10-Q 1 pch-20220331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2022

or

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

For the transition period from to

Commission File Number 1-32729

PotlatchDeltic Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

82-0156045

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

601 West First Avenue, Suite 1600

 

Spokane, Washington

99201

(Address of principal executive offices)

(Zip Code)

 

(509) 835-1500

(Registrant’s telephone number, including area code)

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock ($1 par value)

PCH

Nasdaq Global Select Market

 

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

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

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

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

 

 

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

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

Yes No

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

 

 


 

POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES

Table of Contents

 

 

 

 

 

 

 

 

Page
Number

PART I. - FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements (unaudited)

 

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Comprehensive Income

4

 

Condensed Consolidated Balance Sheets

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Condensed Consolidated Statements of Stockholders’ Equity

8

 

Index for the Notes to Condensed Consolidated Financial Statements

9

 

Notes to Condensed Consolidated Financial Statements

10

ITEM 2.

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

20

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

32

ITEM 4.

Controls and Procedures

32

 

 

 

PART II. - OTHER INFORMATION

 

ITEM 1.

Legal Proceedings

33

ITEM 1A.

Risk Factors

33

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

ITEM 6.

Exhibits

33

 

 

 

SIGNATURE

34

 

 

 

 

 

 

 


Table of Contents

 

Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands, except per share amounts)

 

2022

 

 

2021

 

Revenues

 

$

411,350

 

 

$

354,193

 

Costs and expenses:

 

 

 

 

 

 

Cost of goods sold

 

 

179,847

 

 

 

169,302

 

Selling, general and administrative expenses

 

 

16,294

 

 

 

16,758

 

Net loss on fire damage

 

 

276

 

 

 

 

 

 

 

196,417

 

 

 

186,060

 

Operating income

 

 

214,933

 

 

 

168,133

 

Interest expense, net

 

 

(2,894

)

 

 

(3,574

)

Pension settlement charge

 

 

(14,165

)

 

 

 

Non-operating pension and other postretirement employee
benefit costs

 

 

(1,929

)

 

 

(3,414

)

Income before income taxes

 

 

195,945

 

 

 

161,145

 

Income taxes

 

 

(32,065

)

 

 

(30,039

)

Net income

 

$

163,880

 

 

$

131,106

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

Basic

 

$

2.36

 

 

$

1.95

 

Diluted

 

$

2.35

 

 

$

1.94

 

Dividends per share

 

$

0.44

 

 

$

0.41

 

Weighted-average shares outstanding (in thousands)

 

 

 

 

 

 

Basic

 

 

69,419

 

 

 

67,207

 

Diluted

 

 

69,623

 

 

 

67,607

 

 

 

 

 

 

 

 

 

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

3


Table of Contents

 

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

Net income

 

$

163,880

 

 

$

131,106

 

Other comprehensive income (loss):

 

 

 

 

 

 

Pension and other postretirement employee benefits:

 

 

 

 

 

 

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

 

 

(4,587

)

 

 

 

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

 

 

10,553

 

 

 

 

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

 

 

1,384

 

 

 

3,157

 

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

 

 

130

 

 

 

(204

)

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

 

 

43,276

 

 

 

64,107

 

Other comprehensive income, net of tax

 

 

50,756

 

 

 

67,060

 

Comprehensive income

 

$

214,636

 

 

$

198,166

 

 

 

 

 

 

 

 

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

 

4


Table of Contents

 

 

PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

(in thousands, except per share amounts)

 

March 31, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

470,918

 

 

$

296,151

 

Customer receivables, net

 

 

40,094

 

 

 

31,028

 

Inventories, net

 

 

67,673

 

 

 

72,369

 

Other current assets

 

 

21,938

 

 

 

21,630

 

Total current assets

 

 

600,623

 

 

 

421,178

 

Property, plant and equipment, net

 

 

297,710

 

 

 

292,320

 

Investment in real estate held for development and sale

 

 

61,562

 

 

 

65,604

 

Timber and timberlands, net

 

 

1,671,330

 

 

 

1,682,671

 

Intangible assets, net

 

 

15,296

 

 

 

15,491

 

Other long-term assets

 

 

87,095

 

 

 

57,951

 

Total assets

 

$

2,733,616

 

 

$

2,535,215

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

101,589

 

 

$

78,209

 

Current portion of long-term debt

 

 

39,983

 

 

 

42,977

 

Current portion of pension and other postretirement employee benefits

 

 

4,993

 

 

 

4,993

 

Total current liabilities

 

 

146,565

 

 

 

126,179

 

Long-term debt

 

 

715,499

 

 

 

715,279

 

Pension and other postretirement employee benefits

 

 

90,359

 

 

 

83,674

 

Deferred tax liabilities, net

 

 

37,642

 

 

 

34,874

 

Other long-term obligations

 

 

31,353

 

 

 

49,076

 

