POTLATCHDELTIC CORPORATION Forward-Looking Information
This report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, expectations regarding economic conditions, including interest rates and our ability to offset the impact of inflation, expected seasonal fluctuations in our business segments, expected effectiveness of our hedging instruments and swaps; expected return on pension assets; anticipated share repurchases and dividend payments; anticipated cash balances, cash flows from operations and expected liquidity; potential uses of our credit facility; the expected impact from theOla, Arkansas sawmill fire, anticipated insurance coverage, and expected timing to complete reconstruction and installation activities and return to full operation; expectations regarding debt obligations, interest payments and debt refinancing; expectations regarding the market transition away from LIBOR and our ability to identify a suitable replacement rate; maintenance of our investment grade credit rating; expectations regarding theU.S. housing market and home repair and remodeling activity; the lumber and log markets and pricing; lumber shipment volumes; timber harvest volumes; rural real estate and residential and commercial real estate development sales; sufficiency of cash to meet operating requirements; expected 2022 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. The realization of our expectations and the accuracy of our assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to:
•
the effect of general economic conditions, including employment rates, interest rate levels, discount rates, housing starts and the general availability of financing for home mortgages;
•
availability of labor and developable land;
•
changes in the level of residential and commercial construction and remodeling activity;
•
changes in tariffs, quotas and trade agreements involving wood products;
•
changes in demand for our products and real estate;
•
changes in timber prices 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 (such as the
•
changes in the cost or availability of shipping and transportation;
•
changes in principal expenses;
•
recent increases in inflation and the extent to which such increases will continue;
•
unforeseen environmental liabilities or expenditures;
•
changes in general and industry-specific environmental laws and regulations, and interpretations thereof by regulatory agencies;
•
impact of the coronavirus (COVID-19 and its variants) outbreaks, governmental responses to such outbreaks, and anticipated recovery from the pandemic on our business, suppliers, consumers, customers and employees; and
•
disruptions or inefficiencies in our supply chain and/or operations.
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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 endedDecember 31, 2021 . Investors should not interpret the disclosure of a risk to imply that the risk has not already materialized. Forward-looking statements contained in this report present our views only as of the date of this report. Except as required under applicable law, we do not intend to issue updates concerning any future revisions of our views to reflect events or circumstances occurring after the date of this report.
Our Company
We are a leading timberland REIT with ownership of approximately 1.8 million acres of timberland. We also own six sawmills and an industrial grade plywood mill, a residential and commercial real estate development business and a rural timberland sales program. Our operations are organized into three business segments: Timberlands, Wood Products and Real Estate. Our Timberlands segment supplies our Wood Products segment with a portion of its wood fiber needs. These intersegment revenues are based on prevailing market prices and typically represent a sizeable portion of the Timberlands segment's total revenues. Our other segments generally do not generate intersegment revenues. In the discussion of our consolidated results of operations, our revenues and expenses are reported after elimination of intersegment revenues and expenses. In the Business Segment Results discussion below, each segment's revenues and expenses, as applicable, are presented before elimination of intersegment revenues and expenses. The operating results of our Timberlands, Wood Products and Real Estate business segments have been and will continue to be affected by the cyclical nature of the forest products industry. Log and pulpwood sales volumes in our Timberlands segment are typically lower in the first half of each year as winter rains in the Southern region and spring thaw in the Northern region limit timber harvesting operations due to softened roadbeds and wet logging conditions that restrict access to logging sites. The third quarter is typically our Timberlands segment's strongest production quarter. Demand for our manufactured wood products typically decreases in the winter months when construction activity is slower, while demand typically increases during the spring, summer and fall when construction activity is generally higher. Rural real estate dispositions and acquisitions can be adversely affected when access to any properties to be sold or considered for acquisition are limited due to adverse weather conditions. Development real estate sales atChenal 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, inflation, asset dispositions or acquisitions, impact of pandemics (such as COVID-19 and its variants), fires (such as theOla, Arkansas sawmill fire and fires on our timberlands), other natural disasters and other factors.
Non-GAAP Measures
To supplement our financial statements presented in accordance with generally accepted accounting principles inthe 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. 21
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Our definition of EBITDDA and Adjusted EBITDDA may be different from similarly titled measures reported by other companies. We define EBITDDA as net income before interest expense, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses. See Note 2: Segment Information in the Notes to the Condensed Consolidated Financial Statements for information related to the use of segment Adjusted EBITDDA.
