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Deltic Timber 10-Q 2013

Documents found in this filing:

  1. 10-Q
  2. Ex-10.25
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32
  6. 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, 2013

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, 2013, was 12,715,199.

 

 

 


Table of Contents

TABLE OF CONTENTS – FIRST QUARTER 2013 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

     20   
Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

     28   
Item 4.   

Controls and Procedures

     28   
PART II – Other Information   
Item 1.   

Legal Proceedings

     30   
Item 1A.   

Risk Factors

     30   
Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     30   
Item 3.   

Defaults Upon Senior Securities

     30   
Item 4.   

Mine Safety Disclosures

     30   
Item 5.   

Other Information

     30   
Item 6.   

Exhibits

     31   
Signatures      32   


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,
2013
    Dec. 31,
2012
 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 13,412        5,613   

Trade accounts receivable, net of allowance for doubtful accounts of $117 and $127, respectively

     7,464        5,277   

Other receivables

     12        13   

Inventories

     5,616        4,894   

Prepaid expenses and other current assets

     3,434        2,795   
  

 

 

   

 

 

 

Total current assets

     29,938        18,592   

Investment in real estate held for development and sale

     56,660        57,088   

Investment in Del-Tin Fiber

     7,651        6,293   

Other investments and noncurrent receivables

     319        354   

Timber and timberlands – net

     249,994        240,215   

Property, plant, and equipment – net

     28,265        26,668   

Deferred charges and other assets

     3,284        3,999   
  

 

 

   

 

 

 

Total assets

   $ 376,111        353,209   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities

    

Trade accounts payable

   $ 4,006        1,981   

Accrued taxes other than income taxes

     2,438        1,951   

Income taxes payable

     2,967        —     

Deferred revenues and other accrued liabilities

     8,237        9,094   
  

 

 

   

 

 

 

Total current liabilities

     17,648        13,026   

Long-term debt, excluding current maturities

     75,000        63,000   

Deferred tax liabilities – net

     397        471   

Other noncurrent liabilities

     43,643        44,482   

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

     82,663        82,597   

Retained earnings

     174,112        168,608   

Treasury stock

     (3,490     (5,000

Accumulated other comprehensive loss

     (13,990     (14,103
  

 

 

   

 

 

 

Total stockholders’ equity

     239,423        232,230   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 376,111        353,209   
  

 

 

   

 

 

 

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,
 
     2013     2012  

Net sales

   $ 41,563        30,639   
  

 

 

   

 

 

 

Costs and expenses

    

Cost of sales

     23,528        22,001   

Depreciation, amortization, and cost of fee timber harvested

     2,651        2,908   

General and administrative expenses

     4,920        4,596   
  

 

 

   

 

 

 

Total costs and expenses

     31,099        29,505   

Gain on involuntary conversion

     84        —     
  

 

 

   

 

 

 

Operating income

     10,548        1,134   

Equity in earnings of Del-Tin Fiber

     1,084        71   

Interest income

     3        2   

Interest and other debt expense, net of capitalized interest

     (1,030     (1,035

Other expense

     (20     (25
  

 

 

   

 

 

 

Income before income taxes

     10,585        147   

Income tax expense

     (3,811     (50
  

 

 

   

 

 

 

Net income

   $ 6,774        97   
  

 

 

   

 

 

 

Income per common share

    

Basic

   $ .53        .01   

Diluted

   $ .53        .01   

Dividends declared per common share

   $ .100        .075   

Weighted average common shares outstanding (thousands)

    

Basic

     12,563        12,501   

Diluted

     12,604        12,567   

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,
 
     2013     2012  

Net income

   $ 6,774        97   
  

 

 

   

 

 

 

Other comprehensive income

    

Items related to employee benefit plans:

    

Reclassification adjustment for gains/(losses) included in net income (net of tax1):

    

Amortization of prior service cost

     1        1   

Amortization of actuarial loss

     142        218   

Amortization of plan amendment

     (30     (30
  

 

 

   

 

 

 

Other comprehensive income

     113        189   
  

 

 

   

 

 

 

Comprehensive income

   $ 6,887        286   
  

 

 

   

 

 

 

 

1

The amounts of amortizations out of comprehensive income for 2012 have been revised to conform to the 2013 presentation.

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,
 
     2013     2012  

Operating activities

    

Net income

   $ 6,774        97   

Adjustments to reconcile net income to net cash provided by operating activities

    

Depreciation, amortization, and cost of fee timber harvested

     2,651        2,908   

Deferred income taxes

     548        17   

Real estate development expenditures

     (191     (105

Real estate costs recovered upon sale

     539        232   

Timberland costs recovered upon sale

     139        127   

Equity in earnings of Del-Tin Fiber

     (1,084     (71

Stock-based compensation expense

     664        558   

Net increase in liabilities for pension and other postretirement benefits

     500        450   

Net decrease in deferred compensation for stock-based liabilities

     (590     (890

Increase in operating working capital other than cash and cash equivalents

     (443     (1,375

Other – changes in assets and liabilities

     (496     169   
  

 

 

   

 

 

 

Net cash provided by operating activities

     9,011        2,117   
  

 

 

   

 

 

 

Investing activities

    

Capital expenditures requiring cash, excluding real estate development

     (11,833     (3,478

Net change in purchased stumpage inventory

     (944     (346

Advances to Del-Tin Fiber

     (1,025     (800

Repayments from Del-Tin Fiber

     750        700   

Net change in funds held by trustee

     7        568   

Other – net

     193        220   
  

 

 

   

 

 

 

Net cash required by investing activities

     (12,852     (3,136
  

 

 

   

 

 

 

Financing activities

    

Proceeds from borrowings

     12,000        2,000   

Repayments of notes payable and long-term debt

     —          (1,000

Treasury stock purchases

     (10     (19

Common stock dividends paid

     (1,270     (949

Proceeds from stock option exercises

     750        409   

Excess tax benefits from stock-based compensation expense

     170        534   

Other – net

     —          (173
  

 

