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Deltic Timber 10-Q 2012

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
Form 10-Q
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12147

DELTIC TIMBER CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   71-0795870
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)
210 East Elm Street, P. O. Box 7200, El Dorado, Arkansas   71731-7200
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (870) 881-9400

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, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 to 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 and post such files).    Yes  x    No  ¨.

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

 

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a small reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x.

Number of shares of Common Stock, $.01 Par Value, outstanding at March 31, 2012, was 12,654,836.

 

 

 


Table of Contents

TABLE OF CONTENTS – FIRST QUARTER 2012 FORM 10-Q REPORT

 

         

Page

Number

 
   PART I – Financial Information   

Item 1.

   Financial Statements      1   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      18   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      27   

Item 4.

   Controls and Procedures      27   
  

PART II – Other Information

  

Item 1.

   Legal Proceedings      28   

Item 1A.

   Risk Factors      28   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      28   

Item 3.

   Defaults Upon Senior Securities      28   

Item 4.

   Mine Safety Disclosures      28   

Item 5.

   Other Information      28   

Item 6.

   Exhibits      29   

Signatures

        30   


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.    Financial Statements

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

    Consolidated Balance Sheets    

(Thousands of dollars)

 

     (Unaudited)        
     March 31,
2012
    December 31,
2011
 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 3,074        3,291   

Trade accounts receivable, net of allowance for doubtful accounts of $69 and $65, respectively

     6,582        4,821   

Other receivables

     —          1   

Inventories

     4,792        4,353   

Prepaid expenses and other current assets

     4,766        3,862   
  

 

 

   

 

 

 

Total current assets

     19,214        16,328   

Investment in real estate held for development and sale

     57,063        57,408   

Investment in Del-Tin Fiber

     7,284        7,113   

Other investments and noncurrent receivables

     316        885   

Timber and timberlands – net

     229,866        228,274   

Property, plant, and equipment – net

     29,365        30,187   

Deferred charges and other assets

     1,589        1,675   
  

 

 

   

 

 

 

Total assets

   $ 344,697        341,870   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities

    

Trade accounts payable

   $ 2,928        1,867   

Current maturities of long-term debt

     1,111        1,111   

Accrued taxes other than income taxes

     2,413        1,971   

Deferred revenues and other accrued liabilities

     7,651        7,761   
  

 

 

   

 

 

 

Total current liabilities

     14,103        12,710   

Long-term debt, excluding current maturities

     65,000        64,000   

Deferred tax liabilities – net

     1,351        1,211   

Other noncurrent liabilities

     36,284        36,826   

Commitments and contingencies

     —          —     

Stockholders’ equity

    

Cumulative preferred stock – $.01 par, authorized 20,000,000 shares, none issued

     —          —     

Common stock – $.01 par, authorized 50,000,000 shares, 12,813,879 shares issued

     128        128   

Capital in excess of par value

     80,648        80,842   

Retained earnings

     162,318        163,170   

Treasury stock

     (5,595     (7,288

Accumulated other comprehensive loss

     (9,540     (9,729
  

 

 

   

 

 

 

Total stockholders’ equity

     227,959        227,123   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 344,697        341,870   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

1


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Income

                    (Unaudited)                     

(Thousands of dollars, except per share amounts)

 

     Three Months Ended  
     March 31,  
     2012     2011  

Net sales

   $ 30,639        29,395   
  

 

 

   

 

 

 

Costs and expenses

    

Cost of sales

     22,001        21,337   

Depreciation, amortization, and cost of fee timber harvested

     2,908        3,162   

General and administrative expenses

     4,596        4,346   
  

 

 

   

 

 

 

Total costs and expenses

     29,505        28,845   
  

 

 

   

 

 

 

Operating income

     1,134        550   

Equity in earnings of Del-Tin Fiber

     71        537   

Interest income

     2        7   

Interest and other debt expense, net of capitalized interest

     (1,035     (942

Other income/(expense)

     (25     3   
  

 

 

   

 

 

 

Income before income taxes

     147        155   

Income tax expense

     (50     (63
  

 

 

   

 

 

 

Net income

   $ 97        92   
  

 

 

   

 

 

 

Income per common share

    

Basic

   $ .01        .01   

Diluted

   $ .01        .01   

Dividends declared per common share

   $ .075        .075   

Weighted average common shares outstanding (thousands)

    

Basic

     12,501        12,409   

Diluted

     12,567        12,509   

See accompanying notes to consolidated financial statements.

 

2


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

                                             (Unaudited)                                             

(Thousands of dollars)

 

     Three Months Ended
March 31,
 
     2012     2011  

Net income

   $ 97        92   
  

 

 

   

 

 

 

Other comprehensive income/(loss)

    

Items related to employee benefit plans:

    

Reclassification adjustment for gains/(losses) included in net income:

    

Amortization of prior service cost1

     2        2   

Amortization of actuarial loss2

     359        39   

Amortization of plan amendment3

     (50     (50

Income tax benefit/(expense) related to items of other comprehensive income

     (122     4   
  

 

 

   

 

 

 

Other comprehensive income/(loss)

     189        (5
  

 

 

   

 

 

 

Comprehensive income

   $ 286        87   
  

 

 

   

 

 

 

 

1 

Related tax effect (in thousands) is $(1) and $(1) for 2012 and 2011, respectively.

2 

Related tax effect (in thousands) is $(141) and $(15) for 2012 and 2011, respectively.

3 

Related tax effect (in thousands) is $20 and $20 for 2012 and 2011, respectively.

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

                    (Unaudited)                     

(Thousands of dollars)

 

     Three Months Ended
March 31,
 
     2012     2011  

Operating activities

    

Net income

   $ 97        92   

Adjustments to reconcile net income to net cash provided/(required) by operating activities

    

Depreciation, amortization, and cost of fee timber harvested

     2,908        3,162   

Deferred income taxes

     17        39   

Real estate development expenditures

     (105     (298

Real estate costs recovered upon sale

     232        130   

Timberland costs recovered upon sale

     127        142   

Equity in earnings of Del-Tin Fiber

     (71     (537

Stock-based compensation expense

     558        507   

Net increase in liabilities for pension and other postretirement benefits

     450        147   

Net decrease in deferred compensation for stock-based liabilities

     (890     (694

Increase in operating working capital other than cash and cash equivalents

     (1,375     (3,805

Other – changes in assets and liabilities

     169        (120
  

 

 

   

 

 

 

Net cash provided/(required) by operating activities

     2,117        (1,235
  

 

 

   

 

 

 

Investing activities

    

Capital expenditures requiring cash, excluding real estate development

     (3,478     (2,822

Net change in purchased stumpage inventory

     (346     (770

Advances to Del-Tin Fiber

     (800     (597

Repayments from Del-Tin Fiber

     700        875   

Net change in funds held by trustee

     568        —     

Other – net

     220        170   
  

 

 

   

 

 

 

Net cash required by investing activities

     (3,136     (3,144
  

 

 

   

 

 

 

Financing activities

    

Proceeds from borrowings

     2,000        5,500   

Repayments of notes payable and long-term debt

     (1,000     (1,000

Treasury stock purchases

     (19     (55

Common stock dividends paid

     (949     (941

Proceeds from stock option exercises

     409        646   

Excess tax benefits from stock-based compensation expense

     534        498   

Deferred financing costs

     —          (1,094

Other – net

     (173     (130
  

 