Business and Economic Trends Affecting Our Operations
The demand for timber is directly affected by the underlying demand for lumber and other wood-products, as well as by the demand for pulp, paper and packaging. Our Timberlands and Wood Products segments are impacted by demand for new homes inthe United States and by repair and remodeling activity. InApril 2022 , theU.S. Census Bureau reported housing starts forMarch 2022 were 1.8 million on a seasonally adjusted annual basis, which was up 3.9% fromMarch 2021 . InApril 2022 , theNational Association of Home Builders (NAHB) reported theNAHB /Wells Fargo Housing Market Index (HMI) was at 77. While the HMI continues to indicate homebuilder confidence in the market for newly built single-family homes remains strong, the HMI has experienced four straight months of decline and is the lowest level since last summer. The repair and remodel sector, which has experienced steady growth during the pandemic-driven home improvement movement that began in early 2020, is expected to return to a more stable growth rate in 2022. Overall, housing fundamentals remain strong, driven by a shortage of homes, low existing inventory for sale, a large millennial demographic entering their prime home-buying years, interest rates remaining below long-term historical averages, the continued remote work evolution, high home equity levels and an aging existing housing stock supporting repair and remodel demand. These fundamentals are key drivers for our business, and we continue to expect that lumber prices will remain structurally higher than long-term historical averages due to continued lumber demand and tight supply. Rising construction costs, a persistently tight labor pool, supply chain challenges and consumer concerns about rising mortgage rates could negatively impact the pace of housing starts and repair and remodel projects. Inflation has impacted our business, especially for fuel, energy and repair and maintenance costs, although we believe there are offsetting impacts including wood product prices and our timberland's effectiveness as an inflation hedge. Over the last twelve months, the Consumer Price Index (all items) increased by 8.5 percent before seasonal adjustments, while the Producer Price Index (final demand) increased by 11.2 percent on an unadjusted basis. Additionally, transportation challenges rising from shortage of truck and railcar availability linger in certain markets. These transportation issues could lead to higher freight costs and shipping challenges through the foreseeable future. In our Timberlands segment, sawlog prices benefitted fromIdaho sawlog prices being indexed on a four-week lag to lumber prices, continued strong Northern cedar sawlog prices, increased demand for Southern pine sawlogs and a higher mix of prime sawlogs harvested on recently acquired timberlands. Our Southern harvest volume of 1.1 million tons in the first quarter of 2022 was higher than the first quarter of 2021, primarily due to favorable harvest conditions. We expect to harvest between 1.1 and 1.3 million tons during the second quarter, with approximately 73% of the volume in the Southern region. For 2022, we expect to harvest approximately 6.1 million tons, with approximately 70% of the volume in the Southern region. During the second quarter of 2021 we experienced a fire at ourOla, Arkansas sawmill, which had an annual capacity of 150 million board feet prior to the fire. The damage was principally limited to the large log primary breakdown machine center. The planer mill, kiln, and shipping department were not affected. We have adequate property damage and business interruption insurance, subject to an applicable deductible, and have begun the reconstruction process at the sawmill. We expect to install the new large-log line in the third quarter of 2022 and complete the start-up phase by early 2023. For the first quarter of 2022 our Wood Products segment benefited from increased price realizations. Lumber shipments continue to be impacted by theOla sawmill fire. We shipped approximately 233 million board feet of lumber during the first quarter of 2022 and expect to ship between 250 and 260 million board feet of lumber during the second quarter of 2022. For 2022, we expect to ship approximately 1.0 billion board feet of lumber. This estimate reflects the expected timing of the start-up of the large-log line at ourOla, Arkansas sawmill. Our Real Estate segment first quarter 2022 results reflect strongChenal Valley development sales and higher rural land sales prices. We expect to sell approximately 12,000 acres of rural land and 40 residential lots during the second quarter of 2022. For 2022, we expect to sell approximately 20,000 acres of rural land and 165 residential lots. 22
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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) 2022 2021 Change
Revenues $ 411,350 $ 354,193 $ 57,157
Costs and expenses:
Cost of goods sold 179,847 169,302 10,545
Selling, general and administrative
expenses 16,294 16,758 (464 )
Net loss on fire damage 276 - 276
196,417 186,060 10,357
Operating income 214,933 168,133 46,800
Interest expense, net (2,894 ) (3,574 ) 680
Pension settlement charge (14,165 ) - (14,165 )
Non-operating pension and other
postretirement benefit costs (1,929 ) (3,414 ) 1,485
Income before income taxes 195,945 161,145 34,800
Income taxes (32,065 ) (30,039 ) (2,026 )
Net income $ 163,880 $ 131,106 $ 32,774
Total Adjusted EBITDDA1 $ 245,562 $ 194,986 $ 50,576 1 See Liquidity and Performance Measures for a reconciliation of Total Adjusted
EBITDDA to net income, the closest comparable GAAP measure, for each of the
periods presented.
