2019
A N N U A L
R E P O R T
FINANCIAL INFORMATION
Dollars in thousands
Revenues
Net income
Total assets
Long-term debt (including current portion)
Total stockholders’ equity
Capital expenditures, excluding timber and timberland acquisitions:
Property, plant and equipment
Timberlands reforestation and roads
Real estate development expenditures
Total capital expenditures
Distributions to common stockholders2
Common shares outstanding (in thousands)
Adjusted EBITDDA:
Timberlands
Wood Products
Real Estate
Corporate
Eliminations and adjustments
Total Adjusted EBITDDA3
2019
2018 1
2017
$
$
827,098
55,661
$ 2,235,059
$
756,469
$ 1,226,831
$
$
$
$
$
39,153
17,695
7,254
64,102
107,722
67,221
133,987
12,901
62,650
(36,257)
5,662
178,943
$
$
974,579
122,880
$ 2,325,852
$
755,364
$ 1,314,779
$
$
$
$
$
29,880
17,378
5,049
52,307
146,768
67,570
169,834
130,583
40,304
(37,785)
(5,743)
297,193
$ 678,595
86,453
$
$ 953,079
$ 573,319
$ 200,542
$
$
$
12,855
15,207
-
28,062
61,931
40,612
$ 126,707
80,624
25,720
(34,302)
(2,992)
$ 195,757
PotlatchDeltic Corporation (NASDAQ:PCH) is a leading Real Estate Investment Trust (REIT) that owns nearly 1.9 million acres of
timberlands in Alabama, Arkansas, Idaho, Louisiana, Minnesota and Mississippi. Through its taxable REIT subsidiary, the company
also operates six sawmills, an industrial-grade plywood mill, a residential and commercial real estate development business and a
rural timberland land sales program. PotlatchDeltic, a leader in sustainable forest practices, is dedicated to long-term stewardship
and sustainable management of its timber resources. More information can be found at www.potlatchdeltic.com.
1
In February 2018, Deltic Timber Corporation merged into a wholly-owned subsidiary of Potlatch Corporation for a total consideration of $1.1 billion of our common stock and $0.3
billion of liabilities assumed.
2 2018 includes $44.4 million of cash paid in connection with the $222.0 million Deltic earnings and profit special distribution.
3 Total Adjusted EBITDDA is a non-GAAP measure. Refer to SEC Form 10-K enclosed herewith, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, for definition and reconciliation to nearest GAAP measure.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One) (cid:1800) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2019
(cid:1798) 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
(State or other jurisdiction of incorporation or organization)
601 West 1st Ave., Suite 1600
Spokane, Washington
(Address of principal executive offices)
82-0156045
(IRS Employer Identification No.)
99201
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (509) 835-1500
TITLE OF EACH CLASS
Common Stock ($1 par value)
Trading symbol(s)
PCH
NAME OF EACH EXCHANGE ON WHICH REGISTERED
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:1800) Yes (cid:1798) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act (cid:1798) Yes (cid:1800) No
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. (cid:1800)(cid:3)Yes (cid:1798)(cid:3)No
Indicate by check mark whether the registrant has submitted 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). (cid:1800) Yes (cid:1798) No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
(cid:1800)
Smaller reporting company (cid:1798)
Accelerated filer
Emerging growth company
(cid:1798)
(cid:1798)
Non-accelerated filer(cid:3)
(cid:3)
(cid:1798)(cid:3)
(cid:3)
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. (cid:1798)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). (cid:1798) Yes (cid:1800) No
The aggregate market value of the common stock held by non-affiliates of the registrant at June 30, 2019, was approximately $2,540.4 million,
based on the closing price of $38.98.
As of February 14, 2020, 67,351,801 shares of the registrant's common stock, par value $1 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2020 annual meeting of stockholders expected to be filed with the Commission on or about
March 31, 2020 are incorporated by reference in Part III hereof.
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
Table of Contents
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURES
LEGAL PROCEEDINGS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
SIGNATURES
PAGE
NUMBER
3
11
22
22
22
22
23
25
26
44
45
47
48
49
50
52
53
88
88
88
91
91
91
91
91
92
96
97
EXPLANATORY NOTE
For purposes of this report, any references to "the company,” “us,” “we” and “our” include PotlatchDeltic
Corporation and its consolidated subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains, in addition to historical information, certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
without limitation, statements regarding:
•
•
timber volume;
lumber demand and pricing in North America in 2020;
• North American housing starts and repair and remodel activity;
• excess log supply in the South;
• expected sawlog prices in 2020;
• expected 2020 timber harvest of approximately 6.0 million tons;
• expected sale of 31% of timber volume under log supply agreements in 2020;
• expected lumber shipments in 2020 of just over 1.1 billion board feet;
• expected rural real estate sales of approximately 20,000 to 25,000 acres and 140 residential real estate
development lot sales during 2020;
• expected sales of 50,000 acres of higher and better use (HBU) property, 65,000 acres of non-strategic
timberland and 95,000 acres of rural recreational real estate property over the next decade or more;
•
funding of our dividends in 2020;
• compliance with REIT tax rules;
• Forest Stewardship Council® (FSC®) and Sustainable Forest Initiative® (SFI®) certification of our
timberlands;
• expectations regarding premium prices for FSC®-certified logs and FSC®-certified lumber;
•
realization of deferred tax assets;
• expected capital expenditures in 2020;
• expectations regarding funding of our pension plans in 2020 and over the next 9 years;
• estimated non-qualified pension plan payments in 2020;
• estimated future benefit payments;
• estimated future payments under operating and finance leases;
• estimated long-term rate of return on pension assets and discount rate;
• estimated future debt payments;
• expected effectiveness of our cash flow hedges;
• expectations regarding the effect of new Financial Accounting Standards Board (FASB) rulings or
interpretations; and
• expected liquidity in 2020 to fund our operations, capital expenditures and debt service obligations and
related matters.
Words such as “anticipate,” “expect,” “will,” “intend,” “plan,” “target,” “project,” “believe,” “seek,” “schedule,”
“estimate,” “could,” “can,” “may,” “typically” and similar expressions are intended to identify such forward-looking
statements. 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.
1
Our actual results of operations could differ materially from our historical results or those expressed or implied by
forward-looking statements contained in this report. Important factors that could cause or contribute to such
differences include, but are not limited to, the following:
• changes in timber growth rates;
• changes in silviculture;
•
timber cruising variables;
• changes in state forest acts or best management practices;
• changes in timber harvest levels on our lands;
• changes in timber prices;
• changes in timberland values;
• changes in policy regarding governmental timber sales;
• changes in the United States and international economies;
• changes in interest rates and discount rates;
• changes in exchange rates;
• changes in requirements for FSC® or SFI® certification;
• 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 production and production capacity in the forest products industry;
• competitive pricing pressures for our products;
• unanticipated manufacturing disruptions;
• changes in general and industry-specific environmental laws and regulations;
• unforeseen environmental liabilities or expenditures;
• weather conditions;
• changes in raw material and other costs;
• collectability of amounts owed by customers;
• changes in federal and state tax laws;
•
the ability to satisfy complex rules in order to remain qualified as a REIT; and
• changes in tax laws that could reduce the benefits associated with REIT status.
For a discussion of some of the factors that may affect our business, results and prospects, see Part 1 - Item 1A.
Risk Factors.
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.
2
Part I
ITEM 1. BUSINESS
General
PotlatchDeltic Corporation, formerly known as Potlatch Corporation and also formerly known as Potlatch
Holdings, Inc., was incorporated in Delaware in September 2005 to facilitate a restructuring to qualify for
treatment as a real estate investment trust (REIT) for federal income tax purposes. It is the successor to the
business of the original Potlatch Corporation, which was incorporated in Maine in 1903. On February 20, 2018
(merger date), Deltic Timber Corporation (Deltic) merged into Portland Merger, LLC, a wholly owned subsidiary of
Potlatch. Following the merger Potlatch changed its name to PotlatchDeltic Corporation.
We are a leading timberland REIT with operations in seven states where we own approximately 1.9 million acres of
timberland. We also own six sawmills, an industrial grade plywood mill and real estate development projects primarily
in central Arkansas.
Our operations are organized into three business segments:
• Timberlands: Our Timberlands segment manages our timberlands to optimize revenue producing
opportunities while adhering to our strict stewardship standards. Management activities include planting
and harvesting trees and building and maintaining roads. The Timberlands segment also generates
revenues from activities such as hunting leases, recreation permits and leases, mineral rights leases,
biomass production and carbon sequestration.
• Wood Products: Our Wood Products segment manufactures and sells lumber, plywood and residual
products.
• Real Estate: Our Real Estate segment consists primarily of sales of rural real property deemed non-
strategic or identified as having higher and better use alternatives and real estate development and
subdivision activity through PotlatchDeltic’s taxable REIT subsidiaries (PotlatchDeltic TRS).
Additional information regarding each of our business segments is included in this section, as well as in
Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 5: Segment
Information in the Notes to Consolidated Financial Statements.
We are focused on the ownership of timberland, which we view as a unique and attractive asset due to the renewable
nature of timber resources and timber’s long-term history of price appreciation in excess of inflation. Our primary
objectives include using our timberland investments to generate income and maximizing the long-term value of our
assets. We pursue these objectives by adhering to the following strategies:
• Managing our timberlands to improve their long-term sustainable yield. We manage our timberlands in a
manner designed to optimize the balance among timber growth, prudent environmental management and
current cash flow, in order to achieve increasing levels of sustainable yield over the long-term. We may
choose to harvest timber at levels above or below our current estimate of sustainability for short periods of
time, for the purpose of improving the long-term productivity of certain timber stands or in response to
market conditions. In addition, we focus on optimizing timber returns by continually improving productivity
and yields through advanced silvicultural practices that take into account soil, climate and biological
considerations.
• Pursuing attractive acquisitions. We actively pursue timberland acquisitions that meet our financial and
strategic criteria. The critical elements of our acquisition strategy generally include acquiring properties
that complement our existing land base, are cash flow accretive and have attractive timber or higher and
better use (HBU) values.
• Maximizing the value of our timberland real estate. A portion of our acreage is more valuable for
recreational purposes or to other timberland or real estate investors. We continually assess the potential
uses of our lands and manage them proactively for the highest value. We have identified approximately
11% of our timberlands as having values that are potentially greater than timberland values.
3
• Practicing sound environmental stewardship. We pursue a program of environmental stewardship and
active involvement in federal, state and local policymaking to maximize our assets’ long-term value. We
manage our timberlands in a manner consistent with the principles set forth by SFI® or FSC®.
As a REIT, we generally are not subject to federal and state corporate income taxes on our income from
investments in real estate that we distribute to our stockholders, including the income derived from the sale of
standing timber. We are required to pay federal corporate income taxes on income from our non-real estate
investments, principally the operations of PotlatchDeltic TRS. Deltic’s REIT qualifying activities were also not
subject to federal and state corporate income taxes commencing on the date of the merger. We are, however,
subject to corporate taxes on built-in gains (the excess of fair market value over tax basis on the merger date) on
sales of former Deltic real property held by the REIT during the five years following the Deltic merger. The sale of
standing timber is not subject to built-in gains tax.
Available Information
We make our periodic and current reports that we file with, or furnish to, the Securities and Exchange
Commission (SEC) available on or through our website, www.PotlatchDeltic.com (under “Investors – Financial
Information”), at no charge as soon as reasonably practicable after we electronically file the information with, or
furnish it to, the SEC. Information on our website is not incorporated by reference into this Annual Report on Form
10-K and should not be considered part of this report.
Business Segments
Timberlands Segment
Industry Background. The demand for timber depends primarily upon the markets for wood related products,
including lumber, panel products, paper and other pulp-based products. The end uses for timber vary widely,
depending on species, size and quality. Historically, timber demand has experienced cyclical fluctuations,
although sometimes at different times and rates for products or geographic regions. The demand for sawlogs,
lumber and other manufactured wood products is significantly dependent upon the level of new residential
construction and remodeling activity, which, in turn, is affected by general economic and demographic factors,
including population growth, new household formations, interest rates for home mortgages and construction loans
and credit availability. Increases in residential construction and remodeling activities are generally followed by
higher lumber prices, which are usually followed by higher log prices. The demand for pulpwood is dependent on
the paper and pulp-based manufacturing industries. Both pulpwood and sawlogs are affected by domestic and
international economic conditions, global population growth and other demographic factors, industry capacity and
the value of the U.S. dollar in relation to foreign currencies. Locally, timber demand and pricing also fluctuates
due to the expansion or closure of individual wood products and pulp-based manufacturing facilities.
Timber supplies can fluctuate depending upon factors such as changes in weather conditions and harvest
strategies, as well as occasionally high timber salvage efforts due to storm damage, unusual pest infestations
such as the mountain pine beetle, or fires. Local timber supplies also change in response to prevailing timber
prices. Rising timber prices often lead to increased harvesting on private timberlands, including lands not
previously made available for commercial timber operations. The supply of timber generally is adequate to meet
demand, although this could tighten in the event of higher demand due to increased United States (U.S.) housing
starts, increased log and lumber exports and the impacts from weather-related conditions or a natural disaster,
such as fire, hurricane, earthquake, insect infestation, drought, disease, ice storms, windstorms, flooding or other
factors. The volume and value of timber that can be harvested from our lands may be affected by such weather-
related conditions or natural disasters. We assume substantially all risk of loss to the standing timber we own from
fire and other hazards, consistent with industry practice in the U.S., because insuring for such losses is not
practicable.
Operations. The primary business of the Timberlands segment is the management of our timberlands to optimize
the value of all possible revenue producing opportunities while adhering to our strict stewardship standards.
Management activities include planting and harvesting trees and building and maintaining roads. The segment
also generates revenue from non-timber resources such as from hunting leases, recreation permits and leases,
mineral rights leases, biomass production and carbon sequestration.
4
We strive to maximize cash flow by selling delivered logs and through stumpage sales to external customers
while managing our timberlands sustainability over the long-term. From time to time, we may choose within the
parameters of our environmental commitments, to harvest timber at levels above or below our estimated
sustainability for short periods in order to take advantage of strong demand or to adjust to weak demand. The
Timberlands segment sells a portion of its logs at market prices to our Wood Products manufacturing facilities.
Intersegment sales to our Wood Products manufacturing facilities were 36%, 33% and 26% of our total
Timberlands segment revenues for 2019, 2018 and 2017, respectively. The segment also sells sawlogs and
pulpwood to a variety of forest products companies located near our timberlands. The segment’s customers range
in size from small operators to multinational corporations. The segment competes with owners of timberlands that
operate in areas near our timberlands, ranging from private owners of small tracts of land to some of the largest
timberland companies in the U.S. The segment competes principally on the basis of distance to market, price, log
quality and customer service. No customer represented more than 10% of our consolidated revenues in 2019 or
2018. Idaho Forest Group, LLC operates six sawmills in Idaho and represented slightly more than 10% of our
consolidated revenues in 2017.
In 2019, approximately 31% of our harvest volumes were sold under log supply agreements. We expect
approximately the same amount to be sold under log supply agreements in 2020. In general, our log supply
agreements require a specified volume of timber to be delivered to defined customer facilities at prices that are
adjusted periodically to reflect market conditions. Prices in our Northern region contracts are adjusted periodically
by species to prevailing market prices for logs, lumber, wood chips and other residuals. Prices in our Southern
region contracts are adjusted every three months based on prevailing market prices for logs. Typically, our log
supply agreements are in place for one to five years.
Ownership. The Timberlands segment manages approximately 1.9 million acres of timberlands including
approximately 18,000 acres under long-term leases. We are the largest private landowner in Idaho and second
largest in Arkansas. The following provides additional information about our timberlands at December 31, 2019.
Region
Northern region
State
Idaho
Variety of commercially viable softwood species,
such as Douglas fir, grand fir and inland red cedar
Description
Acres (in thousands)
Minnesota
Primarily pine, aspen and hardwoods
Total Northern region
Southern region Arkansas
Primarily southern yellow pine and hardwoods
Mississippi Primarily southern yellow pine and hardwoods
Primarily southern yellow pine and hardwoods
Alabama
Primarily southern yellow pine and hardwoods
Louisiana
Total Southern region
Total
628
106
734
929
96
92
6
1,123
1,857
Inventory. We reforest our acreage in a timely fashion to enhance its long-term value. We employ silvicultural
techniques to improve timber growth rates, including vegetation control, fertilization and thinning. In deciding
whether to implement any silvicultural practice, we analyze the associated costs and long-term benefits, with the
goal of achieving an attractive return over time. The aggregate estimated volume of current standing
merchantable timber inventory is updated annually to reflect increases due to reclassification of young growth to
merchantable timber when the young growth meets defined diameter specifications, the annual growth rates of
merchantable timber and the acquisition of additional merchantable timber and to reflect decreases due to timber
harvests and land sales. This estimate is derived using methods consistent with industry practice and is based on
statistical methods and field sampling. The estimated inventory volume includes timber in environmentally
sensitive areas where the timberlands are managed in a manner consistent with best management practices,
state forest practice acts and the SFI® or FSC® forest management standards.
Timber volumes are estimated from cruises of the timber tracts, which are generally completed on a five to ten-
year cycle. Since the individual cruises collect field data at different times for specific sites, the growth model
projects standing inventory from the cruise date to a common reporting date. Annual growth rates for the
merchantable inventory have historically been in the range of 2% to 5% in the North and 6% to 9% in the South.
At the end of 2019, our estimated standing merchantable timber inventory was approximately 86 million tons,
5
including approximately 33 million tons in the North and approximately 53 million tons in the South. At the end of
2018, our estimated standing merchantable timber inventory was approximately 88 million tons.
Harvest. Our short-term and long-term harvest plans are critical factors in our timberland management process.
To maximize our timberlands' long-term value, we manage them intensively, based upon timber species and local
growing conditions. Each year, we prepare a harvest plan designating the timber tracts and volumes to be
harvested during that particular year. Our harvest plans take into account changing market conditions, are
designed to contribute to the growth of the remaining timber and reflect our policy of environmental stewardship.
Each harvest plan reflects our analysis of the age, size and species distribution of our timber, as well as our
expectations about harvest methods, growth rates, the volume of each species to be harvested, anticipated
acquisitions and dispositions, thinning operations, regulatory constraints and other relevant information. Among
other things, the optimal harvest cycles, or rotations, for timber vary by location and species and tend to change
over time as a result of silvicultural advances, changes in the markets for different sizes and ages of timber and
other factors. Since harvest plans are based on projections of weather, timber growth rates, regulatory constraints
and other assumptions, many of which are beyond our control, there can be no assurance that we will be able to
harvest the volumes projected or the specific timber stands designated in our harvest plans.
Detailed harvest information by region and product is presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations. The following table presents a summary of our total 2019 timber
harvest by region.
(Tons in thousands)
Northern region
Southern region
Total
Sawlogs
Pulpwood
Stumpage
Total
Timber Harvested
1,700
1,901
3,601
148
1,646
1,794
8
184
192
1,856
3,731
5,587
Based on our current projections, which are based on constant timberland holdings and take into consideration
such factors as market conditions, the ages of our timber stands and recent timberland sales and acquisitions, we
expect to harvest approximately 6.0 million tons in 2020.
While managing our timberlands we ensure appropriate measures are taken to protect biological diversity, water
quality and other ecosystem values. Our timberlands also provide unique environmental, cultural, historical and
recreational value. We work hard to protect these and other qualities, while still managing our forests to produce
financially mature timber. Our timberlands include a wide diversity of softwood and hardwood species and are
certified to either the SFI® or FSC® standards. We adhere to principles that include commitments to sustainable
forestry, responsible practices, forest health and productivity and protection of special sites. We are generally able
to realize price premiums for pulpwood from our FSC®-certified lands.
Our Timberland operations are subject to numerous federal, state and local laws and regulations, including those
relating to the environment, endangered species, our forestry activities and health and safety. Due to the
significance of regulation to our business, we integrate wildlife, habitat and watershed management into our
timberland management practices. We also take an active approach to regulatory developments by participating
in standard-setting where possible. We work cooperatively with regulators to create voluntary conservation plans
that address environmental concerns while preserving our ability to operate our timberlands efficiently. Despite
our active participation in governmental policymaking and regulatory standard-setting, there can be no assurance
that endangered species, environmental and other laws will not restrict our operations or impose significant costs,
damages, penalties or liabilities on us. In particular, we anticipate that endangered species and environmental
laws will generally become increasingly stringent.
Wood Products Segment
Operations. We are a top 10 lumber manufacturer in the U.S. We believe that competitiveness in this industry is
largely based on individual mill efficiency and on the availability of competitively priced raw materials on a facility-
by-facility basis, rather than the number of mills operated. This is because it is generally not economical to
transfer logs between or among facilities, which might permit a greater degree of specialization and operating
efficiencies. Instead, each facility must utilize the raw materials that are available to it in a relatively limited
6
geographic area. For these reasons, we believe we are able to compete effectively with companies that have a
larger number of mills. We compete based on product quality, customer service and price.
Ownership. Our Wood Products segment manufactures and sells lumber, plywood and residual products at
seven mills located in Arkansas, Idaho, Michigan and Minnesota. The segment’s products are largely commodity
products, which are sold through our sales department to end users, retailers or wholesalers for nationwide
distribution primarily for use in home building, repair and remodeling, industrial products and other construction
activity.
A description of our wood products manufacturing facilities, all of which are owned by us, together with their
respective 2019 capacities are as follows:
Sawmills:
Warren, Arkansas
Waldo, Arkansas
St. Maries, Idaho
Gwinn, Michigan
Ola, Arkansas
Bemidji, Minnesota
Plywood Mill:
St. Maries, Idaho
Annual(cid:3)Capacity1,2
220 MMBF
190 MMBF
185 MMBF
185 MMBF
150 MMBF
140 MMBF
150 MMSF
1
2
Capacity represents the proven annual production capabilities of the facility under normal operating conditions and producing a normal
product mix. Normal operating conditions are based on the configuration, efficiency and the number of shifts worked at each individual
facility. In general, the definition includes two shifts per day for five days per week (two 40-hour shifts) at each facility, which is consistent
with industry-wide recognized measures. Production can exceed capacity due to efficiency gains and overtime. Actual sawmill production
for 2019 was 1,090 MMBF.
MMBF stands for million board feet; MMSF stands for million square feet, 3/8-inch panel thickness basis.
The principal raw material used is logs, which are obtained from our Timberlands segment or purchased on the
open market. We generally do not maintain long-term supply contracts for a significant volume of logs. During
2019, 2018 and 2017, 43%, 42% and 39% of our log purchases, respectively, were provided by our Timberlands
segment.
Real Estate Segment
The activities of our Real Estate segment consist primarily of the sale of non-core timberlands and real estate
development and subdivision activity through PotlatchDeltic TRS.
Rural real estate operations. The sale of non-core timberlands are in the following categories that exhibit higher
value than commercial timberlands.
• HBU properties have characteristics that provide primarily home site or other development potential as a
result of superior location or other attractive amenities. These properties tend to have a much higher value
than timberlands.
• Rural recreational real estate properties also have a higher value than timberlands, but do not have the
same developmental potential as HBU properties. For example, these properties may be appropriate for
hunting, conservation or secondary rural housing.
• Non-strategic properties are typically on the fringe of our ownership areas and are more valuable to
another timberland owner.
We have identified approximately 210,000 acres of non-core timberland real estate. This includes approximately
50,000 acres of HBU property, 95,000 acres of rural recreational real estate property and 65,000 acres of non-
strategic timberland. Sales of these lands are expected to occur over a decade or more. We continually assess
the highest value and best use of our timberlands through periodic stratification assessments on our timberlands
and as new timberlands are acquired.
7
From time to time, we also take advantage of opportunities to sell timberland where we believe pricing to be
particularly attractive, to match a sale with a purchase of more desirable property while deferring taxes in a like-
kind exchange transaction, or to meet various other financial or strategic objectives. Sales of conservation
properties and conservation easements on our properties are also included in this segment. Results for the
segment depend on the demand for our non-core timberlands, the types of properties sold, the basis of these
properties and the timing of closings of property sales. Although large sales of non-strategic properties can cause
results that are not comparable or predictable between periods, we have maintained a relatively consistent level
of rural real estate and HBU sales.
Development real estate operations. The Real Estate segment also engages in real estate development and
sales through PotlatchDeltic TRS. Chenal Valley in Little Rock, Arkansas is a premier upscale master planned
community, with approximately 4,800 acres of residential and commercial properties centered around a country
club with two championship golf courses, which we own and operate. In addition, we have 800 acres of land in
Hot Springs, Arkansas available for future development.
For these properties, we develop and market residential lots and commercial sites and sell undeveloped acreage.
Residential lots are sold to homebuilders and individuals, while commercial sites are sold to developers and
businesses. Infrastructure and other improvements to support the development and sale of residential and
commercial properties are provided and funded directly by us or in some circumstances, through real property
improvement districts. Such properties are developed only when sufficient demand exists and substantially all
infrastructure is completed. Future infrastructure investments are primarily for the development and sale of
additional property. Most of the core infrastructure is in place for Chenal Valley. We typically maintain an inventory
between 100-150 residential lots in the Chenal Valley area that are developed and available for sale. In addition
to these lots there are approximately 1,800 potential residential lots available for development, given demand and
market conditions. We have approximately 350 additional acres available for commercial purposes. Our
competitors in our real estate markets are other landowners or developers.
Seasonality
Log and pulpwood sales volumes in our Timberlands segment are typically lower in the first half of each year as
winter rains in the Southern region and spring thaw in the Northern region limit timber harvesting operations due
to softened roadbeds and wet logging conditions that restrict access to logging sites. The third quarter is typically
our Timberlands segment's strongest production quarter. Demand for our manufactured wood products typically
decreases in the winter months when construction activity is slower, while demand typically increases during the
spring, summer and fall when construction activity is generally higher. Rural real estate dispositions and
acquisitions can be adversely affected when access to any properties to be sold or considered for acquisition are
limited due to adverse weather conditions. Development real estate sales at Chenal Valley occur throughout the
year, though historically most sales take place in the second half of the year as builders prepare for the following
spring and summer traditional home building and buying season.
Environmental Regulation
Our operations are subject to federal and state laws and regulations, including those relating to our emissions,
wastewater discharges, solid and hazardous waste management, site remediation, endangered species and our
forestry activities. We are also subject to the requirements of the Federal Occupational Safety and Health Act and
comparable state statutes relating to the health and safety of our employees. We maintain environmental and
safety compliance programs and conduct regular internal and independent third-party audits of our facilities and
timberlands to monitor compliance with these laws and regulations. Compliance with environmental regulations is
a significant factor in our business and requires capital expenditures as well as additional operating costs.
Due to the significance of regulation to our business, we integrate wildlife, habitat and watershed management
into our timberland management practices. We also take an active approach to regulatory developments by
participating in standard-setting where possible. We work cooperatively with regulators to create voluntary
conservation plans that address environmental concerns while preserving our ability to operate our timberlands
efficiently.
Enactment of new environmental laws or regulations, or changes in existing laws or regulations, particularly
relating to air and water quality, or their enforcement, may require significant expenditures by us or may adversely
8
affect our timberland management, harvesting activities and manufacturing operations. Forest practice laws and
regulations that affect present or future harvest and forest management activities in certain states include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
limits on the size of clearcuts,
requirements that some timber is left unharvested to protect water quality and wildlife habitat,
regulations regarding construction and maintenance of forest roads,
rules requiring reforestation following timber harvests, and
various related permit programs.
Each state in which we own timberlands has developed best management practices to reduce the effects of forest
practices on water quality and aquatic habitats. Additional and more stringent regulations may be adopted by
various state and local governments to achieve water-quality standards under the federal Clean Water Act,
protect fish and wildlife habitats, human health, or achieve other public policy objectives.
Similarly, a number of species indigenous to our timberlands have been listed as threatened or endangered or
have been proposed for one or the other status under the Endangered Species Act. As a result, our activities in or
adjacent to the habitat of these species may be subject to restrictions on the harvesting of timber, reforestation
activities and the construction and use of roads.
At this time, we believe that federal and state laws and regulations related to the protection of endangered
species and air and water quality will not have a material adverse effect on our financial position, results of
operations or liquidity. We anticipate, however, increasingly strict laws and regulations relating to the
environment, natural resources and forestry operations, as well as increased social concern over environmental
issues, which may result in additional restrictions on us, leading to increased costs, additional capital
expenditures and reduced operating flexibility.
We expect legislative and regulatory developments in the area of climate change to address carbon dioxide
emissions and renewable energy and fuel standards. It is unclear as of this date how any such developments will
affect our business.
We believe that our manufacturing facilities and timberland operations are currently in substantial compliance with
applicable environmental laws and regulations. We cannot be certain, however, that situations that give rise to
material environmental liabilities will not be discovered.
Information regarding environmental proceedings is included in Note 21: Commitments and Contingencies in the
Notes to Consolidated Financial Statements contained in this report and incorporated herein by reference.
Employees
As of December 31, 2019, we had 1,307 employees, 23 of which are part time. The workforce consisted of 269
salaried and 1,038 hourly and non-exempt employees. As of December 31, 2019, 14% of the workforce was
covered under a collective bargaining agreement, which expires in 2020. We believe our employee relations are
good.
Information About Our Executive Officers
As of February 14, 2020, information on our executive officers is as follows:
Michael J. Covey (age 62), has served as Chief Executive Officer since February 2006 and served as President
and Chief Executive Officer from February 2006 to March 2013. He has been a director of the Company since
February 2006 and has served as Chairman of the Board of the Company since January 2007.
Eric J. Cremers (age 56), has served as President and Chief Operating Officer and a director of the company
since March 2013, as Executive Vice President and Chief Financial Officer from March 2012 to March 2013, and
as Vice President, Finance and Chief Financial Officer from July 2007 to March 2012.
9
Jerald W. Richards (age 51), has served as Vice President and Chief Financial Officer since September 2013. He
was employed by Weyerhaeuser Company and served as Chief Accounting Officer from October 2010 to August
2013, and corporate segment controller from 2008 to October 2010.
Thomas J. Temple (age 63), has served as Vice President, Wood Products since February 2018, and as Vice
President, Wood Products and Southern Timberlands from February 2012 to February 2018.
