Annual Statements Open main menu

POTLATCHDELTIC CORP - Quarter Report: 2023 September (Form 10-Q)

10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2023

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 (in thousands) as of October 31, 2023, was 79,364.

 

 


 

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

22

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

36

ITEM 4.

Controls and Procedures

36

 

 

 

PART II. - OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

37

ITEM 1A.

Risk Factors

37

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

ITEM 5.

Other Information

37

ITEM 6.

Exhibits

38

 

 

 

SIGNATURE

39

 

 

 

 

 

 


Table of Contents

 

Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands, except per share amounts)

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenues

$

265,509

 

 

$

306,693

 

 

$

769,572

 

 

$

1,077,640

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of goods sold

 

226,303

 

 

 

220,876

 

 

 

665,716

 

 

 

592,057

 

Selling, general and administrative expenses

 

19,303

 

 

 

18,878

 

 

 

55,118

 

 

 

55,584

 

CatchMark merger-related expenses

 

 

 

26,007

 

 

 

2,453

 

 

 

26,007

 

Gain on fire damage

 

(16,326

)

 

 

(24,913

)

 

 

(39,436

)

 

 

(34,505

)

 

 

229,280

 

 

 

240,848

 

 

 

683,851

 

 

 

639,143

 

Operating income

 

36,229

 

 

 

65,845

 

 

 

85,721

 

 

 

438,497

 

Interest expense, net

 

(7,971

)

 

 

(8,280

)

 

 

(15,783

)

 

 

(18,593

)

Pension settlement charge

 

 

 

 

 

 

 

 

 

 

(14,165

)

Non-operating pension and other postretirement employee benefit costs

 

(228

)

 

 

(1,808

)

 

 

(685

)

 

 

(5,546

)

Other

 

370

 

 

 

(1

)

 

 

638

 

 

 

(1

)

Income before income taxes

 

28,400

 

 

 

55,756

 

 

 

69,891

 

 

 

400,192

 

Income taxes

 

(4,725

)

 

 

(9,801

)

 

 

(7,650

)

 

 

(70,135

)

Net income

$

23,675

 

 

$

45,955

 

 

$

62,241

 

 

$

330,057

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.30

 

 

$

0.64

 

 

$

0.78

 

 

$

4.70

 

Diluted

$

0.29

 

 

$

0.64

 

 

$

0.78

 

 

$

4.69

 

Dividends per share

$

0.45

 

 

$

0.44

 

 

$

1.35

 

 

$

1.32

 

Weighted-average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

80,132

 

 

 

71,486

 

 

 

80,102

 

 

 

70,171

 

Diluted

 

80,379

 

 

 

71,632

 

 

 

80,279

 

 

 

70,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

3


Table of Contents

 

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

23,675

 

 

$

45,955

 

 

$

62,241

 

 

$

330,057

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Pension and other postretirement employee benefits

 

 

(132

)

 

 

914

 

 

 

(607

)

 

 

9,309

 

Cash flow hedges

 

 

28,464

 

 

 

32,725

 

 

 

28,848

 

 

 

118,530

 

Other comprehensive income, net of tax

 

 

28,332

 

 

 

33,639

 

 

 

28,241

 

 

 

127,839

 

Comprehensive income

 

$

52,007

 

 

$

79,594

 

 

$

90,482

 

 

$

457,896

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4


Table of Contents

 

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

(in thousands, except per share amounts)

 

September 30, 2023

 

 

December 31, 2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

302,799

 

 

$

343,809

 

Customer receivables, net

 

 

30,762

 

 

 

22,813

 

Inventories, net

 

 

82,537

 

 

 

67,958

 

Other current assets

 

 

56,606

 

 

 

36,955

 

Total current assets

 

 

472,704

 

 

 

471,535

 

Property, plant and equipment, net

 

 

334,350

 

 

 

318,184

 

Investment in real estate held for development and sale

 

 

55,928

 

 

 

55,490

 

Timber and timberlands, net

 

 

2,459,508

 

 

 

2,508,372

 

Intangible assets, net

 

 

16,085

 

 

 

17,420

 

Other long-term assets

 

 

209,703

 

 

 

179,554

 

Total assets

 

$

3,548,278

 

 

$

3,550,555

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

115,334

 

 

$

94,861

 

Current portion of long-term debt

 

 

39,996

 

 

 

39,979

 

Current portion of pension and other postretirement employee benefits

 

 

4,926

 

 

 

4,926

 

Total current liabilities

 

 

160,256

 

 

 

139,766

 

Long-term debt

 

 

993,562

 

 

 

992,701

 

Pension and other postretirement employee benefits

 

 

80,581

 

 

 

77,396

 

Deferred tax liabilities, net

 

 

38,419

 

 

 

41,790

 

Other long-term obligations

 

 

36,363

 

 

 

35,749

 

Total liabilities

 

 

1,309,181

 

 

 

1,287,402

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, authorized 4,000 shares, no shares issued

 

 

 

 

 

 

Common stock, $1 par value, 200,000 and 100,000 shares authorized and 79,628 and 79,683 shares issued and outstanding

 

 

79,628

 

 

 

79,683

 

Additional paid-in capital

 

 

2,301,301

 

 

 

2,294,797

 

Accumulated deficit

 

 

(267,725

)

 

 

(208,979

)

Accumulated other comprehensive income

 

 

125,893

 

 

 

97,652

 

Total stockholders’ equity

 

 

2,239,097

 

 

 

2,263,153

 

Total liabilities and stockholders' equity

 

$

3,548,278

 

 

$

3,550,555

 

 

 

 

 

 

 

 

 

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

 

5


Table of Contents

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

62,241

 

 

$

330,057

 

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

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

90,327

 

 

 

67,960

 

Basis of real estate sold

 

 

21,624

 

 

 

25,024

 

Change in deferred taxes

 

 

(3,979

)

 

 

(1,359

)

Pension and other postretirement employee benefits

 

 

4,833

 

 

 

10,936

 

Pension settlement charge

 

 

 

 

 

14,165

 

Equity-based compensation expense

 

 

6,472

 

 

 

16,141

 

Gain on fire damage

 

 

(39,436

)

 

 

(34,505

)

Interest received under swaps with other-than-insignificant financing element

 

 

(18,651

)

 

 

 

Other, net

 

 

5,648

 

 

 

(455

)

Change in working capital and operating-related activities, net

 

 

(24,107

)

 

 

14,071

 

Real estate development expenditures

 

 

(7,243

)

 

 

(6,986

)

Funding of pension and other postretirement employee benefits

 

 

(2,176

)

 

 

(3,290

)

Proceeds from insurance recoveries

 

 

21,755

 

 

 

26,678

 

Net cash from operating activities

 

 

117,308

 

 

 

458,437

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Property, plant and equipment additions

 

 

(28,068

)

 

 

(44,000

)

Timberlands reforestation and roads

 

 

(17,013

)

 

 

(12,220

)

Acquisition of timber and timberlands

 

 

(1,676

)

 

 

(96,081

)

Proceeds from property insurance

 

 

1,356

 

 

 

 

Cash acquired in CatchMark merger

 

 

 

 

 

23,571

 

Interest received under swaps with other-than-insignificant financing element

 

 

17,279

 

 

 

 

Other, net

 

 

700

 

 

 

935

 

Net cash from investing activities

 

 

(27,422

)

 

 

(127,795

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Distributions to common stockholders

 

 

(107,880

)

 

 

(96,578

)

Repurchase of common stock

 

 

(11,406

)

 

 

(4,527

)

Proceeds from issuance of long-term debt

 

 

 

 

 

277,500

 

Repayment of long-term debt

 

 

 

 

 

(303,000

)

Other, net

 

 

(2,315

)

 

 

(6,120

)

Net cash from financing activities

 

 

(121,601

)

 

 

(132,725

)

Change in cash, cash equivalents and restricted cash

 

 

(31,715

)

 

 

197,917

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

345,591

 

 

 

296,772

 

Cash, cash equivalents and restricted cash at end of period

 

$

313,876

 

 

$

494,689

 

 

 

 

 

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

Accrued property, plant and equipment additions

 

$

20,141

 

 

$

4,429

 

Accrued timberlands reforestation and roads

 

$

2,834

 

 

$

2,749

 

Repurchase of common stock pending settlement

 

$

1,723

 

 

$

 

Equity issued as consideration in the CatchMark merger

 

$

 

 

$

508,314

 

Long-term debt and other liabilities assumed in merger with CatchMark

 

$

 

 

$

323,102

 

 

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 above in the Condensed Consolidated Statements of Cash Flows.

 

(in thousands)

 

September 30, 2023

 

 

September 30, 2022

 

Cash and cash equivalents

 

$

302,799

 

 

$

484,018

 

Restricted cash included in other current and long-term assets1

 

 

11,077

 

 

 

10,671

 

Total cash, cash equivalents, and restricted cash

 

$

313,876

 

 

$

494,689

 

 

1

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

At September 30, 2023 and 2022, $1.8 million and $0, respectively, was classified as Other current assets.

 

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

 

 

Equity

 

Balance, December 31, 2022

 

 

79,683

 

 

$

79,683

 

 

$

2,294,797

 

 

$

(208,979

)

 

$

97,652

 

 

$

2,263,153

 

Net income

 

 

 

 

 

 

 

 

 

 

 

16,260

 

 

 

 

 

 

16,260

 

Shares issued for stock compensation

 

 

233

 

 

 

233

 

 

 

(233

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

2,279

 

 

 

 

 

 

 

 

 

2,279

 

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(131

)

 

 

(131

)

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,335

)

 

 

(17,335

)

Common dividends, $0.45 per share

 

 

 

 

 

 

 

 

 

 

 

(35,962

)

 

 

 

 

 

(35,962

)

Other transactions, net

 

 

 

 

 

 

 

 

84

 

 

 

(85

)

 

 

 

 

 

(1

)

Balance, March 31, 2023

 

 

79,916

 

 

 

79,916

 

 

 

2,296,927

 

 

 

(228,766

)

 

 

80,186

 

 

 

2,228,263

 

Net income

 

 

 

 

 

 

 

 

 

 

 

22,306

 

 

 

 

 

 

22,306

 

Shares issued for stock compensation

 

 

4

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

1,577

 

 

 

 

 

 

 

 

 

1,577

 

Repurchase of common stock

 

 

(9

)

 

 

(9

)

 

 

 

 

 

(385

)

 

 

 

 

 

(394

)

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(344

)

 

 

(344

)

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,719

 

 

 

17,719

 

Dividends on common stock, $0.45 per share

 

 

 

 

 

 

 

 

 

 

 

(35,958

)

 

 

 

 

 

(35,958

)

Other transactions, net

 

 

 

 

 

 

 

 

93

 

 

 

(93

)

 

 

 

 

 

 

Balance, June 30, 2023

 

 

79,911

 

 

 

79,911

 

 

 

2,298,593

 

 

 

(242,896

)

 

 

97,561

 

 

 

2,233,169

 

Net income

 

 

 

 

 

 

 

 

 

 

 

23,675

 

 

 

 

 

 

23,675

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

2,616

 

 

 

 

 

 

 

 

 

2,616

 

Repurchase of common stock

 

 

(283

)

 

 

(283

)

 

 

 

 

 

(12,452

)

 

 

 

 

 

(12,735

)

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(132

)

 

 

(132

)

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,464

 

 

 

28,464

 

Dividends on common stock, $0.45 per share

 

 

 

 

 

 

 

 

 

 

 

(35,960

)

 

 

 

 

 

(35,960

)

Other transactions, net

 

 

 

 

 

 

 

 

92

 

 

 

(92

)

 

 

 

 

 

 

Balance, September 30, 2023

 

 

79,628

 

 

$

79,628

 

 

$

2,301,301

 

 

$

(267,725

)

 

$

125,893

 

 

$

2,239,097

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Common dividends, $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

 

Net income

 

 

 

 

 

 

 

 

 

 

 

120,222

 

 

 

 

 

 

120,222

 

Shares issued for stock compensation

 

