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, 2019
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)
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 |
☐ |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
|
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, 2019 was 67,587,962.
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 (Loss) Income |
3 |
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4 |
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5 |
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7 |
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8 |
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ITEM 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
22 |
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ITEM 3. |
35 |
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ITEM 4. |
35 |
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PART II. - OTHER INFORMATION |
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ITEM 1. |
36 |
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ITEM 1A. |
36 |
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ITEM 2. |
36 |
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ITEM 6. |
37 |
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38 |
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Part I – FINANCIAL INFORMATION
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands, except per share amounts) |
|
2019 |
|
|
2018 |
|
||
|
Revenues |
|
$ |
181,716 |
|
|
$ |
199,897 |
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
154,215 |
|
|
|
139,155 |
|
|
Selling, general and administrative expenses |
|
|
16,570 |
|
|
|
13,656 |
|
|
Gain on sale of facility |
|
|
(9,176 |
) |
|
|
— |
|
|
Deltic merger-related costs |
|
|
— |
|
|
|
19,255 |
|
|
|
|
|
161,609 |
|
|
|
172,066 |
|
|
Operating income |
|
|
20,107 |
|
|
|
27,831 |
|
|
Interest expense, net |
|
|
(5,464 |
) |
|
|
(5,660 |
) |
|
Loss on extinguishment of debt |
|
|
(5,512 |
) |
|
|
— |
|
|
Non-operating pension and other postretirement employee benefit costs |
|
|
(980 |
) |
|
|
(1,857 |
) |
|
Income before income taxes |
|
|
8,151 |
|
|
|
20,314 |
|
|
Income taxes |
|
|
(1,591 |
) |
|
|
(5,717 |
) |
|
Net income |
|
$ |
6,560 |
|
|
$ |
14,597 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.10 |
|
|
$ |
0.29 |
|
|
Diluted |
|
$ |
0.10 |
|
|
$ |
0.29 |
|
|
Dividends per share |
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
|
|
67,860 |
|
|
|
50,425 |
|
|
Diluted |
|
|
67,916 |
|
|
|
50,786 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Net income |
|
$ |
6,560 |
|
|
$ |
14,597 |
|
|
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
|
Pension and other postretirement employee benefits: |
|
|
|
|
|
|
|
|
|
Amortization of prior service credit included in net income, net of tax benefit of $(561) and $(565) |
|
|
(1,597 |
) |
|
|
(1,608 |
) |
|
Amortization of actuarial loss included in net income, net of tax expense of $971 and $1,172 |
|
|
2,763 |
|
|
|
3,333 |
|
|
Cash flow hedges, net of tax benefit of $(364) and $(32) |
|
|
(8,513 |
) |
|
|
(990 |
) |
|
Other comprehensive (loss) income, net of tax |
|
|
(7,347 |
) |
|
|
735 |
|
|
Comprehensive (loss) income |
|
$ |
(787 |
) |
|
$ |
15,332 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PotlatchDeltic Corporation and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
|
(in thousands, except per share amounts) |
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
104,787 |
|
|
$ |
76,639 |
|
|
Customer receivables, net |
|
|
18,009 |
|
|
|
21,405 |
|
|
Inventories, net |
|
|
62,408 |
|
|
|
60,805 |
|
|
Other current assets |
|
|
18,625 |
|
|
|
22,675 |
|
|
Assets held for sale |
|
|
— |
|
|
|
80,674 |
|
|
Total current assets |
|
|
203,829 |
|
|
|
262,198 |
|
|
Property, plant and equipment, net |
|
|
273,118 |
|
|
|
272,193 |
|
|
Investment in real estate held for development and sale |
|
|
80,675 |
|
|
|
79,537 |
|
|
Timber and timberlands, net |
|
|
1,666,168 |
|
|
|
1,672,815 |
|
|
Intangible assets, net |
|
|
17,634 |
|
|
|
17,828 |
|
|
Other long-term assets |
|
|
31,790 |
|
|
|
21,281 |
|
|
