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POTLATCHDELTIC CORP - Quarter Report: 2022 March (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2022

or

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

For the transition period from to

Commission File Number 1-32729

PotlatchDeltic Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

82-0156045

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

601 West First Avenue, Suite 1600

 

Spokane, Washington

99201

(Address of principal executive offices)

(Zip Code)

 

(509) 835-1500

(Registrant’s telephone number, including area code)

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock ($1 par value)

PCH

Nasdaq Global Select Market

 

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

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

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

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

 

 

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

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

Yes No

The number of shares of common stock of the registrant outstanding as of April 26, 2022 was 69,372,304.

 

 


 

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

20

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

32

ITEM 4.

Controls and Procedures

32

 

 

 

PART II. - OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

33

ITEM 1A.

Risk Factors

33

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

ITEM 6.

Exhibits

33

 

 

 

SIGNATURE

34

 

 

 

 

 

 

 


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 March 31,

 

(in thousands, except per share amounts)

 

2022

 

 

2021

 

Revenues

 

$

411,350

 

 

$

354,193

 

Costs and expenses:

 

 

 

 

 

 

Cost of goods sold

 

 

179,847

 

 

 

169,302

 

Selling, general and administrative expenses

 

 

16,294

 

 

 

16,758

 

Net loss on fire damage

 

 

276

 

 

 

 

 

 

 

196,417

 

 

 

186,060

 

Operating income

 

 

214,933

 

 

 

168,133

 

Interest expense, net

 

 

(2,894

)

 

 

(3,574

)

Pension settlement charge

 

 

(14,165

)

 

 

 

Non-operating pension and other postretirement employee
benefit costs

 

 

(1,929

)

 

 

(3,414

)

Income before income taxes

 

 

195,945

 

 

 

161,145

 

Income taxes

 

 

(32,065

)

 

 

(30,039

)

Net income

 

$

163,880

 

 

$

131,106

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

Basic

 

$

2.36

 

 

$

1.95

 

Diluted

 

$

2.35

 

 

$

1.94

 

Dividends per share

 

$

0.44

 

 

$

0.41

 

Weighted-average shares outstanding (in thousands)

 

 

 

 

 

 

Basic

 

 

69,419

 

 

 

67,207

 

Diluted

 

 

69,623

 

 

 

67,607

 

 

 

 

 

 

 

 

 

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 March 31,

 

(in thousands)

 

2022

 

 

2021

 

Net income

 

$

163,880

 

 

$

131,106

 

Other comprehensive income (loss):

 

 

 

 

 

 

Pension and other postretirement employee benefits:

 

 

 

 

 

 

Net loss arising during the period, net of tax benefit of $1,570 and $0

 

 

(4,587

)

 

 

 

Effect of pension settlement, net of tax expense of $3,612 and $0

 

 

10,553

 

 

 

 

Amortization of actuarial loss included in net income, net of tax expense of $475 and $1,109

 

 

1,384

 

 

 

3,157

 

Amortization of prior service cost (credit) included in net income, net of tax expense (benefit) of $44 and $(73)

 

 

130

 

 

 

(204

)

Cash flow hedges, net of tax expense of $2,249 and $4,031

 

 

43,276

 

 

 

64,107

 

Other comprehensive income, net of tax

 

 

50,756

 

 

 

67,060

 

Comprehensive income

 

$

214,636

 

 

$

198,166

 

 

 

 

 

 

 

 

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)

 

March 31, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

470,918

 

 

$

296,151

 

Customer receivables, net

 

 

40,094

 

 

 

31,028

 

Inventories, net

 

 

67,673

 

 

 

72,369

 

Other current assets

 

 

21,938

 

 

 

21,630

 

Total current assets

 

 

600,623

 

 

 

421,178

 

Property, plant and equipment, net

 

 

297,710

 

 

 

292,320

 

Investment in real estate held for development and sale

 

 

61,562

 

 

 

65,604

 

Timber and timberlands, net

 

 

1,671,330

 

 

 

1,682,671

 

Intangible assets, net

 

 

15,296

 

 

 

15,491

 

Other long-term assets

 

 

87,095

 

 

 

57,951

 

Total assets

 

$

2,733,616

 

 

$

2,535,215

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

101,589

 

 

$

78,209

 

Current portion of long-term debt

 

 

39,983

 

 

 

42,977

 

Current portion of pension and other postretirement employee benefits

 

 

4,993

 

 

 

4,993

 

Total current liabilities

 

 

146,565

 

 

 

126,179

 

Long-term debt

 

 

715,499

 

 

 

715,279

 

Pension and other postretirement employee benefits

 

 

90,359

 

 

 

83,674

 

Deferred tax liabilities, net

 

 

37,642

 

 

 

34,874

 

Other long-term obligations

 

 

31,353

 

 

 

49,076

 

Total liabilities

 

 

1,021,418

 

 

 

1,009,082

 

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 69,372 and 69,064 shares

 

 

69,372

 

 

 

69,064

 

Additional paid-in capital

 

 

1,782,940

 

 

 

1,781,217

 

Accumulated deficit

 

 

(147,632

)

 

 

(280,910

)

Accumulated other comprehensive income (loss)

 

 

7,518

 

 

 

(43,238

)

Total stockholders’ equity

 

 

1,712,198

 

 

 

1,526,133

 

Total liabilities and stockholders' equity

 

$

2,733,616

 

 

$

2,535,215

 

 

 

 

 

 

 

 

 

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)

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

163,880

 

 

$

131,106

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

19,874

 

 

 

18,399

 

Basis of real estate sold

 

 

10,854

 

 

 

8,823

 

Change in deferred taxes

 

 

(2,123

)

 

 

1,490

 

Pension and other postretirement employee benefits

 

 

3,857

 

 

 

5,627

 

Pension settlement charge

 

 

14,165

 

 

 

 

Equity-based compensation expense

 

 

2,056

 

 

 

1,930

 

Net loss on fire damage

 

 

276

 

 

 

 

Other, net

 

 

(291

)

 

 

(387

)

Change in working capital and operating-related activities, net

 

 

21,208

 

 

 

6,713

 

Real estate development expenditures

 

 

(2,161

)

 

 

(2,315

)

Funding of pension and other postretirement employee benefits

 

 

(1,296

)

 

 

(1,421

)

Net cash from operating activities

 

 

230,299

 

 

 

169,965

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Property, plant and equipment additions

 

 

(12,566

)

 

 

(7,762

)

Timberlands reforestation and roads

 

 

(4,648

)

 

 

(3,956

)

Other, net

 

 

92

 

 

 

189

 

Net cash from investing activities

 

 

(17,122

)

 

 

(11,529

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Distributions to common stockholders

 

 

(30,524

)

 

 

(27,484

)

Repayment of long-term debt

 

 

(3,000

)

 

 

 

Other, net

 

 

(1,071

)

 

 

(591

)

Net cash from financing activities

 

 

(34,595

)

 

 

(28,075

)

Change in cash, cash equivalents and restricted cash

 

 

178,582

 

 

 

130,361

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

296,772

 

 

 

252,340

 

Cash, cash equivalents and restricted cash at end of period

 

$

475,354

 

 

$

382,701

 

 

 

 

 

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

Accrued property, plant and equipment additions

 

$

1,516

 

 

$

2,263

 

Accrued timberlands reforestation and roads

 

$

98

 

 

$

813

 

 

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)

 

March 31, 2022

 

 

March 31, 2021

 

Cash and cash equivalents

 

$

470,918

 

 

$

382,032

 

Restricted cash included in other long-term assets1

 

 

4,436

 