 

3

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

2,368

 

 

 

 

 

 

 

 

 

2,368

 

Repurchase of common stock

 

 

(95

)

 

 

(95

)

 

 

 

 

 

(4,061

)

 

 

 

 

 

(4,156

)

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

915

 

 

 

915

 

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42,529

 

 

 

42,529

 

Dividends on common stock, $0.44 per share

 

 

 

 

 

 

 

 

 

 

 

(30,524

)

 

 

 

 

 

(30,524

)

Other transactions, net

 

 

 

 

 

 

 

 

78

 

 

 

(79

)

 

 

 

 

 

(1

)

Balance, June 30, 2022

 

 

69,280

 

 

 

69,280

 

 

 

1,785,383

 

 

 

(62,074

)

 

 

50,962

 

 

 

1,843,551

 

Net income

 

 

 

 

 

 

 

 

 

 

 

45,955

 

 

 

 

 

 

45,955

 

Shares issued for stock compensation

 

 

31

 

 

 

31

 

 

 

(31

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

2,409

 

 

 

 

 

 

 

 

 

2,409

 

Repurchase of common stock

 

 

(8

)

 

 

(8

)

 

 

 

 

 

(363

)

 

 

 

 

 

(371

)

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

914

 

 

 

914

 

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,725

 

 

 

32,725

 

Dividends on common stock, $0.44 per share

 

 

 

 

 

 

 

 

 

 

 

(35,530

)

 

 

 

 

 

(35,530

)

Common stock issued for CatchMark merger

 

 

11,474

 

 

 

11,474

 

 

 

504,292

 

 

 

 

 

 

 

 

 

515,766

 

Other transactions, net

 

 

 

 

 

 

 

 

77

 

 

 

(77

)

 

 

 

 

 

 

Balance, September 30, 2022

 

 

80,777

 

 

$

80,777

 

 

$

2,292,130

 

 

$

(52,089

)

 

$

84,601

 

 

$

2,405,419

 

 

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

14

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

20

Note 13: CatchMark Merger

21

Note 14: Commitments and Contingencies

21

 

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 nine states. We are engaged in activities associated with timberland management, including the sale of timber, the management of nearly 2.2 million acres of timberlands and the purchase and sale of timberlands. We are also engaged in the manufacturing and sale of wood products and the development of real estate. Our timberlands, real estate development projects and all of our wood products facilities are located within the continental United States. The primary market for our products is the United States. We converted to a REIT effective January 1, 2006.

Condensed Consolidated Financial Statements

The accompanying unaudited Condensed Consolidated Financial Statements provide an overall view of our results and financial condition and reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Except as otherwise disclosed in these Notes to Condensed Consolidated Financial Statements, such adjustments are of a normal, recurring nature. Intercompany transactions and accounts have been eliminated in consolidation. The Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. Certain disclosures normally provided in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on February 16, 2023. Results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the full year.

Increased Authorized Shares of Common Stock

On May 1, 2023, the stockholders of the company approved an amendment (the “Amendment”) to the Company’s Third Restated Certificate of Incorporation (the “Charter”) to increase the number of authorized shares of the company’s common stock from 100 million to 200 million. The Amendment became effective upon the filing of the Certificate of Amendment to the Charter with the Secretary of State of the State of Delaware on May 1, 2023.

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.

Recent Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies and are adopted by the company as of the specified effective date. For the nine months ended September 30, 2023, there were no new accounting pronouncements that management believes materially affect the company’s present or future results of operations, overall financial condition, liquidity or disclosures.

 

10


Table of Contents

 

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 sells lumber and plywood. The Real Estate segment includes the sale of land holdings deemed non-strategic or identified as having higher and better use alternatives, a master planned community development and a country club.

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

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

The following table presents our revenues by major product:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

2023

 

 

2022

 

 

2023

 

 

2022

 

Timberlands

 

 

 

 

 

 

 

 

 

 

 

Northern region

 

 

 

 

 

 

 

 

 

 

 

Sawlogs

$

48,538

 

 

$

78,668

 

 

$

138,685

 

 

$

223,102

 

Pulpwood

 

330

 

 

 

582

 

 

 

1,102

 

 

 

1,561

 

Other

 

362

 

 

 

281

 

 

 

995

 

 

 

797

 

Total Northern revenues

 

49,230

 

 

 

79,531

 

 

 

140,782

 

 

 

225,460

 

 

 

 

 

 

 

 

 

 

 

 

 

Southern region

 

 

 

 

 

 

 

 

 

 

 

Sawlogs

 

31,863

 

 

 

29,618

 

 

 

91,419

 

 

 

77,364

 

Pulpwood

 

17,503

 

 

 

17,694

 

 

 

48,641

 

 

 

41,542

 

Stumpage

 

7,057

 

 

 

4,028

 

 

 

20,438

 

 

 

9,494

 

Other

 

4,155

 

 

 

3,705

 

 

 

12,383

 

 

 

9,859

 

Total Southern revenues

 

60,578

 

 

 

55,045

 

 

 

172,881

 

 

 

138,259

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Timberlands revenues

 

109,808

 

 

 

134,576

 

 

 

313,663

 

 

 

363,719

 

 

 

 

 

 

 

 

 

 

 

 

 

Wood Products

 

 

 

 

 

 

 

 

 

 

 

Lumber

 

132,852

 

 

 

151,540

 

 

 

379,939

 

 

 

622,228

 

Residuals and Panels

 

32,256

 

 

 

41,891

 

 

 

105,633

 

 

 

133,578

 

Total Wood Products revenues

 

165,108

 

 

 

193,431

 

 

 

485,572

 

 

 

755,806

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

Rural real estate

 

11,616

 

 

 

6,182

 

 

 

34,005

 

 

 

44,268

 

Development real estate

 

4,289

 

 

 

10,205

 

 

 

16,498

 

 

 

28,429

 

Other

 

3,247

 

 

 

2,621

 

 

 

9,576

 

 

 

7,112

 

Total Real Estate revenues

 

19,152

 

 

 

19,008

 

 

 

60,079

 

 

 

79,809

 

 

 

 

 

 

 

 

 

 

 

 

 

Total segment revenues

 

294,068

 

 

 

347,015

 

 

 

859,314

 

 

 

1,199,334

 

Intersegment Timberlands revenues1

 

(28,559

)

 

 

(40,322

)

 

 

(89,736

)

 

 

(121,694

)

Other intersegment revenues

 

 

 

 

 

 

 

(6

)

 

 

 

Total consolidated revenues

$

265,509

 

 

$

306,693

 

 

$

769,572

 

 

$

1,077,640

 

 

1

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

 

11


Table of Contents

 

Management uses Adjusted EBITDDA to evaluate the operating performance and effectiveness of operating strategies of our segments and allocation of resources to them. EBITDDA is calculated as net income 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 September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Adjusted EBITDDA:

 

 

 

 

 

 

 

 

 

Timberlands

 

$

42,062

 

 

$

64,482

 

 

$

118,017

 

 

$

198,806

 

Wood Products

 

 

15,039

 

 

 

31,258

 

 

 

26,975

 

 

 

288,465

 

Real Estate

 

 

14,165

 

 

 

14,140

 

 

 

45,867

 

 

 

66,080

 

Corporate

 

 

(11,696

)

 

 

(12,629

)

 

 

(32,958

)

 

 

(36,125

)

Eliminations and adjustments

 

 

(3,292

)

 

 

3,839

 

 

 

1,599

 

 

 

4,596

 

Total Adjusted EBITDDA

 

 

56,278

 

 

 

101,090

 

 

 

159,500

 

 

 

521,822

 

Interest expense, net1

 

 

(7,971

)

 

 

(8,280

)

 

 

(15,783

)

 

 

(18,593

)

Depreciation, depletion and amortization

 

 

(30,248

)

 

 

(27,329

)

 

 

(89,099

)

 

 

(66,838

)

Basis of real estate sold

 

 

(6,109

)

 

 

(6,845

)

 

 

(21,624

)

 

 

(25,024

)

CatchMark merger-related expenses

 

 

 

 

 

(26,007

)

 

 

(2,453

)

 

 

(26,007

)

Gain on fire damage

 

 

16,326

 

 

 

24,913

 

 

 

39,436

 

 

 

34,505

 

Pension settlement charge

 

 

 

 

 

 

 

 

 

 

 

(14,165

)

Non-operating pension and other postretirement employee benefit costs

 

 

(228

)

 

 

(1,808

)

 

 

(685

)

 

 

(5,546

)

(Loss) gain on disposal of fixed assets

 

 

(18

)

 

 

23

 

 

 

(39

)

 

 

39

 

Other

 

 

370

 

 

 

(1

)

 

 

638

 

 

 

(1

)

Income before income taxes

 

$

28,400

 

 

$

55,756

 

 

$

69,891

 

 

$

400,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

Timberlands

 

$

19,267

 

 

$

16,963

 

 

$

55,623

 

 

$

40,687

 

Wood Products

 

 

10,740

 

 

 

10,069

 

 

 

32,723

 

 

 

25,226

 

Real Estate

 

 

120

 

 

 

175

 

 

 

397

 

 

 

518

 

Corporate

 

 

121

 

 

 

122

 

 

 

356

 

 

 

407

 

 

 

30,248

 

 

 

27,329

 

 

 

89,099

 

 

 

66,838

 

Bond discounts and deferred loan fees1

 

 

410

 

 

 

378

 

 

 

1,228

 

 

 

1,122

 

Total depreciation, depletion and amortization

 

$

30,658

 

 

$

27,707

 

 

$

90,327

 

 

$

67,960

 

 

 

 

 

 

 

 

 

 

 

Basis of real estate sold:

 

 

 

 

 

 

 

 

 

Real Estate

 

$

6,111

 

 

$

6,845

 

 

$

21,629

 

 

$

25,033

 

Eliminations and adjustments

 

 

(2

)

 

 

 

 

 

(5

)

 

 

(9

)

Total basis of real estate sold

 

$

6,109

 

 

$

6,845

 

 

$

21,624

 

 

$

25,024

 

 

1

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

 

12


Table of Contents

 

NOTE 3. EARNINGS PER SHARE

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Basic weighted-average shares outstanding

 

 

80,132

 

 

 

71,486

 

 

 

80,102

 

 

 

70,171

 

Incremental shares due to:

 

 

 

 

 

 

 

 

 

 

 

 

Performance shares

 

 

182

 

 

 

111

 

 

 

137

 

 

 

104

 

Restricted stock units

 

 

65

 

 

 

35

 

 

 

40

 

 

 

33

 

Diluted weighted-average shares outstanding

 

 

80,379

 

 

 

71,632

 

 

 

80,279

 

 

 

70,308

 

 

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

For the three and nine months ended September 30, 2023, there were approximately 2,000 and 28,000 stock-based awards, respectively, that were excluded from the calculation of diluted earnings per share as they were anti-dilutive. For the three and nine months ended September 30, 2022, there were approximately 117,000 and 136,000 stock-based award shares, respectively, that were excluded from the calculation of diluted earnings per share as they were anti-dilutive.

Share Repurchase Program

On August 30, 2018, our board of directors authorized management to repurchase up to $100.0 million of common stock with no time limit set for the repurchase (the 2018 Repurchase Program). During the three and nine months ended September 30, 2022, we repurchased 8,444 and 103,010 shares of our common stock (for total consideration of $0.4 million and $4.5 million), respectively, in open-market transactions under the 2018 Repurchase Program.

On August 31, 2022, our board of directors authorized management to repurchase up to $200.0 million of our common stock with no set time limit for the repurchase (the 2022 Repurchase Program). Concurrently, the board of directors terminated the remaining repurchase authorization under the 2018 Repurchase Program.

Shares under the 2022 Repurchase Program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan), or through privately negotiated transactions. The timing, manner, price and amount of repurchases will be determined according to, and subject to, the terms of the Trading Plan, and, subject to the terms of the Trading Plan, the 2022 Repurchase Program may be suspended, terminated or modified at any time for any reason.