 

   

 

 

 

Net cash provided by financing activities

     802        3,424   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (217     (955

Cash and cash equivalents at January 1

     3,291        3,831   
  

 

 

   

 

 

 

Cash and cash equivalents at March 31

   $ 3,074        2,876   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

                    (Unaudited)                     

(Thousands of dollars)

 

     Three Months Ended
March 31,
 
     2012     2011  

Cumulative preferred stock – $.01 par, authorized 20,000,000 shares, none issued

   $ —          —     

Common stock – $.01 par, authorized 50,000,000 shares, 12,813,879 shares issued in 2012 and 2011

     128        128   
  

 

 

   

 

 

 

Capital in excess of par value

    

Balance at beginning of period

     80,842        79,081   

Exercise of stock options

     38        (24

Stock-based compensation expense

     558        507   

Restricted stock awards

     (1,393     (1,456

Tax effect of stock awards

     550        530   

Restricted stock forfeitures

     53        1   
  

 

 

   

 

 

 

Balance at end of period

     80,648        78,639   
  

 

 

   

 

 

 

Retained earnings

    

Balance at beginning of period

     163,170        164,286   

Net income

     97        92   

Common stock dividends

     (949     (941
  

 

 

   

 

 

 

Balance at end of period

     162,318        163,437   
  

 

 

   

 

 

 

Treasury stock

    

Balance at beginning of period – 208,296 and 308,846 shares, respectively

     (7,288     (10,758

Shares purchased – 267 and 869 shares, respectively

     (19     (55

Forfeited restricted stock – 785 and 34 shares, respectively

     (53     (1

Shares issued for incentive plans – 50,305 and 60,917 shares, respectively

     1,765        2,126   
  

 

 

   

 

 

 

Balance at end of period – 159,043 and 248,832 shares, respectively

     (5,595     (8,688
  

 

 

   

 

 

 

Accumulated other comprehensive loss

    

Balance at beginning of period

     (9,729     (2,726

Change in other comprehensive income/(loss) net of tax

     189        (5
  

 

 

   

 

 

 

Balance at end of period

     (9,540     (2,731
  

 

 

   

 

 

 

Total stockholders’ equity

   $ 227,959        230,785   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1 – Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared by Deltic Timber Corporation (the “Company” or “Deltic”). Certain information and accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations of the Securities and Exchange Commission. Although management of the Company believes the disclosures contained herein are adequate to make the information presented not misleading, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2011. Preparation of consolidated financial statements requires management to make estimates and assumptions. These estimates and assumptions affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Management believes the accompanying consolidated financial statements contain all adjustments, including normal recurring accruals and adjustments, which in the opinion of management are necessary to present fairly its financial position as of March 31, 2012, and the results of its operations and cash flows for the three months ended March 31, 2012 and 2011. These consolidated financial statements are not necessarily indicative of results to be expected for the full year. The Company has evaluated subsequent events through the date the financial statements were issued.

Recently Issued Authoritative Accounting Pronouncements and Guidance

Financial Accounting Standards Update No. 2011-04, “Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”) (Topic 820),” became effective January 1, 2012, for the Company. The new guidance results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRS standards. The adoption of this guidance has no impact on the Company’s consolidated financial statements.

Financial Accounting Standards Update No. 2011-05 as amended by ASU 2011-12, “Presentation of Comprehensive Income,” became effective for the Company January 1, 2012, and is intended to increase the prominence of other comprehensive income in the financial statements. The adoption of this guidance has had little impact on the Company’s consolidated financial statements.

 

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Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 2 – Inventories

Inventories at the balance sheet dates consisted of the following:

 

(Thousands of dollars)    March 31,
2012
     Dec. 31,
2011
 

Logs

   $ 1,229         1,100   

Lumber

     3,124         2,925   

Materials and supplies

     439         328   
  

 

 

    

 

 

 
   $ 4,792         4,353   
  

 

 

    

 

 

 

Note 3 – Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets at the balance sheet dates consisted of the following:

 

(Thousands of dollars)    March 31,
2012
     Dec. 31,
2011
 

Short-term deferred tax assets

   $ 2,180         2,180   

Refundable income taxes

     1,568         1,050   

Prepaid expenses

     479         196   

Other current assets

     539         436   
  

 

 

    

 

 

 
   $ 4,766         3,862   
  

 

 

    

 

 

 

Note 4 – Investment in Del-Tin Fiber

The Company owns 50 percent of the membership of Del-Tin Fiber LLC (“Del-Tin Fiber”), which operates a medium density fiberboard (“MDF”) plant near El Dorado, Arkansas. The Company’s membership in Del-Tin Fiber is discussed in more detail in Note 4 – Investment in Del-Tin Fiber, in the Company’s 2011 annual report on Form 10-K.

On August 26, 2004, the Company executed a guarantee agreement in connection with the refinancing of the debt of Del-Tin Fiber, which included both a five-year term loan and a long-term bond obligation. In connection with the bond obligation, Del-Tin Fiber has issued a letter of credit in support of the bond obligation and both Deltic and the other joint venture partner agreed to guarantee Del-Tin Fiber’s performance under the letter of credit at inception. The Company’s guarantee under the letter of credit expires on August 31, 2016. In connection with the issuance of Deltic’s original guarantee of the letter of credit, the fair value of the guarantee of the bonds was determined to be de minimus. In reviewing the payment and performance risk associated with this guarantee, Deltic continues to consider the risk minimal based on Del-Tin Fiber’s balance sheet, past performance, and length of time remaining on the guarantee. On February 13, 2012, International Paper Company completed its acquisition of Temple-Inland, Inc., Deltic’s joint venture partner in Del-Tin Fiber. Temple-Inland, Inc. is now a wholly owned subsidiary of International Paper Company. The acquisition did not change the operating agreement of Del-Tin Fiber.

 

7


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 4 – Investment in Del-Tin Fiber (cont.)

 

At March 31, 2012, and December 31, 2011, the Company’s share of the underlying net assets of Del-Tin Fiber exceeded its investment by $14,761,000 and $14,958,000, respectively. The difference relates primarily to the Company’s write-off of its carrying amount for its investment in Del-Tin Fiber as of December 31, 2002, which was not recorded by Del-Tin Fiber. The equity in earnings of Del-Tin Fiber recognized by the Company exceeds its ownership percentage of Del-Tin Fiber’s earnings because the difference in basis between the Company and Del-Tin Fiber is being adjusted to account for Del-Tin Fiber’s operating results as if it were a consolidated subsidiary.

