UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
For the quarterly period ended
or
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
|
|
(Address of principal executive offices) |
(Zip Code) |
(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 |
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.
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).
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.
☒ |
Accelerated Filer |
☐ |
Non-accelerated Filer |
☐ |
|
Smaller Reporting Company |
|
Emerging Growth Company |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange act).
Yes ☐ No
The number of shares of common stock of the registrant outstanding as of July 26, 2022 was
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
Table of Contents
|
|
|
|
|
Page |
PART I. - FINANCIAL INFORMATION |
|
|
ITEM 1. |
Financial Statements (unaudited) |
|
|
3 |
|
|
4 |
|
|
5 |
|
|
6 |
|
|
8 |
|
|
Index for the Notes to Condensed Consolidated Financial Statements |
9 |
|
10 |
|
ITEM 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
21 |
ITEM 3. |
35 |
|
ITEM 4. |
36 |
|
|
|
|
PART II. - OTHER INFORMATION |
|
|
ITEM 1. |
37 |
|
ITEM 1A. |
37 |
|
ITEM 2. |
38 |
|
ITEM 6. |
39 |
|
|
|
|
40 |
||
|
|
|
|
|
|
Part I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
|
Three Months Ended June 30, |
|
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands, except per share amounts) |
2022 |
|
|
2021 |
|
|
|
2022 |
|
|
2021 |
|
||||
Revenues |
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on fire damage |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
Pension settlement charge |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Non-operating pension and other postretirement employee |
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income taxes |
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
Net income |
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
Diluted |
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
Dividends per share |
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pension and other postretirement employee benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss arising during the period, net of tax benefit of $ |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Effect of pension settlement, net of tax expense of $ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of actuarial loss included in net income, net of tax expense of $ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of prior service cost (credit) included in net income, net of tax expense (benefit) of $ |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Cash flow hedges, net of tax expense (benefit) of $ |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Other comprehensive income (loss), net of tax |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Comprehensive income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share amounts) |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
ASSETS |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Customer receivables, net |
|
|
|
|
|
|
||
Inventories, net |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
Investment in real estate held for development and sale |
|
|
|
|
|
|
||
Timber and timberlands, net |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Other long-term assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable and accrued liabilities |
|
$ |
|
|
$ |
|
||
Current portion of long-term debt |
|
|
|
|
|
|
||
Current portion of pension and other postretirement employee benefits |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
||
Pension and other postretirement employee benefits |
|
|
|
|
|
|
||
Deferred tax liabilities, net |
|
|
|
|
|
|
||
Other long-term obligations |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Stockholders' equity: |
|
|
|
|
|
|
||
Preferred stock, authorized |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
Total stockholders’ equity |
|
|
|
|
|
|
||
Total liabilities and stockholders' equity |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended June 30, |
|
|||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
|
|
|
||
Depreciation, depletion and amortization |
|
|
|
|
|
|
||
Basis of real estate sold |
|
|
|
|
|
|
||
Change in deferred taxes |
|
|
( |
) |
|
|
|
|
Pension and other postretirement employee benefits |
|
|
|
|
|
|
||
Pension settlement charge |
|
|
|
|
|
|
||
Equity-based compensation expense |
|
|
|
|
|
|
||
Gain on fire damage |
|
|
( |
) |
|
|
|
|
Other, net |
|
|
( |
) |
|
|
( |
) |
Change in working capital and operating-related activities, net |
|
|
|
|
|
( |
) |
|
Real estate development expenditures |
|
|
( |
) |
|
|
( |
) |
Funding of pension and other postretirement employee benefits |
|
|
( |
) |
|
|
( |
) |
Proceeds from insurance recoveries |
|
|
|
|
|
|
||
Net cash from operating activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Property, plant and equipment additions |
|
|
( |
) |
|
|
( |
) |
Timberlands reforestation and roads |
|
|
( |
) |
|
|
( |
) |
Acquisition of timber and timberlands |
|
|
( |
) |
|
|
( |
) |
Other, net |
|
|
( |
) |
|
|
|
|
Net cash from investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Distributions to common stockholders |
|
|
( |
) |
|
|
( |
) |
Repurchase of common stock |
|
|
( |
) |
|
|
|
|
Repayment of long-term debt |
|
|
( |
) |
|
|
|
|
Other, net |
|
|
( |
) |
|
|
( |
) |
Net cash from financing activities |
|
|
( |
) |
|
|
( |
) |
Change in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Accrued property, plant and equipment additions |
|
$ |
|
|
$ |
|
||
Accrued timberlands reforestation and roads |
|
$ |
|
|
$ |
|
||
6
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the amounts shown in the Condensed Consolidated Statements of Cash Flows.
(in thousands) |
|
June 30, 2022 |
|
|
June 30, 2021 |
|
||
|
$ |
|
|
$ |
|
|||
Restricted cash included in other long-term assets1 |
|
|
|
|
|
|
||
Total cash, cash equivalents, and restricted cash |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
1 |
Amounts included in restricted cash represent proceeds held by a qualified intermediary that are intended to be reinvested in timber and timberlands. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
|
|
Common Stock |
|
|
Additional Paid- |
|
|
Accumulated |
|
|
Accumulated Other |
|
|
Total Stockholders' |
|
|||||||||
(in thousands, except per share amounts) |
|
Shares |
|
|
Amount |
|
|
in Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
||||||
Balance, December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Shares issued for stock compensation |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Equity-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Pension plans and OPEB obligations, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Cash flow hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Dividends on common stock, $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other transactions, net |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance, March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Shares issued for stock compensation |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Equity-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Repurchase of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Pension plans and OPEB obligations, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Cash flow hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Dividends on common stock, $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other transactions, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Balance, June 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Common Stock |
|
|
Additional Paid- |
|
|
Accumulated |
|
|
Accumulated Other |
|
|
Total Stockholders' |
|
|||||||||
(in thousands, except per share amounts) |
|
Shares |
|
|
Amount |
|
|
in Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
||||||
Balance, December 31, 2020 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Shares issued for stock compensation |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Equity-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Pension plans and OPEB obligations, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Cash flow hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Dividends on common stock, $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other transactions, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Balance, March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Shares issued for stock compensation |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Equity-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Pension plans and OPEB obligations, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Cash flow hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends on common stock, $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other transactions, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||
Balance, June 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
INDEX FOR THE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
10 |
|
11 |
|
13 |
|
13 |
|
15 |
|
15 |
|
16 |
|
16 |
|
17 |
|
18 |
|
19 |
|
Note 12: Components of Accumulated Other Comprehensive Income (Loss) |
20 |
20 |
9
Notes to Condensed Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION
General
PotlatchDeltic Corporation and its subsidiaries (collectively referred to in this report as the company, us, we or our) is a leading timberland Real Estate Investment Trust (REIT) with operations in seven states. We are engaged in activities associated with timberland management, including the sale of timber, the management of approximately
Condensed Consolidated Financial Statements
The accompanying unaudited Condensed Consolidated Financial Statements provide an overall view of our results and financial condition and reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Except as otherwise disclosed in these Notes to Condensed Consolidated Financial Statements, such adjustments are of a normal, recurring nature. Intercompany transactions and accounts have been eliminated in consolidation. The Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. Certain disclosures normally provided in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on February 17, 2022. Results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the full year.
Use of Estimates
The preparation of our Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and requires judgments affecting the amounts reported in the financial statements and the accompanying notes. Actual results may differ materially from our estimates.
Commitments and Contingencies
At any given time, we are subject to claims and actions incidental to the operations of our business. Based on information currently available, we do not expect that any sums we may receive or have to pay in connection with any legal proceeding would have a material adverse effect on our consolidated financial position, operating results or net cash flow.
New Accounting Standards Being Evaluated
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 contains practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by this guidance apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued as a result of reference rate reform. The guidance in ASU 2020-04, which can be applied immediately, is optional and may be elected over time as reference rate reform activities occur. This guidance is not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity was expected to be completed. Our credit agreement, variable rate term loans with $
10
NOTE 2. SEGMENT INFORMATION
Our operations are organized into
Our Timberlands segment supplies our Wood Products segment with a portion of its wood fiber needs. These intersegment revenues are based on prevailing market prices and typically represent a sizeable portion of the Timberlands segment’s total revenues. Our other segments generally do not generate intersegment revenues. These intercompany transactions are eliminated in consolidation.
The reportable segments follow the same accounting policies used for our Condensed Consolidated Financial Statements, with the exception of the valuation of inventories, which are reported using the average cost method for purposes of reporting segment results.