During the three and nine months ended September 30, 2023, we repurchased 282,988 and 291,749 shares of our common stock (for total consideration of $12.7 million and $13.1 million) respectively, in open-market transactions under the 2022 Repurchase Program. No shares were repurchased under the 2022 Repurchase Program during the nine months ended September 30, 2022. At September 30, 2023, we had remaining authorization of $136.9 million for future stock repurchases under the 2022 Repurchase Program. Transaction costs are not counted against authorized funds.

We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability to account for repurchases that have not been cash settled. We retire shares upon repurchase. Any excess repurchase price over par is recorded in accumulated deficit.

13


Table of Contents

 

NOTE 4. CERTAIN BALANCE SHEET COMPONENTS

Inventories

 

(in thousands)

 

September 30, 2023

 

 

December 31, 2022

 

Logs

 

$

40,300

 

 

$

30,586

 

Lumber, panels and veneer

 

 

38,662

 

 

 

35,888

 

Materials and supplies

 

 

23,353

 

 

 

21,262

 

Total inventories

 

 

102,315

 

 

 

87,736

 

Less: LIFO reserve

 

 

(19,778

)

 

 

(19,778

)

Total inventories, net

 

$

82,537

 

 

$

67,958

 

Property, plant and equipment

 

(in thousands)

 

September 30, 2023

 

 

December 31, 2022

 

Property, plant and equipment

 

$

634,096

 

 

$

588,935

 

Less: accumulated depreciation

 

 

(299,746

)

 

 

(270,751

)

Total property, plant and equipment, net

 

$

334,350

 

 

$

318,184

 

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 new equipment has been installed and the large log line restarted in September 2022. We have adequate property damage and business interruption insurance, subject to a $2.0 million deductible. Insurance recoveries are recorded when deemed probable and reasonably estimable. In September 2023, we finalized our claim with the insurance carriers resulting in $89.4 million of total insurance recoveries, net of a $2.0 million deductible, for both the property damage and business interruption claims. During the three and nine months ended September 30, 2023, we recorded insurance recoveries of $16.3 million and $39.4 million, respectively, from the Ola sawmill claim, all of which was recognized as a gain on fire damage in the Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2022, we recorded $24.9 million and $34.1 million, respectively, as gain on fire damage.

Timber and timberlands

 

(in thousands)

 

September 30, 2023

 

 

December 31, 2022

 

Timber and timberlands

 

$

2,366,877

 

 

$

2,416,134

 

Logging roads

 

 

92,631

 

 

 

92,238

 

Total timber and timberlands, net

 

$

2,459,508

 

 

$

2,508,372

 

 

Accounts payable and accrued liabilities

 

(in thousands)

 

September 30, 2023

 

 

December 31, 2022

 

Accounts payable

 

$

37,845

 

 

$

12,241

 

Accrued payroll and benefits

 

 

20,006

 

 

 

29,051

 

Deferred revenue1

 

 

14,858

 

 

 

10,860

 

Accrued taxes

 

 

6,878

 

 

 

7,161

 

Accrued interest

 

 

6,912

 

 

 

7,778

 

Other current liabilities

 

 

28,835

 

 

 

27,770

 

Total accounts payable and accrued liabilities

 

$

115,334

 

 

$

94,861

 

 

1

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

 

NOTE 5. DEBT

TERM LOANS

At September 30, 2023, our total outstanding principal on our long-term debt of $1.0 billion included $971.0 million of term loans under our Second Amended and Restated Term Loan Agreement (Amended Term Loan Agreement) with our primary lender, which includes a $40 million term loan that we expect to refinance upon its maturity in December 2023. Certain

14


Table of Contents

 

borrowings under the Amended Term Loan Agreement are at the one-month Secured Overnight Financing Rate ("SOFR")-indexed variable rates, plus a spread between 1.66% and 2.30%. We have entered into SOFR-indexed interest rate swaps to fix the interest rate on these variable rate term loans. See Note: 6 Derivative Instruments for additional information.

CREDIT AGREEMENT

On May 18, 2023, we entered into a First Amendment to the Third Amended and Restated Credit Agreement (Amended Credit Agreement). The Amended Credit Agreement provides for loans based on SOFR instead of the London Inter-Bank Offered Rate (“LIBOR”), provides us the option to borrow based on a daily SOFR or term SOFR basis, and provides mechanics relating to the transition from the use of SOFR to a replacement benchmark rate upon the occurrence of certain transition events.

The Amended Credit Agreement provides for a $300.0 million revolving line of credit that matures February 14, 2027. As provided in the Amended Credit Agreement, borrowing capacity may be increased by up to an additional $500.0 million. The revolving line of credit also includes a sublimit of $75.0 million for the issuance of standby letters of credit and a sublimit of $25.0 million for swing line loans. Usage under either or both sub facilities reduces availability under the revolving line of credit. We may utilize borrowings under the 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 September 30, 2023, there were no borrowings under the revolving line of credit and approximately $0.7 million of our revolving line of credit was utilized for outstanding letters of credit.

We were in compliance with all debt and credit agreement covenants at September 30, 2023.

NOTE 6. DERIVATIVE INSTRUMENTS

From time to time, we enter into derivative financial instruments to manage certain cash flow and fair value risks. Derivatives designated and qualifying as a hedge of the exposure to variability in the cash flows of a specific asset or liability that is attributable to a particular risk, such as interest rate risk, are considered cash flow hedges. All our cash flow hedges are expected to be highly effective in achieving offsetting cash flows attributable to the hedged interest rate risk through the term of the hedges.

At September 30, 2023, we have interest rate swaps associated with $721.0 million of SOFR-indexed term loan debt. These cash flow hedges convert variable rates ranging from one-month SOFR plus 1.66% to 2.30%, to fixed rates ranging from 2.19% to 4.79% before patronage credits from lenders. At September 30, 2023, we also have $250.0 million of forward-starting interest rate swaps designated as cash flow hedges for expected future debt refinances that require settlement on the stated maturity date.

The gross fair values of derivative instruments at September 30, 2023 and December 31, 2022, were $166.3 million and $144.6 million, respectively, all of which were classified in Other assets, non-current on our Condensed Consolidated Balance Sheets. Derivative instruments that mature within one year, as a whole, are classified as current.

The following table details the effect of derivatives on the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Comprehensive Income:

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

Location

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Derivatives designated in cash flow hedging relationships:

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

$

33,607

 

 

$

32,900

 

 

$

42,353

 

 

$

115,408

 

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

 

Interest expense, net

 

$

5,143

 

 

$

175

 

 

$

13,505

 

 

$

(3,122

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

$

7,971

 

 

$

8,280

 

 

$

15,783

 

 

$

18,593

 

 

1 Realized gains and losses on interest rate contracts consist of realized net cash received or paid and interest accruals on the interest rate swaps during the periods in addition to amortization of amounts out of other comprehensive (loss) income related to certain terminated hedges and adjustments to interest expense resulting from amortization of inception value of certain off-market designated hedges. Net cash received or paid is included within Interest expense, net in the Condensed Consolidated Statements of Operations.

At September 30, 2023, the amount of net gains expected to be reclassified into earnings in the next 12 months is approximately $20.9 million. However, this expected amount to be reclassified into earnings is subject to volatility as the ultimate amount recognized in earnings is based on the SOFR rates at the time of net swap cash payments.

15


Table of Contents

 

NOTE 7. FAIR VALUE MEASUREMENTS

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

 

 

 

September 30, 2023

 

 

December 31, 2022

 

(in thousands)

 

Carrying
Amount

 

 

Fair
Value

 

 

Carrying
Amount

 

 

Fair
Value

 

Derivative assets related to interest rate swaps (Level 2)

 

$

166,256

 

 

$

166,256

 

 

$

144,583

 

 

$

144,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Term loans

 

$

(969,757

)

 

$

(962,843

)

 

$

(969,269

)

 

$

(961,632

)

Revenue bonds

 

 

(65,735

)

 

 

(64,549

)

 

 

(65,735

)

 

 

(64,602

)

Total long-term debt1

 

$

(1,035,492

)

 

$

(1,027,392

)

 

$

(1,035,004

)

 

$

(1,026,234

)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

4,923

 

 

$

4,923

 

 

$

4,311

 

 

$

4,311

 

 

1

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

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

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

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

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

NOTE 8. EQUITY-BASED COMPENSATION

We issue new shares of common stock to settle performance stock awards (PSAs), restricted stock units (RSUs) and deferred compensation stock equivalent units. At September 30, 2023, approximately 1.8 million shares were available for future use under our long-term incentive plans.

Share-based compensation activity during the nine months ended September 30, 2023, included the following:

 

 

 

Granted

 

 

Vested

 

 

Forfeited

 

Performance Share Awards (PSAs)

 

 

106,342

 

 

 

 

 

 

28,177

 

Restricted Stock Units (RSUs)

 

 

127,079

 

 

 

17,225

 

 

 

12,727

 

Approximately 0.2 million shares of common stock were issued to employees during the nine months ended September 30, 2023 as a result of PSA and RSU vesting during 2022 and 2023.

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Equity-based compensation expense:

 

 

 

 

 

 

 

 

 

 

 

 

Performance share awards

 

$

1,483

 

 

$

1,535

 

 

$

3,623

 

 

$

4,351

 

Restricted stock units

 

 

1,084

 

 

 

825

 

 

 

2,702

 

 

 

2,335

 

Deferred compensation stock equivalent units expense

 

 

49

 

 

 

49

 

 

 

147

 

 

 

147

 

Total equity-based compensation expense

 

$

2,616

 

 

$

2,409

 

 

$

6,472

 

 

$

6,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total tax benefit recognized for equity-based expense

 

$

135

 

 

$

119

 

 

$

394

 

 

$

338

 

 

16


Table of Contents

 

Additionally, during the three months ended September 30, 2022, we recognized a $9.3 million expense for the accelerated vesting of CatchMark equity awards related to the CatchMark merger which is included in CatchMark merger-related expenses on the Condensed Consolidated Statements of Operations. See Note 13: CatchMark Merger for additional information.

Performance Share Awards

The weighted average grant date fair value of PSAs granted in 2023 was $61.21 per share. PSAs granted under the stock incentive plans have a three-year performance period and shares are issued at the end of the period if the performance measures are met. The number of shares actually issued, as a percentage of the amount subject to the PSA, could range from 0% to 200%. PSAs granted under the stock incentive plans do not have voting rights unless and until shares are issued upon settlement. If shares are issued at the end of the performance measurement period, the recipients will receive dividend equivalents in the form of additional shares of common stock at the date of settlement equal to the dividends that would have been paid on the shares earned had the recipients owned the shares during the three-year period. The share awards are not considered participating securities.

The following table presents the key inputs used in the Monte Carlo simulation to calculate the fair value of the performance share awards granted in 2023:

 

Stock price as of valuation date

 

$

47.55

 

Risk-free rate

 

 

4.14

%

Expected volatility

 

 

36.24

%

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 nine months ended September 30, 2023, was $47.01 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. The share awards 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 stockholders. We conduct certain activities through our PotlatchDeltic taxable REIT subsidiaries (TRS) which are subject to corporate level federal and state income taxes. These activities are principally comprised of our wood products manufacturing operations and certain real estate investments. Therefore, income tax expense or benefit is primarily due to pre-tax book income or loss of the TRS, as well as permanent book versus tax differences and discrete items.

During the second quarter of 2023, we reduced our federal-effected deferred blended state tax rate as a result of changes in tax rates and tax laws enacted during the quarter in certain states in which our TRS subsidiaries operate. The effect of the change resulted in a $1.0 million reduction to our net deferred tax liability and an offsetting reduction to tax expense, all of which was recorded as a discrete item in the second quarter of 2023.