 

   

 

 

 

Net cash provided by financing activities

     11,640        802   
  

 

 

   

 

 

 

Net increase/(decrease) in cash and cash equivalents

     7,799        (217

Cash and cash equivalents at January 1

     5,613        3,291   
  

 

 

   

 

 

 

Cash and cash equivalents at March 31

   $ 13,412        3,074   
  

 

 

   

 

 

 

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,
 
     2013     2012  

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 2013 and 2012

     128        128   
  

 

 

   

 

 

 

Capital in excess of par value

    

Balance at beginning of period

     82,597        80,842   

Exercise of stock options

     124        38   

Stock-based compensation expense

     664        558   

Restricted stock awards

     (935     (1,393

Tax effect of stock awards

     172        550   

Restricted stock forfeitures

     41        53   
  

 

 

   

 

 

 

Balance at end of period

     82,663        80,648   
  

 

 

   

 

 

 

Retained earnings

    

Balance at beginning of period

     168,608        163,170   

Net income

     6,774        97   

Common stock dividends

     (1,270     (949
  

 

 

   

 

 

 

Balance at end of period

     174,112        162,318   
  

 

 

   

 

 

 

Treasury stock

    

Balance at beginning of period – 141,974 and 208,296 shares, respectively

     (5,000     (7,288

Shares purchased – 134 and 267 shares, respectively

     (10     (19

Forfeited restricted stock – 570 and 785 shares, respectively

     (41     (53

Shares issued for incentive plans – 43,998 and 50,305 shares, respectively

     1,561        1,765   
  

 

 

   

 

 

 

Balance at end of period – 98,680 and 159,043 shares, respectively

     (3,490     (5,595
  

 

 

   

 

 

 

Accumulated other comprehensive loss

    

Balance at beginning of period

     (14,103     (9,729

Change in other comprehensive income net of tax

     113        189   
  

 

 

   

 

 

 

Balance at end of period

     (13,990     (9,540
  

 

 

   

 

 

 

Total stockholders’ equity

   $ 239,423        227,959   
  

 

 

   

 

 

 

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, 2012. 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, 2013, and the results of its operations and cash flows for the three months ended March 31, 2013 and 2012. 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. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (Topic 220),” became effective January 1, 2013, for the Company. The amendment of this update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component including the respective line item of net income when reclassed in its entirety or cross-referenced to other disclosures if not reclassed in its entirety. (For additional information, refer to Note 11 – Other Comprehensive Income Disclosures.)

 

6


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,
2013
     Dec. 31,
2012
 

Logs

   $ 1,751         1,341   

Lumber

     3,301         3,231   

Materials and supplies

     564         322   
  

 

 

    

 

 

 
   $ 5,616         4,894   
  

 

 

    

 

 

 

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,
2013
     Dec. 31,
2012
 

Short-term deferred tax assets

   $ 2,129         2,074   

Prepaid expenses

     693         88   

Other current assets

     612         633   
  

 

 

    

 

 

 
   $ 3,434         2,795   
  

 

 

    

 

 

 

Note 4 – Investment in Del-Tin Fiber

Through March 31, 2013, the Company owned 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 2012 annual report on Form 10-K. On February 13, 2013, Deltic announced the Company’s intention to acquire the other 50 percent membership from TIN, Inc. for $20,000,000, which includes the assumption of $14,844,000 in debt guarantees. This acquisition was completed April 1, 2013. For additional information, refer to Note 14 – Subsequent Events.

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 immaterial. 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.

At March 31, 2013, and December 31, 2012, the Company’s share of the underlying net assets of Del-Tin Fiber exceeded its investment by $13,961,000 and $14,162,000, 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

 

7


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

 

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. On April 1, 2013, the Company completed the acquisition of the other half of the ownership of Del-Tin Fiber from its joint venture partner. Beginning in the second quarter of 2013, Deltic will operate and report Del-Tin Fiber operations as 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)    (Unaudited)
March 31,
2013
     Dec. 31,
2012
 

Current assets

   $ 9,456         7,517   

Property, plant, and equipment – net

     64,250         64,879   

Other noncurrent assets

     171         1,276   
  

 

 

    

 

 

 

Total assets

   $ 73,877         73,672   
  

 

 

    

 

 

 

Current liabilities

   $ 1,653         3,763   

Long-term debt

     29,000         29,000   

Members’ capital

     43,224         40,909   
  

 

 

    

 

 

 

Total liabilities and members’ capital

   $ 73,877         73,672   
  

 

 

    

 

 

 

Condensed Income Statement Information – Unaudited

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2013     2012  

Net sales

   $ 16,666        14,591   
  

 

 

   

 

 

 

Costs and expenses

    

Cost of sales

     12,783        12,760   

Depreciation

     1,445        1,358   

General and administrative expenses

     533        569   
  

 

 

   

 

 

 

Total costs and expenses

     14,761        14,687   
  

 

 

   

 

 

 

Operating income/(loss)

     1,905        (96

Interest income

     62        50   

Interest and other debt expense

     (194     (186

Other loss

     (8     (19
  

 

 

   

 

 

 

Net income/(loss)

   $ 1,765        (251
  

 

 

   

 

 

 

 

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,
2013
    Dec. 31,
2012
 

Purchased stumpage inventory

   $ 1,846        902   

Timberlands

     102,654        99,159   

Fee timber

     252,632        246,105   

Logging facilities

     2,609        2,601   
  

 

 

   

 

 

 
     359,741        348,767   

Less accumulated cost of fee timber harvested and facilities depreciation

     (110,065     (108,873
  

 

 

   

 

 

 

Strategic timber and timberlands

     249,676        239,894   

Non-strategic timber and timberlands

     318        321   
  

 

 

   

 

 

 
   $ 249,994        240,215   
  

 

 

   

 

 

 