The financial position for Del-Tin Fiber as of the balance sheet dates and results of operations consisted of the following:

Condensed Balance Sheet Information

 

(Thousands of dollars)    March 31,
2012
     Dec. 31,
2011
 

Current assets

   $ 8,088         7,362   

Property, plant, and equipment – net

     68,390         68,480   

Other noncurrent assets

     205         217   
  

 

 

    

 

 

 

Total assets

   $ 76,683         76,059   
  

 

 

    

 

 

 

Current liabilities

   $ 3,591         2,916   

Long-term debt

     29,000         29,000   

Members’ capital

     44,092         44,143   
  

 

 

    

 

 

 

Total liabilities and members’ capital

   $ 76,683         76,059   
  

 

 

    

 

 

 

Condensed Income Statement Information

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2012     2011  

Net sales

   $ 14,591        15,132   
  

 

 

   

 

 

 

Costs and expenses

    

Cost of sales

     12,760        12,313   

Depreciation

     1,358        1,356   

General and administrative expenses

     569        589   
  

 

 

   

 

 

 

Total costs and expenses

     14,687        14,258   
  

 

 

   

 

 

 

Operating income/(loss)

     (96     874   

Interest income

     50        53   

Interest and other debt expense

     (186     (251

Other loss

     (19     —     
  

 

 

   

 

 

 

Net income/(loss)

   $ (251     676   
  

 

 

   

 

 

 

 

8


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 5 – Timber and Timberlands

Timber and timberlands at the balance sheet dates consisted of the following:

 

(Thousands of dollars)    March 31,
2012
    Dec. 31,
2011
 

Purchased stumpage inventory

   $ 2,407        2,062   

Timberlands

     93,355        93,714   

Fee timber

     236,066        233,029   

Logging facilities

     2,602        2,601   
  

 

 

   

 

 

 
     334,430        331,406   

Less accumulated cost of fee timber harvested and facilities depreciation

     (105,589     (104,284
  

 

 

   

 

 

 

Strategic timber and timberlands

     228,841        227,122   

Non-strategic timber and timberlands

     1,025        1,152   
  

 

 

   

 

 

 
   $ 229,866        228,274   
  

 

 

   

 

 

 

In 1999, the Company initiated a program to identify and sell non-strategic timberlands and use the sales proceeds to purchase pine timberlands that are strategic to its operations. In 2008, Deltic identified approximately 10,000 acres of non-strategic timberlands that existed within its timberlands base to be sold. Other non-strategic acreage exists within the Company’s land base, but Deltic has not completely identified the number of acres that fit within this category. As the Company identifies these acres and determines that either smaller tracts of pine timberlands cannot be strategically managed or tracts of hardwood bottomland that cannot be converted into pine growing acreage, they will be sold. As of March 31, 2012, approximately 2,200 acres of these lands were available for sale. Included in the Woodlands operating income are gains from sales of non-strategic timberland of $259,000 and $225,000 for the three months ended March 31, 2012 and 2011, respectively.

Note 6 – Property, Plant, and Equipment

Property, plant, and equipment at the balance sheet dates consisted of the following:

 

(Thousands of dollars)    March 31,
2012
    Dec. 31,
2011
 

Land

   $ 357        357   

Land improvements

     6,139        6,141   

Buildings and structures

     13,876        13,876   

Machinery and equipment

     100,672        100,211   
  

 

 

   

 

 

 
     121,044        120,585   

Less accumulated depreciation

     (91,679     (90,398
  

 

 

   

 

 

 
   $ 29,365        30,187   
  

 

 

   

 

 

 

 

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Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 7 – Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2012, was 34 percent. The Company’s policy is to recognize interest expense related to unrecognized tax benefits in interest expense and penalties in other expenses. During the three months ended March 31, 2012, the Company recognized $39,000 in interest expense from these items. The Company had approximately $264,000 accrued in deferred revenues and other accrued liabilities for interest and penalties at March 31, 2012. If the Company were to prevail on all unrecognized tax benefits recorded on the balance sheet, approximately $1,225,000 would benefit the effective rate.

The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2008.

Note 8 – Deferred Revenues and Other Accrued Liabilities

Deferred revenues and other accrued liabilities at the balance sheet dates consisted of the following:

 

(Thousands of dollars)    March 31,
2012
     Dec. 31,
2011
 

Deferred revenues – current

   $ 3,698         4,027   

Vacation accrual

     996         954   

Deferred compensation

     976         1,421   

All other current liabilities

     1,981         1,359   
  

 

 

    

 

 

 
   $ 7,651         7,761   
  

 

 

    

 

 

 

Note 9 – Other Noncurrent Liabilities

Other noncurrent liabilities at the balance sheet dates consisted of the following:

 

(Thousands of dollars)    March 31,
2012
     Dec. 31,
2011
 

Accumulated postretirement benefit obligation

   $ 11,038         10,904   

Excess retirement plan

     4,183         4,063   

Accrued pension liability

     14,233         14,443   

Deferred revenue – long term portion

     3,205         3,284   

Uncertain tax positions liability

     1,771         1,771   

Other noncurrent liabilities

     1,854         2,361   
  

 

 

    

 

 

 
   $ 36,284         36,826   
  

 

 

    

 

 

 

 

10


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 10 – Employee and Retiree Benefit Plans

Components of net periodic retirement expense and other postretirement benefits expense consisted of the following:

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2012     2011  

Funded qualified retirement plan

    

Service cost

   $ 408        256   

Interest cost

     405        368   

Expected return on plan assets

     (423     (414

Amortization of prior service cost

     5        5   

Recognized actuarial loss

     245        34   
  

 

 

   

 

 

 

Net retirement expense

   $ 640        249   
  

 

 

   

 

 

 

Unfunded nonqualified retirement plan

    

Service cost

   $ 91        17   

Interest cost

     89        44   

Amortization of prior service cost

     (3     (3

Recognized actuarial loss

     96        5   
  

 

 

   

 

 

 

Net retirement expense

   $ 273        63   
  

 

 

   

 

 

 

Other postretirement benefits

    

Service cost

   $ 114        88   

Interest cost

     117        113   

Recognized actuarial loss

     18        —     

Amortization of plan amendment

     (50     (50
  

 

 

   

 

 

 

Other postretirement benefits expense

   $ 199        151   
  

 

 

   

 

 

 

The Company made contributions to its qualified plan of $600,000 during the first three months of 2012, and expects to continue to fund the plan at the same monthly level over the remainder of 2012. The expected long-term rate of return on pension plan assets is 7.50 percent.

 

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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 11 – Stock-Based Compensation

The Consolidated Statement of Income for the three months ended March 31, 2012 and 2011, included $558,000 and $507,000, respectively, of stock-based compensation expense reflected in general and administrative expenses.

Assumptions for the valuation of 2012 stock options and restricted stock performance units consisted of the following:

 

     2012  

Expected term of options (in years)

     6.27   

Weighted expected volatility

     38.78

Dividend yield

     .61

Risk-free interest rate performance restricted shares

     .60

Risk-free interest rate – options

     2.00

Stock price as of valuation date

   $ 67.67   

Restricted performance share valuation

   $ 90.61   

Grant date fair value – stock options

   $ 24.92   

Stock Options – A summary of stock options as of March 31, 2012, and changes during the three- month period then ended are presented below:

 

Options

   Shares     Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual
Term (Years)
     Aggregate
Intrinsic
Value
($000)
 

Outstanding at January 1, 2012

     128,095      $ 49.39         

Granted

     26,527        67.67         

Exercised

     (10,586     38.66         

Forfeited/expired

     (784     50.44         
  

 

 

         

Outstanding at March 31, 2012

     143,252      $ 53.56         7.3       $ 1,516   
  

 

 

      

 

 

    

 

 

 

Exercisable at March 31, 2012

     74,569      $ 49.61         5.9       $ 1,022   
  

 

 

      

 

 

    

 

 

 

The aggregate intrinsic value in the table above is the sum of the amounts by which the quoted market price of the Company’s common stock exceeded the exercise price of the options at March 31, 2012, for those options for which the quoted market price was in excess of the exercise price. This amount changes over time based on changes in the fair market value of the Company’s stock. As of March 31, 2012, there was $1,341,000 of unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a weighted-average period of 2.2 years.