Darin R. Ball (age 54), has served as Vice President of Timberlands since December 2017. From 2012 to
December 2017 he served as Manager of our Idaho Timberlands business.
William R. DeReu (age 53), has served as Vice President, Real Estate since February 2018 and as Vice
President, Real Estate and Lake States Timberlands from February 2012 to February 2018.
Michele L. Tyler (age 51), has served as Vice President, General Counsel and Corporate Secretary since August
2019. Prior to joining the Company, Ms. Tyler served in legal roles with Vectrus, Inc. (NYSE: VEC), from January
2009 to January 2019, including as Senior Vice President, Chief Legal Officer, and Corporate Secretary from
September 2014 to October 2018.
Wayne Wasechek (age 49) has served as Controller and Principal Accounting Officer since November 2018. He
previously served as Vice President and Assistant Controller of Vail Resorts, Inc. (NYSE: MTN) from 2011 to
2018 and as Senior Director of Financial Reporting of Vail Resorts from 2006 to 2011.
The term of office of the officers of the company expires at the annual meeting of our board and each officer holds
office until the officer’s successor is duly elected and qualified or until the earlier of the officer’s death, resignation,
retirement, removal by the board or as otherwise provided in our bylaws.
10
ITEM 1A. RISK FACTORS
Investing in our common stock involves a significant degree of risk. Our business, financial condition, results of
operations or liquidity could be materially adversely affected by any of the following risks and, as a result, the trading
price of our common stock could decline. The risks described below are not the only ones we face. Additional risks
not presently known to us or that we currently deem immaterial may also impair our business, financial condition,
results of operations or liquidity. The risks described below should carefully be considered together with the other
information contained in this report.
Business and Operating Risks
The cyclical nature of our business could adversely affect our results of operations.
The financial performance of our operations is affected by the cyclical nature of our business. The markets for
timber, manufactured wood products and real estate are influenced by a variety of factors beyond our control. The
demand for our timber and manufactured wood products is affected by the level of new residential construction,
home repair and remodeling and commercial and industrial building activity, which are subject to fluctuations due
to changes in economic conditions, changes in unemployment, consumer confidence, interest rates, credit
availability including homebuyers’ ability to qualify for mortgages, availability of labor and developable land,
population growth, weather conditions and other factors. The demand for logs is also affected by the demand for
wood chips in the pulp and paper markets. The supply of timber and logs has historically increased during
favorable pricing environments, which then causes downward pressure on prices. Historical prices for our
manufactured wood products have been volatile and we have limited direct influence over the timing and extent of
price changes for our manufactured wood products. The demand for real estate can be affected by changes in
factors such as interest rates, credit availability and economic conditions, as well as by the impact of federal, state
and local land use and environmental protection laws.
Our operating results and cash flows will be materially affected by supply and demand for timber.
A variety of factors affect prices for timber, including factors affecting demand, such as changes in economic
conditions, the level of domestic new construction and remodeling activity, foreign demand, interest rates, credit
availability, population growth, weather conditions and pest infestation, as well as changes in timber supply and
other factors. All of these factors can vary by region, timber type (sawlogs or pulpwood logs) and species.
Timber prices are also affected by changes in timber availability at the local, national and international level. On a
local level, timber supplies can fluctuate depending upon factors such as changes in weather conditions and
harvest strategies of local timberland owners, as well as occasionally high timber salvage efforts due to events
such as unusual pest infestations or fires. Our timberlands are located in Alabama, Arkansas, Idaho, Louisiana,
Minnesota and Mississippi. As a result, we may be susceptible to adverse economic and other developments in
these regions, including industry slowdowns, mill closures and curtailments, business layoffs or downsizing,
relocations of businesses, changes in demographics, increases in real estate and other taxes and increased
regulation, any of which could have a material adverse effect on us.
The closure of a mill in the regions where we own timber can have a material adverse effect on demand and
therefore pricing. As the demand for paper nationwide continues to decline, closures of pulp mills have adversely
affected the demand for pulpwood and wood chips in certain of the regions in which we operate. Also, demand in
other parts of the world may affect timber prices in the markets in which we compete. For example, although we
do not sell into the Asian markets, Asian demand can indirectly impact pricing and supply in North American
timber and lumber markets.
In Alabama, Arkansas, Louisiana, Minnesota and Mississippi, most timberlands are privately owned. Historically,
increases in timber prices have often resulted in substantial increases in harvesting on private timberlands,
including lands not previously made available for commercial timber operations, causing a short-term increase in
supply that has tended to moderate price increases. Decreases in timber prices have often resulted in lower
harvest levels, causing short-term decreases in supply that have tended to moderate price decreases. In the
South, timber growth rates have exceeded harvests during the past decade, which have led to an oversupply of
timber in the region, which in turn has kept prices at relatively low levels.
11
In Idaho, where a greater proportion of timberland is government-owned, any substantial increase in timber
harvesting from government-owned land could significantly reduce timber prices, which would harm our results of
operations. For more than 20 years, environmental concerns and other factors have limited timber sales by
federal agencies, which historically had been major suppliers of timber to the U.S. forest products industry,
particularly in the West. Any reversal of policy that substantially increases timber sales from government-owned
land could have a material adverse effect on our results of operations and cash flows.
Wind and ice storms coupled with drought and mild winters have contributed to an outbreak of spruce bark beetle
throughout Central European forests. This outbreak has resulted in killings of vast areas of timber leading to
increased timber salvage operations and an oversupply of sawlogs in Central Europe. As a result, Central
European export of logs and lumber are growing dramatically, particularly to China, which has been displacing
exports from the U.S. and Canada. This shift in suppliers to the Chinese market has negatively impacted U.S. and
Canadian export prices, the amount of volume being exported by the U.S. and Canada to China and may be a
contributing factor to increased supply in the U.S. markets. Furthermore, as timber markets are impacted by
foreign demand, our business may be impacted by supply chain disruptions due to public health crises and
pandemics such as the coronavirus outbreak originating in China at the beginning of 2020. Although we cannot
predict the amount or duration of increased availability of foreign supplied timber and lumber products or the
impact other infestation, pandemics and weather events may have on prices, demand and supply in the market,
to the extent there is a significant increase in foreign timber and lumber product supply to the market or a
decrease in foreign demand over an extended period of time, we could experience lower price realization and
lower income.
We may be unable to harvest timber or we may elect to reduce harvest levels due to market, weather and
regulatory conditions, either of which could adversely affect our results of operations and cash flows.
Our timber harvest levels and sales may be limited due to weather conditions, timber growth cycles, restrictions
on access, availability of contract loggers and regulatory requirements associated with the protection of wildlife
and water resources, as well as by other factors, including insufficient or excessive precipitation, damage by fire,
pest infestation, disease and natural disasters such as ice storms, wind storms, tornadoes, hurricanes and floods.
Changes in global climate conditions could intensify one or more of these factors. Although damage from such
natural causes usually is localized, affecting only a limited percentage of our timber, there can be no assurance
that any damage affecting our timberlands will be limited. We typically experience seasonally lower harvest
activity during the winter and early spring due to weather conditions. Severe weather conditions and other natural
disasters can also reduce seedling survival rates, impact the productivity of timberlands and disrupt the harvesting
and delivery of logs. Our financial results and cash flows are dependent to a significant extent on our continued
ability to harvest timber at adequate levels.
On a short-term basis, we may adjust our timber harvest levels in response to market conditions. Longer term, our
timber harvest levels will be affected by acquisitions of additional timberlands, sales of existing timberlands and
shifts in harvest from one region to another. In addition to timberland acquisitions and sales, future timber harvest
levels may be affected by changes in estimates of long-term sustainable yield because of silvicultural advances,
natural disasters, fires, pests, insects and other hazards, regulatory constraints and other factors beyond our
control.
We do not insure against losses of standing timber from fire or any other causes.
The volume and value of timber that can be harvested from our lands may be affected by natural disasters such
as fire, pest infestation, disease, ice storms, windstorms, tornadoes, hurricanes, floods and other weather
conditions and causes beyond our control. As is typical in the forest industry, we assume substantially all risk of
loss to the standing timber we own from fire and other hazards because insuring for such losses is not
practicable. Consequently, a reduction in our timber inventory could adversely affect our financial results and cash
flows. In addition, the geographic concentration of our property makes us more susceptible to adverse impacts
from a single natural disaster and other factors that could negatively impact our timber production.
Our businesses are affected by third-party logger and transportation availability and costs.
Our business depends on the availability of third-party logging contractors, railcar and other types of ground
transportation companies and is materially affected by the cost and availability of these service providers.
Therefore, increases in the cost of fuel could negatively impact our financial results by increasing the cost
12
associated with logging activities and transportation services and could also result in an overall reduction in the
availability of these services. Truck driver shortages could negatively impact our financial results by reducing the
volume of delivered wood products.
Our third-party transportation providers are also subject to several events outside of their control, such as
disruption of transportation infrastructure, labor issues and natural disasters. Any failure of a third-party
transportation provider to timely deliver our products, including delivery of our wood products to our customers
and delivery of wood fiber to our mills, could harm our supply chain, negatively affect our customer relationships
and have a material adverse effect on our financial condition, results of operations and our reputation.
Our wood products are commodities that are widely available from other producers.
Because commodity products have few distinguishing properties from producer to producer, competition for these
products is based primarily on price, which is determined by supply relative to demand and competition from
substitute products. Prices for our products are affected by many factors outside of our control and we have no
influence over the timing and extent of price changes, which often are volatile. Our profitability with respect to
these products depends, in part, on managing our costs, particularly raw material and energy costs, which
represent significant components of our operating costs and can fluctuate based upon factors beyond our control.
The wood products industry is highly competitive.
The markets for our wood products are highly competitive and companies that have substantially greater financial
resources than we do compete with us in each of our lines of business. In addition, our wood products
manufacturing facilities are relatively capital intensive, which leads to high fixed costs and generally results in
continued production as long as prices are sufficient to cover variable costs. These conditions have contributed to
substantial price competition, particularly during periods of reduced demand. Some of our wood products
competitors may currently be lower-cost producers than we are or may benefit from weak currencies relative to
the U.S. dollar and accordingly these competitors may be less adversely affected than we are by price decreases.
Wood products also are subject to significant competition from a variety of substitute products, including non-
wood and engineered wood products. To the extent there is a significant increase in competitive pressure from
substitute products or other domestic or foreign suppliers, our business could be adversely affected.
Our wood products are subject to competition from manufacturers in the U.S. and Canada. For decades, the U.S.
and Canada have been in a dispute over pricing for softwood lumber entering the U.S., which has resulted in
trade cases and negotiated agreements between the two countries. The U.S. and Canada signed a Softwood
Lumber Agreement in 2006, which expired in October 2015. On November 25, 2016, the U.S. lumber industry
filed a petition seeking injury determination with the U.S. International Trade Commission, and a petition seeking
countervailing (CVD) and anti-dumping (AD) duties on Canadian lumber imports with the U.S. Department of
Commerce. Final rulings on injury and CVD and AD duties went into effect on December 28, 2017. The combined
CVD and AD cash deposit rate to be paid by most Canadian exporters was initially established at 20.23%. On
February 3, 2020, the first annual administrative review set the CVD and AD combined deposit rate for 2017 at
8.37% and the combined deposit rate for 2018 at 8.21%, as a result of high lumber prices during the period of
review. Final results impacting duty collection for the periods are expected to be issued in the summer of
2020. The Government of Canada has appealed the determinations by the U.S. Department of Commerce and
the U.S. International Trade Commission supporting the AD/CVD duties as well as to challenge these
duties in the World Trade Organization.
The governments of the U.S. and Canada continue to state publicly their intention to reach a negotiated
settlement of these trade cases at some point in the future. Even if an agreement is successfully negotiated, there
can be no assurance that it will at all times, or at any time, effectively create a fair-trade environment.
In recent years, structural grade certified plywood supplied from Brazil has seen continued expansion into the
U.S. market. In September 2019, a coalition of U.S. domestic plywood producers filed suit in the U.S. District
Court for the Southern District of Florida, seeking damages and permanent injunctions requiring two certifying
agencies in the U.S. to revoke the certifications they issued to 35 Brazilian plywood plants. The lawsuit claims the
certifications amount to false advertising because the Brazilian plants produce plywood that does not meet the
stringent strength properties indicated by the certification, and its introduction into the U.S. market at low prices
caused a substantial decline in certified panel prices in the U.S. We are not a party to the lawsuit and while we
13
cannot predict the lawsuit’s outcome, should the certifying agencies successfully defend their certifications,
additional lower cost Brazilian plywood may enter the U.S. markets and our business could be adversely affected.
A material disruption at one of our manufacturing facilities could prevent us from meeting customer
demand, reduce our sales or negatively affect our results of operations and financial condition.
Any of our manufacturing facilities, or any of our machines within an otherwise operational facility, could
unexpectedly cease to operate due to a number of events, including unscheduled maintenance outages,
prolonged power failures, equipment failures, raw material shortages, cyber-attacks, labor difficulties, disruptions
in the transportation infrastructure, such as roads, bridges, railroad tracks and tunnels, fire, ice storms, floods,
windstorms, tornadoes, hurricanes or other catastrophes, terrorism or threats of terrorism, governmental
regulations and other operational problems.
We cannot predict the duration of any such downtime or extent of facility damage. Any such downtime or facility
damage could prevent us from meeting customer demand for our products and/or require us to make unplanned
expenditures. If one of these machines or facilities were to incur significant downtime, our ability to meet our
production targets and satisfy customer requirements could be impaired, resulting in lower sales and income.
Although some risks are not insurable and some coverage is limited, we purchase insurance on our
manufacturing facilities for damages such as fires, floods, windstorms, earthquakes and equipment failure. Such
insurance may not be sufficient or may be cost prohibitive to cover all our damages.
Changes in demand for our real estate and delays in the timing of real estate transactions may affect our
revenues and operating results.
A number of factors, including availability of credit, a slowing of residential and commercial real estate
development, population shifts and changes in demographics could reduce the demand for our real estate and
negatively affect our results of operations. Changes in investor interest in purchasing timberlands could reduce
our ability to execute sales of non-core timberlands and could also negatively affect our results of operations.
Changes in the interpretation or enforcement of current laws, or the enactment of new laws, regarding the use
and development of real estate, or changes in the political composition of federal, state and local governmental
bodies could lead to new or greater costs, delays and liabilities that could materially adversely affect our real
estate business, profitability or financial condition.
Additionally, we have real estate development projects located in Central Arkansas, specifically, in and west of
Little Rock, Arkansas and in Hot Springs, Arkansas. These real estate operations are particularly vulnerable to
economic downturns, weather or other adverse events that may occur in this region and to competition from
nearby commercial and residential housing developments. Our results of operations may be affected by the
cyclicality of the homebuilding and real estate industries. Factors influencing these industries include changes in
population growth, general and local economic conditions, weather, employment levels, consumer confidence and
income, housing demand, new and existing housing inventory levels, availability and cost of financing, mortgage
interest rates and foreclosures, and changes in government regulation regarding the environment, zoning, real
estate taxes, and other local government fees. In addition, the tightening of credit and economic recession could
delay or deter commercial and residential real estate activity and may affect our operating results.
We may be unsuccessful in carrying out our acquisition strategy.
We have pursued, and may continue to pursue, acquisitions of strategic timberland properties and other forest
products assets. The markets for timberland and forest products assets are highly competitive. We intend to
finance acquisitions through cash from operations, borrowings under our credit facility, proceeds from equity or
debt offerings, proceeds from asset dispositions or any combination thereof. In addition, it is uncertain whether
any acquisitions we make will perform in accordance with our expectations. The failure to identify and complete
acquisitions of suitable properties could adversely affect our operating results and cash flows.
Our businesses are subject to extensive environmental laws and regulations.
Our operations are subject to a variety of federal, state and local laws and regulations regarding protection of the
environment, including those relating to:
•
the protection of timberlands;
14
• endangered species;
•
•
timber harvesting practices;
recreation and aesthetics;
• protection and restoration of natural resources;
• air and water quality;
• climate conditions and
•
remedial standards for contaminated soil, sediments and groundwater.
Failure to comply with these requirements can result in significant fines or penalties, as well as liabilities for
remediation of contaminated sites, natural resource damages or alleged personal injury or property damage
claims. Laws, regulations and related judicial decisions and administrative interpretations affecting our business
are subject to change and new laws and regulations that may affect our business are frequently enacted. These
changes, as well as changes in the political composition of federal, state and local governmental bodies, may
adversely affect our ability to harvest and sell timber and operate our manufacturing facilities and may adversely
affect the ability of others to develop property we intend to sell for higher and better use purposes.
Over time, the complexity and stringency of these laws and regulations have increased markedly and the
enforcement of these laws and regulations has intensified. Federal, state and local laws and regulations, which
are intended to protect threatened and endangered species, as well as waterways and wetlands, limit and may
prevent timber harvesting, road building and other activities on our timberlands. For example, the Clean Water Act
and comparable state laws, regulations and best management practices programs protect water quality. As a
result, our resource management activities adjacent to rivers and streams, as well as the point source discharges
from our manufacturing facilities, are subject to strict regulation and there can be no assurance that our forest
management and manufacturing activities will not be subject to increased regulation under the Clean Water Act in
the future. We believe that these laws and regulations will continue to become more restrictive and over time
could adversely affect our operating results.
In addition, environmental groups and interested individuals may intervene in the regulatory processes in the
locations where we own timberlands and operate our wood products mills. Delays or restrictions on our
operations due to the intervention of environmental groups or interested individuals could adversely affect our
operating results. In addition to intervention in regulatory proceedings, interested parties may file or threaten to file
lawsuits that seek to prevent us from obtaining permits, harvesting timber under contract with federal or state
agencies, implementing capital improvements or pursuing operating plans or that require us to obtain permits
before pursuing operating plans. Any lawsuit, or even a threatened lawsuit, could delay harvesting on our
timberlands or impact our ability to operate or invest in our wood products mills.
Similarly, the threatened and endangered species restrictions apply to activities that would adversely impact a
protected species or significantly degrade its habitat. A number of species on our timberlands have been, and in
the future may be, protected under these laws. If current or future regulations or their enforcement become more
restrictive, the amount of our timberlands subject to harvest restrictions could increase.
Our manufacturing operations are subject to stringent environmental laws, regulations and permits covering air
emissions, wastewater discharge, water usage and waste handling and disposal that govern how we operate our
facilities. These laws, regulations and permits, now and in the future, may restrict our current production and limit
our ability to increase production and impose significant costs on our operations with respect to environmental
compliance. Overall, it is expected that environmental compliance costs will likely increase over time as
environmental requirements become more stringent and as the expectations of the communities in which we
operate become more demanding.
Certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (CERCLA) impose strict, and under certain circumstances joint and several liability on responsible
parties, including current and former owners and operators of contaminated sites, for costs of investigation and
remediation of contamination. They also impose liability for related damages to natural resources. We have in the
past been identified by the Environmental Protection Agency (EPA) as a potentially responsible party under
CERCLA at various locations. Additional information is discussed in Note 21: Commitments and Contingencies
15
in the Notes to Consolidated Financial Statements included in this report and that information is incorporated
herein by reference. It is possible that other facilities we own or operate, or formerly owned or operated, or
timberlands we now own or acquire, could also become subject to liabilities under these laws. The cost of
investigation and remediation of contaminated properties could increase operating costs and adversely affect our
financial results.
We manage our manufacturing facilities and timberland operations to be in compliance with applicable
environmental laws and regulations. We cannot be certain, however, that situations that give rise to material
environmental liabilities have occurred in the past, and may be discovered in the future and result in additional
restrictions on us, leading to increased costs, additional capital expenditures and reduced operating flexibility.
Changes in climate conditions and governmental responses to such changes may affect our operations
or planned or future growth activities.
There continue to be increased social concerns over climate change and environmental issues, as well as
numerous international, U.S. federal and state-level initiatives and proposals to address domestic and global
climate issues. These initiatives include proposals to regulate and/or tax the production of carbon dioxide and
other greenhouse gases to facilitate the reduction of carbon compound emissions into the atmosphere and
provide tax and other incentives to produce and use cleaner energy. Future legislation or regulatory activity in this
area remains uncertain, and its effect on our operations is unclear at this time. We manage our manufacturing
facilities and timberland operations to be in compliance with applicable laws and regulations. However, it is
possible that legislation or government mandates, standards or regulations intended to mitigate or reduce carbon
compound or greenhouse gas emissions or other climate change effects could adversely affect our operations.
For example, such initiatives could limit harvest levels or result in significantly higher costs for energy and other
raw materials, which could have an adverse effect on our results of operations and profitability.
Additionally, there is scientific research that emissions of greenhouse gases continue to alter the composition of
the global atmosphere in ways that are affecting and are expected to continue affecting the global climate. Our
operations and the operations of our suppliers are subject to climate variations, which impact the productivity of
forests, the frequency and severity of wildfires, the distribution and abundance of species, and the spread of
disease or insect epidemics, which in turn may adversely or positively affect timber production. Over the past
several years, changing weather patterns and climatic conditions due to natural and man-made causes have
added to the unpredictability and frequency of natural disasters such as hurricanes, earthquakes, hailstorms,
wildfires, snow, ice storms, the spread of disease, and insect infestations. Changes in precipitation resulting in
droughts could make wildfires more frequent or more severe and could adversely affect timber production. Any of
these natural disasters could affect our timberlands, harvest operations or cause variations in the cost of raw
materials, such as virgin fiber which could have a material adverse effect on our results of operations and
profitability.
Our defined benefit pension plans are currently underfunded.
We have qualified defined benefit pension plans covering the majority of our employees which, in aggregate at
December 31, 2019, were 91.6% funded. Future actions involving our defined benefit and other postretirement
plans, such as annuity buyouts and lump-sum payouts could cause us to incur significant pension and
postretirement settlement and curtailment charges and may require cash contributions to maintain a legally
required funded status.
The measurement of the pension benefit obligation, determination of pension plan net periodic costs and the
requirements for funding our pension plans are based on a number of actuarial assumptions. The most critical
assumption is the discount rate applied to pension plan obligation as changes in long-term interest rates may
result in increased pension costs in future periods. Changes in assumptions regarding discount rates could also
increase future pension costs. Changes in any of these factors may significantly impact future contribution
requirements. For additional information regarding this matter see Note 19: Savings Plans, Pension Plans and
Other Postretirement Employee Benefits in the Notes to Consolidated Financial Statements and Liquidity and
Capital Resources and Critical Accounting Policies and Estimates included in Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
16
A strike or other work stoppage, or our inability to renew collective bargaining agreements on favorable
terms, could adversely affect our financial results.
As of December 31, 2019, approximately 14% of our workforce was covered by a collective bargaining
agreement, which expires in 2020. If our unionized workers were to engage in a strike or other work stoppage, or
other non-unionized operations were to become unionized, we could experience a significant disruption of
operations at our facilities or higher ongoing labor costs. A strike or other work stoppage in the facilities of any of
our major customers or suppliers could also have similar effects on us.
We rely on information technology to support our operations and reporting environments. Cybersecurity
threats continue to increase in frequency and sophistication; a successful cybersecurity attack could
interrupt or disrupt our information technology systems or cause the loss of confidential or protected
data which could disrupt our business, force us to incur excessive costs or cause reputational harm.
We use information systems to carry out our operational activities and maintain our business records. Some
systems are internally managed and some are maintained by third-party service providers. In the ordinary course
of our business, we collect and store small amounts of sensitive data, including personally identifiable information.
Our ability to conduct business could be materially and adversely affected if these systems or resources are
compromised, damaged or fail. This could be a result of a cyber incident, malicious code (such as malware,
viruses and ransomware), advanced persistent threats, phishing attacks, natural disaster, hardware or software
corruption, failure or error, service provider error or failure, intentional or unintentional personnel actions or other
disruption.
Although we invest in the protection of data and information technology, including through regular employee
training and awareness programs, there can be no assurance that our efforts will prevent or quickly identify
service interruptions or security breaches. Any such interruption or breach of our systems could adversely affect
our business operations and/or result in the loss of confidential or protected data and could result in financial,
legal, business and reputational harm to us. We maintain cyber liability insurance; however, this insurance may
not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or
breach of our systems.
We are, from time to time, involved in various legal matters, disputes and proceedings that, if determined
or concluded in a manner adverse to our interests, could have a material adverse effect on our financial
condition.
We are, from time to time, involved in legal matters, disputes and proceedings (legal matters). In some cases, all
or a portion of any loss we experience in connection with any such legal matters will be covered by insurance; in
other cases, any such losses will not be covered.
Although the disclosures in Note 21: Commitments and Contingencies in the Notes to the Consolidated Financial
Statements contain management’s current views of the effect such legal matters could have on our financial
results, there can be no assurance that the outcome of any such legal matters will be as currently expected. It is
possible that there could be adverse judgments against us in some, and that we could be required to take a
charge and make cash payments for all or a portion of any related awards of damages that could materially and
adversely affect our results of operations or cash flows for the quarter or year in which we record or pay it.
Risks Related to Our Indebtedness
Our indebtedness could materially adversely affect our ability to generate sufficient cash to pay
dividends to stockholders and fulfill our debt obligations, our ability to react to changes in our business
and our ability to incur additional indebtedness to fund future needs.
Our debt requires interest and principal payments. At December 31, 2019, we had total long-term debt of $762.2
million. Subject to the limits contained in our debt instruments, we may be able to incur additional debt from time
to time to finance working capital, capital expenditures, investments or acquisitions or for other purposes. If we do
so, the risks related to our indebtedness could intensify.
17
Our indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due,
the principal of, interest on or other amounts due in respect of our indebtedness or to pay dividends to our
stockholders. Our indebtedness, combined with our other financial obligations and contractual commitments,
could have important consequences for stockholders. For example, it could:
• make it more difficult for us to satisfy our obligations with respect to our indebtedness and any failure to
comply with the obligations under any of our debt instruments, including restrictive covenants, could result
in an event of default under the agreements governing such indebtedness;
•
•
•
•
require us to dedicate a substantial portion of our cash flow from operations to payments on our
indebtedness, thereby reducing funds available for dividends to stockholders, working capital, capital
expenditures, acquisitions and other purposes;
increase our vulnerability to adverse economic and industry conditions, which could place us at a
competitive disadvantage compared with our competitors that have relatively less indebtedness;
limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we
operate; and
limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for dividends to
stockholders, working capital, capital expenditures, acquisitions and other corporate purposes.
A number of our debt instruments and associated interest rate derivative agreements have an interest rate tied to
the London Interbank Offered Rate (LIBOR). In July 2017, the United Kingdom’s Financial Conduct Authority,
which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. In April 2018, the
Federal Reserve Bank of New York began publishing a Secured Overnight Funding Rate (SOFR), backed by
Treasury securities, which is intended to replace U.S. dollar LIBOR. However, whether or not SOFR attains
market traction as a LIBOR replacement tool remains in question, and the future of LIBOR remains uncertain at
this time. Our interest rate derivative agreements are governed by the International Swap Dealers Association
("ISDA"). ISDA is in the process of developing fallback language for derivative agreements and is expected to
establish a protocol to allow counterparties to modify legacy trades to include the new fallback language.
The market transition away from LIBOR to an alternative reference rate is complex. The discontinuation, reform or
replacement of LIBOR or any other benchmark rates may have an unpredictable impact on contractual mechanics
in the credit markets or cause disruption to the broader financial markets. If LIBOR is no longer available or if our
lenders or interest rate swap counterparties have increased costs due to changes in LIBOR, we may experience
potential increases in interest rates from our variable debt and interest rate derivatives, which could adversely
impact our interest expense, results of operations and cash flows. We are monitoring the developments with
respect to the potential phasing out of LIBOR after 2021 and will work with our lenders and counterparties to
identify a suitable replacement rate and amend our agreements to reflect this new reference rate accordingly.
However, at this time, we cannot predict how markets will respond to the effect of any changes to, or the
discontinuation of LIBOR.
We depend on external sources of capital for future growth.
Our ability to finance growth is dependent to a significant degree on external sources of capital. Our ability to
access such capital on favorable terms could be hampered by a number of factors, many of which are outside of
our control, including a decline in general market conditions, decreased market liquidity, a downgrade to our
public debt rating, increases in interest rates, an unfavorable market perception of our growth potential, a
decrease in our current or estimated future earnings or a decrease in the market price of our common stock. In
addition, our ability to access additional capital may also be limited by the terms of our existing indebtedness,
which, among other things, restricts our incurrence of debt and the payment of dividends. For additional details,
see Liquidity and Capital Resources in Management’s Discussion and Analysis of Financial Condition and Results
of Operations. Any of these factors, individually or in combination, could prevent us from being able to obtain the
capital we require on terms that are acceptable to us and the failure to obtain necessary capital could materially
adversely affect our future growth.
18
Changes in credit ratings issued by nationally recognized statistical rating organizations could adversely
affect our cost of financing and have an adverse effect on the market price of our securities.
Credit rating agencies rate our debt securities on factors that include our operating results, actions that we take, their
view of the general outlook for our industry and their view of the general outlook for the economy. Actions taken by
the rating agencies can include maintaining, upgrading or downgrading the current rating or placing us on a watch
list for possible future downgrading. Downgrading the credit rating of our debt securities or placing us on a watch list
for possible future downgrading could limit our access to the credit markets, increase our cost of financing and have
an adverse effect on the market price of our securities. For additional detail on our credit ratings see Liquidity and
Capital Resources in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Risks Related to Ownership of Our Common Stock
The price of our common stock may be volatile and influenced by many factors, some of which are
beyond our control.
The market price of our common stock may be influenced by many factors, some of which are beyond our control,
including those described above under Business and Operating Risks and the following:
• actual or anticipated fluctuations in our operating results or our competitors’ operating results;
• announcements by us or our competitors of capacity change;
• acquisitions or strategic investments;
• our growth rate and our competitors’ growth rates;
•
the financial markets, interest rates and general economic conditions;
• changes in stock market analyst recommendations regarding us or lack of analyst coverage of our
common stock;
• our competitors or the forest products industry generally;
•
failure to pay cash dividends or the amount of cash dividends paid;
• sales of our common stock by our executive officers, directors and significant stockholders or sales of
substantial amounts of common stock; and
• changes in accounting principles and changes in tax laws and regulations.