Total liabilities

 

 

1,021,418

 

 

 

1,009,082

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock, $1 par value, authorized 100,000 shares, issued and outstanding 69,372 and 69,064 shares

 

 

69,372

 

 

 

69,064

 

Additional paid-in capital

 

 

1,782,940

 

 

 

1,781,217

 

Accumulated deficit

 

 

(147,632

)

 

 

(280,910

)

Accumulated other comprehensive income (loss)

 

 

7,518

 

 

 

(43,238

)

Total stockholders’ equity

 

 

1,712,198

 

 

 

1,526,133

 

Total liabilities and stockholders' equity

 

$

2,733,616

 

 

$

2,535,215

 

 

 

 

 

 

 

 

 

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

 

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PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

163,880

 

 

$

131,106

 

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

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

19,874

 

 

 

18,399

 

Basis of real estate sold

 

 

10,854

 

 

 

8,823

 

Change in deferred taxes

 

 

(2,123

)

 

 

1,490

 

Pension and other postretirement employee benefits

 

 

3,857

 

 

 

5,627

 

Pension settlement charge

 

 

14,165

 

 

 

 

Equity-based compensation expense

 

 

2,056

 

 

 

1,930

 

Net loss on fire damage

 

 

276

 

 

 

 

Other, net

 

 

(291

)

 

 

(387

)

Change in working capital and operating-related activities, net

 

 

21,208

 

 

 

6,713

 

Real estate development expenditures

 

 

(2,161

)

 

 

(2,315

)

Funding of pension and other postretirement employee benefits

 

 

(1,296

)

 

 

(1,421

)

Net cash from operating activities

 

 

230,299

 

 

 

169,965

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Property, plant and equipment additions

 

 

(12,566

)

 

 

(7,762

)

Timberlands reforestation and roads

 

 

(4,648

)

 

 

(3,956

)

Other, net

 

 

92

 

 

 

189

 

Net cash from investing activities

 

 

(17,122

)

 

 

(11,529

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Distributions to common stockholders

 

 

(30,524

)

 

 

(27,484

)

Repayment of long-term debt

 

 

(3,000

)

 

 

 

Other, net

 

 

(1,071

)

 

 

(591

)

Net cash from financing activities

 

 

(34,595

)

 

 

(28,075

)

Change in cash, cash equivalents and restricted cash

 

 

178,582

 

 

 

130,361

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

296,772

 

 

 

252,340

 

Cash, cash equivalents and restricted cash at end of period

 

$

475,354

 

 

$

382,701

 

 

 

 

 

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

Accrued property, plant and equipment additions

 

$

1,516

 

 

$

2,263

 

Accrued timberlands reforestation and roads

 

$

98

 

 

$

813

 

 

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

 

(in thousands)

 

March 31, 2022

 

 

March 31, 2021

 

Cash and cash equivalents

 

$

470,918

 

 

$

382,032

 

Restricted cash included in other long-term assets1

 

 

4,436

 

 

 

669

 

Total cash, cash equivalents, and restricted cash

 

$

475,354

 

 

$

382,701

 

 

 

 

 

 

 

 

 

1

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

 

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

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PotlatchDeltic Corporation and Consolidated Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

 

 

Common Stock

 

 

Additional Paid-

 

 

Accumulated

 

 

Accumulated Other
Comprehensive

 

 

Total Stockholders'

 

(in thousands, except per share amounts)

 

Shares

 

 

Amount

 

 

in Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance, December 31, 2021

 

 

69,064

 

 

$

69,064

 

 

$

1,781,217

 

 

$

(280,910

)

 

$

(43,238

)

 

$

1,526,133

 

Net income

 

 

 

 

 

 

 

 

 

 

 

163,880

 

 

 

 

 

 

163,880

 

Shares issued for stock compensation

 

 

308

 

 

 

308

 

 

 

(308

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

2,056

 

 

 

 

 

 

 

 

 

2,056

 

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,480

 

 

 

7,480

 

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43,276

 

 

 

43,276

 

Dividends on common stock, $0.44 per share

 

 

 

 

 

 

 

 

 

 

 

(30,524

)

 

 

 

 

 

(30,524

)

Other transactions, net

 

 

 

 

 

 

 

 

(25

)

 

 

(78

)

 

 

 

 

 

(103

)

Balance, March 31, 2022

 

 

69,372

 

 

$

69,372

 

 

$

1,782,940

 

 

$

(147,632

)

 

$

7,518

 

 

$

1,712,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional Paid-

 

 

Accumulated

 

 

Accumulated Other
Comprehensive

 

 

Total Stockholders'

 

(in thousands, except per share amounts)

 

Shares

 

 

Amount

 

 

in Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance, December 31, 2020

 

 

66,876

 

 

$

66,876

 

 

$

1,674,576

 

 

$

(315,510

)

 

$

(120,989

)

 