The following table presents our revenues by major product:
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Timberlands |
|
|
|
|
|
|
|
|
|
|
|
||||
Northern region |
|
|
|
|
|
|
|
|
|
|
|
||||
Sawlogs |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Pulpwood |
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
||||
Total Northern revenues |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Southern region |
|
|
|
|
|
|
|
|
|
|
|
||||
Sawlogs |
|
|
|
|
|
|
|
|
|
|
|
||||
Pulpwood |
|
|
|
|
|
|
|
|
|
|
|
||||
Stumpage |
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
||||
Total Southern revenues |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Timberlands revenues |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Wood Products |
|
|
|
|
|
|
|
|
|
|
|
||||
Lumber |
|
|
|
|
|
|
|
|
|
|
|
||||
Residuals and Panels |
|
|
|
|
|
|
|
|
|
|
|
||||
Total Wood Products revenues |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
||||
Rural real estate |
|
|
|
|
|
|
|
|
|
|
|
||||
Development real estate |
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
||||
Total Real Estate revenues |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total segment revenues |
|
|
|
|
|
|
|
|
|
|
|
||||
Intersegment Timberlands revenues1 |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total consolidated revenues |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
1 |
Intersegment revenues represent logs sold by our Timberlands segment to our Wood Products segment. |
11
Management uses Adjusted EBITDDA to evaluate the operating performance and effectiveness of operating strategies of our segments and allocation of resources to them. EBITDDA is calculated as net income 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 June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Adjusted EBITDDA: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Timberlands |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Wood Products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Eliminations and adjustments |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total Adjusted EBITDDA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net1 |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation, depletion and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Basis of real estate sold |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gain on fire damage |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pension settlement charge |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Non-operating pension and other postretirement employee benefits |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gain (loss) on disposal of fixed assets |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Income before income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation, depletion and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Timberlands |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Wood Products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Bond discounts and deferred loan fees1 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total depreciation, depletion and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basis of real estate sold: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real Estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Eliminations and adjustments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total basis of real estate sold |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1 |
Bond discounts and deferred loan fees are reported within interest expense, net on the Condensed Consolidated Statements of Operations. |
12
NOTE 3. EARNINGS PER SHARE
The following table reconciles the number of shares used in calculating basic and diluted earnings per share:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Basic weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Incremental shares due to: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Performance shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
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 six months ended June 30, 2022, there were approximately
Share Repurchase Program
On August 30, 2018, our board of directors authorized management to repurchase up to $
During the three and six months ended June 30, 2022, we repurchased
We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability to account for repurchases that have not been cash settled. We retire shares upon repurchase. Any excess repurchase price over par is recorded in accumulated deficit.
NOTE 4. CERTAIN BALANCE SHEET COMPONENTS
Inventories
(in thousands) |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Logs |
|
$ |
|
|
$ |
|
||
Lumber, panels and veneer |
|
|
|
|
|
|
||
Materials and supplies |
|
|
|
|
|
|
||
Total inventories |
|
|
|
|
|
|
||
Less: LIFO reserve |
|
|
( |
) |
|
|
( |
) |
Total inventories, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Property, plant and equipment
(in thousands) |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Property, plant and equipment |
|
$ |
|
|
$ |
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
13
Ola, Arkansas sawmill fire
On June 13, 2021, a fire occurred at our Ola, Arkansas sawmill. There were no injuries or environmental issues from the fire. The damage was principally limited to the large log primary breakdown area of the mill. The planer mill, kiln, and shipping department were not affected. We have adequate property damage and business interruption insurance and expect to be reimbursed for both property damage and business interruption losses by our insurance carriers, subject to an applicable deductible, under which we filed a claim with the insurance carriers. Insurance recoveries are recorded when deemed probable and reasonably estimable.
Damaged and obsolete fixed asset write-offs, disposal costs, insurance recoveries for the Ola, Arkansas sawmill fire and gain on fire damage consists of the following:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Fixed asset write-offs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Disposal costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total fixed asset loss on disposal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Insurance recoveries |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gain on fire damage at Ola |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Insurance recoveries on timberlands fire damage |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Gain on fire damage |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Timber and timberlands
(in thousands) |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Timber and timberlands |
|
$ |
|
|
$ |
|
||
Logging roads |
|
|
|
|
|
|
||
Total timber and timberlands, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
During the six months ended June 30, 2022, we were the successful bidder for three bolt-on timberland transactions, aggregating approximately $
Accounts payable and accrued liabilities
(in thousands) |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Income taxes payable |
|
$ |
|
|
$ |
|
||
Accrued payroll and benefits |
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
|
||
Deferred revenue1 |
|
|
|
|
|
|
||
Other accrued taxes |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Total accounts payable and accrued liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
1 |
Deferred revenue predominately relates to hunting and other access rights on our timberlands, payments received for lumber shipments where control of goods has not transferred, member-related activities at an owned country club and certain post-close obligations for real estate sales. These contract liabilities are recognized over the term of the contracts, which is typically twelve months or less, except for country club initiation fees which are recognized over the average life of club membership. |
14
NOTE 5. DEBT
At June 30, 2022, our total outstanding long-term debt included $
At June 30, 2022, there were no borrowings under our $
NOTE 6. DERIVATIVE INSTRUMENTS
From time to time, we enter into derivative financial instruments to manage certain cash flow and fair value risks.
Derivatives designated and qualifying as a hedge of the exposure to variability in the cash flows of a specific asset or liability that is attributable to a particular risk, such as interest rate risk, are considered cash flow hedges. As of June 30, 2022, we have interest rate swaps associated with $
As of June 30, 2022, we have $
The gross fair values of derivative instruments on our Condensed Consolidated Balance Sheets are as follows:
|
|
|
|
Asset Derivatives |
|
|
|
|
Liability Derivatives |
|
||||||||||
(in thousands) |
|
Location |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
Location |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||
Derivatives designated in cash flow hedging relationships: |
|
|
|
|
|
|
|
|
|
|||||||||||
Interest rate contracts |
|
Other assets, current1 |
|
$ |
|
|
$ |
|
|
Accounts payable and accrued liabilities1 |
|
$ |
|
|
$ |
|
||||
Interest rate contracts |
|
Other assets, non-current |
|
|
|
|
|
|
|
Other long-term obligations |
|
|
|
|
|
|
||||
|
|
|
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1 |
Derivative instruments that mature within one year, as a whole, are classified as current. |
The following table details the effect of derivatives on our Condensed Consolidated Statements of Operations:
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
Location |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Derivatives designated in cash flow hedging relationships: |
|
|
|
|
|
|
|
|
|
|
||||||||
Interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) recognized in other comprehensive income (loss), net of tax |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Amounts reclassified from accumulated other comprehensive income (loss), net of tax1 |
|
Interest expense |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
15
1 |
Realized gains and losses on interest rate contracts consist of net cash received or paid and interest accruals on the interest rate swaps during the periods. Net cash received or paid is included in the supplemental cash flow information within interest, net of amounts capitalized in the Condensed Consolidated Statements of Cash Flows. |
NOTE 7. FAIR VALUE MEASUREMENTS
The following table presents the estimated fair values of our financial instruments:
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
(in thousands) |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
Derivative assets related to interest rate swaps (Level 2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Derivative liabilities related to interest rate swaps (Level 2) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Long-term debt, including current portion (Level 2): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term loans |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Revenue bonds |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Medium-term notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Total long-term debt1 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Company owned life insurance asset (COLI) (Level 3) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1 |
The carrying amount of long-term debt includes principal and unamortized discounts. |
The fair value of interest rate swaps are determined using a discounted cash flow analysis, based on third party sources, on the expected cash flows of each derivative. The analysis reflects the contractual terms of the derivatives, including the period to maturity and uses observable market-based inputs, including interest rate forward curves.
The fair value of our long-term debt is estimated based upon quoted market prices for similar debt issues or estimated based on average market prices for comparable debt when there is no quoted market price.
The contract value of our company owned life insurance is based on the amount at which it could be redeemed and, accordingly, approximates fair value.
We believe that our other financial instruments, including cash and cash equivalents, restricted cash, receivables and payables have net carrying values that approximate their fair values with only insignificant differences. This is primarily due to the short-term nature of these instruments.
NOTE 8. EQUITY-BASED COMPENSATION
On May 2, 2022, our stockholders approved the PotlatchDeltic Corporation Amended and Restated 2019 Long-Term Incentive Plan to increase the number of shares available for issuance by
Share-based compensation activity during the six months ended June 30, 2022 included the following:
(Shares in thousands) |
|
Granted |
|
|
Vested |
|
|
Forfeited |
|
|||
Performance Share Awards (PSAs) |
|
|
|
|
|
|
|
|
|
|||
Restricted Stock Units (RSUs) |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Approximately
16
The following table details equity-based compensation expense and the related income tax benefit:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Equity-based compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Performance share awards |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred compensation stock equivalent units expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total equity-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total tax benefit recognized for equity-based expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Performance Share Awards
The weighted average grant date fair value of PSAs granted in 2022 was $
The following table presents the key inputs used in the Monte Carlo simulation to calculate the fair value of the performance share awards granted in 2022:
Stock price as of valuation date |
|
$ |
|
|
Risk-free rate |
|
|
% |
|
Expected volatility |
|
|
% |
|
Expected dividend yield1 |
|
|
|
|
Expected term (years) |
|
|
|
|
|
|
|
|
|
1
Restricted Stock Units
The weighted average fair value of all RSUs granted during the six months ended June 30, 2022 was $
NOTE 9. INCOME TAXES
As a REIT, we generally are not subject to federal and state corporate income taxes on income from investments in real estate, including our timberlands, that we distribute to our shareholders. We conduct certain activities through our PotlatchDeltic taxable REIT subsidiaries (TRS) which are subject to corporate level federal and state income taxes. These activities are principally comprised of our wood products manufacturing operations and certain real estate investments. Therefore, income tax expense or benefit is primarily due to pre-tax book income or loss of the TRS, as well as permanent book versus tax differences.