In addition, there has been significant volatility in the market price and trading volume of securities of companies
operating in the forest products industry that often has been unrelated to individual company operating
performance. Some companies that have experienced volatile market prices for their securities have had
securities litigation brought against them. If litigation of this type is brought against us, it could result in substantial
costs and divert management’s attention and resources.
Certain provisions of our certificate of incorporation and bylaws and of Delaware law may make it difficult
for stockholders to change the composition of our board of directors and may discourage hostile
takeover attempts that some of our stockholders may consider to be beneficial.
Certain provisions of our certificate of incorporation and bylaws and of Delaware law may have the effect of
delaying or preventing changes in control if our board of directors determines that such changes in control are not
in our best interest and that of our stockholders. The provisions in our certificate of incorporation and bylaws
include, among other things, the following:
• a classified board of directors with three-year staggered terms;
•
the ability of our board of directors to issue shares of preferred stock and to determine the price and other
terms, including preferences and voting rights, of those shares without stockholder approval;
• stockholder action can only be taken at a special or regular meeting and not by written consent and
stockholders cannot call a special meeting except upon the written request of stockholders entitled to cast
not less than a majority of all of the votes entitled to be cast at the meeting;
19
• advance notice procedures for nominating candidates to our board of directors or presenting matters at
stockholder meetings;
•
removal of directors only for cause;
• allowing only our board of directors to fill vacancies on our board of directors;
•
in order to facilitate the preservation of our status as a REIT under the Internal Revenue Code, a
prohibition on any single stockholder, or any group of affiliated stockholders, from beneficially owning
more than 9.8% of our outstanding common or preferred stock, unless our board waives or modifies this
ownership limitation;
• unless approved by the vote of at least 80% of our outstanding shares, we may not engage in business
combinations, including mergers, dispositions of assets, certain issuances of shares of stock and other
specified transactions, with a person owning or controlling, directly or indirectly, 5% or more of the voting
power of our outstanding common stock; and
• supermajority voting requirements to amend our bylaws and certain provisions of our certificate of
incorporation.
While these provisions have the effect of encouraging persons seeking to acquire control of our company to
negotiate with our board of directors, they could enable the board of directors to hinder or frustrate a transaction
that stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts
to remove and replace incumbent directors. We are also subject to Delaware laws that could have similar effects.
One of these laws prohibits us from engaging in a business combination with a significant stockholder unless
specific conditions are met.
REIT and Tax-Related Risks
If we fail to remain qualified as a REIT, income from our timberlands will be subject to taxation at regular
corporate rates and we will have reduced cash available for dividends to our stockholders.
Qualification as a REIT involves the application of highly technical and complex provisions of the Internal
Revenue Code to our operations, including satisfaction of certain asset, income, organizational, dividend,
stockholder ownership and other requirements, on an ongoing basis. Given the highly complex nature of the rules
governing REITs, the ongoing importance of factual determinations and the possibility of future changes in our
circumstances, no assurance can be given that we will remain qualified as a REIT.
In addition, the rules dealing with federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Department of the Treasury (Treasury). Changes to the tax laws
affecting REITs or taxable REIT subsidiaries, which may have retroactive application, could adversely affect our
stockholders or us. We cannot predict how changes in the tax laws might affect our stockholders or us. Accordingly,
we cannot provide assurance that new legislation, Treasury regulations, administrative interpretations or court
decisions will not significantly affect our ability to remain qualified as a REIT, the federal income tax consequences
of such qualification, the determination of the amount of REIT taxable income or the amount of tax paid by the TRS.
If in any taxable year we fail to remain qualified as a REIT, unless we are entitled to relief under the Internal
Revenue Code:
• we would not be allowed a deduction for dividends to stockholders in computing our taxable income; and
• we would be subject to federal income tax on our taxable income at regular corporate rates.
Any such corporate tax liability could be substantial and would reduce the amount of cash available for dividends
to our stockholders, which in turn could have an adverse impact on the value of our common stock. In addition,
we would be disqualified from treatment as a REIT for the four taxable years following the year during which the
qualification was lost, unless we are entitled to relief under certain statutory provisions. As a result, net income
and the cash available for dividends to our stockholders could be reduced for at least five years, which would
have an adverse impact on our financial condition and the value of our common stock.
Our ability to pay dividends and service our indebtedness using cash generated through our taxable REIT
subsidiary may be limited.
20
Our board of directors, in its sole discretion, determines the actual amount of dividends to be made to
stockholders based on consideration of a number of factors, including, but not limited to, our results of operations,
cash flow and capital requirements, economic conditions in our industry and in the markets for our products, tax
considerations, borrowing capacity, debt covenant restrictions, timber prices, harvest levels on our timberlands,
market demand for timberlands, including timberland properties we have identified as potentially having a higher
and better use and future acquisitions and dispositions. For a description of debt covenants that could limit our
ability to pay dividends to stockholders in the future, see Liquidity and Capital Resources in Management’s
Discussion and Analysis of Financial Condition and Results of Operations. Consequently, the level of future
dividends to our stockholders may fluctuate and any reduction in the dividend rate may adversely affect our stock
price.
Under the REIT rules, to remain qualified as a REIT, a REIT must distribute, within a certain period after the end
of each year, 90% of its ordinary taxable income for such year. Our REIT income, however, consists primarily of
net capital gains resulting from payments received under timber cutting contracts with PotlatchDeltic TRS and
third parties, rather than ordinary taxable income. Therefore, unlike most REITs, we are not required to distribute
material amounts of cash to remain qualified as a REIT. If, after giving effect to our dividends, we have not
distributed an amount equal to 100% of our REIT taxable income, then we would be required to pay tax on the
undistributed portion of such taxable income at regular corporate tax rates and our stockholders would be
required to include their proportionate share of any undistributed capital gain in income and would receive a credit
or refund for their share of the tax paid by us.
Further, the rules with which we must comply to maintain our status as a REIT limit our ability to use dividends
from PotlatchDeltic TRS for the payment of stockholder dividends and to service our indebtedness. In particular,
at least 75% of our gross income for each taxable year as a REIT must be derived from sales of our standing
timber and other types of real estate income. No more than 25% of our gross income may consist of dividends
from PotlatchDeltic TRS and other non-qualifying types of income. This requirement may limit our ability to
receive dividends from PotlatchDeltic TRS and may impact our ability to pay dividends to stockholders and
service the REIT's indebtedness using cash from PotlatchDeltic TRS.
Certain of our business activities are potentially subject to a prohibited transactions tax on 100% of our
net income derived from such activities, which would reduce our cash flow and impair our ability to pay
dividends.
REITs are generally intended to be passive entities and can thus only engage in those activities permitted by the
Internal Revenue Code, which for us generally include owning and managing a timberland portfolio, growing
timber and selling standing timber.
Accordingly, the manufacture and sale of wood products, certain types of timberland sales, sale of real estate and
the harvest and sale of logs are conducted through PotlatchDeltic TRS because such activities generate non-
qualifying REIT income and could constitute “prohibited transactions” if such activities were engaged in directly by
the REIT. In general, prohibited transactions are defined by the Internal Revenue Code to be sales or other
dispositions of property held primarily for sale to customers in the ordinary course of a trade or business.
By conducting our business in this manner, we believe we will satisfy the REIT requirements of the Internal
Revenue Code and thus avoid the 100% tax that could be imposed if a REIT were to conduct a prohibited
transaction. We may not always be successful, however, in limiting such activities to PotlatchDeltic TRS.
Therefore, we could be subject to the 100% prohibited transactions tax if such instances were to occur, which
would adversely affect our cash flow and impair our ability to pay quarterly dividends.
Our REIT structure may limit our ability to invest in our non-REIT qualifying operations.
Our use of PotlatchDeltic TRS enables us to continue to engage in non-REIT qualifying business activities
consisting primarily of our wood products manufacturing, harvesting of timber, sale of logs, and sale of real estate
and selected land parcels that we expect to be sold or developed for higher and better use purposes. However,
under the Internal Revenue Code, no more than 20% of the value of the gross assets of a REIT may be
represented by securities of our taxable REIT subsidiaries. This may limit our ability to make investments in our
wood products manufacturing operations or in other non-REIT qualifying operations.
21
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Information on our locations and facilities is included in Part I - Item 1. Business under each of the respective
segment headers.
ITEM 3. LEGAL PROCEEDINGS
We believe there is no pending or threatened litigation that could have a material adverse effect on our financial
position, results of operations or liquidity.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
22
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on The Nasdaq Global Select Market (NASDAQ) with the ticker symbol “PCH”. There
were approximately 1,281 stockholders of record as of February 14, 2020.
ISSUER PURCHASES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 26, 2016, the company announced that its Board of Directors had authorized management to repurchase
up to $60.0 million of common stock over a period of 24 months (the Repurchase Plan) expiring on April 30, 2018.
In total, $6.0 million of common stock was repurchased under the Repurchase Plan prior to its expiration with no
shares repurchased during 2017 or 2018.
On August 30, 2018, our board of directors authorized management to repurchase up to $100.0 million of
common stock with no time limit set for the repurchase (the 2018 Repurchase Program). No repurchases were
made by the Company during the fourth quarter of 2019. During the year ended December 31, 2019, we
repurchased 686,240 shares of common stock for $25.2 million under the 2018 Repurchase Program. All
common stock purchases were made in open-market transactions. At December 31, 2019, we had remaining
authorization of $74.8 million for future stock repurchases under the 2018 Repurchase Program.
We record share purchases upon trade date, as opposed to the settlement date when cash is disbursed. We
record a liability to account for repurchases that have not been settled. There were no unsettled repurchases as
of December 31, 2019 and 2018.
EQUITY COMPENSATION PLAN INFORMATION
Information required by this item with respect to equity compensation plans is included under the caption “Equity
Compensation Plan Information” in our definitive Proxy Statement to be filed with the SEC on or about March 31,
2020 and is incorporated herein by reference.
23
Company Stock Price Performance
The following graph and table show a five-year comparison of cumulative total stockholder returns for our
company, the NAREIT Equity Index, the Standard & Poor’s 500 Composite Index and a group of four companies
that we refer to as our peer group index for the period ended December 31, 2019. The total stockholder return
assumes $100 invested at December 31, 2014, with quarterly reinvestment of all dividends.
$180
$170
$160
$150
$140
$130
$120
$110
$100
$90
$80
$70
$60
1 2 / 3 1 / 1 4
1 2 / 3 1 / 1 5
1 2 / 3 1 / 1 6
1 2 / 3 1 / 1 7
1 2 / 3 1 / 1 8
1 2 / 3 1 / 1 9
PotlatchDeltic Corporation
NAREIT Equity Index
S&P 500 Index
2019 Peer Group Index
PotlatchDeltic Corporation
NAREIT Equity Index
S&P 500 Composite Index
2019 Peer Group Index
At December(cid:3)31,
2015
2016
2017
2018
2019
$
$
$
$
76 $
103 $
101 $
89 $
108 $
112 $
114 $
98 $
134 $
118 $
138 $
117 $
98 $
112 $
132 $
94 $
140
142
174
135
Our peer group index for 2019 consists of Rayonier Inc., St. Joe Co., Universal Forest Products Inc. and
Weyerhaeuser Co. Returns are weighted based on market capitalizations as of the beginning of each year. Deltic
has been excluded from our peer group index in the above table and graph for all years presented due to our
merger in 2018. Our 2018 return includes the impact of the Deltic earnings and profits special distribution of
approximately $3.54 per share. See Note 6: Earnings Per Share in the Notes to Consolidated Financial
Statements for additional information.
The performance graph above is being furnished solely to accompany this Report pursuant to Item 201(e) of
Regulation S-K and is not being filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as
amended and is not to be incorporated by reference into any of our filings, whether made before or after the date
hereof, regardless of any general incorporation in such filing.
24
ITEM 6. SELECTED FINANCIAL DATA
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
(in thousands - except per share amounts)
Revenues
Net income
2019
2017
$ 827,098 $ 974,579 $ 678,595 $ 599,099 $ 575,336
31,714
$
55,661 $ 122,880 $ 86,453 $ 10,938 $
2015
2018 1
2016 2
Total assets
Long-term debt (including current portion)3
Total stockholders’ equity
$ 2,235,059 $ 2,325,852 $ 953,079 $ 927,681 $ 1,016,612
$ 756,469 $ 755,364 $ 573,319 $ 583,988 $ 603,881
$ 1,226,831 $ 1,314,779 $ 200,542 $ 156,274 $ 203,736
Capital expenditures:4
Property, plant and equipment
Timberlands reforestation and roads
Real estate development expenditures
Total capital expenditures
$
$
39,153 $
17,695
7,254
64,102 $
29,880 $ 12,855 $ 5,866 $
17,378 15,207 13,422
—
52,307 $ 28,062 $ 19,288 $
5,049
—
18,987
13,745
—
32,732
Net income per share:
Basic
Diluted
$
$
Dividends per share5
$
Weighted-average shares outstanding (in thousands):
Basic
Diluted
0.82 $
0.82 $
1.60 $
2.03 $
1.99 $
1.60 $
2.12 $
2.10 $
1.53 $
0.27 $
0.27 $
1.50 $
0.78
0.77
1.50
67,608
67,743
60,534 40,824 40,798
61,814 41,227 41,033
40,842
40,988
1
2
3
4
5
In February 2018, Deltic merged into a wholly-owned subsidiary of Potlatch for total consideration of $1.1 billion of our common stock and
$0.3 billion of liabilities assumed. See Note 2: Deltic Merger in the Notes to Consolidated Financial Statements.
In the second quarter of 2016, we sold approximately 172,000 acres of timberlands located in central Idaho for $114 million at a loss of
$48.5 million before taxes and repaid $42.6 million of revenue bonds.
Long-term debt as of December 31, 2018 excludes the $29 million of revenue bonds for the MDF facility which is classified as held for
sale. See Note 3: Sale of Deltic MDF Facility in the Notes to Consolidated Financial Statements.
Does not include the acquisition of timber and timberlands.
Does not include the Deltic earnings and profits special distribution of $222.0 million or approximately $3.54 per share paid on November
15, 2018. See Note 6: Earnings Per Share in the Notes to Consolidated Financial Statements.
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
The following discussion and analysis should be read in conjunction with Part I - Item 1. Business and Item 8.
Financial Statements and Supplementary Data.
Our operations are organized into three business segments: Timberlands, Wood Products and Real Estate. The
operating results of our Timberlands, Wood Products and Real Estate business segments have been and will
continue to be influenced by a variety of factors, including the cyclical nature of the forest products industry,
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, credit availability including homebuyers’
ability to qualify for mortgages, availability of labor and developable land, lumber prices, weather conditions, the
efficiency and level of capacity utilization of our Wood Products manufacturing operations, changes in our
principal expenses such as
factors. See
Part I - Item 1A. Risk Factors for additional information.
log costs, asset dispositions or acquisitions and other
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 significant portion of the
Timberland 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 discussions, each segment’s revenues and
expenses, as applicable, are presented before elimination of intersegment revenues and expenses.
Non-GAAP Measures
To supplement our financial statements presented in accordance with generally accepted accounting principles in
the United States (GAAP), we use 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, allocating
resources between segments, and that investors can use to evaluate the operational performance of the assets
under management. It removes the impact of specific items that management believes do not directly reflect the
core business operations on an ongoing basis. This measure should not be considered in isolation from and is not
intended to represent an alternative to, our results reported in accordance with GAAP. Management believes that
this non-GAAP measure, when read in conjunction with our GAAP financial statements, provides useful
information to investors by facilitating the comparability of our ongoing operating results over the periods
presented, the ability to identify trends in our underlying business and the comparison of our operating results
against analyst financial models and operating results of other public companies that supplement their GAAP
results with non-GAAP financial measures.
Our definition of EBITDDA and Adjusted EBITDDA may be different from similarly titled measures reported by
other companies. We define EBITDDA as net income (loss) before interest expense, income taxes, basis of real
estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items
that are considered to hinder comparison of the performance of our businesses either year-on-year or with other
businesses. See Note 5: Segment Information of the Notes to the Consolidated Financial Statements for
information related to the use of segment Adjusted EBITDDA.
26
Business and Economic Conditions Affecting Our Operations
The demand for timber is directly affected by the underlying demand for lumber and other wood-products, as well
as by the demand for pulp, paper and packaging. Our Timberlands and Wood Products segments are impacted
by demand for new homes in the United States and by repair and remodeling activity.
During the first half of 2019, United States (U.S.) single family housing starts remained tepid as a result of
affordability concerns. Further, extended inclement weather across the country in the first half of 2019 impacted
building conditions and delayed the normal start of the building season. Building conditions improved in the
second half of the year with seasonally adjusted annual rate of single-family starts for December 2019 above 1.1
million units. Growth in 2020 is forecasted as builders’ renewed focus on smaller, more affordable homes which
are expected to attract a wider array of buyers. Lumber demand is also expected to benefit from continued,
modest growth in repair and remodel activity.
Average lumber prices increased modestly during 2019 but remain significantly below 2018 levels as many
buyers continued to maintain low inventories. We believe higher lumber demand, combined with industry
production curtailments announced in 2019 will positively impact pricing in 2020. We expect to ship just over 1.1
billion board feet during 2020.
In our Timberlands segment, we index a significant portion of our Idaho sawlogs to the price of lumber under long-
term supply agreements. The Northern region experienced a decline in sawlog pricing during 2019 because of
lower average lumber prices. Southern region log supply was affected by wet weather in the first half of 2019
restricting log supply and resulting in increased sawlog prices. The onset of drier weather in the third quarter of
2019 led to an increase in sawlog supply in the Southern market as several local timberland owners increased
their harvesting activities to take advantage of attractive prices contributing to Southern region mill log inventories
shifting to higher levels. As mill inventories remained full and market supply for logs remained high we scaled
back on planned harvest activities during the second half of 2019. Southern pine sawlog prices have normalized
and we expect our harvest volumes to return to typical levels in 2020. We expect to harvest approximately 6.0
million tons during 2020.
Our Real Estate segment benefited from two large rural land sales in the second quarter of 2019 and increased
sales in Chenal Valley during 2019 compared to 2018. Residential and commercial sales in Chenal Valley mainly
follow the national housing market trends but do experience microeconomic factors for the area including
economic growth and the availability of builders, contractors and workforce to support development efforts. We
expect to sell between 20,000 and 25,000 rural real estate acres and approximately 140 residential development
lots during 2020.
27
CONSOLIDATED RESULTS
The following table sets forth year-over-year changes in items included in our Consolidated Statements of
Income. Our Business Segment Results provide a more detailed discussion of our segments.
(in thousands)
Revenues
Costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Gain on sale of facility
Deltic merger-related costs
Environmental charges for Avery Landing
Gain on lumber price swap
Operating income
Interest expense, net
Loss on extinguishment of debt
Non-operating pension and other postretirement
benefit costs
Income before income taxes
Income tax provision
Net income
Adjusted EBITDDA1
2019
2017
$ 827,098 $ 974,579 $ 678,595 $ (147,481 ) $ 295,984
2018
2019
vs.
2018
2018
vs.
2017
(9,176 )
—
— 22,119
—
—
—
—
682,066 707,645 469,393 (25,579 ) 238,252
9,865
57,925 59,861 49,996
(1,936 )
—
—
(9,176 )
3,409 (22,119 ) 18,710
(4,978 )
4,978
1,088
(1,088 )
730,815 789,625 526,688 (58,810 ) 262,937
96,283 184,954 151,907 (88,671 ) 33,047
(8,178 )
(30,361 ) (35,227 ) (27,049 )
—
—
4,866
(5,512 )
—
—
(5,512 )
—
(3,739 )
(7,648 )
(6,384 )
(1,264 )
56,671 142,079 118,474 (85,408 ) 23,605
(1,010 ) (19,199 ) (32,021 ) 18,189 12,822
$ 55,661 $ 122,880 $ 86,453 $ (67,219 ) $ 36,427
$ 178,943 $ 297,193 $ 195,757 $ (118,250 ) $ 101,436
3,909
1
See Liquidity and Performance Measures for a reconciliation of Adjusted EBITDDA to net income, the closest comparable GAAP
measure, for each of the years presented.
2019(cid:3)compared(cid:3)with(cid:3)2018(cid:3)
Revenues
Revenues were $827.1 million, a decrease of $147.5 million compared to 2018. Revenues decreased as a result
of lower lumber prices, including the effect on indexed Northern sawlog prices. Revenues also declined in the
Southern region as inclement weather during the first half of 2019 and ample sawlog supply in the second half of
the year led to lower harvest volumes. Further, 2019 only included 1.5 months of operations at the Deltic MDF
facility compared to 10.5 months during 2018. These declines in revenue were partly offset by increased lumber
shipments, two large rural land sales in Arkansas and increased residential and commercial lot sales in Chenal
Valley.
Cost of goods sold
Cost of goods sold decreased $25.6 million compared with 2018. This decrease was due to operations at the
Deltic MDF facility for 1.5 months in 2019 compared to 10.5 months in 2018, lower indexed log costs in the
Northern region and lower performance-based variable compensation. These decreases were partially offset by
higher lumber shipments primarily as a result of a full year of the acquired Deltic sawmill operations, increased log
costs in the Southern region, increased road maintenance costs in the Southern region as a result of unfavorable
logging conditions and increased log and haul costs in the Southern region where there was increased
competition for loggers.
Selling, general and administrative expenses
SG&A expenses for 2019 were $57.9 million compared with $59.9 million in 2018. The decrease was primarily
due to lower performance-based variable compensation and lower consultant and professional service fees.
28
Gain on Sale of Facility
On December 20, 2018, we entered into an Asset Purchase and Sale Agreement with Roseburg Forest Products
Co. to sell the Deltic MDF facility for $92.0 million. The transaction closed on February 12, 2019 resulting in a $9.2
million pre-tax gain on sale. See Note 3: Sale of Deltic MDF Facility in the Notes to Consolidated Financial
Statements for additional information.
Deltic merger-related costs
Merger-related costs for 2018 were $22.1 million. This included $12.2 million for investment banking fees, legal
fees, accounting and appraisal fees and other costs related to filing the joint proxy/prospectus for the merger.
Restructuring costs were $9.9 million, consisting primarily of termination benefits, which included accelerated
share-based payment costs for qualifying terminations.
Interest expense, net
Interest expense, net was $30.4 million, compared with $35.2 million for the same period in 2018. The decline in
interest expense was primarily due to increased patronage dividends from our lenders, reduced interest costs
from the refinancing of our $150.0 million Senior Notes in January 2019 and $29.0 million of revenue bonds
assumed by the purchaser of the Deltic MDF facility in February 2019. These decreases were partly offset by a
full year of interest expense in 2019 associated with $200.0 million of long-term debt assumed or refinanced in
connection with the Deltic merger in 2018. See Note 14: Debt in the Notes to Consolidated Financial Statements
for a more detailed discussion of our borrowings.
Loss on extinguishment of debt
As part of the $150.0 million Senior Notes redemption in January 2019 we incurred a redemption premium of $4.9
million and wrote off certain unamortized debt costs. See Note 14: Debt in the Notes to Consolidated Financial
Statements for a more detailed discussion of our borrowings.
Income tax provision
Provision for income taxes for 2019 was $1.0 million compared with $19.2 million for 2018. Income taxes are
primarily due to income or loss generated from our PotlatchDeltic TRS. For 2019, the PotlatchDeltic TRS’s
income before income tax was $2.9 million compared to $100.3 million in 2018. The decrease in the TRS’s
income before income tax was primarily a result of declines in lumber pricing and only 1.5 months of operation at
the Deltic MDF facility in 2019. These declines were partially offset by the gain on sale of the Deltic MDF facility.
Also, during 2018 we recorded a tax benefit of $5.0 million primarily related to deducting contributions to our
qualified pension plans at the higher 2017 income tax rate.
Total Adjusted EBITDDA
Total Adjusted EBITDDA for 2019 was $178.9 million compared to $297.2 million for 2018. The decrease in Total
Adjusted EBITDDA was driven primarily by decreased lumber pricing year over year, including the effect on
indexed Idaho sawlogs. These decreases were partially offset by increased lumber shipments, increased sawlog
prices in the Southern region, two large rural land sales in Arkansas and increased residential and commercial
sales at Chenal Valley. Refer to the Business Segments 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.
2018(cid:3)compared(cid:3)with(cid:3)2017(cid:3)
Revenues
Revenues for 2018 were $974.6 million, an increase of $296.0 million compared to 2017. This increase includes
revenue of $265.3 million from over 10 months of Deltic sales following the merger. Revenues also increased
year over year as we experienced overall higher realizations on sawlogs in the Northern region due to the effect
29
of higher lumber prices on indexed Idaho sawlogs during the first half of the year and we sold 8,000 acres of non-
strategic timberlands in Minnesota during 2018 to a conservation entity.
Cost of goods sold
Cost of goods sold increased $238.3 million compared with the same period in 2017, primarily due to the addition
of the Deltic operations in 2018 resulting in additional operating costs and increased depletion, depreciation and
amortization. In addition, basis of land sold increased compared to 2017 due to the mix of sales along with the
sales of non-strategic Deltic timberlands and sales of development land in Chenal Valley following the Deltic
merger.
Selling, general and administrative expenses
SG&A expenses for 2018 were $59.9 million compared with $50.0 million in 2017 primarily due to the acquired
Deltic operations.
Deltic merger-related costs
Merger-related costs for 2018 were $22.1 million compared to $3.4 million for 2017. Merger-related costs included
$12.2 million for investment banking fees, legal fees, accounting and appraisal fees and other costs related to
filing the joint proxy/prospectus for the merger in 2018. Restructuring costs were $9.9 million in 2018, consisting
primarily of termination benefits, which included accelerated share-based payment costs for qualifying
terminations.
Avery Landing
During 2017, we accrued an additional $5.0 million for a total accrual of $6.0 million related to Avery Landing
proceeding, which was settled in April 2018. See Note 21: Commitments and Contingencies in the Notes to
Consolidated Financial Statements.
Lumber price swap
In April 2017, we entered into a lumber price swap to fix the price on a total of 36 million board feet (MMBF) of
southern yellow pine with an effective date of July 1, 2017 and a termination date of December 31, 2017. Under
the contract, beginning in July 2017, cash settlement on 6 MMBF occurred each month. Changes in the fair value
of the derivative were recorded directly into income as it was not designated as a hedge. We did not enter into
lumber price swaps during 2018. See Note 15: Derivative Instruments in the Notes to Consolidated Financial
Statements.
Interest expense, net
Interest expense, net was $35.2 million, compared with $27.0 million for the same period in 2017. The $8.2 million
increase was primarily due to assumption of $230.0 million in long-term debt assumed or refinanced in connection
with the Deltic merger, including $29.0 million of revenue bonds associated with the Deltic MDF facility. Refer to
Note 14: Debt in the Notes to Consolidated Financial Statements for a more detailed discussion of our
borrowings.
Income tax provision
Provision for income taxes for 2018 was $19.2 million compared with $32.0 million for 2017. Income taxes are
primarily due to income or loss generated from our PotlatchDeltic TRS. For 2018, the PotlatchDeltic TRS’s
income before income tax was $100.3 million compared to $59.5 million in 2017. The increase in the
PotlatchDeltic TRS’s income before income tax was primarily the result of higher lumber prices and the acquired
Deltic wood products operations. On December 22, 2017, the Tax Act was enacted, which contained significant
changes to corporate taxation. The primary impact of the Tax Act in 2018 was a reduction to our PotlatchDeltic
TRS’s effective tax rate, resulting in an estimated $10.1 million tax savings in 2018. During 2018, we also
recorded a tax benefit primarily related to deducting contributions to our qualified pension plans made in 2018 at
the higher 2017 income tax rate discussed above. In addition to the higher corporate tax rate in 2017, the income
30
tax provision for 2017 included a $10.7 million charge as a result of remeasured deferred tax assets, net at the
lower tax rate.
Total Adjusted EBITDDA
Total Adjusted EBITDDA for 2018 was $297.2 million, an increase of $101.4 million compared to 2017. The
increase in Total Adjusted EBITDDA was driven primarily by increased Southern harvests, higher lumber prices
and increased Wood Product segment volumes due to the addition of Deltic operations. Refer to the Business
Segments 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
(in thousands)
Revenues1
Costs and expenses
Logging and hauling
Other
Selling, general and administrative expenses
Adjusted EBITDDA2
Years Ended December(cid:3)31,
2018
2019
2017
$ 322,693 $ 354,950 $ 278,199 $ (32,257 ) $ 76,751
2019
vs.
2018
2018
vs.
2017
150,445 146,568 117,827
31,468 31,009 27,015
6,650
3,877 28,741
3,994
889
$ 133,987 $ 169,834 $ 126,707 $ (35,847 ) $ 43,127
459
(746 )
7,539
6,793
1
2
Prior to elimination of intersegment fiber revenues of $114.9 million, $115.9 million and $71.4 million in 2019, 2018 and 2017,
respectively.
Management uses Adjusted EBITDDA to evaluate the performance of the company. See Note 5: Segment Information in the Notes to
Consolidated Financial Statements.
31
Timberlands Segment Statistics
Harvest Volumes (in tons)
Northern region
Sawlog
Pulpwood
Stumpage
Total
Southern region
Sawlog
Pulpwood
Stumpage
Total
Years Ended December(cid:3)31,
2019
2018
2017
2019
vs.
2018
2018
vs.
2017
1,700,071 1,714,154 1,711,588 (14,083 )
1,601
148,350 146,749 146,402
(5,425 )
12,127
1,856,399 1,874,306 1,870,117 (17,907 )
13,403
7,978
2,566
347
1,276
4,189
1,901,001 1,853,037 933,228 47,964 919,809
1,645,593 1,593,904 1,168,225 51,689 425,679
184,272 221,546
41,151 (37,274 ) 180,395
3,730,866 3,668,487 2,142,604 62,379 1,525,883
Total harvest volume
5,587,265 5,542,793 4,012,721 44,472 1,530,072
Sales Price/Unit ($ per ton)
Northern region1
Sawlog
Pulpwood
Stumpage
Southern region1
Sawlog
Pulpwood
Stumpage
$
$
$
$
$
$
95 $
39 $
14 $
46 $
32 $
9 $
119 $
41 $
12 $
111 $
38 $
13 $
(24 ) $
(2 ) $
2 $
44 $
31 $
11 $
44 $
30 $
14 $
2 $
1 $
(2 ) $
8
3
(1 )
—
1
(3 )
1
Sawlog and pulpwood sales prices are on a delivered basis, which includes contracted logging and hauling costs charged to the
customer. Stumpage sales provide our customers the right to harvest standing timber. As such, the customer contracts the logging and
hauling and bears such costs.