17


Table of Contents

 

NOTE 10. LEASES

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

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

 

(in thousands)

Classification

 

September 30, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

 

Operating lease assets

Other long-term assets

 

$

9,456

 

 

$

9,306

 

Finance lease assets1

Property, plant and equipment, net

 

 

11,608

 

 

 

13,213

 

Total lease assets

 

 

$

21,064

 

 

$

22,519

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

Operating lease liabilities

Accounts payable and accrued liabilities

 

$

2,379

 

 

$

2,570

 

Finance lease liabilities

Accounts payable and accrued liabilities

 

 

4,390

 

 

 

4,834

 

Noncurrent:

 

 

 

 

 

 

 

Operating lease liabilities

Other long-term obligations

 

 

7,067

 

 

 

6,716

 

Finance lease liabilities

Other long-term obligations

 

 

7,090

 

 

 

8,179

 

Total lease liabilities

 

 

$

20,926

 

 

$

22,299

 

 

1

Finance lease assets are presented net of accumulated amortization of $8.8 million and $7.9 million as of September 30, 2023 and December 31, 2022, respectively.

The following table presents the components of lease expense:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating lease costs1

 

$

772

 

 

$

805

 

 

$

2,454

 

 

$

2,633

 

Finance lease costs:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of leased assets

 

 

1,206

 

 

 

1,137

 

 

 

3,768

 

 

 

3,061

 

Interest expense

 

 

115

 

 

 

90

 

 

 

339

 

 

 

226

 

Net lease costs

 

$

2,093

 

 

$

2,032

 

 

$

6,561

 

 

$

5,920

 

 

1

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

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

 

 

 

 

Nine Months Ended September 30,

 

(in thousands)

 

 

2023

 

 

2022

 

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

 

 

 

 

 

 

Operating cash flows for operating leases

 

$

2,498

 

 

$

2,733

 

Operating cash flows for finance leases

 

$

339

 

 

$

226

 

Financing cash flows for finance leases

 

$

3,662

 

 

$

3,110

 

Leased assets exchanged for new lease liabilities:

 

 

 

 

 

 

Operating leases

 

$

2,407

 

 

$

3,931

 

Finance leases

 

$

2,604

 

 

$

5,761

 

 

 

 

 

 

18


Table of Contents

 

NOTE 11. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS

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

 

 

 

Three Months Ended September 30,

 

 

 

Pension

 

 

OPEB

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Service cost

 

$

1,355

 

 

$

1,652

 

 

$

27

 

 

$

79

 

Interest cost

 

 

3,139

 

 

 

2,611

 

 

 

294

 

 

 

228

 

Expected return on plan assets

 

 

(3,028

)

 

 

(2,259

)

 

 

 

 

 

 

Amortization of prior service cost

 

 

10

 

 

 

19

 

 

 

 

 

 

155

 

Amortization of actuarial (gain) loss

 

 

(21

)

 

 

1,150

 

 

 

(166

)

 

 

(96

)

Total net periodic cost

 

$

1,455

 

 

$

3,173

 

 

$

155

 

 

$

366

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

Pension

 

 

OPEB

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Service cost

 

$

4,066

 

 

$

5,153

 

 

$

82

 

 

$

237

 

Interest cost

 

 

9,414

 

 

 

8,034

 

 

 

881

 

 

 

686

 

Expected return on plan assets

 

 

(9,081

)

 

 

(7,662

)

 

 

 

 

 

 

Amortization of prior service cost

 

 

32

 

 

 

55

 

 

 

 

 

 

467

 

Amortization of actuarial (gain) loss

 

 

(63

)

 

 

4,252

 

 

 

(498

)

 

 

(286

)

Net periodic cost before pension settlement charge

 

 

4,368

 

 

 

9,832

 

 

 

465

 

 

 

1,104

 

Pension settlement charge

 

 

 

 

 

14,165

 

 

 

 

 

 

 

Net periodic cost

 

$

4,368

 

 

$

23,997

 

 

$

465

 

 

$

1,104

 

During the nine months ended September 30, 2023 and 2022, funding of pension and other postretirement employee benefit plans was $2.2 million and $3.3 million, respectively.

Pension Annuitization

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

19


Table of Contents

 

NOTE 12. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Pension and Other Postretirement Employee Benefits

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(28,969

)

 

$

(42,974

)

 

$

(28,494

)

 

$

(51,369

)

Unrecognized gains (losses) arising in AOCI during the period:

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

(6,157

)

Tax effect

 

 

 

 

 

 

 

 

 

 

 

1,570

 

Reclassifications from AOCI to earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Pension settlement1

 

 

 

 

 

 

 

 

 

 

 

14,165

 

Other1

 

 

(177

)

 

 

1,228

 

 

 

(529

)

 

 

4,488

 

Tax effect

 

 

45

 

 

 

(314

)

 

 

133

 

 

 

(4,757

)

Net of tax amount

 

 

(132

)

 

 

914

 

 

 

(396

)

 

 

9,309

 

Other reclassifications

 

 

 

 

 

 

 

 

(211

)

 

 

 

Balance at end of period

 

 

(29,101

)

 

 

(42,060

)

 

 

(29,101

)

 

 

(42,060

)

Cash Flow Hedges

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

126,530

 

 

 

93,936

 

 

 

126,146

 

 

 

8,131

 

Unrecognized gains arising in AOCI during the period:

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

34,334

 

 

 

28,802

 

 

 

43,207

 

 

 

116,229

 

Tax effect

 

 

(727

)

 

 

4,098

 

 

 

(899

)

 

 

(821

)

Reclassifications from AOCI to earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Gross2

 

 

(5,266

)

 

 

(170

)

 

 

(13,829

)

 

 

3,274

 

Tax effect

 

 

123

 

 

 

(5

)

 

 

324

 

 

 

(152

)

Net of tax amount

 

 

28,464

 

 

 

32,725

 

 

 

28,803

 

 

 

118,530

 

Other reclassifications

 

 

 

 

 

 

 

 

45

 

 

 

 

Balance at end of period

 

 

154,994

 

 

 

126,661

 

 

 

154,994

 

 

 

126,661

 

Accumulated other comprehensive income, end of period

 

$

125,893

 

 

$

84,601

 

 

$

125,893

 

 

$

84,601

 

 

1 Included in the computation of net periodic pension costs.

2 Included in Interest expense, net on the Condensed Consolidated Statement of Operations.

 

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

20


Table of Contents

 

NOTE 13. CATCHMARK MERGER

On September 14, 2022, CatchMark Timber Trust, Inc. (CatchMark) and CatchMark Timber Operating Partnership, L.P. (the Partnership) merged into a wholly owned subsidiary (Merger Sub) of PotlatchDeltic, pursuant to the terms of a merger agreement dated May 29, 2022, with the Merger Sub surviving the mergers. CatchMark owned approximately 348,000 acres of superior site index timberlands located in Alabama, Georgia and South Carolina. The CatchMark timber and timberlands assets and operations are included in our Timberlands segment within the Southern region.

As a result of the merger, we issued approximately 11.5 million shares of PotlatchDeltic common stock, including: (i) 11.3 million shares in exchange for the outstanding shares of CatchMark common stock, which included unvested CatchMark share-based awards that fully vested upon closing of the merger; and (ii) 0.2 million shares in exchange for the Partnership OP Units. We capitalized transaction costs of $9.3 million for items such as investment banking fees, legal services, and other professional fees directly attributable to the merger.

We accounted for the transaction as an asset acquisition as substantially all the value of the acquisition was concentrated in the acquired timber and timberlands. We allocated the cost of the acquisition to the net assets acquired based on their relative estimated fair value on the acquisition date. This resulted in an allocation of $782.3 million to timber and timberlands, $3.0 million to intangible assets, $32.0 million to other assets and $23.6 million for cash acquired in the merger. Additionally, we assumed $323.1 million of liabilities, including $300.0 million of outstanding long-term debt. Immediately following the merger, we refinanced $277.5 million of the long-term debt assumed in the merger and repaid the remaining $22.5 million with cash on hand. We also entered into $277.5 million of interest rate swaps to fix the interest rates on the refinanced long-term debt.

During the three and nine months ended September 30, 2023, we incurred non-capitalizable merger costs in connection with the CatchMark merger of approximately $0 and $2.5 million, respectively, primarily consisting of post-merger fees for professional services. During the three and nine months ended September 30, 2022, we incurred non-capitalizable merger costs of $26.0 million in connection with the CatchMark merger, primarily for severance benefits, tax gross-up payments to holders of Partnership OP Units and share-based compensation for the acceleration of CatchMark equity awards that fully vested upon closing of the merger and were allocated to the post-merger period. These non-capitalizable merger costs are included in CatchMark merger-related expenses in our Condensed Consolidated Statements of Operation.

NOTE 14. COMMITMENTS AND CONTINGENCIES

At any given time, we are subject to claims and actions incidental to the operations of our business. Based on information currently available, we do not expect that any sums we may have to pay in connection with any legal proceeding would have a materially adverse effect on our consolidated financial position, operating results or net cash flow.

ENVIRONMENTAL MATTER

Pursuant to the 2002 Asset Purchase Agreement under which Sappi Cloquet LLC (Sappi) purchased our Cloquet, Minnesota pulp and paper mill (the Plant), we agreed to indemnify Sappi from certain environmental liabilities accruing from the pre-sale operations of the Plant. In February 2021, we were notified by Sappi that the Environmental Protection Agency (EPA) contacted Sappi about the opportunity to participate with the Minnesota Pollution Control Agency (MPCA) and the EPA in a voluntary federal sediment remediation program under the Great Lakes Legacy Act (GLLA) for a project in the St. Louis River Area of Concern, which runs from Cloquet, Minnesota to Lake Superior. The GLLA is a sediment remediation program administered by EPA that provides up to 65% federal funding for the remediation of contaminated sediments in the Great Lakes region. The GLLA program requires at least 35% cash or in-kind contributions from non-federal sponsors (NFS). The EPA’s invitation to Sappi made no demands on or claims against Sappi, nor have EPA or MPCA made any demands or claims against PotlatchDeltic.

The identified sediment remediation project (the Project) at Thomson Reservoir is downstream from the Plant. The Plant was identified for potential partnership with EPA and MPCA on the Project based on the Plant’s historic direct discharges of wastewater and leachate from the Plant’s landfill into the St. Louis River prior to the re-routing of the discharges in 1979 to a public wastewater treatment facility. After multiple discussions with the MPCA and completion of our extensive due diligence on this matter, we informed the MPCA in January 2023 that we were interested in voluntarily participating in the Project, subject to an equitable division with the MPCA of the NFS share of the costs.

We executed a Project agreement with the EPA and the MPCA in October 2023. Although no contracts for the remediation work itself have been executed to date, our share of the total Project costs is estimated between $5.6 million and $6.7 million. At September 30, 2023, we have accrued $5.6 million for our estimated contribution to the Project. While it is reasonably possible that costs may change as the Project develops and work contracts are executed, we are unable to estimate at this time the amount of change, if any, which may be required for our share of this matter in the future.

21


Table of Contents

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Information

This report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, expectations regarding economic conditions, including interest rates and our ability to offset the impact of inflation; expected seasonal fluctuations in our business segments; expected effectiveness of our hedging instruments and swaps; amount of net earnings on cash flow hedges expected to be reclassified into earnings in the next 12 months; expected return on pension assets; anticipated share repurchases and dividend payments; anticipated cash balances, cash flows from operations and expected liquidity; potential uses of our credit facility; expected timing to receive the remaining insurance proceeds for the Ola, Arkansas sawmill fire; expectations regarding debt obligations, interest payments and debt refinancing; 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 real estate development sales; sufficiency of cash and any necessary borrowings to meet operating requirements; expected 2023 and future capital expenditures; costs associated with the expansion and modernization of our Waldo, Arkansas sawmill, the expected timing of completion of the project, and expected increases in productivity and reduction in operating costs resulting from the project; the expected dollar amount of our share of the total sediment remediation project costs related to Thompson Reservoir; expectations regarding our ability to participate in the development of the natural climate solutions and forest carbon sequestration markets; and similar matters. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often involve use of words such as expects, may, could, should, will, believes, anticipates, estimates, projects, intends, plans, 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, harvest levels, and timberland values;
changes in silviculture, production and production capacity in the forest products industry;
competitive pricing pressures for our products;
disruptions or inefficiencies in our supply chain and/or operations and 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 disease outbreaks or other human health threats; and
our ability and our contractors’ ability to implement the modernization plan for the Waldo, Arkansas sawmill.

