 

 

 

(74,438

)

Stumpage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,178

 

 

 

(23,178

)

Total

 

 

466,531

 

 

 

584,755

 

 

 

(118,224

)

 

 

1,268,275

 

 

 

1,413,984

 

 

 

(145,709

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southern region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

 

460,840

 

 

 

577,975

 

 

 

(117,135

)

 

 

1,449,106

 

 

 

1,617,196

 

 

 

(168,090

)

Pulpwood

 

 

467,138

 

 

 

462,571

 

 

 

4,567

 

 

 

1,145,572

 

 

 

1,201,904

 

 

 

(56,332

)

Stumpage

 

 

109,469

 

 

 

65,085

 

 

 

44,384

 

 

 

211,234

 

 

 

255,553

 

 

 

(44,319

)

Total

 

 

1,037,447

 

 

 

1,105,631

 

 

 

(68,184

)

 

 

2,805,912

 

 

 

3,074,653

 

 

 

(268,741

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total harvest volume

 

 

1,503,978

 

 

 

1,690,386

 

 

 

(186,408

)

 

 

4,074,187

 

 

 

4,488,637

 

 

 

(414,450

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Price/Unit ($ per ton)1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Northern region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

$

191

 

 

$

131

 

 

$

60

 

 

$

202

 

 

$

112

 

 

$

90

 

Pulpwood

 

$

30

 

 

$

42

 

 

$

(12

)

 

$

33

 

 

$

39

 

 

$

(6

)

Stumpage

 

$

 

 

$

 

 

$

 

 

$

 

 

$

14

 

 

$

(14

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southern region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

$

48

 

 

$

44

 

 

$

4

 

 

$

45

 

 

$

44

 

 

$

1

 

Pulpwood

 

$

30

 

 

$

29

 

 

$

1

 

 

$

29

 

 

$

30

 

 

$

(1

)

Stumpage

 

$

21

 

 

$

12

 

 

$

9

 

 

$

16

 

 

$

9

 

 

$

7

 

 

1

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

 

Timberlands Adjusted EBITDDA

 

The following table summarizes Timberlands Adjusted EBITDDA variances for the three and nine months ended September 30, 2021, compared with the three and nine months ended September 30, 2020:

 

(in thousands)

 

Three Months

 

 

Nine Months

 

Timberlands 2020 Adjusted EBITDDA

 

$

59,649

 

 

$

120,290

 

Sales price and mix

 

 

28,281

 

 

 

118,178

 

Harvest volume

 

 

(8,615

)

 

 

(11,990

)

Other revenue

 

 

(411

)

 

 

(592

)

Logging and hauling costs per unit

 

 

(1,936

)

 

 

(4,427

)

Forest management

 

 

(644

)

 

 

(580

)

Administrative, indirect and overhead costs

 

 

(301

)

 

 

261

 

Timberlands 2021 Adjusted EBITDDA

 

$

76,023

 

 

$

221,140

 

 

Third Quarter 2021 Compared with Third Quarter 2020

 

Timberlands Adjusted EBITDDA for the third quarter of 2021 increased $16.4 million compared with the same period in 2020, primarily as a result of the following:

Sales Price and Mix: Sawlog prices in the Northern region increased 45.8%, to $191 per ton, primarily from the effect of higher realizations on indexed sawlogs and an increase in cedar log prices. Southern sawlog prices increased 9.1% to $48 per ton, compared to the third quarter of 2020, as wet weather led to log supply constraints.

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Harvest Volume: We harvested 1.0 million tons in the Southern region during the third quarter of 2021, which was 6.2% lower than the third quarter of 2020, primarily due to wet weather impacting harvest conditions and harvest deferrals as a result of the fire at the Ola, Arkansas sawmill. Harvest volumes in the Northern region decreased 20.2% compared to the third quarter of 2020 primarily as favorable harvest conditions and strong sawlog demand in Idaho accelerated harvest activities to the first half of 2021. Additionally, extreme heat led to lighter logs in Idaho on a tonnage basis and pulpwood volumes were reduced in 2021.
Logging and Hauling Cost per Unit: Log and hauling costs per unit were higher primarily due to increased diesel costs and longer haul distances.