 

 

669

 

Total cash, cash equivalents, and restricted cash

 

$

475,354

 

 

$

382,701

 

 

 

 

 

 

 

 

 

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

 

 

Income (Loss)

 

 

Equity

 

Balance, December 31, 2021

 

 

69,064

 

 

$

69,064

 

 

$

1,781,217

 

 

$

(280,910

)

 

$

(43,238

)

 

$

1,526,133

 

Net income

 

 

 

 

 

 

 

 

 

 

 

163,880

 

 

 

 

 

 

163,880

 

Shares issued for stock compensation

 

 

308

 

 

 

308

 

 

 

(308

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

2,056

 

 

 

 

 

 

 

 

 

2,056

 

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,480

 

 

 

7,480

 

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43,276

 

 

 

43,276

 

Dividends on common stock, $0.44 per share

 

 

 

 

 

 

 

 

 

 

 

(30,524

)

 

 

 

 

 

(30,524

)

Other transactions, net

 

 

 

 

 

 

 

 

(25

)

 

 

(78

)

 

 

 

 

 

(103

)

Balance, March 31, 2022

 

 

69,372

 

 

$

69,372

 

 

$

1,782,940

 

 

$

(147,632

)

 

$

7,518

 

 

$

1,712,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

8


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

14

Note 6: Derivative Instruments

15

Note 7: Fair Value Measurements

16

Note 8: Equity-Based Compensation

16

Note 9: Income Taxes

17

Note 10: Leases

18

Note 11: Pension and Other Postretirement Employee Benefits

19

Note 12: Components of Accumulated Other Comprehensive Income (Loss)

19

 

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 operations in seven states. We are engaged in activities associated with timberland management, including the sale of timber, the management of approximately 1.8 million acres of timberlands and the purchase and sale of timberlands. We are also engaged in the manufacturing and sale of wood products and the development of real estate. Our timberlands, real estate development projects and all of our wood products facilities are located within the continental United States. The primary market for our products is the United States. We converted to a REIT effective January 1, 2006.

Condensed Consolidated Financial Statements

The accompanying unaudited Condensed Consolidated Financial Statements provide an overall view of our results and financial condition and reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Except as otherwise disclosed in these Notes to Condensed Consolidated Financial Statements, such adjustments are of a normal, recurring nature. Intercompany transactions and accounts have been eliminated in consolidation. The Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. Certain disclosures normally provided in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on February 17, 2022. 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 receive or have to pay in connection with any legal proceeding would have a material adverse effect on our consolidated financial position, operating results or net cash flow.

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 for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by this guidance apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued as a result of reference rate reform. The guidance in ASU 2020-04, which can be applied immediately, is optional and may be elected over time as reference rate reform activities occur. This guidance is not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity was expected to be completed. Our credit agreement, variable rate term loans with $403.5 million in principal, and interest rate derivative agreements have an interest rate tied to LIBOR. We continue to evaluate the impact of the guidance, are monitoring the developments regarding the alternative rates, will work with our lenders and counterparties to identify a suitable replacement rate, may amend certain debt and interest rate derivative agreements to accommodate those rates, and may apply elections allowed under the standard as applicable as additional changes in the market occur.

 

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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 March 31,

 

(in thousands)

2022

 

 

2021

 

Timberlands

 

 

 

 

 

Northern region

 

 

 

 

 

Sawlogs

$

81,504

 

 

$

76,181

 

Pulpwood

 

392

 

 

 

499

 

Other

 

303

 

 

 

300

 

Total Northern revenues

 

82,199

 

 

 

76,980

 

 

 

 

 

 

 

Southern region

 

 

 

 

 

Sawlogs

 

23,381

 

 

 

22,416

 

Pulpwood

 

11,627

 

 

 

9,161

 

Stumpage

 

3,358

 

 

 

764

 

Other

 

3,092

 

 

 

2,595

 

Total Southern revenues

 

41,458

 

 

 

34,936

 

 

 

 

 

 

 

Total Timberlands revenues

 

123,657

 

 

 

111,916

 

 

 

 

 

 

 

Wood Products

 

 

 

 

 

Lumber

 

250,764

 

 

 

229,682

 

Residuals and Panels

 

44,978

 

 

 

39,614

 

Total Wood Products revenues

 

295,742

 

 

 

269,296

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

Rural real estate

 

21,646

 

 

 

10,025

 

Development real estate

 

10,278

 

 

 

8,053

 

Other

 

2,141

 

 

 

2,235

 

Total Real Estate revenues

 

34,065

 

 

 

20,313

 

 

 

 

 

 

 

Total segment revenues

 

453,464

 

 

 

401,525

 

Intersegment Timberlands revenues1

 

(42,114

)

 

 

(47,332

)

Total consolidated revenues

$

411,350

 

 

$

354,193

 

 

1

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

 

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

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

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

Adjusted EBITDDA:

 

 

 

 

 

 

Timberlands

 

$

76,434

 

 

$

67,858

 

Wood Products

 

 

149,951

 

 

 

125,555

 

Real Estate

 

 

30,124

 

 

 

16,593

 

Corporate

 

 

(9,584

)

 

 

(10,710

)

Eliminations and adjustments

 

 

(1,363

)

 

 

(4,310

)

Total Adjusted EBITDDA

 

 

245,562

 

 

 

194,986

 

Interest expense, net1

 

 

(2,894

)

 

 

(3,574

)

Depreciation, depletion and amortization

 

 

(19,502

)

 

 

(17,996

)

Basis of real estate sold

 

 

(10,854

)

 

 

(8,823

)

Net loss on fire damage

 

 

(276

)

 

 

 

Pension settlement charge

 

 

(14,165

)

 

 

 

Non-operating pension and other postretirement employee benefits

 

 

(1,929

)

 

 

(3,414

)

Gain (loss) on disposal of fixed assets

 

 

3

 

 

 

(34

)

Income before income taxes

 

$

195,945

 

 

$

161,145

 

Depreciation, depletion and amortization:

 

 

 

 

 

 

Timberlands

 

$

12,161

 

 

$

11,417

 

Wood Products

 

 

7,021

 

 

 

6,203

 

Real Estate

 

 

170

 

 

 

155

 

Corporate

 

 

150

 

 

 

221

 

 

 

 

19,502

 

 

 

17,996

 

Bond discounts and deferred loan fees1

 

 

372

 

 

 

403

 

Total depreciation, depletion and amortization

 

$

19,874

 

 

$

18,399

 

Basis of real estate sold:

 

 

 

 

 

 

Real Estate

 

$

10,860

 

 

$

8,829

 

Eliminations and adjustments

 

 

(6

)

 

 

(6

)

Total basis of real estate sold

 

$

10,854

 

 

$

8,823

 

 

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 March 31,

 

(in thousands)

 

2022

 

 

2021

 

Basic weighted-average shares outstanding

 

 

69,419

 

 

 

67,207

 

Incremental shares due to:

 

 

 

 

 

 

Performance shares

 

 

140

 

 

 

326

 

Restricted stock units

 

 

64

 

 

 

74

 

Diluted weighted-average shares outstanding

 

 

69,623

 

 

 

67,607

 

 

For stock-based awards, the dilutive effect is calculated using the treasury stock method. Under this method, the dilutive effect is computed as if the awards were exercised at the beginning of the period (or at time of issuance, if later) and assumes the related proceeds were used to repurchase common stock at the average market price during the period. Related proceeds include future compensation cost associated with the stock award.