22


Table of Contents

 

For a discussion of some of the factors that may affect our business, results and prospects and a nonexclusive listing of forward-looking statements, refer to Cautionary Statement Regarding Forward-Looking Information on page 1 and Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. Investors should not interpret the disclosure of a risk to imply that the risk has not already materialized. Forward-looking statements contained in this report present our views only as of the date of this report. Except as required under applicable law, we do not intend to issue updates concerning any future revisions of our views to reflect events or circumstances occurring after the date of this report.

Our Company

We are a leading timberland REIT with ownership of nearly 2.2 million acres of timberland. We also own six sawmills and an industrial grade plywood mill, a residential and commercial real estate development business and a rural timberland sales program.

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

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

Additionally, governments and businesses across the globe are taking action on climate change and are making significant commitments towards reducing greenhouse gas emissions to net zero. Achieving these commitments will require governments and companies to take major steps to modify operations, invest in low-carbon activities and purchase offsets to reduce environmental impacts. We believe we are well positioned to help entities achieve these commitments through natural climate solutions, including forest carbon sequestration and carbon capture, selling or leasing our non-core timberlands to entities focused on developing solar or wind power generation facilities, and selling pulpwood and sawmill residuals for green energy production.

Non-GAAP Measures

To supplement our financial statements presented in accordance with generally accepted accounting principles in the United States (GAAP), we present certain non-GAAP measures on a consolidated basis, including Total Adjusted EBITDDA and Cash Available for Distribution (CAD), which are defined and further explained and reconciled to the nearest GAAP measure in the Liquidity and Performance Measures section below. The presentation of these non-GAAP financial measures should be considered only as supplemental to, and are not intended to be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP. Our definitions of these non-GAAP measures may differ from similarly titled measures used by other companies and may not be the same as or comparable to other similarly titled non-GAAP measures presented by other companies due to potential inconsistencies in methods of calculation.

See Note 2: Segment Information in the Notes to the Condensed Consolidated Financial Statements for information related to the use of Adjusted EBITDDA for our segments.

Business and Economic Trends Affecting Our Operations

The operating results of our Timberlands, Wood Products and Real Estate business segments have been and will continue to be affected by the cyclical nature of the forest products industry. Log and pulpwood sales volumes in our Timberlands segment are typically lower in the first half of each year as winter rains in the Southern region and spring thaw in the Northern region limit timber harvesting operations due to softened roadbeds and wet logging conditions that restrict access to logging sites. The third quarter is typically our Timberlands segment'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.

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 both demand for new

23


Table of Contents

 

homes and home improvement and repair of existing homes in the United States. Our Timberlands segment is also influenced by the availability of harvestable timber. In general, our Idaho log market is typically in balance but can be tensioned from time to time, while Southern log markets have more available supply. However, additional mill capacity being added in the U.S. South has led to tightening of markets in certain geographies.

Rural real estate dispositions and acquisitions can also be adversely affected when access to any properties to be sold or considered for acquisition is limited due to adverse weather conditions. Development real estate sales occur throughout the year and are dependent upon when our construction of residential neighborhoods and commercial lots are substantially completed. The timing of these sales can also be impacted by contractor availability to complete the necessary infrastructure and other improvements, in addition to weather.

Uncertainty on the overall direction of the U.S. economy and housing affordability, which has been negatively impacted by higher interest rates and rising construction costs, have dampened consumer confidence and contributed to a decline in new home construction and existing home sales activity in 2023. Actions by the U.S. Federal Reserve, the overall condition of the economy, and fluctuations in financial markets are all factors that have influenced long-term interest rates with the average 30-year fixed mortgage rate climbing to a nearly 23-year high of 7.3% at the end of September 2023. Further, the National Association of Home Builders (NAHB) reported the NAHB/Wells Fargo Housing Market Index (HMI) was 40 in October 2023, below the key break-even measure of 50 for the second consecutive month, as builders have reported lower levels of buyer traffic, as some buyers, particularly younger ones, are being priced out of the market because of higher interest rates.

Additionally, in October 2023, the U.S. Census bureau reported total privately-owned housing starts for September 2023 were 1.4 million on a seasonally adjusted annual basis, which was down 7.2% from September 2022. However, authorized building permits for privately-owned single-family housing was above 960,000 units on a seasonally adjusted annual basis for September 2023, which was the fifth month in a row above 900,000 units and 11.6% higher than September 2022. Overall, we believe long-term underlying housing fundamentals remain favorable, due to a shortage of homes, lower than historical-average existing inventory for sale and a large millennial demographic in their prime home-buying years.

The repair and remodel sector is the largest market segment for lumber demand. In the current high interest rate environment, prospective homebuyers with lower mortgage rates on their existing home are more likely to stay and undertake remodeling projects versus move into a new home. While this dynamic has created some stability in the sector, higher interest rates and falling existing home sales are expected to put pressure on the repair and remodel market. While spending in the sector for owner-occupied homes is expected to decrease at a moderate rate over the coming year, we believe long-term favorable underlying fundamentals including solid household balance sheets, strong levels of home equity and an aging existing housing stock will continue to support repair and remodel demand for our products.

In our Timberlands segment, a significant portion of our Idaho sawlog prices are indexed on a four-week lag to lumber prices. The Northern region experienced a decrease in sawlog prices during the first nine months of the year because of lower indexed lumber prices compared to the prior year. In the Southern region, sawlog and pulpwood prices have been relatively stable year over year. Our total harvest volume of 2.0 million tons in the third quarter of 2023 was slightly higher than the third quarter of 2022, primarily due to the addition of the CatchMark timberlands in September 2022, which more than offset lower Northern harvest volume due to the acceleration of our harvest schedule to earlier in 2023 as a result of favorable harvesting conditions. We expect to harvest between 1.8 and 1.9 million tons during the fourth quarter of 2023, with approximately 83% of the volume in the Southern region.

During the second quarter of 2021, we experienced a fire at our Ola, Arkansas sawmill. The damage was principally limited to the large log primary breakdown machine center, which significantly impacted the sawmill’s lumber production. We installed the new equipment and the large log line restarted in September 2022. In September 2023, we finalized our insurance claim on the Ola, Arkansas sawmill fire with the insurance carriers. See Note 4: Certain Balance Sheet Components in the Notes to the Condensed Consolidated Financial Statements for additional details.

In our Wood Products segment, lumber shipments increased compared to the prior year primarily due to greater lumber production at our Ola sawmill. We shipped 276 million board feet of lumber during the third quarter of 2023 and expect to ship between 270 and 280 million board feet of lumber during the fourth quarter of 2023.

Our Real Estate segment benefited from increased rural real estate acres sold during the third quarter of 2023. We anticipate selling approximately 6,800 acres of rural land and approximately 37 residential lots during the fourth quarter of 2023.

24


Table of Contents

 

Consolidated Results

The following table sets forth changes in our Condensed Consolidated Statements of Operations. Our Business Segment Results provide a more detailed discussion of our segments:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

2023

 

 

2022

 

 

Change

 

 

2023

 

 

2022

 

 

Change

 

Revenues

$

265,509

 

 

$

306,693

 

 

$

(41,184

)

 

$

769,572

 

 

$

1,077,640

 

 

$

(308,068

)

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

226,303

 

 

 

220,876

 

 

 

5,427

 

 

 

665,716

 

 

 

592,057

 

 

 

73,659

 

Selling, general and administrative expenses

 

19,303

 

 

 

18,878

 

 

 

425

 

 

 

55,118

 

 

 

55,584

 

 

 

(466

)

CatchMark merger-related expenses

 

 

 

 

26,007

 

 

 

(26,007

)

 

 

2,453

 

 

 

26,007

 

 

 

(23,554

)

Gain on fire damage

 

(16,326

)

 

 

(24,913

)

 

 

8,587

 

 

 

(39,436

)

 

 

(34,505

)

 

 

(4,931

)

 

229,280

 

 

 

240,848

 

 

 

(11,568

)

 

 

683,851

 

 

 

639,143

 

 

 

44,708

 

Operating income

 

36,229

 

 

 

65,845

 

 

 

(29,616

)

 

 

85,721

 

 

 

438,497

 

 

 

(352,776

)

Interest expense, net

 

(7,971

)

 

 

(8,280

)

 

 

309

 

 

 

(15,783

)

 

 

(18,593

)

 

 

2,810

 

Pension settlement charge

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,165

)

 

 

14,165

 

Non-operating pension and other postretirement employee benefit costs

 

(228

)

 

 

(1,808

)

 

 

1,580

 

 

 

(685

)

 

 

(5,546

)

 

 

4,861

 

Other

 

370

 

 

 

(1

)

 

 

371

 

 

 

638

 

 

 

(1

)

 

 

639

 

Income before income taxes

 

28,400

 

 

 

55,756

 

 

 

(27,356

)

 

 

69,891

 

 

 

400,192

 

 

 

(330,301

)

Income taxes

 

(4,725

)

 

 

(9,801

)

 

 

5,076

 

 

 

(7,650

)

 

 

(70,135

)

 

 

62,485

 

Net income

$

23,675

 

 

$

45,955

 

 

$

(22,280

)

 

$

62,241

 

 

$

330,057

 

 

$

(267,816

)

Total Adjusted EBITDDA1

$

56,278

 

 

$

101,090

 

 

$

(44,812

)

 

$

159,500

 

 

$

521,822

 

 

$

(362,322

)

 

1

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

Third Quarter 2023 Compared with Third Quarter 2022

Revenues

Revenues were $265.5 million, a decrease of $41.2 million compared with the third quarter of 2022, primarily due to declines in lumber prices, Northern sawlog prices, and fewer real estate development sales in Chenal Valley. These decreases were partially offset by increases in lumber shipments, harvest volumes in the Southern region, and rural real estate acres sold.

Cost of goods sold

Cost of goods sold increased $5.4 million compared with the third quarter of 2022, mainly due to higher manufacturing costs driven by increased lumber shipments, including shipments from the Ola sawmill following the large log line restart in September 2022. These increases were partially offset by lower shipping costs, lower log and haul costs from a decline in harvest activities in the Northern region, and lower land basis on fewer real estate development sales.

CatchMark merger-related expenses

There were no CatchMark merger-related expenses for the three months ended September 30, 2023. CatchMark merger-related expenses for the three months ended September 30, 2022, were $26.0 million. This included $7.5 million for severance benefits, $9.3 million for accelerated vesting of CatchMark equity awards that fully vested upon closing of the merger and were allocated to the post-merger period, and $8.1 million for tax gross-up payments to holders of CatchMark Partnership OP Units.

Gain on fire damage

During the third quarter of 2023, we recognized insurance recoveries of $16.3 million for fire damage at our Ola, Arkansas sawmill, compared to the third quarter of 2022, when we recognized insurance recoveries for fire damage of $25.0 million and disposal costs of $0.1 million.

25


Table of Contents

 

Non-operating pension and other postretirement benefit costs

Non-operating pension and other postretirement benefit costs decreased $1.6 million compared to the third quarter of 2022 primarily as a result of an increase in the discount rate used to determine the benefit obligations and an increase in the expected return on plan assets for our qualified pension plan.

Income taxes

Income taxes are primarily due to income or loss from our PotlatchDeltic taxable REIT subsidiaries (TRS). For the three months ended September 30, 2023, we recorded income tax expense of $4.7 million on TRS income before tax of $18.4 million, which included the $16.3 million gain on fire damage. For the three months ended September 30, 2022, we recorded income tax expense of $9.8 million on TRS income before tax of $40.9 million which included the $24.9 million gain on fire damage.