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 cannot be converted into pine growing acreage, they will be sold. As of March 31, 2013, approximately 700 acres of these lands were available for sale. Included in the Woodlands operating income are gains from sales of non-strategic timberland of $378,000 and $259,000 for the three months ended March 31, 2013 and 2012, 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,
2013
    Dec. 31,
2012
 

Land

   $ 357        357   

Land improvements

     6,322        6,322   

Buildings and structures

     13,866        13,985   

Machinery and equipment

     102,871        99,867   
  

 

 

   

 

 

 
     123,416        120,531   

Less accumulated depreciation

     (95,151     (93,863
  

 

 

   

 

 

 
   $ 28,265        26,668   
  

 

 

   

 

 

 

 

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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 7 – 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,
2013
     Dec. 31,
2012
 

Deferred revenues – current

   $ 3,211         3,794   

Vacation accrual

     1,014         971   

Deferred compensation

     1,579         2,720   

All other current liabilities

     2,433         1,609   
  

 

 

    

 

 

 
   $ 8,237         9,094   
  

 

 

    

 

 

 

Note 8 – Other Noncurrent Liabilities

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

 

(Thousands of dollars)    March 31,
2013
     Dec. 31,
2012
 

Accumulated postretirement benefit obligation

   $ 12,315         12,132   

Excess retirement plan

     9,087         9,063   

Accrued pension liability

     17,256         17,254   

Deferred revenue – long-term portion

     1,676         2,064   

Uncertain tax positions liability

     1,325         1,325   

Other noncurrent liabilities

     1,984         2,644   
  

 

 

    

 

 

 
   $ 43,643         44,482   
  

 

 

    

 

 

 

Note 9 – Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2013, was 36 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, 2013, the Company recognized $45,000 in interest expense from these items. The Company had approximately $516,000 accrued in deferred revenues and other accrued liabilities for interest and penalties at March 31, 2013. If the Company were to prevail on all unrecognized tax benefits recorded on the balance sheet, approximately $780,000 would benefit the effective rate. The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2009.

 

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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)    2013     2012  

Funded qualified retirement plan

    

Service cost

   $ 387        408   

Interest cost

     389        405   

Expected return on plan assets

     (473     (423

Amortization of prior service cost

     5        5   

Recognized actuarial loss

     213        245   
  

 

 

   

 

 

 

Net retirement expense

   $ 521        640   
  

 

 

   

 

 

 

Unfunded nonqualified retirement plan

    

Service cost

   $ 36        91   

Interest cost

     48        89   

Amortization of prior service cost

     (3     (3

Recognized actuarial loss

     19        96   
  

 

 

   

 

 

 

Net retirement expense

   $ 100        273   
  

 

 

   

 

 

 

Other postretirement benefits

    

Service cost

   $ 113        114   

Interest cost

     108        117   

Recognized actuarial loss

     2        18   

Amortization of plan amendment

     (50     (50
  

 

 

   

 

 

 

Other postretirement benefits expense

   $ 173        199   
  

 

 

   

 

 

 

The Company made contributions to its qualified plan of $300,000 during the first three months of 2013, and expects to continue to fund the plan at the same monthly level over the remainder of 2013. The expected long-term rate of return on pension plan assets is 7.50 percent.

Note 11 – Other Comprehensive Income Disclosures

The following tables detail the changes in accumulated other comprehensive loss (“AOCL”) by component in accordance with Accounting Standards Update No. 2013-02 for the three months ended March 31, 2013 and 2012:

Changes in Accumulated Other Comprehensive Loss by Component (Net of Tax)

 

(Thousands of dollars)    Defined
Benefit
Funded
Retirement
Plan
    Defined
Benefit
Unfunded
Retirement
Plan
    Post
Retirement
Benefit
Plan
    Total  

AOCL at January 1, 2013

   $ (9,552     (3,380     (1,171     (14,103

Amounts reclassified from AOCL

     132        10        (29     113   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income/(loss)

     132        10        (29     113   
  

 

 

   

 

 

   

 

 

   

 

 

 

AOCL at March 31, 2013

   $ (9,420     (3,370     (1,200     (13,990
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(Thousands of dollars)    Defined
Benefit
Funded
Retirement
Plan
    Defined
Benefit
Unfunded
Retirement
Plan
    Post
Retirement
Benefit
Plan
    Total  

AOCL at January 1, 2012

   $ (8,124     (855     (750     (9,729

Amounts reclassified from AOCL

     152        56        (19     189   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income/(loss)

     152        56        (19     189   
  

 

 

   

 

 

   

 

 

   

 

 

 

AOCL at March 31, 2012

   $ (7,972     (799     (769     (9,540
  

 

 

   

 

 

   

 

 

   

 

 

 

 

11


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 11 – Other Comprehensive Income Disclosures (cont.)

 

Reclassification Out of Accumulated Other Comprehensive Loss

Details about AOCL Components

 

     Three Months Ended March 31, 2013  
(Thousands of dollars)    Defined
Benefit
Funded
Retirement
Plan
    Defined
Benefit
Unfunded
Retirement
Plan
    Post
Retirement
Benefit
Plan
    Total  

Amortization of prior service costs

   $ 5        (3     —          2   

Amortization of actuarial losses

     213        19        2        234   

Amortization of plan amendment

     —          —          (50     (50
  

 

 

   

 

 

   

 

 

   

 

 

 

Total before tax

     218        16        (48     186   

Income tax expense

     (86     (6     19        (73
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reclassification – net of tax

   $ 132        10        (29     113   
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts in parentheses indicate debits to profit/(loss).

These items are included in the computation of net periodic retirement and postretirement costs.

See Note 10 – Employee and Retiree Benefit Plans.

 

     Three Months Ended March 31, 2012  
(Thousands of dollars)    Defined
Benefit
Funded
Retirement
Plan
    Defined
Benefit
Unfunded
Retirement
Plan
    Post
Retirement
Benefit
Plan
    Total  

Amortization of prior service costs

   $ 5        (3     —          2   

Amortization of actuarial losses

     245        96        18        359   

Amortization of plan amendment

     —          —          (50     (50
  

 

 

   

 

 

   

 

 

   

 

 

 

Total before tax

     250        93        (32     311   

Income tax expense

     (98     (37     13        (122
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reclassification – net of tax

   $ 152        56        (19     189   
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts in parentheses indicate debits to profit/(loss).