For the three months ended March 31, 2022 and 2021, there were approximately 114,400 and 63,000 stock-based awards, respectively, that were excluded from the calculation of diluted earnings per share as they were anti-dilutive. Anti-dilutive stock-based awards could be dilutive in future periods.

Share Repurchase Program

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

We did not repurchase any shares during the three months ended March 31, 2022 or 2021. At March 31, 2022, 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)

 

March 31, 2022

 

 

December 31, 2021

 

Logs

 

$

32,794

 

 

$

41,199

 

Lumber, panels and veneer

 

 

37,539

 

 

 

34,528

 

Materials and supplies

 

 

18,478

 

 

 

17,780

 

Total inventories

 

 

88,811

 

 

 

93,507

 

Less: LIFO reserve

 

 

(21,138

)

 

 

(21,138

)

Total inventories, net

 

$

67,673

 

 

$

72,369

 

 

 

 

 

 

 

 

Property, plant and equipment

 

(in thousands)

 

March 31, 2022

 

 

December 31, 2021

 

Property, plant and equipment

 

$

545,163

 

 

$

532,324

 

Less: accumulated depreciation

 

 

(247,453

)

 

 

(240,004

)

Total property, plant and equipment, net

 

$

297,710

 

 

$

292,320

 

 

 

 

 

 

 

 

 

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Ola, Arkansas sawmill fire

On June 13, 2021, a fire occurred at our Ola, Arkansas sawmill. There were no injuries or environmental issues from the fire. The damage was principally limited to the large log primary breakdown area of the mill. The planer mill, kiln, and shipping department were not affected. We have adequate property damage and business interruption insurance and expect to be reimbursed for both property damage and business interruption losses by our insurance carriers, subject to an applicable deductible. We recognized a total of $15.0 million in initial insurance recoveries for property damage associated with the fire at the sawmill during the third quarter of 2021. No insurance recoveries for property damage or business interruption losses for the fire at the sawmill were recorded during the three months ended March 31, 2022 as discussions with the insurance carriers are ongoing. Insurance recoveries will be recorded when deemed probable and reasonably estimable.

 

Timber and timberlands

 

(in thousands)

 

March 31, 2022

 

 

December 31, 2021

 

Timber and timberlands

 

$

1,586,628

 

 

$

1,597,011

 

Logging roads

 

 

84,702

 

 

 

85,660

 

Total timber and timberlands, net

 

$

1,671,330

 

 

$

1,682,671

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

(in thousands)

 

March 31, 2022

 

 

December 31, 2021

 

Income taxes payable

 

$

35,421

 

 

$

1,134

 

Accrued payroll and benefits

 

 

19,084

 

 

 

28,944

 

Accounts payable

 

 

10,419

 

 

 

12,749

 

Deferred revenue1

 

 

9,671

 

 

 

8,392

 

Other accrued taxes

 

 

7,310

 

 

 

5,714

 

Accrued interest

 

 

4,468

 

 

 

6,046

 

Other current liabilities

 

 

15,216

 

 

 

15,230

 

Total accounts payable and accrued liabilities

 

$

101,589

 

 

$

78,209

 

 

 

 

 

 

 

 

 

1

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

 

NOTE 5. DEBT

At March 31, 2022, 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 that we expect to refinance upon its maturity in December 2022. Certain borrowings under the Amended Term Loan Agreement are at variable rates of one or three-month LIBOR plus a spread between 1.68% 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 March 31, 2022, there were no borrowings under our $300.0 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 $500.0 million. The revolving line of credit agreement also includes a sublimit of $75.0 million for the issuance of standby letters of credit and a sublimit of $25.0 million for swing line loans. Usage under either or both subfacilities reduces availability under the revolving line of credit. We may utilize borrowings under the credit facility to, among other things, refinance existing indebtedness and provide funding for working capital requirements, capital projects, acquisitions and other general corporate expenditures.

We were in compliance with all debt and credit agreement covenants at March 31, 2022.

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NOTE 6. DERIVATIVE INSTRUMENTS

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

Derivatives designated and qualifying as a hedge of the exposure to variability in the cash flows of a specific asset or liability that is attributable to a particular risk, such as interest rate risk, are considered cash flow hedges. As of March 31, 2022, we have interest rate swaps associated with $403.5 million of term loan debt. These swaps are cash flow hedges that convert variable rates ranging from one-month and three-month LIBOR plus 1.68% to 2.10%, to fixed rates ranging from 3.04% to 4.75%. Our cash flow hedges are expected to be highly effective in achieving offsetting cash flows attributable to the hedged interest rate risk through the term of the hedges. At March 31, 2022, the amount of net losses expected to be reclassified into earnings in the next 12 months is approximately $1.4 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.

As of March 31, 2022, we have $567.5 million of forward starting interest rate swaps designated as cash flow hedges. These forward starting interest rate swaps effectively hedge the variability in future benchmark interest payments attributable to changes in interest rates on $567.5 million of future debt refinances through January 2029 by converting the benchmark interest rates to fixed interest rates. In addition, the cash flow hedges for future debt refinances require settlement on the stated maturity date.

The gross fair values of derivative instruments on our Condensed Consolidated Balance Sheets are as follows:

 

 

 

 

 

Asset Derivatives

 

 

 

 

Liability Derivatives

 

(in thousands)

 

Location

 

March 31, 2022

 

 

December 31, 2021

 

 

Location

 

March 31, 2022

 

 

December 31, 2021

 

Derivatives designated in cash flow hedging relationships:

 

 

 

 

 

 

 

 

 

   Interest rate contracts

 

Other assets, current1

 

$

4,673

 

 

$

2,191

 

 

Accounts payable and accrued liabilities1

 

$

 

 

$

 

Interest rate contracts

 

Other assets, non-current

 

 

57,487

 

 

 

31,306

 

 

Other long-term obligations

 

 

7,197

 

 

 

24,060

 

 

 

 

 

$

62,160

 

 

$

33,497

 

 

 

 

$

7,197

 

 

$

24,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

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

 

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

 

 

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

Location

 

2022

 

 

2021

 

Derivatives designated in cash flow hedging relationships:

 

 

 

 

Interest rate contracts

 

 

 

 

 

 

 

 

Income recognized in other comprehensive income, net of tax

 

 

 

$

41,243

 

 

$

61,875

 

Amounts reclassified from accumulated other comprehensive income (loss), net of tax1

 

Interest expense

 

$

(2,033

)

 

$

(2,232

)

 

 

 

 

 

Interest expense, net

 

 

 

$

2,894

 

 

$

3,574

 

 

 

 

 

 

 

 

 

 

 

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.

 

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NOTE 7. FAIR VALUE MEASUREMENTS

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

 

 

 

March 31, 2022

 

 

December 31, 2021

 

(in thousands)

 

Carrying
Amount

 

 

Fair
Value

 

 

Carrying
Amount

 

 

Fair
Value

 

Derivative assets related to interest rate swaps (Level 2)

 

$

62,160

 

 

$

62,160

 

 

$

33,497

 

 

$

33,497

 

Derivative liabilities related to interest rate swaps (Level 2)

 

$

(7,197

)

 

$

(7,197

)

 

$

(24,060

)

 

$

(24,060

)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Term loans

 

$

(691,282

)

 

$

(694,353

)

 

$

(691,119

)

 

$

(705,135

)

Revenue bonds

 

 

(65,735

)

 

 

(66,754

)

 

 

(65,735

)

 

 

(69,278

)

Medium-term notes

 

 

 

 

 

 

 

 

(3,000

)

 

 

(3,007

)

Total long-term debt1

 

$

(757,017

)

 

$

(761,107

)

 

$

(759,854

)

 

$

(777,420

)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

4,002

 

 

$

4,002

 

 

$

3,923

 

 

$

3,923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, based on third party sources, on the expected cash flows of each derivative. The analysis reflects the contractual terms of the derivatives, including the period to maturity and uses observable market-based inputs, including interest rate forward curves.