First Quarter 2022 Compared with First Quarter 2021
Revenues
Revenues were$411.4 million , an increase of$57.2 million compared with the first quarter of 2021 primarily due to higher lumber and sawlog prices, increased harvest volumes in the Southern region and a 1,760-acre rural land sale in the South for$7,500 per acre to an energy provider for a planned commercial solar farm. These increases were partially offset by lower lumber shipments in the first quarter of 2022, which was impacted by the loss of production at ourOla, Arkansas sawmill following a fire inJune 2021 .
Cost of goods sold
Cost of goods sold increased$10.5 million compared with the first quarter of 2021 primarily due to higher manufacturing and log and haul costs from inflationary price increases in areas such as diesel fuel, energy and repair and maintenance. Pension settlement charge InMarch 2022 we transferred$75.6 million of our qualified pension plan (the Plan) assets to an insurance company for the purchase of a group annuity contract. In connection with this transaction, we recorded a non-cash pretax settlement charge of$14.2 million .
Income taxes
Income taxes are primarily due to income from ourPotlatchDeltic taxable REIT subsidiaries (TRS). For the three months endedMarch 31, 2022 , we recorded income tax expense of$32.1 million on TRS income before tax of$127.3 million , which included the$14.2 million pension settlement charge. For the three months endedMarch 31, 2021 , we recorded an income tax expense of$30.0 million on TRS income before tax of$115.8 million . 23
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Table of Contents Total Adjusted EBITDDA Total Adjusted EBITDDA for the first quarter of 2022 increased$50.6 million compared to the first quarter of 2021. The increase in Total Adjusted EBITDDA was primarily driven by higher lumber and sawlog prices, increased harvest volumes in the Southern region and the 1,760-acre rural land sale in the South. These increases were partially offset by lower lumber shipments and higher manufacturing and log and haul costs. Refer to the Business Segment Results below for further discussions on activities for each of our segments. See Liquidity and Performance Measures for a reconciliation of Total Adjusted EBITDDA to net income, the closest comparable GAAP measure, for each of the periods presented. Business Segment Results Timberlands Segment Three Months Ended March 31, (in thousands) 2022 2021 Change Revenues1$ 123,657 $ 111,916 $ 11,741 Costs and expenses: Logging and hauling 40,082 36,468 3,614 Other 5,403 5,888 (485 ) Selling, general and administrative expenses 1,738 1,702
36
Timberlands Adjusted EBITDDA2$ 76,434 $ 67,858
1 Prior to elimination of intersegment fiber revenues of
million for the three months ended
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) 2022 2021 Change
Northern region
Sawlog 385,290 427,255 (41,965 )
Pulpwood 8,259 13,884 (5,625 )
Total 393,549 441,139 (47,590 )
Southern region
Sawlog 490,093 508,073 (17,980 )
Pulpwood 379,651 326,429 53,222
Stumpage 196,513 58,413 138,100
Total 1,066,257 892,915 173,342
Total harvest volume 1,459,806 1,334,054 125,752
Sales Price/Unit ($ per ton)1
Northern region
Sawlog $ 212 $ 178 $ 34
Pulpwood $ 47 $ 36 $ 11
Southern region
Sawlog $ 48 $ 44 $ 4
Pulpwood $ 31 $ 28 $ 3
Stumpage $ 17 $ 13 $ 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.