These items are included in the computation of net periodic retirement and postretirement costs.

See Note 10 – Employee and Retiree Benefit Plans.

 

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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 11 – Other Comprehensive Income Disclosures (cont.)

 

Tax Effects by Component

 

     Three Months Ended March 31, 2013  
(Thousands of dollars)    Before
Tax
Amount
    Tax
(Expense)
or Benefit
    Net of
Tax
Amount
 

Amortization of prior service costs

   $ 2        (1     1   

Amortization of actuarial losses

     234        (92     142   

Amortization of plan amendment

     (50     20        (30
   $ 186        (73     113   
  

 

 

   

 

 

   

 

 

 
     Three Months Ended March 31, 2012  
(Thousands of dollars)    Before
Tax
Amount
    Tax
(Expense)
or Benefit
    Net of
Tax
Amount
 

Amortization of prior service costs

   $ 2        (1     1   

Amortization of actuarial losses

     359        (141     218   

Amortization of plan amendment

     (50     20        (30
   $ 311        (122     189   
  

 

 

   

 

 

   

 

 

 

Note 12 – Stock-Based Compensation

The Consolidated Statements of Income for the three months ended March 31, 2013 and 2012, included $664,000 and $558,000, respectively, of stock-based compensation expense reflected in general and administrative expenses.

Assumptions for the valuation of 2013 stock options and restricted stock performance units consisted of the following:

 

     2013  

Expected term of options (in years)

     6.27   

Weighted expected volatility

     37.78

Dividend yield

     .58

Risk-free interest rate performance restricted shares

     .60

Risk-free interest rate – options

     1.98

Stock price as of valuation date

   $ 71.35   

Restricted performance share valuation

   $ 87.74   

Grant date fair value – stock options

   $ 26.20   

Stock Options – A summary of stock options as of March 31, 2013, 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, 2013

     125,920      $ 54.92         

Granted

     24,058        71.35         

Exercised

     (17,728     42.30         

Forfeited/expired

     (543     60.10         
  

 

 

         

Outstanding at March 31, 2013

     131,707      $ 59.60         7.2       $ 1,265   
  

 

 

      

 

 

    

 

 

 

Exercisable at March 31, 2013

     67,877      $ 53.85         5.6       $ 1,009   
  

 

 

      

 

 

    

 

 

 

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, 2013, 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, 2013, there was $1,429,000 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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Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 12 – Stock-Based Compensation (cont.)

 

Restricted Stock and Restricted Stock Units – A summary of nonvested restricted stock as of March 31, 2013, 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, 2013

     76,352      $ 52.09   

Granted

     23,735        71.35   

Vested

     (20,229     34.41   

Forfeited

     (267     58.22   
  

 

 

   

Nonvested at March 31, 2013

     79,591      $ 62.31   
  

 

 

   

As of March 31, 2013, there was $3,240,000 of unrecognized compensation cost related to nonvested restricted stock. That cost is expected to be recognized over a weighted-average period of 2.4 years.

Performance Units – A summary of nonvested restricted stock performance units as of March 31, 2013, 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, 2013

     50,393      $ 68.30   

Granted

     16,427        87.74   

Units not meeting vesting conditions

     (13,892     43.48   

Forfeited

     (303     77.57   
  

 

 

   

Nonvested at March 31, 2013

     52,625      $ 80.87   
  

 

 

   

As of March 31, 2013, there was $2,788,000 of unrecognized compensation cost related to nonvested restricted stock performance units. That cost is expected to be recognized over a weighted-average period of 2.4 years.

 

14


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 13 – Contingencies

In December of 2012, lumber storage sheds at the operating facility in Ola, Arkansas were destroyed due to an accumulation of snow and ice on the roofs of the storage sheds, though it did not result in any significant loss of lumber inventory. Replacement of these sheds is covered under the terms of applicable insurance policies, subject to deductibles. As of March 31, 2013, the Company has recorded $84,000 in gain on involuntary conversion due to insurance recovery to date for the destroyed sheds. Currently Deltic is in the process of replacing the destroyed storage sheds, and once the replacement expenditures meet or exceed $881,000, a claim will be filed with the insurance carriers for reimbursement. The additional proceeds of $797,000 will be recorded as a gain on involuntary conversion in the period received.

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

Note 14 – Subsequent Events

Del-Tin Fiber Acquisition

On April 1, 2013, Deltic Timber Corporation completed the previously announced acquisition of the remaining 50 percent membership of Del-Tin Fiber, LLC which was owned by TIN, Inc., a wholly owned subsidiary of Temple-Inland Inc., a wholly owned subsidiary of International Paper Company. On completion of the acquisition, Deltic owned 100 percent of the membership interest in the Arkansas limited liability company. Deltic acquired the 50 percent interest for $5,156,000 in cash and the assumption of $14,844,000 in debt guarantees.

Deltic will account for the acquisition under ASC 805, “Business Combinations,” and Del-Tin Fiber’s results of operations will be included in Deltic’s consolidated financial statements beginning with the date of acquisition. Given the date of the acquisition, the Company has not completed the valuation of assets acquired or liabilities assumed. The Company anticipates providing a preliminary purchase price allocation to be recognized in the second quarter Form 10-Q to be filed on or before August 9, 2013.

The following unaudited pro forma for the three months ended March 31, 2013 and 2012 represents the results of operations of Deltic Timber Corporation as if Del-Tin Fiber, LLC had been a wholly owned subsidiary as of January 1, 2012. This information is based on historical results of operations, adjusted for certain estimated acquisition accounting adjustments and eliminations and does not purport to represent Deltic’s actual results of operations as if the transaction described above would have occurred on January 1, 2012, nor is it necessarily indicative of future results.

