UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
or
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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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.
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☒ |
Accelerated Filer |
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Non-accelerated Filer |
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Smaller Reporting Company |
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Emerging Growth Company |
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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
The number of shares of common stock of the registrant outstanding as of April 28, 2021 was
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
Table of Contents
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Page |
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PART I. - FINANCIAL INFORMATION |
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ITEM 1. |
Financial Statements (unaudited) |
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2 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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Index for the Notes to Condensed Consolidated Financial Statements |
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9 |
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ITEM 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
19 |
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ITEM 3. |
32 |
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ITEM 4. |
32 |
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PART II. - OTHER INFORMATION |
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ITEM 1. |
33 |
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ITEM 1A. |
33 |
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ITEM 2. |
33 |
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ITEM 6. |
33 |
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34 |
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Part I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended March 31, |
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(in thousands, except per share amounts) |
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2021 |
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2020 |
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Revenues |
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$ |
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$ |
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Costs and expenses: |
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Cost of goods sold |
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Selling, general and administrative expenses |
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Operating income |
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Interest expense, net |
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( |
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Pension settlement charge |
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— |
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( |
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Non-operating pension and other postretirement employee benefit costs |
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( |
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Income (loss) before income taxes |
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Income taxes |
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Net income (loss) |
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$ |
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$ |
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Net income (loss) per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Dividends per share |
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$ |
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$ |
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Weighted-average shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
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Three Months Ended March 31, |
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(in thousands) |
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2021 |
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2020 |
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Net income (loss) |
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$ |
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$ |
( |
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Other comprehensive income (loss), net of tax: |
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Pension and other postretirement employee benefits: |
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Net loss arising during the period, net of tax benefit of $ |
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— |
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( |
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Effect of pension settlement, net of tax benefit of $ |
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— |
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Amortization of prior service credit included in net income (loss), net of tax benefit of $ |
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Amortization of actuarial loss included in net income (loss), net of tax expense of $ |
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Cash flow hedges, net of tax expense (benefit) of $ |
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Other comprehensive income (loss), net of tax |
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( |
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Comprehensive income (loss) |
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$ |
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$ |
( |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
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(in thousands, except per share amounts) |
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March 31, 2021 |
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December 31, 2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Customer receivables, net |
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Inventories, net |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Investment in real estate held for development and sale |
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Timber and timberlands, net |
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Intangible assets, net |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
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$ |
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Current portion of long-term debt |
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Current portion of pension and other postretirement employee benefits |
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Total current liabilities |
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Long-term debt |
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Pension and other postretirement employee benefits |
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Deferred tax liabilities, net |
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Other long-term obligations |
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Total liabilities |
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Commitments and contingencies |
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Stockholders' equity: |
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Preferred stock, authorized |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended March 31, |
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(in thousands) |
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2021 |
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2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income (loss) |
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$ |
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$ |
( |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation, depletion and amortization |
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Basis of real estate sold |
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Change in deferred taxes |
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( |
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Pension and other postretirement employee benefits |
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Pension settlement charge |
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— |
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Equity-based compensation expense |
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Other, net |
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( |
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Change in working capital and operating-related activities, net |
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Real estate development expenditures |
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( |
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( |
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Funding of pension and other postretirement employee benefits |
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( |
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( |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Property, plant and equipment additions |
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( |
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( |
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Timberlands reforestation and roads |
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( |
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( |
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Acquisition of timber and timberlands |
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— |
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( |
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Proceeds on sale of facility |
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— |
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Other, net |
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Net cash used in investing activities |
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( |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Distributions to common stockholders |
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( |
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( |
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Repurchase of common stock |
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— |
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( |
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Other, net |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Change in cash, cash equivalents and restricted cash |
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( |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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NONCASH INVESTING AND FINANCING ACTIVITIES |
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Accrued property, plant and equipment additions |
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$ |
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$ |
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Accrued timberlands reforestation and roads |
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$ |
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$ |
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5
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the amounts shown in the Condensed Consolidated Statements of Cash Flows.
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(in thousands) |
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March 31, 2021 |
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March 31, 2020 |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash included in other long-term assets1 |
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Total cash, cash equivalents, and restricted cash |
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$ |
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$ |
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1 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
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Common Stock |
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Additional Paid- |
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Accumulated |
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Accumulated Other Comprehensive |
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Total Stockholders' |
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(in thousands, except per share amounts) |
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Shares |
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Amount |
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in Capital |
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Deficit |
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Loss |
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Equity |
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Balance, December 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Shares issued for stock compensation |
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( |
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— |
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— |
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— |
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Equity-based compensation expense |
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— |
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— |
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— |
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— |
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Pension plans and OPEB obligations |
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— |
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— |
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— |
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— |
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Cash flow hedges |
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— |
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— |
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— |
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— |
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Dividends on common stock, $ |
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— |
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— |
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— |
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( |
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— |
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( |
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Other transactions, net |
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— |
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— |
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( |
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— |
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( |
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Balance, March 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Common Stock |
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Additional Paid- |
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Accumulated |
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Accumulated Other Comprehensive |
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Total Stockholders' |
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(in thousands, except per share amounts) |
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Shares |
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Amount |
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in Capital |
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Deficit |
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Loss |
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Equity |
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Balance, December 31, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Shares issued for stock compensation |
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( |
) |
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— |
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— |
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— |
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Equity-based compensation expense |
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— |
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— |
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— |
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— |
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Pension plans and OPEB obligations |
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— |
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— |
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— |
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— |
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Cash flow hedges |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Dividends on common stock, $ |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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Repurchase of common stock |
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( |
) |
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( |
) |
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— |
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( |
) |
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— |
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( |
) |
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Other transactions, net |
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— |
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— |
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( |
) |
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— |
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( |
) |
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Balance, March 31, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
INDEX FOR THE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
9 |
|
|
10 |
|
|
12 |
|
|
13 |
|
|
13 |
|
|
14 |
|
|
15 |
|
|
15 |
|
|
16 |
|
|
17 |
|
|
18 |
|
|
18 |
8
Notes to Condensed Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION
General
PotlatchDeltic Corporation and its subsidiaries (collectively referred to in this report as the company, us, we or our) is a leading timberland Real Estate Investment Trust (REIT) with ownership of approximately
Condensed Consolidated Financial Statements
The accompanying unaudited Condensed Consolidated Financial Statements provide an overall view of our results and financial condition and reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Except as otherwise disclosed in these Notes to Condensed Consolidated Financial Statements, such adjustments are of a normal, recurring nature. Intercompany transactions and accounts have been eliminated in consolidation. The Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. Certain disclosures normally provided in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on February 18, 2021. Results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the full year.