17
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 |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Assets |
|
|
|
|
|
|
|
||
Operating lease assets |
|
$ |
|
|
$ |
|
|||
Finance lease assets1 |
|
|
|
|
|
|
|||
Total lease assets |
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
|
||
Current: |
|
|
|
|
|
|
|
||
Operating lease liabilities |
|
$ |
|
|
$ |
|
|||
Finance lease liabilities |
s |
|
|
|
|
|
|
||
Noncurrent: |
|
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
|
|
|
|
|||
Finance lease liabilities |
|
|
|
|
|
|
|||
Total lease liabilities |
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
||
1 |
Finance lease assets are presented net of accumulated amortization of $ |
The following table presents the components of lease expense:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Operating lease costs1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Finance lease costs: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of leased assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net lease costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1 |
Excludes short-term leases and variable lease costs, which are immaterial. |
The following table presents supplemental cash flow information related to leases:
|
|
|
Six Months Ended June 30, |
|
|||||
(in thousands) |
|
|
2022 |
|
|
2021 |
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|||
Operating cash flows for operating leases |
|
$ |
|
|
$ |
|
|||
Operating cash flows for finance leases |
|
$ |
|
|
$ |
|
|||
Financing cash flows for finance leases |
|
$ |
|
|
$ |
|
|||
Leased assets exchanged for new lease liabilities: |
|
|
|
|
|
|
|||
Operating leases |
|
$ |
|
|
$ |
|
|||
Finance leases |
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
||
18
NOTE 11. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS
In March 2022, we transferred $
The settlement triggered a remeasurement of the Plan's assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the Plan as of March 31, 2022, and to calculate the related net periodic benefit cost for the remainder of 2022 to
The following table details the components of net periodic cost (benefit) of our pension plans and other postretirement employee benefits (OPEB):
|
|
Three Months Ended June 30, |
|
|||||||||||||
|
|
Pension |
|
|
OPEB |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Amortization of prior service cost (credit) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Amortization of actuarial loss (gain) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total net periodic cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Six Months Ended June 30, |
|
|||||||||||||
|
|
Pension |
|
|
OPEB |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Amortization of prior service cost (credit) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Amortization of actuarial loss (gain) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Net periodic cost before pension settlement charge |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Pension settlement charge |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net periodic cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
During the six months ended June 30, 2022 and 2021, funding of pension and other postretirement employee benefit plans was $
19
NOTE 12. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table details changes in amounts included in our Accumulated Other Comprehensive Income (Loss) (AOCI) by component on our Condensed Consolidated Balance Sheets, net of tax:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Pension Plans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net loss arising during the period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of pension settlement |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Amounts reclassified from AOCI to earnings |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Postretirement Benefit Plans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amounts reclassified from AOCI to earnings |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Amounts arising during the period |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from AOCI to earnings |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive (income) loss, end of period |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
See Note 11: Pension and Other Postretirement Employee Benefits and Note 6: Derivative Instruments for additional information.
NOTE 13. PENDING MERGER WITH CATCHMARK
On May 29, 2022, we entered into an Agreement and Plan of Merger (merger agreement) with CatchMark Timber Trust, Inc. (CatchMark) and CatchMark Timber Operating Partnership, LP (the Partnership), pursuant to which CatchMark and the Partnership will merge into a wholly-owned subsidiary of PotlatchDeltic, with the subsidiary continuing as the surviving company. Under the terms of the merger agreement, CatchMark stockholders and the holders of common partnership units of the Partnership (Partnership OP Units) will have the right to receive
Because the exchange ratio was fixed at the time of the merger agreement and the market value of our common stock will continue to fluctuate, the total value of the consideration exchanged will not be determinable until the closing date. The number of shares to be issued with respect to CatchMark stock awards will not be determinable until the closing of the transaction.
We estimate that approximately
The merger agreement has been approved by both companies' boards of directors. The closing of the merger is subject to approval by the stockholders of CatchMark and other conditions specified in the merger agreement. The merger is expected to close in the third quarter of 2022.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
This report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, expectations regarding economic conditions, including interest rates and our ability to offset the impact of inflation; expected seasonal fluctuations in our business segments; expected effectiveness of our hedging instruments and swaps; expected return on pension assets; anticipated share repurchases and regular and special dividend payments; anticipated cash balances, cash flows from operations and expected liquidity; potential uses of our credit facility; the expected impact from the Ola, Arkansas sawmill fire, anticipated insurance coverage, and expected timing to complete reconstruction and installation activities and return to full operation; the pending merger with CatchMark Timber Trust, Inc. (CatchMark); expectations regarding debt obligations, interest payments and debt refinancing; expectations regarding the market transition away from LIBOR and our ability to identify a suitable replacement rate; maintenance of our investment grade credit rating; expectations regarding the U.S. housing market and home repair and remodeling activity; the lumber and log markets and pricing; lumber shipment volumes; timber harvest volumes; rural real estate and residential and commercial real estate development sales; sufficiency of cash and any necessary borrowings to meet operating requirements; expected 2022 capital expenditures; costs associated with the expansion and modernization of our Waldo, Arkansas sawmill, the expected completion of the project, and expected increases in productivity resulting from the project; anticipated closing of bolt-on timberland transactions; and similar matters. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often involve use of words such as expects, may, could, should, will, believes, anticipates, estimates, projects, intends, plans, targets or approximately, or similar words or terminology. These forward-looking statements reflect our current views regarding future events based on estimates and assumptions and are therefore subject to known and unknown risks and uncertainties and are not guarantees of future performance. The realization of our expectations and the accuracy of our assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to:
21
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, Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 and Risk Factors in Part II, Item 1A of this Form 10-Q. Investors should not interpret the disclosure of a risk to imply that the risk has not already materialized.
Forward-looking statements contained in this report present our views only as of the date of this report. Except as required under applicable law, we do not intend to issue updates concerning any future revisions of our views to reflect events or circumstances occurring after the date of this report.
Our Company
We are a leading timberland REIT with ownership of approximately 1.8 million acres of timberland. We also own six sawmills and an industrial grade plywood mill, a residential and commercial real estate development business and a rural timberland sales program.
Our operations are organized into three business segments: Timberlands, Wood Products and Real Estate. Our Timberlands segment supplies our Wood Products segment with a portion of its wood fiber needs. These intersegment revenues are based on prevailing market prices and typically represent a sizeable portion of the Timberlands segment’s total revenues. Our other segments generally do not generate intersegment revenues. In the discussion of our consolidated results of operations, our revenues and expenses are reported after elimination of intersegment revenues and expenses. In the Business Segment Results discussion below, each segment’s revenues and expenses, as applicable, are presented before elimination of intersegment revenues and expenses.
The operating results of our Timberlands, Wood Products and Real Estate business segments have been and will continue to be affected by the cyclical nature of the forest products industry. Log and pulpwood sales volumes in our Timberlands segment are typically lower in the first half of each year as winter rains in the Southern region and spring thaw in the Northern region limit timber harvesting operations due to softened roadbeds and wet logging conditions that restrict access to logging sites. The third quarter is typically our Timberlands segment's strongest production quarter. Demand for our manufactured wood products typically decreases in the winter months when construction activity is slower, while demand typically increases during the spring, summer and fall when construction activity is generally higher. Rural real estate dispositions and acquisitions can be adversely affected when access to any properties to be sold or considered for acquisition are limited due to adverse weather conditions. Development real estate sales at Chenal Valley occur throughout the year, though historically most sales take place in the second half of the year as builders prepare for the following year's spring and summer traditional home building and buying season. The timing of development real estate sales can also be impacted by contractor availability needed to complete infrastructure and other improvements prior to bringing developed real estate to market.
Additionally, our business segments have been and will continue to be influenced by a variety of other factors, including tariffs, quotas and trade agreements, changes in timber prices and in harvest levels from our timberlands, competition, timberland valuations, demand for our non-strategic timberland for higher and better use purposes, lumber prices, weather conditions, disruptions or inefficiencies in our supply chain including the availability of transportation, the efficiency and level of capacity utilization of our Wood Products manufacturing operations, changes in our principal expenses such as log costs, inflation, asset dispositions or acquisitions, impact of pandemics (such as COVID-19 and its variants), fires (such as the Ola, Arkansas sawmill fire and fires on our timberlands), other natural disasters and other factors.
Non-GAAP Measures
To supplement our financial statements presented in accordance with generally accepted accounting principles in the United States (GAAP), we present certain non-GAAP measures on a consolidated basis, including Adjusted EBITDDA and Cash Available for Distribution (CAD), which are defined and further explained and reconciled to the nearest GAAP measure in the Liquidity and Performance Measures section below. Our definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to and not a substitute for, financial information prepared in accordance with GAAP.
22
Adjusted EBITDDA is a non-GAAP measure that management uses in evaluating performance and allocating resources between segments, and that investors can use to evaluate the operational performance of the assets under management. It removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis. This measure should not be considered in isolation from and is not intended to represent an alternative to, our results reported in accordance with GAAP. Management believes that this non-GAAP measure, when read in conjunction with our GAAP financial statements, provides useful information to investors by facilitating the comparability of our ongoing operating results over the periods presented, the ability to identify trends in our underlying business and the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.