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2013      2012  

Net sales

   $ 59,129         46,160   

Net income

   $ 7,210         (116

Basic and diluted income per common share

   $ .57         (.01

For additional information concerning Deltic’s equity investment in Del-Tin Fiber, see Note 4 – Investment in Del-Tin Fiber.

 

15


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 14 – Subsequent Events (cont.)

 

Amendment to Revolving Credit Facility

On May 2, 2013, the Company amended and extended its unsecured and committed revolving credit facility. The amended facility allows $340,000,000 of borrowings and will mature on May 2, 2018. Deltic incurred $765,000 in fees to facilitate the amendment, which will be amortized over the length of the agreement.

Note 15 – 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, 2013, are presented in the following table:

 

            Fair Value Measurements at Reporting Date Using  
            Quoted Prices in
Active Markets for
Identical
Liabilities
Inputs
     Significant
Observable
Inputs
     Significant
Unobservable
Inputs
 
(Thousands of dollars)    March 31,
2013
     Level 1      Level 2      Level 3  

Liabilities

           

Nonqualified employee savings plan

   $ 1,057         1,057         —           —     

 

16


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 15 – Fair Value of Financial Instruments (cont.)

 

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, 2013 and 2012. 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, 2013      March 31, 2012  
(Thousands of dollars)    Carrying
Amount
     Estimated
Fair Value
     Carrying
Amount
     Estimated
Fair Value
 

Financial liabilities

           

Long-term debt, including current liabilities

   $ 75,000         80,028       $ 66,111         69,370   

Note 16 – 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)    2013      2012  

Net earnings allocated to common stock

   $ 6,706         97   

Net earnings allocated to participating securities

     68         —     
  

 

 

    

 

 

 

Net income allocated to common stock and participating securities

   $ 6,774         97   
  

 

 

    

 

 

 

Weighted average number of common shares used in basic EPS

     12,563         12,501   

Effect of dilutive stock awards

     41         66   
  

 

 

    

 

 

 

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

     12,604         12,567   
  

 

 

    

 

 

 

Earnings per common share

     

Basic

   $ .53         .01   

Assuming dilution

   $ .53         .01   

 

17


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 16 – Earnings per Common Share (cont.)

 

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 24,058 and 26,527 for the three months ended March 31, 2013 and 2012, 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 52,625 and 25,469 at March 31, 2013 and 2012, respectively.

Note 17 – Supplemental Cash Flow Disclosures

Additional information concerning cash flows is as follows:

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2013     2012  

Interest paid

   $ 109        279   

Interest capitalized

     (9     (10

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

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2013      2012  

Issuance of restricted stock

   $ 935         1,393   

Land exchanges and capital expenditures accrued, not paid

     1,389         132   

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

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2013     2012  

Trade accounts receivable

   $ (2,186     (1,762

Other receivables

     1        —     

Inventories

     (722     (438

Prepaid expenses and other current assets

     (594     (913

Trade accounts payable

     635        929   

Accrued taxes other than income taxes

     487        442   

Income taxes payable

     2,967        —     

Deferred revenues and other accrued liabilities

     (1,031     367   
  

 

 

   

 

 

 
   $ (443     (1,375
  

 

 

   

 

 

 

 

18


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 18 – Business Segments

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

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2013     2012  

Net sales

    

Woodlands

   $ 9,373        10,020   

Manufacturing

     34,108        22,573   

Real Estate

     2,329        1,892   

Eliminations*

     (4,247     (3,846
  

 

 

   

 

 

 
   $ 41,563        30,639   
  

 

 

   

 

 

 

Income before income taxes

    

Operating income

    

Woodlands

   $ 4,634        4,773   

Manufacturing

     11,337        1,580   

Real Estate

     (644     (754

Corporate

     (4,643     (4,316

Eliminations

     (136     (149
  

 

 

   

 

 

 

Operating income

     10,548        1,134   

Equity in earnings of Del-Tin Fiber

     1,084        71   

Interest income

     3        2   

Interest and other debt expense, net of capitalized interest

     (1,030     (1,035

Other expense

     (20     (25
  

 

 

   

 

 

 
   $ 10,585        147   
  

 

 

   

 

 

 

Depreciation, amortization, and cost of fee timber harvested

    

Woodlands

   $ 1,292        1,360   

Manufacturing

     1,250        1,421   

Real Estate

     85        99   

Corporate

     24        28   
  

 

 

   

 

 

 
   $ 2,651        2,908   
  

 

 

   

 

 

 

Capital expenditures

    

Woodlands

   $ 10,279        2,679   

Manufacturing

     2,788        850   

Real Estate

     342        182   

Corporate

     4        4   
  

 

 

   

 

 

 
   $ 13,413        3,715   
  

 

 

   

 

 

 

 

* Primarily intersegment sales of timber from Woodlands to Manufacturing.

 

19


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 $6.8 million for the first quarter of 2013, a $6.7 million increase from the same period of 2012. The Woodlands segment provided $4.6 million in operating income in the current year quarter, $.2 million less than in the same period a year ago. The Manufacturing segment (formerly referred to as the Mills segment) reported operating income of $11.3 million, an increase of $9.7 million when compared to the first quarter of 2012. The improvement was due to a higher per-unit average sales price and increased sales volume caused by the increased demand for lumber as the recovery of the housing market continued into 2013. The Real Estate segment reported an operating loss of $.7 million for the first quarter of 2013, a $.1 million improvement from the first quarter of 2012. Corporate segment operating expense was $4.6 million in the first quarter of 2013, a $.3 million increase from the prior-year first quarter due primarily to higher general and administrative expenses. Deltic owned a 50 percent interest in Del-Tin Fiber, LLC (“Del-Tin Fiber”) and recorded equity in earnings of $1.1 million in the first quarter of 2013, an increase of $1 million from a year ago, due primarily to a higher average sales price. Deltic completed the acquisition of the other half of the ownership of Del-Tin Fiber from its joint venture partner on April 1, 2013 and will include Del-Tin Fiber as a consolidated subsidiary in subsequent quarters.