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Table of Contents Timberlands Adjusted EBITDDA The following table summarizes Timberlands Adjusted EBITDDA variances for the three months endedMarch 31, 2022 , compared with the three months endedMarch 31, 2021 : (in thousands) Three Months Adjusted EBITDDA - prior year$ 67,858 Sales price and mix 10,205 Harvest volume 1,388 Logging and hauling costs per unit (3,968 ) Forest management, indirect and other 951
Timberlands Adjusted EBITDDA - current year
First Quarter 2022 Compared with First Quarter 2021
Timberlands Adjusted EBITDDA for the first quarter of 2022 increased
•
Sales Price and Mix: Sawlog prices in the Northern region increased 19.1%, to$212 per ton, primarily from the effect of higher lumber price realizations on indexed sawlogs and increased cedar log prices inIdaho . Southern sawlog prices increased 9.1%, to$48 per ton, compared to the first quarter of 2021, as a result of a higher mix of prime grade sawlogs harvested on recently acquired timberlands and strong demand.
•
Harvest Volume: We harvested 1.1 million tons in the Southern region during the first quarter of 2022, which was 19.4% higher than the first quarter of 2021, primarily due to a severe winter storm that impacted harvest conditions in 2021. In the Northern region hauling conditions were favorable throughout the first quarter of 2021 as compared to the first quarter of 2022, where hauling conditions were more seasonally limited, resulting in a 10.8% decrease in harvest volume.
•
Logging and Hauling Cost per Unit: Log and hauling costs per unit were higher primarily due to increased diesel costs.
Wood Products Segment
Three Months Ended March 31,
(in thousands) 2022 2021 Change
Revenues $ 295,742 $ 269,296 $ 26,446
Costs and expenses1
Fiber costs 77,673 79,469 (1,796 )
Freight, logging and hauling 18,367 18,197 170
Manufacturing costs 50,793 47,602 3,191
Finished goods inventory change (4,579 ) (4,019 ) (560 )
Selling, general and administrative expenses 3,408 2,522 886
Other 129 (30 )
159
Wood Products Adjusted EBITDDA2$ 149,951 $ 125,555
1 Prior to elimination of intersegment fiber costs of
million for the three months ended
See Note 2: Segment Information in the Notes to Condensed Consolidated
Financial Statements.
Wood Products Segment Statistics
Three Months Ended March 31,
2022 2021 Change
Lumber shipments (MBF)1 233,188 258,069 (24,881 )
Lumber sales prices ($ per MBF)
1 MBF stands for thousand board feet.
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Wood Products Adjusted EBITDDA
The following table summarizes Wood Products Adjusted EBITDDA variances for the three months endedMarch 31, 2022 , compared with the three months endedMarch 31, 2021 : (in thousands) Three Months Wood Products Adjusted EBITDDA - prior year$ 125,555 Lumber: Price 41,212 Volume (11,195 ) Manufacturing costs per unit (7,081 ) Log costs per unit (2,305 ) Residuals, panels and other 3,765
Wood Products Adjusted EBITDDA - current year
First Quarter 2022 Compared with First Quarter 2021
Wood Products Adjusted EBITDDA for the first quarter of 2022 increased
•
•
Lumber Volume: Lumber shipments decreased 24.9 million board feet during the first quarter of 2022 compared to the first quarter of 2021, primarily as a result of decreased shipments from ourOla, Arkansas sawmill following the fire inJune 2021 .
•
Manufacturing Cost Per Unit: Higher manufacturing costs per unit quarter over quarter was primarily a result of lost production at ourOla, Arkansas sawmill and inflationary price increases in areas such as energy and repair and maintenance.
•
Log Costs Per Unit: Log costs per unit were higher primarily as a result of
increased indexed log costs at our
•
Residual Sales, Panels and Other: The first quarter of 2022 benefitted from
increased plywood price realizations and shipments due to strong demand and
product mix.
Real Estate Segment
Three Months Ended March 31,
(in thousands) 2022 2021 Change
Revenues $ 34,065 $ 20,313 $ 13,752
Costs and expenses
Costs of goods sold 2,879 2,468 411Selling, general and administrative expenses 1,062 1,252
(190 )
Real Estate Adjusted EBITDDA1 $ 30,124 $ 16,593 $ 13,531 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.