Our definition of EBITDDA and Adjusted EBITDDA may be different from similarly titled measures reported by other companies. We define EBITDDA as net income before interest expense, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses. See Note 2: Segment Information in the Notes to the Condensed Consolidated Financial Statements for information related to the use of segment Adjusted EBITDDA.
Business and Economic Trends Affecting Our Operations
The demand for timber is directly affected by the underlying demand for lumber and other wood-products, as well as by the demand for pulp, paper and packaging. Our Timberlands and Wood Products segments are impacted by demand for new homes in the United States and by repair and remodeling activity, both of which were very strong up until recently. Higher interest rates and inflation have caused consumer confidence and the pace of housing starts to decline the last couple of months. In July 2022, the National Association of Home Builders (NAHB) reported the NAHB/Wells Fargo Housing Market Index (HMI) was at 55, the seventh straight month of decline and the lowest reading since May 2020. The repair and remodel sector, which has experienced growth during the pandemic-driven home improvement movement that began in early 2020, is expected to continue to grow, but at a slower rate. Rising construction costs, a persistently tight labor pool, supply chain challenges and consumer concerns about rising mortgage rates could negatively impact the pace of housing starts and repair and remodel projects.
Despite some negative factors that have resulted in housing starts moderating in recent months, we believe housing fundamentals remain favorable, due to a shortage of homes, low existing inventory for sale, a large millennial demographic in their prime home-buying years, interest rates remaining below long-term historical averages, the continued remote work evolution, and an aging existing housing stock supporting repair and remodel demand. These fundamentals are key drivers for our business, and we continue to expect that lumber prices will remain structurally higher than long-term historical averages for the rest of 2022.
Inflation has impacted our business, especially for fuel, energy and repair and maintenance costs, although we believe there are offsetting impacts including wood product prices. Over the last twelve months, the Consumer Price Index (all items) increased by 9.1 percent before seasonal adjustments, while the Producer Price Index (final demand) increased by 11.3 percent on an unadjusted basis. Additionally, transportation challenges rising from shortage of truck and railcar availability linger in certain markets. These transportation issues could lead to higher freight costs and shipping challenges through the foreseeable future.
In our Timberlands segment, sawlogs pricing benefitted from demand for Southern pine sawlogs. Idaho sawlog prices continue to benefit from being indexed on a four-week lag to lumber prices. Our Southern harvest volume of 1.0 million tons in the second quarter of 2022 was higher than the second quarter of 2021, primarily due to favorable harvest conditions. We expect to harvest between 1.7 and 1.9 million tons during the third quarter of 2022, with approximately 65% of the volume in the Southern region. For 2022, we expect to harvest approximately 6.1 million tons, with approximately 70% of the volume in the Southern region.
During the second quarter of 2021 we experienced a fire at our Ola, Arkansas sawmill. The damage was principally limited to the large log primary breakdown machine center. The planer mill, kiln, and shipping department were not affected. We have adequate property damage and business interruption insurance, subject to an applicable deductible. The new equipment has been installed. We expect to wrap up the project in the third quarter and we are targeting to complete the start-up phase by the end of the year.
In our Wood Products segment, lumber shipments continue to be impacted by the Ola sawmill fire. We shipped approximately 254 million board feet of lumber during the second quarter of 2022 and expect to ship between 250 and 265 million board feet of lumber during the third quarter of 2022. For 2022, we expect to ship approximately 1.0 billion board feet of lumber. This estimate reflects the expected timing of the start-up of the large-log line at our Ola, Arkansas sawmill.
23
Our Real Estate segment benefitted from strong Chenal Valley residential lot and commercial acre sales in the second quarter of 2022, and a 10,700 acre rural land sale in Minnesota to a conservation entity that effectively completed our long-term strategy to sell our Minnesota land holdings. We expect to sell approximately 3,000 acres of rural land and 45 residential lots during the third quarter of 2022. For 2022, we expect to sell approximately 22,000 acres of rural land and 180 residential lots.
CatchMark Merger
On May 29, 2022, we entered into an Agreement and Plan of Merger (merger agreement) with CatchMark Timber Trust, Inc. (CatchMark) and CatchMark Timber Operating Partnership, LP (the Partnership), pursuant to which CatchMark and the Partnership will merge into a wholly-owned subsidiary of PotlatchDeltic, with the subsidiary continuing as the surviving company. Under the terms of the merger agreement, CatchMark stockholders and the holders of common partnership units of the Partnership (Partnership OP Units) will have the right to receive 0.230 shares of PotlatchDeltic common stock for each share of CatchMark common stock and for each Partnership OP Unit and cash in lieu of fractional shares at the effective time of the merger. CatchMark owns approximately 350,000 acres of superior site index timberlands located in Alabama, Georgia and South Carolina.
The exchange ratio is fixed and will not be adjusted to reflect changes in our stock price. We estimate that approximately 11.4 million shares of our common stock will be issued to CatchMark stockholders and Partnership OP Unit holders in the merger based on the 0.230 exchange ratio. The closing of the merger is subject to approval by the stockholders of CatchMark and other conditions specified in the merger agreement. The merger is expected to close in the third quarter of 2022.
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 June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
(in thousands) |
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
Revenues |
$ |
359,597 |
|
|
$ |
447,506 |
|
|
$ |
(87,909 |
) |
|
$ |
770,947 |
|
|
$ |
801,699 |
|
|
$ |
(30,752 |
) |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cost of goods sold |
|
191,334 |
|
|
|
177,779 |
|
|
|
13,555 |
|
|
|
371,181 |
|
|
|
347,081 |
|
|
|
24,100 |
|
Selling, general and administrative expenses |
|
20,412 |
|
|
|
19,512 |
|
|
|
900 |
|
|
|
36,706 |
|
|
|
36,270 |
|
|
|
436 |
|
Gain on fire damage |
|
(9,868 |
) |
|
|
— |
|
|
|
(9,868 |
) |
|
|
(9,592 |
) |
|
|
— |
|
|
|
(9,592 |
) |
|
|
201,878 |
|
|
|
197,291 |
|
|
|
4,587 |
|
|
|
398,295 |
|
|
|
383,351 |
|
|
|
14,944 |
|
Operating income |
|
157,719 |
|
|
|
250,215 |
|
|
|
(92,496 |
) |
|
|
372,652 |
|
|
|
418,348 |
|
|
|
(45,696 |
) |
Interest expense, net |
|
(7,419 |
) |
|
|
(8,199 |
) |
|
|
780 |
|
|
|
(10,313 |
) |
|
|
(11,773 |
) |
|
|
1,460 |
|
Pension settlement charge |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,165 |
) |
|
|
— |
|
|
|
(14,165 |
) |
Non-operating pension and other postretirement benefit costs |
|
(1,809 |
) |
|
|
(3,271 |
) |
|
|
1,462 |
|
|
|
(3,738 |
) |
|
|
(6,685 |
) |
|
|
2,947 |
|
Income before income taxes |
|
148,491 |
|
|
|
238,745 |
|
|
|
(90,254 |
) |
|
|
344,436 |
|
|
|
399,890 |
|
|
|
(55,454 |
) |
Income taxes |
|
(28,269 |
) |
|
|
(50,840 |
) |
|
|
22,571 |
|
|
|
(60,334 |
) |
|
|
(80,879 |
) |
|
|
20,545 |
|
Net income |
$ |
120,222 |
|
|
$ |
187,905 |
|
|
$ |
(67,683 |
) |
|
$ |
284,102 |
|
|
$ |
319,011 |
|
|
$ |
(34,909 |
) |
Total Adjusted EBITDDA1 |
$ |
175,170 |
|
|
$ |
274,984 |
|
|
$ |
(99,814 |
) |
|
$ |
420,732 |
|
|
$ |
469,970 |
|
|
$ |
(49,238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
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. |
24
Second Quarter 2022 Compared with Second Quarter 2021
Revenues
Revenues were $359.6 million, a decrease of $87.9 million compared with the second quarter of 2021 primarily due to lower lumber prices and shipments and decreased Northern harvest volume and sawlog prices. Lumber shipments in the second quarter of 2022 were impacted by the loss of production at our Ola, Arkansas sawmill following a fire in June 2021. These decreases were partially offset by higher harvest volumes and sawlog prices in the Southern region and increases in development real estate sales and rural acres sold.
Cost of goods sold
Cost of goods sold increased $13.6 million compared with the second quarter of 2021 mainly due to higher manufacturing and log and haul costs primarily from inflationary price increases in areas such as diesel fuel, energy, and repair and maintenance.
Gain on fire damage
In June 2021, a fire occurred at our Ola, Arkansas sawmill. During the second quarter of 2022, we recognized insurance recoveries of $10.0 million and disposal costs of $0.1 million.
Income taxes
Income taxes are primarily due to income from our PotlatchDeltic taxable REIT subsidiaries (TRS). For the three months ended June 30, 2022, we recorded income tax expense of $28.3 million on TRS income before tax of $110.9 million. For the three months ended June 30, 2021, we recorded income tax expense of $50.8 million on TRS income before tax of $195.4 million.