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 operations and financial results are affected by a number of factors which include, but are not limited to, general economic conditions, U.S. employment levels, interest rates, credit availability and associated costs, lumber and building product imports, foreign exchange rates, housing starts, new and existing home inventories, residential and commercial real estate foreclosures, residential and commercial repair and remodeling, commercial construction, industry capacity and production levels, the availability of raw materials, natural gas pricing and weather conditions. Steadily improving employment levels, combined with near record-low mortgage rates, have positively influenced the U.S. housing market. This improvement is evidenced by the increased number of housing starts and a declining inventory of unsold homes. These factors have also been reflected in a higher average sales price for lumber and an improved market for residential lots as consumers and builders gain confidence in the recovery of the housing market. As with most markets, and given Deltic’s relative size, the Company maintains little or no influence over the market’s pricing levels for its wood products. However, Deltic’s management will continue to use its vertical integration strategy, diverse assets, and ability to quickly adapt production levels to capture market opportunities being created by the housing recovery.

The Woodlands segment serves as the core of Deltic’s vertical integration structure, supplying a significant percentage of the Manufacturing segment’s raw material stumpage needs. The pine sawtimber harvest in the first quarter of 2013 was 181,069 tons, a five percent increase from the 173,007 tons harvested in the first quarter of 2012 due to favorable logging conditions. The average per-ton price for pine sawtimber was $23, compared to $22 per ton received in 2012’s first quarter. Pine pulpwood harvest volume for the first quarter of 2013 was 97,010 tons, a 37,924 ton decrease from the first quarter of 2012, primarily due to the composition of the timberland being harvested, while the average sales price remained steady at $9 per ton for both quarters. During the current year quarter, the Company sold 288 acres of non-strategic recreational-use bottomland, at an average sales price of $1,806 per acre versus 270 acres at $1,448 per acre in 2012’s first quarter. During the first quarter of 2013, Deltic acquired approximately 6,700 acres of pine timberland holdings within its current operating regions.

The Woodlands segment’s operating results include other benefits derived from land ownership such as revenues from hunting leases, mineral lease rentals, mineral royalties, and land easements. Hunting lease revenues were $.6 million in the first quarter of 2013 and 2012. Oil and gas lease rental income was $.4 million in the current year first quarter, a decrease of $.1 million from the same period of 2012, as the original lease periods on some acreages have ended and the properties are now being held by producing wells. Oil and gas royalty payments are received primarily from wells in the Fayetteville Shale Play and totaled $.9 million in the first quarter of 2013, which compares with the $1.1 million received in the first quarter a year ago. The decline is due primarily to the decrease in production volumes of natural gas. The ultimate benefit to Deltic from mineral leases remains speculative and

 

20


Table of Contents

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.

The Manufacturing segment sold 71.1 million board feet of lumber in the first quarter of 2013, an increase of 6.1 million board feet when compared to 65 million board feet sold in the same period of 2012. The nine percent increase in sales volume was due to the continuing recovery in the wood products market. The average lumber sales price of $402 per thousand board feet received in the current quarter was a $131 per thousand board feet, or 48 percent, increase from the same period of 2012. In addition to increasing operating hours at the sawmills to increase production volume, the segment also benefited from increased hourly productivity rates. Because of the historical volatility in the lumber markets, Deltic closely monitors market conditions and plans to react quickly to adjust production levels to meet changes in demand.

The Real Estate segment sold 12 residential lots during the first quarter of 2013, with an average per-lot sales price of $74,400, compared to sales of 7 lots with an average per-lot sales price of $67,100 in 2012’s first quarter. The increase 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 2013 or 2012. Commercial real estate acreage within Chenal Valley continues to receive interest from potential buyers, 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 anticipate 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 $1.1 million for the current-year quarter versus $.1 million for the same period of 2012 due primarily to a higher average sales price in the current-year period, as the market for MDF continued to improve. Regarding the Company’s equity position in Del-Tin Fiber for the quarter just ended, Deltic continued 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. As a result, the difference in basis between the Company and Del-Tin Fiber continued to be adjusted to account for Del-Tin Fiber’s operating results as if it were a consolidated subsidiary through the end of the first quarter of 2013. Effective in the second quarter of 2013, concurrent with the acquisition of 100 percent ownership of the facility, financial results of Del-Tin Fiber will be included in Deltic’s Manufacturing segment. (For further discussion, refer to Notes 4 and 14 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, 2013 and 2012. 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)    2013     2012  

Net sales

    

Woodlands

   $ 9.3        10.0   

Manufacturing

     34.1        22.6   

Real Estate

     2.3        1.9   

Eliminations

     (4.2     (3.9
  

 

 

   

 

 

 

Net sales

   $ 41.5        30.6   
  

 

 

   

 

 

 

Operating income/(loss)

    

Woodlands

   $ 4.6        4.8   

Manufacturing

     11.3        1.6   

Real Estate

     (.7     (.8

Corporate

     (4.6     (4.3

Eliminations

     (.1     (.2
  

 

 

   

 

 

 

 

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     Quarter Ended March 31,  
(Millions of dollars, except per share amounts)    2013     2012  

Operating income

     10.5        1.1   

Equity in earnings of Del-Tin Fiber

     1.1        .1   

Interest and other debt expense

     (1.0     (1.0

Income taxes

     (3.8     (.1
  

 

 

   

 

 

 

Net income

   $ 6.8        .1   
  

 

 

   

 

 

 

Income per common share

    

Basic and diluted

   $ .53        .01   

Consolidated

Net income in the first quarter of 2013 was $6.8 million, a $6.7 million increase from the first quarter of 2012. Improved results for the Manufacturing segment and higher equity in earnings of Del-Tin Fiber were slightly offset by lower financial results from Woodlands and by increased Corporate general and administrative expenses.