 

Year to Date 2021 Compared with Year to Date 2020

 

Timberlands Adjusted EBITDDA for the first nine months of 2021 increased $100.9 million compared with the same period in 2020, primarily as a result of the following:

Sales Price and Mix: Sawlog prices in the Northern region increased 80.4%, to $202 per ton primarily from the effect of higher price realizations on indexed sawlogs and an increase in cedar log prices. Southern sawlog prices remained consistent with the first nine months of 2020.
Harvest Volume: We harvested 2.8 million tons in the Southern region during the first nine months of 2021, which was 8.7% lower than the first nine months of 2020, primarily due to adverse weather conditions impacting logging activities and harvest deferrals as a result of the fire at the Ola, Arkansas sawmill. Sawlog harvest volumes in the Northern region decreased as extreme heat led to lighter logs on a tonnage basis along with a planned reduction in pulpwood volumes in 2021.
Logging and Hauling Cost per Unit: Log and hauling costs were higher primarily due to increased diesel costs and a higher mix of more expensive Idaho logging.

 

Wood Products Segment

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

Change

 

 

2021

 

 

2020

 

 

Change

 

Revenues

 

$

187,760

 

 

$

218,291

 

 

$

(30,531

)

 

$

814,729

 

 

$

489,507

 

 

$

325,222

 

Costs and expenses1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiber costs

 

 

75,629

 

 

 

72,239

 

 

 

3,390

 

 

 

242,719

 

 

 

196,201

 

 

 

46,518

 

Freight, logging and hauling

 

 

17,760

 

 

 

17,677

 

 

 

83

 

 

 

56,223

 

 

 

48,601

 

 

 

7,622

 

Manufacturing costs

 

 

52,976

 

 

 

45,893

 

 

 

7,083

 

 

 

152,195

 

 

 

132,848

 

 

 

19,347

 

Finished goods inventory change

 

 

12,681

 

 

 

(1,595

)

 

 

14,276

 

 

 

90

 

 

 

(1,602

)

 

 

1,692

 

Selling, general and administrative expenses

 

 

3,288

 

 

 

2,433

 

 

 

855

 

 

 

8,758

 

 

 

7,483

 

 

 

1,275

 

Other

 

 

(1,140

)

 

 

 

 

 

(1,140

)

 

 

(1,910

)

 

 

196

 

 

 

(2,106

)

Wood Products Adjusted EBITDDA2

 

$

26,566

 

 

$

81,644

 

 

$

(55,078

)

 

$

356,654

 

 

$

105,780

 

 

$

250,874

 

 

1

Prior to elimination of intersegment fiber costs of $43.5 million and $40.4 million for the three months ended September 30, 2021 and 2020, and $138.2 million and $95.0 million for the nine months ended September 30, 2021 and 2020, respectively.

2

Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in the Notes to Condensed Consolidated Financial Statements.

 

Wood Products Segment Statistics

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

Change

 

 

2021

 

 

2020

 

 

Change

 

Lumber shipments (MBF)1

 

 

264,855

 

 

 

291,391

 

 

 

(26,536

)

 

 

783,235

 

 

 

823,597

 

 

 

(40,362

)

Lumber sales prices ($ per MBF)

 

$

533

 

 

$

637

 

 

$

(104

)

 

$

867

 

 

$

486

 

 

$

381

 

 

1

MBF stands for thousand board feet.