The fair value of our long-term debt is estimated based upon quoted market prices for similar debt issues or estimated based on average market prices for comparable debt when there is no quoted market price.

The contract value of our company owned life insurance is based on the amount at which it could be redeemed and, accordingly, approximates fair value.

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

NOTE 8. EQUITY-BASED COMPENSATION

At March 31, 2022, approximately 0.7 million shares are available for future use under our long-term incentive plans.

Share-based compensation activity during the three months ended March 31, 2022 included the following:

 

(Shares in thousands)

 

Granted

 

 

Vested

 

 

Forfeited

 

Performance Share Awards (PSAs)

 

 

92,490

 

 

 

 

 

 

971

 

Restricted Stock Units (RSUs)

 

 

34,324

 

 

 

500

 

 

 

1,323

 

 

 

 

 

 

 

 

 

 

 

Approximately 0.3 million shares of common stock were issued to employees during the three months ended March 31, 2022 as a result of PSA and RSU vesting during 2021 and 2022.

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

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

Equity-based compensation expense:

 

 

 

 

 

 

Performance share awards

 

$

1,298

 

 

$

1,224

 

Restricted stock units

 

 

709

 

 

 

665

 

Deferred compensation stock equivalent units expense

 

 

49

 

 

 

41

 

Total equity-based compensation expense

 

$

2,056

 

 

$

1,930

 

 

 

 

 

 

 

 

Total tax benefit recognized for equity-based expense

 

$

100

 

 

$

89

 

 

 

 

 

 

 

 

 

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Performance Share Awards

The weighted average grant date fair value of PSAs granted in 2022 was $76.18 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 2022:

 

Stock price as of valuation date

 

$

55.02

 

Risk-free rate

 

 

1.79

%

Expected volatility

 

 

45.69

%

Expected dividend yield1

 

 

 

Expected term (years)

 

 

3.00

 

 

 

 

 

 

1

Full dividend reinvestment assumed.

 

Restricted Stock Units

The weighted average fair value of all RSUs granted during the three months ended March 31, 2022 was $54.79 per share. The fair value of RSUs granted equaled our common share price on the date of grant factoring in any required post-vesting holding periods. The RSU awards granted accrue dividend equivalents based on dividends paid during the RSU vesting period. Recipients will receive dividend equivalents in the form of additional shares of common stock at the date the vested RSUs are settled. Any forfeited RSUs will not receive dividends. Therefore, the shares are not considered participating securities.

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.

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NOTE 10. LEASES

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

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

 

(in thousands)

Classification

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

 

Operating lease assets

Other long-term assets

 

$

7,794

 

 

$

8,514

 

Finance lease assets1

Property, plant and equipment, net

 

 

10,012

 

 

 

10,663

 

Total lease assets

 

 

$

17,806

 

 

$

19,177

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

Operating lease liabilities

Accounts payable and accrued liabilities

 

$

2,845

 

 

$

3,021

 

Finance lease liabilities

Accounts payable and accrued liabilities

 

 

3,550

 

 

 

3,577

 

Noncurrent:

 

 

 

 

 

 

 

Operating lease liabilities

Other long-term obligations

 

 

5,013

 

 

 

5,598

 

Finance lease liabilities

Other long-term obligations

 

 

6,342

 

 

 

6,972

 

Total lease liabilities

 

 

$

17,750

 

 

$

19,168

 

 

 

 

 

 

 

 

 

 

1

Finance lease assets are presented net of accumulated amortization of $5.5 million and $4.5 million as of March 31, 2022 and December 31, 2021, respectively.

The following table presents the components of lease expense:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

Operating lease costs1

 

$

947

 

 

$

1,328

 

Finance lease costs:

 

 

 

 

 

 

Amortization of leased assets

 

 

929

 

 

 

589

 

Interest on lease liabilities

 

 

67

 

 

 

51

 

Net lease costs

 

$

1,943

 

 

$

1,968

 

 

 

 

 

 

 

 

 

1

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

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

 

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

 

2022

 

 

2021

 

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

 

 

 

 

 

 

Operating cash flows for operating leases

 

$

994

 

 

$

1,368

 

Operating cash flows for finance leases

 

$

67

 

 

$

51

 

Financing cash flows for finance leases

 

$

938

 

 

$

577

 

Leased assets exchanged for new lease liabilities:

 

 

 

 

 

 

Operating leases

 

$

154

 

 

$

124

 

Finance leases

 

$

281

 

 

$

801

 

 

 

 

 

 

 

 

 

 

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NOTE 11. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS

In March 2022 we transferred $75.6 million of our qualified pension plan (the Plan) assets to an insurance company for the purchase of a group annuity contract. As a result of the transaction, the insurance company assumed responsibility for annuity administration and benefit payments to select retirees and terminated vested participants, with no change to participants' pension benefits. In connection with this transaction we recorded a non-cash pretax settlement charge of $14.2 million as a result of accelerating the recognition of actuarial losses included in Accumulated Other Comprehensive Income (Loss) that would have been recognized in future periods.

The settlement triggered a remeasurement of the Plan's assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the Plan as of March 31, 2022, and to calculate the related net periodic benefit cost for the remainder of 2022 to 3.95% from 3.00%. All other pension assumptions remain unchanged. The net effect of the remeasurement was a $6.2 million reduction in the funded status of the Plan, primarily driven by lower returns on Plan assets. This change in funded status was reflected in our Condensed Consolidated Balance Sheets as of March 31, 2022.

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

 

 

Three Months Ended March 31,

 

 

 

Pension

 

 

OPEB

 

(in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Service cost

 

$

1,849

 

 

$

2,045

 

 

$

79

 

 

$

168

 

Interest cost

 

 

2,812

 

 

 

2,633

 

 

 

229

 

 

 

317

 

Expected return on plan assets

 

 

(3,145

)

 

 

(3,382

)

 

 

 

 

 

 

Amortization of prior service cost (credit)

 

 

18

 

 

 

21

 

 

 

156

 

 

 

(298

)

Amortization of actuarial loss (gain)

 

 

1,954

 

 

 

3,578

 

 

 

(95

)

 

 

545

 

Net periodic cost before pension settlement charge

 

 

3,488

 

 

 

4,895

 

 

 

369

 

 

 

732

 

Pension settlement charge

 

 

14,165

 

 

 

 

 

 

 

 

 

 

Total net periodic cost

 

$

17,653

 

 

$

4,895

 

 

$

369

 

 

$

732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the three months ended March 31, 2022 and 2021, funding of pension and other postretirement employee benefit plans was $1.3 million and $1.4 million, respectively.