Total assets |
|
$ |
2,273,214 |
|
|
$ |
2,325,852 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
72,565 |
|
|
$ |
60,993 |
|
|
Current portion of long-term debt |
|
|
39,981 |
|
|
|
39,973 |
|
|
Current portion of pension and other postretirement employee benefits |
|
|
5,997 |
|
|
|
5,997 |
|
|
Liabilities held for sale |
|
|
— |
|
|
|
29,321 |
|
|
Total current liabilities |
|
|
118,543 |
|
|
|
136,284 |
|
|
Long-term debt |
|
|
715,837 |
|
|
|
715,391 |
|
|
Pension and other postretirement employee benefits |
|
|
110,476 |
|
|
|
110,659 |
|
|
Deferred tax liabilities, net |
|
|
15,956 |
|
|
|
32,009 |
|
|
Other long-term obligations |
|
|
34,016 |
|
|
|
16,730 |
|
|
Total liabilities |
|
|
994,828 |
|
|
|
1,011,073 |
|
|
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 67,588 and 67,570 shares |
|
|
67,588 |
|
|
|
67,570 |
|
|
Additional paid-in capital |
|
|
1,660,450 |
|
|
|
1,659,031 |
|
|
Accumulated deficit |
|
|
(312,874 |
) |
|
|
(282,391 |
) |
|
Accumulated other comprehensive loss |
|
|
(136,778 |
) |
|
|
(129,431 |
) |
|
Total stockholders’ equity |
|
|
1,278,386 |
|
|
|
1,314,779 |
|
|
Total liabilities and stockholders' equity |
|
$ |
2,273,214 |
|
|
$ |
2,325,852 |
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,560 |
|
|
$ |
14,597 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
16,274 |
|
|
|
12,635 |
|
|
Basis of real estate sold |
|
|
1,556 |
|
|
|
3,605 |
|
|
Gain on sale of facility |
|
|
(9,176 |
) |
|
|
— |
|
|
Loss on extinguishment of debt |
|
|
5,512 |
|
|
|
— |
|
|
Change in deferred taxes |
|
|
(16,099 |
) |
|
|
(1,058 |
) |
|
Pension and other postretirement employee benefits |
|
|
3,106 |
|
|
|
3,814 |
|
|
Equity-based compensation expense |
|
|
1,617 |
|
|
|
3,279 |
|
|
Other, net |
|
|
(786 |
) |
|
|
(542 |
) |
|
Change in working capital and operating-related activities, net |
|
|
13,983 |
|
|
|
8,394 |
|
|
Real estate development expenditures |
|
|
(1,766 |
) |
|
|
(608 |
) |
|
Funding of pension and other postretirement employee benefits |
|
|
(1,714 |
) |
|
|
(9,202 |
) |
|
Net cash provided by operating activities |
|
|
19,067 |
|
|
|
34,914 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Property, plant and equipment additions |
|
|
(3,760 |
) |
|
|
(3,632 |
) |
|
Timberlands reforestation and roads |
|
|
(4,242 |
) |
|
|
(2,860 |
) |
|
Proceeds on sale of facility |
|
|
60,045 |
|
|
|
— |
|
|
Cash and cash equivalents acquired in Deltic merger |
|
|
— |
|
|
|
3,419 |
|
|
Other, net |
|
|
130 |
|
|
|
232 |
|
|
Net cash provided by (used in) investing activities |
|
|
52,173 |
|
|
|
(2,841 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Dividends to common stockholders |
|
|
(27,065 |
) |
|
|
(25,102 |
) |
|
Proceeds from Potlatch revolving line of credit |
|
|
— |
|
|
|
100,000 |
|
|
Repayment of Potlatch revolving line of credit |
|
|
— |
|
|
|
(100,000 |
) |
|
Repayment of Deltic revolving line of credit |
|
|
— |
|
|
|
(106,000 |
) |
|
Proceeds from long-term debt |
|
|
150,000 |
|
|
|
100,000 |
|
|
Repayment of long-term debt |
|
|
(150,000 |
) |
|
|
(14,250 |
) |
|
Premiums and fees on debt retirement |
|
|
(4,865 |
) |
|
|
— |
|
|
Repurchase of common stock |
|
|
(10,158 |
) |
|
|
— |
|
|
Other, net |
|
|
(213 |
) |
|
|
(4,838 |
) |
|
Net cash used in financing activities |
|
|
(42,301 |
) |
|
|
(50,190 |
) |
|
Change in cash, cash equivalents and restricted cash |
|
|
28,939 |
|
|
|
(18,117 |
) |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
79,441 |
|
|
|
120,457 |
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
108,380 |
|
|
$ |
102,340 |
|
|
|
|
|
|
|
|
|
|
|
|
NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Long-term debt assumed by buyer in sale of facility |
|
$ |
29,000 |
|
|
$ |
— |
|
|
Accrued property, plant and equipment additions |
|
$ |
2,590 |
|
|
$ |
659 |
|
|
Accrued timberlands reforestation and roads |
|
$ |
17 |
|
|
$ |
388 |
|
|
Equity issued as consideration for our merger with Deltic |
|
$ |
— |
|
|
$ |
1,142,775 |
|
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 same such amounts shown in the Condensed Consolidated Statements of Cash Flows.