Total Adjusted EBITDDA
Total Adjusted EBITDDA for the second quarter of 2022 decreased $99.8 million compared to the second quarter of 2021 primarily due to lower lumber prices and shipment volumes and higher manufacturing and log and haul costs. These decreases were partially offset by increased rural and development real estate sales. 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 2022 Compared with Year to Date 2021
Revenues
Revenues were $770.9 million, a decrease of $30.8 million compared with the first half of 2021 primarily due to lower lumber prices and shipments and decreased Northern harvest volumes. Lumber shipments in the first half of 2022 were impacted by the loss of production at our Ola, Arkansas sawmill following a fire in June 2021. These decreases were partially offset by higher harvest volumes and sawlog prices in the Southern region and increases in development real estate sales and rural acres sold.
Cost of goods sold
Cost of goods sold increased $24.1 million compared with the first half of 2021 mainly due to higher manufacturing and log and haul costs primarily from inflationary price increases in areas such as diesel fuel, energy, and repair and maintenance.
Gain on fire damage
In June 2021, a fire occurred at our Ola, Arkansas sawmill. During the first half of 2022, we recognized insurance recoveries of $10.4 million for Ola and timberlands fire damage and incurred $0.8 million of disposal costs at the Ola mill.
Pension settlement charge
In March 2022 we transferred $75.6 million of our qualified pension plan (the Plan) assets to an insurance company for the purchase of a group annuity contract. In connection with this transaction, we recorded a non-cash pretax settlement charge of $14.2 million.
25
Non-operating pension and other postretirement benefit costs
Non-operating pension and other postretirement benefit costs decreased $2.9 million compared to the first half of 2021. This decrease is primarily a result of an increase in the discount rate used to determine the benefit obligation partially offset by a decrease in expected return on plan assets.
Income taxes
Income taxes are primarily due to income from our TRS. For the six months ended June 30, 2022, we recorded income tax expense of $60.3 million on TRS income before tax of $238.2 million, which included the $14.2 million pension settlement charge. For the six months ended June 30, 2021, we recorded an income tax expense of $80.9 million on TRS income before tax of $311.2 million.
Total Adjusted EBITDDA
Total Adjusted EBITDDA for the first half of 2022 decreased $49.2 million compared to the first half of 2021 primarily due to lower lumber prices and shipments and higher manufacturing and log and haul costs. These decreases were partially offset by higher harvest activity and sawlog prices in the Southern region and increases in development real estate sales and rural 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.
Business Segment Results
Timberlands Segment
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
Revenues1 |
|
$ |
105,486 |
|
|
$ |
121,216 |
|
|
$ |
(15,730 |
) |
|
$ |
229,143 |
|
|
$ |
233,132 |
|
|
$ |
(3,989 |
) |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Logging and hauling |
|
|
37,123 |
|
|
|
33,303 |
|
|
|
3,820 |
|
|
|
77,205 |
|
|
|
69,771 |
|
|
|
7,434 |
|
Other |
|
|
8,658 |
|
|
|
8,796 |
|
|
|
(138 |
) |
|
|
14,061 |
|
|
|
14,684 |
|
|
|
(623 |
) |
Selling, general and administrative expenses |
|
|
1,815 |
|
|
|
1,858 |
|
|
|
(43 |
) |
|
|
3,553 |
|
|
|
3,560 |
|
|
|
(7 |
) |
Timberlands Adjusted EBITDDA2 |
|
$ |
57,890 |
|
|
$ |
77,259 |
|
|
$ |
(19,369 |
) |
|
$ |
134,324 |
|
|
$ |
145,117 |
|
|
$ |
(10,793 |
) |
1 |
Prior to elimination of intersegment fiber revenues of $39.3 million and $47.4 million for the three months ended June 30, 2022 and 2021, and $81.4 million and $94.7 million for the six months ended June 30, 2022 and 2021, respectively. |
2 |
Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in the Notes to Condensed Consolidated Financial Statements. |
26
Timberlands Segment Statistics
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
Harvest Volumes (in tons) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
Northern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sawlog |
|
|
276,347 |
|
|
|
353,792 |
|
|
|
(77,445 |
) |
|
|
661,637 |
|
|
|
781,047 |
|
|
|
(119,410 |
) |
Pulpwood |
|
|
11,383 |
|
|
|
6,813 |
|
|
|
4,570 |
|
|
|
19,642 |
|
|
|
20,697 |
|
|
|
(1,055 |
) |
Total |
|
|
287,730 |
|
|
|
360,605 |
|
|
|
(72,875 |
) |
|
|
681,279 |
|
|
|
801,744 |
|
|
|
(120,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Southern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sawlog |
|
|
507,679 |
|
|
|
480,193 |
|
|
|
27,486 |
|
|
|
997,772 |
|
|
|
988,266 |
|
|
|
9,506 |
|
Pulpwood |
|
|
376,843 |
|
|
|
352,005 |
|
|
|
24,838 |
|
|
|
756,494 |
|
|
|
678,434 |
|
|
|
78,060 |
|
Stumpage |
|
|
117,618 |
|
|
|
43,352 |
|
|
|
74,266 |
|
|
|
314,131 |
|
|
|
101,765 |
|
|
|
212,366 |
|
Total |
|
|
1,002,140 |
|
|
|
875,550 |
|
|
|
126,590 |
|
|
|
2,068,397 |
|
|
|
1,768,465 |
|
|
|
299,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total harvest volume |
|
|
1,289,870 |
|
|
|
1,236,155 |
|
|
|
53,715 |
|
|
|
2,749,676 |
|
|
|
2,570,209 |
|
|
|
179,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sales Price/Unit ($ per ton)1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Northern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sawlog |
|
$ |
228 |
|
|
$ |
245 |
|
|
$ |
(17 |
) |
|
$ |
218 |
|
|
$ |
209 |
|
|
$ |
9 |
|
Pulpwood |
|
$ |
52 |
|
|
$ |
29 |
|
|
$ |
23 |
|
|
$ |
50 |
|
|
$ |
34 |
|
|
$ |
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Southern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Sawlog |
|
$ |
48 |
|
|
$ |
44 |
|
|
$ |
4 |
|
|
$ |
48 |
|
|
$ |
44 |
|
|
$ |
4 |
|
Pulpwood |
|
$ |
32 |
|
|
$ |
29 |
|
|
$ |
3 |
|
|
$ |
32 |
|
|
$ |
28 |
|
|
$ |
4 |
|
Stumpage |
|
$ |
18 |
|
|
$ |
6 |
|
|
$ |
12 |
|
|
$ |
17 |
|
|
$ |
10 |
|
|
$ |
7 |
|
1 |
Sawlog and pulpwood sales prices are on a delivered basis, which includes logging and hauling costs. Stumpage sales provide our customers the right to harvest standing timber. As such, the customer contracts the logging and hauling and bears such costs. |
Timberlands Adjusted EBITDDA
The following table summarizes Timberlands Adjusted EBITDDA variances for the three and six months ended June 30, 2022, compared with the three and six months ended June 30, 2021:
(in thousands) |
|
Three Months |
|
|
Six Months |
|
||
Timberlands Adjusted EBITDDA - prior year |
|
$ |
77,259 |
|
|
$ |
145,117 |
|
Sales price and mix |
|
|
(2,334 |
) |
|
|
13,720 |
|
Harvest volume |
|
|
(11,956 |
) |
|
|
(15,463 |
) |
Logging and hauling costs per unit |
|
|
(5,735 |
) |
|
|
(10,656 |
) |
Forest management, indirect and other |
|
|
656 |
|
|
|
1,606 |
|
Timberlands Adjusted EBITDDA - current year |
|
$ |
57,890 |
|
|
$ |
134,324 |
|
|
|
|
|
|
|
|
||
27
Second Quarter 2022 Compared with Second Quarter 2021
Timberlands Adjusted EBITDDA for the second quarter of 2022 decreased $19.4 million compared with the second quarter of 2021, primarily as a result of the following:
Year to Date 2022 Compared with Year to Date 2021
Timberlands Adjusted EBITDDA for the first half of 2022 decreased $10.8 million compared to the first half of 2021, primarily as a result of the following:
Wood Products Segment
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
Revenues |
|
$ |
266,633 |
|
|
$ |
357,673 |
|
|
$ |
(91,040 |
) |
|
$ |
562,375 |
|
|
$ |
626,969 |
|
|
$ |
(64,594 |
) |
Costs and expenses1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Fiber costs |
|
|
88,915 |
|
|
|
87,621 |
|
|
|
1,294 |
|
|
|
166,588 |
|
|
|
167,090 |
|
|
|
(502 |
) |
Freight, logging and hauling |
|
|
19,606 |
|
|
|
20,266 |
|
|
|
(660 |
) |
|
|
37,973 |
|
|
|
38,463 |
|
|
|
(490 |
) |
Manufacturing costs |
|
|
55,573 |
|
|
|
51,617 |
|
|
|
3,956 |
|
|
|
106,366 |
|
|
|
99,219 |
|
|
|
7,147 |
|
Finished goods inventory change |
|
|
(7,952 |
) |
|
|
(8,572 |
) |
|
|
620 |
|
|
|
(12,531 |
) |
|
|
(12,591 |
) |
|
|
60 |
|
Selling, general and administrative expenses |
|
|
3,110 |
|
|
|
2,948 |
|
|
|
162 |
|
|
|
6,518 |
|
|
|
5,470 |
|
|
|
1,048 |
|
Other |
|
|
125 |
|
|
|
(740 |
) |
|
|
865 |
|
|
|
254 |
|
|
|
(770 |
) |
|
|
1,024 |
|
Wood Products Adjusted EBITDDA2 |
|
$ |
107,256 |
|
|
$ |
204,533 |
|
|