 

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Wood Products Adjusted EBITDDA

 

The following table summarizes Wood Products Adjusted EBITDDA variances for the three and nine months ended September 30, 2021, compared with the three and nine months ended September 30, 2020:

 

(in thousands)

 

Three Months

 

 

Nine Months

 

Wood Products 2020 Adjusted EBITDDA

 

$

81,644

 

 

$

105,780

 

Lumber:

 

 

 

 

 

 

Price

 

 

(30,697

)

 

 

292,697

 

Volume

 

 

(5,259

)

 

 

(3,818

)

Manufacturing costs per unit

 

 

(6,522

)

 

 

(13,743

)

Log costs per unit

 

 

(16,378

)

 

 

(39,856

)

Inventory charge

 

 

(6,437

)

 

 

(6,437

)

Residuals, panels and other

 

 

10,215

 

 

 

22,031

 

Wood Products 2021 Adjusted EBITDDA

 

$

26,566

 

 

$

356,654

 

 

Third Quarter 2021 Compared with Third Quarter 2020

 

Wood Products Adjusted EBITDDA for the third quarter of 2021 decreased $55.1 million compared with the same period in 2020, primarily as a result of the following:

Lumber Price: Average lumber sales prices decreased to $533 per MBF during the third quarter of 2021 compared to $637 during the third quarter of 2020. The third quarter of 2020 was early in the lumber price run that ultimately peaked in May 2021, and lumber prices declined significantly beginning in the second quarter of 2021.
Lumber Volume: Lumber shipments decreased 26.5 million board feet during the third quarter of 2021 compared to the third quarter of 2020 as a result of lower home center takeaway and lost production and shipments at our Ola, Arkansas sawmill following the fire in June 2021.
Manufacturing Cost Per Unit: Higher manufacturing costs per unit quarter over quarter was primarily a result of lost production at our Ola, Arkansas sawmill and COVID-19 related absences hampering startup at one of our sawmills following a capital project installation.
Log Costs Per Unit: Log costs per unit were higher primarily as a result of increased indexed log costs at our Idaho sawmill.
Inventory Charge: Inventory at the end of the third quarter of 2021 was written down $6.4 million due to high indexed Idaho log costs.
Residual Sales, Panels and Other: The third quarter of 2021 benefitted from increased plywood price realization due to strong demand from industrial manufacturers, which more than offset lower residual sales.

 

Year to Date 2021 Compared with Year to Date 2020

 

Wood Products Adjusted EBITDDA for the first nine months of 2021 increased $250.9 million compared with the same period in 2020, primarily as a result of the following:

Lumber Price: Average lumber sales prices increased during the first nine months of 2021 to $867 per MBF compared with $486 per MBF during the first nine months of 2020.
Manufacturing Cost Per Unit: Higher manufacturing costs per unit was primarily a result of week-long shutdowns at our Southern mills from a severe winter storm in the first quarter of 2021, lost production at our Ola, Arkansas sawmill following the fire in June 2021 and extended planned downtime for maintenance and capital projects at two of our sawmills.
Log Costs Per Unit: Log costs per unit were higher primarily as a result of increased indexed log costs at our Idaho sawmill.
Inventory Charge: Inventory at the end of the third quarter of 2021 was written down $6.4 million due to high indexed Idaho log costs.

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Table of Contents

 

Residual Sales, Panels and Other: The first nine months of 2021 benefitted from increased plywood prices and shipments compared to the first nine months of 2020, which included a temporary production curtailment and reduced operating posture at our industrial plywood facility.

 

Real Estate Segment

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

Change

 

 

2021

 

 

2020

 

 

Change

 

Revenues

 

$

13,497

 

 

$

18,151

 

 

$

(4,654

)

 

$

49,808

 

 

$

42,225

 

 

$

7,583

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of goods sold

 

 

3,263

 

 

 

3,554

 

 

 

(291

)

 

 

8,612

 

 

 

8,595

 

 

 

17

 

Selling, general and administrative expenses

 

 

1,165

 

 

 

1,131

 

 

 

34

 

 

 

3,746

 

 

 

3,568

 

 

 

178

 

Real Estate Adjusted EBITDDA1

 

$

9,069

 

 

$

13,466

 

 

$

(4,397

)

 

$

37,450

 

 

$

30,062

 

 

$

7,388

 

 

1

Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in the Notes to Condensed Consolidated Financial Statements.