Total Adjusted EBITDDA

Total Adjusted EBITDDA for the third quarter of 2023 decreased $44.8 million compared to the third quarter of 2022 primarily due to lower lumber and Northern sawlog prices, fewer real estate development sales and lower harvest volume in the Northern region. These decreases in Total Adjusted EBITDDA were partially offset by increases in lumber shipments, harvest volumes in the Southern region, and rural real estate acres sold. Refer to the Business Segment Results below for further discussions on activities for each of our segments. See Liquidity and Performance Measures for a reconciliation of Total Adjusted EBITDDA to net income, the closest comparable GAAP measure, for each of the periods presented

Year to Date 2023 Compared with Year to Date 2022

Revenues

Revenues were $769.6 million, a decrease of $308.1 million compared with the first nine months of 2022, primarily due to declines in lumber and Northern sawlog prices, fewer rural real estate acres sold, and fewer real estate development sales in Chenal Valley. These decreases were partially offset by increased harvest volumes primarily from harvest activity on acquired CatchMark timberlands, and increased lumber shipments primarily from our Ola, Arkansas sawmill.

Cost of goods sold

Cost of goods sold increased $73.7 million compared with the first nine months of 2022, driven mainly by higher manufacturing, logging, and hauling costs as a result of increased lumber shipments and harvest volumes. These increases were partially offset by lower shipping costs and lower land basis on fewer rural and development real estate sales.

CatchMark merger-related expenses

Merger-related expenses were $2.5 million during the first nine months of 2023, primarily related to post-merger fees for professional services. CatchMark merger-related expenses for the nine months ended September 30, 2022, were $26.0 million. This included $7.5 million for severance benefits, $9.3 million for accelerated vesting of CatchMark equity awards that fully vested upon closing of the merger and were allocated to the post-merger period, and $8.1 million for tax gross-up payments to holders of CatchMark Partnership OP Units.

Gain on fire damage

During the first nine months of 2023, we recognized insurance recoveries of $39.4 million for fire damage at our Ola, Arkansas sawmill. During the first nine months of 2022, we recognized insurance recoveries of $35.4 million for fire damage and incurred $0.9 million of disposal costs at our Ola, Arkansas sawmill.

Interest expense

Interest expense, net, decreased $2.8 million compared to the first nine months of 2022, primarily due to higher interest income earned on cash and cash equivalents as a result of higher short-term interest rates, partially offset by increased net interest expense associated with $277.5 million in long-term debt assumed and refinanced in connection with the CatchMark merger in September 2022.

Pension settlement charge

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

26


Table of Contents

 

Non-operating pension and other postretirement benefit costs

Non-operating pension and other postretirement benefit costs decreased $4.9 million compared to the first nine months of 2022 primarily as a result of an increase in the discount rate used to determine the benefit obligations and an increase in the expected return on plan assets for our qualified pension plan.

Income taxes

Income taxes are primarily due to income or loss from our TRS. For the nine months ended September 30, 2023, we recorded income tax expense of $7.7 million on TRS income before tax of $33.8 million, which included the $39.4 million gain on fire damage. Income taxes for the nine months ended September 30, 2023, also included an approximate $1.0 million tax benefit from the reduction of our blended deferred tax rate recorded in the second quarter of 2023. For the nine months ended September 30, 2022, we recorded income tax expense of $70.1 million on TRS income before tax of $279.1 million, which included the $14.2 million pension settlement charge and the $34.5 million gain on fire damage.

Total Adjusted EBITDDA

Total Adjusted EBITDDA for the first nine months of 2023 decreased $362.3 million compared to the first nine months of 2022, primarily due to lower lumber and Northern sawlog prices, higher manufacturing, logging, and hauling costs, and fewer rural and development real estate sales. The decrease in Total Adjusted EBITDDA was partially offset by increased lumber shipments and harvest volume. Refer to the Business Segment Results below for further discussions on activities for each of our segments. See Liquidity and Performance Measures for a reconciliation of Total Adjusted EBITDDA to net income, the closest comparable GAAP measure, for each of the periods presented.

Business Segment Results

Timberlands Segment

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

Change

 

 

2023

 

 

2022

 

 

Change

 

Revenues1

 

$

109,808

 

 

$

134,576

 

 

$

(24,768

)

 

$

313,663

 

 

$

363,719

 

 

$

(50,056

)

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Logging and hauling

 

 

54,918

 

 

 

57,221

 

 

 

(2,303

)

 

 

161,287

 

 

 

134,426

 

 

 

26,861

 

Other

 

 

10,843

 

 

 

11,249

 

 

 

(406

)

 

 

28,354

 

 

 

25,310

 

 

 

3,044

 

Selling, general and administrative expenses

 

 

1,985

 

 

 

1,624

 

 

 

361

 

 

 

6,005

 

 

 

5,177

 

 

 

828

 

 Timberlands Adjusted EBITDDA2

 

$

42,062

 

 

$

64,482

 

 

$

(22,420

)

 

$

118,017

 

 

$

198,806

 

 

$

(80,789

)

 

1

Prior to elimination of intersegment fiber revenues of $28.6 million and $40.3 million for the three months ended September 30, 2023 and 2022, and $89.7 million and $121.7 million for the nine months ended September 30, 2023 and 2022, 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.

 

27


Table of Contents

 

Timberlands Segment Statistics

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Harvest Volumes (in tons)

 

2023

 

 

2022

 

 

Change

 

 

2023

 

 

2022

 

 

Change

 

Northern region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

 

376,607

 

 

 

459,128

 

 

 

(82,521

)

 

 

1,166,570

 

 

 

1,120,765

 

 

 

45,805

 

Pulpwood

 

 

7,081

 

 

 

11,197

 

 

 

(4,116

)

 

 

23,099

 

 

 

30,839

 

 

 

(7,740

)

Total

 

 

383,688

 

 

 

470,325

 

 

 

(86,637

)

 

 

1,189,669

 

 

 

1,151,604

 

 

 

38,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southern region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

 

661,225

 

 

 

613,303

 

 

 

47,922

 

 

 

1,906,805

 

 

 

1,611,075

 

 

 

295,730

 

Pulpwood

 

 

558,905

 

 

 

539,856

 

 

 

19,049

 

 

 

1,531,620

 

 

 

1,296,350

 

 

 

235,270

 

Stumpage

 

 

400,426

 

 

 

287,929

 

 

 

112,497

 

 

 

1,074,380

 

 

 

602,060

 

 

 

472,320

 

Total

 

 

1,620,556

 

 

 

1,441,088

 

 

 

179,468

 

 

 

4,512,805

 

 

 

3,509,485

 

 

 

1,003,320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total harvest volume

 

 

2,004,244

 

 

 

1,911,413

 

 

 

92,831

 

 

 

5,702,474

 

 

 

4,661,089

 

 

 

1,041,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Price/Unit ($ per ton)1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Northern region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

$

129

 

 

$

171

 

 

$

(42

)

 

$

119

 

 

$

199

 

 

$

(80

)

Pulpwood

 

$

47

 

 

$

52

 

 

$

(5

)

 

$

48

 

 

$

51

 

 

$

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southern region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sawlog

 

$

48

 

 

$

48

 

 

$

 

 

$

48

 

 

$

48

 

 

$

 

Pulpwood

 

$

31

 

 

$

33

 

 

$

(2

)

 

$

32

 

 

$

32

 

 

$

 

Stumpage

 

$

18

 

 

$

14

 

 

$

4

 

 

$

19

 

 

$

16

 

 

$

3

 

 

1

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

Timberlands Adjusted EBITDDA

The following table summarizes Timberlands Adjusted EBITDDA variances for the three and nine months ended September 30, 2023, compared with the three and nine months ended September 30, 2022:

 

(in thousands)

 

Three Months

 

 

Nine Months

 

Timberlands Adjusted EBITDDA - prior year

 

$

64,482

 

 

$

198,806

 

Sales price and mix

 

 

(16,970

)

 

 

(87,096

)

Harvest volume

 

 

(4,877

)

 

 

19,059

 

Logging and hauling costs per unit

 

 

(1,120

)

 

 

(11,580

)

Forest management, indirect and other

 

 

547

 

 

 

(1,172

)

Timberlands Adjusted EBITDDA - current year

 

$

42,062

 

 

$

118,017

 

Third Quarter 2023 Compared with Third Quarter 2022

Timberlands Adjusted EBITDDA for the third quarter of 2023 decreased $22.4 million compared with the third quarter of 2022, primarily as a result of the following:

Sales Price and Mix: Sawlog prices in the Northern region decreased 24.6%, to $129 per ton, primarily due to the effect of lower indexed sawlog prices in Idaho. Southern sawlog prices remained relatively flat.
Harvest Volume: We harvested 1.6 million tons in the Southern region during the third quarter of 2023, which was 12.5% higher than the third quarter of 2022, primarily due to harvest activity on the CatchMark timberlands acquired in mid-September 2022, partially offset by wet weather impacting operating conditions in parts of the region compared to the third quarter of 2022. Northern harvest volumes decreased 18.4% in the third quarter of 2023 as favorable harvest conditions earlier in the year allowed us to accelerate harvesting, primarily in the first quarter of 2023.
Logging and Hauling Cost per Unit: Logging and hauling costs per unit were higher primarily due to inflationary operating cost increases, primarily in Idaho, along with longer hauling distances in Idaho.

28


Table of Contents

 

Year to Date 2023 Compared with Year to Date 2022

Timberlands Adjusted EBITDDA for the first nine months of 2023 decreased $80.8 million compared with the first nine months of 2022, primarily as a result of the following:

Sales Price and Mix: Sawlog prices in the Northern region decreased 40.2%, to $119 per ton, primarily due to the effect of lower indexed sawlog prices in Idaho. Southern sawlog prices remained relatively flat.
Harvest Volume: We harvested 4.5 million tons in the Southern region during the first nine months of 2023, which was 28.6% higher than the first nine months of 2022, primarily due to harvest activity on the CatchMark timberlands acquired in mid-September 2022 and increased stumpage sales, partially offset by wet weather impacting operating conditions in the second and early into the third quarters of 2023 compared to the first nine months of 2022. In the Northern region, hauling conditions were more favorable in the first nine months of 2023 as compared to the first nine months of 2022, resulting in a 3.3% increase in harvest volume.
Logging and Hauling Cost per Unit: Logging and hauling costs per unit were higher primarily due to inflationary operating cost increases, primarily in Idaho, partially offset by lower diesel costs.

 

Wood Products Segment

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

Change

 

 

2023

 

 

2022

 

 

Change

 

Revenues

 

$

165,108

 

 

$

193,431

 

 

$

(28,323

)

 

$

485,572

 

 

$

755,806

 

 

$

(270,234

)

Costs and expenses1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiber costs

 

 

72,273

 

 

 

82,638

 

 

 

(10,365

)

 

 

225,393

 

 

 

249,226

 

 

 

(23,833

)

Freight, logging and hauling

 

 

20,199

 

 

 

18,766

 

 

 

1,433

 

 

 

59,843

 

 

 

56,739

 

 

 

3,104

 

Manufacturing costs

 

 

54,537

 

 

 

52,952

 

 

 

1,585

 

 

 

163,787

 

 

 

159,318

 

 

 

4,469

 

Finished goods inventory change

 

 

(690

)

 

 

4,717

 

 

 

(5,407

)

 

 

(633

)

 

 

(7,814

)

 

 

7,181

 

Selling, general and administrative expenses

 

 

3,674

 

 

 

2,964

 

 

 

710

 

 

 

9,954

 

 

 

9,482

 

 

 

472

 

Other

 

 

76

 

 

 

136

 

 

 

(60

)

 

 

253

 

 

 

390

 

 

 

(137

)

Wood Products Adjusted EBITDDA2

 

$

15,039

 

 

$

31,258

 

 

$

(16,219

)

 

$

26,975

 

 

$

288,465

 

 

$

(261,490

)

 

1

Prior to elimination of intersegment fiber costs of $28.6 million and $40.3 million for the three months ended September 30, 2023 and 2022, and $89.7 million and $121.7 million for the nine months ended September 30, 2023 and 2022, respectively.