$ |
(97,277 |
) |
|
$ |
257,207 |
|
|
$ |
330,088 |
|
|
$ |
(72,881 |
) |
1 |
Prior to elimination of intersegment fiber costs of $39.3 million and $47.4 million for the three months ended June 30, 2022 and 2021, and $81.4 million and $94.7 million for the six months ended June 30, 2022 and 2021, respectively. |
2 |
Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in the Notes to Condensed Consolidated Financial Statements. |
28
Wood Products Segment Statistics
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
Lumber shipments (MBF)1 |
|
|
254,225 |
|
|
|
260,311 |
|
|
|
(6,086 |
) |
|
|
487,413 |
|
|
|
518,380 |
|
|
|
(30,967 |
) |
Lumber sales prices ($ per MBF) |
|
$ |
865 |
|
|
$ |
1,185 |
|
|
$ |
(320 |
) |
|
$ |
966 |
|
|
$ |
1,038 |
|
|
$ |
(72 |
) |
1 |
MBF stands for thousand board feet. |
Wood Products Adjusted EBITDDA
The following table summarizes Wood Products Adjusted EBITDDA variances for the three and six months ended June 30, 2022, compared with the three and six months ended June 30, 2021:
(in thousands) |
|
Three Months |
|
|
Six Months |
|
||
Wood Products Adjusted EBITDDA - prior year |
|
$ |
204,533 |
|
|
$ |
330,088 |
|
Lumber: |
|
|
|
|
|
|
||
Price |
|
|
(83,228 |
) |
|
|
(39,431 |
) |
Volume |
|
|
(3,420 |
) |
|
|
(17,103 |
) |
Manufacturing costs per unit |
|
|
(4,716 |
) |
|
|
(11,953 |
) |
Log costs per unit |
|
|
(4,889 |
) |
|
|
(7,184 |
) |
Residuals, panels and other |
|
|
(1,024 |
) |
|
|
2,790 |
|
Wood Products Adjusted EBITDDA - current year |
|
$ |
107,256 |
|
|
$ |
257,207 |
|
Second Quarter 2022 Compared with Second Quarter 2021
Wood Products Adjusted EBITDDA for the second quarter of 2022 decreased $97.3 million compared with the second quarter of 2021, primarily as a result of the following:
Year to Date 2022 Compared with Year to Date 2021
Wood Products Adjusted EBITDDA for the first half of 2022 decreased $72.9 million compared with the first half of 2021, primarily as a result of the following:
29
Real Estate Segment
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
Revenues |
|
$ |
26,736 |
|
|
$ |
15,998 |
|
|
$ |
10,738 |
|
|
$ |
60,801 |
|
|
$ |
36,311 |
|
|
$ |
24,490 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Costs of goods sold |
|
|
3,831 |
|
|
|
2,881 |
|
|
|
950 |
|
|
|
6,710 |
|
|
|
5,349 |
|
|
|
1,361 |
|
Selling, general and administrative expenses |
|
|
1,089 |
|
|
|
1,329 |
|
|
|
(240 |
) |
|
|
2,151 |
|
|
|
2,581 |
|
|
|
(430 |
) |
Real Estate Adjusted EBITDDA1 |
|
$ |
21,816 |
|
|
$ |
11,788 |
|
|
$ |
10,028 |
|
|
$ |
51,940 |
|
|
$ |
28,381 |
|
|
$ |
23,559 |
|
1 |
Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in the Notes to Condensed Consolidated Financial Statements. |
Real Estate Segment Statistics
Rural Real Estate |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Acres sold |
|
|
12,749 |
|
|
|
2,605 |
|
|
|
17,500 |
|
|
|
9,688 |
|
Average price per acre |
|
$ |
1,290 |
|
|
$ |
4,416 |
|
|
$ |
2,176 |
|
|
$ |
2,222 |
|
Development Real Estate |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Residential lots |
|
|
45 |
|
|
|
19 |
|
|
|
109 |
|
|
|
70 |
|
Average price per lot |
|
$ |
134,373 |
|
|
$ |
90,874 |
|
|
$ |
121,662 |
|
|
$ |
96,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial acres |
|
|
3 |
|
|
|
— |
|
|
|
6 |
|
|
|
11 |
|
Average price per acre |
|
$ |
685,713 |
|
|
$ |
— |
|
|
$ |
815,993 |
|
|
$ |
277,425 |
|
Real Estate Adjusted EBITDDA
The following table summarizes Real Estate Adjusted EBITDDA variances for the three and six months ended June 30, 2022 compared with the three and six months ended June 30, 2021:
(in thousands) |
|
Three Months |
|
|
Six Months |
|
||
Real Estate Adjusted EBITDDA - prior year |
|
$ |
11,788 |
|
|
$ |
28,381 |
|
Rural real estate sales |
|
|
4,733 |
|
|
|
16,545 |
|
Real estate development sales |
|
|
6,005 |
|
|
|
7,945 |
|
Selling, general and administrative expenses |
|
|
241 |
|
|
|
430 |
|
Other costs, net |
|
|
(951 |
) |
|
|
(1,361 |
) |
Real Estate Adjusted EBITDDA - current year |
|
$ |
21,816 |
|
|
$ |
51,940 |
|
Second Quarter 2022 Compared with Second Quarter 2021
Real Estate Adjusted EBITDDA for the second quarter of 2022 was $21.8 million, an increase of $10.0 million compared with the second quarter of 2021, primarily as a result of the following:
30
Year to Date 2022 Compared with Year to Date 2021
Real Estate Adjusted EBITDDA for the first half of 2022 was $51.9 million, an increase of $23.6 million compared with the first half of 2021, primarily as a result of the following:
Liquidity and Capital Resources
Cash generated by our operations is highly dependent on selling prices of our products and can vary from period to period. Changes in significant sources and uses of cash for the six months ended June 30, 2022 and 2021 are presented by category as follows:
|
|
Six Months Ended June 30, |
|
|||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Net cash from operating activities |
|
$ |
378,186 |
|
|
$ |
341,340 |
|
|
$ |
36,846 |
|
Net cash from investing activities |
|
$ |
(88,766 |
) |
|
$ |
(25,454 |
) |
|
$ |
(63,312 |
) |
Net cash from financing activities |
|
$ |
(70,298 |
) |
|
$ |
(56,196 |
) |
|
$ |
(14,102 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Net Cash Flows from Operating Activities
Net cash from operating activities increased $36.8 million in the first half of 2022, compared to the first half of 2021 primarily as a result of the following:
Net Cash Flows from Investing Activities
Changes in cash flows from investing activities were primarily a result of the following:
Net Cash Flows from Financing Activities
Changes in cash flows from financing activities were primarily a result of the following:
31
Future Sources and Uses of Cash
At June 30, 2022, we had cash and cash equivalents of $511.2 million. We expect cash and cash equivalents on hand, generated from our operating activities, and supplemented by borrowings under our credit agreement, if needed, to be adequate to meet our future cash requirements.
At June 30, 2022, there were no significant changes in our cash commitments arising in the normal course of business, except as noted below, under our known contractual and other obligations as described in our Annual Report on Form 10-K for the year ended December 31, 2021.
Returning cash to shareholders through a secure regular dividend and opportunistic share repurchases is an important and durable part of our disciplined capital allocation strategy. Our board of directors, in its sole discretion, determines the actual amount of dividends to be made to stockholders based on consideration of a number of factors, including, but not limited to, our results of operations, cash flow and capital requirements, economic conditions in our industry and in the markets for our products, borrowing capacity, debt covenant restrictions, future acquisitions and dispositions, and REIT requirements. Generally, a REIT must distribute its taxable income each year and there is a 20% limit on the value of our TRS, including cash, that can be retained. Our strong financial performance during the first half of 2022, continues to generate large cash balances in both our REIT and TRS. Based on our strong results in the first half of the year, we expect to pay a special dividend to stockholders in December 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 $85 to $90 million for capital expenditures during 2022.
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, including a $12 million deposit paid in 2022.
Our 2022 planned capital spend also includes approximately $15.0 million of capital expenditures for the reconstruction of our fire-damaged Ola sawmill, which is largely covered by insurance. The new equipment has been installed. We expect to wrap up the project in the third quarter of 2022 and are targeting to complete the start-up phase by the end of 2022. We have adequate property damage and business interruption insurance, subject to an applicable deductible. The timing of expenditures incurred for the sawmill rebuild and economic losses is expected to vary based on when we receive proceeds from our insurance carriers.
Timberland Acquisitions
During the six months ended June 30, 2022, we were the successful bidder on three bolt-on timberland transactions, aggregating approximately $101 million, covering approximately 46,000 acres in Mississippi and Arkansas. We are using cash to pay for the acquisitions.