 

Real Estate Segment Statistics

 

Rural Real Estate

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Acres sold

 

 

2,303

 

 

 

11,048

 

 

 

11,991

 

 

 

21,024

 

Average price per acre

 

$

3,013

 

 

$

1,202

 

 

$

2,374

 

 

$

1,449

 

 

Development Real Estate

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Residential lots

 

 

52

 

 

 

26

 

 

 

122

 

 

 

66

 

Average price per lot

 

$

81,923

 

 

$

82,573

 

 

$

90,301

 

 

$

92,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial acres

 

 

 

 

 

 

 

 

11

 

 

 

 

Average price per acre

 

$

 

 

$

 

 

$

277,425

 

 

$

 

 

Real Estate Adjusted EBITDDA

 

The following table summarizes Real Estate Adjusted EBITDDA variances for the three and nine months ended September 30, 2021 compared with the three and nine months ended September 30, 2020:

 

(in thousands)

 

Three Months

 

 

Nine Months

 

Real Estate 2020 Adjusted EBITDDA

 

$

13,466

 

 

$

30,062

 

Rural sales

 

 

(6,345

)

 

 

(1,975

)

Development sales

 

 

1,691

 

 

 

9,557

 

Other, net

 

 

257

 

 

 

(194

)

Real Estate 2021 Adjusted EBITDDA

 

$

9,069

 

 

$

37,450

 

 

Third Quarter 2021 Compared with Third Quarter 2020

 

Real Estate Adjusted EBITDDA for the third quarter of 2021 was $9.1 million, a decrease of $4.4 million compared with the third quarter of 2020 as a result of the following:

Rural Sales: The decrease in rural real estate sales is primarily a result of fewer acres sold as compared to the third quarter of 2020, which included the sale of approximately 8,100 acres of non-strategic timberlands in Minnesota to a conservation entity. 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 Sales: During the third quarter of 2021, we sold 52 residential lots at an average lot price of $81,923 compared to 26 lots at an average lot price of $82,573 during the third quarter of 2020. The average price per lot or acre fluctuates based on a variety of factors including size and location of lots within the developments.

 

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Year to Date 2021 Compared with Year to Date 2020

 

Real Estate Adjusted EBITDDA for the first nine months of 2021 was $37.5 million, an increase of $7.4 million compared with the first nine months of 2020 as a result of the following:

Rural Sales: The decrease in rural real estate sales was because the first nine months of 2020 included an 8,100 acre conservation land sale in Minnesota and there were no similar size land sales during the first nine months of 2021.
Development Sales: During the first nine months of 2021, we sold 122 residential lots at an average lot price of $90,301 compared to 66 lots at an average lot price of $92,256 in the first nine months of 2020. In addition, we sold 11 acres of commercial land in Chenal Valley for $277,425 per acre in the first nine months of 2021 compared to no commercial acres sold in the first nine months of 2020.

 

Liquidity and Capital Resources

Changes in significant sources and uses of cash for the nine months ended September 30, 2021 and 2020 are presented by categories as follows:

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

Change

 

Net cash provided by operating activities

 

$

453,242

 

 

$

190,845

 

 

$

262,397

 

Net cash used in investing activities

 

$

(26,734

)

 

$

(28,265

)

 

$

1,531

 

Net cash used in financing activities

 

$

(86,081

)

 

$

(96,830

)

 

$

10,749

 

 

 

 

 

 

 

 

 

 

 

Net Cash Flows from Operating Activities

Net cash provided by operating activities increased $262.4 million compared to the first nine months of 2020. Changes in cash provided by operating activities was impacted by the following:

Cash received from customers increased $420.3 million primarily due to historically high average lumber and Idaho sawlog prices during the first nine months of 2021. These increases were partially offset by the reduced shipments at our Ola, Arkansas sawmill following the fire in June 2021. In addition, the first nine months of 2020 was impacted by the temporary curtailment of our industrial plywood mill during the second quarter of 2020.
Cash payments increased $72.3 million due to vendor payments on higher log, manufacturing and freight costs in our Wood Products segment and employee incentive compensation payouts related to strong 2020 company performance. Additionally, the first nine months of 2020 experienced reduced vendor payments stemming from the curtailment of our industrial plywood mill during the second quarter of 2020.
Net tax payments increased $87.0 million as a result of higher taxable income generated from our TRS operations.

Net Cash Flows from Investing Activities

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

We spent $38.5 million on capital expenditures for property, plant and equipment, timberlands reforestation and road construction projects during the first nine months of 2021 compared to $27.0 million during the first nine of 2020.
During the first nine months of 2021 we spent $2.5 million on timberland acquisitions compared to $4.7 million during the first nine months of 2020.
During the third quarter of 2021, we received initial insurance proceeds of $13.3 million for property losses as a result of the fire at our Ola, Arkansas sawmill.

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Net Cash Flows from Financing Activities

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

We paid dividends of $82.5 million in the first nine months of 2021 compared to $80.4 million in the first nine months of 2020.
We did not repurchase any of our common stock during the first nine months of 2021 compared to 489,850 shares repurchased totaling $15.4 million during the first nine months of 2020.

Future Sources and Uses of Cash

We invest cash in maintenance and discretionary capital expenditures at our Wood Products facilities. We also invest cash in the reforestation of timberlands and construction of roads in our Timberlands operations and to develop land in our Real Estate development operations. We evaluate discretionary capital improvements based on an expected level of return on investment. We currently expect to spend a total of approximately $70.0 million for capital projects during 2021.

Our 2021 planned capital spend includes approximately $7.0 million of capital expenditures for the reconstruction of our fire damaged Ola sawmill, which is largely covered by insurance. A determination regarding downtime and costs to repair the Ola sawmill will be made as the reconstruction progresses. We have adequate property damage and business interruption insurance, subject to an applicable deductible. The timing of expenditures incurred for the sawmill rebuild and economic losses is expected to vary from when we receive proceeds from our insurance carriers.

Returning cash to shareholders through a secure regular dividend and opportunistic share repurchases is an important and durable part of our disciplined capital allocation strategy. Our board of directors, in its sole discretion, determines the actual amount of dividends to be made to stockholders based on consideration of a number of factors, including, but not limited to, our results of operations, cash flow and capital requirements, economic conditions in our industry and in the markets for our products, borrowing capacity, debt covenant restrictions, future acquisitions and dispositions, and REIT requirements. Generally, a REIT must distribute its taxable income each year and there is a 20% limit on the value of our TRS, including cash, that can be retained. Our strong financial performance, driven by record lumber and indexed sawlog prices during 2021, has generated large cash balances in both our REIT and TRS. As a result, we expect to pay a special dividend of $3 to $5 per share, or approximately $200.0 million to $335.0 million in aggregate, to stockholders in December 2021. In addition, our board will evaluate our regular annual dividend, which is currently $1.64 per share, in the fourth quarter of 2021.

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 (the Repurchase Program). At September 30, 2021, we had remaining authorization of $59.5 million for future stock repurchase under the Repurchase Program. The timing, manner, price and amount of repurchases will be determined according to, and subject to, the terms of the Trading Plan, and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason.