Operating income increased $9.4 million. The Woodlands segment decreased $.2 million from 2012’s first quarter. Lower revenues from pine pulpwood, as well as lower revenues from oil and gas leases and royalties were partially offset by increased revenues from pine sawtimber and land sales. The Manufacturing segment increased $9.7 million due to increased sales volumes, a higher average lumber sales price, and improved hourly productivity rates. The Real Estate segment benefited from sales of five more residential lots in the first quarter of 2013 than in the first quarter of 2012. 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,  
     2013      2012  

Net sales (millions of dollars)

     

Pine sawtimber

   $ 4.1         3.7   

Pine pulpwood

     .9         1.2   

Hardwood sawtimber

     —           —     

Hardwood pulpwood

     .2         .2   

Oil and gas lease rentals

     .4         .5   

Oil and gas royalties

     .9         1.1   

Hunting leases

     .6         .6   

Sales volume (thousands of tons)

     

Pine sawtimber

     181.1         173.0   

Pine pulpwood

     97.0         134.9   

Hardwood sawtimber

     .9         1.2   

Hardwood pulpwood

     14.6         15.1   

Sales price (per ton)

     

Pine sawtimber

   $ 23         22   

Pine pulpwood

     9         9   

Hardwood sawtimber

     39         34   

Hardwood pulpwood

     12         10   

 

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Table of Contents
     Quarter Ended March 31,  
     2013      2012  

Timberland

     

Net sales (millions of dollars)

   $ .5         .4   

Sales volume (acres)

     288         270   

Sales price (per acre)

   $ 1,806         1,448   

Net sales decreased $.7 million when compared to the 2012 first quarter. Pine sawtimber sales were higher by $.4 million due to a five percent increase in both stumpage prices and harvest volume. Pine pulpwood sales were lower $.3 million due to lower harvest volumes in 2013. Revenues from sales of non-strategic timberland were $.1 million higher primarily due to an increase in the average sales price per acre. Oil and gas lease rental revenue was $.1 million lower in the current period, as the original lease periods on some acreage have ended and those properties are now held by producing wells. Oil and gas royalty revenues decreased $.2 million from the amount received in the first quarter of 2012 due primarily to lower production volumes of natural gas. Revenue from hauling stumpage to other mills was $.6 million lower compared to the 2012 first quarter primarily due to the decreased pine pulpwood harvest. Operating income was $.2 million less than in the 2012 first quarter due to the same factors affecting net sales, combined with higher replanting costs, but were partially offset by lower cull timber removal expenses and lower freight expense.

Manufacturing

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

 

     Quarter Ended March 31,  
     2013      2012  

Net sales (millions of dollars)

     

Lumber

   $ 28.6         17.6   

Residual by-products

     4.3         3.9   

Lumber

     

Finished production (MMBF)

     70.4         66.0   

Sales volume (MMBF)

     71.1         65.0   

Sales price (per MBF)

   $ 402         271   

Net sales increased $11.5 million over the first quarter of 2012. The average lumber sales price in the current-year first quarter was $131 per MBF, or 48 percent, higher than the prior year. This increase, along with a 9 percent higher sales volume, was the result of an increased demand for lumber. Operating income for the Manufacturing segment was $9.7 million greater in 2013 due to the same items affecting net sales, combined with higher productivity rates.

 

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Real Estate

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

 

     Quarter Ended March 31,  
     2013      2012  

Net sales (millions of dollars)

     

Residential lots

   $ .9         .5   

Chenal Country Club

     1.3         1.3   

Sales volume

     

Residential lots

     12         7   

Average sales price (thousands of dollars)

     

Residential lots

   $ 74         67   

Net sales for the first quarter of 2013 were $.4 million higher due to the increase in the number of residential lots sold. The improved operating income in first quarter 2013 was due primarily to the increase in the number of residential lots sold and reduced operating expenses.

Corporate

The $.3 million increase in operating expense for Corporate functions was due to higher general and administrative expenses, primarily due to incentive plan expenses resulting from improved financial results in 2013.

Eliminations

Intersegment sales of timber from Deltic’s Woodlands to the Manufacturing segment increased to $4.2 million in the 2013 first quarter. During the first quarter of 2013, Deltic transferred an increased volume of fee timber to its sawmills, at a slightly higher per-ton transfer price. Transfer prices approximate that of the market. Intercompany sales elimination exceeded the intercompany cost elimination by $.1 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 2013, Deltic’s equity in Del-Tin Fiber was $1.1 million, an increase of $1 million from the first quarter of 2012, mainly due to a higher average sales price caused by a strengthening MDF market. During the second quarter of 2013, Deltic completed the acquisition of the remaining 50 percent ownership of Del-Tin Fiber and will include the results of Del-Tin Fiber in its Manufacturing segment in subsequent quarters. For additional information, refer to Notes 4 and 14 of the consolidated financial statements.

Additional selected financial and statistical data for Del-Tin Fiber is shown in the following table.

 

     Quarter Ended March 31,  
     2013      2012  

Net sales (millions of dollars)

   $ 16.7         14.6   

Finished production (MMSF)

     30.3         29.6   

Sales volume (MMSF)

     29.1         30.1   

Sales price (per MSF)

   $ 573         485   

Income Taxes

The effective income tax rate was 36 percent for 2013 and 34 percent for the first quarter of 2012. The effective income tax rate was higher in 2013 primarily due to higher pretax income.