|
(in thousands) |
|
March 31, 2019 |
|
|
March 31, 2018 |
|
||
|
Cash and cash equivalents |
|
$ |
104,787 |
|
|
$ |
102,340 |
|
|
Restricted cash included in other short-term and long-term assets |
|
|
3,593 |
|
|
|
— |
|
|
Total cash, cash equivalents, and restricted cash |
|
$ |
108,380 |
|
|
$ |
102,340 |
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
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, 2018 |
|
|
67,570 |
|
|
$ |
67,570 |
|
|
$ |
1,659,031 |
|
|
$ |
(282,391 |
) |
|
$ |
(129,431 |
) |
|
$ |
1,314,779 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,560 |
|
|
|
— |
|
|
|
6,560 |
|
|
Shares issued for stock compensation |
|
|
297 |
|
|
|
297 |
|
|
|
(297 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Equity-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
1,617 |
|
|
|
— |
|
|
|
— |
|
|
|
1,617 |
|
|
Pension plans and OPEB obligations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,166 |
|
|
|
1,166 |
|
|
Cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,513 |
) |
|
|
(8,513 |
) |
|
Common dividends, $0.40 per share |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27,065 |
) |
|
|
— |
|
|
|
(27,065 |
) |
|
Repurchase of common stock |
|
|
(279 |
) |
|
|
(279 |
) |
|
|
— |
|
|
|
(9,879 |
) |
|
|
— |
|
|
|
(10,158 |
) |
|
Other transactions, net |
|
|
— |
|
|
|
— |
|
|
|
99 |
|
|
|
(99 |
) |
|
|
— |
|
|
|
— |
|
|
Balance, March 31, 2019 |
|
|
67,588 |
|
|
$ |
67,588 |
|
|
$ |
1,660,450 |
|
|
$ |
(312,874 |
) |
|
$ |
(136,778 |
) |
|
$ |
1,278,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017 |
|
|
40,612 |
|
|
$ |
40,612 |
|
|
$ |
359,144 |
|
|
$ |
(104,363 |
) |
|
$ |
(94,851 |
) |
|
$ |
200,542 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,597 |
|
|
|
— |
|
|
|
14,597 |
|
|
Shares issued for stock compensation |
|
|
162 |
|
|
|
162 |
|
|
|
(162 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Common stock issued for Deltic merger |
|
|
21,981 |
|
|
|
21,981 |
|
|
|
1,120,794 |
|
|
|
— |
|
|
|
— |
|
|
|
1,142,775 |
|
|
Equity-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
3,279 |
|
|
|
— |
|
|
|
— |
|
|
|
3,279 |
|
|
Pension plans and OPEB obligations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,725 |
|
|
|
1,725 |
|
|
Cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(990 |
) |
|
|
(990 |
) |
|
Cumulative effects of adoption of accounting standards |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24,564 |
|
|
|
(23,265 |
) |
|
|
1,299 |
|
|
Common dividends, $0.40 per share |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25,102 |
) |
|
|
— |
|
|
|
(25,102 |
) |
|
Other transactions, net |
|
|
— |
|
|
|
— |
|
|
|
(2,653 |
) |
|
|
(30 |
) |
|
|
— |
|
|
|
(2,683 |
) |
|
Balance, March 31, 2018 |
|
|
62,755 |
|
|
$ |
62,755 |
|
|
$ |
1,480,402 |
|
|
$ |
(90,334 |
) |
|
$ |
(117,381 |
) |
|
$ |
1,335,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Notes to Condensed Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION
For purposes of this report, any reference to “PotlatchDeltic,” “Potlatch,” “the company,” “we,” “us” and “our” means PotlatchDeltic Corporation and all of its wholly-owned subsidiaries, except where the context indicates otherwise.