 

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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 11 – Stock-Based Compensation (cont.)

 

Restricted Stock and Restricted Stock Units – A summary of nonvested restricted stock as of March 31, 2012, and changes during the three-month period then ended are presented below:

 

Nonvested Restricted Stock

   Shares     Weighted
Average
Grant-Date
Fair Value
 

Nonvested at January 1, 2012

     75,395      $ 48.18   

Granted

     18,172        67.67   

Vested

     (16,791     51.37   

Forfeited

     (368     49.42   
  

 

 

   

Nonvested at March 31, 2012

     76,408      $ 52.10   
  

 

 

   

As of March 31, 2012, there was $2,614,000 of unrecognized compensation cost related to nonvested restricted stock. That cost is expected to be recognized over a weighted-average period of 2.3 years.

Performance Units – A summary of nonvested restricted stock performance units as of March 31, 2012, and changes during the three months then ended are presented below:

 

Nonvested Restricted Stock Performance Units

   Shares     Weighted
Average
Grant-Date
Fair Value
 

Nonvested at January 1, 2012

     49,303      $ 60.06   

Granted

     11,559        90.61   

Vested

     (9,988     53.49   

Forfeited

     (417     63.64   
  

 

 

   

Nonvested at March 31, 2012

     50,457      $ 68.33   
  

 

 

   

As of March 31, 2012, there was $2,289,000 of unrecognized compensation cost related to nonvested restricted stock performance units. That cost is expected to be recognized over a weighted-average period of 2.3 years.

Note 12 – Contingencies

At various times, the Company may be involved in litigation incidental to its operations. Currently, there are no material legal proceedings outstanding.

 

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Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 13 – Fair Value of Financial Instruments

Fair Value Measurement Accounting establishes a fair value hierarchy based on the quality of inputs used to measure fair value, with level 1 being the highest quality and level 3 being the lowest quality. Level 1 inputs are quoted prices in active markets on identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included in Level 1. Level 3 inputs are unobservable inputs which reflect assumptions about pricing by market participants.

Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.

Nonqualified employee savings plan: Consists of mutual funds, which are valued at the net asset value of shares held by the plan at the balance sheet date, at quoted market prices.

The fair value measurements for the Company’s financial liabilities accounted for at fair value on a recurring basis at March 31, 2012, are presented in the following table:

 

            Fair Value Measurements at Reporting Date Using  
     March 31,
2012
     Quoted Prices in
Active Markets for
Identical Liabilities
Inputs
     Significant
Observable
Inputs
     Significant
Unobservable
Inputs
 
(Thousands of dollars)       Level 1      Level 2      Level 3  

Liabilities

           

Nonqualified employee savings plan

   $ 923         923         —           —     

Long-term debt, including current liabilities – The fair value is estimated by discounting the scheduled debt payment streams to present value based on market rates for which the Company’s debt could be valued.

The following table presents the carrying amounts and estimated fair values of financial instruments at March 31, 2012 and 2011. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The table excludes financial instruments included in current assets and liabilities, except current maturities of long-term debt, all of which have fair values approximating carrying values.

 

     March 31, 2012      March 31, 2011  
(Thousands of dollars)    Carrying
Amount
     Estimated
Fair Value
     Carrying
Amount
     Estimated
Fair Value
 

Financial liabilities

           

Long-term debt, including current liabilities

   $ 66,111         69,370       $ 71,222         75,003   

 

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Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 14 – Earnings per Common Share

The amounts used in computing earnings per share and the effect on income and weighted average number of shares outstanding of dilutive potential common stock consisted of the following:

 

     Three Months Ended
March 31,
 
(Thousands, except per share amounts)    2012      2011  

Net earnings allocated to common stock

   $ 97         92   

Net earnings allocated to participating securities

     —           —     
  

 

 

    

 

 

 

Net income allocated to common stock and participating securities

   $ 97         92   
  

 

 

    

 

 

 

Weighted average number of common shares used in basic EPS

     12,501         12,409   

Effect of dilutive stock awards

     66         100   
  

 

 

    

 

 

 

Weighted average number of common shares and dilutive potential common stock used in EPS assuming dilution

     12,567         12,509   
  

 

 

    

 

 

 

Earnings per common share

     

Basic

   $ .01         .01   

Assuming dilution

   $ .01         .01   

Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of common stock equivalents using the treasury stock method. Options to purchase shares, which were outstanding but not included in the computation of diluted earnings per share because the options were anti-dilutive, were 26,527 and 27,218 for the three months ended March 31, 2012 and 2011, respectively. Restricted performance shares, which were outstanding but not included in the computation of diluted earnings per share because they do not meet the metrics established for awarding, were 25,469 and 14,139 at March 31, 2012 and 2011, respectively.

Note 15 – Supplemental Cash Flow Disclosures

Additional information concerning cash flows is as follows:

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2012     2011  

Income taxes paid in cash

   $ —          21   

Interest paid

     279        207   

Interest capitalized

     (10     (23

 

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Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 15 – Supplemental Cash Flow Disclosures (cont.)

 

Non-cash investing and financing activities excluded from the statement of cash flows include:

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2012      2011  

Issuance of restricted stock

   $ 1,393         1,456   

Land exchanges and capital expenditures accrued, not paid

     132         865   

(Increases)/decreases in working capital, other than cash and cash equivalents, consisted of the following:

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2012     2011  

Trade accounts receivable

   $ (1,762     (991

Other receivables

     —          38   

Inventories

     (438     (298

Prepaid expenses and other current assets

     (913     (944

Trade accounts payable

     929        39   

Accrued taxes other than income taxes

     442        419   

Deferred revenues and other accrued liabilities

     367        (2,068
  

 

 

   

 

 

 
   $ (1,375     (3,805
  

 

 

   

 

 

 

Cash flows provided by other operating activities included decreases in long-term mineral lease rental revenue of $182,000 in 2012 and $283,000 in 2011. Total cash payments received were $361,000 in 2012 and $409,000 in 2011. These payments will be recognized over the term of the lease.