 

Capital Structure

 

(in thousands)

 

September 30, 2021

 

 

December 31, 2020

 

Long-term debt (including current portion)

 

$

758,118

 

 

$

757,347

 

Cash and cash equivalents

 

 

(592,767

)

 

 

(252,340

)

Net debt

 

 

165,351

 

 

 

505,007

 

Market capitalization1

 

 

3,461,018

 

 

 

3,345,138

 

Enterprise value

 

$

3,626,369

 

 

$

3,850,145

 

 

 

 

 

 

 

 

Net debt to enterprise value

 

 

4.6

%

 

 

13.1

%

Dividend yield2

 

 

3.2

%

 

 

3.3

%

Weighted-average cost of debt, after tax3

 

 

3.2

%

 

 

3.2

%

 

 

 

 

 

 

 

 

1

Market capitalization is based on outstanding shares of 67.1 million and 66.9 million times closing share prices of $51.58 and $50.02 as of September 30, 2021, and December 31, 2020, respectively.

2

Dividend yield is based on annualized dividends per share of $1.64 and share prices of $51.58 and $50.02 as of September 30, 2021, and December 31, 2020, 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.

 

 

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Table of Contents

 

Liquidity and Performance Measures

 

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

 

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

 

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income

 

$

65,667

 

 

$

81,007

 

 

$

384,678

 

 

$

66,813

 

Interest expense, net

 

 

8,641

 

 

 

8,557

 

 

 

20,414

 

 

 

20,594

 

Income taxes

 

 

5,031

 

 

 

16,840

 

 

 

85,910

 

 

 

6,431

 

Depreciation, depletion and amortization

 

 

21,131

 

 

 

20,187

 

 

 

56,156

 

 

 

56,590

 

Basis of real estate sold

 

 

6,697

 

 

 

5,249

 

 

 

22,733

 

 

 

14,440

 

Net gain on insurance recoveries

 

 

(4,394

)

 

 

 

 

 

(4,394

)

 

 

 

Pension settlement charge

 

 

 

 

 

 

 

 

 

 

 

42,988

 

Non-operating pension and other postretirement benefit costs

 

 

3,271

 

 

 

3,557

 

 

 

9,956

 

 

 

10,670

 

Loss (gain) on disposal of fixed assets

 

 

1,139

 

 

 

(11

)

 

 

1,700

 

 

 

(196

)

Total Adjusted EBITDDA

 

$

107,183

 

 

$

135,386

 

 

$

577,153

 

 

$

218,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

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Table of Contents

 

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

 

 

 

Nine Months Ended September 30,

 

 

Twelve Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net cash provided by operating activities1

 

$

453,242

 

 

$

190,845

 

 

$

597,660

 

 

$

224,486

 

Capital expenditures2

 

 

(40,977

)

 

 

(31,749

)

 

 

(55,013

)

 

 

(50,080

)

CAD

 

$

412,265

 

 

$

159,096

 

 

$

542,647

 

 

$

174,406

 

Net cash used in investing activities3

 

$

(26,734

)

 

$

(28,265

)

 

$

(41,026

)

 

$

(45,935

)

Net cash used in financing activities

 

$

(86,081

)

 

$

(96,830

)

 

$

(114,205

)

 

$

(124,337

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Net cash provided by operating activities for the nine months ended September 30, 2021 and 2020 includes cash paid for real estate development expenditures of $6.4 million and $4.2 million, respectively. Net cash provided by operating activities for the twelve months ended September 30, 2021 and 2020 includes cash paid for real estate development expenditures of $8.9 million and $5.7 million, respectively.

2

Includes capital expenditures for the rebuild of the Ola, Arkansas sawmill of $5.0 million and excludes $13.3 million of insurance proceeds for the Ola, Arkansas sawmill property losses for the nine and twelve months ended September 30, 2021.

3

Net cash used in investing activities includes payment for capital expenditures and acquisition of non-strategic timber and timberlands, which is also included in our reconciliation of CAD.

 

Sources of Financing

 

Long-Term Debt and Credit Agreements

 

At September 30, 2021, our total outstanding net long-term debt was $758.1 million. We expect to refinance a $40.0 million term loan expiring in December 2021 at maturity, which is covered by a forward starting interest rate swap that hedges the variability in future benchmark interest payments attributable to changes in interest rates. All interest rates on our outstanding long-term debt are fixed rates under fixed rate loans or variable rate loans with an associated interest rate swap that fixes the variable benchmark interest rate component.