$

1,304,953

 

Net income

 

 

 

 

 

 

 

 

 

 

 

131,106

 

 

 

 

 

 

131,106

 

Shares issued for stock compensation

 

 

166

 

 

 

166

 

 

 

(166

)

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

1,930

 

 

 

 

 

 

 

 

 

1,930

 

Pension plans and OPEB obligations, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,953

 

 

 

2,953

 

Cash flow hedges, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64,107

 

 

 

64,107

 

Dividends on common stock, $0.41 per share

 

 

 

 

 

 

 

 

 

 

 

(27,484

)

 

 

 

 

 

(27,484

)

Other transactions, net

 

 

 

 

 

 

 

 

81

 

 

 

(97

)

 

 

 

 

 

(16

)

Balance, March 31, 2021

 

 

67,042

 

 

$

67,042

 

 

$

1,676,421

 

 

$

(211,985

)

 

$

(53,929

)

 

$

1,477,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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Table of Contents

 

INDEX FOR THE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

Note 1: Basis of Presentation

10

Note 2: Segment Information

11

Note 3: Earnings Per Share

13

Note 4: Certain Balance Sheet Components

13

Note 5: Debt

14

Note 6: Derivative Instruments

15

Note 7: Fair Value Measurements

16

Note 8: Equity-Based Compensation

16

Note 9: Income Taxes

17

Note 10: Leases

18

Note 11: Pension and Other Postretirement Employee Benefits

19

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

19

 

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Notes to Condensed Consolidated Financial Statements

NOTE 1. BASIS OF PRESENTATION

General

PotlatchDeltic Corporation and its subsidiaries (collectively referred to in this report as the company, us, we or our) is a leading timberland Real Estate Investment Trust (REIT) with operations in seven states. We are engaged in activities associated with timberland management, including the sale of timber, the management of approximately 1.8 million acres of timberlands and the purchase and sale of timberlands. We are also engaged in the manufacturing and sale of wood products and the development of real estate. Our timberlands, real estate development projects and all of our wood products facilities are located within the continental United States. The primary market for our products is the United States. We converted to a REIT effective January 1, 2006.

Condensed Consolidated Financial Statements

The accompanying unaudited Condensed Consolidated Financial Statements provide an overall view of our results and financial condition and reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Except as otherwise disclosed in these Notes to Condensed Consolidated Financial Statements, such adjustments are of a normal, recurring nature. Intercompany transactions and accounts have been eliminated in consolidation. The Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. Certain disclosures normally provided in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on February 17, 2022. Results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the full year.

Use of Estimates

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

Commitments and Contingencies

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

New Accounting Standards Being Evaluated

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 contains practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by this guidance apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued as a result of reference rate reform. The guidance in ASU 2020-04, which can be applied immediately, is optional and may be elected over time as reference rate reform activities occur. This guidance is not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity was expected to be completed. Our credit agreement, variable rate term loans with $403.5 million in principal, and interest rate derivative agreements have an interest rate tied to LIBOR. We continue to evaluate the impact of the guidance, are monitoring the developments regarding the alternative rates, will work with our lenders and counterparties to identify a suitable replacement rate, may amend certain debt and interest rate derivative agreements to accommodate those rates, and may apply elections allowed under the standard as applicable as additional changes in the market occur.

 

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NOTE 2. SEGMENT INFORMATION

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

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

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

The following table presents our revenues by major product:

 

 

Three Months Ended March 31,

 

(in thousands)

2022

 

 

2021

 

Timberlands

 

 

 

 

 

Northern region

 

 

 

 

 

Sawlogs

$

81,504

 

 

$

76,181

 

Pulpwood

 

392

 

 

 

499

 

Other

 

303

 

 

 

300

 

Total Northern revenues

 

82,199

 

 

 

76,980

 

 

 

 

 

 

 

Southern region

 

 

 

 

 

Sawlogs

 

23,381

 

 

 

22,416

 

Pulpwood

 

11,627

 

 

 

9,161

 

Stumpage

 

3,358

 

 

 

764

 

Other

 

3,092

 

 

 

2,595

 

Total Southern revenues

 

41,458

 

 

 

34,936

 

 

 

 

 

 

 

Total Timberlands revenues

 

123,657

 

 

 

111,916

 

 

 

 

 

 

 

Wood Products

 

 

 

 

 

Lumber

 

250,764

 

 

 

229,682

 

Residuals and Panels

 

44,978

 

 

 

39,614

 

Total Wood Products revenues

 

295,742

 

 

 

269,296

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

Rural real estate

 

21,646

 

 

 

10,025

 

Development real estate

 

10,278

 

 

 

8,053

 

Other

 

2,141

 

 

 

2,235

 

Total Real Estate revenues

 

34,065

 

 

 

20,313

 

 

 

 

 

 

 

Total segment revenues

 

453,464

 

 

 

401,525