NOTE 12. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table details changes in amounts included in our Accumulated Other Comprehensive Income (Loss) (AOCI) by component on our Condensed Consolidated Balance Sheets, net of tax:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

Pension Plans

 

 

 

 

 

 

Balance at beginning of period

 

$

49,579

 

 

$

79,025

 

Net loss arising during the period

 

 

4,587

 

 

 

 

Effect of pension settlement

 

 

(10,553

)

 

 

 

Amounts reclassified from AOCI to earnings

 

 

(1,469

)

 

 

(2,770

)

Balance at end of period

 

 

42,144

 

 

 

76,255

 

Other Postretirement Benefit Plans

 

 

 

 

 

 

Balance at beginning of period

 

 

1,790

 

 

 

14,783

 

Amounts reclassified from AOCI to earnings

 

 

(45

)

 

 

(183

)

Balance at end of period

 

 

1,745

 

 

 

14,600

 

Cash Flow Hedges

 

 

 

 

 

 

Balance at beginning of period

 

 

(8,131

)

 

 

27,181

 

Amounts arising during the period

 

 

(41,243

)

 

 

(61,875

)

Amounts reclassified from AOCI to earnings

 

 

(2,033

)

 

 

(2,232

)

Balance at end of period

 

 

(51,407

)

 

 

(36,926

)

Accumulated other comprehensive (income) loss, end of period

 

$

(7,518

)

 

$

53,929

 

 

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, expectations regarding economic conditions, including interest rates and our ability to offset the impact of inflation, expected seasonal fluctuations in our business segments, expected effectiveness of our hedging instruments and swaps; expected return on pension assets; anticipated share repurchases and dividend payments; anticipated cash balances, cash flows from operations and expected liquidity; potential uses of our credit facility; the expected impact from the Ola, Arkansas sawmill fire, anticipated insurance coverage, and expected timing to complete reconstruction and installation activities and return to full operation; expectations regarding debt obligations, interest payments and debt refinancing; expectations regarding the market transition away from LIBOR and our ability to identify a suitable replacement rate; maintenance of our investment grade credit rating; expectations regarding the U.S. housing market and home repair and remodeling activity; the lumber and log markets and pricing; lumber shipment volumes; timber harvest volumes; rural real estate and residential and commercial real estate development sales; sufficiency of cash to meet operating requirements; expected 2022 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. The realization of our expectations and the accuracy of our assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to:

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 shipping and transportation;
changes in principal expenses;
recent increases in inflation and the extent to which such increases will continue;
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.

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For a discussion of some of the factors that may affect our business, results and prospects and a nonexclusive listing of forward-looking statements, refer to Cautionary Statement Regarding Forward-Looking Information on page 1 and Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. Investors should not interpret the disclosure of a risk to imply that the risk has not already materialized.

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

Our Company

We are a leading timberland REIT with ownership of approximately 1.8 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, inflation, asset dispositions or acquisitions, impact of pandemics (such as COVID-19 and its variants), fires (such as the Ola, Arkansas sawmill fire and fires on our timberlands), other natural disasters and other factors.

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.

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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.

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 April 2022, the U.S. Census Bureau reported housing starts for March 2022 were 1.8 million on a seasonally adjusted annual basis, which was up 3.9% from March 2021. In April 2022, the National Association of Home Builders (NAHB) reported the NAHB/Wells Fargo Housing Market Index (HMI) was at 77. While the HMI continues to indicate homebuilder confidence in the market for newly built single-family homes remains strong, the HMI has experienced four straight months of decline and is the lowest level since last summer. The repair and remodel sector, which has experienced steady growth during the pandemic-driven home improvement movement that began in early 2020, is expected to return to a more stable growth rate in 2022.

Overall, housing fundamentals remain strong, driven by a shortage of homes, low existing inventory for sale, a large millennial demographic entering their prime home-buying years, interest rates remaining below long-term historical averages, the continued remote work evolution, high home equity levels and an aging existing housing stock supporting repair and remodel demand. These fundamentals are key drivers for our business, and we continue to expect that lumber prices will remain structurally higher than long-term historical averages due to continued lumber demand and tight supply. Rising construction costs, a persistently tight labor pool, supply chain challenges and consumer concerns about rising mortgage rates could negatively impact the pace of housing starts and repair and remodel projects.

Inflation has impacted our business, especially for fuel, energy and repair and maintenance costs, although we believe there are offsetting impacts including wood product prices and our timberland’s effectiveness as an inflation hedge. Over the last twelve months, the Consumer Price Index (all items) increased by 8.5 percent before seasonal adjustments, while the Producer Price Index (final demand) increased by 11.2 percent on an unadjusted basis. Additionally, transportation challenges rising from shortage of truck and railcar availability linger in certain markets. These transportation issues could lead to higher freight costs and shipping challenges through the foreseeable future.

In our Timberlands segment, sawlog prices benefitted from Idaho sawlog prices being indexed on a four-week lag to lumber prices, continued strong Northern cedar sawlog prices, increased demand for Southern pine sawlogs and a higher mix of prime sawlogs harvested on recently acquired timberlands. Our Southern harvest volume of 1.1 million tons in the first quarter of 2022 was higher than the first quarter of 2021, primarily due to favorable harvest conditions. We expect to harvest between 1.1 and 1.3 million tons during the second quarter, with approximately 73% of the volume in the Southern region. For 2022, we expect to harvest approximately 6.1 million tons, with approximately 70% of the volume in the Southern region.

During the second quarter of 2021 we experienced a fire at our Ola, Arkansas sawmill, which had an annual capacity of 150 million board feet prior to the fire. 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 and complete the start-up phase by early 2023.

For the first quarter of 2022 our Wood Products segment benefited from increased price realizations. Lumber shipments continue to be impacted by the Ola sawmill fire. We shipped approximately 233 million board feet of lumber during the first quarter of 2022 and expect to ship between 250 and 260 million board feet of lumber during the second quarter of 2022. For 2022, we expect to ship approximately 1.0 billion board feet of lumber. This estimate reflects the expected timing of the start-up of the large-log line at our Ola, Arkansas sawmill.

Our Real Estate segment first quarter 2022 results reflect strong Chenal Valley development sales and higher rural land sales prices. We expect to sell approximately 12,000 acres of rural land and 40 residential lots during the second quarter of 2022. For 2022, we expect to sell approximately 20,000 acres of rural land and 165 residential lots.

 

 

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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 March 31,

 

(in thousands)

2022

 

 

2021

 

 

Change

 

Revenues

$

411,350

 

 

$

354,193

 

 

$

57,157

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of goods sold

 

179,847

 

 

 

169,302

 

 

 

10,545

 

Selling, general and administrative expenses

 

16,294

 

 

 

16,758

 

 

 

(464

)

Net loss on fire damage

 

276

 

 

 

 

 

 

276

 

 

 

196,417

 

 

 

186,060

 

 

 

10,357

 

Operating income

 

214,933

 

 

 

168,133

 

 

 

46,800

 

Interest expense, net

 

(2,894

)

 

 

(3,574

)

 

 

680

 

Pension settlement charge

 

(14,165

)

 

 

 

 

 

(14,165

)

Non-operating pension and other postretirement benefit costs

 

(1,929

)

 

 

(3,414

)

 

 

1,485

 

Income before income taxes

 

195,945

 

 

 

161,145

 

 

 

34,800

 

Income taxes

 

(32,065

)

 

 

(30,039

)

 

 

(2,026

)

Net income

$

163,880

 

 

$

131,106

 

 

$

32,774

 

Total Adjusted EBITDDA1

$

245,562

 

 

$

194,986

 

 

$

50,576

 

 

1

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

First Quarter 2022 Compared with First Quarter 2021

Revenues

Revenues were $411.4 million, an increase of $57.2 million compared with the first quarter of 2021 primarily due to higher lumber and sawlog prices, increased harvest volumes in the Southern region and a 1,760-acre rural land sale in the South for $7,500 per acre to an energy provider for a planned commercial solar farm. These increases were partially offset by lower lumber shipments in the first quarter of 2022, which was impacted by the loss of production at our Ola, Arkansas sawmill following a fire in June 2021.

Cost of goods sold

Cost of goods sold increased $10.5 million compared with the first quarter of 2021 primarily due to higher manufacturing and log and haul costs from inflationary price increases in areas such as diesel fuel, energy and repair and maintenance.