Timberlands Adjusted EBITDDA
The following table summarizes Adjusted EBITDDA variances for the year ended December 31, 2019, compared
with the year ended December 31, 2018 and for the year ended December 31, 2018, compared with the year
ended December 31, 2017:
(in thousands)
Adjusted EBITDDA - prior year
Sales price and mix
Harvest volume
Other revenue
Logging and hauling cost per unit
Forest management
Indirect and overhead costs
Adjusted EBITDDA - current year
2019 vs 2018
2018 vs 2017
$
$
169,834 $
(38,706 )
2,145
1,896
(1,451 )
(1,128 )
1,397
133,987 $
126,707
(16,816 )
51,437
5,059
8,304
(628 )
(4,229 )
169,834
32
2019(cid:3)compared(cid:3)with(cid:3)2018(cid:3)
Timberlands Adjusted EBITDDA for 2019 was $134.0 million, a decrease of $35.8 million compared with the
same period in 2018 primarily as a result of the following:(cid:3)
(cid:120) Sales Price and Mix: Sawlog prices in the Northern region declined 20.2%, to $95 per ton resulting from
the effect of lower lumber prices on Idaho sawlogs that are indexed to lumber and a decline in cedar
prices. This was partially offset by sawlog prices in the Southern region increasing to $46 per ton
compared to $44 per ton in 2018, primarily due to constrained log supply caused by the wet weather.
(cid:120) Harvest Volume: Total harvest volume increased approximately 44,500 tons, or 0.8%, in 2019 compared
to 2018.
(cid:120) Other Revenue: Other revenue is predominantly revenue from hunting leases and natural gas and oil
royalties. The increase year over year is primarily due to a full year of activity in 2019 from the acquired
Deltic properties compared to a partial year in 2018.
(cid:120) Logging and Hauling Cost per Unit: Increased log and haul rates, especially in the Southern region
where there was increased competition for loggers, drove the $1.5 million unfavorable impact to segment
Adjusted EBITDDA.(cid:3)(cid:3)
2018(cid:3)compared(cid:3)with(cid:3)2017(cid:3)(cid:3)
Adjusted EBITDDA for 2018 was $169.8 million, an increase of $43.1 million compared to 2017. The change in
Adjusted EBITDDA was primarily the result of the following:(cid:3)
(cid:120) Sales Price and Mix: The average sales price realized on sawlogs in 2018 was lower than 2017 due to
an increase in Southern harvest activities during 2018 as a result of the Deltic merger. Sawlog prices in
the South are significantly below Northern prices.
(cid:120) Harvest Volume: Total harvest volume increased 1.5 million tons compared to 2017 primarily due to the
merger with Deltic in early 2018.
(cid:120) Other Revenue: Other revenue contributed $5.1 million to Adjusted EBITDDA, primarily due to additional
acres from the Deltic merger which allows for more acres available for hunting leases and natural gas and
oil royalties.
(cid:120) Logging and Hauling Cost per Unit: Logging and hauling cost per unit declined year over year primarily
due to a higher mix of Southern volume which carries an overall lower cost per ton.
(cid:120) Forest Management, Indirect and Overhead: Higher administrative and overhead primarily due to the
addition of the Deltic operations early in 2018 decreased Adjusted EBITDDA by $4.2 million compared to
2017.
Wood Products Segment
(in thousands)
Revenues
Costs and expenses1
Fiber costs
Freight, logging and hauling
Manufacturing costs
Finished goods inventory change
Selling, general and administrative expenses
Other
Adjusted EBITDDA2
Years Ended December(cid:3)31,
2018
2019
2017
$ 540,408 $ 680,931 $ 441,157 $ (140,523 ) $ 239,774
2019
vs.
2018
2018
vs.
2017
267,753 273,716 182,090
(5,963 ) 91,626
70,747 81,398 50,929 (10,651 ) 30,469
(2,023 ) 61,818
182,777 184,800 122,982
3,056
(2,652 )
(1,159 )
2,846
(115 )
5,691
—
(1,437 )
—
$ 12,901 $ 130,583 $ 80,624 $ (117,682 ) $ 49,959
(755 )
8,422
(1,437 )
1,897
8,537
—
1
Prior to elimination of intersegment fiber costs of $114.9 million, $115.9 million and $71.4 million in 2019, 2018 and 2017, respectively.
2 Management uses Adjusted EBITDDA to evaluate the performance of the company. See Note 5: Segment Information in the Notes to
Consolidated Financial Statements.
33
Wood Products Segment Statistics
Lumber shipments (MBF)1
Lumber sales prices ($ per MBF)
1
MBF stands for thousand board feet.
Wood Products Adjusted EBITDDA
Years Ended December(cid:3)31,
2019
2018
2017
2019
vs.
2018
2018
vs.
2017
1,068,519 1,015,385 736,667 53,134 278,718
32
$
457 $
371 $
425 $
(86 ) $
The following table summarizes Adjusted EBITDDA variances for the year ended December 31, 2019, compared
with the year ended December 31, 2018 and for the year ended December 31, 2018, compared with the year
ended December 31, 2017:
(in thousands)
Adjusted EBITDDA - prior year
Lumber:
Price
Volume
Manufacturing costs per unit
Log costs per unit
Inventory charge
Residuals, panels and other
Administrative and overhead
Adjusted EBITDDA - current year
(cid:3)
2019(cid:3)compared(cid:3)with(cid:3)2018(cid:3)
2019 vs 2018
2018 vs 2017
$
130,583 $
80,624
(85,542 )
(520 )
(9,308 )
(3,724 )
(384 )
(20,005 )
1,801
12,901 $
27,631
20,520
(2,019 )
(9,893 )
(3,027 )
23,034
(6,287 )
130,583
$
Wood Products Adjusted EBITDDA for 2019 was $12.9 million, a decrease of $117.7 million compared to 2018
primarily due to the following:
(cid:120) Lumber Price: Average lumber sales prices decreased to $371 per MBF from $457 per MBF during
2018.
(cid:120) Manufacturing Costs Per Unit: In the first half of 2019 wet weather in the Southern region required us to
source smaller diameter logs and cold temperatures in the North resulted in unfavorable log recoveries
and production rates. In addition, during 2019 we completed significant planned capital and maintenance
projects in the second half of the year than projects during 2018. These projects required more downtime
and startup took longer than anticipated. In addition, we ran less overtime in order to balance supply with
demand.
(cid:120) Log Costs per Unit: Increased log costs in the Southern region more than offset the impact of lower
indexed logs in Idaho driving the unfavorable log costs per unit year on year.
(cid:120)
Inventory Charge: Ending inventory at December 31, 2019 and 2018 was written down $3.4 million and
$3.0 million, respectively, to net realizable value as a result of declines in lumber prices.
(cid:120) Residual Sales, Panels and Other: The decline in residuals, panels and other is primarily due to 1.5
months of operations at the Deltic MDF facility which sold in February 2019 compared to 10.5 months
during 2018.
34
2018(cid:3)compared(cid:3)with(cid:3)2017
Adjusted EBITDDA for 2018 was $130.6 million, an increase of $50.0 million, or 62.0%, compared to 2017. The
increase in Adjusted EBITDDA is primarily the result of the following:
(cid:120) Lumber Price: Lumber sales prices increased to $457 per MBF compared with $425 per MBF during
2017.
(cid:120) Volume: Lumber shipments increased 278.7 million board feet to 1.0 billion board feet during 2018
primarily due to the addition of Deltic operations.
(cid:120) Log Costs Per Unit: Increased log costs were primarily due to higher per-unit log costs in Idaho where
sawlog prices are indexed to lumber prices.
(cid:120)
Inventory Charge: Ending inventory at December 31, 2018 was written down $3.0 million to net
realizable value as a result of declining lumber prices in the second half of the year. There were no other
inventory write-downs during 2018 or 2017.
(cid:120) Residual Sales, Panels and Other: Increased residual sales due to the addition of Deltic sawmills, a
focus on higher margin products for our panel mill along with the addition of the Deltic MDF facility in
2018 contributed to the increased Adjusted EBITDDA year on year.
(cid:120) Administrative and Overhead: Higher administrative and overhead costs were primarily due to the
addition of the Deltic operations in early 2018.
Real Estate Segment
(in thousands)
Revenues
Costs and expenses
Costs of goods sold
Selling, general and administrative expenses
Adjusted EBITDDA1
Years Ended December(cid:3)31,
2018
2019
2017
$ 78,872 $ 54,566 $ 30,655 $ 24,306 $ 23,911
2019
vs.
2018
2018
vs.
2017
11,885 10,097
4,165
1,788 7,918
172 1,409
$ 62,650 $ 40,304 $ 25,720 $ 22,346 $ 14,584
2,179
2,756
4,337
1 Management uses Adjusted EBITDDA to evaluate the performance of the company. See Note 5: Segment Information in the Notes to
Consolidated Financial Statements.
Real Estate Segment Statistics
Rural Real Estate
Higher and better use (HBU)
Recreation real estate
Non-strategic timberlands
Total
Development Real Estate
2019
2018
2017
Acres
Sold
Acres
Sold
Average
Price/Acre
Average
Price/Acre
5,077 $ 5,786 5,391 $ 3,065 6,440 $ 2,505
9,969 $ 1,305 8,925 $ 1,264 9,993 $ 1,394
8,894 $
574 $ 1,033
23,940 $ 2,075 23,441 $ 1,538 17,007 $ 1,803
Average
Price/Acre
820 9,125 $
Acres
Sold
903
2019
2018
Residential lots
Commercial acres
148 $
87,215
38 $ 248,443
35
Lots or
Acres Sold
Average
$/Lot or Acre
Lots or
Acres Sold
Average
$/Lot or Acre
74,753
13 $ 347,581
101 $
Real Estate Adjusted EBITDDA
The following table summarizes Adjusted EBITDDA variances for the year ended December 31, 2019, compared
with the year ended December 31, 2018 and for the year ended December 31, 2018, compared with the year
ended December 31, 2017:
(in thousands)
Adjusted EBITDDA - prior year
Rural real estate sales
Real estate development sales
Selling, general and administrative expenses
Other costs, net
Adjusted EBITDDA - current year
(cid:3)
2019(cid:3)compared(cid:3)with(cid:3)2018(cid:3)
2019 vs 2018
2018 vs 2017
$
$
40,304 $
21,089
3,091
(168 )
(1,666 )
62,650 $
25,720
5,369
13,199
(1,413 )
(2,571 )
40,304
Real Estate Adjusted EBITDDA for 2019 was $62.7 million, an increase of $22.3 million compared with the 2018
primarily as a result of the following:(cid:3)
(cid:120) Rural Real Estate Sales: While total rural real estate acres sold during 2019 was consistent with 2018,
rural real estate sales during 2019 included a second quarter sale of 1,787 acres outside of Little Rock,
Arkansas for $11,000 per acre. 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.
(cid:120) Development Real Estate Sales: During 2019 we sold 148 lots at an average lot price of approximately
$87,200 compared with 101 lots at an average lot price of $74,800 during 2018. In addition, we sold 38
acres of commercial land in Chenal Valley for approximately $248,400 per acre during 2019 compared to
13 acres for approximately $347,600 per acre during 2018.
2018(cid:3)compared(cid:3)with(cid:3)2017
Adjusted EBITDDA for 2018 was $40.3 million, an increase of $14.6 million compared with 2017 primarily as a
result of the following:(cid:3)
(cid:120) Rural Real Estate Sales: Rural real estate sales increased approximately 6,400 acres in 2018 compared
to 2017. Rural real estate sales during 2018 included 8,000 acres of non-strategic timberlands in
Minnesota in the second quarter of 2018 to a conservation entity for $900 per acre. In addition, we sold a
total of 740 acres of HBU in Arkansas acquired in the Deltic merger for $5.9 million to a local water utility
for conservation. There were no similar sales in 2017.
(cid:120) Development Real Estate Sales: We sold 101 residential lots at an average lot price of $74,753 and 13
commercial acres for approximately $347,600 per acre. There were no similar sales in 2017, as the
development business was added in 2018 as part of the Deltic merger.
These increases in Adjusted EBITDDA were offset by increased selling, general and administrative expenses and
other expenses primarily due to the addition of the real estate development and Chenal Country Club activities in
2018 following the Deltic merger.
36
Liquidity and Capital Resources
Overview
At December 31, 2019, our cash and cash equivalents were $83.3 million, an increase of $6.7 million from
December 31, 2018. Changes in cash for the years ended December 31, are presented by category as follow:
(in thousands)
$
Net cash provided by operating activities
Net cash provided by (used in) investing activities $
$
Net cash used in financing activities
2019
2018
2017
139,068 $
4,517 $
(138,772 ) $
$
178,894
(47,909 ) $
(172,001 ) $
162,659
(50,020 )
(74,766 )
Years Ended December(cid:3)31,
Net Cash Flows from Operating Activities
Net cash from operating activities decreased $39.8 million in 2019 compared to 2018. Changes in cash provided
by operating activities during 2019 was impacted by the following items:
(cid:120) Cash received from customers decreased $130.1 million due to lower indexed log prices in the North,
lower lumber prices and the sale of the Deltic MDF facility.
(cid:120) Cash payment to vendors decreased $12.8 million primarily due to the sale of the Deltic MDF facility,
partially offset by increased log and haul costs in our Timberlands segment and manufacturing costs in
our Wood Products segment.
(cid:120) We had no cash payments for Deltic merger expenses compared to cash payments of $19.7 million
during 2018.
(cid:120) Cash contributions to our pension and other postretirement employee benefit plans decreased $51.9
million. We made a $44.0 million voluntary contribution in 2018.
(cid:120) Net cash paid for interest decreased $2.2 million primarily due to refinancing our $150.0 million Senior
Notes in 2019, partially offset by a full year of interest on the debt we assumed in the Deltic merger.
(cid:120) Our net tax payments were $3.7 million lower in 2019.
During 2018 net cash provided from operating activities increased $16.2 million compared to 2017. Cash provided
by operating activities during 2018 was impacted by the following items:
(cid:120) Cash receipts from customers increased $282.2 million, which was partially offset by increased vendor
payments of $199.3 million. These increases are primarily related to the increased transaction volumes
associated with the Deltic merger.
(cid:120) We made total cash payments of $19.7 million associated with merger expenses compared to $3.3 million
in 2017.
(cid:120) Cash contributions to our qualified pension plans increased $46.9 million, driven by a $44.0 million
voluntary contribution which allowed us to deduct the amount on our 2017 income tax return at higher tax
rates.
(cid:120) Net cash paid for interest payments increased $8.4 million, primarily due to debt assumed in connection
with the Deltic merger
(cid:120) Cash paid for taxes decreased $5.0 million compared to 2017.
37
Net Cash Flows from Investing Activities
Changes in cash flows from investing activities were primarily a result of the following:
(cid:120) We spent $57.5 million on capital expenditures for property, plant and equipment, timberland acquisitions,
timberlands reforestation and road construction projects during 2019 compared to $52.1 million during
2018 and $50.1 million during 2017.
(cid:120) We received $58.8 million of net cash proceeds from the Deltic MDF facility sale in February 2019.
(cid:120) We acquired $3.4 million of cash from the merger with Deltic as of February 20, 2018.
Net Cash Flows from Financing Activities
Changes in cash flows from financing activities were primarily a result of the following:
(cid:120) Cash distributions to stockholders were $107.7 million, $146.8 million, and $61.9 million during 2019,
2018 and 2017, respectively. Cash distributions to stockholders during 2018 included $44.4 million of
cash paid as part of the Deltic earnings and profits special distribution.
(cid:120) During 2019 we repurchased 686,240 shares of our common stock totaling $25.2 million under the 2018
Repurchase Program. There were no share repurchases during 2018 or 2017.
(cid:120) During 2019 we refinanced $150.0 million of Senior Notes and $40.0 million of term loans. Upon
refinancing the Senior Notes, we paid a redemption premium of $4.9 million.
(cid:120) During 2018 we repaid $20.3 million of net debt and $2.4 million in loan fees and during 2017 we repaid
$11.0 million in long-term debt.
Future Cash Requirements
On February 14, 2020 the board of directors approved a quarterly cash dividend of $0.40 per share payable on
March 31, 2020 to stockholders of record as of March 6, 2020.
We invest cash in maintenance and discretionary capital expenditures at our Wood Products facilities. We
evaluate discretionary capital improvements based on an expected level of return on investment. 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 expect to spend a total of approximately $42 to $48 million
for capital expenditures during 2020.
On August 30, 2018, the board of directors authorized the repurchase up to $100.0 million of common stock with
no time limit set for the repurchase. At December 31, 2019, we had remaining authorization of $74.8 million for
future stock repurchase under the 2018 repurchase program. Stock repurchases in the future will depend on a
variety of factors including our cash position, our desired level of liquidity, debt covenant restrictions and our stock
price.
We have $46.0 million of term loans maturing in December 2020. Interest rates remain attractive, which plays a
key role as we evaluate refinancing or repaying these loans.
38
Capital Structure
(in thousands)
Long-term debt (including current portion)1
Cash and cash equivalents
Net debt
Market capitalization2
Enterprise value
Net debt to enterprise value
Dividend yield3
Weighted-average cost of debt, after tax4
December 31,
December 31,
2019
756,469 $
(83,310 )
673,159
2,908,653
3,581,812 $
2018
755,364
(76,639 )
678,725
2,137,915
2,816,640
$
$
18.8 %
3.7 %
3.3 %
24.1 %
5.1 %
3.5 %
1
2
3
Long-term debt for 2018 excludes $29.0 million of revenue bonds which were classified as held for sale.
Market capitalization is based on outstanding shares of 67.2 million and 67.6 million times closing share prices of $43.27 and $31.64 as
of December 31, 2019, and December 29, 2018, respectively.
Dividend yield is based on annualized dividends per share of $1.60 divided by share prices of $43.27 and $31.64 as of December 31,
2019 and December 29, 2018, respectively.
4 Weighted-average cost of debt excludes deferred debt costs and credit facility fees and includes estimated annual patronage credit on
term loan debt. The weighted-average cost of debt for 2018 includes the impact of the Senior Note refinancing in January 2019 described
below and in Note 14: Debt in the Notes to the Consolidated Financial Statements.
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, to allocate
resources between segments, and that investors can use to evaluate the operational performance of the assets
under management. It removes the impact of specific items that management believes do not directly reflect the
core business operations on an ongoing basis. This measure should not be considered in isolation from and is not
intended to represent an alternative to our results reported in accordance with GAAP. Management believes that
this non-GAAP measure, when read in conjunction with our GAAP financial statements, provides useful
information to investors by facilitating the comparability of our ongoing operating results over the periods
presented, the ability to identify trends in our underlying business and the comparison of our operating results
against analyst financial models and operating results of other public companies that supplement their GAAP
results with non-GAAP financial measures.
Our definition of EBITDDA may be different from similarly titled measures reported by other companies. We
define EBITDDA as net income (loss) before interest expense, income taxes, basis of real estate sold,
depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific items that are
considered to hinder comparison of the performance of our businesses either year-on-year or with other
businesses.
We reconcile Total Adjusted EBITDDA to net income for the consolidated company as it is the most comparable
GAAP measure.
39
The following table provides a reconciliation of net income to Adjusted EBITDDA for the respective periods:
(in thousands)
Net income
$
Interest, net
Income tax provision
Depreciation, depletion and amortization
Basis of real estate sold
Loss on extinguishment of debt
Non-operating pension and other postretirement benefit costs
Inventory purchase price adjustment in cost of goods sold1
Gain on sale of facility
Environmental charges for Avery Landing
Deltic merger related costs2
Loss on fixed assets
Adjusted EBITDDA
$
Years Ended December(cid:3)31,
2019
55,661 $
30,361
1,010
70,417
20,554
5,512
3,739
—
(9,176 )
—
—
865
178,943 $
2017
2018
122,880 $ 86,453
35,227 27,049
19,199 32,021
70,848 28,432
6,827
16,698
—
—
6,384
7,648
—
1,849
—
—
4,978
—
3,409
22,119
204
725
297,193 $ 195,757
1
2
The effect on cost of goods sold of fair value adjustments to the carrying amount of inventory acquired in business combinations.
Integration and restructuring costs related to the merger with Deltic. See Note 2: Merger with Deltic in the Notes to the Consolidated
Financial Statements.
We define CAD as cash provided by operating activities adjusted for capital spending for purchases of property,
plant and equipment, timberlands reforestation and roads and timberland acquisitions not classified as strategic.
Management believes CAD is a useful indicator of the company’s overall liquidity, as it provides a measure of
cash generated that is available for dividends to common stockholders (an important factor in maintaining our
REIT status), repurchase of the company’s common shares, debt repayment, acquisitions and other discretionary
and nondiscretionary activities. Our definition of CAD is limited in that it does not solely represent residual cash
flows available for discretionary expenditures since the measure does not deduct the payments required for debt
service and other contractual obligations. Therefore, we believe it is important to view CAD as a measure that
provides supplemental information to our 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 Net Cash from Operating Activities to CAD:
(in thousands)
Net cash provided by operating activities1
Capital expenditures
CAD
Net cash provided by (used in) investing activities2
Net cash used in financing activities
$
$
$
$
Years Ended December(cid:3)31,
2018
178,894 $ 162,659
(50,105 )
(52,135 )
126,759 $ 112,554
2019
139,068 $
(57,474 )
81,594 $
2017
4,517 $
(138,772 ) $
(47,909 ) $
(172,001 ) $
(50,020 )
(74,766 )
1
2
Cash from operating activities for the years ended 2019, 2018 and 2017 includes cash paid for Deltic merger-related costs of $0.0 million,
$19.7 million and $3.3 million, respectively, and cash paid for real estate development expenditures of $7.3 million, $5.0 million and $0.0
million, respectively.
Net cash provided by (used in) investing activities includes payments for capital expenditures, which is also included in our reconciliation
of CAD.
40
Sources of Financing
As of December 31, 2019, we had $762.2 million in principal debt outstanding. Interest rates on all outstanding
debt is fixed, either through a fixed interest rate or corresponding interest rate swap. See Note 14: Debt in the
Notes to the Consolidated Financial Statements for additional information on our credit and debt agreements.
Credit Agreement
On February 14, 2018, we entered into a Second Amended and Restated Credit Agreement (Amended Credit
Agreement) with an expiration date of April 13, 2023 which amended and restated our existing amended and
restated credit agreement dated August 12, 2014. The Amended Credit Agreement increased our revolving line of
credit to $380.0 million, which may be increased by up to an additional $420.0 million. It also includes a sublimit of
$75.0 million for the issuance of standby letters of credit and a sublimit of $25.0 million for swing line loans. At
December 31, 2019, there were no borrowings outstanding under the revolving line of credit and approximately
$1.0 million of capacity under our credit agreement was utilized by outstanding letters of credit, resulting in $379.0
million available for additional borrowings.
Term Loans
In January 2019, through an amendment to the Amended Term Loan Agreement, we refinanced $150.0 million of
7.50% Senior Notes due in 2019 with a $150.0 million term loan that matures in 2029. The new term loan carries
a variable interest rate of one-month LIBOR plus 1.85%. Concurrent with the new term loan, we entered into an
interest rate swap to fix the rate at 4.56%. Upon the refinancing, we redeemed and paid all outstanding Senior
Notes, including a redemption premium of $4.9 million, and paid $0.5 million of lender fees on the new term loan.
In December 2019, we refinanced an existing $40.0 million term loan that matured in December 2019 through an
amendment to the Amended Term Loan Agreement. The new term loan carries a variable interest rate of one-
month LIBOR plus 1.85% and matures in 2029. In conjunction with the new term loan we entered into an interest
rate swap to fix the interest rate at 3.17%.
At December 31, 2019, $693.5 million was outstanding under the Amended Term Loan Agreement.
Financial Covenants
The Amended Credit Agreement contains 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 Amended Credit Agreement also contains financial
maintenance covenants including the maintenance of a minimum interest coverage ratio and a maximum
leverage ratio. We will be permitted to pay dividends to our stockholders under the terms of the Amended Credit
Agreement so long as we expect to remain in compliance with the financial maintenance covenants. The
Amended Term Loan Agreement and the Amended Credit Agreement contain similar covenants.
The Interest Coverage Ratio is EBITDDA, which is defined for this calculation as net income adjusted for interest
expense, income taxes, depreciation, depletion and amortization, the basis of real estate sold and non-cash
equity compensation expense, divided by interest expense for the same period.
The Leverage Ratio is our Total Funded Indebtedness divided by our Total Asset Value (TAV). Our Total Funded
Indebtedness consists of long-term debt, including any current portion of long-term debt, revolving line of credit
borrowings and the amount outstanding under the letter of credit sub facility.
TAV includes the estimated fair value of timberlands, the book basis of our Wood Products manufacturing
facilities (limited to 10% of TAV), the book basis of Construction in Progress (limited to 10% of TAV), the book
basis of the Pro Rata Share of Investment Affiliates (limited to 15% of TAV), cash and cash equivalents and
company-owned life insurance (limited to 5% of TAV). Construction in Progress means, as of any date, (a) the
construction of a new operating facility or (b) an expansion with greater than $10 million of capital expenditures to
an existing facility. Investment Affiliate means any person in which any member of the Consolidated Parties
41
(PotlatchDeltic and its wholly owned subsidiaries), directly or indirectly, has an ownership interest, whose financial
results are not consolidated into our financial statements.
The table below sets forth the financial covenants for the Amended Credit Agreement and Amended Term Loan
Agreement and our status with respect to these covenants as of December 31, 2019:
Interest Coverage Ratio
Leverage Ratio
Dividends and Distributions to Shareholders
Covenant Requirement
3.00 to 1.00
(cid:149)
40%
(cid:148)
Actual
December(cid:3)31,(cid:3)2019
6.28
20%
The following table summarizes the historical tax characteristics of dividends and special distributions to
shareholders for the years ended December 31:
(Amounts per share)
Capital gain dividends
Non-taxable return of capital
Total dividends
Special distribution - qualified dividend1
2019
2018
2017
1.56 $
0.04
1.60 $
1.60 $
—
1.60 $
1.53
—
1.53
— $
3.54 $
—
$
$
$
1
On August 30, 2018, the board of directors approved a special distribution of $222.0 million, or approximately $3.54 per share. See Note
6: Earnings Per Share in the Notes to Consolidated Financial Statements for further details on the special distribution.
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. During 2018, both Moody’s and S&P upgraded our debt rating to investment
grade. There have been no changes in our credit rating during 2019. In August 2019 S&P revised their outlook on
the company to negative from stable.
Off-Balance Sheet Arrangements
We had no off-balance sheet financing agreements or guarantees as defined by Item 303 of Regulation S-K as of
December 31, 2019 or December 31, 2018 that we believe are reasonably likely to have a current or future effect
on our financial condition, results of operations or cash flows.
42
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2019:
(in thousands)
Long-term debt
Interest on long-term debt1
Operating leases2
Finance leases2
Purchase obligations3
Other long-term liabilities4
Total
Payments Due by Period
Total
Within
1 Year
1-3 Years 3-5 Years
More Than
5 Years
17,234
2,509
$ 762,235 $ 46,000 $ 83,000 $ 215,735 $ 417,500
161,035 27,102 49,058 41,846 43,029
1,689
—
—
7,513
$ 1,007,098 $ 114,276 $ 152,909 $ 270,182 $ 469,731
7,210
1,307
39,458 21,822 10,225
2,109
24,627 13,087
2,786
486
7,411
1,918
5,549
716
1
2
3
4
Amounts presented for interest payments assume that all long-term debt outstanding as of December 31, 2019 will remain outstanding
until maturity and interest rates on variable rate debt in effect as of December 31, 2019 will remain in effect until maturity. Estimated cash
flows related to interest rate swaps are also included in this category.
See Note 13: Leases in the Notes to Consolidated Financial Statements.
Purchase obligations primarily include open purchase orders for goods or services that are legally binding on us and that specify fixed or
minimum quantities to be purchased. Purchase obligations also include commitments for construction contracts and commitments to
complete real estate development projects and commitments to acquire property and equipment in the next twelve months. Purchase
obligations exclude arrangements that we can cancel without penalty.
Other long-term liabilities consist of certain employee-related obligations including estimated contributions to our pension and other post-
retirement employee benefit plans of $11.1 million during 2020, Idaho cost share roads and deferred compensation arrangements. Due
to the uncertainty of payment timing and amounts, we have not included estimated payments for pension and postretirement funding
beyond 2020.
Critical Accounting Policies and Estimates
Our accompanying Consolidated Financial Statements have been prepared in conformity with accounting
principles generally accepted in the United States, which require management to make estimates that affect the
amounts of revenues, expenses, assets and liabilities reported. The accounting for these matters involves forming
estimates based on current facts, circumstances and assumptions which, in management’s judgment, could
change in a manner that would materially affect management’s future estimates with respect to such matters and,
accordingly, could cause our future reported financial condition and results of operations to differ materially from
financial results reported based on management’s current estimates. The following critical accounting policy and
estimate requires some of management’s most difficult, subjective and complex judgment.
Pension benefits. The measurement of the pension benefit obligation, determination of pension plan net periodic
costs, and the requirements for funding our pension plans are based on actuarial assumptions that require
judgment. The most significant assumption is the discount rate used to value the current cost of future pension
obligations as different assumptions would change the net periodic pension costs and funded status of the benefit
plans. At the end of every year, we review our estimates with external advisers and adjust them accordingly. We
use these estimates to calculate plan asset and obligation information as of year-end as well as pension costs for
the following year. Actual experience that differs from our estimates, or any changes in our estimates that support
the actuarial methods and assumptions could have a significant effect on our financial position, results of
operations and cash flows. See Note 19: Savings Plans, Pension Plans and Other Postretirement Employee
Benefits in the Notes to Consolidated Financial Statements for a discussion of our assumptions and sensitivity of
such assumptions.
See Note 1: Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements for
further information on our accounting policies and new accounting pronouncements.