We are primarily engaged in activities associated with timberland management, including the sale of timber, the management of approximately 1.9 million acres of timberlands and the purchase and sale of timberlands. We are also engaged in the manufacture and sale of wood products and the development of real estate.
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. Intercompany transactions and accounts have been eliminated in consolidation. Except as otherwise disclosed in these Notes to Condensed Consolidated Financial Statements, such adjustments are of a normal, recurring nature. 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, 2018, as filed with the Securities and Exchange Commission on February 27, 2019. Results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the full year.
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 materially adverse effect on our consolidated financial position or net cash flow.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Standards Recently Adopted
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). The objective of the new standard is to establish principles for lessees and lessors to report information about the amount, timing and uncertainty of cash flows arising from a lease and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. For leases with a term of 12 months or less, the lessee is permitted to make an accounting policy election by class of underlying asset to not recognize lease assets and lease liabilities. The standard, along with subsequent amendments, was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach was required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparable period presented in the financial statements as its date of initial application.
We adopted ASU 2016-02, along with subsequent amendments, on January 1, 2019 and used the effective date as our date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided, for dates and periods before January 1, 2019. The new standard provides several optional practical expedients in transition and for an entity’s ongoing accounting. We elected the following practical expedients as part of our adoption of the standard:
|
|
• |
to not reassess whether any expired or existing contracts are or contain leases; |
|
|
• |
to not reassess the lease classification for any expired or existing leases; |
|
|
• |
to not reassess initial direct costs for any existing leases; |
|
|
• |
to apply the short-term lease recognition exemption for all leases that qualify; |
|
|
• |
to not separate non-lease components from lease components; and |
|
|
• |
to apply the land easement practical expedient for transition of all existing land easements. |
Upon adoption of this ASU we recorded $14.0 million for right of use assets and lease liabilities for our operating leases on our Condensed Consolidated Balance Sheet. The adoption of this ASU did not impact our Condensed Consolidated
8
Statement of Income and our Condensed Consolidated Statement of Cash Flows. See Note 14: Leases for our expanded disclosures.
New Accounting Standards Being Evaluated
In August 2018, the FASB issued ASU No. 2018-15 Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 clarifies that implementation costs incurred by customers in cloud computing arrangements are deferred if they would be capitalized by customers in software licensing arrangements under the internal-use software guidance. Additionally, ASU 2018-15 clarifies that all capitalized costs must be presented in the same financial statement line item as the cloud computing arrangement. The standard will be effective, on either a prospective or retrospective basis, for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2018-14 is effective for fiscal years after December 15, 2020, including interim periods within those years; early adoption is permitted. ASU 2018-14 will only impact our pension and other postretirement employee benefits disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies certain disclosure requirements related to fair value measurements including requiring disclosures on changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements and a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years after December 15, 2019, including interim periods within those years; early adoption is permitted. ASU 2018-13 will only impact our fair value measurement disclosures.
NOTE 3. MERGER WITH DELTIC
On February 20, 2018 Deltic Timber Corporation (Deltic) merged with a wholly-owned subsidiary of PotlatchDeltic. Deltic owned approximately 530,000 acres of timberland, operated two sawmills, a medium density fiberboard facility (MDF) and was engaged in real estate development primarily in Arkansas.