Pension settlement charge

In March 2022 we transferred $75.6 million of our qualified pension plan (the Plan) assets to an insurance company for the purchase of a group annuity contract. In connection with this transaction, we recorded a non-cash pretax settlement charge of $14.2 million.

Income taxes

Income taxes are primarily due to income from our PotlatchDeltic taxable REIT subsidiaries (TRS). For the three months ended March 31, 2022, we recorded income tax expense of $32.1 million on TRS income before tax of $127.3 million, which included the $14.2 million pension settlement charge. For the three months ended March 31, 2021, we recorded an income tax expense of $30.0 million on TRS income before tax of $115.8 million.

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Total Adjusted EBITDDA

Total Adjusted EBITDDA for the first quarter of 2022 increased $50.6 million compared to the first quarter of 2021. The increase in Total Adjusted EBITDDA was primarily driven by higher lumber and sawlog prices, increased harvest volumes in the Southern region and the 1,760-acre rural land sale in the South. These increases were partially offset by lower lumber shipments and higher manufacturing and log and haul costs. Refer to the Business Segment Results below for further discussions on activities for each of our segments. See Liquidity and Performance Measures for a reconciliation of Total Adjusted EBITDDA to net income, the closest comparable GAAP measure, for each of the periods presented.

Business Segment Results

Timberlands Segment

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

 

Change

 

Revenues1

 

$

123,657

 

 

$

111,916

 

 

$

11,741

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Logging and hauling

 

 

40,082

 

 

 

36,468

 

 

 

3,614

 

Other

 

 

5,403

 

 

 

5,888

 

 

 

(485

)

Selling, general and administrative expenses

 

 

1,738

 

 

 

1,702

 

 

 

36

 

 Timberlands Adjusted EBITDDA2

 

$

76,434

 

 

$

67,858

 

 

$

8,576

 

 

1

Prior to elimination of intersegment fiber revenues of $42.1 million and $47.3 million for the three months ended March 31, 2022 and 2021, 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.

Timberlands Segment Statistics

 

 

 

Three Months Ended March 31,

 

Harvest Volumes (in tons)

 

2022

 

 

2021

 

 

Change

 

Northern region

 

 

 

 

 

 

 

 

 

Sawlog

 

 

385,290

 

 

 

427,255

 

 

 

(41,965

)

Pulpwood

 

 

8,259

 

 

 

13,884

 

 

 

(5,625

)

Total

 

 

393,549

 

 

 

441,139

 

 

 

(47,590

)

 

 

 

 

 

 

 

 

 

 

Southern region

 

 

 

 

 

 

 

 

 

Sawlog

 

 

490,093

 

 

 

508,073

 

 

 

(17,980

)

Pulpwood

 

 

379,651

 

 

 

326,429

 

 

 

53,222

 

Stumpage

 

 

196,513

 

 

 

58,413

 

 

 

138,100

 

Total

 

 

1,066,257

 

 

 

892,915

 

 

 

173,342

 

 

 

 

 

 

 

 

 

 

 

Total harvest volume

 

 

1,459,806

 

 

 

1,334,054

 

 

 

125,752

 

 

 

 

 

 

 

 

 

 

 

Sales Price/Unit ($ per ton)1

 

 

 

 

 

 

 

 

 

Northern region

 

 

 

 

 

 

 

 

 

Sawlog

 

$

212

 

 

$

178

 

 

$

34

 

Pulpwood

 

$

47

 

 

$

36

 

 

$

11

 

 

 

 

 

 

 

 

 

 

 

Southern region

 

 

 

 

 

 

 

 

 

Sawlog

 

$

48

 

 

$

44

 

 

$

4

 

Pulpwood

 

$

31

 

 

$

28

 

 

$

3

 

Stumpage

 

$

17

 

 

$

13

 

 

$

4

 

 

1

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

 

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Timberlands Adjusted EBITDDA

The following table summarizes Timberlands Adjusted EBITDDA variances for the three months ended March 31, 2022, compared with the three months ended March 31, 2021:

 

(in thousands)

 

Three Months

 

Adjusted EBITDDA - prior year

 

$

67,858

 

Sales price and mix

 

 

10,205

 

Harvest volume

 

 

1,388

 

Logging and hauling costs per unit

 

 

(3,968

)

Forest management, indirect and other

 

 

951

 

Timberlands Adjusted EBITDDA - current year

 

$

76,434

 

First Quarter 2022 Compared with First Quarter 2021

Timberlands Adjusted EBITDDA for the first quarter of 2022 increased $8.6 million compared with the same period in 2021, primarily as a result of the following:

Sales Price and Mix: Sawlog prices in the Northern region increased 19.1%, to $212 per ton, primarily from the effect of higher lumber price realizations on indexed sawlogs and increased cedar log prices in Idaho. Southern sawlog prices increased 9.1%, to $48 per ton, compared to the first quarter of 2021, as a result of a higher mix of prime grade sawlogs harvested on recently acquired timberlands and strong demand.
Harvest Volume: We harvested 1.1 million tons in the Southern region during the first quarter of 2022, which was 19.4% higher than the first quarter of 2021, primarily due to a severe winter storm that impacted harvest conditions in 2021. In the Northern region hauling conditions were favorable throughout the first quarter of 2021 as compared to the first quarter of 2022, where hauling conditions were more seasonally limited, resulting in a 10.8% decrease in harvest volume.
Logging and Hauling Cost per Unit: Log and hauling costs per unit were higher primarily due to increased diesel costs.

Wood Products Segment

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

 

Change

 

Revenues

 

$

295,742

 

 

$

269,296

 

 

$

26,446

 

Costs and expenses1

 

 

 

 

 

 

 

 

 

Fiber costs

 

 

77,673

 

 

 

79,469

 

 

 

(1,796

)

Freight, logging and hauling

 

 

18,367

 

 

 

18,197

 

 

 

170

 

Manufacturing costs

 

 

50,793

 

 

 

47,602

 

 

 

3,191

 

Finished goods inventory change

 

 

(4,579

)

 

 

(4,019

)

 

 

(560

)

Selling, general and administrative expenses

 

 

3,408

 

 

 

2,522

 

 

 

886

 

Other

 

 

129

 

 

 

(30

)

 

 

159

 

Wood Products Adjusted EBITDDA2

 

$

149,951

 

 

$

125,555

 

 

$

24,396

 

 

1

Prior to elimination of intersegment fiber costs of $42.1 million and $47.3 million for the three months ended March 31, 2022 and 2021, 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 March 31,

 

 

 

2022

 

 

2021

 

 

Change

 

Lumber shipments (MBF)1

 

 

233,188

 

 

 

258,069

 

 

 

(24,881

)

Lumber sales prices ($ per MBF)

 

$

1,075

 

 

$

890

 

 

$

185

 

 

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 months ended March 31, 2022, compared with the three months ended March 31, 2021:

 

(in thousands)

 

Three Months

 

Wood Products Adjusted EBITDDA - prior year

 

$

125,555

 

Lumber:

 

 

 

Price

 

 

41,212

 

Volume

 

 

(11,195

)

Manufacturing costs per unit

 

 

(7,081

)

Log costs per unit

 

 

(2,305

)

Residuals, panels and other

 

 

3,765

 

Wood Products Adjusted EBITDDA - current year

 

$

149,951

 

First Quarter 2022 Compared with First Quarter 2021

Wood Products Adjusted EBITDDA for the first quarter of 2022 increased $24.4 million compared with the same period in 2021, primarily as a result of the following:

Lumber Price: Average lumber sales prices increased to $1,075 per MBF during the first quarter of 2022 compared to $890 during the first quarter of 2021.
Lumber Volume: Lumber shipments decreased 24.9 million board feet during the first quarter of 2022 compared to the first quarter of 2021, primarily as a result of decreased shipments from 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 inflationary price increases in areas such as energy and repair and maintenance.
Log Costs Per Unit: Log costs per unit were higher primarily as a result of increased indexed log costs at our Idaho sawmill.
Residual Sales, Panels and Other: The first quarter of 2022 benefitted from increased plywood price realizations and shipments due to strong demand and product mix.