 

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Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 16 – Business Segments

Information about the Company’s business segments consisted of the following:

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2012     2011  

Net sales

    

Woodlands

   $ 10,020        9,958   

Mills

     22,573        21,656   

Real Estate

     1,892        1,723   

Eliminations*

     (3,846     (3,942
  

 

 

   

 

 

 
   $ 30,639        29,395   
  

 

 

   

 

 

 

Income before income taxes

    

Operating income

    

Woodlands

   $ 4,773        4,694   

Mills

     1,580        718   

Real Estate

     (754     (810

Corporate

     (4,316     (4,081

Eliminations

     (149     29   
  

 

 

   

 

 

 

Operating income

     1,134        550   

Equity in earnings of Del-Tin Fiber

     71        537   

Interest income

     2        7   

Interest and other debt expense, net of capitalized interest

     (1,035     (942

Other income/(expense)

     (25     3   
  

 

 

   

 

 

 
   $ 147        155   
  

 

 

   

 

 

 

Depreciation, amortization, and cost of fee timber harvested

    

Woodlands

   $ 1,360        1,458   

Mills

     1,421        1,575   

Real Estate

     99        106   

Corporate

     28        23   
  

 

 

   

 

 

 
   $ 2,908        3,162   
  

 

 

   

 

 

 

Capital expenditures

    

Woodlands

   $ 2,679        2,351   

Mills

     850        1,232   

Real Estate

     182        323   

Corporate

     4        70   
  

 

 

   

 

 

 
   $ 3,715        3,976   
  

 

 

   

 

 

 

*Primarily intersegment sales of timber from Woodlands to Mills.

 

17


Table of Contents

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

The Company reported net income of $.1 million for the first quarter of 2012, the same as for the first quarter of 2011. The Woodlands segment provided $4.8 million in operating income, $.1 million more than in the same period a year ago. While good logging conditions allowed Deltic to increase the harvest level for both pine sawtimber and pulpwood, a lower average price received per ton for pine sawtimber partially offset that benefit. The Mills segment reported operating income of $1.6 million, an increase of $.9 million when compared to the first quarter of 2011. The improvement was due to a higher per-unit sales price; improved hourly productivity rates; increased sales volume; and a lower cost of logs used in manufacturing lumber, as reflected in the current-period lower average sales price for pine stumpage, as price increases for sawlogs lagged behind lumber market improvements. The Real Estate segment reported an operating loss of $.8 million for the first quarters of both 2012 and 2011. The Corporate segment expense was $4.3 million in the first quarter of 2012, which compares to $4 million for the same period of 2011. The increase was due primarily to higher general and administrative expenses associated with pension and post-retirement benefit obligations caused by lower interest rates. Deltic owns a 50 percent interest in Del-Tin Fiber and recorded equity in earnings of $.1 million in the current quarter, a decrease of $.4 million from a year ago, caused by increased manufacturing costs.

Deltic is primarily a wood products producer operating in a commodity-based business environment, with a major diversification in real estate development. The Company’s operating environments are affected by a number of factors including general economic conditions, employment levels, interest rates, credit availability and associated costs, imports, foreign exchange rates, housing starts, new and existing home inventories, residential and commercial real estate foreclosures, residential repair and remodeling, commercial construction, industry capacity and production levels, the availability of raw materials, and weather conditions. Though the U.S. economy shows some signs of improvement, the overall housing market recovery remains tepid. In addition, conflicting signals in employment rates, concerns over future home foreclosures, and uncertainties in global economic conditions have affected the confidence of the home buying public. The number of housing starts and new residential sales has improved over levels from a year ago, but is still below historical averages. Given its relative size and the nature of most commodity markets, the Company maintains little or no influence over the market’s pricing levels for its wood products. Because of this, Deltic’s management continues to focus its attention on increasing productivity while reducing controllable costs and expenses in its manufacturing processes.

The Woodlands segment continues to be the Company’s core operating segment. The pine sawtimber harvest in the first quarter of 2012 was 173,007 tons, an 18 percent increase from the 146,089 tons harvested in the first quarter of 2011. The harvest increase was due to favorable weather conditions for logging. The average per-ton price for pine sawtimber was $22, a 15 percent decrease from $26 per ton in 2011’s first quarter. The decrease in sales price was due to lower demand from sawmills in Deltic’s operating area, driven by reduced operating rates. The first quarter of 2012’s pine pulpwood harvest was 134,934 tons at an average sales price of $9 per ton, which compares to 125,467 tons harvested at $8 per ton for the same period of 2011. During the current quarter, the Company sold approximately 270 acres of timberland, primarily non-strategic recreational-use bottomland, at an average sales price of $1,448 per acre versus 307 acres at $1,358 per acre in 2011’s first quarter. The Woodlands segment reported hunting lease income of $.6 million in the first quarter of 2012 and $.5 million for the same period of 2011.

The Woodlands segment reports other benefits derived from land ownership such as revenues from mineral lease rentals, mineral royalties, and land easements. Oil and gas lease rental income was $.5 million, a $.2 million decrease from the same period of 2011 due primarily to leased properties now being held by production as the original lease periods end. Oil and gas royalty payments are received primarily from the Fayetteville Shale Play and were $1.1 million in the first quarters of both 2012 and 2011. Decade-low natural gas prices have offset the increased volume of producing wells. The ultimate benefit to Deltic from mineral leases remains speculative and unknown to the Company and is contingent on the successful completion of producing wells on Company lands and the prices received for crude oil and natural gas.

 

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Table of Contents

The Mills segment sold 65 million board feet in the first quarter of 2012, an increase of 2.5 million board feet when compared to 62.5 million board feet sold in the same period of 2011. The Company experienced a year-over-year increase in demand for lumber used in construction due to milder weather across the mid-west and south. The average lumber sales price of $271 per thousand board feet received in the current quarter was a $5 per thousand board feet increase from the same period of 2011. The segment also benefited from lower raw material log costs and record hourly productivity rates in its sawmills. Because of the historical volatility in the lumber markets, especially during the past several years, Deltic plans to continue monitoring market conditions and plans to react quickly to adjust production levels to meet any market change in demand.

The Real Estate segment sold seven residential lots during the first quarter of 2012, with an average per-lot sales price of $67,100, compared to sales of three lots with an average per-lot sales price of $85,300 in 2011’s first quarter. The reduction in the per-lot sales price was due to the mix of lots sold. No commercial acreage sales occurred in either the first quarter of 2012 or 2011. Commercial real estate acreage within Chenal Valley continues to receive interest, especially multi-family tracts, property located near “The Promenade at Chenal,” an upscale shopping center that includes internationally branded retailers, and property located adjacent to St. Vincent West, a medical center that recently opened. However, due to the unpredictable nature of commercial real estate sales activity, the Company cannot predict the timing of closing for any commercial real estate transaction.

Operating results for Del-Tin Fiber are affected by the overall medium density fiberboard (“MDF”) market and the plant’s operating performance. Deltic’s equity in the earnings of Del-Tin Fiber was $.1 million for the current year quarter versus $.5 million for the same period of 2011 due to increased manufacturing costs, including higher resin glue expense in the current year. Regarding the Company’s equity position in Del-Tin Fiber, Deltic continues to reduce depreciation expense related to the add-back per thousand square feet manufactured, which relates to the impairment taken by the Company in 2002 that was not recorded at the Del-Tin Fiber level. The difference in basis between the Company and Del-Tin Fiber is being adjusted to account for Del-Tin Fiber’s operating results as if it were a consolidated subsidiary. (For further discussion, refer to Note 4 to the Consolidated Financial Statements.)

Results of Operations

In the following tables, Deltic’s net sales and results of operations are presented for the quarters ended March 31, 2012 and 2011. Explanations of significant variances and additional analyses for the Company’s consolidated and segment operations follow the tables.