Share Repurchase Program
On August 30, 2018, the board of directors authorized the repurchase of up to $100.0 million of common stock with no time limit set for the repurchase (the Repurchase Program). At June 30, 2022, we had remaining authorization of $55.3 million for future stock repurchases under the Repurchase Program. The timing, manner, price and amount of repurchases will be determined according to the trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan), and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason.
32
Long-Term Debt and Credit Agreement
At June 30, 2022, our total outstanding net long-term debt was $755.7 million. We expect to refinance a $40.0 million term loan expiring in December 2022 at maturity, which is covered by a forward starting interest rate swap that hedges the variability in future benchmark interest payments attributable to changes in interest rates. All interest rates on our outstanding long-term debt are fixed rates under fixed rate loans or variable rate loans with an associated interest rate swap that fixes the variable benchmark interest rate component.
We have a $300.0 million revolving line of credit with a syndicate of lenders that matures February 14, 2027. Under the terms of the Amended Credit Agreement, the amount of available principal may be increased up to an additional $500.0 million. We may also utilize borrowings under the Amended Credit Agreement to, among other things, refinance existing indebtedness and provide funding for working capital requirements, capital projects, acquisitions, and other general corporate expenditures. At June 30, 2022, there were no borrowings under the revolving line of credit and approximately $1.0 million of the credit facility was utilized by outstanding letters of credit.
Our credit agreement, variable rate term loans with $403.5 million in principal and our interest rate derivative agreements have an interest rate tied to LIBOR. On March 5, 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that the US Dollar LIBOR will no longer be published after June 30, 2023. The market transition away from LIBOR to an alternative reference rate is complex. While we expect LIBOR to be available in substantially its current form until at least through June 30, 2023, it is possible that LIBOR will become unavailable prior to that point. We continue to evaluate and monitor market developments regarding the alternative rates, will work with our lenders and counterparties to identify a suitable replacement rate, and may amend certain debt and interest rate derivative agreements to accommodate those rates.
CatchMark has outstanding term loans of $300.0 million. We intend to refinance $277.5 million of CatchMark’s outstanding long-term debt and repay the remaining $22.5 million with cash on hand, effective with the close of the CatchMark merger. Additionally, we plan to dedesignate and restructure $277.5 million of our forward starting interest rate swaps to hedge the variability in future benchmark interest payments attributable to changes on $277.5 million of CatchMark debt.
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 June 30, 2022:
(in thousands) |
|
|
|
|
Estimated timberland fair value |
|
$ |
4,010,593 |
|
Wood Products manufacturing facilities book basis (limited to 10% of TAV) |
|
|
300,744 |
|
Cash and cash equivalents |
|
|
511,157 |
|
Company owned life insurance (COLI) (limited to 5% of TAV) |
|
|
4,259 |
|
Total Asset Value1 |
|
$ |
4,826,753 |
|
1 |
TAV also includes, as applicable, Construction in Progress (limited to 10% of TAV) and Investments in Affiliates (limited to 15% TAV) as defined in the Agreements. |
At June 30, 2022, we were in compliance with all covenants under the Agreements. The following table sets forth the financial covenants for the Agreements and our status with respect to these covenants at June 30, 2022:
|
|
Covenant Requirement |
|
Actual at |
||
Interest coverage ratio |
|
≥ |
|
3.00 to 1.00 |
|
22.08 |
Leverage ratio |
|
≤ |
|
40% |
|
16% |
|
|
|
|
|
|
|
See Note 5: Debt in the Notes to the Condensed Consolidated Financial Statements for additional information on our debt and credit agreements.
33
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) |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Long-term debt (including current portion) |
|
$ |
755,737 |
|
|
$ |
758,256 |
|
Cash and cash equivalents |
|
|
(511,157 |
) |
|
|
(296,151 |
) |
Net debt |
|
|
244,580 |
|
|
|
462,105 |
|
Market capitalization1 |
|
|
3,061,483 |
|
|
|
4,159,034 |
|
Enterprise value |
|
$ |
3,306,063 |
|
|
$ |
4,621,139 |
|
|
|
|
|
|
|
|
||
Net debt to enterprise value |
|
|
7.4 |
% |
|
|
10.0 |
% |
Dividend yield2 |
|
|
4.0 |
% |
|
|
2.9 |
% |
Weighted-average cost of debt, after tax3 |
|
|
3.1 |
% |
|
|
3.1 |
% |
|
|
|
|
|
|
|
||
1 |
Market capitalization is based on outstanding shares of 69.3 million and 69.1 million times closing share prices of $44.19 and $60.22 as of June 30, 2022, and December 31, 2021, respectively. |
2 |
Dividend yield is based on annualized dividends per share of $1.76 and share prices of $44.19 and $60.22 as of June 30, 2022, and December 31, 2021, respectively. |
3 |
Weighted-average cost of debt excludes deferred debt costs and credit facility fees and includes estimated annual patronage credit on term loan debt. |
Liquidity and Performance Measures
The discussion below is presented to enhance the reader’s understanding of our operating performance, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures: Adjusted EBITDDA and Cash Available for Distribution (CAD). These measures are not defined by GAAP and the discussion of Adjusted EBITDDA and CAD is not intended to conflict with or change any of the GAAP disclosures described herein.
Adjusted EBITDDA is a non-GAAP measure that management uses in evaluating performance and to allocate resources between segments, and that investors can use to evaluate the operational performance of the assets under management. It removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis. This measure should not be considered in isolation from and is not intended to represent an alternative to our results reported in accordance with GAAP. Management believes that this non-GAAP measure, when read in conjunction with our GAAP financial statements, provides useful information to investors by facilitating the comparability of our ongoing operating results over the periods presented, the ability to identify trends in our underlying business, and the comparison of our operating results against analyst financial models and the operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.
Our definition of EBITDDA may be different from similarly titled measures reported by other companies. We define EBITDDA as net income before interest expense, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses.
We reconcile Total Adjusted EBITDDA to net income for the consolidated company as it is the most comparable GAAP measure.
34
The following table provides a reconciliation of net income to Total Adjusted EBITDDA for the respective periods:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income |
|
$ |
120,222 |
|
|
$ |
187,905 |
|
|
$ |
284,102 |
|
|
$ |
319,011 |
|
Interest expense, net |
|
|
7,419 |
|
|
|
8,199 |
|
|
|
10,313 |
|
|
|
11,773 |
|
Income taxes |
|
|
28,269 |
|
|
|
50,840 |
|
|
|
60,334 |
|
|
|
80,879 |
|
Depreciation, depletion and amortization |
|
|
20,007 |
|
|
|
17,029 |
|
|
|
39,509 |
|
|
|
35,025 |
|
Basis of real estate sold |
|
|
7,325 |
|
|
|
7,213 |
|
|
|
18,179 |
|
|
|
16,036 |
|
Gain on fire damage |
|
|
(9,868 |
) |
|
|
— |
|
|
|
(9,592 |
) |
|
|
— |
|
Pension settlement charge |
|
|
— |
|
|
|
— |
|
|
|
14,165 |
|
|
|
— |
|
Non-operating pension and other postretirement benefit costs |
|
|
1,809 |
|
|
|
3,271 |
|
|
|
3,738 |
|
|
|
6,685 |
|
(Gain) loss on disposal of fixed assets |
|
|
(13 |
) |
|
|
527 |
|
|
|
(16 |
) |
|
|
561 |
|
Total Adjusted EBITDDA |
|
$ |
175,170 |
|
|
$ |
274,984 |
|
|
$ |
420,732 |
|
|
$ |
469,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
We define CAD as cash from operating activities adjusted for capital spending for purchases of property, plant and equipment, timberlands reforestation and roads and timberland acquisitions not classified as strategic. Management believes CAD is a useful indicator of the company’s overall liquidity, as it provides a measure of cash generated that is available for dividends to common stockholders (an important factor in maintaining our REIT status), repurchase of the company’s common shares, debt repayment, acquisitions and other discretionary and nondiscretionary activities. Our definition of CAD is limited in that it does not solely represent residual cash flows available for discretionary expenditures since the measure does not deduct the payments required for debt service and other contractual obligations. Therefore, we believe it is important to view CAD as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows. Our definition of CAD may be different from similarly titled measures reported by other companies, including those in our industry. CAD is not necessarily indicative of the CAD that may be generated in future periods.