43
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk exposure on financial instruments includes interest rate risk on our bank credit facility, term loans
and interest rate swap agreements. All market risk sensitive instruments were entered into for purposes other
than trading purposes. We do not attempt to hedge our exposure to interest rate risk for our cash equivalents.
The interest rates applied to borrowings under our credit facility adjust often and therefore react quickly to any
movement in the general trend of market interest rates. We do not attempt to mitigate the effects of short-term
interest rate fluctuations on our credit facility borrowings through the use of derivative financial instruments. There
were no borrowings under our credit facility at December 31, 2019.
At December 31, 2019, we had six interest rate swaps associated with $397.5 million of term loan debt. See Note
15: Derivative Instruments in the Notes to Consolidated Financial Statements for additional information.
Quantitative Information about Market Risks
The table below provides information about our long-term debt, weighted-average interest rates and interest rate
swaps. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by
expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted-average interest
rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to
be exchanged under the contract and weighted-average variable rates are based on implied forward rates in the
yield curve.
(in thousands)
Variable rate debt:
Principal due
Average interest rate
Fixed rate debt:
Principal due
Average interest rate
Interest rate swaps:
Variable to fixed
Average pay rate
Average receive rate
2020
2021
Expected Maturity Date
2022
2023
2024
Thereafter
Total
Fair Value
$ 40,000 $ 40,000 $
3.51 %
3.58 %
— $
—
— $
—
— $ 317,500 $ 397,500 $ 397,500
—
3.54 %
3.54 %
$ 6,000 $
3.70 %
— $ 43,000 $ 40,000 $ 175,735 $ 100,000 $ 364,735 $ 377,617
3.93 %
—
4.10 %
4.60 %
4.49 %
4.05 %
— $ 317,500 $ 397,500 $ (20,797 )
—
—
2.57 %
1.63 %
2.49 %
1.63 %
$ 40,000 $ 40,000 $
2.92 %
1.61 %
2.84 %
1.68 %
— $
—
—
— $
—
—
44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
PotlatchDeltic Corporation:
Opinion on the Consolidated Financial Statements(cid:3)
We have audited the accompanying consolidated balance sheets of PotlatchDeltic Corporation and subsidiaries
(the Company) as of December 31, 2019 and 2018, the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as
of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based
on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated February 19, 2020 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of
accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update (ASU) No.
2016-02, along with subsequent amendments, Leases (Topic 842).
As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting
for revenues as of January 1, 2018 due to the adoption of Revenue from Contracts with Customers (Topic 606).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
45
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Evaluation of the measurement of the pension benefit obligation
As discussed in Notes 1 and 19 to the consolidated financial statements, the Company’s pension benefit
obligation was $474.2 million as of December 31, 2019. The measurement of the pension benefit
obligation is based on actuarial assumptions that require judgment. The discount rate applied to the
pension plan obligation is a critical assumption.
We identified the evaluation of the measurement of the pension benefit obligation as a critical audit
matter. Specialized skills and knowledge were required to understand the actuarial methods and evaluate
the discount rate used to determine the pension benefit obligation. In addition, there was subjectivity and
judgment in applying and evaluating results of the procedures due to the sensitivity of the pension benefit
obligation to changes in the discount rate.
The primary procedures we performed to address this critical audit matter included the following. We
tested certain internal controls over the Company’s pension benefit process, including controls related to
the selection of the actuarial methods, and determination of the discount rate assumption. We involved an
actuarial professional with specialized skills and knowledge, who assisted in:
(cid:120) assessing the actuarial methods used to determine the pension benefit obligation for consistency with
generally accepted actuarial standards; and
(cid:120) evaluating the discount rate as determined using the hypothetical bond portfolio model through
analyzing the bond selection criteria, the bond ratings, and the cash flow matching of the model.
We considered the change in this critical assumption from that used in the prior year, including
consideration of the changes in this critical assumption in light of published reports of actuarial experts
/s/ KPMG LLP
We have served as the Company’s auditor since 1952.
Seattle, Washington
February 19, 2020
46
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share amount)
Revenues
Costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Gain on sale of facility
Deltic merger-related costs
Environmental charges for Avery Landing
Gain on lumber price swap
Operating income
Interest expense, net
Loss on extinguishment of debt
Non-operating pension and other postretirement employee
benefit costs
Income before income taxes
Income tax provision
Net income
Net income per share:
Basic
Diluted
Dividends per share
Special distribution per share
Weighted-average shares outstanding (in thousands)
Basic
Diluted
$
$
$
$
$
2019
Years Ended December(cid:3)31,
2018
2017
$
827,098 $
974,579 $
678,595
682,066
57,925
(9,176 )
—
—
—
730,815
96,283
(30,361 )
(5,512 )
(3,739 )
56,671
(1,010 )
55,661 $
707,645
59,861
—
22,119
—
—
789,625
184,954
(35,227 )
—
(7,648 )
142,079
(19,199 )
122,880 $
469,393
49,996
—
3,409
4,978
(1,088 )
526,688
151,907
(27,049 )
—
(6,384 )
118,474
(32,021 )
86,453
0.82 $
0.82 $
1.60 $
— $
2.03 $
1.99 $
1.60 $
3.54 $
2.12
2.10
1.53
—
67,608
67,743
60,534
61,814
40,824
41,227
The accompanying notes are an integral part of these consolidated financial statements.
47
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(in thousands)
Net income
Other comprehensive (loss) income, net of tax:
$
2019
Years Ended December(cid:3)31,
2018
122,880 $
55,661 $
2017
86,453
Pension and other postretirement employee benefits:
Net (loss) gain arising during the period, net of tax (benefit)
expense of $(1,348), $(5,521) and $3,990
Amortization of actuarial loss included in net periodic cost,
net of tax expense of $3,772, $4,654 and $6,248
Amortization of prior service credit included in net periodic
cost, net of tax benefit of $(2,244), $(2,259) and $(3,350)
Cash flow hedges, net of tax (benefit) expense of $(978),
$(119) and $3
Other comprehensive (loss) income, net of tax
Comprehensive income
(3,836 )
(15,714 )
11,355
10,737
13,246
9,773
(6,389 )
(6,432 )
(5,239 )
(18,440 )
(17,928 )
37,733 $
(2,415 )
(11,315 )
111,565 $
4
15,893
102,346
$
The accompanying notes are an integral part of these consolidated financial statements.
48
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
ASSETS(cid:3)
Current assets:
At December(cid:3)31,
2019
2018
$
Cash and cash equivalents
Customer receivables, net of allowance for doubtful accounts of $751 and $368
Inventories, net
Other current assets
Assets held for sale
83,310 $
14,167
65,781
20,183
—
183,441
286,383
74,233
76,639
21,405
60,805
22,675
80,674
262,198
272,193
79,537
1,638,663 1,672,815
17,828
21,281
$ 2,235,059 $ 2,325,852
17,049
35,290
$
60,577 $
45,974
6,701
—
113,252
710,495
115,463
20,165
48,853
60,993
39,973
5,997
29,321
136,284
715,391
110,659
32,009
16,730
1,008,228 1,011,073
—
—
67,221
67,570
1,666,299 1,659,031
(282,391 )
(129,431 )
1,226,831 1,314,779
$ 2,235,059 $ 2,325,852
(359,330 )
(147,359 )
Total current assets
Property, plant and equipment, net
Investment in real estate held for development and sale
Timber and timberlands, net
Intangible assets, net
Other long-term assets
Total assets
LIABILITIES(cid:3)AND(cid:3)STOCKHOLDERS’(cid:3)EQUITY(cid:3)
Current liabilities:
Accounts payable and accrued liabilities
Current portion of long-term debt
Current portion of pension and other postretirement employee benefits
Liabilities held for sale
Total current liabilities
Long-term debt
Pension and other postretirement employee benefits
Deferred tax liabilities, net
Other long-term obligations
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, authorized 4,000 shares, no shares issued
Common stock, $1 par value, authorized 100,000 shares, issued 67,221 and
67,570 shares
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
49
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
2019
Years Ended December(cid:3)31,
2018
2017
$
55,661 $
122,880 $
86,453
(in thousands)
CASH(cid:3)FLOWS(cid:3)FROM(cid:3)OPERATING(cid:3)ACTIVITIES(cid:3)
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization
Basis of real estate sold
Gain on sale of facility
Loss on extinguishment of debt
Change in deferred taxes
Pension and other postretirement employee benefits
Equity-based compensation expense
Other, net
Change in working capital, net of business acquired:
Receivables, net
Inventories, net
Other assets
Accounts payable and accrued liabilities
Other liabilities
Real estate development expenditures
Funding of pension and other postretirement employee benefits
Net cash provided by operating activities
CASH(cid:3)FLOWS(cid:3)FROM(cid:3)INVESTING(cid:3)ACTIVITIES(cid:3)
Property, plant and equipment additions
Timberlands reforestation and roads
Acquisition of timber and timberlands
Proceeds on disposition of property, plant and equipment
Proceeds on sale of facility
Cash and cash equivalents acquired in Deltic merger
Transfer from company owned life insurance (COLI)
Transfer to COLI
Other, net
Net cash provided by (used in) investing activities
CASH(cid:3)FLOWS(cid:3)FROM(cid:3)FINANCING(cid:3)ACTIVITIES(cid:3)
Distributions to common stockholders
Repurchase of common stock
Proceeds from Potlatch revolving line of credit
Repayment of Potlatch revolving line of credit
Repayment of Deltic revolving line of credit
Proceeds from issue of long-term debt
Repayment of long-term debt
Premiums and fees on debt retirement
Other, net
Net cash used in financing activities
Change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
$
72,105
20,554
(9,176 )
5,512
(11,045 )
11,877
7,272
(2,324 )
7,238
(3,519 )
5,305
(11,415 )
3,955
(7,254 )
(5,678 )
139,068
(39,153 )
(17,695 )
(626 )
2,389
58,793
—
1,968
(1,148 )
(11 )
4,517
73,161
16,698
—
—
12,161
16,443
8,206
(1,221 )
2,822
273
(3,996 )
(5,212 )
(692 )
(5,049 )
(57,580 )
178,894
(29,880 )
(17,378 )
(4,877 )
45
—
3,419
1,796
(1,027 )
(7 )
(47,909 )
(107,722 )
(25,173 )
—
—
—
190,000
(190,000 )
(4,865 )
(1,012 )
(138,772 )
4,813
79,441
84,254 $
(146,768 )
—
100,000
(100,000 )
(106,000 )
100,000
(14,250 )
—
(4,983 )
(172,001 )
(41,016 )
120,457
79,441 $
29,912
6,827
—
—
15,364
13,151
5,379
(2,529 )
3,602
2,490
(15 )
11,591
1,072
—
(10,638 )
162,659
(12,855 )
(15,207 )
(22,043 )
94
—
—
1,278
(1,324 )
37
(50,020 )
(61,931 )
—
—
—
—
—
(11,000 )
—
(1,835 )
(74,766 )
37,873
82,584
120,457
The accompanying notes are an integral part of these consolidated financial statements.
50
Supplemental Consolidated Statements of Cash Flows disclosures:
(in thousands)
NONCASH(cid:3)INVESTING(cid:3)AND(cid:3)FINANCING(cid:3)ACTIVITIES(cid:3)
Long-term debt assumed by buyer in sale of facility
Accrued property, plant and equipment additions
Accrued timberlands reforestation and roads
Equity issued as consideration for our merger with Deltic
Earnings and profits distribution
CASH(cid:3)FLOW(cid:3)INFORMATION(cid:3)
Cash paid during the year for:
Interest, net of amounts capitalized
Income taxes, net
$
$
$
$
$
$
$
2019
Years Ended December(cid:3)31,
2018
2017
29,000
1,396
352
—
—
$
$
$
$
$
—
339
199
1,142,775
177,565
$
$
$
$
$
—
127
576
—
—
32,282
7,148
$
$
34,490
10,800
$
$
26,125
15,845
The accompanying notes are an integral part of these consolidated financial statements.
51
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Common Stock
Additional(cid:3)Paid- Accumulated
Accumulated(cid:3)Other
Comprehensive Total(cid:3)Stockholders'
(in thousands, except per share amounts)
Balance, December 31, 2016
Net income
Equity-based compensation expense
Shares issued for stock compensation
Pension plans and OPEB obligations
Cash flow hedges
Common dividends, $1.525 per share
Other transactions, net
Balance, December 31, 2017
Net income
Equity-based compensation expense
Shares issued for stock compensation
Pension plans and OPEB obligations
Cash flow hedges
Cumulative effects of adoption of accounting
standards
Common dividends, $1.60 per share
Common stock issued for Deltic merger
Deltic earnings and profits special
distribution, $3.54 per share
Other transactions, net
Balance, December 31, 2018
Net income
Equity-based compensation expense
Shares issued for stock compensation
Repurchase of common stock
Pension plans and OPEB obligations
Cash flow hedges
Common dividends, $1.60 per share
Other transactions, net
Balance, December 31, 2019
Shares
40,519
—
—
93
—
—
—
—
40,612
—
—
162
—
—
—
—
21,981
4,815
—
67,570
—
—
337
(686 )
—
—
—
—
67,221
Amount
$ 40,519 $
—
—
93
—
—
—
—
$ 40,612 $
—
—
162
—
—
in Capital
355,274 $
—
4,722
(93 )
—
—
—
(759 )
359,144 $
—
8,206
(162 )
—
—
Deficit
(128,775 ) $
86,453
—
—
—
—
(61,931 )
(110 )
(104,363 ) $
122,880
—
—
—
—
—
—
21,981
—
—
1,120,794
24,564
(102,333 )
—
4,815
—
$ 67,570 $
—
—
337
(686 )
—
—
—
—
$ 67,221 $
172,750
(1,701 )
1,659,031 $
—
7,272
(337 )
—
—
—
—
333
1,666,299 $
(222,000 )
(1,139 )
(282,391 ) $
55,661
—
—
(24,487 )
—
—
(107,722 )
(391 )
(359,330 ) $
Loss
Equity
(110,744 ) $
—
—
—
15,889
4
—
—
(94,851 ) $
—
—
—
(8,900 )
(2,415 )
(23,265 )
—
—
—
—
(129,431 ) $
—
—
—
—
512
(18,440 )
—
—
(147,359 ) $
156,274
86,453
4,722
—
15,889
4
(61,931 )
(869 )
200,542
122,880
8,206
—
(8,900 )
(2,415 )
1,299
(102,333 )
1,142,775
(44,435 )
(2,840 )
1,314,779
55,661
7,272
—
(25,173 )
512
(18,440 )
(107,722 )
(58 )
1,226,831
The accompanying notes are an integral part of these consolidated financial statements.
52
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 1.9 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. 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. As
described in Note 2: Deltic Merger, on February 20, 2018 Deltic Timber Corporation (Deltic) merged into our
wholly owned subsidiary.
CONSOLIDATION
The Consolidated Financial Statements include the accounts of PotlatchDeltic Corporation and its subsidiaries
after the elimination of intercompany transactions and accounts. There are no unconsolidated subsidiaries.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America, which we refer to in this report as U.S. GAAP, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and assumptions.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash equivalents are investments that are highly liquid with original maturities of three months or less when
purchased. At December 31, 2019 and 2018 we had restricted cash of $0.9 million and $2.8 million, respectively
included in other long-term assets related to proceeds held by a qualified intermediary that are intended to be
reinvested in timberlands. The following provides a reconciliation of cash, cash equivalents, and restricted cash at
December 31:
(in thousands)
Cash and cash equivalents
Restricted cash included in other long-term assets
Total cash, cash equivalents, and restricted cash
2019
2018
$
$
83,310 $
944
84,254 $
76,639 $
2,802
79,441 $
2017
120,457
—
120,457
53
BUSINESS COMBINATIONS
We recognize identifiable assets acquired and liabilities assumed at their acquisition date estimated fair value.
Goodwill, if any, as of the acquisition date is measured as the excess of consideration transferred over the net of
the acquisition date estimated fair value of the assets acquired and the liabilities assumed. While we use our best
estimates and assumptions for the purchase price allocation process to value assets acquired and liabilities
assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result,
during the measurement period, which may be up to one year from the acquisition date, we record adjustments to
the assets acquired and liabilities assumed to the extent that we identify adjustments to the preliminary purchase
price allocation. We recognize measurement period adjustments and any resulting effect on earnings during the
period in which the adjustment is identified. Upon the conclusion of the measurement period or final determination
of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are
recorded to our Consolidated Statements of Income.
REVENUE RECOGNITION
We recognize revenue in accordance with the Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic No. 606, Revenue from Contracts with Customers (ASC 606). For our
Timberlands segment we generate revenue predominantly in the form of delivered logs, pay-as-cut stumpage
contracts, lump sum stumpage contracts and timber deeds. For our Wood Products segment we generate
revenue from the sale of manufactured wood products and residual by-products. For our Real Estate segment, we
generate revenue from the sale of rural real property deemed non-strategic or identified as having higher and
better use alternatives and real estate development and subdivision activity.
A performance obligation, as defined in ASC 606, is a promise in a contract to transfer a distinct good or service
to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized
as revenue at the point in time, or over the period in which the performance obligation is satisfied. We recognize
revenues when control of promised goods or services (performance obligations) is transferred to customers, in an
amount that reflects the consideration expected in exchange for those goods or services (transaction price). A
contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue at the
point in time, or over the period in which the performance obligation is satisfied.
Performance Obligations
On delivered log sales, revenue includes amounts billed for logging and hauling and is recognized at the point the
logs are delivered and scaled. Revenue is recognized on timber deeds and lump sum stumpage contracts
generally upon closing or when the contracts are effective, which is the point at which the buyer assumes risk of
loss associated with the standing timber. We enter into pay-as-cut contracts with customers that provide the
customer with the right of access to harvest timber on a specified area of our land. At the execution of the
agreement, the customer typically does not take title, control or risk of ownership to the timber. Revenue for pay-
as-cut contracts is recognized once scaling occurs as that is the point when control of the harvested trees has
transferred to the customer and we have a right to payment.
Performance obligations associated with the sale of wood products are typically satisfied when the products are
shipped (FOB shipping point) or upon delivery to our customer (FOB destination) depending on the terms of the
customer contract. Shipping and handling costs for all wood product, log hauling costs and residual sales are
accounted for as cost of goods sold in our Consolidated Statements of Income. We also enter into vendor
managed inventory (VMI) programs with certain customers whereby inventory is shipped to a VMI location. For
products shipped under VMI arrangements, revenue is recognized and billed when control transfers to the
customer and we have no further obligations, which is generally once the customer pulls the inventory from the
VMI warehouse.
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.
ASC Topic 606 requires entities to consider significant financing components of contracts with customers, though
allows for the use of a practical expedient when the period between satisfaction of a performance obligation and
54
payment receipt is one year or less. Given the nature of our revenue transactions, we have elected to utilize this
practical expedient.
Contract Estimates
Substantially all of the company’s performance obligations are satisfied as of a point in time. The transaction price
for log sales generally equals the amount billed to our customer for logs delivered during the accounting period.
For the limited number of log sales subject to a long-term supply agreement, the transaction price is variable but
is known at the time of billing. For wood products sales, the transaction price is typically the amount billed to the
customer for the products shipped but may be reduced slightly for estimated cash discounts and rebates. There
are no significant contract estimates related to the real estate business.
See Note 4: Revenue Recognition for additional information.
INVENTORIES
For most of our operations, we use the last-in, first-out (LIFO) method of valuing log, lumber and plywood
inventory. An actual valuation of inventory under the LIFO method occurs 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 valued under LIFO are stated as the lower of cost or market. All segment inventories are reported
using the average cost method. The LIFO reserve and intersegment eliminations are recorded at the corporate
level.
Inventories not valued under LIFO are recorded at the lower of average cost or net realizable value. Expenses
associated with idle capacity or abnormally low production are reflected in cost of goods sold in the periods
incurred. See Note 7: Inventories for additional information.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are valued at cost less accumulated depreciation. Depreciation of buildings,
equipment and other depreciable assets is determined using the straight-line method of depreciation.
Major improvements and replacements of property are capitalized. Maintenance, repairs and minor improvements
and replacements are expensed. Upon retirement or other disposition of property, applicable cost and
accumulated depreciation are removed from the accounts. Any gains or losses are included in operating income.
See Note 8: Property, Plant and Equipment for additional information.
RECOVERY OF LONG-LIVED ASSETS
Our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. We evaluate recoverability of an asset group by comparing
its carrying value to the future net undiscounted cash flows that we expect will be generated by the asset group. If
the comparison indicates that the carrying value of an asset group is not recoverable, we recognize an
impairment loss for the excess of carrying value over the estimated fair value. When we recognize an impairment
loss for assets to be held and used, we depreciate the adjusted carrying amount of those assets over their
remaining useful life. We also perform a test for recoverability when management has committed to a plan to sell
or otherwise dispose of an asset group. Assets to be disposed of are reported at the lower of carrying amount or
fair value less cost to sell. There were no events or changes in circumstances that indicated the carrying amounts
of our long-lived held and used assets were not recoverable during the years ended December 31, 2019, 2018 or
2017. For the years ended December 31, 2019, 2018 and 2017 we recorded loss on disposal of property, plant
and equipment of $0.9 million, $0.7 million and $0.2 million, respectively.
TIMBER AND TIMBERLANDS
Timber and timberlands are valued at cost less accumulated depletion and amortization. We capitalize costs
related to stand establishment, which include the preparation of the land for planting, seeds or seedlings and tree
planting costs, which include third-party labor costs, materials and other contract services. Upon completion of
55
planting activities and field inspection to confirm the planting operation was successful, a plantation is considered
“established.”
Subsequent expenditures to maintain the integrity or enhance the growth of an established plantation or stand are
expensed. Post-establishment expenses include vegetation control, fertilization, thinning operations and the
replanting of seedlings lost through mortality. Forest management costs are considered current operating
expenses and include property taxes and insurance, silviculture costs incurred subsequent to stand
establishment, cruising of timber volume, property maintenance, salaries, supplies, travel, record-keeping, fire
protection and other normal recurring administrative personnel costs.
Timberland acquisitions are capitalized based on the relative appraised values of timberland, merchantable
timber, pre-production timber (young growth that is not yet merchantable timber), logging roads and other land
improvements.
The estimated volume of current standing merchantable timber, which is a component of calculating our depletion
rates, is updated at least annually to reflect increases due to the reclassification of pre-production timber to
merchantable timber when it meets defined diameter specifications, the annual growth of merchantable timber
and the acquisition of additional merchantable timber, decreases due to timber harvests and land sales and
changes resulting from other factors, such as casualty losses. Timber volumes are estimated from cruises of the
timber tracts, which are completed on our timberlands on approximately a five to ten year cycle.
Depletion represents the amount charged to expense as timber is harvested. Rates at which timber is depleted
are calculated annually for each of our depletion pools by dividing the beginning of year balance of the
merchantable timber accounts by the volume of standing merchantable timber, after estimated timber volume
updates.
The base cost of logging roads, such as clearing, grading and ditching, is not amortized and remains a capitalized
item until disposition. Other portions of the initial logging road cost, such as bridges, culverts and gravel surfacing
are amortized over their useful lives, which range from 5 to 20 years. Costs associated with temporary logging
road spurs, which are typically used for one harvest season, are expensed as incurred. See Note 9: Timber and
Timberlands for additional information.
INTANGIBLE ASSETS
We recorded intangible assets in connection with the Deltic merger in 2018. We have both indefinite-lived and
long-lived intangible assets. Long-lived intangible assets include customer relationships and certain trade names
we estimate have a finite life and are being amortized over 10 and 20 years, respectively, and are evaluated for
impairment under our Recovery of Long-Lived Assets policy described above. Indefinite-lived intangible assets
are not amortized and are tested for potential impairments annually as of October 1, or during the year if an event
or other circumstance indicates that we may not be able to recover the carrying amount of the assets. We did not
impair any intangible assets during the years ended December 31, 2019 or 2018. See Note 10: Intangible Assets
for additional information.
LEASES
We lease certain equipment, office space and land. Right-of-use (ROU) assets represent our right to use an
underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising
from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date
based on the present value of lease payments over the lease term. As most of our leases do not provide an
implicit rate, we use our incremental borrowing rate in determining the present value of lease payments. We
consider our recent debt issuances as well as publicly available data for instruments with similar characteristics
when calculating our incremental borrowing rates.
56
Most leases include one or more options to renew, with renewal terms that can extend the lease term between
one to five years. The exercise of lease renewal options is at our sole discretion. Under the operating lease
model, lease expense is recognized on a straight-line basis over the lease term. Under the finance lease model,
lease expense consists of the amortization of the ROU asset on a straight-line basis over the asset’s estimated
useful life and interest expense calculated using the effective interest method. Leases with an initial term of 12
months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-
line basis over the lease term.
For certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU
assets and liabilities. For certain equipment leases, such as vehicles, we account for the lease and non-lease
components as a single lease component. Certain leases also include options to purchase the leased equipment.
The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is
a transfer of title or purchase option reasonably certain of exercise. Certain of our rental payments are adjusted
periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material
restrictive covenants and we do not have any significant sublease income. See Note 13: Leases for additional
information.
DERIVATIVE INSTRUMENTS
We use, from time to time, certain derivative instruments to mitigate exposure to volatility in interest rates and
effectively convert a portion of floating rate debt to a fixed rate basis, thus reducing the impact of interest rate
changes on future interest expense and cash flows. All derivatives, whether designated as a hedging relationship
or not, are recorded in the Consolidated Balance Sheets at fair value. The accounting for changes in fair value of
a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship
and the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging
instruments, we must designate the hedging instrument as a fair value hedge or cash flow hedge based on the
exposure being hedged.
A fair value hedge is a derivative instrument designated for the purpose of hedging the exposure to changes in
fair value of an asset or a liability resulting from a particular risk. If the derivative is designated as a fair value
hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are
both recognized in the results of operations and presented in the same caption in the Consolidated Statements of
Income and Consolidated Statements of Comprehensive Income.
For a cash flow hedge, the fair value of the effective portion of the derivative is recognized as an asset or liability
with a corresponding amount in Accumulated Other Comprehensive Loss on our Consolidated Balance Sheets.
Amounts recorded in Accumulated Other Comprehensive Loss are recognized in earnings when the underlying
hedged transaction affects earnings. Ineffectiveness is measured by comparing the present value of the
cumulative change in the expected future cash flows of the derivative and the present value of the cumulative
change in the expected future cash flows of the related instrument. Any ineffective portion of a cash flow hedge is
recognized in earnings immediately.
If a hedge ceases to qualify for hedge accounting, the contract would continue to be carried on the balance sheet
at fair value until settled and adjustments to the contract’s fair value would be recognized in earnings. If a
forecasted transaction were no longer probable of occurring, amounts previously deferred in accumulated other
comprehensive income (loss) would be recognized immediately in earnings. For derivative instruments not
designated as hedges, the change in fair value of the derivative is recognized in earnings each reporting period.
We have International Swap Dealers Association ("ISDA") Master Agreements with each counterparty that
permits the net settlement of amounts owed under the respective contracts. The ISDA Master Agreement is an
industry standardized contract that governs all derivative contracts entered into between the company and the
respective counterparty. Under these master netting agreements, net settlement generally permits the company
or the counterparty to determine the net amount payable or receivable for contracts due on the same date for
similar types of derivative transactions. We have not elected to offset the fair value positions of the derivative
contracts recorded in the Consolidated Balance Sheets. See Note: 15 Derivative Instruments for additional
information.
57
COMPANY OWNED LIFE INSURANCE
We are the beneficiary of insurance policies on the lives of certain past officers and employees. We have
recognized the amount that could be realized upon surrender of the insurance policies in other assets in our
Consolidated Balance Sheets. Company owned life insurance expense and interest income are included in
selling, general and administrative expenses and interest expense, net, respectively, in the Consolidated
Statements of Income. The net effect of these amounts on income was not significant for the years ended
December 31, 2019, 2018 and 2017. Cash receipts and disbursements are recorded as investing activities in the
Consolidated Statements of Cash Flows.
PENSION AND OTHER POSTRETIREMENT BENEFITS(cid:3)
We recognize any overfunded or underfunded status of our defined benefit pension and other postretirement
plans on our Consolidated Balance Sheets and recognize changes in the funded status through comprehensive
income (loss) in the year in which the changes occur. The funded status and the requirements for funding our
pension plans are based on a number of actuarial assumptions that require judgment. The determination of net
periodic pension and postretirement benefit costs includes:
(cid:120)
(cid:120)
costs of benefits provided in exchange for employees’ services rendered;
interest cost of the obligation;
(cid:120) expected long-term return on plan assets for funded plans;
(cid:120) amortization of prior service costs and plan amendments over the average remaining service period of
the active employee group covered by the plan; and
(cid:120) amortization of cumulative unrecognized net actuarial gains and losses – generally in excess of 10
percent of the greater of the benefit obligation or market-related value of plan assets at the beginning of
the year – over the average remaining service period of the active employee group covered by the plan.
Different assumptions would change the net periodic pension and postretirement benefit costs and the obligation
of the benefit plans. See Note 19: Savings Plans, Pension Plans and Other Postretirement Employee Benefits for
additional information.
EQUITY-BASED COMPENSATION
Equity-based awards are measured at estimated fair value on the dates they are granted or modified. These
for accounting purposes. Equity-based
the equity-based awards
measurements establish
compensation expense is recognized over the awards’ applicable vesting period using the straight-line method.
See Note 17: Equity-Based Compensation Plans for more information about our equity-based compensation.
the cost of
INCOME TAXES
We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their respective tax bases, operating loss
carryforwards and tax credit carryforwards. Deferred tax assets and liabilities are measured pursuant to tax laws
using rates expected to apply to taxable income in the years in which the temporary differences are expected to
be recovered or settled. We recognize the effect of a change in income tax rates on deferred tax assets and
liabilities in the Consolidated Statements of Income and Consolidated Statements of Comprehensive Income in
the period that includes the enactment date of the rate change. We record a valuation allowance to reduce the
carrying amounts of deferred tax assets if it is more likely than not that such deferred tax assets will not be
realized.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities. The determination is based on the technical merits of the
position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has
full knowledge of all relevant information. See Note 18: Income Taxes for additional information.