Use of Estimates
The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America, which we refer to in this report as GAAP, requires management to make estimates and judgments affecting the amounts reported in the financial statements and the accompanying notes. The inputs into our judgments and estimates reflect the consideration of the economic implications of COVID-19 on our critical and significant accounting estimates. The actual results that we experience may differ materially from our estimates.
Commitments and Contingencies
At any given time, we are subject to claims and actions incidental to the operations of our business. Based on information currently available, we do not expect that any sums we may have to pay in connection with any legal proceeding would have a materially adverse effect on our consolidated financial position or net cash flow.
New Accounting Standards Being Evaluated
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 contains practical expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting impacts related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance in ASU 2020-04, which companies can apply immediately, is optional and may be elected over time as reference rate reform activities occur. Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity was expected to be completed. A number of our debt instruments and associated interest rate derivative agreements have an interest rate tied to LIBOR. We are monitoring the developments regarding the alternative rates, will work with our lenders and counter-parties to identify a suitable replacement rate and may amend certain debt and interest rate derivative agreements to accommodate those rates if the contract does not already specify a replacement rate. While the notional value of our agreements indexed to LIBOR is material, we are not yet able to reasonably estimate any expected impact to our Condensed Consolidated Financial Statements and related disclosures.
9
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 represents our revenues by major product:
|
|
|
|
|
Three Months Ended March 31, |
|
|||||||
|
(in thousands) |
|
|
|
2021 |
|
|
|
|
2020 |
|
||
|
Timberlands |
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sawlogs |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
Pulpwood |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stumpage |
|
|
|
|
— |
|
|
|
|
|
|
|
|
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 |
|
10
Management primarily evaluates the performance of its segments and allocates resources to them based upon Adjusted EBITDDA. EBITDDA is calculated as net income (loss) before interest expense, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses. Management uses Adjusted EBITDDA to compare the operating performance of our segments on a consistent basis and to evaluate the performance and effectiveness of each segment’s operational strategies. Our calculation of Adjusted EBITDDA may not be comparable to that reported by other companies.
The following table summarizes information for each of the company’s reportable segments and includes a reconciliation of Total Adjusted EBITDDA to income (loss) before income taxes. Corporate information is included to reconcile segment data to the Condensed Consolidated Financial Statements.
|
|
|
|
|
Three Months Ended March 31, |
|
|||||||
|
(in thousands) |
|
|
|
2021 |
|
|
|
|
2020 |
|
||
|
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 |
|
|
|
|
( |
) |
|
|
|
|
( |
) |
|
Pension settlement charge |
|
|
|
|
— |
|
|
|
|
|
( |
) |
|
Non-operating pension and other postretirement employee benefits |
|
|
|
|
( |
) |
|
|
|
|
( |
) |
|
(Loss) gain on disposal of fixed assets |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Income (loss) 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 |
|
11
NOTE 3. EARNINGS PER SHARE
The following table reconciles the number of shares used in calculating basic and diluted earnings per share:
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
||
|
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 months ended March 31, 2021 and 2020, there were approximately
Share Repurchase Program
On August 30, 2018, our board of directors authorized management to repurchase up to $
We did
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.
12
NOTE 4. CERTAIN BALANCE SHEET COMPONENTS
Inventories
|
(in thousands) |
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Logs |
|
$ |
|
|
|
$ |
|
|
|
Lumber, panels and veneer |
|
|
|
|
|
|
|
|
|
Materials and supplies |
|
|
|
|
|
|
|
|
|
Total inventories |
|
|
|
|
|
|
|
|
|
Less: LIFO reserve |
|
|
( |
) |
|
|
( |
) |
|
Total inventories, net |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
(in thousands) |
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Property, plant and equipment |
|
$ |
|
|
|
$ |
|
|
|
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
Total property, plant and equipment, net |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Timber and timberlands
|
(in thousands) |
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Timber and timberlands |
|
$ |
|
|
|
$ |
|
|
|
Logging roads |
|
|
|
|
|
|
|
|
|
Total timber and timberlands, net |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
(in thousands) |
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Accrued payroll and benefits |
|
$ |
|
|
|
$ |
|
|
|
Accounts payable |
|
|
|
|
|
|
|
|
|
Accrued interest |
|
|
|
|
|
|
|
|
|
Deferred revenue1 |
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
|
|
|
|
|
|
|
|
Income taxes payable |
|
|
|
|
|
|
|
|
|
Other accrued taxes |
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued liabilities |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
NOTE 5. DEBT
At March 31, 2021, our total outstanding long-term debt included $
At March 31, 2021, there were no borrowings under our $
13
swing line loans. Usage under either or both subfacilities reduces availability under the revolving line of credit. We may utilize borrowings under the credit facility to, among other things, refinance existing indebtedness and provide funding for working capital requirements, capital projects, acquisitions and other general corporate expenditures.
We were in compliance with all debt and credit agreement covenants at March 31, 2021.
NOTE 6. DERIVATIVE INSTRUMENTS
From time to time, we enter into derivative financial instruments to manage certain cash flow and fair value risks.
Derivatives designated and qualifying as a hedge of the exposure to variability in the cash flows of a specific asset or liability that is attributable to a particular risk, such as interest rate risk, are considered cash flow hedges. As of March 31, 2021, we have interest rate swaps associated with $
We also hold $
The following table presents the gross fair values of derivative instruments on our Condensed Consolidated Balance Sheets:
|
|
|
|
|
Asset Derivatives |
|
|
|
|
Liability Derivatives |
|
||||||||||
|
(in thousands) |
|
Location |
|
March 31, 2021 |
|
|
December 31, 2020 |
|
|
Location |
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||||
|
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 |
|
The following table details the effect of derivatives on our Condensed Consolidated Statements of Operations:
|
|
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
Location |
|
2021 |
|
|
2020 |
|
||
|
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 loss, net of tax1 |
|
Interest expense |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
14
NOTE 7. FAIR VALUE MEASUREMENTS
The following table presents the estimated fair values of our financial instruments:
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||||||||||
|
(in thousands) |
|
Carrying Amount |
|
|
Fair Value |
|
|
Carrying Amount |
|
|
Fair Value |
|
||||
|
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 fair value of interest rate swaps are determined using a discounted cash flow analysis on the expected cash flows of each derivative. The analysis reflects the contractual terms of the derivatives, including the period to maturity and uses observable market-based inputs, including interest rate forward curves.
The fair value of our long-term debt is estimated based upon quoted market prices for similar debt issues or estimated based on average market prices for comparable debt when there is no quoted market price.
The contract value of our company owned life insurance is based on the amount at which it could be redeemed and, accordingly, approximates fair value.
We believe that our other financial instruments, including cash and cash equivalents, receivables and payables have net carrying values that approximate their fair values with only insignificant differences. This is primarily due to the short-term nature of these instruments.