 

     Quarter Ended March 31,  
(Millions of dollars, except per share amounts)    2012     2011  

Net sales

    

Woodlands

   $ 10.0        10.0   

Mills

     22.6        21.6   

Real Estate

     1.9        1.7   

Eliminations

     (3.9     (3.9
  

 

 

   

 

 

 

Net sales

   $ 30.6        29.4   
  

 

 

   

 

 

 

 

19


Table of Contents
     Quarter Ended March 31,  
(Millions of dollars, except per share amounts)    2012     2011  

Operating income/(loss)

    

Woodlands

   $ 4.8        4.7   

Mills

     1.6        .7   

Real Estate

     (.8     (.8

Corporate

     (4.3     (4.0

Eliminations

     (.2     —     
  

 

 

   

 

 

 

Operating income

     1.1        .6   

Equity in earnings of Del-Tin Fiber

     .1        .5   

Interest and other debt expense

     (1.0     (.9

Income taxes

     (.1     (.1
  

 

 

   

 

 

 

Net income

   $ .1        .1   
  

 

 

   

 

 

 

Income per common share

    

Basic and diluted

   $ .01        .01   

Consolidated

Net income in the first quarter of 2012 was unchanged from the first quarter of 2011. Improved results for the Woodlands and Mills segments were offset by increased Corporate general and administrative expenses and lower equity in earnings of Del-Tin Fiber.

Operating income increased $.5 million. The Woodlands segment increased $.1 million primarily due to a lower cost of fee timber harvested. The Mills segment increased $.9 million due to increased sales volumes, a higher average lumber sales price, improved hourly productivity rates, and lower log costs used in manufacturing lumber. While the Real Estate segment sold more residential lots in 2012, this benefit was offset by lower financial results at Chenal Country Club, resulting in similar results for the segment for both periods. Corporate expenses were higher due primarily to higher general and administrative expenses.

Woodlands

Selected financial and statistical data for the Woodlands segment is shown in the following table.

 

     Quarter Ended March 31,  
     2012      2011  

Gross sales (millions of dollars)

     

Pine sawtimber

   $ 3.7         3.8   

Pine pulpwood

     1.2         1.0   

Hardwood sawtimber

     —           .1   

Hardwood pulpwood

     .2         .2   

Oil and gas lease rentals

     .5         .7   

Oil and gas royalties

     1.1         1.1   

Hunting leases

     .6         .5   

Sales volume (thousands of tons)

     

Pine sawtimber

     173.0         146.1   

Pine pulpwood

     134.9         125.5   

Hardwood sawtimber

     1.2         2.3   

Hardwood pulpwood

     15.1         27.8   

 

20


Table of Contents
     Quarter Ended March 31,  
     2012      2011  

Sales price (per ton)

     

Pine sawtimber

   $ 22         26   

Pine pulpwood

     9         8   

Hardwood sawtimber

     34         31   

Hardwood pulpwood

     10         6   

Timberland

     

Net sales (millions of dollars)

   $ .4         .4   

Sales volume (acres)

     270         307   

Sales price (per acre)

   $ 1,448         1,358   

There was no change in net sales in 2012 when compared to the 2011 first quarter. Pine sawtimber sales were lower by $.1 million in the first quarter of 2012, due to a decrease in stumpage prices which was partially offset by an increased harvest volume. Pine pulpwood sales were higher by $.2 million mainly due to higher harvest volumes. Oil and gas lease rental revenue was lower by $.2 million in the current period, as the lease period on some acreage has ended and the properties are now held by production. Revenues from hauling stumpage to other mills increased $.2 million compared to the first quarter of 2011. Operating income was $.1 million higher in 2012’s first quarter than in 2011. Year-over-year variances that affected operating income for the first quarter of 2012 were lower costs for fee timber harvested and for replanting fee timberlands. These benefits were offset by increased cull timber removal expense and cost of hauling stumpage to other mills.

Mills

Selected financial and statistical data for the Mills segment is shown in the following table.

 

     Quarter Ended March 31,  
     2012      2011  

Net sales (millions of dollars)

     

Lumber

   $ 17.6         16.6   

Residual by-products

     3.9         3.9   

Lumber

     

Finished production (MMBF)

     66.0         63.6   

Sales volume (MMBF)

     65.0         62.5   

Sales price (per MBF)

   $ 271         266   

Net sales increased $1 million over the first quarter of 2011 due to a four percent higher sales volume and a two percent higher average lumber sales price. Operating income for the Mills segment was $.9 million greater in 2012 due to the same items affecting net sales, combined with higher productivity rates and lower costs for logs used to manufacture lumber.

 

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Table of Contents

Real Estate

Selected financial and statistical data for the Real Estate segment is shown in the following table.

 

     Quarter Ended March 31,  
     2012      2011  

Net sales (millions of dollars)

     

Residential lots

   $ .5         .3   

Chenal Country Club

     1.3         1.4   

Sales volume

     

Residential lots

     7         3   

Average sales price (thousands of dollars)

     

Residential lots

   $ 67         85   

Net sales for the first quarter of 2012 were $.2 million higher due primarily to the increase in the number of residential lots sold. Increased operating income from the sales of lots in 2012 were offset by decreased operating income at Chenal Country Club, resulting in no change in operating income for the Real Estate segment.

Corporate

The year-over-year increase in operating expenses for Corporate functions was due to higher general and administrative expenses, primarily associated with pension and post retirement benefit expenses.

Eliminations

Intersegment sales of timber from Deltic’s Woodlands to the Mills segment stayed the same at $3.9 million for both 2012 and 2011 first quarters. During the first quarter of 2012, Deltic transferred an increased volume of fee timber to its sawmills, which was offset by a lower per-ton transfer price. Transfer prices approximate that of the market. Intercompany sales elimination exceeded the intercompany cost elimination by $.2 million as the percentage of intercompany fee timber in inventory increased during the current period.

Equity in Del-Tin Fiber

For the first quarter of 2012, Deltic’s equity in Del-Tin Fiber was $.1 million, a reduction of $.4 million from the first quarter of 2011, due to lower sales prices caused by a moderately softer MDF market and higher manufacturing costs. Additional selected financial and statistical data for Del-Tin Fiber is shown in the following table.

 

     Quarter Ended March 31,  
     2012      2011  

Net sales (millions of dollars)

   $ 14.6         15.1   

Finished production (MMSF)

     29.6         30.2   

Sales volume (MMSF)

     30.1         30.2   

Sales price (per MSF)

   $ 485         501   

 

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Table of Contents

Income Taxes

The effective income tax rate was 34 percent for 2012 and 40 percent for the first quarter of 2011. The effective income tax rate was lower in 2012 because of the impact of permanent tax differences.

Liquidity and Capital Resources

Cash Flows and Capital Expenditures

Net cash provided by operating activities totaled $2.1 million for the first three months of 2012 compared to cash required of $1.2 million in 2011. Changes in operating working capital, other than cash and cash equivalents, required cash of $1.4 million and $3.8 million in 2012 and 2011, respectively. The Company’s accompanying Consolidated Statements of Cash Flows identifies other differences between net income and cash provided or required by operating activities for each reporting period.