58
NEW ACCOUNTING PRONOUNCEMENTS
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). 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 and implementation of the standard:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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 approximately $14.0 million for right of use assets and lease liabilities for
our operating leases on our Consolidated Balance Sheet. The adoption of this ASU did not impact our
Consolidated Statement of Income or our Consolidated Statement of Cash Flows. See Leases policy described
above and Note 13: Leases for additional information.(cid:3)
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 adopted this standard on January 1, 2020
and will apply its requirements to future arrangements on a prospective basis.
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 ending after December 15, 2020, including interim periods within
those years and requires retrospective adoption; early adoption is permitted. We adopted this standard effective
January 1, 2020 and it will not have a material impact on our future defined benefit pension plan and other
postretirement plan 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 (i) requiring disclosures on changes in unrealized
gains and losses in other comprehensive income for recurring Level 3 fair value measurements; and (ii) 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 beginning after December 15, 2019,
including interim periods within those years. We adopted this standard effective January 1, 2020 and it will not
have a material impact on our future fair value measurement disclosures.
NOTE 2. MERGER WITH DELTIC
On February 20, 2018 (merger date), Deltic Timber Corporation (Deltic) merged into a wholly-owned subsidiary of
Potlatch Corporation. 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 merger
created a combined company with a diversified timberland base of approximately 1.9 million acres, including
approximately 930,000 acres in Arkansas. It uniquely positions us to expand our integrated model of timberland
59
ownership and lumber manufacturing, provides tax savings on Deltic’s timber harvest earnings and increase our
exposure to the Texas housing market.
Under the merger agreement, each issued and outstanding share of Deltic common stock was exchanged for
1.80 shares of Potlatch common stock, with cash paid in lieu of any fractional shares. Upon consummation of the
merger with Deltic, all outstanding Deltic stock options (which fully vested as of the merger date) and restricted
stock units (RSUs) were converted into Potlatch RSUs, after giving effect to the 1.8 exchange ratio. Because the
Deltic stock options were fully vested and relate to services rendered to Deltic prior to the merger, the
replacement stock options were also fully vested, and their fair value is included in the consideration transferred.
A portion of the replacement RSUs relate to services to be performed post-merger and therefore are not included
in consideration transferred. See additional details about replacement share-based payment awards in Note 17:
Equity-Based Compensation Plans.
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 approximately $22.1 million and $3.4 million of merger-related costs during the years ended
December 31, 2018 and 2017, respectively. Total merger-related costs consisted of:
(cid:120) $12.2 million and $3.3 million of merger-related costs during the years ended December 31, 2018 and
2017, respectively, for professional fees such as investment banker fees, legal, accounting and appraisal
services; and
(cid:120) $9.9 million and $0.1 million of restructuring related costs during the years ended December 31, 2018 and
2017, respectively, primarily for termination benefits, which includes accelerated share-based payment
costs, for qualifying terminations.
These costs are included in Deltic merger-related costs in our Consolidated Statements of Income.
The amount of revenue and income before taxes from the acquired Deltic operations included in our Consolidated
Statement of Income from February 21, 2018 through December 31, 2018 was $265.5 million and $21.6 million,
respectively.
The following summarizes unaudited pro forma information that presents combined amounts as if this merger
occurred at the beginning of 2017:
(in thousands, except per share amounts)
Net sales
Net earnings attributable to PotlatchDeltic common shareholders
Basic earnings per share attributable to PotlatchDeltic common
shareholders
Diluted earnings per share attributable to PotlatchDeltic common
shareholders
Year Ended
December 31,
2018
2017
$ 1,013,242 $
145,685 $
$
920,860
77,732
$
$
2.16 $
2.15 $
1.15
1.15
Pro forma net earnings attributable to PotlatchDeltic common shareholders excludes $27.6 million and $16.8
million of non-recurring merger-related costs incurred by both companies during the years ended December 31,
2018 and 2017, respectively, of which $18.9 million were incurred by Deltic prior to the merger.
Pro forma basic and diluted earnings per share assumes issuance of 22.0 million shares that were issued at the
merger date and the issuance of 4.8 million shares for the Deltic earnings and profits special distribution as of the
beginning of 2017. Refer to Note 6: Earnings Per Share. Pro forma data may not be indicative of the results that
would have been obtained had these events occurred at the beginning of the periods presented, nor is it intended
to be a projection of future results.
60
The following table summarizes the estimated fair value measurements of assets acquired and liabilities assumed
as of the merger date, including measurement period adjustments identified:
(in thousands)
ASSETS(cid:3)
Preliminary
Allocation
Measurement
Period
Adjustments
Final Allocation
Cash and cash equivalents
Customer receivables
Inventories
Other current assets
Real estate held for development and sale
Property, plant and equipment
Timber and timberlands
Mineral rights
Trade name and customer relationships intangibles
Other long-term assets
Total assets acquired
LIABILITIES(cid:3)
Accounts payable and accrued liabilities
Long-term debt
Pension and other postretirement employee benefits
Deferred tax liabilities, net
Other long-term liabilities
Total liabilities assumed
Net assets acquired
$
3,419 $
12,709
17,316
8,276
79,000
265,901
1,060,000
—
19,000
2,010
1,467,631
12,604
229,968
36,909
44,439
936
324,856
$ 1,142,775 $
— $
—
—
(2,991 )
4,000
(5,132 )
(4,255 )
6,236
500
1,546
(96 )
11
144
—
(251 )
—
(96 )
— $
3,419
12,709
17,316
5,285
83,000
260,769
1,055,745
6,236
19,500
3,556
1,467,535
12,615
230,112
36,909
44,188
936
324,760
1,142,775
The initial allocation of purchase price was recorded using the preliminary estimated fair value of assets acquired
and liabilities assumed based upon the best information available to management at the time. The purchase price
allocation was finalized as of December 31, 2018. The measurement period adjustments reflect additional
information obtained to record the fair value of certain assets acquired and liabilities assumed based on facts and
circumstances existing as of the acquisition date. Measurement period adjustments reflected above did not have
a material impact to earnings or cash flows for the year ended December 31, 2018.
NOTE 3. SALE OF DELTIC MDF FACILITY
On December 20, 2018, we entered into an Asset Purchase and Sale Agreement with Roseburg Forest Products
Co. to sell our Deltic Medium Density Fiberboard (MDF) facility for $92.0 million, consisting of $63.0 million in
cash and assumption of $29.0 million of revenue bonds. The price was subject to post-closing adjustments for
certain changes in working capital as defined in the purchase and sale 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 $58.8 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 disposed met the criteria to be classified as held for sale and are
reflected as such at their carrying value. At December 31, 2018, assets held for sale on the Consolidated Balance
Sheets of $80.7 million consists of $72.1 million property, plant & 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 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.
61
NOTE 4. REVENUE RECOGNITION
The following table represents our revenues by major product. We adopted ASC 606, Revenue from Contracts
with Customers, on January 1, 2018 using the cumulative effect method. Year ended December 31, 2017 is
provided for comparison purposes and was accounted for in accordance with ASC 605, Revenue Recognition.
For additional information regarding our revenue recognition policy, see Note 1: Summary of Significant
Accounting Policies. For additional information regarding our segments, see Note 5: Segment Information.
(in thousands)
Timberlands
Northern region
Sawlogs
Pulpwood
Stumpage
Other
Total Northern revenues
Southern region
Sawlogs
Pulpwood
Stumpage
Other
Total Southern revenues
Year Ended December 31,
2019
2018
2017
$
161,570 $
5,767
109
1,970
169,416
205,977 $
5,996
176
1,801
213,950
190,693
5,634
153
1,387
197,867
88,048
53,315
1,666
10,248
153,277
81,460
48,585
2,434
8,521
141,000
40,993
34,907
557
3,875
80,332
Total Timberlands revenues
322,693
354,950
278,199
Wood Products
Lumber
Residuals and Panels
Total Wood Products revenues
Real Estate
Rural real estate
Development real estate
Other1
Total Real Estate revenues
396,648
143,760
540,408
464,180
216,751
680,931
313,083
128,074
441,157
49,675
22,363
6,834
78,872
36,024
12,852
5,690
54,566
30,655
—
—
30,655
Total segment revenues
Intersegment Timberlands revenues2
Total consolidated revenues
941,973 1,090,447
(115,868 )
(114,875 )
974,579 $
827,098 $
750,011
(71,416 )
678,595
$
1
2
Other Real Estate revenues primarily relate to the Chenal Country Club.
Intersegment revenues represent logs sold by our Timberlands segment to the Wood Products segment.
Contract Balances
In general, a customer receivable is recorded as we deliver wood products, logs and residuals. We generally
receive payment shortly after products have been received by our customers. At December 31, 2019 and 2018,
we recorded $5.5 million and $4.3 million, respectively, for contract liabilities recorded as deferred revenue. These
contract liabilities predominately relate to hunting and other access rights on our timberlands and member related
activities at the Chenal Country Club. These contract liabilities are recognized over the term of the contracts,
which is typically twelve months or less, except membership initiation fees at the Chenal Country Club which
typically are recognized 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.
62
NOTE 5. SEGMENT INFORMATION
Our businesses are organized into three reportable operating 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, biomass production
and carbon sequestration. The Wood Products segment manufactures and markets lumber and plywood. The
Real Estate segment includes the sale of land holdings deemed non-strategic or identified as having higher and
better use alternatives, master planned community development and a country club.
The reportable segments follow the same accounting policies used for our 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. For additional information see Note 1: Summary of Significant Accounting Policies.
Management primarily evaluates the performance of its segments and allocates resources to them based upon
Adjusted EBITDDA. EBITDDA is calculated as net income (loss) before interest expense, income taxes, basis of
real estate sold, depreciation, depletion and amortization. Adjusted EBITDDA further excludes certain specific
items that are considered to hinder comparison of the performance of our businesses either year-on-year or with
other businesses. Management uses Adjusted EBITDDA to compare the operating performance of segments on a
consistent basis and to evaluate the performance and effectiveness of each segment’s operational strategies. Our
calculation of Adjusted EBITDDA may not be comparable to that reported by other companies.
The following table summarizes information for each of the company’s reportable segments and includes a
reconciliation of Total Adjusted EBITDDA to income before income taxes. Corporate information is included to
reconcile segment data to the Consolidated Financial Statements.
63
(in thousands)
Revenues:
Timberlands
Wood Products
Real Estate
Intersegment Timberlands revenues1
Total consolidated revenues
Adjusted EBITDDA:
Timberlands
Wood Products
Real Estate
Corporate
Eliminations and adjustments
Total Adjusted EBITDDA
Basis of real estate sold
Depreciation, depletion and amortization
Interest expense, net2
Loss on extinguishment of debt
Non-operating pension and other postretirement employee benefits
Loss on fixed assets
Gain on sale of facility
Inventory purchase price adjustment in cost of goods sold3
Deltic merger-related costs4
Environmental charges for Avery Landing
Income before income taxes
Depreciation, depletion and amortization:
Timberlands
Wood Products
Real Estate
Corporate
Bond discount and deferred loan fees2
Total depreciation, depletion and amortization
Basis of real estate sold:
Real Estate
Elimination and adjustments
Total basis of real estate sold
Assets:
Timberlands5
Wood Products
Real Estate6
Corporate
Total consolidated assets
Capital Expenditures:7
Timberlands
Wood Products
Real Estate8
Corporate
Total capital expenditures
2019
Year Ended December(cid:3)31,
2018
2017
$
$
$
$
$
$
$
$
$
$
$
$
322,693 $
540,408
78,872
941,973
(114,875 )
827,098 $
354,950 $
680,931
54,566
1,090,447
(115,868 )
974,579 $
133,987 $
12,901
62,650
(36,257 )
5,662
178,943
(20,554 )
(70,417 )
(30,361 )
(5,512 )
(3,739 )
(865 )
9,176
—
—
—
56,671 $
46,601 $
22,059
678
1,079
70,417
1,688
72,105 $
20,749 $
(195 )
20,554 $
169,834 $
130,583
40,304
(37,785 )
(5,743 )
297,193
(16,698 )
(70,848 )
(35,227 )
-
(7,648 )
(725 )
—
(1,849 )
(22,119 )
—
142,079 $
48,201 $
21,416
418
813
70,848
2,313
73,161 $
16,954 $
(256 )
16,698 $
1,655,407 $
398,465
87,421
2,141,293
93,766
2,235,059 $
1,693,162 $
456,306
93,208
2,242,676
83,176
2,325,852 $
17,500 $
37,232
8,053
62,785
1,317
64,102 $
17,232 $
27,341
5,987
50,560
1,747
52,307 $
278,199
441,157
30,655
750,011
(71,416 )
678,595
126,707
80,624
25,720
(34,302 )
(2,992 )
195,757
(6,827 )
(28,432 )
(27,049 )
-
(6,384 )
(204 )
—
—
(3,409 )
(4,978 )
118,474
20,476
7,347
2
607
28,432
1,480
29,912
7,114
(287 )
6,827
669,288
154,479
952
824,719
128,360
953,079
15,120
10,723
87
25,930
2,132
28,062
1
2
3
Intersegment revenues represent logs sold by our Timberlands segment to our Wood Products segment.
Bond discounts and deferred loan fees are reported within interest expense on the Consolidated Statements of Income.
The effect of costs of goods sold for fair value adjustments to the carrying amounts of inventory acquired in business combinations.
See Note 2: Merger with Deltic.
For integration and restructuring costs related to the merger with Deltic see Note 2: Merger with Deltic.
4
5 We do not report rural real estate separate from Timberlands as we do not report these assets separately to management.
6
7
8
Real Estate assets primarily consist of real estate development acquired with the Deltic merger.
Does not include the acquisition of timber and timberlands, all of which were acquired by the Timberlands segment.
Real Estate capital expenditures include development expenditures of $7.3 million, $5.0 million and $0 for the year ended December 31,
2019, 2018 and 2017, respectively.
64
All of our timberlands, wood products facilities and other assets are located within the continental United States.
Geographic information regarding our revenues for the years ended December 31 is as follows:
(in thousands)
United States
Canada
Mexico
Total consolidated revenues
2019
825,105 $
128
1,865
827,098 $
2018
972,457 $
624
1,498
974,579 $
2017
676,956
481
1,158
678,595
$
$
No customers represented more than 10% of our consolidated revenues during 2019 or 2018. One customer
accounted for slightly more than 10% of our total consolidated revenues during 2017.
NOTE 6. EARNINGS PER SHARE
The following table reconciles the number of shares used in calculating basic and diluted earnings per share for
the years ended December 31:
(in thousands, except per share amounts)
Net income
2019
$
55,661 $
2018
122,880 $
2017
86,453
Basic weighted-average shares outstanding
Incremental shares due to:
Performance shares
Restricted stock units
Stock portion of earnings and profits distribution
Diluted weighted-average shares outstanding
67,608
60,534
40,824
109
26
—
67,743
230
34
1,016
61,814
363
40
—
41,227
Basic net income per share
Diluted net income per share
$
$
0.82 $
0.82 $
2.03 $
1.99 $
2.12
2.10
For stock-based awards, the dilutive effect is calculated using the treasury stock method. Under this method, the
dilutive effect is computed as if the awards were exercised at the beginning of the period (or at time of issuance, if
later) and assumes the related proceeds were used to repurchase common stock at the average market price
during the period. Related proceeds include future compensation cost associated with the stock award.
At December 31, 2019, 2018 and 2017, there were 49,500, 42,000, and 250 stock-based awards, respectively,
which were excluded from the calculation of earnings per share because they were anti-dilutive. Anti-dilutive
stock-based awards could be dilutive in future periods.
Share Issuance Related to the Deltic Merger
In February 2018, we issued 22.0 million shares in connection with the Deltic merger. On August 30, 2018, the
board of directors approved a special distribution of $222.0 million, or approximately $3.54 per share. The special
distribution amount equaled the company’s determination of the accumulated earnings and profits of Deltic as of
the merger date and was distributed in order to maintain the company’s qualification as a REIT for U.S. federal
income tax purposes. The special distribution was paid on November 15, 2018, to stockholders of record on
September 27, 2018 through the issuance of 4.8 million shares of our common stock and distribution of $44.4
million in cash. The special distribution shares are included in basic weighted-average shares outstanding
beginning November 15, 2018, and diluted weighted-average shares outstanding from August 30, 2018, to
November 14, 2018. See Note 2: Merger with Deltic for further discussion on the merger.
Share Repurchase Program
On August 30, 2018, our board of directors authorized management to repurchase up to $100.0 million of
common stock with no time limit set for the repurchase (the 2018 Repurchase Program). No shares were
65
repurchased during 2018 under the 2018 Repurchase Program. During the year-ended December 31, 2019, we
repurchased 686,240 shares of common stock for $25.2 million under the 2018 Repurchase Program. All
common stock purchases were made in open-market transactions. At December 31, 2019, we had remaining
authorization of $74.8 million for future stock repurchases under the 2018 Repurchase Program.
On April 26, 2016 the Company announced that our Board of Directors authorized management to repurchase up
to $60.0 million of common stock over a 24-month period. No shares were repurchased in 2018 or 2017 under
this repurchase plan.
We record share purchases upon trade date, as opposed to the settlement date. We retire shares upon
repurchase. Any excess repurchase price over par is recorded in accumulated deficit. There were no unsettled
repurchases as of December 31, 2019 and 2018.
Dividend
On February 14, 2020 the board of directors approved a quarterly cash dividend of $0.40 per share payable on
March 31, 2020 to stockholders of record as of March 6, 2020.
NOTE 7. INVENTORIES
Inventories consist of the following at December 31:
(in thousands)
Logs
Lumber, plywood and veneer
Materials and supplies
Less: LIFO reserve
Total inventories
2019
2018
$
$
33,313 $
31,639
12,831
77,783
(12,002 )
65,781 $
37,303
27,420
11,310
76,033
(15,228 )
60,805
If the last-in, first-out inventory had been carried at average cost, the values would have been higher by
approximately $12.0 million, $15.2 million and $10.9 million at December 31, 2019, 2018 and 2017, respectively.
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment consist of the following at December 31:
(in thousands)
Land
Buildings and improvements
Machinery and equipment
Construction in progress
Less: accumulated depreciation
Total property, plant and equipment, net
Range of useful lives
2019
2018
10-40 years
2-25 years
$
$
7,875 $
123,342
360,570
6,326
498,113
(211,730 )
286,383 $
6,078
92,326
364,101
10,190
472,695
(200,502 )
272,193
Depreciation charged against operating income totaled $23.9 million, $22.8 million and $8.1 million in 2019, 2018
and 2017, respectively. Capitalized interest was $0.2 million in 2019 and inconsequential in 2018 and 2017.
66
NOTE 9. TIMBER AND TIMBERLANDS
Timber and Timberlands consist of the following at December 31:
(in thousands)
Timber and timberlands
Logging roads
Total timber and timberlands, net
$
$
2019
1,554,882 $
83,781
1,638,663 $
2018
1,590,997
81,818
1,672,815
Depletion from company-owned lands totaled $41.7 million, $43.9 million and $17.0 million in 2019, 2018 and
2017, respectively. Amortization of road costs, such as bridges, culverts and gravel surfacing, totaled $3.6 million,
$3.4 million and $3.2 million in 2019, 2018 and 2017, respectively.
Future payments due under timber cutting contracts at December 31, 2019 were $21.8 million.
NOTE 10. INTANGIBLE ASSETS
Intangible Assets consist of the following at December 31:
(in thousands)
Indefinite-lived intangible assets
Long-lived intangible assets
Assets held for sale
Accumulated amortization
Long-lived intangible assets, net
2019
2018
$
10,200 $
10,200
8,398
—
(1,549 )
6,849
9,300
(902 )
(770 )
7,628
Total intangible assets, net
$
17,049 $
17,828
Amortization expense totaled $0.8 million in 2019 and 2018, and $0 in 2017, respectively, and is estimated to be
$0.8 million annually for the next five years.
67
NOTE 11. OTHER ASSETS
Other Current Assets consist of the following at December 31:
(in thousands)
Real estate held for sale
Prepaid expenses
Tax receivables
Other receivables
Total other current assets
Other Long-Term Assets consist of the following at December 31:
(in thousands)
Operating leases
Mineral rights
Investment in company owned life insurance (COLI), net
Real estate development costs
Debt issuance costs
Interest rate swaps
Restricted cash
Other
Total other long-term assets
$
$
$
$
2019
2018
10,974 $
3,097
1,341
4,771
20,183 $
10,322
3,194
6,659
2,500
22,675
2019
2018
15,772
$
5,254
4,157
3,776
1,846
1,601
944
1,940
35,290 $
—
5,735
3,104
2,649
2,405
1,510
2,802
3,076
21,281
NOTE 12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts Payable and Accrued Liabilities consist of the following at December 31:
(in thousands)
Accrued payroll and benefits
Accounts payable
Accrued interest
Accrued taxes
Deferred revenue
Operating lease liabilities
Other current liabilities
Total accounts payable and accrued liabilities
2019
2018
$
$
12,920 $
12,734
6,946
6,638
5,514
4,998
10,827
60,577 $
20,130
12,073
8,642
7,389
4,282
—
8,477
60,993
68
NOTE 13. LEASES
We adopted ASU No. 2016-02, Leases (Topic 842), along with subsequent amendments on January 1, 2019 and
use 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. See Note 1: Summary of Significant Accounting Policies for further detail on our policies surrounding
leases.
Balance Sheet Classification
The following table provides supplemental balance sheet information related to our leases:
(in thousands)
Assets
Operating lease assets
Finance lease assets1
Total lease assets
Liabilities
Current
Operating lease liabilities
Finance lease liabilities
Noncurrent
Operating lease liabilities
Finance lease liabilities
Total lease liabilities
Classification
December(cid:3)31, 2019
Other long-term assets
Property, plant and equipment, net
$
$
15,772
2,360
18,132
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
$
Other long-term obligations
Other long-term obligations
$
4,998
644
10,775
1,703
18,120
1
Finance lease assets are presented net of accumulated amortization of $0.3 million as of December 31, 2019.
December(cid:3)31, 2019
Weighted-average remaining terms (years)
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
Lease Costs
The following table summarizes the components of our lease expense:
(in thousands)
Operating lease costs1
Finance lease costs
Amortization of leased assets
Interest on lease assets
Net lease costs
2019
Year Ended December(cid:3)31,
2018
2017
$
5,938 $
4,989 $
269
40
6,247 $
—
—
4,989 $
$
1
Excludes short-term leases and variable lease costs, which are immaterial.
69
4.22
3.83
4.17 %
3.54 %
4,519
—
—
4,519
Operating lease costs and amortization of finance lease assets are included within costs of goods sold and
selling, general and administrative expenses and interest on leased assets is included in interest expense, net on
our Consolidated Statements of Income.
Other Lease Information
The below table presents supplemental cash flow information related to leases:
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
Leased assets exchanged for new lease liabilities:
Operating leases
Finance leases
Year Ended
December(cid:3)31, 2019
$
$
$
$
$
5,963
40
283
7,135
2,630
Maturity of Lease Liabilities
At December 31, 2019, the future minimum lease payment obligations under noncancelable leases were as
follows:
(in thousands)
2020
2021
2022
2023
2024
After 2024
Total lease payments
Less: interest
Present value of lease liabilities
$
$
Operating Leases
Finance Leases
$
5,549
4,454
2,756
1,821
965
1,689
17,234
1,461
15,773 $
716
696
611
358
128
—
2,509
162
2,347
NOTE 14. DEBT
Long-term debt consists of the following at December 31:
(in thousands)
Variable rate term loans1
Fixed rate term loans2
7 1/2% Senior notes
Revenue bonds3
Medium-term notes4
Long-term principal
Interest rate swaps
Debt issuance costs
Unamortized discounts
Total long-term debt
Less current portion of long-term debt
Long-term debt
70
2019
2018
$
$
397,500 $
296,000
—
65,735
3,000
762,235
—
(2,086 )
(3,680 )
756,469
(45,974 )
710,495 $
247,500
296,000
150,000
65,735
3,000
762,235
(183 )
(2,143 )
(4,545 )
755,364
(39,973 )
715,391
1
Variable rate term loans are at rates of one or three-month LIBOR plus a spread between 1.85% and 2.15% and mature between 2020
and 2029. At December 31, 2019, the one and three-month LIBOR rates were 1.69% and 2.10%, respectively. We have entered into
interest rate swaps for these variable rate term loans to fix the interest rate. See Note 15: Derivative Instruments for additional
information.
2
Fixed rate term loans are at rates between 3.70% and 4.64% and mature between 2022 and 2025.
3
Revenue bonds have a fixed rate of 2.75% and mature in 2024.
4 Medium term notes have a fixed rate of 8.75% and mature in 2022.
Long-term debt at December 31, 2018 excludes $29.0 million of revenue bonds classified as held for sale as part
of the sale of the Deltic MDF facility as they were assumed by the buyer. See Note 3: Sale of Deltic MDF Facility.
TERM LOANS
On March 22, 2018 we entered into a Second Amended and Restated Term Loan Agreement (Amended Term
Loan Agreement), which amended the existing term loan agreement. The agreement included an additional
$100.0 million of new term loans used to refinance Deltic’s $106.0 million credit facility and amended and restated
a $100.0 million loan we assumed in connection with the Deltic merger to conform to the outstanding terms of the
Amended Term Loan Agreement.
The $100.0 million repayment of Deltic’s credit facility was funded by a $100.0 million borrowing under our
revolving credit facility and subsequently refinanced with two tranches of term loans aggregating $100.0 million
under the Amended Term Loan Agreement.
In January 2019, through a first amendment to the Amended Term Loan Agreement, we refinanced $150.0 million
of 7.5% senior notes (Senior Notes) that matured in 2019 with a $150.0 million term loan that matures in 2029.
The new term loan carries a variable interest rate of one-month LIBOR plus 1.85%. We paid $0.5 million of lender
fees on the new term loan. Concurrent with the new term loan, we entered into a $150.0 million interest rate swap
to fix the rate at 4.56%. Upon refinancing, we redeemed and paid all outstanding Senior Notes including a
redemption premium of $4.9 million which is included in the loss on extinguishment of debt in our Consolidated
Statements of Income.
In December 2019, we refinanced an existing $40.0 million term loan that matured in December 2019 through a
second amendment to the Amended Term Loan Agreement. The new term loan carries a variable interest rate of
one-month LIBOR plus 1.85% and matures in 2029. In conjunction with the new term loan we entered into a
$40.0 million interest rate swap to fix the rate at 3.17%. See Note: 15 Derivative Instruments.
At December 31, 2019 $693.5 million was outstanding under our Amended Term Loan Agreement. As of
December 31, 2019, we were in compliance with all covenants under our debt agreements.
DEBT ISSUANCE COSTS AND UNAMORTIZED DISCOUNTS
Debt issuance costs represent the capitalized direct costs incurred related to the issuance of debt. These costs
are amortized to interest expense over the terms of the respective borrowings.
Unamortized discounts include a $4.9 million fair value adjustment to the $100.0 million term loan assumed in the
Deltic merger. The unamortized balance of the fair value adjustment at December 31, 2019, was $3.7 million and
will be amortized through the term loan’s maturity in 2025.
71
DEBT MATURITIES
Scheduled principal payments due on long-term debt at December 31, 2019 are as follows:
(in thousands)
2020
2021
2022
2023
2024
Thereafter
Total
CREDIT AGREEMENT
$
$
46,000
40,000
43,000
40,000
175,735
417,500
762,235
On February 14, 2018, we entered into a Second Amended and Restated Credit Agreement (Amended Credit
Agreement) with an expiration date of April 13, 2023. The Amended Credit Agreement increased our revolving
line of credit to $380.0 million, which may be increased by up to an additional $420.0 million. It also includes a
sublimit of $75.0 million for the issuance of standby letters of credit and a sublimit of $25.0 million for swing line
loans. Usage under either or both subfacilities reduces availability under the revolving line of credit.
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.
Pricing is set according to the type of borrowing. LIBOR Loans are issued at a rate equal to the LIBOR Rate,
while Base Rate Loans are issued at a rate equal to a Base Rate, which is a fluctuating rate per annum equal to
the highest of (a) the Federal Funds Rate plus one half of one percent, (b) the rate of interest in effect for such
day as publicly announced from time to time by KeyBank as its prime rate and (c) the sum of the LIBOR rate that
would apply to a one month Interest Period plus 1.00%. The interest rates we pay for borrowings under either
type of loan include an additional Applicable Rate, which can range from 0.875% to 1.70% for LIBOR loans and
from 0% to 0.70% for Base Rate loans, depending on our credit rating. As of December 31, 2019, we were able to
borrow under the bank credit facility with an additional Applicable Rate of 1.30% for LIBOR Loans and 0.30% for
Base Rate Loans, with facility fees of 0.20% on the $380.0 million of the bank credit facility.
The Amended Credit Agreement contains 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 Amended Credit Agreement also contains financial
maintenance covenants including the maintenance of a minimum interest coverage ratio and a maximum
leverage ratio consistent with the Amended Term Loan Agreement. We are permitted to pay dividends to our
stockholders under the terms of the Amended Credit Agreement so long as we expect to remain in compliance
with the financial maintenance covenants. At December 31, 2019, we were in compliance with all covenants
under our credit agreements, 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.
72
NOTE 15. DERIVATIVE INSTRUMENTS
From time to time, we enter into derivative financial instruments to manage certain cash flow and fair value risks.
Derivatives designated and qualifying as a hedge of the exposure to variability in the cash flows of a specific
asset or liability that is attributable to a particular risk, such as interest rate risk, are considered cash flow hedges.
As of December 31, 2019, we have six interest rate swaps associated with $397.5 million of term loan debt.
These cash flow hedges convert variable rates ranging from one-month and three-month LIBOR plus 1.85% to
2.15%, to fixed rates ranging from 3.17% to 4.82%. Our cash flow hedges are expected to be highly effective in
achieving the offsetting of cash flows attributable to the hedged interest rate risk through the term of the hedge. At
December 31, 2019, the amount of net losses expected to be reclassified into earnings in the next 12 months is
approximately $3.7 million.
In January 2019, we entered into a $150.0 million interest rate swap associated with the new term loan that
refinanced our Senior Notes. This cash flow hedge converted a variable rate of one-month LIBOR plus 1.85% to a
fixed rate of 4.56%.