NOTE 8. EQUITY-BASED COMPENSATION
At March 31, 2021, approximately
Share-based compensation activity during the three months ended March 31, 2021 included the following:
|
(Shares in thousands) |
|
Granted |
|
|
Vested |
|
|
Forfeited |
|
|||
|
Performance Share Awards (PSAs) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Restricted Stock Units (RSUs) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately
15
The following table details equity-based compensation expense and the related income tax benefit:
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
2021 |
|
|
2020 |
|
||
|
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 2021 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 2021:
|
Stock price as of valuation date |
|
$ |
|
|
|
Risk-free rate |
|
|
|
% |
|
Expected volatility |
|
|
|
% |
|
Expected dividend yield1 |
|
|
— |
|
|
Expected term (years) |
|
|
|
|
|
|
|
|
|
|
1Full dividend reinvestment assumed.
Restricted Stock Units
The weighted average fair value of all RSUs granted during the three months ended March 31, 2021 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 income or loss of the TRS, as well as permanent book versus tax differences.
16
NOTE 10. LEASES
We lease certain equipment, office space and land. Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
The following table presents supplemental balance sheet information related to lease assets and liabilities:
|
(in thousands) |
Classification |
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
|
Operating lease assets |
Other long-term assets |
|
$ |
|
|
|
$ |
|
|
|
Finance lease assets1 |
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
Total lease assets |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
Accounts payable and accrued liabilities |
|
$ |
|
|
|
$ |
|
|
|
Finance lease liabilities |
Accounts payable and accrued liabilities |
|
|
|
|
|
|
|
|
|
Noncurrent: |
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
Other long-term obligations |
|
|
|
|
|
|
|
|
|
Finance lease liabilities |
Other long-term obligations |
|
|
|
|
|
|
|
|
|
Total lease liabilities |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The following table presents the components of lease expense:
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
||
|
Operating lease costs1 |
|
$ |
|
|
|
$ |
|
|
|
Finance lease costs: |
|
|
|
|
|
|
|
|
|
Amortization of leased assets |
|
|
|
|
|
|
|
|
|
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
Net lease costs |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The following table presents supplemental cash flow information related to leases:
|
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
|
2021 |
|
|
2020 |
|
||
|
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 |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
NOTE 11. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS
The following table details the components of net periodic cost (benefit) of our pension plans and other postretirement employee benefits (OPEB):
|
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
|
Pension |
|
|
OPEB |
|
||||||||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
Amortization of prior service cost (credit) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Amortization of actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost before pension settlement charge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension settlement charge |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Net periodic cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2021 and 2020, funding of pension and other postretirement employee benefit plans was $
Pension Annuitization
In February 2020, we purchased a group annuity contract from an insurance company to transfer $
NOTE 12. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table details changes in amounts included in our accumulated other comprehensive loss (AOCL) by component on our Condensed Consolidated Balance Sheets, net of tax:
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
||
|
Pension Plans |
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
|
|
|
$ |
|
|
|
Amounts arising during the period |
|
|
— |
|
|
|
|
|
|
Effect of pension settlement |
|
|
— |
|
|
|
( |
) |
|
Amounts reclassified from AOCL to earnings |
|
|
( |
) |
|
|
( |
) |
|
Balance at end of period |
|
$ |
|
|
|
$ |
|
|
|
Other Postretirement Benefit Plans |
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
|
|
|
$ |
|
|
|
Amounts reclassified from AOCL to earnings |
|
|
( |
) |
|
|
( |
) |
|
Balance at end of period |
|
$ |
|
|
|
$ |
|
|
|
Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
|
|
|
$ |
|
|
|
Amounts arising during the period |
|
|
( |
) |
|
|
|
|
|
Amounts reclassified from AOCL to earnings |
|
|
( |
) |
|
|
( |
) |
|
Balance at end of period |
|
$ |
( |
) |
|
$ |
|
|
|
Accumulated other comprehensive loss, end of period |
|
$ |
|
|
|
$ |
|
|
See Note 11: Pension and Other Postretirement Employee Benefits and Note 6: Derivative Instruments for additional information.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
This report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, expected impacts of COVID-19 on our business; expected effectiveness of our hedging instruments and swaps; expected return on pension assets; required contributions to pension plans; recognition of compensation costs relating to our performance share awards (PSAs) and restricted stock units (RSUs); expected amortization of unrecognized compensation cost of PSAs and RSUs; amount of net losses on cash flow hedges expected to be reclassified into earnings in the next 12 months; expected tax payments and deferrals; anticipated share repurchases and dividend payments; anticipated cash balances, cash flows from operations and expected liquidity; potential uses of and estimated payments under our credit facility; expected debt refinancing; expectations regarding the U.S. housing market, home repair and remodeling activity, the lumber and log markets, lumber shipment volumes, sawlog demand, percent of log sales by log supply agreements; timber harvest volumes, sawlog mix and pricing, rural real estate and residential and commercial real estate development sales, and the average price per acre and developed lot; sufficiency of cash to meet operating requirements; expected 2021 capital expenditures; and similar matters. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often involve use of words such as expects, may, could, should, will, believes, anticipates, estimates, projects, intends, plans, targets or approximately, or similar words or terminology. These forward-looking statements reflect our current views regarding future events based on estimates and assumptions and are therefore subject to known and unknown risks and uncertainties and are not guarantees of future performance. Our actual results of operations could differ materially from our historical results or those expressed or implied by forward-looking statements contained in this report. Important factors that could cause or contribute to such differences include, but are not limited to, the following:
|
|
• |
the effect of general economic conditions, including employment rates, interest rate levels, discount rates, housing starts and the general availability of financing for home mortgages; |
|
|
• |
availability of labor and developable land; |
|
|
• |
changes in the level of residential and commercial construction and remodeling activity; |
|
|
• |
changes in tariffs, quotas and trade agreements involving wood products; |
|
|
• |
changes in demand for our products and real estate; |
|
|
• |
changes in timber prices and timberland values; |
|
|
• |
changes in silviculture, production and production capacity in the forest products industry; |
|
|
• |
competitive pricing pressures for our products; |
|
|
• |
unanticipated manufacturing disruptions; |
|
|
• |
the effect of weather on our harvesting and manufacturing activities; |
|
|
• |
the risk of loss from fire, floods, windstorms, hurricanes, pest infestation or other natural disasters; |
|
|
• |
changes in the cost or availability of transportation; |
|
|
• |
changes in principle expenses; |
|
|
• |
impact of the coronavirus (COVID-19) outbreak on our business, suppliers, consumers, customers and employees; and |
|
|
• |
disruptions or inefficiencies in our supply chain and/or operations. |
For a discussion of some of the factors that may affect our business, results and prospects and a nonexclusive listing of forward-looking statements, refer to Cautionary Statement Regarding Forward-Looking Information on page 1 and Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.