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Real Estate Segment Statistics
Rural Real Estate Three Months Ended March 31,
2022 2021
Acres sold 4,751 7,083
Average price per acre $ 4,556 $ 1,415
Development Real Estate Three Months Ended March 31,
2022 2021
Residential lots 64 51
Average price per lot $ 112,725 $ 98,629
Commercial acres 3 11
Average price per acre $ 917,236 $ 277,425 Real Estate Adjusted EBITDDA
The following table summarizes Real Estate Adjusted EBITDDA variances for the three months endedMarch 31, 2022 compared with the three months endedMarch 31, 2021 : (in thousands) Three Months
Real Estate Adjusted EBITDDA - prior year
11,812
Real estate development sales 1,940
Selling, general and administrative expenses 190
Other costs, net (411 )
Real Estate Adjusted EBITDDA - current year
First Quarter 2022 Compared with First Quarter 2021
Real Estate Adjusted EBITDDA for the first quarter of 2022 was$30.1 million , an increase of$13.5 million compared with the first quarter of 2021, primarily as a result of the following:
•
Rural Sales : The increase in rural real estate sales is primarily a result of a 1,760-acre sale in the South for$7,500 per acre in the first quarter of 2022 to an energy provider for a planned commercial solar farm, which was not matched by a similarly-sized sale during the first quarter of 2021. 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 2022, we sold 64 residential lots at an average lot price of$112,725 compared to 51 lots at an average lot price of$98,629 during the first quarter of 2021. In addition, we sold 3 acres of commercial land inChenal Valley for$917,236 per acre compared to 11 acres of commercial land inChenal Valley for$277,425 per acre in the first quarter of 2021. The average price per lot or acre fluctuates based on a variety of factors including size and location within the development. 27
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Liquidity and Capital Resources
Cash generated by our operations is highly dependent on selling prices of our products and can vary from period to period. Changes in significant sources and uses of cash for the three months endedMarch 31, 2022 and 2021 are presented by category as follows: Three Months Ended March 31, (in thousands) 2022 2021 Change
Net cash from operating activities
Net Cash Flows from Operating Activities
Net cash from operating activities increased
•
Cash received from customers increased$63.4 million primarily due to higher average lumber and sawlog prices, increased Southern harvest volumes and the 1,760-acre rural land sale in the South. These increases were partially offset by lower Northern harvest volumes and reduced shipments at ourOla, Arkansas sawmill following the fire inJune 2021 .
•
Cash payments increased$4.8 million due to inflationary cost increases in areas such as diesel fuel, energy and repair and maintenance in our manufacturing and harvest operations. These increases were partially offset by reduced vendor payments as a result of lower production at ourOla, Arkansas sawmill following the fire inJune 2021 and lower harvest activities in the Northern region.
Net Cash Flows from Investing Activities
Changes in cash flows from investing activities were primarily a result of the following:
•
We spent
Net Cash Flows from Financing Activities
Changes in cash flows from financing activities were primarily a result of the following:
•
We paid dividends of
•
We repaid
Future Sources and Uses of Cash
AtMarch 31, 2022 , we had cash and cash equivalents of$470.9 million . We expect cash and cash equivalents generated from our operating activities, supplemented by borrowings under our credit agreement, if needed, to be adequate to meet our future cash requirements. AtMarch 31, 2022 , there were no significant changes in our cash commitments arising in the normal course of business under our known contractual and other obligations as described in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Capital Expenditures
We invest cash in maintenance and discretionary capital expenditures at our Wood Products facilities. We also invest cash in the reforestation of timberlands and construction of roads in our Timberlands operations and to develop land in our Real Estate development operations. We evaluate discretionary capital improvements based on an expected level of return on investment. We expect to spend a total of approximately$70 to$75 million for capital expenditures during 2022. Our 2022 planned capital spend includes approximately$15 million of capital expenditures for the reconstruction of our fire-damagedOla sawmill, which is largely covered by insurance. We expect to install the new large-log line in the third quarter of 2022 and complete the start-up phase by early 2023. A determination regarding the extent of downtime and costs to repair theOla sawmill is on-going as the reconstruction progresses. We have adequate property damage and business interruption insurance, subject to an applicable deductible. The timing of expenditures incurred for the sawmill rebuild and economic losses is expected to vary based on when we receive proceeds from our insurance carriers. 28