In September 2019, we entered into a $40.0 million interest rate swap, with the objective to lock in the index
component rate on an expected new term loan in December 2019. In December 2019, we refinanced an existing
$40.0 million term loan that matured with a new term loan maturing December 2029. Upon completing the
refinance of the term loan, the interest rate swap was re-designated under new terms consistent with the new
term loan. This cash flow hedge converts a variable rate of one-month LIBOR plus 1.85% to a fixed rate of 3.17%.
Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset or
liability to a particular risk, such as interest rate risk, are considered fair value hedges. Fair value interest rate
swaps with notional amounts totaling $14.3 million matured during the first quarter of 2018. A $50.0 million
notional fair value swap associated with the Senior Notes was terminated in December 2017 at a cost of $0.4
million. The termination cost was recorded as a reduction to the carrying value of our long-term debt. The
remaining unamortized balance was expensed in 2019 upon redemption of the Senior Notes. As of December 31,
2019, we do not hold any derivatives designated or qualifying as fair value hedges.
Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate
movements, commodity price movements or other identified risks, but do not meet the strict hedge accounting
requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded
directly into income. In April 2017, we entered into a lumber price swap to fix the price on a total of 36 million
board feet (MMBF) of southern yellow pine. The lumber price swap expired on December 31, 2017, resulting in a
realized gain of $1.1 million for the year then ended.
The fair values of our cash flow derivative instruments on our Consolidated Balance Sheets as of December 31
are as follows:
(in thousands)
Derivatives designated in cash flow hedging relationships:
Location
Asset Derivatives
2019
2018
Location
Liability Derivatives
2018
2019
Interest rate contracts
Other assets,
non-current
$
1,601 $
1,510
Other long-term
obligations
$
22,398 $
2,888
73
The following table details the effect of derivatives on our Consolidated Statements of Income:
(in thousands)
Derivatives designated in fair value hedging relationships:
Interest rate contracts
Realized gain (loss) on interest rate contracts1
Loss on hedged debt basis adjustment included in debt
extinguishment
Derivatives designated in cash flow hedging relationships:
Interest rate contracts
Location
Year Ended December(cid:3)31,
2018
2019
2017
Interest expense
$
— $
(191 ) $
$
(165 )
(165 ) $
—
(191 ) $
413
—
413
Loss recognized in other comprehensive income, net of tax
$
(19,824 ) $
(3,062 ) $
(145 )
Loss reclassified from accumulated other comprehensive
loss1
Interest expense
$
(1,384 ) $
(647 ) $
(149 )
Derivatives not designated as hedging instruments:
Lumber price contracts
Realized gain on lumber price swap
Interest expense, net
Gain on lumber
price swap
$
$
— $
— $
1,088
30,361 $
35,227 $
27,049
1
Realized gains and losses on interest rate contracts consist of net cash received or paid and interest accruals on the interest rate swaps during the periods.
Net cash received or paid is included in the supplemental cash flow information within interest, net of amounts capitalized in the Consolidated Statements of
Cash Flows.
NOTE 16. FAIR VALUE MEASUREMENTS
A framework has been established for measuring fair value, which provides a hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:
(cid:120) Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities
in active markets.
(cid:120) Level 2 inputs to the valuation methodology include:
• quoted prices for similar assets or liabilities in active markets;
• quoted prices for identical or similar assets or liabilities in inactive markets;
•
•
inputs other than quoted prices that are observable for the asset or liability; and
inputs that are derived principally from or corroborated by observable market data by correlation or
other means.
(cid:120) Level 3 inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
If the asset or liability has a specified (contractual) term, the Level 2 input must correspond to substantially the full
term of the asset or liability.
The fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is
significant to the fair value measurement. Valuation techniques used need to maximize the use of observable
inputs and minimize the use of unobservable inputs.
(cid:120) For cash, cash-equivalents and restricted cash, the carrying amount approximates fair value due to the
short-term nature of these financial instruments.
74
(cid:120) The fair value of the interest rate swaps was determined using discounted cash flow analysis on the
expected cash flows of each derivative. The analysis reflects the contractual terms of the derivatives,
including the period to maturity, and uses observable market-based inputs, including interest rate forward
curves.
(cid:120) The fair value of our long-term debt is estimated based upon the quoted market prices for the same or
similar debt issues or estimated based on average market prices for comparable debt when there is no
quoted market price.
(cid:120) The cash surrender value of our company owned life insurance, the amount at which it could be
redeemed, is used to estimate fair value because market prices are not readily available.
Carrying amounts and estimated fair values of our financial instruments as of December 31 are as follows:
(in thousands)
Cash, cash equivalents and restricted cash (Level 1)
2019
2018
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
84,254 $
84,254 $
79,441 $
79,441
$
Derivative assets related to interest rate swaps (Level 2)
Derivative liabilities related to interest rate swaps (Level 2) $
1,601 $
(22,398 ) $
1,601 $
(22,398 ) $
1,510 $
(2,888 ) $
1,510
(2,888 )
Long-term debt, including current portion (Level 2):
Term loans
Senior notes
Revenue bonds
Medium-term notes
Total long-term debt1
$ (689,820 ) $ (703,437 ) $ (539,169 ) $ (539,037 )
— (149,786 ) (154,328 )
(93,144 )
(3,419 )
$ (758,555 ) $ (775,117 ) $ (786,690 ) $ (789,928 )
—
(65,735 )
(3,000 )
(94,735 )
(3,000 )
(68,200 )
(3,480 )
Company owned life insurance (Level 3)
$
4,157 $
4,157 $
3,104 $
3,104
1
The carrying amount of long-term debt includes principal and unamortized discounts. At December 31, 2018, long-term debt in the above
table included the $29.0 million of revenue bonds for the MDF facility which was classified as held for sale. See Note 3: Sale of Deltic
MDF Facility for further information.
NOTE 17. EQUITY-BASED COMPENSATION PLANS
On May 6, 2019 (the Effective Date) the stockholders approved our 2019 Long-Term Incentive Plan (the 2019
Plan). The total amount of PotlatchDeltic common stock authorized for issuance under the 2019 Plan includes, in
addition to 1.2 million new shares approved by our stockholders: (i) the total number of shares available for future
awards under the Potlatch Corporation 2014 Long-Term Incentive Plan and its predecessor plans (the Prior
Plans) as of the Effective Date and (ii) the number of undelivered shares subject to outstanding awards under the
Prior Plans that will become available for future issuance as provided for under the 2019 Plan. We issue new
shares of common stock to settle performance stock awards (PSAs), restricted stock units (RSUs) and deferred
compensation stock equivalent units. We estimate forfeitures each period. At December 31, 2019, approximately
1.4 million shares were authorized for future use under our long-term incentive plans.
75
The following table details our compensation expense and the related income tax benefit for the years ended
December 31:
(in thousands)
Employee equity-based compensation expense:
2019
2018
2017
Performance stock awards
Restricted stock units
Deferred compensation stock equivalent units expense
Accelerated share-based termination benefits in connection
with the merger
Total equity-based compensation expense
$
$
4,605 $
2,595
72
4,157 $
2,024
213
—
7,272 $
1,812
8,206 $
3,582
1,140
657
—
5,379
Total tax benefit recognized for shared-based payment awards
$
314 $
332 $
379
PERFORMANCE STOCK AWARDS
PSAs granted under the stock incentive plans have a three-year performance period and shares are issued at the
end of the period if the performance measures are met. The performance measures are based on our annualized
total shareholder return relative to the median annualized total shareholder return performance of a selected peer
group of companies, and the percentile ranking of our total shareholder return relative to the total shareholder
return performance of a larger group of indexed companies over the three-year performance period. The number
of shares actually issued, as a percentage of the amount subject to the PSA, could range from 0% to 200%. PSAs
granted under our stock incentive plans do not have voting rights unless and until shares are issued upon
settlement. If shares are issued at the end of the three-year performance measurement period, the recipients will
receive dividend equivalents in the form of additional shares at the time of payment equal to the dividends that
would have been paid on the shares earned had the recipients owned the shares during the three-year period.
Therefore, the shares are not considered participating securities.
Since the awards contain a market condition, the effect of the market condition is reflected in the grant-date fair
value, which is estimated using a Monte Carlo simulation. This method is used to estimate the stock prices of
PotlatchDeltic and the selected peer companies at the end of the three-year performance period. The Monte
Carlo simulation uses inputs such as stock prices and expected volatility of PotlatchDeltic and the peer group of
companies as of the award date. Multiple simulations are generated, resulting in share prices and total
shareholder return values for PotlatchDeltic and the peer group of companies. For each simulation, the total
shareholder return of PotlatchDeltic is ranked against that of the peer group of companies. The future value of the
performance share unit is calculated based on a multiplier for the median outperformance and percentile ranking
and then discounted to present value. The discount rate is the risk-free rate as of the award date for a term
consistent with the performance period. Awards are also credited with dividend equivalents at the end of the
performance period, and as a result, award values are not adjusted for dividends.
The following table presents the key inputs used in calculating the fair value of the PSAs and the resulting fair
values:
Stock price as of valuation date
Risk-free rate
Expected volatility
Expected dividend yield1
Expected term (years)
Fair value of a performance share
1
For 2019 assumes full dividend reinvestment
2019
Year Ended December(cid:3)31,
2018
2017
$
$
35.01 $
2.47 %
25.15 %
—
3.00
37.87 $
54.00 $
2.46 %
23.74 %
2.96 %
3.00
75.37 $
43.60
1.61 %
24.22 %
3.44 %
3.00
53.85
76
The following table summarizes outstanding PSAs as of December 31 and the changes during each year:
2019
2018
2017
Weighted
Average
Grant(cid:3)Date
Fair(cid:3)Value Shares
Weighted
Average
Grant(cid:3)Date
Fair Value Shares
Weighted
Average
Grant(cid:3)Date
Fair(cid:3)Value
(in thousands, except per share amounts)
Shares
Nonvested shares outstanding at January 1
142,238 $ 63.91 200,631 $ 39.19 203,788 $ 32.59
Granted
142,066 $ 37.87 67,747 $ 75.37 78,033 $ 53.85
Vested
(75,048 ) $ 53.85 (121,058 ) $ 30.02 (78,129 ) $ 36.71
(3,061 ) $ 34.68
Forfeited
(13,249 ) $ 45.35
Nonvested shares outstanding at December 31 196,007 $ 50.15 142,238 $ 63.91 200,631 $ 39.19
Total grant date fair value of PSAs
vested during the year
Total fair value of PSAs
vested during the year
Aggregate intrinsic value of nonvested PSAs
at December 31
(5,082 ) $ 47.90
$ 4,041
$ 3,561
$ 8,481
$ 10,011
$ 2,868
$ 7,797
4,500
3,634
6,397
$
$
$
As of December 31, 2019, there was $5.1 million of unrecognized compensation cost related to nonvested PSAs,
which is expected to be recognized over a weighted average period of 1.7 years.
RESTRICTED STOCK UNITS
During 2019, 2018 and 2017, certain directors, officers, and other employees of the company were granted RSU
awards that will accrue dividend equivalents based on dividends paid during the RSU vesting period. The
dividend equivalents will be converted into additional RSUs that will vest in the same manner as the underlying
RSUs to which they relate. Therefore, the shares are not considered participating securities. The terms of the
awards state that the RSUs will vest in a given time period of one to three years.
The following table summarizes outstanding RSU awards as of December 31 and the changes during each year:
2019
2018
2017
Weighted
Average
Grant(cid:3)Date
Fair(cid:3)Value Shares
Weighted
Average
Grant(cid:3)Date
Fair(cid:3)Value Shares
Weighted
Average
Grant(cid:3)Date
Fair(cid:3)Value
(in thousands, except per share amounts)
Shares
Nonvested shares outstanding at January 1
72,020 $ 47.66 67,871 $ 32.87 71,420 $ 31.61
Granted
104,488 $ 36.80 49,193 $ 49.96 26,507 $ 43.64
Vested
(43,102 ) $ 45.51 (41,350 ) $ 26.33 (29,039 ) $ 39.65
(5,935 ) $ 40.26 (3,694 ) $ 45.36 (1,017 ) $ 31.63
Forfeited
Nonvested shares outstanding at December 31 127,471 $ 39.83 72,020 $ 47.66 67,871 $ 32.87
Total grant date fair value of RSU awards
vested during the year
Total fair value of RSU awards
vested during the year
Aggregate intrinsic value of nonvested RSU
awards at December 31
$ 1,151
$ 3,387
$ 1,442
$ 1,089
$ 1,328
$ 2,279
$ 1,771
$ 5,516
$ 1,961
As of December 31, 2019, there was $3.0 million of total unrecognized compensation cost related to nonvested
RSU awards, which is expected to be recognized over a weighted average period of 1.6 years.
77
DEFERRED COMPENSATION STOCK EQUIVALENT UNITS
A long-term incentive award was granted annually to our directors through December 2017. The awards are
payable upon a director's separation from service. Directors may also elect to defer their annual retainers,
payable in the form of stock. All stock unit equivalent accounts are credited with dividend equivalents. As of
December 31, 2019, there were 151,856 shares outstanding that will be distributed in the future to directors as
common stock.
Issuance of restricted stock units awarded to certain directors, officers and employees may also be deferred. All
stock unit equivalent accounts are credited with dividend equivalents. At December 31, 2019, there were 86,149
vested RSUs where issuance of the related stock had been deferred.
REPLACEMENT RESTRICTED STOCK UNIT AWARDS
The replacement RSUs issued as a result of the merger with Deltic and subject to post-merger services have
four-year vesting terms. During the vesting period, the grantee may vote and receive dividends on the shares, but
the shares are subject to transfer restrictions and are all, or partially, forfeited if a grantee terminates employment.
Expense for replacement RSUs will continue to be recognized over the remaining service period unless a
qualifying termination occurs. A qualifying termination of an awardee will result in acceleration of vesting and
expense recognition in the period that the qualifying termination occurs. Qualifying terminations during 2018
resulted in accelerated vesting of approximately 35,000 replacement RSUs and recognition of $1.8 million of
expense. This accelerated expense recognition is included in merger-related restructuring costs as described in
Note 2: Deltic Merger. There were no qualifying terminations during 2019.
NOTE 18. INCOME TAXES
As a REIT, we generally are not subject to federal and state corporate income taxes on income from investments
in real estate that we distribute to our shareholders. We conduct certain activities through our PotlatchDeltic TRS
which are subject to corporate level federal and state income taxes. These activities are principally comprised of
our wood products manufacturing operations and certain real estate investments. Therefore, income tax expense
or benefit is primarily due to income or loss of the PotlatchDeltic TRS, as well as permanent book versus tax
differences.
We are also subject to corporate taxes on built-in gains (the excess of fair market value over tax basis on the
merger date) on sales of former Deltic real property held by the REIT during the five years following the Deltic
merger. The sale of standing timber is not subject to built-in gains tax.
During the year-ended December 31, 2019 we had carryover tax basis in the MDF facility from the Deltic merger
that was sold in February 2019 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. See Note 3: Sale of Deltic MDF Facility for further
details.
On December 22, 2017, H.R. 1, Tax Cuts and Jobs Act (the Act) was enacted. The Act contained significant
changes to corporate taxation, including the reduction of the corporate tax rate from 35% to 21% effective
January 1, 2018. The tax rate reduction required a remeasurement of our deferred tax assets and liabilities as of
the date of enactment. Accordingly, net deferred tax assets, including the related valuation allowance, were
reduced by $10.5 million and the change was recorded as an increase to the 2017 tax provision. In addition,
during 2018 we recorded a net tax benefit of $5.0 million primarily related to deducting contributions to our
qualified pension plans on our 2017 federal tax returns at the higher 2017 income tax rate.
Income tax expense consists of the following for the years ended December 31:
(in thousands)
Current
Deferred
Net operating loss carryforwards
Income tax provision
2019
2018
2017
$
$
12,055 $
(11,082 )
37
1,010 $
7,038 $
11,370
791
19,199 $
16,657
14,325
1,039
32,021
78
Income tax expense differs from the amount computed by applying the statutory federal income tax rate of 21%
for 2019 and 2018 and 35% for 2017 to income before income taxes due to the following for the years ended
December 31:
(in thousands)
U.S. federal statutory income tax
REIT income not subject to federal income tax
U.S. tax rate change on deferred tax assets and liabilities
Pension contribution deducted at higher tax rate
Change in valuation allowance
State income taxes, net of federal income tax
Domestic production activities deduction
Permanent book-tax differences
Research and development credits
Other items, net
Income tax provision
Effective tax rate
2019
2018
2017
$
$
11,901 $
(11,285 )
—
—
(395 )
903
—
(793 )
—
679
1,010 $
1.8 %
29,837 $
(8,773 )
—
(5,665 )
—
3,712
—
(771 )
—
859
19,199 $
13.5 %
41,466
(20,651 )
10,528
—
140
2,608
(1,511 )
(252 )
(294 )
(13 )
32,021
27.0 %
The tax effects of significant temporary differences creating deferred tax assets and liabilities at December 31
were:
(in thousands)
Deferred tax assets:
Pension and other postretirement employee benefits
Inventories
Tax credits
Nondeductible accruals
Incentive compensation
Employee benefits
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Timber and timberlands, net
Property, plant and equipment, net
Intangible assets, net
Real estate development
Other
Total deferred tax liabilities
Deferred tax liabilities, net
2019
2018
$
$
32,110 $
754
2,190
815
1,044
1,316
1,296
39,525
(395 )
39,130
(965 )
(50,901 )
(3,778 )
(1,402 )
(2,249 )
(59,295 )
(20,165 ) $
30,523
601
2,688
1,039
1,000
1,452
320
37,623
(790 )
36,833
(1,025 )
(58,909 )
(4,134 )
(2,035 )
(2,739 )
(68,842 )
(32,009 )
As of December 31, 2019, we had no state or federal net operating loss carryforwards. We have Idaho
Investment Tax Credits of $2.8 million that expire from 2022 through 2033. We use the flow-through method of
accounting for investment tax credits.
With the exception of the $0.4 million valuation allowance related to certain Idaho Investment Tax Credit
carryforwards we expect will expire prior to realization, we believe it is more likely than not that we will have
sufficient future taxable income to realize our deferred tax assets.
79
The following table summarizes the tax years subject to examination by major taxing jurisdictions:
Jurisdiction
Federal
Arkansas
Idaho
Michigan
Minnesota
Years
2016 — 2019
2016 — 2019
2016 — 2019
2015 — 2019
2015 — 2019
As of December 31, 2019, we had no unrecognized tax benefits which, if recognized, would impact the effective
tax rate. There was $0.6 million of unrecognized tax benefits at December 31, 2018 and 2017.
A reconciliation of the beginning and ending unrecognized tax benefits is as follows:
(in thousands)
Balance at January 1
Additions for tax positions of prior years
Reduction for tax positions of prior years
Balance at December 31
2019
2018
$
$
564 $
—
(564 )
— $
564
—
—
564
We reflect accrued interest related to tax obligations, as well as penalties, in our provision for income taxes. For
the years ended December 31, 2019, 2018 and 2017, we recognized insignificant amounts related to interest and
penalties in our tax provision. At December 31, 2019, 2018 and 2017, we had insignificant amounts of accrued
interest related to tax obligations and no accrued interest receivable with respect to open tax refunds.
NOTE 19. SAVINGS PLANS, PENSION PLANS AND OTHER POSTRETIREMENT
EMPLOYEE BENEFITS
SAVINGS PLANS
Substantially all of our employees are eligible to participate in 401(k) savings plans. In 2019, 2018 and 2017, we
made matching 401(k) contributions on behalf of our employees of $3.9 million, $3.7 million and $2.4 million,
respectively.
Certain eligible employees who earn awards under our annual incentive plan are permitted to defer receipt of
those awards. These employees may defer receipt of a minimum of 50% and a maximum of 100% of the award
pursuant to rules established under our Management Deferred Compensation Plan. Eligible employees may also
defer up to 50% of their base salary under the Management Deferred Compensation Plan. At the employee's
election, deferrals may be deemed invested in a company stock unit account, a directed investment account with
certain deemed investments available under the 401(k) Plan or a combination of these investment vehicles. If
company stock units are elected, dividend equivalents are credited to the units.
Upon our merger with Deltic, we assumed three defined 401(k) savings plans. Effective January 1, 2019, these
plans were merged with our legacy Potlatch 401(k) savings plans.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
On January 1, 2011, we froze the legacy Potlatch pension plans to any new salaried and hourly non-represented
employees hired after that date.
Effective January 1, 2010, we restructured our other postretirement benefit plans (OPEB). The level of health care
subsidy was frozen for retirees so that all future increments in health care costs will be borne by the retirees. In
addition, for retirees under age 65, a high deductible medical plan was created and all other existing health care
plans were terminated. For retirees age 65 or over, the medical plan is divided into two components, with the
80
company continuing to self-insure prescription drugs and providing a fully-insured medical supplemental plan
through AARP/United Healthcare. Both health care plans require the retiree to contribute amounts in excess of
the company subsidy in order to continue coverage. The Plan does not pay for vision, dental and life insurance for
the retirees. The effect of these retiree plan changes was a reduction in the accumulated postretirement benefit
obligation of $76.7 million, which was recognized in Accumulated Other Comprehensive Loss as of December 31,
2009 and was fully amortized as of December 31, 2019.
We use a December 31 measurement date for our benefit plans and obligations. We recognize the underfunded
status of our defined benefit pension plans and OPEB obligations on our Consolidated Balance Sheets. We
recognize changes in the funded status in the year in which changes occur through accumulated other
comprehensive loss and amortize actuarial gains and losses through the Consolidated Statements of Income as
net periodic cost (benefit).
Upon merger with Deltic in 2018, we assumed one qualified pension plan, one nonqualified pension plan and a
postretirement plan. The acquired plans have been frozen to new participants since 2014. Consistent with
accounting for the merger as the acquirer in a business combination, pension assets acquired, and benefit
obligations assumed were remeasured to reflect their funded status at the date of acquisition. This included
updating asset values and discount rates to reflect market conditions at the merger date. The fair value of these
items at the date of merger are listed in the table below as “plan acquisitions.”
The change in benefit obligation, change in plan assets and funded status for company-sponsored benefit plans
and obligations are as follows:
(in thousands)
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (loss) gain
Benefits paid
Plan acquisitions
Benefit obligation at end of year
Pension Plans
2019
2018
$ (427,909 ) $ (392,371 ) $
(8,454 )
(16,992 )
20,445
31,530
(62,067 )
$ (474,237 ) $ (427,909 ) $
(7,767 )
(18,465 )
(53,446 )
33,350
—
OPEB
2019
(40,032 ) $
(371 )
(1,588 )
(7,997 )
3,593
—
(46,395 ) $
2018
(30,349 )
(341 )
(1,482 )
2,100
3,582
(13,542 )
(40,032 )
Fair value of plan assets at beginning of year
Actual return (loss) on plan assets
Employer contributions and benefit payments
Benefits paid
Plan acquisitions
Fair value of plan assets at end of year
$ 351,285 $ 313,862 $
(23,745 )
53,998
(31,530 )
38,700
$ 398,468 $ 351,285 $
78,448
2,085
(33,350 )
—
— $
—
3,593
(3,593 )
—
— $
—
—
3,582
(3,582 )
—
—
Amounts recognized in the consolidated balance sheets:
Current liabilities
$
Noncurrent liabilities
Funded status
$
(2,152 ) $
(73,617 )
(75,769 ) $
(2,121 ) $
(74,503 )
(76,624 ) $
(4,549 ) $
(41,846 )
(46,395 ) $
(3,876 )
(36,156 )
(40,032 )
The accumulated benefit obligation for all defined benefit pension plans is determined using the actuarial present
value of the vested benefits to which the employee is currently entitled and the employee’s expected date of
separation for retirement and was $458.1 million and $417.4 million at December 31, 2019 and 2018,
respectively.
During 2019 and 2018, funding of pension and other postretirement employee benefit plans was $5.7 million and
$57.6 million, respectively. Our 2018 funding included a $44.0 million voluntary contribution allowing us to deduct
the amount on our 2017 income tax return at higher tax rates.
81
PENSION ASSETS
We utilize formal investment policy guidelines for our company-sponsored pension plan assets. Management is
responsible for ensuring the investment policy and guidelines are adhered to and the investment objectives are
met.
The general policy states that plan assets will be invested to seek the greatest return consistent with the fiduciary
character of the pension funds and to allow the plans to meet the need for timely pension benefit payments. The
specific investment guidelines stipulate that management will maintain adequate liquidity for meeting expected
benefit payments by reviewing, on a timely basis, contribution and benefit payment levels and appropriately revise
long-term and short-term asset allocations. Management takes reasonable and prudent steps to preserve the
value of pension fund assets and to avoid the risk of large losses. Major steps taken to provide this protection
include the following:
• Assets are diversified among various asset classes, such as global equities, fixed income, alternatives and
liquid reserves. The long-term asset allocation ranges are as follows:
Global equities
Fixed income securities
Alternatives, which may include equities and fixed income securities
Cash and cash equivalents
26% - 38%
44% - 64%
10% - 16%
0% - 5%
• Periodic reviews of allocations within these ranges are made to determine what adjustments should be
made based on changing economic and market conditions and specific liquidity requirements.
• Assets are managed by professional investment managers and may be invested in separately managed
accounts or commingled funds.
• Assets are not invested in PotlatchDeltic stock.
The investment guidelines also provide that the individual investment managers are expected to achieve a
reasonable rate of return over a market cycle. Emphasis will be placed on long-term performance versus short-
term market aberrations. Factors to be considered in determining reasonable rates of return include performance
achieved by a diverse cross section of other investment managers, performance of commonly used benchmarks
(e.g., MSCI All-Country World Index, Barclays Long Credit Index), actuarial assumptions for return on plan
investments and specific performance guidelines given to individual investment managers.
The asset allocations of the pension benefit plans’ assets at December 31 by asset category are as follows:
Asset Category
Global equities
Fixed income securities
Other (includes cash and cash equivalents and alternatives)
Total
Pension Plans
2019
2018
32 %
54
14
100 %
30 %
58
12
100 %
The pension assets are stated at fair value. Refer to Note 14: Fair Value Measurements for a discussion of the
framework used to measure fair value.
Following is a description of the valuation methodologies used for pension assets measured at fair value:
• Level 1 assets include cash and cash equivalents, corporate common and preferred stocks with quoted
market prices on major securities markets, and investments in registered investment company funds for
which market quotations are generally readily available on the primary market or exchange on which they
are traded.
• Level 2 assets at December 31, 2019 consist of thinly traded fixed income instruments of varying
maturities representing corporate security investments. Level 2 assets at December 31, 2018 consist of
collective investment trust funds, which are valued at their respective net asset value (NAV) and fully
redeemable in the near-term. The NAV fair value practical expedient was not used as these investments
have readily determinable fair value.
82
•
Investments in funds that may not be fully redeemed in the near-term are generally classified in Level 3.
We had no Level 3 investments at December 31, 2019 or 2018.
Fair value measurements are as follows:
(in thousands)
Asset Category
Cash and cash equivalents
Global equity securities1
Fixed income securities5
Alternatives6
Total
(in thousands)
Asset Category
Cash and cash equivalents
Domestic equity securities2
International equity securities3
Emerging markets4
Fixed income securities5
Alternatives6
Total
Level 1
December(cid:3)31, 2019
Level 2
6,671 $
127,688
173,464
50,091
357,914 $
— $
—
40,554
—
40,554 $
Total
6,671
127,688
214,018
50,091
398,468
Level 1
December(cid:3)31, 2018
Level 2
4,120 $
31,315
—
6,909
204,072
—
246,416 $
— $
23,384
21,848
21,225
—
38,412
104,869 $
Total
4,120
54,699
21,848
28,134
204,072
38,412
351,285
$
$
$
$
1
2
3
4
5
6
Level 1 assets are international and domestic managed investments that track the MSCI All-Country World Index.
Level 1 assets are managed investments in the U.S., small/mid-cap equities that track the Russell 2500 Growth index or Russell 2500
Value index. Level 2 assets are collective investments, which are invested in U.S. large-cap equities that track the S&P 500.
Level 2 assets are collective investments in equity funds of developed markets outside of the United States and Canada that track the
MSCI EAFE Value index or MSCI EAFE Growth index.
Level 1 assets are mutual funds which are invested in the common stock of companies located (or with primary operations) in emerging
markets that track the MSCI Emerging Markets index. Level 2 assets are collective investments in the common stock of companies
located (or with primary operations) in emerging markets that track the MSCI Emerging Markets index.
Level 1 assets are investments in a diversified portfolio of fixed income instruments of varying maturities representing corporates, U.S.
treasuries, municipals and futures. Level 2 assets are thinly traded investments in a diversified portfolio of fixed income instruments of
varying maturities representing mostly corporates securities. Both Level 1 & Level 2 investments track the Bloomberg Barclay’s Long-
term Credit Index.
Level 1 assets are long-term investment funds which are invested in tangible assets and real asset companies such as, infrastructure,
natural resources and timber. Level 2 assets are collective investments in inflation-indexed bonds, securities of real estate companies,
commodity index-linked notes, fixed income securities, foreign currencies, securities of natural resource companies, master limited
partnerships, publicly listed infrastructure companies, floating-rate debt, securities of global agriculture companies and securities of global
timber companies.
PLAN ACTIVITY
Pre-tax components of net periodic cost (benefit) recognized in our Consolidated Statements of Income were as
follows for the years ended December 31:
(in thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of actuarial loss
Net periodic cost (benefit)
2019
2017
2019
OPEB
2018
Pension Plans
2018
$ 7,767 $ 8,454 $ 6,753 $
14
18,465 16,992 16,096 1,588 1,482 1,262
—
(22,190 ) (20,035 ) (18,406 )
288 (8,844 ) (8,877 ) (8,877 )
13,497 16,589 14,484 1,012 1,311 1,537
$ 17,750 $ 22,186 $ 19,215 $ (5,873 ) $ (5,743 ) $ (6,064 )
371 $
341 $
186
211
—
—
2017
83
The amounts recorded in Accumulated Other Comprehensive Loss on our Consolidated Balance Sheets, that
have not yet been recognized as components of net periodic benefit costs at December 31, net of tax, consist of:
(in thousands)
Net loss
Prior service cost (credit)
Net amount recognized
Pension Plans
2019
2018
$ 116,780 $ 128,849 $
404
$ 117,028 $ 129,253 $
248
OPEB
2019
12,437 $
(2,106 )
10,331 $
2018
7,269
(8,651 )
(1,382 )
The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from
accumulated other comprehensive loss into net periodic benefit cost over the next year are $17.0 million and
$0.1 million, respectively. The estimated net loss and prior service credit for OPEB obligations that will be
amortized from accumulated other comprehensive loss into net periodic benefit over the next year are $1.7 million
and $1.3 million, respectively.