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.
19
Our Company
We are a leading timberland REIT with ownership of approximately 1.8 million acres of timberland. We also own six sawmills and an industrial grade plywood mill, a residential and commercial real estate development business and a rural timberland sales program.
Our operations are organized into three business segments: Timberlands, Wood Products and Real Estate. Our Timberlands segment supplies our Wood Products segment with a portion of its wood fiber needs. These intersegment revenues are based on prevailing market prices and typically represent a sizeable portion of the Timberlands segment’s total revenues. Our other segments generally do not generate intersegment revenues. In the discussion of our consolidated results of operations, our revenues and expenses are reported after elimination of intersegment revenues and expenses. In the Business Segment Results discussion below, each segment’s revenues and expenses, as applicable, are presented before elimination of intersegment revenues and expenses.
The operating results of our Timberlands, Wood Products and Real Estate business segments have been and will continue to be affected by the cyclical nature of the forest products industry. Log and pulpwood sales volumes in our Timberlands segment are typically lower in the first half of each year as winter rains in the Southern region and spring thaw in the Northern region limit timber harvesting operations due to softened roadbeds and wet logging conditions that restrict access to logging sites. The third quarter is typically our Timberlands segment's strongest production quarter. Demand for our manufactured wood products typically decreases in the winter months when construction activity is slower, while demand typically increases during the spring, summer and fall when construction activity is generally higher. Rural real estate dispositions and acquisitions can be adversely affected when access to any properties to be sold or considered for acquisition are limited due to adverse weather conditions. Development real estate sales at Chenal Valley occur throughout the year, though historically most sales take place in the second half of the year as builders prepare for the following spring and summer traditional home building and buying season.
Additionally, our business segments have been and will continue to be influenced by a variety of other factors, including tariffs, quotas and trade agreements, changes in timber prices and in harvest levels from our timberlands, competition, timberland valuations, demand for our non-strategic timberland for higher and better use purposes, lumber prices, weather conditions, disruptions or inefficiencies in our supply chain including the availability of transportation, the efficiency and level of capacity utilization of our Wood Products manufacturing operations, changes in our principal expenses such as log costs, asset dispositions or acquisitions, impact of pandemics (such as COVID-19), fires, other natural disasters and other factors.
Non-GAAP Measures
To supplement our financial statements presented in accordance with generally accepted accounting principles in the United States (GAAP), we present certain non-GAAP measures on a consolidated basis, including Adjusted EBITDDA and Cash Available for Distribution (CAD), which are defined and further explained and reconciled to the nearest GAAP measure in the Liquidity and Performance Measures section below. Our definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to and not a substitute for, financial information prepared in accordance with GAAP.
Adjusted EBITDDA is a non-GAAP measure that management uses in evaluating performance and allocating resources between segments, and that investors can use to evaluate the operational performance of the assets under management. It removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis. This measure should not be considered in isolation from and is not intended to represent an alternative to, our results reported in accordance with GAAP. Management believes that this non-GAAP measure, when read in conjunction with our GAAP financial statements, provides useful information to investors by facilitating the comparability of our ongoing operating results over the periods presented, the ability to identify trends in our underlying business and the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.
Our definition of EBITDDA and Adjusted EBITDDA may be different from similarly titled measures reported by other companies. We define EBITDDA as net income (loss) before interest expense, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses. See Note 2: Segment Information in the Notes to the Condensed Consolidated Financial Statements for information related to the use of segment Adjusted EBITDDA.
20
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.
Housing fundamentals remain stronger than at any point since the Great Financial Crisis driven by the demand for new single-family homes, historically low mortgage rates, a shift from urban to suburban living, millennials entering their prime home-buying years, scarce re-sale housing inventory and an aging existing housing stock supporting repair and remodel demand. In March 2021, the U.S. Census Bureau reported housing starts of 1.7 million in the U.S. on a seasonally adjusted annual basis, including single-family new home construction starts of 1.2 million, an increase of over 40% from March of 2020. While the U.S. economy continues to navigate challenges from COVID-19, we believe housing fundamentals, a key factor driving the strong lumber demand and pricing, will remain strong.
In our Wood Products segment, we shipped 258 million board feet of lumber during the first quarter of 2021. Lumber production was lower during the quarter stemming from extended planned downtime for maintenance at one of our sawmills, and a severe winter storm that led to week-long shutdowns in our Southern mills. Lumber prices remained elevated throughout the first quarter of 2021 and established new records as we entered the spring building season. With buyers’ lumber inventories estimated to be at the low end of their historic range, combined with strong housing fundamentals, we believe lumber prices will continue to rise in the second quarter compared to first quarter levels. We plan to ship 275 to 285 million board feet of lumber during the second quarter.
In our Timberlands segment, Northern sawlog prices benefitted from Idaho sawlogs prices being indexed to lumber prices, while Southern pine sawlog prices remained stable. Our harvest volume of 1.3 million tons during the first quarter of 2021 was lower than the first quarter of 2020 primarily due to a severe winter storm impacting harvest conditions in the Southern region. Further, several Southern pulpwood mills experienced extended downtime as a result of the winter storm which decreased the demand for pulpwood in the region. We expect to harvest between 1.1 and 1.3 million tons during the second quarter of 2021, with approximately 70% of the volume in the Southern region. Additionally, approximately 75% of our Idaho sawlog deliveries in the second quarter, which will be at a seasonally low level, will continue to benefit from being indexed to historically high lumber prices on an approximate four-week lag.
Our Real Estate segment benefitted from robust rural and development demand during the first quarter of 2021. For the second quarter of 2021, we expect to sell approximately 2,500 acres of rural land and 15 residential development lots.