Real Estate Segment

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

 

Change

 

Revenues

 

$

34,065

 

 

$

20,313

 

 

$

13,752

 

Costs and expenses

 

 

 

 

 

 

 

 

 

Costs of goods sold

 

 

2,879

 

 

 

2,468

 

 

 

411

 

Selling, general and administrative expenses

 

 

1,062

 

 

 

1,252

 

 

 

(190

)

Real Estate Adjusted EBITDDA1

 

$

30,124

 

 

$

16,593

 

 

$

13,531

 

 

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.

 

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Real Estate Segment Statistics

 

Rural Real Estate

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Acres sold

 

 

4,751

 

 

 

7,083

 

Average price per acre

 

$

4,556

 

 

$

1,415

 

 

Development Real Estate

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Residential lots

 

 

64

 

 

 

51

 

Average price per lot

 

$

112,725

 

 

$

98,629

 

 

 

 

 

 

 

 

Commercial acres

 

 

3

 

 

 

11

 

Average price per acre

 

$

917,236

 

 

$

277,425

 

Real Estate Adjusted EBITDDA

The following table summarizes Real Estate Adjusted EBITDDA variances for the three months ended March 31, 2022 compared with the three months ended March 31, 2021:

 

(in thousands)

 

Three Months

 

Real Estate Adjusted EBITDDA - prior year

 

$

16,593

 

Rural real estate sales

 

 

11,812

 

Real estate development sales

 

 

1,940

 

Selling, general and administrative expenses

 

 

190

 

Other costs, net

 

 

(411

)

Real Estate Adjusted EBITDDA - current year

 

$

30,124

 

First Quarter 2022 Compared with First Quarter 2021

Real Estate Adjusted EBITDDA for the first quarter of 2022 was $30.1 million, an increase of $13.5 million compared with the first quarter of 2021, primarily as a result of the following:

Rural Sales: The increase in rural real estate sales is primarily a result of a 1,760-acre sale in the South for $7,500 per acre in the first quarter of 2022 to an energy provider for a planned commercial solar farm, which was not matched by a similarly-sized sale during the first quarter of 2021. 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 first quarter of 2022, we sold 64 residential lots at an average lot price of $112,725 compared to 51 lots at an average lot price of $98,629 during the first quarter of 2021. In addition, we sold 3 acres of commercial land in Chenal Valley for $917,236 per acre compared to 11 acres of commercial land in Chenal Valley for $277,425 per acre in the first quarter of 2021. The average price per lot or acre fluctuates based on a variety of factors including size and location within the development.

 

 

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Liquidity and Capital Resources

Cash generated by our operations is highly dependent on selling prices of our products and can vary from period to period. Changes in significant sources and uses of cash for the three months ended March 31, 2022 and 2021 are presented by category as follows:

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

 

Change

 

Net cash from operating activities

 

$

230,299

 

 

$

169,965

 

 

$

60,334

 

Net cash from investing activities

 

$

(17,122

)

 

$

(11,529

)

 

$

(5,593

)

Net cash from financing activities

 

$

(34,595

)

 

$

(28,075

)

 

$

(6,520

)

 

 

 

 

 

 

 

 

 

 

Net Cash Flows from Operating Activities

Net cash from operating activities increased $60.3 million in the first quarter of 2022, compared to the first quarter of 2021 primarily as a result of the following:

Cash received from customers increased $63.4 million primarily due to higher average lumber and sawlog prices, increased Southern harvest volumes and the 1,760-acre rural land sale in the South. These increases were partially offset by lower Northern harvest volumes and reduced shipments at our Ola, Arkansas sawmill following the fire in June 2021.
Cash payments increased $4.8 million due to inflationary cost increases in areas such as diesel fuel, energy and repair and maintenance in our manufacturing and harvest operations. These increases were partially offset by reduced vendor payments as a result of lower production at our Ola, Arkansas sawmill following the fire in June 2021 and lower harvest activities in the Northern region.

Net Cash Flows from Investing Activities

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

We spent $17.2 million on capital expenditures for property, plant and equipment, timberlands reforestation and road construction projects during the first quarter of 2022 compared to $11.7 million during the first quarter of 2021.

Net Cash Flows from Financing Activities

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

We paid dividends of $30.5 million in the first quarter of 2022 compared to $27.5 million in the first quarter of 2021.
We repaid $3.0 million in long-term debt during the first quarter of 2022 and had no similar payment in the first quarter of 2021.

Future Sources and Uses of Cash

At March 31, 2022, we had cash and cash equivalents of $470.9 million. We expect cash and cash equivalents generated from our operating activities, supplemented by borrowings under our credit agreement, if needed, to be adequate to meet our future cash requirements. At March 31, 2022, there were no significant changes in our cash commitments arising in the normal course of business under our known contractual and other obligations as described in our Annual Report on Form 10-K for the year ended December 31, 2021.

Capital Expenditures

We invest cash in maintenance and discretionary capital expenditures at our Wood Products facilities. We also invest cash in the reforestation of timberlands and construction of roads in our Timberlands operations and to develop land in our Real Estate development operations. We evaluate discretionary capital improvements based on an expected level of return on investment. We expect to spend a total of approximately $70 to $75 million for capital expenditures during 2022.

Our 2022 planned capital spend includes approximately $15 million of capital expenditures for the reconstruction of our fire-damaged Ola sawmill, which is largely covered by insurance. We expect to install the new large-log line in the third quarter of 2022 and complete the start-up phase by early 2023. A determination regarding the extent of downtime and costs to repair the Ola sawmill is on-going 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 based on when we receive proceeds from our insurance carriers.

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Table of Contents

 

Share Repurchase Program

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 March 31, 2022, we had remaining authorization of $59.5 million for future stock repurchases under the Repurchase Program. The timing, manner, price and amount of repurchases will be determined according to the trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan), and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason.

Long-Term Debt and Credit Agreement

At March 31, 2022, our total outstanding net long-term debt was $755.5 million. We expect to refinance a $40.0 million term loan expiring in December 2022 at maturity, which is covered by a forward starting interest rate swap that hedges the variability in future benchmark interest payments attributable to changes in interest rates. All interest rates on our outstanding long-term debt are fixed rates under fixed rate loans or variable rate loans with an associated interest rate swap that fixes the variable benchmark interest rate component.

We have a $300.0 million revolving line of credit with a syndicate of lenders that matures February 14, 2027. Under the terms of the Amended Credit Agreement, the amount of available principal may be increased up to an additional $500.0 million. We may also utilize borrowings under the Amended Credit Agreement to, among other things, refinance existing indebtedness and provide funding for working capital requirements, capital projects, acquisitions, and other general corporate expenditures. At March 31, 2022, there were no borrowings under the revolving line of credit and approximately $1.0 million of the credit facility was utilized by outstanding letters of credit.