Capital expenditures required cash of $3.6 million in the current-year period and $3.1 million a year ago. Capital expenditures by segment consisted of the following:

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2012     2011  

Woodlands, including land exchanges

   $ 2,679        2,351   

Mills

     850        1,232   

Real Estate, including development expenditures

     182        323   

Corporate

     4        70   
  

 

 

   

 

 

 

Capital expenditures

     3,715        3,976   

Non-cash land exchange and accrued liabilities

     (132     (856
  

 

 

   

 

 

 

Capital expenditures requiring cash

   $ 3,583        3,120   
  

 

 

   

 

 

 

The net change in purchased stumpage inventory to be utilized in the Company’s sawmill operations used cash of $.3 million in 2012 and $.8 million in 2011. The Company advanced Del-Tin Fiber $.8 million in the first quarter of 2012, and received repayments of $.7 million. This compares to advances of $.6 million and repayments of $.9 million in the same period of 2011. Funds held by trustees to be used for acquisitions of timberland designated as “replacement property” for income tax purposes, as required for tax-deferred exchanges, decreased $.6 million in 2012 versus no change in 2011. Deltic received proceeds from other investing activities of $.2 million in both 2012 and 2011. Deltic had $1 million in net borrowings in 2012 versus $4.5 million in 2011. The Company incurred $1.1 million in fees to facilitate an amendment and extension of its unsecured and committed revolving credit facility in 2011, while there were no such costs in 2012. The Company had no purchases of treasury stock in 2012 and $.1 million in 2011. Deltic paid dividends on common stock of $.9 million during both 2012 and 2011. Proceeds from stock option exercises and related tax benefits in 2012 decreased $.2 million from 2011.

Financial Condition

Working capital totaled $5.1 million at March 31, 2012, and $3.6 million at December 31, 2011. Deltic’s working capital ratio at March 31, 2012 was 1.36 to 1, compared to 1.28 to 1 at the end of 2011. Cash and cash equivalents at the end of the first quarter of 2012 decreased $.2 million from December 31, 2011. Deltic’s long-term debt to stockholders’ equity ratio was .285 to 1 at March 31, 2012 and .282 to 1 at December 31, 2011.

 

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Table of Contents

Liquidity

The primary sources of the Company’s liquidity are internally generated funds, access to outside financing, and working capital. The Company’s current strategy for growth continues to emphasize its timberland acquisition program, in addition to expanding lumber production as market conditions allow and developing residential and/or commercial properties at Chenal Valley and Red Oak Ridge.

To facilitate these growth plans, the Company has an agreement with a group of banks, which provides an unsecured and committed revolving credit facility totaling $297.5 million, inclusive of a $50 million letter of credit feature. The agreement was amended on February 4, 2011, and will expire on September 9, 2015. As of March 31, 2012, $272.5 million was available. The credit agreement contains restrictive covenants, including limitations on the incurrence of debt and requirements to maintain certain financial ratios. (For additional information about the Company’s current financing arrangements, refer to Note 7 to the consolidated financial statements and Note 9 to the consolidated financial statements included in the Company’s 2011 annual report on Form 10-K.)

The table below sets forth the most restrictive ratio of covenants in the credit facility and Senior Notes Payable and status with respect to these covenants as of March 31, 2012 and December 31, 2011.

 

     Covenants
Requirements
    Actual Ratios at
March 31, 2012
    Actual Ratios at
Dec. 31, 2011
 

Leverage ratio should be less than:1

     .60 to 1        .264 to 1        .262 to 1   

Total outstanding debt as a percentage of total debt allowed based on the minimum timber market value covenant:2

  

 

—  

2 

    44.70     43.47

Fixed charge coverage ratio should be greater than:3

     2.50 to 1        3.86 to 1        3.89 to 1   

 

  1 

The leverage ratio is calculated as total debt divided by total capital. Total debt includes indebtedness for borrowed money, secured liabilities, obligations in respect of letters of credit, and guarantees. Total capital is the sum of total debt and net worth. Net worth is calculated as total assets minus total liabilities, as reflected on the balance sheet. This covenant is applied at the end of each quarter. The revolving credit facility requirement is for the leverage ratio to be less than .65 to 1.

 

  2 

Timber market value must be greater than 200 percent of total debt (as defined in (1) above.) The timber market value is calculated by multiplying the average price received for sales of timber for the preceding four quarters by the current quarter’s ending inventory of timber. This covenant is applied at the end of the quarter on a rolling four-quarter basis. The revolving credit facility requirement is for the timber market value to be greater than 175 percent of total debt (as defined in (1) above.)

 

  3 

The fixed charge coverage ratio is calculated as EBITDA (earnings before interest, taxes, depreciation, depletion, and amortization) increased by non-cash compensation expense and other non-cash expenses and decreased by dividends paid and income tax paid, divided by the sum of interest expense and scheduled principal payments made on debt during the period. This covenant is applied at the end of the quarter on a rolling four-quarter basis. This covenant only applies to the Senior Notes Payable.

Based on management’s current operating projections, the Company believes it will remain in compliance with the debt covenants and have sufficient liquidity to finance operations and pay all obligations. However, depending on future market conditions and the possibility of the return of economic deterioration, the Company may need to request amendments, or waivers for the covenants, or obtain refinancing in future periods. There can be no assurance that the Company will be able to obtain amendments or waivers, or negotiate agreeable refinancing terms should it become needed.

 

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Table of Contents

In December 2000, the Company’s Board of Directors authorized a stock repurchase program of up to $10 million of Deltic common stock. In December 2007, the Company’s Board of Directors expanded the program by $25 million. As of March 31, 2012, the Company had expended $14.6 million under this program, with the purchase of 370,530 shares at an average cost of $39.28 per share; no shares were purchased in 2012, 2011, or 2010, 35,571 shares were purchased in 2009, 129,996 shares were purchased in 2008, 101,914 shares were purchased under this program in 2007, and seven shares in 2006. In its two previous repurchase programs, Deltic purchased 479,601 shares at an average cost of $20.89 and 419,542 shares at a $24.68 per share average cost, respectively.

Off-Balance Sheet Arrangements, Contractual Obligations, and Commitments

On August 26, 2004, Del-Tin Fiber refinanced its existing long-term debt by entering into a credit agreement consisting of a letter of credit and term loan with multiple lending institutions. The funds provided from this credit agreement were used, together with the existing balance in Del-Tin Fiber’s debt service reserve and bond sinking fund accounts, to redeem $60 million of its $89 million industrial revenue bonds. Under the new credit agreement, the lenders, on September 1, 2004, issued on Del-Tin Fiber’s behalf, a letter of credit in the amount of $29.7 million to support the remaining industrial revenue bonds originally issued in 1998 by Union County, Arkansas. Concurrent with this event, on August 26, 2004, Deltic executed a guarantee agreement in connection with the refinancing of the debt of Del-Tin Fiber. Under Deltic’s guarantee agreement, Deltic unconditionally guarantees the due and punctual payment of 50 percent ($14.5 million at March 31, 2012) of Del-Tin’s obligation under its credit agreement. Deltic considers the current status of the payment/performance risk of this guarantee to be low based on the length of time remaining on the guarantee. On February 13, 2012, International Paper Company completed its acquisition of Temple-Inland, Inc., which is Deltic’s joint venture partner in Del-Tin Fiber, LLC. Temple-Inland, Inc. is now a wholly owned subsidiary of International Paper Company and the acquisition did not change the operating agreement of Del-Tin Fiber, LLC.