2

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

Wood Products Segment Statistics

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

Change

 

 

2023

 

 

2022

 

 

Change

 

Lumber shipments (MBF)1

 

 

276,071

 

 

 

264,748

 

 

 

11,323

 

 

 

817,955

 

 

 

752,161

 

 

 

65,794

 

Lumber sales prices ($ per MBF)

 

$

481

 

 

$

572

 

 

$

(91

)

 

$

465

 

 

$

827

 

 

$

(362

)

 

1

MBF stands for thousand board feet.

 

29


Table of Contents

 

Wood Products Adjusted EBITDDA

The following table summarizes Wood Products Adjusted EBITDDA variances for the three and nine months ended September 30, 2023, compared with the three and nine months ended September 30, 2022:

(in thousands)

 

Three Months

 

 

Nine Months

 

Wood Products Adjusted EBITDDA - prior year

 

$

31,258

 

 

$

288,465

 

Lumber:

 

 

 

 

 

 

Price

 

 

(23,093

)

 

 

(268,267

)

Log costs per unit

 

 

10,153

 

 

 

20,664

 

Manufacturing costs per unit

 

 

3,400

 

 

 

9,142

 

Volume

 

 

412

 

 

 

848

 

Residuals, panels and other

 

 

(7,091

)

 

 

(23,877

)

Wood Products Adjusted EBITDDA - current year

 

$

15,039

 

 

$

26,975

 

Third Quarter 2023 Compared with Third Quarter 2022

Wood Products Adjusted EBITDDA for the third quarter of 2023 decreased $16.2 million compared with the third quarter of 2022, primarily as a result of the following:

Lumber Price: Average lumber sales prices decreased to $481 per MBF during the third quarter of 2023 compared to $572 per MBF during the third quarter of 2022.
Log Costs Per Unit: Log costs per unit were lower primarily as a result of lower indexed log costs at our Idaho sawmill and increased production recoveries at our Southern sawmills.
Manufacturing Cost Per Unit: Lower manufacturing cost per unit was primarily a result of increased production at our Ola, Arkansas sawmill which restarted late in the third quarter of 2022 after a fire in June 2021.
Residual Sales, Panels and Other: Plywood price realization and shipments were lower during the third quarter of 2023 compared to the third quarter of 2022 due to lower demand from industrial customers.

Year to Date 2023 Compared with Year to Date 2022

Wood Products Adjusted EBITDDA for the first nine months of 2023 decreased $261.5 million compared with the first nine months of 2022, primarily as a result of the following:

Lumber Price: Average lumber sales prices decreased to $465 per MBF during the first nine months of 2023 compared to $827 per MBF during the first nine months of 2022.
Log Costs Per Unit: Log costs per unit were lower primarily as a result of lower indexed log costs at our Idaho sawmill and increased production recoveries at our Southern sawmills.
Manufacturing Cost Per Unit: Lower manufacturing cost per unit was primarily a result of increased production at our Ola, Arkansas sawmill which restarted late in the third quarter of 2022 after a fire in June 2021.
Residual Sales, Panels and Other: Plywood price realization and shipments were lower during the first nine months of 2023 compared to the first nine months of 2022 due to lower demand from industrial customers.

Real Estate Segment

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

Change

 

 

2023

 

 

2022

 

 

Change

 

Revenues

 

$

19,152

 

 

$

19,008

 

 

$

144

 

 

$

60,079

 

 

$

79,809

 

 

$

(19,730

)

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of goods sold

 

 

3,709

 

 

 

3,685

 

 

 

24

 

 

 

10,012

 

 

 

10,395

 

 

 

(383

)

Selling, general and administrative expenses

 

 

1,278

 

 

 

1,183

 

 

 

95

 

 

 

4,200

 

 

 

3,334

 

 

 

866

 

Real Estate Adjusted EBITDDA1

 

$

14,165

 

 

$

14,140

 

 

$

25

 

 

$

45,867

 

 

$

66,080

 

 

$

(20,213

)

 

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.

 

30


Table of Contents

 

Real Estate Segment Statistics

Rural Real Estate

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Acres sold

 

 

3,275

 

 

 

1,622

 

 

 

11,155

 

 

 

19,122

 

Average price per acre

 

$

3,546

 

 

$

3,811

 

 

$

3,048

 

 

$

2,315

 

 

Development Real Estate

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Residential lots

 

 

32

 

 

 

48

 

 

 

98

 

 

 

157

 

Average price per lot

 

$

89,122

 

 

$

78,344

 

 

$

103,526

 

 

$

108,418

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial acres

 

 

1

 

 

 

35

 

 

 

7

 

 

 

41

 

Average price per acre

 

$

972,222

 

 

$

182,520

 

 

$

848,828

 

 

$

273,568

 

Real Estate Adjusted EBITDDA

The following table summarizes Real Estate Adjusted EBITDDA variances for the three and nine months ended September 30, 2023, compared with the three and nine months ended September 30, 2022:

 

(in thousands)

 

Three Months

 

 

Nine Months

 

Real Estate Adjusted EBITDDA - prior year

 

$

14,140

 

 

$

66,080

 

Rural real estate sales

 

 

5,434

 

 

 

(9,718

)

Real estate development sales

 

 

(5,747

)

 

 

(11,151

)

Selling, general and administrative expenses

 

 

(95

)

 

 

(857

)

Other costs, net

 

 

433

 

 

 

1,513

 

Real Estate Adjusted EBITDDA - current year

 

$

14,165

 

 

$

45,867

 

Third Quarter 2023 Compared with Third Quarter 2022

Real Estate Adjusted EBITDDA for the third quarter of 2023 of $14.1 million was flat compared to the third quarter of 2022, primarily as a result of the following:

Rural Sales: In third quarter of 2023, there were more rural real estate transactions resulting in more acres sold compared to the third quarter of 2022. Rural real estate sales can vary quarter-to-quarter with the average price per acre fluctuating based on both the geographic area of the real estate and product mix.
Development Sales: During the third quarter of 2023, we sold 32 residential lots at an average lot price of $89,122 compared to 48 lots at an average lot price of $78,344 during the third quarter of 2022. In addition, we sold 1 commercial lot in Chenal Valley for $1.4 million, or $972,222 per acre compared to 7 commercial acres for $848,828 per acre during the third quarter of 2022. The average price per lot or acre fluctuates based on a variety of factors including size, location, and planned end use within the developments.

Year to Date 2023 Compared with Year to Date 2022

Real Estate Adjusted EBITDDA for the first nine months of 2023 was $45.9 million, a decrease of $20.2 million compared with the first nine months of 2022, primarily as a result of the following:

Rural Sales: There were less rural real estate acres sold in the first nine months of 2023 compared to the first nine months of 2022. The first nine months of 2023 included a 2,240 acre conservation sale in Alabama and a 2,700 acre land sale on acquired CatchMark timberlands, both in the first quarter of 2023. The first nine months of 2022 included a 1,760 acre sale in the South for $7,500 per acre to an energy provider for a planned commercial solar farm and a 10,700 acre timberland sale in Minnesota.
Development Sales: During the first nine months of 2023, we sold 98 residential lots at an average lot price of $103,526 compared to 157 lots at an average lot price of $108,418 during the first nine months of 2022. In addition, we sold 7 acres of commercial land in Chenal Valley for $848,828 per acre compared to 41 acres for $273,568 per acre in the first nine months of 2022.

31


Table of Contents

 

 

Liquidity and Capital Resources

Cash generated by our operations is highly dependent on the selling prices of our products and can vary from period to period. Changes in significant sources and uses of cash for the nine months ended September 30, 2023 and 2022 are presented by category as follows:

 

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

Change

 

Net cash from operating activities

 

$

117,308

 

 

$

458,437

 

 

$

(341,129

)

Net cash from investing activities

 

$

(27,422

)

 

$

(127,795

)

 

$

100,373

 

Net cash from financing activities

 

$

(121,601

)

 

$

(132,725

)

 

$

11,124

 

Net Cash Flows from Operating Activities

Net cash from operating activities decreased $341.1 million in the first nine months of 2023, compared to the first nine months of 2022 primarily as a result of the following:

Cash received from customers decreased $309.8 million primarily due to lower lumber and Idaho sawlog prices, fewer development sales in Chenal Valley, and fewer rural real estate acres sold. These decreases were partially offset by increased shipments primarily from our Ola, Arkansas sawmill which restarted late in the third quarter of 2022 after a fire in June 2021, and increased harvest activity primarily driven by the addition of the CatchMark timberlands in mid-September 2022.
Cash payments increased $53.1 million primarily due to increases in lumber production, primarily from our Ola sawmill, and harvest activity. These increases were partially offset by a reduction in CatchMark merger-related costs compared to the prior year.
Cash paid for interest, net increased $7.5 million primarily due to cash interest payments on debt assumed and refinanced in connection with the CatchMark merger in September 2022, partially offset by higher interest income earned on cash and cash equivalents as a result of higher short-term interest rates and increased patronage dividends from our lenders. Additionally, we paid $18.7 million in interest that is fully covered by interest rate swaps that contain an other-than-insignificant financing element at inception which are required to be classified in investing ($17.3 million) and financing ($1.4 million) activities.
Net tax payments decreased $50.0 million as a result of lower taxable income generated from our TRS operations in 2023.

Net Cash Flows from Investing Activities

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

Cash expenditures for property, plant and equipment, timberlands reforestation and road construction projects during the first nine months of 2023 and 2022 was $45.1 million and $56.2 million, respectively, which includes capital expenditures for the Waldo, Arkansas sawmill expansion and modernization project of $14.8 million and $12.2 million, respectively.
Cash expenditures for timberland acquisitions during the first nine months of 2023 was $1.7 million compared to $96.1 million during the first nine months of 2022.
We received $17.3 million during the first nine months of 2023 from certain interest rate swaps that contained an other-than-insignificant financing element at inception, which are required to be classified in investing activities. Cash flows from these above market interest rate swaps reduce our interest costs on the corresponding variable rate debt.
We acquired $23.6 million of cash in our merger with CatchMark in September 2022.

Net Cash Flows from Financing Activities

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

We paid dividends of $107.9 million during the first nine months of 2023 compared to $96.6 million during the first nine months of 2022. In addition to increasing our quarterly dividend from $0.44 per share to $0.45 per share in the fourth quarter of 2022, our quarterly dividend payment also increased due to the issuance of 11.5 million shares to complete the CatchMark merger in September 2022.

32


Table of Contents

 

We repaid $25.5 million net in long-term debt during the first nine months of 2022, including $22.5 million assumed in the CatchMark merger. Additionally, we paid $1.0 million in loan fees during the first nine months of 2022, primarily associated with the refinancing of $277.5 million of long-term debt acquired in the CatchMark merger. We had no similar payments in the first nine months of 2023.
During the first nine months of 2023 we repurchased 291,749 shares of our common stock totaling $13.1 million, which includes $1.7 million of repurchases that were not settled in cash until the fourth quarter. We repurchased 103,010 shares of our common stock totaling $4.5 million during the first nine months of 2022.

Future Sources and Uses of Cash

At September 30, 2023, we had cash and cash equivalents of $302.8 million. We expect cash and cash equivalents on hand, cash generated from our operating activities, and available borrowing capacity under our credit agreement, if needed, to be adequate to meet our future cash requirements. At September 30, 2023, there were no significant changes in our cash commitments arising in the normal course of business under our known contractual and other obligations as described in our Annual Report on Form 10-K for the year ended December 31, 2022.

Capital Expenditures

We invest cash in maintenance and discretionary capital expenditures at our Wood Products facilities. We also invest cash in the reforestation of timberlands and construction of roads in our Timberlands operations and to develop land in our Real Estate development operations. We evaluate discretionary capital improvements based on an expected level of return on investment. We expect to spend a total of approximately $135 million to $140 million for capital expenditures during 2023, including capital expenditures for the Waldo sawmill expansion and modernization project discussed below.