21
Consolidated Results
The following table sets forth changes in our Condensed Consolidated Statements of Operations. Our Business Segment Results provide a more detailed discussion of our segments:
|
|
|
Three Months Ended March 31, |
|
|||||||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Revenues |
|
$ |
354,193 |
|
|
$ |
208,880 |
|
|
$ |
145,313 |
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
169,302 |
|
|
|
172,046 |
|
|
|
(2,744 |
) |
|
Selling, general and administrative expenses |
|
|
16,758 |
|
|
|
14,207 |
|
|
|
2,551 |
|
|
|
|
|
186,060 |
|
|
|
186,253 |
|
|
|
(193 |
) |
|
Operating income |
|
|
168,133 |
|
|
|
22,627 |
|
|
|
145,506 |
|
|
Interest expense, net |
|
|
(3,574 |
) |
|
|
(3,698 |
) |
|
|
124 |
|
|
Pension settlement charge |
|
|
— |
|
|
|
(42,988 |
) |
|
|
42,988 |
|
|
Non-operating pension and other postretirement benefit costs |
|
|
(3,414 |
) |
|
|
(3,635 |
) |
|
|
221 |
|
|
Income (loss) before income taxes |
|
|
161,145 |
|
|
|
(27,694 |
) |
|
|
188,839 |
|
|
Income taxes |
|
|
(30,039 |
) |
|
|
10,862 |
|
|
|
(40,901 |
) |
|
Net income (loss) |
|
$ |
131,106 |
|
|
$ |
(16,832 |
) |
|
$ |
147,938 |
|
|
Total Adjusted EBITDDA1 |
|
$ |
194,986 |
|
|
$ |
47,571 |
|
|
$ |
147,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
See Liquidity and Performance Measures for a reconciliation of Total Adjusted EBITDDA to net income (loss), the closest comparable GAAP measure, for each of the periods presented. |
First Quarter 2021 Compared with First Quarter 2020
Revenues
Revenues were $354.2 million, an increase of $145.3 million compared with the first quarter of 2020 primarily due to historically high lumber prices, increased Idaho sawlog prices and increased rural and development real estate sales. These increases more than offset lower harvest volumes and lower lumber shipments in the first quarter of 2021.
Cost of goods sold
Cost of goods sold decreased $2.7 million compared with the first quarter of 2020 primarily due to lower harvest volumes and lower lumber shipments. These decreases were partially offset by increased repairs and maintenance at our Wood Products facilities and increased rural and development real estate sales.
Selling, general and administrative expenses
Selling, general and administrative expenses increased $2.6 million compared with the first quarter of 2020 primarily as a result of mark-to-market adjustments for deferred incentive compensation plans and higher incentive compensation related to strong company performance.
Pension settlement charge
In February 2020, we purchased a group annuity contract from an insurance company to transfer $101.1 million of our outstanding pension benefit obligation related to our qualified pension plans. This transaction was funded with plan assets. In connection with this transaction, we recorded a non-cash pretax settlement charge of $43.0 million in the first quarter of 2020.
Income taxes
Income taxes are primarily due to income from our PotlatchDeltic taxable REIT subsidiaries (TRS). For the three months ended March 31, 2021, we recorded income tax expense of $30.0 million as our TRS’s income before tax was $115.8 million driven primarily by historically high lumber prices. For the three months ended March 31, 2020, we recorded an income tax benefit of approximately $10.9 million primarily as a result of the TRS’s loss before tax of $42.8 million, which was mainly as a result of the $43.0 million pension settlement charge.
22
Total Adjusted EBITDDA
Total Adjusted EBITDDA for the first quarter of 2021 increased $147.4 million compared to the first quarter of 2020. The increase in Total Adjusted EBITDDA was driven primarily by historically high lumber prices, increased Idaho sawlog prices and 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 (loss), the closest comparable GAAP measure, for each of the periods presented.
23
Business Segment Results
Timberlands Segment
|
|
|
Three Months Ended March 31, |
|
|||||||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Revenues1 |
|
$ |
111,916 |
|
|
$ |
82,425 |
|
|
$ |
29,491 |
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Logging and hauling |
|
|
36,468 |
|
|
|
38,604 |
|
|
|
(2,136 |
) |
|
Other |
|
|
5,888 |
|
|
|
7,291 |
|
|
|
(1,403 |
) |
|
Selling, general and administrative expenses |
|
|
1,702 |
|
|
|
1,548 |
|
|
|
154 |
|
|
Timberlands Adjusted EBITDDA2 |
|
$ |
67,858 |
|
|
$ |
34,982 |
|
|
$ |
32,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Prior to elimination of intersegment fiber revenues of $47.3 million and $29.5 million for the first quarter of 2021 and 2020, respectively. |
|
2 |
Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in the Notes to Condensed Consolidated Financial Statements. |
Timberlands Segment Statistics
|
|
|
Three Months Ended March 31, |
|
|||||||||
|
Harvest Volumes (in tons) |
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Northern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sawlog |
|
|
427,255 |
|
|
|
433,870 |
|
|
|
(6,615 |
) |
|
Pulpwood |
|
|
13,884 |
|
|
|
37,801 |
|
|
|
(23,917 |
) |
|
Stumpage |
|
|
— |
|
|
|
23,178 |
|
|
|
(23,178 |
) |
|
Total |
|
|
441,139 |
|
|
|
494,849 |
|
|
|
(53,710 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sawlog |
|
|
508,073 |
|
|
|
548,467 |
|
|
|
(40,394 |
) |
|
Pulpwood |
|
|
326,429 |
|
|
|
367,099 |
|
|
|
(40,670 |
) |
|
Stumpage |
|
|
58,413 |
|
|
|
90,237 |
|
|
|
(31,824 |
) |
|
Total |
|
|
892,915 |
|
|
|
1,005,803 |
|
|
|
(112,888 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total harvest volume |
|
|
1,334,054 |
|
|
|
1,500,652 |
|
|
|
(166,598 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Price/Unit ($ per ton)1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sawlog |
|
$ |
178 |
|
|
$ |
95 |
|
|
$ |
83 |
|
|
Pulpwood |
|
$ |
36 |
|
|
$ |
38 |
|
|
$ |
(2 |
) |
|
Stumpage |
|
$ |
— |
|
|
$ |
14 |
|
|
$ |
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern region |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sawlog |
|
$ |
44 |
|
|
$ |
44 |
|
|
$ |
— |
|
|
Pulpwood |
|
$ |
28 |
|
|
$ |
31 |
|
|
$ |
(3 |
) |
|
Stumpage |
|
$ |
13 |
|
|
$ |
9 |
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Sawlog and pulpwood sales prices are on a delivered basis, which includes logging and hauling costs. Stumpage sales provide our customers the right to harvest standing timber. As such, the customer contracts the logging and hauling and bears such costs. |
24
Timberlands Adjusted EBITDDA
The following table summarizes Timberlands Adjusted EBITDDA variances for the three months ended March 31, 2021 compared with the three months ended March 31, 2020:
|
(in thousands) |
|
Three Months |
|
|
|
Timberlands 2020 Adjusted EBITDDA |
|
$ |
34,982 |
|
|
Sales price and mix |
|
|
36,723 |
|
|
Harvest volume |
|
|
(3,725 |
) |
|
Other revenue |
|
|
(403 |
) |
|
Logging and hauling costs per unit |
|
|
(967 |
) |
|
Forest management |
|
|
918 |
|
|
Administrative, indirect and overhead costs |
|
|
330 |
|
|
Timberlands 2021 Adjusted EBITDDA |
|
$ |
67,858 |
|
|
|
|
|
|
|
First Quarter 2021 Compared with First Quarter 2020