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Table of Contents Share Repurchase Program OnAugust 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). AtMarch 31, 2022 , we had remaining authorization of$59.5 million for future stock repurchases under the Repurchase Program. The timing, manner, price and amount of repurchases will be determined according to the trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the Trading Plan), and, subject to the terms of the Trading Plan, the Repurchase Program may be suspended, terminated or modified at any time for any reason. Long-Term Debt and Credit Agreement AtMarch 31, 2022 , our total outstanding net long-term debt was$755.5 million . We expect to refinance a$40.0 million term loan expiring inDecember 2022 at maturity, which is covered by a forward starting interest rate swap that hedges the variability in future benchmark interest payments attributable to changes in interest rates. All interest rates on our outstanding long-term debt are fixed rates under fixed rate loans or variable rate loans with an associated interest rate swap that fixes the variable benchmark interest rate component. We have a$300.0 million revolving line of credit with a syndicate of lenders that maturesFebruary 14, 2027 . Under the terms of the Amended Credit Agreement, the amount of available principal may be increased up to an additional$500.0 million . We may also utilize borrowings under the Amended Credit Agreement to, among other things, refinance existing indebtedness and provide funding for working capital requirements, capital projects, acquisitions, and other general corporate expenditures. AtMarch 31, 2022 , there were no borrowings under the revolving line of credit and approximately$1.0 million of the credit facility was utilized by outstanding letters of credit. Our credit agreement, variable rate term loans with$403.5 million in principal and our interest rate derivative agreements have an interest rate tied to LIBOR. OnMarch 5, 2021 , theUnited Kingdom's Financial Conduct Authority , which regulates LIBOR, announced that the US Dollar LIBOR will no longer be published afterJune 30, 2023 . The market transition away from LIBOR to an alternative reference rate is complex. While we expect LIBOR to be available in substantially its current form until at least throughJune 30, 2023 , it is possible that LIBOR will become unavailable prior to that point. We continue to evaluate and monitor market developments regarding the alternative rates, will work with our lenders and counterparties to identify a suitable replacement rate, and may amend certain debt and interest rate derivative agreements to accommodate those rates.
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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The following table presents the components and applicable limits of Total Asset
Value (TAV), a component of the Leverage Ratio, at
(in thousands) Estimated timberland fair value $
3,974,991
Wood Products manufacturing facilities book basis (limited to 10% of TAV)
283,361
Cash and cash equivalents
470,918
Company owned life insurance (COLI) (limited to 5% of TAV) 4,002 Total Asset Value1$ 4,733,272
1 TAV also includes, as applicable, Construction in Progress (limited to 10% of
TAV) and Investments in Affiliates (limited to 15% TAV) as defined in the
Agreements.
At
Actual at
Covenant Requirement March 31, 2022
Interest coverage ratio ? 3.00 to 1.00 24.5
Leverage ratio ? 40% 16%
See Note 5: Debt in the Notes to the Condensed Consolidated Financial Statements for additional information on our debt and credit agreements.
Credit Ratings
Two major debt rating agencies routinely evaluate our debt, and our cost of borrowing can increase or decrease depending on our credit rating. Both Moody's and S&P rate our debt as investment grade.
Capital Structure
(in thousands) March 31, 2022 December 31, 2021 Long-term debt (including current portion)$ 755,482 $ 758,256 Cash and cash equivalents (470,918 ) (296,151 ) Net debt 284,564 462,105 Market capitalization1 3,657,986 4,159,034 Enterprise value$ 3,942,550 $ 4,621,139 Net debt to enterprise value 7.2 % 10.0 % Dividend yield2 3.3 % 2.9 % Weighted-average cost of debt, after tax3 3.1 % 3.1 %
1 Market capitalization is based on outstanding shares of 69.4 million and 67.0
million times closing share prices of
and
prices of
respectively.
3 Weighted-average cost of debt excludes deferred debt costs and credit facility
fees and includes estimated annual patronage credit on term loan debt.
Liquidity and Performance Measures
The discussion below is presented to enhance the reader's understanding of our
operating performance, ability to generate cash and satisfy rating agency and
creditor requirements. This information includes two measures: Adjusted EBITDDA
and Cash Available for Distribution (CAD). These measures are not defined by
GAAP and the discussion of Adjusted EBITDDA and CAD is not intended to conflict
with or change any of the GAAP disclosures described herein.