The Company has both funded and unfunded noncontributory defined benefit retirement plans that cover the majority of its employees. The plans provide defined benefits based on years of service and final average salary. Deltic also has other postretirement benefit plans covering substantially all of its employees. The health care plan is contributory with participants’ contributions adjusted as needed; the life insurance plan is noncontributory. With regards to all of the Company’s employee and retiree benefit plans, Deltic is unaware of any trends, demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the Company’s liquidity increasing or decreasing in any material way. (For information about material assumptions underlying the accounting for these plans and other components of the plans, refer to Note 15 to the consolidated financial statements included in the Company’s 2011 annual report on Form 10-K.)

 

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Table of Contents

Tabular summaries of the Company’s contractual cash payment obligations and other commercial commitment expirations, by period, are presented in the following tables.

 

(Millions of dollars)

   Total      During
2012
     2013
to 2014
     2015
to 2016
     After
2016
 

Contractual cash payment obligations

              

Real estate development committed capital costs

   $ 3.5         .1         2.8         .6         —     

Woodlands land acquisition and committed capital costs

     .1         .1         —           —           —     

Mills committed capital costs

     .8         .8         —           —           —     

Long-term debt

     66.1         1.1         —           65.0         —     

Interest on debt*

     13.7         2.8         5.8         5.1         —     

Retirement plans

     4.1         1.9         .4         .6         1.2   

Other postretirement benefits

     5.0         .3         .8         .9         3.0   

Unrecognized tax benefits

     1.8         .5         1.3         —           —     

Other liabilities

     3.1         2.2         .9         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 98.2         9.8         12.0         72.2         4.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other commercial commitment expirations

              

Guarantee of indebtedness of Del-Tin Fiber

   $ 14.8         —           —           14.8         —     

Timber cutting agreements

     .2         .1         .1         —           —     

Letters of credit

     .7         .1         .2         .4         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 15.7         .2         .3         15.2         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  * 

Interest commitments are estimated using the Company’s current interest rates for the respective debt agreements over their remaining terms to expiration.

Outlook

Deltic’s management believes that cash provided from its operations and the remaining amount available under its credit facility will be sufficient to meet its expected cash needs and planned expenditures, including those of the Company’s continued timberland acquisition, real estate development, and stock repurchase programs, additional advances to Del-Tin Fiber, and capital expenditures, for the foreseeable future.

Critical Accounting Policies and Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and potentially result in materially different results under different assumptions and conditions. The Company has prepared its consolidated financial statements in conformity with accounting principles generally accepted in the United States, which requires management to make estimates and assumptions that affect the reported amounts in these financial statements and accompanying notes. Actual results could differ from those estimates under different assumptions or conditions. The Company has disclosed its critical accounting policies in its 2011 annual report on Form 10-K, and this disclosure should be read in conjunction with this Form 10-Q.

 

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Table of Contents

Impact of Recently Effective Accounting Pronouncements

(For information regarding the impact of recently effective accounting pronouncements, refer to Note 1 to the consolidated financial statements.)

Outlook

Pine sawtimber harvest levels are expected to be 150,000 to 170,000 tons in the second quarter of 2012 and 575,000 to 600,000 tons for the year. Finished lumber sales volume will continue to be subject to market conditions, and is estimated at 50 to 70 million board feet for the second quarter and 250 to 275 million board feet for the year. Residential lot sales are projected to be 5 to 10 lots and 25 to 35 lots for the second quarter and the year, respectively. Although commercial acreage within Chenal Valley continues to receive interest, because of its highly uncertain nature and the significant number of factors involved, the Company is unable to predict the closing of any commercial real estate transactions at this time.

Certain statements contained in this report that are not historical in nature constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “intends,” “plans,” “estimates,” or variations of such words and similar expressions are intended to identify such forward-looking statements. These statements reflect the Company’s current expectations and involve certain risks and uncertainties, including those disclosed elsewhere in this report. Therefore, actual results could differ materially from those included in such forward-looking statements.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

The Company’s market risk has not changed significantly from that set forth under the caption “Quantitative and Qualitative Disclosures About Market Risk,” in Item 7A of Part II of its 2011 annual report on Form 10-K. Those disclosures should be read in conjunction with this Form 10-Q.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Deltic Timber Corporation (“the Company” or “Deltic”) has established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation as of March 31, 2012, the Chief Executive Officer and Chief Financial Officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and this information was accumulated and communicated to the Company’s Management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

Deltic’s management, with the Chief Executive Officer and Chief Financial Officer, have evaluated any changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter, and have concluded that there was no change to Deltic’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect Deltic’s internal control over financial reporting.

 

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Table of Contents

PART II – OTHER INFORMATION

Item 1.    Legal Proceedings

From time to time, the Company is involved in litigation incidental to its business. Currently, there are no material legal proceedings.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in Item 1A of Part I in the Company’s 2011 annual report on Form 10-K.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchase of Equity Securities

 

    Period    

   Total
Number  of
Shares

Purchased
  Average
Price  Paid
Per Share
   Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
   Maximum Approximate
Dollar Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs1

Jan. 1 through Jan. 31, 2012

   —     —      —      $20,434,011

Feb. 1 through Feb. 29, 2012

   2672   $70.43    —      $20,434,011

Mar. 1 through Mar. 31, 2012

   —     —      —      $20,434,011

1In December 2000, the Company’s Board of Directors authorized a stock repurchase plan of up to $10 million of Deltic common stock. In December 2007, this plan was expanded by $25 million. There is no stated expiration date regarding this authorization.

2Represents shares withheld to pay taxes in connection with vesting of restricted stock awards.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.

 

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Table of Contents

Item 6.    Exhibits

Index to Exhibits

 

Exhibit

Designation

  

Nature of Exhibit

31.1    Chief Executive Officer Certification Required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Chief Financial Officer Certification Required by Section 302 of the Sarbanes-Oxley Act of 2002.
32    Certification Required by Section 906 of the Sarbanes-Oxley Act of 2002.
101    Interactive Data: The following financial information from Deltic Timber Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012, formatted in Extensible Business Reporting Language (“XBRL”): (1) the Consolidated Balance Sheets; (2) the Consolidated Statements of Income; (3) the Consolidated Statements of Comprehensive Income: (4) the Consolidated Statements of Cash Flows; (5) the Consolidated Statements of Stockholders’ Equity; and (6) the Notes to Consolidated Financial Statements, tagged as blocks of text.

 

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Table of Contents

SIGNATURES

Pursuant to the requirements 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.

DELTIC TIMBER CORPORATION

 

Date:  

May 4, 2012

    By:  

/s/ Ray C. Dillon

        Ray C. Dillon, President
        (Principal Executive Officer)
Date:  

May 4, 2012

    By:  

/s/ Kenneth D. Mann

        Kenneth D. Mann, Vice President,
        Finance and Administration
        (Principal Financial Officer)
Date:  

May 4, 2012

    By:  

/s/ Byrom L. Walker

        Byrom L. Walker, Controller
        (Principal Accounting Officer)

 

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