Timberlands Adjusted EBITDDA for the first quarter of 2021 increased $32.9 million compared with the same period in 2020, primarily as a result of the following:
|
|
• |
Sales Price and Mix: Sawlog prices in the Northern region increased 87.4%, to $178 per ton primarily from the effect of higher lumber price realizations on indexed sawlogs and an increase in cedar log prices in Idaho. Southern sawlog prices remained consistent with the first quarter of 2020. |
|
|
• |
Harvest Volume: We harvested 0.9 million tons in the Southern region during the first quarter of 2021, which was 11.2% lower than the first quarter of 2020 primarily due to a severe winter storm that impacted harvest conditions and reduced pulpwood demand from temporary pulpwood mill shutdowns. Harvest volumes in the Northern region decreased 10.9% during the first quarter of 2021 due primarily to the sale of 72,440 timberland acres in Minnesota in the fourth quarter of 2020. |
Wood Products Segment
|
|
|
Three Months Ended March 31, |
|
|||||||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Revenues |
|
$ |
269,296 |
|
|
$ |
145,000 |
|
|
$ |
124,296 |
|
|
Costs and expenses1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber costs |
|
|
79,469 |
|
|
|
65,012 |
|
|
|
14,457 |
|
|
Freight, logging and hauling |
|
|
18,197 |
|
|
|
17,402 |
|
|
|
795 |
|
|
Manufacturing costs |
|
|
47,602 |
|
|
|
45,004 |
|
|
|
2,598 |
|
|
Finished goods inventory change |
|
|
(4,019 |
) |
|
|
1,891 |
|
|
|
(5,910 |
) |
|
Selling, general and administrative expenses |
|
|
2,522 |
|
|
|
2,271 |
|
|
|
251 |
|
|
Other |
|
|
(30 |
) |
|
|
191 |
|
|
|
(221 |
) |
|
Wood Products Adjusted EBITDDA2 |
|
$ |
125,555 |
|
|
$ |
13,229 |
|
|
$ |
112,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Prior to elimination of intersegment fiber costs of $47.3 million and $29.5 million for the first quarter of 2021 and 2020, respectively. |
|
2 |
Management uses Adjusted EBITDDA to evaluate the performance of the segment. See Note 2: Segment Information in the Notes to Condensed Consolidated Financial Statements. |
25
Wood Products Segment Statistics
|
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Lumber shipments (MBF)1 |
|
|
258,069 |
|
|
|
282,967 |
|
|
|
(24,898 |
) |
|
Lumber sales prices ($ per MBF) |
|
$ |
890 |
|
|
$ |
396 |
|
|
$ |
494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
MBF stands for thousand board feet. |
Wood Products Adjusted EBITDDA
The following table summarizes Wood Products Adjusted EBITDDA variances for the three months ended March 31, 2021 compared with the three months ended March 31, 2020:
|
(in thousands) |
|
Three Months |
|
|
|
Wood Products 2020 Adjusted EBITDDA |
|
$ |
13,229 |
|
|
Lumber: |
|
|
|
|
|
Price |
|
|
126,614 |
|
|
Volume |
|
|
(507 |
) |
|
Manufacturing costs per unit |
|
|
(3,118 |
) |
|
Log costs per unit |
|
|
(11,494 |
) |
|
Inventory charge |
|
|
895 |
|
|
Residuals, panels and other |
|
|
(64 |
) |
|
Wood Products 2021 Adjusted EBITDDA |
|
$ |
125,555 |
|
|
|
|
|
|
|
First Quarter 2021 Compared with First Quarter 2020
Wood Products Adjusted EBITDDA for the first quarter of 2021 increased $112.3 million compared with the same period in 2020, primarily as a result of the following:
|
|
• |
Lumber Price: Average lumber sales prices increased to $890 per MBF during the first quarter of 2021 as a result of the historic run in lumber prices compared with $396 per MBF during the first quarter of 2020. |
|
|
• |
Manufacturing Cost Per Unit: Higher manufacturing costs per unit quarter over quarter was primarily a result of week-long shutdowns at our Southern mills from a severe winter storm, extended planned downtime for maintenance at one of our sawmills and labor related constraints. |
|
|
• |
Log Costs Per Unit: Log costs per unit were higher as a result of increased indexed log costs at our Idaho mills. |
Real Estate Segment
|
|
|
Three Months Ended March 31, |
|
|||||||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Revenues |
|
$ |
20,313 |
|
|
$ |
10,969 |
|
|
$ |
9,344 |
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of goods sold |
|
|
2,468 |
|
|
|
2,431 |
|
|
|
37 |
|
|
Selling, general and administrative expenses |
|
|
1,252 |
|
|
|
1,198 |
|
|
|
54 |
|
|
Real Estate Adjusted EBITDDA1 |
|
$ |
16,593 |
|
|
$ |
7,340 |
|
|
$ |
9,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
26
Real Estate Segment Statistics
|
Rural Real Estate |
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Acres sold |
|
|
7,083 |
|
|
|
4,439 |
|
|
Average price per acre |
|
$ |
1,415 |
|
|
$ |
1,643 |
|
|
|
|
|
|
|
|
|
|
|
|
Development Real Estate |
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Residential lots |
|
|
51 |
|
|
|
23 |
|
|
Average price per lot |
|
$ |
98,629 |
|
|
$ |
99,652 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial acres |
|
|
11 |
|
|
|
— |
|
|
Average price per acre |
|
$ |
277,425 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
Real Estate Adjusted EBITDDA
The following table summarizes Real Estate Adjusted EBITDDA variances for the three months ended March 31, 2021 compared with the three ended March 31, 2020:
|
(in thousands) |
|
Three Months |
|
|
|
Real Estate 2020 Adjusted EBITDDA |
|
$ |
7,340 |
|
|
Rural sales |
|
|
2,743 |
|
|
Development sales |
|
|
6,601 |
|
|
Other, net |
|
|
(91 |
) |
|
Real Estate 2021 Adjusted EBITDDA |
|
$ |
16,593 |
|
|
|
|
|
|
|
First Quarter 2021 Compared with First Quarter 2020
Real Estate Adjusted EBITDDA for the first quarter of 2021 was $16.6 million, an increase of $9.3 million compared with the first quarter of 2020 as a result of the following:
|
|
• |
Rural Sales: The increase in rural real estate sales was primarily a result of more acres sold in Minnesota compared to 2020. Rural real estate sales can vary quarter-to-quarter with the average price per acre fluctuating based on both the geographic area of the real estate and product mix. |
|
|
• |
Development Sales: During the first quarter of 2021, we sold 51 residential lots at an average lot price of $98,629 compared to 23 lots at an average lot price of $99,652 during the first quarter of 2020. In addition, we sold 11 acres of commercial land in Chenal Valley for $277,425 per acre compared to no commercial acres sold in the first quarter of 2020. The average price per lot or acre fluctuates based on a variety of factors including location within the developments. |
27
|
|
Liquidity and Capital Resources
Changes in significant sources and uses of cash for the three months ended March 31, 2021 and 2020 are presented by categories as follows:
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
||
|
Net cash provided by operating activities |
|
$ |
169,965 |
|
|
$ |
48,138 |
|
|
Net cash used in investing activities |
|
$ |
(11,529 |
) |
|
$ |
(11,034 |
) |
|
Net cash used in financing activities |
|
$ |
(28,075 |
) |
|
$ |
(39,538 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from Operating Activities
Net cash provided by operating activities increased $121.8 million compared to the first quarter of 2020. Changes in cash provided by operating activities was impacted by the following:
|
|
• |
Cash received from customers increased $139.2 million primarily due to historically high lumber prices and increased rural and development real estate sales. |
|
|
• |
Cash payments increased $17.0 million due to employee incentive compensation payouts related to strong 2020 company performance, increased repairs and maintenance at our Wood Products facilities and real estate development expenditures at Chenal Valley. |
Net Cash Flows from Investing Activities
Changes in cash flows from investing activities were primarily a result of the following:
|
|
• |
We spent $11.7 million on capital expenditures for property, plant and equipment, timberlands reforestation and road construction projects during the first quarter of 2021 compared to $9.3 million during the first quarter of 2020. |
|
|
• |
During the first quarter of 2020 we spent $4.2 million on timberland acquisitions. We did not purchase any timberlands during the first quarter of 2021. |
Net Cash Flows from Financing Activities
Changes in cash flows from financing activities were primarily a result of the following:
|
|
• |
We paid dividends of $27.5 million in the first quarter of 2021 compared to $26.9 million in the first quarter of 2020. |
|
|
• |
We did not repurchase any of our common stock during the first quarter of 2021 compared to 400,917 shares repurchased totaling $12.4 million during the first quarter of 2020. |
Future Sources and Uses of Cash
We invest cash in maintenance and discretionary capital expenditures at our Wood Products facilities. We also invest cash in the reforestation of timberlands and construction of roads in our Timberlands operations and to develop land in our Real Estate development operations. We evaluate discretionary capital improvements based on an expected level of return on investment. We currently expect to spend a total of approximately $55.0 to $60.0 million for capital expenditures during 2021.
On August 30, 2018, the board of directors authorized the repurchase of up to $100.0 million of common stock with no time limit set for the repurchase (the Repurchase Program). At March 31, 2021, we had remaining authorization of $59.5 million for future stock repurchase under the Repurchase Program. The timing, manner, price and amount of repurchases will be determined according to, and subject to, the terms of the Trading Plan, and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason.
28
Capital Structure
|
(in thousands) |
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Long-term debt (including current portion) |
|
$ |
757,604 |
|
|
$ |
757,347 |
|
|
Cash and cash equivalents |
|
|
(382,032 |
) |
|
|
(252,340 |
) |
|
Net debt |
|
|
375,572 |
|
|
|
505,007 |
|
|
Market capitalization1 |
|
|
3,547,863 |
|
|
|
3,345,138 |
|
|
Enterprise value |
|
$ |
3,923,435 |
|
|
$ |
3,850,145 |
|
|
|
|
|
|
|
|
|
|
|
|
Net debt to enterprise value |
|
|
9.6 |
% |
|
|
13.1 |
% |
|
Dividend yield2 |
|
|
3.1 |
% |
|
|
3.3 |
% |
|
Weighted-average cost of debt, after tax3 |
|
|
3.2 |
% |
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
1 |
Market capitalization is based on outstanding shares of 67.0 million and 66.9 million times closing share prices of $52.92 and $50.02 as of March 31, 2021, and December 31, 2020, respectively. |
|
2 |
Dividend yield is based on annualized dividends per share of $1.64 and share prices of $52.92 and $50.02 as of March 31, 2021, and December 31, 2020, respectively. |
|
3 |
Weighted-average cost of debt excludes deferred debt costs and credit facility fees and includes estimated annual patronage credit on term loan debt. |
Liquidity and Performance Measures
The discussion below is presented to enhance the reader’s understanding of our operating performance, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures: Adjusted EBITDDA and Cash Available for Distribution (CAD). These measures are not defined by GAAP and the discussion of Adjusted EBITDDA and CAD is not intended to conflict with or change any of the GAAP disclosures described herein.
Adjusted EBITDDA is a non-GAAP measure that management uses in evaluating performance and to allocate resources between segments, and that investors can use to evaluate the operational performance of the assets under management. It removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis. This measure should not be considered in isolation from and is not intended to represent an alternative to our results reported in accordance with GAAP. Management believes that this non-GAAP measure, when read in conjunction with our GAAP financial statements, provides useful information to investors by facilitating the comparability of our ongoing operating results over the periods presented, the ability to identify trends in our underlying business and the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.
Our definition of EBITDDA may be different from similarly titled measures reported by other companies. We define EBITDDA as net income (loss) before interest expense, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses.
We reconcile Total Adjusted EBITDDA to net income (loss) for the consolidated company as it is the most comparable GAAP measure.
The following table provides a reconciliation of net income (loss) to Total Adjusted EBITDDA for the respective periods:
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
||
|
Net income (loss) |
|
$ |
131,106 |
|
|
$ |
(16,832 |
) |
|
Interest expense, net |
|
|
3,574 |
|
|
|
3,698 |
|
|
Income taxes |
|
|
30,039 |
|
|
|
(10,862 |
) |
|
Depreciation, depletion and amortization |
|
|
17,996 |
|
|
|
18,638 |
|
|
Basis of real estate sold |
|
|
8,823 |
|
|
|
6,498 |
|
|
Pension settlement charge |
|
|
— |
|
|
|
42,988 |
|
|
Non-operating pension and other postretirement benefit costs |
|
|
3,414 |
|
|
|
3,635 |
|
|
Loss (gain) on disposal of fixed assets |
|
|
34 |
|
|
|
(192 |
) |
|
Total Adjusted EBITDDA |
|
$ |
194,986 |
|
|
$ |
47,571 |
|
|
|
|
|
|
|
|
|
|
|
29
We define CAD as cash provided by operating activities adjusted for capital spending for purchases of property, plant and equipment, timberlands reforestation and roads and timberland acquisitions not classified as strategic. Management believes CAD is a useful indicator of the company’s overall liquidity, as it provides a measure of cash generated that is available for dividends to common stockholders (an important factor in maintaining our REIT status), repurchase of the company’s common shares, debt repayment, acquisitions and other discretionary and nondiscretionary activities. Our definition of CAD is limited in that it does not solely represent residual cash flows available for discretionary expenditures since the measure does not deduct the payments required for debt service and other contractual obligations. Therefore, we believe it is important to view CAD as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows. Our definition of CAD may be different from similarly titled measures reported by other companies, including those in our industry. CAD is not necessarily indicative of the CAD that may be generated in future periods.
