PotlatchDeltic(US:PCH)2022-07-28 16:00PART I. - FINANCIAL INFORMATION Financial Statements (unaudited) The unaudited financial statements show decreased revenue and net income, though total assets and operating cash flow increased Condensed Consolidated Statements of Operations Revenues and net income declined in Q2 and H1 2022 compared to the prior year periods Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $359,597 | $447,506 | $770,947 | $801,699 | | Operating Income | $157,719 | $250,215 | $372,652 | $418,348 | | Net Income | $120,222 | $187,905 | $284,102 | $319,011 | | Diluted EPS | $1.72 | $2.77 | $4.07 | $4.71 | | Dividends per share | $0.44 | $0.41 | $0.88 | $0.82 | Condensed Consolidated Balance Sheets Total assets and stockholders' equity grew from year-end 2021, driven by a significant increase in cash Balance Sheet Summary (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $651,226 | $421,178 | | Total Assets | $2,871,919 | $2,535,215 | | Total Current Liabilities | $155,166 | $126,179 | | Total Liabilities | $1,028,368 | $1,009,082 | | Total Stockholders' Equity | $1,843,551 | $1,526,133 | Condensed Consolidated Statements of Cash Flows Operating cash flow increased while investing cash outflow grew significantly due to timberland acquisitions Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $378,186 | $341,340 | | Net cash from investing activities | $(88,766) | $(25,454) | | Net cash from financing activities | $(70,298) | $(56,196) | | Change in cash | $219,122 | $259,690 | - The increase in cash used for investing activities was driven by $42.2 million for timber and timberlands acquisitions and $36.8 million for property, plant, and equipment additions in the first six months of 202217 Notes to Condensed Consolidated Financial Statements Notes detail segment performance, a non-cash pension charge, and the pending all-stock merger with CatchMark - The company is a timberland REIT with approximately 1.8 million acres, engaged in timberland management, wood products manufacturing, and real estate development25 - In March 2022, the company transferred $75.6 million of pension plan assets to an insurance company, resulting in a non-cash pretax settlement charge of $14.2 million67 - On May 29, 2022, the company entered into a merger agreement with CatchMark Timber Trust, Inc, with the merger expected to close in Q3 202272 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses lower lumber prices impacting results, the pending CatchMark merger, and strong liquidity Business and Economic Trends Favorable long-term housing fundamentals persist despite near-term inflation and interest rate headwinds - Despite recent moderation in housing starts, management believes housing fundamentals remain favorable, supporting demand for wood products88 - Inflation has impacted business costs, especially for fuel, energy, and repairs, though this is partially offset by wood product prices89 - The company expects to harvest approximately 6.1 million tons in 2022 and ship approximately 1.0 billion board feet of lumber9092 Consolidated Results Consolidated revenue and operating income decreased year-over-year for Q2 and H1 2022 due to lower lumber prices Consolidated Results Change (in thousands) | Metric | Three Months Ended June 30, 2022 vs 2021 | Six Months Ended June 30, 2022 vs 2021 | | :--- | :--- | :--- | | Revenues | $(87,909) | $(30,752) | | Operating Income | $(92,496) | $(45,696) | | Net Income | $(67,683) | $(34,909) | | Total Adjusted EBITDDA | $(99,814) | $(49,238) | - The decrease in revenue was primarily due to lower lumber prices and shipments, partially offset by higher harvest volumes and increased real estate sales98103 Business Segment Results Timberlands and Wood Products EBITDDA declined while the Real Estate segment saw significant growth in Q2 2022 Adjusted EBITDDA by Segment - Q2 2022 vs Q2 2021 (in thousands) | Segment | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | Timberlands | $57,890 | $77,259 | $(19,369) | | Wood Products | $107,256 | $204,533 | $(97,277) | | Real Estate | $21,816 | $11,788 | $10,028 | - The Wood Products segment's performance was heavily impacted by average lumber sales prices decreasing to $865 per MBF in Q2 2022 from $1,185 per MBF in Q2 2021119 - The Real Estate segment's strong performance was driven by a 10,700-acre rural land sale in Minnesota and the sale of 45 residential lots at a higher average price123 Liquidity and Capital Resources The company maintains strong liquidity, plans a special dividend, and is investing in a sawmill expansion and timberlands - The company had cash and cash equivalents of $511.2 million at June 30, 2022127 - A project to expand and modernize the Waldo, Arkansas sawmill was announced, with an expected cost of $131.0 million and completion by the end of 2024131 - During the first six months of 2022, the company acquired approximately 46,000 acres of timberland for an aggregate of $101 million133 - Due to strong financial performance, the company expects to pay a special dividend to stockholders in December 2022129 Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure, primarily from interest rates, has not materially changed since year-end 2021 - The company's exposures to market risk have not changed materially since December 31, 2021153 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022154 - No material changes occurred in internal control over financial reporting during the six months ended June 30, 2022156 PART II. - OTHER INFORMATION Legal Proceedings The company reports no pending litigation expected to have a material adverse effect on its financial position - There is no pending or threatened litigation expected to have a material adverse effect on the company158 Risk Factors New material risks have been identified related to the pending merger with CatchMark Timber Trust - A new risk factor has been added concerning the pending merger with CatchMark Timber Trust, Inc159 - Risks include failure to complete the merger, delays, substantial integration costs, and potential negative reactions from financial markets, customers, or suppliers159160161 - The merger may not be accretive and could cause dilution to cash available for distribution, potentially affecting the stock price negatively168 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased $4.2 million of its common stock in Q2 2022 under its existing repurchase program Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | Maximum Dollar Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | June 1 - June 30 | 94,566 | $43.92 | $55,343,272 | | Q2 Total | 94,566 | $43.92 | $55,343,272 | - As of June 30, 2022, the company had $55.3 million remaining under its $100.0 million share repurchase authorization from August 2018170 Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements, certifications, and data files