EXPECTED FUNDING AND BENEFIT PAYMENTS
We are required to contribute $4.4 million to our qualified pension plans in 2020. Our non-qualified pension plan
and other postretirement employee benefit plans are unfunded and benefit payments are paid from our general
assets. We estimate that we will make non-qualified pension plan payments of $2.2 million and other
postretirement employee benefit payments of $4.5 million in 2020, which are included below.
Estimated future benefit payments, which reflect expected future service are as follows for the years indicated:
(in thousands)
2020
2021
2022
2023
2024
2025–2029
ACTUARIAL ASSUMPTIONS
Pension(cid:3)Plans
$
$
$
$
$
$
30,769 $
30,756 $
30,689 $
30,589 $
30,232 $
143,237 $
OPEB
4,548
3,780
3,595
3,402
3,148
12,966
The weighted average assumptions used to determine the benefit obligation for non-Deltic plans as of
December 31 were:
Discount rate
Rate of salaried compensation increase
Pension Plans
OPEB
2019
2018
2019
2018
3.40 %
3.00 %
4.40 %
3.00 %
3.40 %
—
4.40 %
—
The weighted average assumptions used for non-Deltic plans to determine the net periodic cost (benefit) for the
years ended December 31 were:
Discount rate
Expected return on plan assets
Rate of salaried compensation increase
4.40 %
6.25 %
3.00 %
3.85 %
6.25 %
3.00 %
4.40 %
6.50 %
3.00 %
4.40 %
—
—
3.65 %
—
—
4.10 %
—
—
Pension Plans
2019
2018
2017
2019
OPEB
2018
2017
84
The weighted average assumptions used to determine the benefit obligation for Deltic plans as of December 31
were:
Discount rate
Rate of salaried compensation increase
Pension Plans
OPEB
2019
2018
2019
2018
3.40 %
4.00 %
4.40 %
4.00 %
3.40 %
—
4.40 %
—
The weighted average assumptions used for Deltic plans to determine the net periodic cost (benefit) for the years
ended December 31 were:
Discount rate
Expected return on plan assets
Rate of salaried compensation increase
Pension Plans
OPEB
2019
2018
2019
2018
4.40 %
6.25 %
4.00 %
4.30 %
6.25 %
4.00 %
4.40 %
—
—
4.30 %
—
—
The discount rate used in the determination of pension and other postretirement employee benefit obligations was
calculated using hypothetical bond portfolios to match the expected benefit payments under each of our pension
plans and other postretirement employee benefit obligations based on bonds available at each year end with a
rating of "AA" or better. The portfolios were well-diversified over corporate industrial, corporate financial,
municipal, federal and foreign government issuers.
The expected return on plan assets assumption is based upon an analysis of historical long-term returns for
various investment categories, as measured by appropriate indices. These indices are weighted based upon the
extent to which plan assets are invested in the particular categories in arriving at our determination of a composite
expected return. The expected rate of return assumption on all plans that will be used to determine net periodic
cost for 2020 is 5.75%.
A decrease in the discount rate or the rate of expected return on plan assets, all other assumptions remaining the
same, would increase net periodic cost. A 25 basis point decrease in the pension discount rate would increase
net periodic cost by approximately $1.1 million in 2019 and increase the projected benefit obligation by
approximately $13.6 million as of December 31, 2019. A 25 basis point decrease in the assumption for the
expected return on plan assets would increase net periodic cost by approximately $0.9 million in 2019. The actual
rates of return on plan assets may, and do, vary significantly from the assumption used. A 25 basis point
decrease in the OPEB discount rate would be de minimis to the annual net periodic cost.
The assumed health care cost trend rate used to calculate other postretirement employee benefit obligations for
non-Deltic plans and Deltic plans as of December 31, 2019 was 7.51% and 7.18%, respectively, for a certain
group of participants under age 65 in our hourly plan and our Arkansas participants covered by a collective
bargaining agreement, grading ratably to an assumption of 4.50% in 2038. The actual rates of health care cost
increases may vary significantly from the assumption used because of unanticipated changes in health care
costs.
A one percentage point change in the health care cost trend rates would have the following effects on our
December 31, 2019 Consolidated Financial Statements:
(in thousands)
Effect on total service cost plus interest cost
Effect on accumulated postretirement benefit obligation
1% Increase
1% Decrease
$
$
165 $
3,282 $
(126 )
(2,582 )
85
NOTE 20. COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables detail the changes in our Accumulated Other Comprehensive Loss (AOCL) on our
Consolidated Balance Sheets for the years ended December 31, 2019 and 2018, net of tax.
(in thousands)
Balance, December 31, 2017
Net loss (gain) arising during the period
Amounts reclassified from AOCL to
earnings
Amounts reclassified from AOCL to
accumulated deficit1
Balance, December 31, 2018
Net loss (gain) arising during the period
Amounts reclassified from AOCL to
earnings
Balance, December 31, 2019
Pension Plans
OPEB
Gains and
losses on
cash flow
hedging
Actuarial
Loss
Prior
Service
Cost
Actuarial
Loss
Prior
Service
Credit
Total
$
(705 ) $ 100,165 $
3,062 17,268
446 $ 7,491 $ (12,546 ) $ 94,851
— 18,776
(1,554 )
—
(647 ) (12,276 )
(137 )
(970 )
6,569
(7,461 )
(150 ) 23,692
1,560 128,849
(2,081 )
19,824
95
404
—
2,302
7,269
5,917
(2,674 ) 23,265
(8,651 ) 129,431
— 23,660
(1,384 )
(9,988 )
$ 20,000 $ 116,780 $
(156 )
(5,732 )
248 $ 12,437 $ (2,106 ) $ 147,359
6,545
(749 )
1
Reclassifications between AOCL and accumulated deficit during 2018 relate to certain tax effects of tax law changes on pension and
other postretirement employee benefits and a cash flow hedge upon adoption of ASU 2018-02 during 2018.
See Note 15: Derivative Instruments and Note 19: Savings Plans, Pension and Other Postretirement Employee
Benefits for additional information.
NOTE 21. COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
In January 2007, the Environmental Protection Agency (EPA) notified us that we were a potentially responsible
party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and
the Clean Water Act for cleanup at a site in northern Idaho known as Avery Landing, which we acquired in 1980
from the Milwaukee Railroad. The land we owned at the site and the adjacent properties were contaminated with
petroleum as a result of the railroad’s operations at the site prior to 1980. Our remediation was completed in
October 2013, and in 2016 the EPA confirmed that we had completed the required cleanup and subsequent
monitoring of the property. Separately, in September 2015, the EPA sent us a letter asserting that the Department
of Transportation (the current owner of a portion of the adjacent property remediated by the EPA) and the EPA
had incurred $9.8 million in unreimbursed response costs associated with the site and that we were liable for such
costs. We sold the land at Avery Landing in 2017. In April 2018, the United States District Court for the District of
Idaho entered a Consent Decree negotiated by the parties releasing us and our affiliates from any further liability
for past response costs incurred by the U.S. government in exchange for a final settlement payment of $6.0
million.
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, operating
results or net cash flow.
86
NOTE 22. FINANCIAL RESULTS BY QUARTER (UNAUDITED)
The following table sets forth supplementary financial data (in thousands, except per share amounts) for each
quarter for the years ended December 31, 2019 and 2018, derived from our unaudited quarterly financial
statements, with the total amounts for each year derived from our audited annual financial statements. The data
set forth below should be read in conjunction with and is qualified in its entirety by reference to our Consolidated
Financial Statements.
(in thousands, except per share amount)
Revenues
Operating income
Net income
Net income per share1
First
Quarter
Year Ended December 31, 2019 (unaudited)
Third
Second
Quarter
Quarter
$ 181,716 $ 215,581 $ 226,302 $ 203,499 $ 827,098
96,283
$
55,661
$
31,196 $
20,565 $
24,956 $
17,137 $
20,107 $
6,560 $
20,024 $
11,399 $
Fourth
Quarter
Total
Basic
Diluted
$
$
0.10 $
0.10 $
0.25 $
0.25 $
0.30 $
0.30 $
0.17 $
0.17 $
0.82
0.82
(in thousands, except per share amount)
Revenues
Operating income
Net income
Net income per share1
First
Quarter
Year Ended December 31, 2018 (unaudited)
Third
Second
Quarter
Quarter
$ 199,897 $ 268,233 $ 289,199 $ 217,250 $ 974,579
9,964 $ 184,954
$
1,799 $ 122,880
$
69,417 $
46,148 $
77,742 $
60,336 $
27,831 $
14,597 $
Fourth
Quarter
Total
Basic
Diluted
$
$
0.29 $
0.29 $
0.73 $
0.73 $
0.96 $
0.93 $
0.03 $
0.03 $
2.03
1.99
1
Per share amounts are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share
amounts may not equal the total computed for the year.
87
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
We conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange
Act)), under the supervision and with the participation of management, including the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Exchange Act) as of December 31, 2019. These disclosure controls and
procedures are designed to ensure that information required to be disclosed in our reports that are filed or
submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. Our disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that this information is accumulated and communicated to management,
including the principal executive and principal financial officers, or persons performing similar functions, as
appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, the CEO and CFO
have concluded that these disclosure controls and procedures were effective as of December 31, 2019.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rule 13a-15(f) under the Exchange Act of 1934.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Our management, with the participation of our CEO and CFO, assessed the effectiveness of our internal control
over financial reporting as of December 31, 2019. In making this assessment, our management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-
Integrated Framework (2013).
Based on our assessment, management believes that, as of December 31, 2019, our internal control over
financial reporting is effective based on those criteria.
Our independent registered public accounting firm has audited the effectiveness of our internal controls over
financial reporting as of December 31, 2019, as stated in their report which appears on the next page.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the latest fiscal quarter
that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
88
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
PotlatchDeltic Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited PotlatchDeltic Corporation and subsidiaries’ (the Company) internal control over financial
reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018,
the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the
consolidated financial statements), and our report dated February 19, 2020 expressed an unqualified opinion on
those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on the financial statements.
89
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ KPMG LLP
Seattle, Washington
February 19, 2020
90
Part III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certain of the information required by this item is incorporated by reference to the information appearing under
the headings "Board of Directors" and "Corporate Governance" from our definitive Proxy Statement to be filed
with the SEC on or about March 31, 2020.
Our Corporate Conduct and Ethics Code, which is applicable to all directors, officers and employees, can be
found on our website at www.PotlatchDeltic.com. We post any amendments to or waivers from our Corporate
Conduct and Ethics Code on our website.
ITEM 11. EXECUTIVE COMPENSATION
Information set forth under the headings "Report of the Executive Compensation and Personnel Policies
Committee," "Compensation Discussion and Analysis," "Executive Compensation Tables," “CEO Pay Ratio,”
"Compensation of Non-Employee Directors" and "Corporate Governance - Compensation Committee Interlocks
and Insider Participation" in our definitive Proxy Statement to be filed with the SEC on or about March 31, 2020, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information regarding any person or group known by us to be the beneficial owner of more than five percent of
our common stock as well as the security ownership of management set forth under the heading "Security
Ownership" in our definitive Proxy Statement to be filed with the SEC on or about March 31, 2020, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this item regarding certain relationships and related transactions is to be included
under the heading "Corporate Governance - Transactions with Related Persons" in our definitive Proxy Statement
to be filed with the SEC on or about March 31, 2020, and is incorporated herein by reference.
The information required by this item regarding director independence is to be included under the headings
"Board of Directors" and "Corporate Governance - Director Independence" in our definitive Proxy Statement to be
filed with the SEC on or about March 31, 2020, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item regarding principal accounting fees and services is to be included under the
heading "Audit Committee Report - Fees Paid to Independent Registered Public Accounting Firm in 2019 and
2018" in our definitive Proxy Statement to be filed with the SEC on or about March 31, 2020, and is incorporated
herein by reference.
91
Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements:
The financial statements required by this item are submitted in Item 8 of this Annual Report on Form 10-K.
(a) (2) Financial Statement Schedule:
Financial Statement Schedules have been omitted because of the absence of conditions under which they are
required or because the required information is included in the Consolidated Financial Statements or the Notes
thereto.
(a) (3) Exhibits:
POTLATCHDELTIC CORPORATION AND CONSOLIDATED SUBSIDIARIES
EXHIBIT NUMBER
DESCRIPTION
(2)*
Agreement and Plan of Merger dated October 22, 2017 between PotlatchDeltic Corporation,
Portland Merger LLC and Deltic Timber Corporation, filed as Exhibit (2.1) to the Current Report
on Form 8-K filed by the Registrant on October 23, 2017.
(3)(a)(i)*
Third Restated Certificate of Incorporation of the Registrant, effective February 20, 2018, filed as
Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on February 21, 2018.
(3)(b)*
(4)
Bylaws of the Registrant, as amended through February 18, 2009, filed as Exhibit (3)(b) to the
Current Report on Form 8-K filed by the Registrant on February 20, 2009.
See Exhibits (3)(a) and (3)(b). The Registrant also undertakes to furnish to the SEC, upon
request, any instrument defining the rights of holders of long-term debt.
(4)(a)*
Description of Registrant’s Securities (filed herewith).
(4)(b)*
(4)(b)(i)*
(4)(b)(ii)*
(10)(a)1*
Indenture, dated as of November 27, 1990, between Original PotlatchDeltic and Deutsche Bank
National Trust Company (successor in interest to Bankers Trust Company of California, National
Association), as trustee, filed as Exhibit (4)(a) to the Original PotlatchDeltic Annual Report on
Form 10-K for the fiscal year ended December 31, 2000. (SEC File No. 001-05313)
Officer’s Certificate, dated January 24, 1991, filed as Exhibit (4)(a)(i) to the Original PotlatchDeltic
Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (SEC File No. 001-
05313)
Officer’s Certificate, dated December 12, 1991, filed as Exhibit (4)(a)(i) to the Original
PotlatchDeltic Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (SEC
File No. 001-05313)
PotlatchDeltic Corporation Management Performance Award Plan, as amended effective December
2, 2004, filed as Exhibit (10)(a) to the Annual Report on Form 10-K filed by Original PotlatchDeltic
for the fiscal year ended December 31, 2004. (SEC File No. 001-05313)
(10)(a)(i)1*
(10)(b)1*
Amendment to PotlatchDeltic Corporation Management Performance Award Plan, filed as Exhibit
10.6 to the Current Report on Form 8-K filed by the Registrant on December 11, 2008.
PotlatchDeltic Corporation Severance Program for Executive Employees, amended and restated
effective February 15, 2019, filed as Exhibit 10.5 to the Current Report on Form 8-K Filed by the
Registrant on February 21, 2019.
92
EXHIBIT NUMBER
DESCRIPTION
(10)(c)1*
PotlatchDeltic Corporation Salaried Employees’ Supplemental Benefit Plan, as amended and
restated effective January 1, 1989, and as amended through May 24, 2005, filed as Exhibit
(10)(d) to the Quarterly Report on Form 10-Q filed by Original PotlatchDeltic for the quarter ended
June 30, 2005.
(10)(c)(i)1*
Amendment, effective as of January 1, 1998, to Plan described in Exhibit (10)(c), filed as Exhibit
(10)(d)(i) to the Annual Report on Form 10-K filed by Original PotlatchDeltic for the fiscal year
ended December 31, 2003. (SEC File No. 001-5313)
(10)(c)(ii)1*
Amendment, effective as of December 5, 2008, to Plan described in Exhibit (10)(c), filed as Exhibit
10.5 to the Current Report on Form 8-K filed by the Registrant on December 11, 2008.
(10)(d)1*
(10)(e)1*
PotlatchDeltic Corporation Deferred Compensation Plan for Directors, as amended through May
24, 2005, filed as Exhibit (10)(g) to the Quarterly Report on Form 10-Q filed by Original
PotlatchDeltic for the quarter ended June 30, 2005.
PotlatchDeltic Corporation Deferred Compensation Plan II for Directors, as amended and
restated effective May 8, 2014, filed as Exhibit 10.2 to the Current Report on Form 8-K filed by
the Registrant on May 13, 2014, as amended on September 9, 2016.
(10)(e)(i)1*
First Amendment to the PotlatchDeltic Corporation Deferred Compensation Plan for Directors II,
filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on December 7,
2017.
(10)(f)1*
(10)(g)1*
(10)(h)(i)1*
(10)(h)(ii)1*
(10)(i)1*
(10)(i)(i)1*
(10)(i)(ii)1*
PotlatchDeltic Corporation Benefits Protection Trust Agreement, amended and restated effective
September 1, 2018, filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant
on February 21, 2019.
Form of Indemnification Agreement with each director of the Registrant and with each executive
officer of the Registrant, filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the
Registrant on September 23, 2009.
PotlatchDeltic Corporation 2005 Stock Incentive Plan, as amended and restated May 19, 2006,
filed as Exhibit (10)(r) to the Quarterly Report on Form 10-Q filed by the Registrant for the quarter
ended June 30, 2006, and as further amended and restated effective September 16, 2006, filed
as Exhibit (10)(e) to the Current Report on Form 8-K filed by the Registrant on September 21,
2006.
Form of Restricted Stock Unit Agreement (2005 Stock Incentive Plan), as amended and restated
May 19, 2006, to be used for restricted stock unit awards to be granted subsequent to May 19,
2006, filed as Exhibit (10)(r)(i) to the Quarterly Report on Form 10-Q filed by the Registrant for the
quarter ended June 30, 2006.
PotlatchDeltic Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.C to the Quarterly
Report on Form 10-Q filed by the Registrant for the quarter ended June 30, 2014.
PotlatchDeltic Corporation Restricted Stock Unit Award Notice and Agreement (Directors) 2014
Long-Term Incentive Plan, filed as Exhibit 10.2 to the Current Report on Form 8-K filed by the
Registrant on December 7, 2017.
Form of 2014 RSU Award Notice and Award Agreement (2014 Long-Term Incentive Plan) filed as
Exhibit 10.3 to the Current Report on Form 8-K filed by the Registrant on May 9, 2014.
(10)(i)(iii)1*
Form of 2015 RSU Award Notice and Agreement (2014 Long-Term Incentive Plan) filed as
Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on February 18, 2015.
93
EXHIBIT NUMBER
(10)(i)(iv)1*
DESCRIPTION
Form of 2019 Performance Share Award Notice and Agreement (2014 Long-Term Incentive
Plan), filed as Exhibit 10.6 to the Current Report on Form 8-K filed by the Registrant on February
21, 2019.
(10)(i)(v)1*
Form of 2019 RSU Award Notice and Agreement (2014 Long-term Incentive Plan) filed as Exhibit
10.7 to the Current Report on Form 8-K filed by the Registrant on February 21, 2019.
(10)(j)
PotlatchDeltic Corporation 2019 Long-Term Incentive Plan filed as Exhibit 10.1 to the Current
Report on Form 8-K filed by the Registrant on May 10, 2019.
(10)(j)(i) 1*
Form of PotlatchDeltic 2019 Long-Term Incentive Plan RSU Award Notice (Employee) as filed as
Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on May 10, 2019.
(10)(j)(ii) 1*
Form of PotlatchDeltic 2019 Long-Term Incentive Plan RSU Award Agreement as filed as Exhibit
10.3 to the Current Report on Form 8-K filed by the Registrant on May 10, 2019.
(10)(j)(iii) 1*
Form of PotlatchDeltic 2019 Long-Term Incentive Plan Performance Share Award Notice as filed
as Exhibit 10.5 to the Current Report on Form 8-K filed by the Registrant on May 10, 2019.
(10)(j)(iv) 1*
Form of PotlatchDeltic 2019 Long-Term Incentive Plan Performance Share Agreement as filed as
Exhibit 10.6 to the Current Report on Form 8-K filed by the Registrant on May 10, 2019.
(10)(j)(v) 1*
(10)(k)1*
(10)(k)(ii)1*
(10)(l)1*
(10)(m)1*
(10)(n)1*
Form of PotlatchDeltic 2019 Long-Term Incentive Plan Award Director RSU Notice and
Agreement as filed as Exhibit 10.7 to the Current Report on Form 8-K filed by the Registrant on
May 10, 2019.
PotlatchDeltic Corporation Management Performance Award Plan II, as amended through
February 20, 2008, filed as Exhibit (10)(r)(iv) to the Current Report on Form 8-K filed by the
Registrant on February 26, 2008.
Amendment to PotlatchDeltic Corporation Management Performance Award Plan II, effective
June 1, 2008, filed as Exhibit (10)(r)(v) to the Current Report on Form 8-K filed by the Registrant
on May 21, 2008.
PotlatchDeltic Corporation Salaried Supplemental Benefit Plan II, effective December 5, 2008,
and amended and restated as of January 1, 2019, filed as Exhibit 10.4 to the Current Report on
Form 8-K filed by the Registrant on February 21, 2019.
PotlatchDeltic Corporation Annual Incentive Plan, amended and restated effective January 1,
2019, filed as Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on February
21, 2019.
PotlatchDeltic Corporation Management Deferred Compensation Plan, effective June 1, 2008,
amended and restated on February 14, 2014, filed as Exhibit (10)(x) to the Annual Report on
Form 10-K for the fiscal year ended December 31, 2013.
94
EXHIBIT NUMBER
(10)(o)*
(10)(o)(i)*
(10)(o)(ii)*
(10)(p)*
(10)(q)*
(10)(r)*
(21)
(23)
(24)
(31)
(32)
(101)
DESCRIPTION
Second Amended and Restated Term Loan Agreement, dated as of March 22, 2018, by and
among the Registrant and its wholly-owned subsidiaries, as borrowers, Northwest Farm Credit
Services, PCA as administrative agent, the Guarantors from time to time party thereto and the
Lenders from time to time party thereto, filed as Exhibit 10.1 to the Current Report on Form 8-K
filed by the Registrant on March 28, 2018.
First amendment to Second Amended and Restated Term Loan Agreement and Incremental
Term Loan Agreement dated January 30, 2019, by and among the Registrant and its wholly-
owned subsidiaries as borrowers and Northwest Farm Credit Services, PCA, as Administrative
Agent, the Guarantors party thereto, and the Lenders party thereto, filed as Exhibit 10.1 to the
Current Report on Form 8-K filed by the Registrant on February 5, 2019.
Second amendment to Second Amended and Restated Term Loan Agreement and Incremental
Term Loan Agreement dated December 2, 2019, by and among the Registrant and its wholly-
owned subsidiaries as borrowers and Northwest Farm Credit Services, PCA, as Administrative
Agent, the Guarantors party thereto, and the Lenders party thereto, filed as Exhibit 10.1 to the
Current Report on Form 8-K/A filed by the Registrant on December 10, 2019.
Loan Agreement dated August 1, 2016 by and among Nez Perce County, Idaho, PotlatchDeltic
Corporation, PotlatchDeltic Forest Holdings, Inc., PotlatchDeltic Lake States Timberlands, LLC,
PotlatchDeltic Land and Lumber, LLC, Minnesota Timberlands, LLC and PotlatchDeltic
Timberlands, LLC, filed as Exhibit 1.1 to the Current Report on Form 8-K filed by the Registrant
on August 19, 2016.
Second Amended and Restated Credit Agreement dated as of February 14, 2018, by and among
the Registrant and its wholly-owned subsidiaries as borrowers, Key Bank National Association as
Administrative agent, swing line lender and L/C issuer, the Guarantors from time to time party
thereto and the Lenders from time to time party thereto, filed as Exhibit 10.1 to the Current Report
on Form 8-K filed by the Registrant on February 15, 2018.
Asset Purchase and sales agreement between the Registrant’s wholly-owned subsidiary, Del-Tin
Fiber, LLC (Del-Tin) and Roseburg Forest Products Co. for the sale of Del-Tin’s El Dorado MDF
Business filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on
December 21,2018.
PotlatchDeltic Corporation Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney.
Rule 13a-14(a)/15d-14(a) Certifications.
Furnished statements of the Chief Executive Officer and Chief Financial Officer under 18 U.S.C.
Section 1350.
The following financial information from PotlatchDeltic Corporation’s Annual Report on Form 10-K
for the year ended December 31, 2019, filed on February 19, 2020, formatted in iXBRL (Inline
Extensible Business Reporting Language): (i) the Consolidated Statements of Income for the
years ended December 31, 2019, 2018 and 2017, (ii) the Consolidated Statements of
Comprehensive Income for the years ended December 31, 2019, 2018 and 2017, (iii) the
Consolidated Balance Sheets at December 31, 2019 and 2018, (iv) the Consolidated Statements
of Cash Flows for the years ended December 31, 2019, 2018 and 2017, (v) the Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017 and
(vi) the Notes to Consolidated Financial Statements.
95
EXHIBIT NUMBER
DESCRIPTION
(104)
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in
Exhibit 101).
Incorporated by reference.
*
1 Management contract or compensatory plan, contract or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
96
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
POTLATCHDELTIC CORPORATION
(Registrant)
By
/s/ MICHAEL J. COVEY
Michael J. Covey
Chairman of the Board and
Chief Executive Officer
Date: February 19, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
February 19, 2020, by the following persons on behalf of the registrant in the capacities indicated.
/s/ MICHAEL J. COVEY
Director, Chairman of the Board and Chief Executive Officer
Michael J. Covey
(Principal Executive Officer)
/s/ ERIC J. CREMERS
Director, President and Chief Operating Officer
Eric J. Cremers
/s/ JERALD W. RICHARDS
Vice President and Chief Financial Officer
Jerald W. Richards
/s/ WAYNE WASECHEK
Wayne Wasechek
*
Linda M. Breard
*
William L. Driscoll
Controller (Principal Accounting Officer)
Director
Director
*
Director
Christoph Keller, III
*
D. Mark Leland
*
Charles P. Grenier
*
Lawrence S. Peiros
*
R. Hunter Pierson
Director
Director
Director
Director
97
*
Gregory L. Quesnel
Director
*
Director
Lenore M. Sullivan
*By
/s/ MICHELE L. TYLER
Michele L. Tyler
(Attorney-in-fact)
98
BOARD OF DIRECTORS
Linda M. Breard
Strategic Consultant to the CEO
Impinj, Inc.
Seattle, Washington
Director since 2015
Michael J. Covey
Chairman and Chief Executive Officer
Director since 2006
Eric J. Cremers
President and Chief Operating Officer
Director since 2013
William L. Driscoll
Partner
Lincoln Park Partners
Real Estate Management
Tacoma, Washington
Director since 2004
Charles P. Grenier*
Retired Executive Vice President
Plum Creek Timber Company
Seattle, Washington
Director since 2013
*Independent Lead Director
Christoph Keller, III
Episcopal Priest
Little Rock, Arkansas
Director since 2018
OFFICERS
Darin R. Ball
Vice President, Timberlands
Michael J. Covey
Chairman and Chief Executive Officer
Eric J. Cremers
President and Chief Operating Officer
William R. DeReu
Vice President, Real Estate
D. Mark Leland
Retired President
Midstream Division of El Paso Corporation
Houston, Texas
Director since 2018
Lawrence S. Peiros
Retired Executive Vice President and
Chief Operating Officer
The Clorox Company
Oakland, California
Director since 2003
R. Hunter Pierson, Jr.
Private Investor
Timberland, Commercial Real Estate
and Securities
New Orleans, Louisiana
Director since 2018
Gregory L. Quesnel
Retired President and Chief Executive Officer
CNF, Inc.
Palo Alto, California
Director since 2000
Lenore M. Sullivan
Retired Partner
Perella Weinberg Partners
Dallas, Texas
Director since 2018
Robert L. Schwartz
Vice President, Human Resources
Thomas J. Temple
Vice President, Wood Products
Anna E. Torma
Vice President, Public Affairs
Michele L. Tyler
Vice President, General Counsel and Corporate Secretary
Jerald W. Richards
Vice President and Chief Financial Officer
Wayne Wasechek
Controller and Principal Accounting Officer
CORPORATE INFORMATION
Executive Offices
601 West First Avenue, Suite 1600
Spokane, Washington 99201-3807
509-835-1500
www.potlatchdeltic.com
Transfer Agent and Registrar
Computershare
P.O. Box 505000
Louisville, KY 40253
866-593-2351
www.computershare.com/investor
Stock Listing
PotlatchDeltic common stock is traded under the symbol
PCH on NASDAQ.
Distribution Reinvestment
For the convenience of our registered stockholders, dividend
distributions may be reinvested in PotlatchDeltic common
stock. For information, contact Computershare at 866-593-2351.
Annual Meeting
The annual meeting of stockholders will be held:
May 4, 2020, at 9 a.m.
PotlatchDeltic Corporation
Corporate Offices
601 West First Avenue, Suite 1600
Spokane, Washington 99201
In the event we are not able to hold our annual meeting at the physical
location, we will host a virtual-only meeting. Please check for updates in
the days before the meeting at our website: http://www.potlatchdeltic.com.
Additional Information
Copies of our filings with the U.S. Securities and
Exchange Commission, our Corporate Governance
Guidelines, Corporate Conduct and Ethics Code, and
Charters of the Committees of the Board of Directors
are available, free of charge, at our Web address,
www.potlatchdeltic.com, or upon written request to
the Corporate Secretary at our executive offices.
Forward-Looking Statements
This report contains forward-looking statements that
reflect management’s current views regarding future
events based on estimates and assumptions, and are
therefore subject to known and unknown risks and
uncertainties. For a nonexclusive listing of forward-
looking statements and potential factors affecting
our business, please refer to “Cautionary Statement
Regarding Forward-Looking Information” on Page 1
and “Risk Factors” in Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2019, which
is included as part of this report. These forward-looking
statements are made as of the date of this report and,
except as required under applicable law, we do not
intend to issue updates concerning any future revisions
of management’s views to reflect events or
circumstances occurring after the date
of this report.
SFI®-Certified Paper
PotlatchDeltic Corporation’s 2019 Annual Report is printed entirely on
SFI-Certified paper. The Annual Report is printed on Domtar SFI-Certified
paper manufactured using fiber from responsible and legal sources.
FSC
BUREAU VERITAS
Certification