In June 2022, we announced a project to expand and modernize our Waldo, Arkansas sawmill. The project is expected to increase the mill’s annual capacity from 190 million board feet of dimensional lumber to approximately 275 million board feet. The investment is also expected to reduce the mill’s operating costs significantly. The Waldo investment includes upgrades to the log yard and planer, a new saw line, and a new continuous dry kiln. The existing mill will continue to operate during the project and completion is expected by the end of 2024. We expect to spend approximately $131.0 million on the project, of which $12.2 million was spent in 2022, $14.8 million was spent during the nine months ended September 30, 2023, and approximately $59 million is expected to be spent during the fourth quarter of 2023.

During 2022, we completed the installation of new equipment at our fire damaged Ola, Arkansas sawmill. The large log line restarted in September 2022. We finalized our insurance claim on the Ola, Arkansas sawmill with the insurance carriers in September 2023. The total approved insurance claim, covering both property damage and business interruption, was $89.4 million, net of a $2.0 million deductible. Through September 30, 2023, we received a total of $73.1 million in proceeds from the insurance carriers. The remaining $16.3 million of insurance recoveries are expected to be received during the fourth quarter of 2023.

Share Repurchase Program

On August 31, 2022, our board of directors authorized management to repurchase up to $200.0 million of our common stock with no set time limit for the repurchase (the 2022 Repurchase Program). Concurrently, the board of directors terminated the remaining repurchase authorization under a repurchase program approved in August 2018. At September 30, 2023, we had remaining authorization of $136.9 million for future stock repurchases under the 2022 Repurchase Program. The timing, manner, price and amount of repurchases will be determined according to the trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan), and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason.

Term Loans and Credit Agreement

At September 30, 2023, our total outstanding net long-term debt was $1.0 billion, including $971.0 million of term loans under our Second Amended and Restated Term Loan Agreement (Amended Term Loan Agreement) with our primary lender. We expect to refinance a $40.0 million term loan maturing in December 2023, which we expect to cover with 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.

33


Table of Contents

 

Our Amended Credit Agreement provides for a $300.0 million revolving line of credit 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 September 30, 2023, there were no borrowings under the revolving line of credit and approximately $0.7 million of the credit facility was utilized by outstanding letters of credit.

Financial Covenants

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

The following table presents the components and applicable limits of Total Asset Value (TAV), a component of the Leverage Ratio, at September 30, 2023:

 

(in thousands)

 

 

 

Estimated timberland fair value

 

$

4,829

 

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

 

 

292

 

Cash and cash equivalents

 

 

303

 

Other1

 

 

37

 

Total Asset Value

 

$

5,461

 

 

1

Includes, as applicable, Company Owned Life Insurance (limited to 5% of TAV), Construction in Progress (limited to 10% of TAV) and Investments in Affiliates (limited to 15% TAV) as defined in the Agreements.

At September 30, 2023, we were in compliance with all covenants under the Agreements. The following table sets forth the financial covenants for the Agreements and our status with respect to these covenants at September 30, 2023:

 

 

Covenant Requirement

 

Actual

Interest coverage ratio

 

 

3.00 to 1.00

 

10.1

Leverage ratio

 

 

40%

 

19%

 

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

Credit Ratings

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

Capital Structure

(in thousands)

 

September 30, 2023

 

 

December 31, 2022

 

Long-term debt (including current portion)

 

$

1,033,558

 

 

$

1,032,680

 

Cash and cash equivalents

 

 

(302,799

)

 

 

(343,809

)

Net debt

 

 

730,759

 

 

 

688,871

 

Market capitalization1

 

 

3,614,328

 

 

 

3,505,255

 

Enterprise value

 

$

4,345,087

 

 

$

4,194,126

 

 

 

 

 

 

 

 

Net debt to enterprise value

 

 

16.8

%

 

 

16.4

%

Dividend yield2

 

 

4.0

%

 

 

4.1

%

Weighted-average cost of debt, after tax3

 

 

2.4

%

 

 

2.4

%

 

 

1

Market capitalization is based on outstanding shares of 79.6 million and 79.7 million times closing share prices of $45.39 and $43.99 at September 29, 2023 and December 30, 2022, respectively.

2

Dividend yield is based on annualized dividends per share of $1.80 and share prices of $45.39 and $43.99 at September 29, 2023 and December 30, 2022, 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.

 

34


Table of Contents

 

Liquidity and Performance Measures

The discussion below is presented to enhance the reader’s understanding of our operating performance, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures: Total Adjusted EBITDDA and Cash Available for Distribution (CAD). These measures are not defined by GAAP and the discussion of Total Adjusted EBITDDA and CAD is not intended to conflict with or change any of the GAAP disclosures described herein. These non-GAAP financial measures should be considered only as supplemental to, are not intended to be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP. Additionally, these non-GAAP financial measures may not be the same as or comparable to other similarly titled non-GAAP financial measures presented by other companies due to potential inconsistencies in methods of calculation.

Total Adjusted EBITDDA is a non-GAAP measure that management uses in evaluating performance and to allocate resources between segments. Total Adjusted EBITDDA removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis. Management believes that this non-GAAP measure, when read in conjunction with our GAAP financial statements, provides useful information to investors and other interested parties by facilitating the comparability of our ongoing operating results over the periods presented, the ability to identify trends in our underlying business, can be used to evaluate the operational performance of the assets under management, 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.

We define EBITDDA as net income before interest expense, net, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses.

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

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

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

23,675

 

 

$

45,955

 

 

$

62,241

 

 

$

330,057

 

Interest expense, net

 

 

7,971

 

 

 

8,280

 

 

 

15,783

 

 

 

18,593

 

Income taxes

 

 

4,725

 

 

 

9,801

 

 

 

7,650

 

 

 

70,135

 

Depreciation, depletion and amortization

 

 

30,248

 

 

 

27,329

 

 

 

89,099

 

 

 

66,838

 

Basis of real estate sold

 

 

6,109

 

 

 

6,845

 

 

 

21,624

 

 

 

25,024

 

CatchMark merger-related expenses

 

 

 

 

 

26,007

 

 

 

2,453

 

 

 

26,007

 

Gain on fire damage

 

 

(16,326

)

 

 

(24,913

)

 

 

(39,436

)

 

 

(34,505

)

Pension settlement charge

 

 

 

 

 

 

 

 

 

 

 

14,165

 

Non-operating pension and other postretirement employee benefit costs

 

 

228

 

 

 

1,808

 

 

 

685

 

 

 

5,546

 

Loss (gain) on disposal of fixed assets

 

 

18

 

 

 

(23

)

 

 

39

 

 

 

(39

)

Other

 

 

(370

)

 

 

1

 

 

 

(638

)

 

 

1

 

Total Adjusted EBITDDA

 

$

56,278

 

 

$

101,090

 

 

$

159,500

 

 

$

521,822

 

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.

35


Table of Contents

 

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

 

 

Nine Months Ended September 30,

 

 

Twelve Months Ended September 30,

 

(in thousands)

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net cash from operating activities1

 

$

117,308

 

 

$

458,437

 

 

$

150,772

 

 

$

510,081

 

Capital expenditures2

 

 

(46,757

)

 

 

(152,301

)

 

 

(79,260

)

 

 

(186,738

)

CAD

 

$

70,551

 

 

$

306,136

 

 

$

71,512

 

 

$

323,343

 

Net cash from investing activities3

 

$

(27,422

)

 

$

(127,795

)

 

$

(47,147

)

 

$

(160,206

)

Net cash from financing activities

 

$

(121,601

)

 

$

(132,725

)

 

$

(284,438

)

 

$

(447,953

)

 

1

Net cash from operating activities for the nine and twelve months ended September 30, 2023, includes cash paid for CatchMark merger-related expenses of $0.9 million and $6.6 million, respectively, and cash paid for real estate development expenditures of $7.2 million and $8.4 million, respectively. Net cash from operating activities for the nine and twelve months ended September 30, 2022, includes cash paid for CatchMark merger-related expenses of $12.1 million, and cash paid for real estate development expenditures of $7.0 million and $9.8 million, respectively.

2

The nine and twelve months ended September 30, 2023, includes fire related capital expenditures for the Ola, Arkansas sawmill of $0.6 million and $6.4 million, respectively, and excludes $1.4 million and $10.1 million, respectively, of insurance proceeds for the Ola, Arkansas sawmill property losses. The nine and twelve months ended September 30, 2022, includes fire related capital expenditures for the Ola, Arkansas sawmill of $12.4 million and $14.3 million, respectively, and excludes $0 and $1.8 million, respectively, of insurance proceeds for the Ola, Arkansas sawmill property losses. The nine and twelve months ended September 30, 2023, includes Waldo, Arkansas sawmill expansion and modernization related capital expenditures of $14.8 million. The nine and twelve months ended September 30, 2022, includes Waldo, Arkansas sawmill expansion and modernization related capital expenditures of $12.2 million.

3

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

 

Critical Accounting Policies and Estimates

There have been no significant changes during 2023 to our critical accounting policies or estimates as presented in our 2022 Annual Report on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

For quantitative and qualitative disclosures about market risk, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our annual report on Form 10-K for the year ended December 31, 2022. Our exposures to market risk have not changed materially since December 31, 2022.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act)), under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of September 30, 2023. These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, the CEO and CFO have concluded that these disclosure controls and procedures were effective as of September 30, 2023.

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

Internal Control over Financial Reporting

No changes occurred in our internal control over financial reporting during the nine months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

36


Table of Contents

 

Part II – OTHER INFORMATION

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

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors previously disclosed in Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

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

Issuer Purchases of Equity Securities

On August 31, 2022, our board of directors authorized management to repurchase up to $200.0 million of our common stock with no set time limit for the repurchase (the 2022 Repurchase Program). Concurrently, the board of directors terminated the remaining repurchase authorization under a previously authorized repurchase program. The 2022 Repurchase Program may be suspended, terminated or modified at any time for any reason. Shares under the 2022 Repurchase Program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Exchange Act), or through privately negotiated transactions. In September 2023, we repurchased shares through a trading plan adopted in accordance with Rule10b5-1 of the Exchange Act (the Trading Plan).

The following table provides information with respect to purchases of common stock made by the company during the three months ended September 30, 2023:

 

Common Share Purchases

 

Total Number of Shares Purchased

 

 

Average Price Paid Per Share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

 

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

 

July 1 - July 31

 

 

 

 

$

 

 

 

 

 

$

149,605,776

 

August 1 - August 31

 

 

 

 

$

 

 

 

 

 

$

149,605,776

 

September 1 - September 30

 

 

282,988

 

 

$

44.98

 

 

 

282,988

 

 

$

136,877,115

 

Total

 

 

282,988

 

 

$

44.98

 

 

 

282,988

 

 

$

136,877,115

 

At September 30, 2023, we had remaining authorization of $136.9 million for future stock repurchases under the 2022 Repurchase Program. We record share repurchases upon trade date as opposed to settlement date when cash is disbursed.

ITEM 5. OTHER INFORMATION

Rule 10b5-1 Trading Plans

During the three months ended September 30, 2023, none of the company's officers or directors adopted, modified or terminated any "Rule 10b5-1 trading arrangements" or "non-Rule 10b5-1 trading arrangements," as each term is defined in Item 408(a) of Regulation S-K under the Exchange Act.

37


Table of Contents

 

 

ITEM 6. EXHIBITS

 

EXHIBIT

NUMBER

DESCRIPTION

3.1*

Fourth Restated Certificate of Incorporation of the Registrant, effective May 1, 2023, filed as Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on May 4, 2023.

3.2*

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 3.1 and 3.2. The registrant undertakes to furnish to the Commission, upon request, any instrument defining the rights of holders of long-term debt.

10.1*

Group annuity contract, effective March 17, 2022, between American General Life Insurance Company and PotlatchDeltic Corporation, filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on July 21, 2023.

31

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

32

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

101

The following financial information from PotlatchDeltic Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023, filed on November 3, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022, (iii) the Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, (v) the Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022, 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.

 

38


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/ GLEN F. SMITH

Glen F. Smith

Chief Accounting Officer

(Duly Authorized; Principal Accounting Officer)

 

Date:

November 3, 2023

 

39