The acquisition of total assets of $1.4 billion was a noncash investing and financing activity comprised of $1.1 billion in equity consideration transferred to Deltic shareholders and $0.3 billion of liabilities assumed.
We expensed $19.3 million of merger-related costs during the three months ended March 31, 2018 which consisted of:
|
|
• |
$9.0 million of restructuring costs primarily for termination benefits, which included accelerated share-based payment costs, for qualifying terminations; and |
|
|
• |
$10.3 million of merger related costs for professional fees such as investment banker fees, legal, accounting and appraisal services. |
These costs are included in Deltic merger-related costs in our Condensed Consolidated Statements of Income.
Total revenue and loss before income taxes from the acquired Deltic Operations included in our Condensed Consolidated Statements of Income from February 21, 2018 to March 31, 2018 was $28.8 million and $9.0 million, respectively.
The following presents the unaudited pro forma consolidated financial information of the company as if the merger with Deltic was completed on January 1, 2017:
|
|
Three Months Ended March 31, |
|
|
|
(in thousands, except per share amounts) |
2018 |
|
|
|
Net sales |
$ |
238,560 |
|
|
Net earnings attributable to PotlatchDeltic common shareholders |
$ |
32,783 |
|
|
Basic earnings per share attributable to PotlatchDeltic common shareholders |
$ |
0.49 |
|
|
Diluted earnings per share attributable to PotlatchDeltic common shareholders |
$ |
0.49 |
|
Pro forma net earnings attributable to PotlatchDeltic common shareholders excludes $24.7 million of non-recurring merger-related costs incurred by both companies during the three months ended March 31, 2018, of which $5.4 million were incurred by Deltic prior to the merger. Pro forma data may not be indicative of the results that would have been
9
obtained had these events occurred at the beginning of the periods presented, nor is it intended to be a projection of future results.
NOTE 4. ASSETS AND LIABILITIES HELD FOR SALE
On December 20, 2018, we entered into an Asset Purchase and Sale Agreement (the Agreement) with Roseburg Forest Products Co. to sell the Deltic MDF facility for $92.0 million, consisting of $63.0 million in cash and assumption of $29.0 million of revenue bonds. The purchase price was subject to post-closing adjustments for certain changes in working capital as defined in the Agreement. The transaction closed on February 12, 2019 resulting in a $9.2 million pre-tax gain on sale. Cash proceeds received after working capital adjustments, closing costs and other expenses were approximately $60.0 million. A portion of the purchase price is escrowed pending satisfaction of certain covenants as outlined in the Agreement. In addition, we had a carryover tax basis in the facility from the Deltic merger, and as a result, we recorded a reduction to deferred tax liabilities and increase to income taxes payable of $15.8 million at the date of sale.
At December 31, 2018, the assets and liabilities to be disposed met the criteria to be classified as held for sale and were reflected as such at their carrying value. At December 31, 2018, assets held for sale on the Condensed Consolidated Balance Sheets of $80.7 million consists of $72.1 million property, plant and equipment, $7.7 million related to inventories and $0.9 million of customer list intangibles. The related liabilities held for sale of $29.3 million on the December 31, 2018 Condensed Consolidated Balance Sheets include $29.0 million of revenue bonds. The sale of the MDF facility is not considered a strategic shift that has or will have a major effect on our operations or financial results and therefore does not meet the requirements for presentation as discontinued operations.
NOTE 5. REVENUE RECOGNITION
The majority of our revenues are derived from the sale of delivered logs, manufactured wood products, residual wood by-products and real estate. We recognize revenue in accordance with FASB Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606). Performance obligations associated with real estate sales are generally satisfied at a point in time when all conditions of closing have been met and title transfers to the buyer. Real estate closings are generally facilitated through an escrow process.
At March 31, 2019 and 2018, we recorded $1.8 million and $1.4 million, respectively, for contract liabilities recorded as deferred revenue related to hunting lease rights and member related activities at the Chenal Country Club. These contract liabilities are being amortized over the term of the contracts, which is typically twelve months or less, except membership initiation fees at the Chenal Country Club which are amortized up to 10 years. Other contract asset and liability balances, such as prepayments, are immaterial. For real estate sales, we typically receive the entire consideration in cash at closing.