Adjusted EBITDDA is a non-GAAP measure that management uses in evaluating
performance and to allocate resources between segments, and that investors can
use to evaluate the operational performance of the assets under management. It
removes the impact of specific items that management believes do not directly
reflect the core business operations on an ongoing basis. This measure should
not be considered in isolation from and is not intended to represent an
alternative to our results reported in accordance with GAAP. Management believes
that this non-GAAP measure, when read in conjunction with our GAAP financial
statements, provides useful information to investors by facilitating the
comparability of our ongoing operating results over the periods presented, the
ability to identify trends in our underlying business, and the comparison of our
operating results against analyst financial models and the operating results of
other public companies that supplement their GAAP results with non-GAAP
financial measures.
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Our definition of EBITDDA may be different from similarly titled measures reported by other companies. We define EBITDDA as net income before interest expense, income taxes, basis of real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are considered to hinder comparison of the performance of our businesses either year-on-year or with other businesses.
We reconcile Total Adjusted EBITDDA to net income for the consolidated company as it is the most comparable GAAP measure.
The following table provides a reconciliation of net income to Total Adjusted EBITDDA for the respective periods:
Three Months Ended March 31,
(in thousands) 2022 2021
Net income $ 163,880 $ 131,106
Interest expense, net 2,894 3,574
Income taxes 32,065 30,039
Depreciation, depletion and amortization 19,502 17,996
Basis of real estate sold 10,854 8,823
Net loss on fire damage 276 -
Pension settlement charge 14,165 -
Non-operating pension and other postretirement
benefit costs 1,929 3,414
(Gain) loss on disposal of fixed assets (3 ) 34 Total Adjusted EBITDDA$ 245,562 $ 194,986 We define CAD as cash from operating activities adjusted for capital spending for purchases of property, plant and equipment, timberlands reforestation and roads and timberland acquisitions not classified as strategic. Management believes CAD is a useful indicator of the company's overall liquidity, as it provides a measure of cash generated that is available for dividends to common stockholders (an important factor in maintaining our REIT status), repurchase of the company's common shares, debt repayment, acquisitions and other discretionary and nondiscretionary activities. Our definition of CAD is limited in that it does not solely represent residual cash flows available for discretionary expenditures since the measure does not deduct the payments required for debt service and other contractual obligations. Therefore, we believe it is important to view CAD as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows. Our definition of CAD may be different from similarly titled measures reported by other companies, including those in our industry. CAD is not necessarily indicative of the CAD that may be generated in future periods.
The following table provides a reconciliation of cash from operating activities to CAD:
Three Months Ended March 31, Twelve Months Ended March 31,
(in thousands) 2022 2021 2022 2021
Net cash from operating
activities1 $ 230,299 $ 169,965 $ 565,220 $ 457,090
Capital expenditures2 (17,214 ) (11,718 ) (80,910 ) (43,964 )
CAD $ 213,085 $ 158,247 $ 484,310 $ 413,126
Net cash from investing
activities3 $ (17,122 ) $ (11,529 ) $ (64,738 ) $ (42,688 )
Net cash from financing
activities $ (34,595 ) $ (28,075 ) $ (407,829 ) $ (113,521 ) 1 Net cash from operating activities for the three months ended
and 2021 includes cash paid for real estate development expenditures of
million and
the twelve months ended
estate development expenditures of
respectively.
2 The three and twelve months ended
expenditures for the
respectively, and excludes of
proceeds for the
and acquisition of non-strategic timber and timberlands, which is also included in our reconciliation of CAD.
Critical Accounting Policies and Estimates
InMarch 2022 , we transferred$75.6 million of our qualified pension plan (the Plan) assets to an insurance company for the purchase of a group annuity contract. This transaction triggered a remeasurement of the Plan's assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the Plan as ofMarch 31, 2022 . All other pension assumptions remain unchanged. See Note 11: Pension and Other Postretirement Employee Benefits for further information on the pension settlement and change to the projected benefit obligation. There have been no other significant changes during 2022 to our critical accounting policies or estimates as presented in our 2021 Annual Report on Form 10-K. 31
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