 

A number of our debt instruments and associated interest rate derivative agreements have an interest rate tied to LIBOR. On March 5, 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that the USD LIBOR will no longer be published after June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rate Committee, a steering committee comprised of large U.S. financial institutions, has recommended replacing LIBOR with the Secured Overnight Financing Rate (SOFR). While we expect LIBOR to be available in substantially its current form until at least the end of June 30, 2023, it is possible that LIBOR will become unavailable prior to that point. We are monitoring the developments regarding the alternative rates, will work with our lenders and counterparties to identify a suitable replacement rate and may amend certain debt and interest rate derivative agreements to accommodate those rates if the contract does not already specify a replacement rate. However, at this time, we are not able to predict whether SOFR will become a widely accepted benchmark in place of LIBOR, or what the impact of such possible transition to alternative rates may be on our financial condition.

 

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Table of Contents

 

Financial Covenants

 

The Amended Term Loan Agreement and Amended Credit Agreement (collectively referred to as the Agreements) contain certain covenants that limit our ability and that of our subsidiaries to create liens, merge or consolidate, dispose of assets, incur indebtedness and guarantees, repurchase or redeem capital stock and indebtedness, make certain investments or acquisitions, enter into certain transactions with affiliates or change the nature of our business. The Agreements also contain financial maintenance covenants including the maintenance of a minimum interest coverage ratio and a maximum leverage ratio. We are permitted to pay dividends to our stockholders under the terms of the Agreements so long as we expect to remain in compliance with the financial maintenance covenants. At September 30, 2021, we were in compliance with all covenants under the Agreements. The following table sets forth the financial covenants for the Agreements and our status with respect to these covenants at September 30, 2021:

 

 

 

Covenant Requirement

 

Actual at
September 30, 2021

Interest coverage ratio

 

 

3.00 to 1.00

 

25.22

Leverage ratio

 

 

40%

 

19%

 

 

 

 

 

 

 

 

See Note 5: Debt in the Notes to the Condensed Consolidated Financial Statements for additional information on our debt and credit agreements.

 

Contractual Obligations

 

There have been no material changes to our contractual obligations during the nine months ended September 30, 2021 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 rate our debt investment grade.

 

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 2021 to our critical accounting policies presented in our 2020 Annual Report on Form 10-K.

 

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Table of Contents

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk exposure on financial instruments includes interest rate risk on our bank credit facility, term loans and interest rate swap agreements and forward starting interest rate swap agreements. We are exposed to interest rate volatility on existing variable rate debt instruments and future incurrences of fixed or variable rate debt, which exposure primarily relates to movements in various interest rates. We use interest rate swaps and forward starting swaps to hedge our exposure to the impact of interest rate changes on existing debt and future debt issuances, respectively. All market risk sensitive instruments were entered into for purposes other than trading purposes.

For quantitative and qualitative disclosures about market risk, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our annual report on Form 10-K for the year ended December 31, 2020. Our exposures to market risk have not changed materially since December 31, 2020.

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 September 30, 2021. 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 September 30, 2021.

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 September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

 

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

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, 2020.

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 Repurchase Program). Shares under the Repurchase Program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan). The timing, manner, price and amount of repurchases will be determined according to, and subject to, the terms of the Trading Plan, and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason.

There were no shares repurchased during the third quarter of 2021 under the Repurchase Program. At September 30, 2021, we had remaining authorization of $59.5 million for future stock repurchases under the Repurchase Program. Transaction costs are not counted against authorized funds. All common stock purchases are made in open-market transactions.

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.

(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 September 30, 2021, filed on October 29, 2021 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2021 and 2020, (iii) the Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020, (v) the Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020 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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Table of Contents

 

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:

October 29, 2021

 

 

 

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