10
The following table represents our revenues by major product. For additional information regarding our segments, see Note 6: Segment Information.
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
2019 |
|
|
2018 |
|
||
|
Resource |
|
|
|
|
|
|
|
|
Northern region |
|
|
|
|
|
|
|
|
Sawlogs |
$ |
32,499 |
|
|
$ |
49,584 |
|
|
Pulpwood |
|
2,061 |
|
|
|
1,780 |
|
|
Stumpage |
|
106 |
|
|
|
79 |
|
|
Other |
|
211 |
|
|
|
216 |
|
|
|
|
34,877 |
|
|
|
51,659 |
|
|
Southern region |
|
|
|
|
|
|
|
|
Sawlogs |
|
18,437 |
|
|
|
14,030 |
|
|
Pulpwood |
|
11,811 |
|
|
|
8,970 |
|
|
Stumpage |
|
322 |
|
|
|
391 |
|
|
Other |
|
2,711 |
|
|
|
1,456 |
|
|
|
|
33,281 |
|
|
|
24,847 |
|
|
Total Resource revenues |
|
68,158 |
|
|
|
76,506 |
|
|
|
|
|
|
|
|
|
|
|
Wood Products |
|
|
|
|
|
|
|
|
Lumber |
|
90,505 |
|
|
|
94,993 |
|
|
Panels |
|
24,698 |
|
|
|
28,891 |
|
|
Residuals |
|
17,103 |
|
|
|
15,931 |
|
|
Total Wood Products revenues |
|
132,306 |
|
|
|
139,815 |
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
|
|
Rural real estate |
|
4,219 |
|
|
|
8,833 |
|
|
Development real estate |
|
673 |
|
|
|
1,219 |
|
|
Other1 |
|
1,272 |
|
|
|
503 |
|
|
Total Real Estate revenues |
|
6,164 |
|
|
|
10,555 |
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues |
|
206,628 |
|
|
|
226,876 |
|
|
|
|
|
|
|
|
|
|
|
Intersegment Resource revenues2 |
|
(24,912 |
) |
|
|
(26,979 |
) |
|
Total consolidated revenues |
$ |
181,716 |
|
|
$ |
199,897 |
|
|
|
|
|
|
|
|
|
|
|
1 |
Other Real Estate revenues primarily relate to the Chenal Country Club. |
|
2 |
Intersegment revenues represent logs sold by our Resource segment to the Wood Products segment. |
NOTE 6. SEGMENT INFORMATION
Our businesses are organized into three reportable operating segments: Resource, Wood Products and Real Estate. Management activities in the Resource segment include planting and harvesting trees and building and maintaining roads. The Resource segment also generates revenues from non-timber resources such as hunting leases, recreation permits and leases, mineral rights contracts, oil and gas royalties, biomass production and carbon sequestration. The Wood Products segment manufactures and markets lumber and plywood. The business of our Real Estate segment includes the sale of land holdings deemed non-strategic or identified as having higher and better use alternatives. The Real Estate segment also engages in master planned communities, development activities and includes the Chenal Country Club.
11
The reportable segments follow the same accounting policies used for our Condensed Consolidated Financial Statements, with the exception of the valuation of inventories. For most of our operations, we use the last-in, first-out (LIFO) method of valuing inventory. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Interim LIFO calculations are based on management’s best estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. Inventories not valued under LIFO are recorded at the lower of average cost or net realizable value. All segment inventories are reported using the average cost method. The LIFO reserve and intersegment eliminations are recorded at the corporate level.
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. Our calculation of Adjusted EBITDDA may not be comparable to that reported by other companies.
The following table summarizes information on revenues, intersegment eliminations, Adjusted EBITDDA, depreciation, depletion and amortization, basis of real estate sold, total assets and capital expenditures for each of the company’s reportable segments and includes a reconciliation of Total Adjusted EBITDDA to income before income taxes. Corporate information is included to reconcile segment data to the Condensed Consolidated Financial Statements.