Our credit agreement, variable rate term loans with $403.5 million in principal and our interest rate derivative agreements have an interest rate tied to LIBOR. On March 5, 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that the US Dollar LIBOR will no longer be published after June 30, 2023. The market transition away from LIBOR to an alternative reference rate is complex. While we expect LIBOR to be available in substantially its current form until at least through June 30, 2023, it is possible that LIBOR will become unavailable prior to that point. We continue to evaluate and monitor market developments regarding the alternative rates, will work with our lenders and counterparties to identify a suitable replacement rate, and may amend certain debt and interest rate derivative agreements to accommodate those rates.

Financial Covenants

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

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Table of Contents

 

The following table presents the components and applicable limits of Total Asset Value (TAV), a component of the Leverage Ratio, at March 31, 2022:

(in thousands)

 

 

 

Estimated timberland fair value

 

$

3,974,991

 

Wood Products manufacturing facilities book basis (limited to 10% of TAV)

 

 

283,361

 

Cash and cash equivalents

 

 

470,918

 

Company owned life insurance (COLI) (limited to 5% of TAV)

 

 

4,002

 

Total Asset Value1

 

$

4,733,272

 

 

1

TAV also includes, as applicable, Construction in Progress (limited to 10% of TAV) and Investments in Affiliates (limited to 15% TAV) as defined in the Agreements.

At March 31, 2022, we were in compliance with all covenants under the Agreements. The following table sets forth the financial covenants for the Agreements and our status with respect to these covenants at March 31, 2022:

 

 

Covenant Requirement

 

Actual at
March 31, 2022

Interest coverage ratio

 

 

3.00 to 1.00

 

24.5

Leverage ratio

 

 

40%

 

16%

 

 

 

 

 

 

 

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

Credit Ratings

Two major debt rating agencies routinely evaluate our debt, and our cost of borrowing can increase or decrease depending on our credit rating. Both Moody’s and S&P rate our debt as investment grade.

Capital Structure

(in thousands)

 

March 31, 2022

 

 

December 31, 2021

 

Long-term debt (including current portion)

 

$

755,482

 

 

$

758,256

 

Cash and cash equivalents

 

 

(470,918

)

 

 

(296,151

)

Net debt

 

 

284,564

 

 

 

462,105

 

Market capitalization1

 

 

3,657,986

 

 

 

4,159,034

 

Enterprise value

 

$

3,942,550

 

 

$

4,621,139

 

 

 

 

 

 

 

 

Net debt to enterprise value

 

 

7.2

%

 

 

10.0

%

Dividend yield2

 

 

3.3

%

 

 

2.9

%

Weighted-average cost of debt, after tax3

 

 

3.1

%

 

 

3.1

%

 

 

 

 

 

 

 

 

1

Market capitalization is based on outstanding shares of 69.4 million and 67.0 million times closing share prices of $52.73 and $60.22 as of March 31, 2022, and December 31, 2021, respectively.

2

Dividend yield is based on annualized dividends per share of $1.76 and share prices of $52.73 and $60.22 as of March 31, 2022, and December 31, 2021, respectively.

3

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

Liquidity and Performance Measures

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

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

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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 March 31,

 

(in thousands)

 

2022

 

 

2021

 

Net income

 

$

163,880

 

 

$

131,106

 

Interest expense, net

 

 

2,894

 

 

 

3,574

 

Income taxes

 

 

32,065

 

 

 

30,039

 

Depreciation, depletion and amortization

 

 

19,502

 

 

 

17,996

 

Basis of real estate sold

 

 

10,854

 

 

 

8,823

 

Net loss on fire damage

 

 

276

 

 

 

 

Pension settlement charge

 

 

14,165

 

 

 

 

Non-operating pension and other postretirement benefit costs

 

 

1,929

 

 

 

3,414

 

(Gain) loss on disposal of fixed assets

 

 

(3

)

 

 

34

 

Total Adjusted EBITDDA

 

$

245,562

 

 

$

194,986

 

 

 

 

 

 

 

 

We define CAD as cash from operating activities adjusted for capital spending for purchases of property, plant and equipment, timberlands reforestation and roads and timberland acquisitions not classified as strategic. Management believes CAD is a useful indicator of the company’s overall liquidity, as it provides a measure of cash generated that is available for dividends to common stockholders (an important factor in maintaining our REIT status), repurchase of the company’s common shares, debt repayment, acquisitions and other discretionary and nondiscretionary activities. Our definition of CAD is limited in that it does not solely represent residual cash flows available for discretionary expenditures since the measure does not deduct the payments required for debt service and other contractual obligations. Therefore, we believe it is important to view CAD as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows. Our definition of CAD may be different from similarly titled measures reported by other companies, including those in our industry. CAD is not necessarily indicative of the CAD that may be generated in future periods.

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

 

 

 

Three Months Ended March 31,

 

 

Twelve Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net cash from operating activities1

 

$

230,299

 

 

$

169,965

 

 

$

565,220

 

 

$

457,090

 

Capital expenditures2

 

 

(17,214

)

 

 

(11,718

)

 

 

(80,910

)

 

 

(43,964

)

CAD

 

$

213,085

 

 

$

158,247

 

 

$

484,310

 

 

$

413,126

 

Net cash from investing activities3

 

$

(17,122

)

 

$

(11,529

)

 

$

(64,738

)

 

$

(42,688

)

Net cash from financing activities

 

$

(34,595

)

 

$

(28,075

)

 

$

(407,829

)

 

$

(113,521

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Net cash from operating activities for the three months ended March 31, 2022 and 2021 includes cash paid for real estate development expenditures of $2.2 million and $2.3 million, respectively. Net cash from operating activities for the twelve months ended March 31, 2022 and 2021 includes cash paid for real estate development expenditures of $8.8 million and $8.6 million, respectively.

2

The three and twelve months ended March 31, 2022 includes fire related capital expenditures for the Ola, Arkansas sawmill of $5.1 million and $12.4 million, respectively, and excludes of $0 and $15.0 million, respectively, of insurance proceeds for the Ola, Arkansas sawmill property losses.

3

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

 

Critical Accounting Policies and Estimates

In March 2022, we transferred $75.6 million of our qualified pension plan (the Plan) assets to an insurance company for the purchase of a group annuity contract. This transaction triggered a remeasurement of the Plan's assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the Plan as of March 31, 2022. All other pension assumptions remain unchanged. See Note 11: Pension and Other Postretirement Employee Benefits for further information on the pension settlement and change to the projected benefit obligation. There have been no other significant changes during 2022 to our critical accounting policies or estimates as presented in our 2021 Annual Report on Form 10-K.

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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, 2021. Our exposures to market risk have not changed materially since December 31, 2021.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act)), under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of March 31, 2022. These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, the CEO and CFO have concluded that these disclosure controls and procedures were effective as of March 31, 2022.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Internal Control over Financial Reporting

No changes occurred in our internal control over financial reporting during the three months ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Part II – OTHER INFORMATION

We believe there is no pending or threatened litigation that could have a material adverse effect on our financial position, operations or liquidity.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors previously disclosed in Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.

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 first quarter of 2022 under the Repurchase Program. At March 31, 2022, 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.

10(a)*

Sixth Amendment to Second Amended and Restated Term Loan Agreement dated as of February 14, 2022 among the Registrant and its wholly-owned subsidiaries, as borrowers, Northwest Credit Services, PCA, as administrative agent, the guarantors party thereto, the lenders party thereto, and the voting participants party thereto, filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on February 14, 2022.

(31)

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

(32)

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

(101)

The following financial information from PotlatchDeltic Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, filed on April 29, 2022 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021, (iii) the Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021, (v) the Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021 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:

April 29, 2022

 

 

 

34