The following table provides a reconciliation of cash provided by operating activities to CAD:
|
|
|
Three Months Ended March 31, |
|
|
Twelve Months Ended March 31, |
|
||||||||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Net cash provided by operating activities1 |
|
$ |
169,965 |
|
|
$ |
48,138 |
|
|
$ |
457,090 |
|
|
$ |
168,139 |
|
|
Capital expenditures |
|
|
(11,718 |
) |
|
|
(13,539 |
) |
|
|
(43,964 |
) |
|
|
(63,011 |
) |
|
CAD |
|
$ |
158,247 |
|
|
$ |
34,599 |
|
|
$ |
413,126 |
|
|
$ |
105,128 |
|
|
Net cash used in investing activities2 |
|
$ |
(11,529 |
) |
|
$ |
(11,034 |
) |
|
$ |
(42,688 |
) |
|
$ |
(58,690 |
) |
|
Net cash used in financing activities |
|
$ |
(28,075 |
) |
|
$ |
(39,538 |
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$ |
(113,521 |
) |
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$ |
(136,009 |
) |
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1 |
Net cash provided by operating activities for the three months ended March 31, 2021 and 2020 includes cash paid for real estate development expenditures of $2.3 million and $0.4 million, respectively. Net cash provided by operating activities for the twelve months ended March 31, 2021 and 2020 includes cash paid for real estate development expenditures of $8.6 million and $5.9 million, respectively. |
|
2 |
Net cash used in investing activities includes payment for capital expenditures and acquisition of timber and timberlands, which is also included in our reconciliation of CAD. |
Sources of Financing
Long-Term Debt and Credit Agreements
At March 31, 2021, our total outstanding net long-term debt was $757.0 million, of which $40.0 million matures in December 2021. We expect to refinance the $40.0 million term loan debt 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 fix the variable benchmark interest rate component.
A number of our debt instruments and associated interest rate derivative agreements have an interest rate tied to LIBOR. On March 5, 2021, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that the USD LIBOR will no longer be published after June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rate Committee, a steering committee comprised of large U.S. financial institutions, is recommending replacing LIBOR with the Secured Overnight Finance Rate (SOFR). While we expect LIBOR to be available in substantially its current form until at least the end of June 30, 2023, it is possible that LIBOR will become unavailable prior to that point. We are monitoring the developments regarding the alternative rates, will work with our lenders and counter parties to identify a suitable replacement rate and may amend certain debt and interest rate derivative agreements to accommodate those rates if the contract does not already specify a replacement rate. However, at this time, we are not able to predict whether SOFR will become a widely accepted benchmark in place of LIBOR, or what the impact of such possible transition to SOFR may be on our financial condition.
Financial Covenants
The Amended Term Loan Agreement and Amended Credit Agreement (collectively referred to as the Agreements) contain certain covenants that limit our ability and that of our subsidiaries to create liens, merge or consolidate, dispose of assets, incur indebtedness and guarantees, repurchase or redeem capital stock and indebtedness, make certain investments or acquisitions, enter into certain transactions with affiliates or change the nature of our business. The Agreements also contain financial maintenance covenants including the maintenance of a minimum interest coverage ratio and a maximum leverage ratio. We are permitted to pay dividends to our stockholders under the terms of the Agreements so long as we expect to remain in compliance with the financial maintenance covenants.
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At March 31, 2021, we were in compliance with all covenants under the Agreements. The following table sets forth the financial covenants for the Agreements and our status with respect to these covenants at March 31, 2021:
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Covenant Requirement |
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Actual at March 31, 2021 |
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||||
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Interest coverage ratio |
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≥ |
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3.00 to 1.00 |
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17.84 |
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||
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Leverage ratio |
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≤ |
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40% |
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20% |
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||
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See Note 5: Debt in the Notes to the Condensed Consolidated Financial Statements for additional information on our debt and credit agreements.
Contractual Obligations
There have been no material changes to our contractual obligations during the three months ended March 31, 2021 outside the ordinary course of business.
Credit Ratings
Two major debt rating agencies routinely evaluate our debt and our cost of borrowing can increase or decrease depending on our credit rating. Both Moody’s and S&P rate our debt investment grade.
Off-Balance Sheet Arrangements
We currently are not a party to off-balance sheet arrangements that would require disclosure under this section.
Critical Accounting Policies and Estimates
There have been no significant changes during 2021 to our critical accounting policies presented in our 2020 Annual Report on Form 10-K.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk exposure on financial instruments includes interest rate risk on our bank credit facility, term loans and interest rate swap agreements and forward starting interest rate swap agreements. We are exposed to interest rate volatility on existing variable rate debt instruments and future incurrences of fixed or variable rate debt, which exposure primarily relates to movements in various interest rates. We use interest rate swaps and forward starting swaps to hedge our exposure to the impact of interest rate changes on existing debt and future debt issuances, respectively. All market risk sensitive instruments were entered into for purposes other than trading purposes.
For quantitative and qualitative disclosures about market risk, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our annual report on Form 10-K for the year ended December 31, 2020. Our exposures to market risk have not changed materially since December 31, 2020.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act)), under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of March 31, 2021. These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, the CEO and CFO have concluded that these disclosure controls and procedures were effective as of March 31, 2021.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Internal Control over Financial Reporting
No changes occurred in our internal control over financial reporting during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II – OTHER INFORMATION
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, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
On August 30, 2018, our board of directors authorized management to repurchase up to $100.0 million of common stock with no time limit set for the repurchase (the Repurchase Program). Shares under the Repurchase Program may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan). The timing, manner, price and amount of repurchases will be determined according to, and subject to, the terms of the Trading Plan, and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason.
There were no shares repurchased during the first quarter of 2021 under the Repurchase Program. At March 31, 2021, we had remaining authorization of $59.5 million for future stock repurchases under the Repurchase Program. Transaction costs are not counted against authorized funds. All common stock purchases are made in open-market transactions.
ITEM 6. EXHIBITS
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EXHIBIT NUMBER |
DESCRIPTION |
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(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. |
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(101) |
The following financial information from PotlatchDeltic Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, filed on April 30, 2021 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020, (iii) the Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020, (v) the Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020 and (vi) the Notes to Condensed Consolidated Financial Statements. |
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(104) |
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101). |
* Incorporated by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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PotlatchDeltic Corporation |
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(Registrant) |
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By |
/s/ WAYNE WASECHEK |
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Wayne Wasechek |
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Corporate Controller (Duly Authorized; Principal Accounting Officer) |
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Date: |
April 30, 2021 |
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34