12
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Revenues: |
|
|
|
|
|
|
|
|
|
Resource |
|
$ |
68,158 |
|
|
$ |
76,506 |
|
|
Wood Products |
|
|
132,306 |
|
|
|
139,815 |
|
|
Real Estate |
|
|
6,164 |
|
|
|
10,555 |
|
|
|
|
|
206,628 |
|
|
|
226,876 |
|
|
Intersegment Resource revenues1 |
|
|
(24,912 |
) |
|
|
(26,979 |
) |
|
Consolidated revenues |
|
$ |
181,716 |
|
|
$ |
199,897 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDDA: |
|
|
|
|
|
|
|
|
|
Resource |
|
$ |
26,850 |
|
|
$ |
37,697 |
|
|
Wood Products |
|
|
7,226 |
|
|
|
28,950 |
|
|
Real Estate |
|
|
2,703 |
|
|
|
8,002 |
|
|
Corporate |
|
|
(10,654 |
) |
|
|
(8,716 |
) |
|
Eliminations and adjustments |
|
|
2,127 |
|
|
|
(1,201 |
) |
|
Total Adjusted EBITDDA |
|
|
28,252 |
|
|
|
64,732 |
|
|
Basis of real estate sold |
|
|
(1,556 |
) |
|
|
(3,605 |
) |
|
Depreciation, depletion and amortization |
|
|
(15,797 |
) |
|
|
(12,196 |
) |
|
Interest expense, net2 |
|
|
(5,464 |
) |
|
|
(5,660 |
) |
|
Loss on extinguishment of debt |
|
|
(5,512 |
) |
|
|
— |
|
|
Non-operating pension and other postretirement employee benefits |
|
|
(980 |
) |
|
|
(1,857 |
) |
|
Gain on fixed assets |
|
|
32 |
|
|
|
4 |
|
|
Gain on sale of facility |
|
|
9,176 |
|
|
|
— |
|
|
Inventory purchase price adjustment in cost of goods sold3 |
|
|
— |
|
|
|
(1,849 |
) |
|
Deltic merger-related costs4 |
|
|
— |
|
|
|
(19,255 |
) |
|
Income before income taxes |
|
$ |
8,151 |
|
|
$ |
20,314 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization: |
|
|
|
|
|
|
|
|
|
Resource |
|
$ |
10,265 |
|
|
$ |
8,646 |
|
|
Wood Products |
|
|
5,042 |
|
|
|
3,354 |
|
|
Real Estate |
|
|
209 |
|
|
|
40 |
|
|
Corporate |
|
|
281 |
|
|
|
156 |
|
|
|
|
|
15,797 |
|
|
|
12,196 |
|
|
Bond discounts and deferred loan fees2 |
|
|
477 |
|
|
|
439 |
|
|
Total depreciation, depletion and amortization |
|
$ |
16,274 |
|
|
$ |
12,635 |
|
|
|
|
|
|
|
|
|
|
|
|
Basis of real estate sold: |
|
|
|
|
|
|
|
|
|
Real Estate |
|
$ |
1,588 |
|
|
$ |
3,723 |
|
|
Eliminations and adjustments |
|
|
(32 |
) |
|
|
(118 |
) |
|
Total basis of real estate sold |
|
$ |
1,556 |
|
|
$ |
3,605 |
|
|
1 |
Intersegment revenues represent logs sold by our Resource segment to the Wood Products segment. |
|
2 |
Bond discounts and deferred loan fees are reported within interest expense, net on the Condensed Consolidated Statement of Income. |
|
3 |
The effect on cost of goods sold for fair value adjustments to the carrying amounts of inventory acquired in the Deltic merger. |
|
4 |
For integration and restructuring costs related to the merger with Deltic see Note 3: Merger with Deltic. |
13
A reconciliation of our business segment total assets to total assets in the Condensed Consolidated Balance Sheet is as follows:
|
(in thousands) |
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||
|
Total assets: |
|
|
|
|
|
|
|
|
|
Resource1 |
|
$ |
1,686,471 |
|
|
$ |
1,693,162 |
|
|
Wood Products |
|
|
385,534 |
|
||||