The following table provides a reconciliation of cash from operating activities to CAD:
|
|
Six Months Ended June 30, |
|
|
Twelve Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net cash from operating activities1 |
|
$ |
378,186 |
|
|
$ |
341,340 |
|
|
$ |
541,732 |
|
|
$ |
588,660 |
|
Capital expenditures2 |
|
|
(87,383 |
) |
|
|
(26,089 |
) |
|
|
(136,708 |
) |
|
|
(49,073 |
) |
CAD |
|
$ |
290,803 |
|
|
$ |
315,251 |
|
|
$ |
405,024 |
|
|
$ |
539,587 |
|
Net cash from investing activities3 |
|
$ |
(88,766 |
) |
|
$ |
(25,454 |
) |
|
$ |
(122,457 |
) |
|
$ |
(47,959 |
) |
Net cash from financing activities |
|
$ |
(70,298 |
) |
|
$ |
(56,196 |
) |
|
$ |
(415,411 |
) |
|
$ |
(111,605 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
1 |
Net cash from operating activities for the six months ended June 30, 2022 and 2021 includes cash paid for real estate development expenditures of $5.2 million and $4.0 million, respectively. Net cash from operating activities for the twelve months ended June 30, 2022 and 2021 includes cash paid for real estate development expenditures of $10.4 million and $8.2 million, respectively. |
2 |
The six and twelve months ended June 30, 2022 includes fire related capital expenditures for the Ola, Arkansas sawmill of $9.2 million and $14.8 million, respectively, and excludes $0 and $15.0 million, respectively, of insurance proceeds for the Ola, Arkansas sawmill property losses. |
3 |
Net cash from investing activities includes payment for capital expenditures and acquisition of non-strategic timber and timberlands, which is also included in our reconciliation of CAD. |
Critical Accounting Policies and Estimates
In March 2022, we transferred $75.6 million of our qualified pension plan (the Plan) assets to an insurance company for the purchase of a group annuity contract. This transaction triggered a remeasurement of the Plan's assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the Plan as of March 31, 2022. All other pension assumptions remain unchanged. See Note 11: Pension and Other Postretirement Employee Benefits for further information on the pension settlement and change to the projected benefit obligation. There have been no other significant changes during 2022 to our critical accounting policies or estimates as presented in our 2021 Annual Report on Form 10-K.
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
35
impact of interest rate changes on existing debt and future debt issuances, respectively. All market risk sensitive instruments were entered into for purposes other than trading purposes.
For quantitative and qualitative disclosures about market risk, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our annual report on Form 10-K for the year ended December 31, 2021. Our exposures to market risk have not changed materially since December 31, 2021.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act)), under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of June 30, 2022. These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, the CEO and CFO have concluded that these disclosure controls and procedures were effective as of June 30, 2022.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Internal Control over Financial Reporting
No changes occurred in our internal control over financial reporting during the six months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
36
Part II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We believe there is no pending or threatened litigation that could have a material adverse effect on our financial position, operations or liquidity.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors previously disclosed in Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, except the following:
Our Pending Merger With CatchMark Timber Trust
On May 29, 2022, we entered into an Agreement and Plan of Merger (merger agreement) with CatchMark Timber Trust, Inc. (CatchMark) and CatchMark Timber Operating Partnership, LP (the Partnership), pursuant to which CatchMark and the Partnership will merge into a wholly-owned subsidiary of PotlatchDeltic, with the subsidiary continuing as the surviving corporation. If the merger is not completed, our businesses may be adversely affected and we may be subject to various risks without realizing any of the benefits of having the merger completed, including negative reactions from the financial markets or from our customers, suppliers or employees. In addition, we may be subject to litigation related to failing to complete the merger or enforcement proceedings to perform our obligations under the merger agreement.
A delay in completing the merger, which is subject to a number of conditions, some of which are outside our control, may reduce or eliminate the expected benefits from the merger.
The merger is subject to a number of conditions, some of which are beyond our control, that could prevent, delay or otherwise materially adversely affect the completion of the transaction. We cannot predict whether and when the conditions will be satisfied. Furthermore, the requirement to obtain the required CatchMark stockholder approval could delay the completion of the merger for a significant period of time or prevent the transaction from occurring. A delay in completing the merger could cause the combined company not to realize some or all of the synergies and other benefits that it expects to achieve if the merger is successfully completed within its expected time frame. The merger agreement contains certain restrictions on the conduct of the parties’ business. If the merger is delayed, these restrictions could adversely affect our ability to execute business strategies or pursue attractive business opportunities. In addition, a delay could cause management to focus on completion of the merger instead of on other opportunities that could be beneficial to the company.
The merger will involve substantial costs, and the combined company may be unable to successfully integrate the businesses of the two companies and realize the anticipated benefits of the merger.
We have incurred and expect to continue to incur substantial costs, fees and expenses relating directly to the merger and the issuance of our shares in connection with the merger, including fees and expenses payable to financial and other professional advisors, SEC filing fees, printing and mailing costs and other transaction-related costs, fees and expenses. We expect to incur substantial expenses in connection with formulating and implementing integration plans, including facilities and systems consolidation costs, employment-related costs, and a cash gross-up payment, subject to a cap, to the holders of Partnership OP Units to satisfy income tax liabilities associated with receiving shares of our common stock as consideration in connection with the merger if elected by us.
Expenses related to integration are by their nature difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that we expect to achieve from the realization of economies of scale and cost savings and synergies related to the integration of the businesses. These integration expenses likely will result in significant charges against earnings following the completion of the merger, but the amount and timing of such charges are uncertain.
The merger involves the combination of two independently operated public companies. The merger will require management to devote significant attention and resources to integrating business practices and operations. The combined company may fail to realize some or all of the anticipated benefits of the merger if the integration process takes longer than expected or is costlier than expected.
37
Uncertainty associated with the merger may adversely affect our business and operations.
Uncertainties associated with the merger could cause some customers, suppliers, or other entities with whom we have a business relationship to delay or defer decisions, which could negatively impact our revenues, earnings, and cash flows, as well as the market price of our common stock, regardless of whether the merger is completed. In addition, customers or suppliers may cease doing business with us or the combined company in anticipation of or following the merger or may change the terms and conditions upon which they are willing to continue to do business. In addition, current or prospective competitors may seek to take advantage of potential uncertainty or disruption resulting from the merger to interfere with relationships with customers, suppliers, or employees.
The market price and trading volume of our common stock may be volatile in the future as a result of the merger.
The market price of our common stock may decline in the future as a result of the merger for a number of reasons, including our inability to successfully integrate the two companies or our failure to achieve the perceived benefits of the merger, including financial results, as rapidly as or to the extent anticipated by financial or industry analysts. Failure to successfully integrate the two companies could negatively impact our revenues, earnings and cash flows, and could materially adversely affect our ability to pay dividends at historical levels, or at all.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert management’s attention and resources, which could have a material adverse effect on our cash flows, our ability to execute our business strategy and our ability to make distributions to our stockholders.
The merger may not be accretive and may cause dilution to our cash available for distribution, which may negatively affect the market price of shares of our common stock.
The merger is expected to deliver accretion to our cash available for distribution in the first full year after the merger is completed, including cost synergies and excluding integration and restructuring activities. This expectation is based on preliminary estimates which may materially change, including the currently expected timing of the closing of the merger or the failure to realize all of the benefits anticipated from the merger. We could also encounter additional transaction-related costs or other factors such as a delay in the closing of the merger or the failure to realize all of the benefits anticipated from the merger. Any of these factors could cause dilution to our cash available for distribution or decrease or delay the expected accretive effect of the merger and cause a decrease in the market price of our common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On August 30, 2018, our board of directors authorized management to repurchase up to $100.0 million of common stock with no time limit set for the repurchase (the Repurchase Program). Shares under the Repurchase Program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan). The timing, manner, price and amount of repurchases will be determined according to, and subject to, the terms of the Trading Plan, and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason.
During the six months ended June 30, 2022, we repurchased 94,566 shares of our common stock at a total consideration of $4.2 million (including transaction costs) under the Repurchase Program. Transaction costs are not counted against authorized funds. All common stock purchases were made in open-market transactions. We did not repurchase any shares during the six months ended June 30, 2021. At June 30, 2022, we had remaining authorization of $55.3 million for future stock repurchases under the Repurchase Program.
The following table provides information with respect to purchases of common stock made by the company during the second quarter of 2022:
Common Share Purchases |
|
Total Number of Shares Purchased |
|
|
Average Price Paid Per Share |
|
|
Total Number of Shares Purchased as Part of a Publicly Announced Plan |
|
|
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan |
|
||||
April 1 - April 30 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
59,496,899 |
|
May 1 - May 31 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
59,496,899 |
|
June 1 - June 30 |
|
|
94,566 |
|
|
$ |
43.92 |
|
|
|
94,566 |
|
|
$ |
55,343,272 |
|
Total |
|
|
94,566 |
|
|
|
|
|
|
94,566 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
38
ITEM 6. EXHIBITS
EXHIBIT NUMBER |
DESCRIPTION |
(2)(a)* |
|
(3)(a)*
|
|
(3)(b)* |
|
(4) |
See Exhibits (3)(a) and (3)(b). The registrant undertakes to furnish to the Commission, upon request, any instrument defining the rights of holders of long-term debt. |
(10)(a)* |
|
(10)(b)* |
|
(31) |
|
(32) |
|
(101) |
The following financial information from PotlatchDeltic Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, filed on July 29, 2022 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021, (iii) the Condensed Consolidated Balance Sheets at June 30, 2022 and December 31, 2021, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021, (v) the Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021 and (vi) the Notes to Condensed Consolidated Financial Statements. |
(104) |
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). |
* Incorporated by reference.
39
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
PotlatchDeltic Corporation |
|
|
|
(Registrant) |
|
|
|
|
|
|
|
By |
/s/ WAYNE WASECHEK |
|
|
|
Wayne Wasechek |
|
|
|
Corporate Controller (Duly Authorized; Principal Accounting Officer) |
|
|
|
|
|
|
|
|
Date: |
July 29, 2022 |
|
|
40