 

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Liquidity and Capital Resources

Cash Flows and Capital Expenditures

Net cash provided by operating activities totaled $9 million for the first three months of 2013 compared to $2.1 million in 2012. Cash from operations and borrowings on the revolving credit facility have provided the cash needed for capital expenditures (which include amounts for timberland purchased) and the acquisition of the remaining ownership of Del-Tin Fiber on April 1, 2013. Changes in operating working capital, other than cash and cash equivalents, required cash of $.4 million and $1.4 million in 2013 and 2012, 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 $12 million in the current-year period and $3.6 million a year ago. Capital expenditures by segment consisted of the following:

 

     Three Months Ended
March 31,
 
(Thousands of dollars)    2013     2012  

Woodlands, including land exchanges

   $ 10,279        2,679   

Manufacturing

     2,788        850   

Real Estate, including development expenditures

     342        182   

Corporate

     4        4   
  

 

 

   

 

 

 

Capital expenditures

     13,413        3,715   

Non-cash land exchanges and accrued liabilities

     (1,389     (132
  

 

 

   

 

 

 

Capital expenditures requiring cash

   $ 12,024        3,583   
  

 

 

   

 

 

 

The net change in purchased stumpage inventory to be utilized in the Company’s sawmill operations used cash of $.9 million in 2013 and $.3 million in 2012. The Company advanced Del-Tin Fiber $1 million in the first quarter of 2013, and received repayments of $.7 million. This compares to advances of $.8 million and repayments of $.7 million in the same period of 2012. 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 2013. Deltic received proceeds from other investing activities of $.2 million in both 2013 and 2012. Deltic had $12 million in net borrowings in 2013 versus $1 million in 2012. Deltic paid dividends on common stock of $1.3 million in 2013 and $.9 million in 2012 as the quarterly dividend per share was increased. Proceeds from stock option exercises and related tax benefits were $.9 million in 2013 and 2012.

Financial Condition

Working capital totaled $12.3 million at March 31, 2013, and $5.6 million at December 31, 2012. Deltic’s working capital ratio at March 31, 2013 was 1.70 to 1, compared to 1.43 to 1 at the end of 2012. Cash and cash equivalents at the end of the first quarter of 2013 increased $7.8 million from December 31, 2012. Deltic’s long-term debt to stockholders’ equity ratio was .313 to 1 at March 31, 2013 and .271 to 1 at December 31, 2012.

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. As of March 31, 2013, there was $35 million outstanding in borrowings on the credit facility in anticipation of the Del-Tin Fiber acquisition on April 1, 2013 and other committed

 

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capital expenditures, leaving $262.5 million available. The agreement was scheduled to expire on September 9, 2015 but was amended and extended in the second quarter of 2013. The amended facility totals $340 million and will mature May 2, 2018. The credit agreement contains restrictive covenants, including limitations on the incurrence of debt and requirements to maintain certain financial ratios, and this amendment did not include any changes to these covenants. (For additional information about the Company’s current financing arrangements, refer to Note 9 to the consolidated financial statements and Note 10 to the consolidated financial statements included in the Company’s 2012 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, 2013 and December 31, 2012.

 

     Covenants
Requirements
    Actual Ratios at
March 31, 2013
    Actual Ratios at
Dec. 31, 2012
 

Leverage ratio should be less than:1

     .60 to 1        .275 to 1        .253 to 1   

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

     —   2      48.15     44.15

Fixed charge coverage ratio should be greater than:3

     2.50 to 1        7.37 to 1        5.39 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.

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, 2013, 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 from 2010 to 2013, 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.

 

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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, 2013) of Del-Tin’s obligation under its credit agreement. Deltic considers the current status of the payment and performance risk of this guarantee to be low based on the length of time remaining on the guarantee. Effective with becoming the 100 percent owner of Del-Tin Fiber on April 1, 2013, Deltic assumed the guarantee agreement for the full $29 million in debt.

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 2012 annual report on Form 10-K.)

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
2013
     2014
to 2015
     2016
to 2017
     After
2017
 

Contractual cash payment obligations

              

Real estate development committed capital costs

   $ 3.7         .9         2.8         —           —    

Manufacturing committed capital costs

     2.7         2.7         —           —          —    

Long-term debt

     75.0         —          35.0         40.0         —    

Interest on debt*

     11.1         2.9         5.9         2.3         —    

Retirement plans

     3.8         1.1         .5         .5         1.7   

Other postretirement benefits

     5.3         .3         .8         1.0         3.2   

Unrecognized tax benefits

     1.3         .1         1.2         —          —    

Other liabilities

     4.1         1.6         2.2         .3         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 107.0         9.6         48.4         44.1         4.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other commercial commitment expirations

              

Guarantee of indebtedness of Del-Tin Fiber

   $ 29.7         —          —          29.7         —    

Timber cutting agreements

     .7         .6         .1         —           —    

Letters of credit

     .7         .1         .3         .2         .1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 31.1         .7         .4         29.9         .1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* 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

 

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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 2012 annual report on Form 10-K, and this disclosure should be read in conjunction with this Form 10-Q.

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 160,000 to 170,000 tons in the second quarter of 2013 and 585,000 to 605,000 tons for the year. Finished lumber sales volume is estimated at 65 to 75 million board feet for the second quarter and 275 to 290 million board feet for the year. MDF sales volumes for the second quarter and year of 2013 are estimated to be 30 to 32 million square feet and 120 to 130 million square feet, respectively. Actual lumber and MDF sales volumes are subject to market conditions. Residential lot sales are projected to be 10 to 15 lots and 50 to 60 lots for the second quarter and the year, respectively. Even though commercial acreage in Chenal Valley has received interest from potential buyers, it is difficult to anticipate future closings due to the volatile nature of commercial real estate transactions and the significant number of factors related to any sale.

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,” “may,” “will,” “believes,” “should,” “approximately,” “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 2012 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, 2013, 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

 

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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 2012 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, 2013

     —          —           —         $ 20,434,011   

Feb. 1 through

Feb. 28, 2013

     134 2    $ 72.97         —         $ 20,434,011   

Mar. 1 through

Mar. 31, 2013

     —          —           —         $ 20,434,011   

 

1 

In 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.

2 

Represents 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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Item 6. Exhibits

Index to Exhibits

 

Exhibit
Designation

  

Nature of Exhibit

  10.25    Membership Interest Purchase Agreement dated February 13, 2013, between Deltic Timber Corporation and TIN, Inc.
  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, 2013, 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.

 

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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 3, 2013     By:   /s/Ray C. Dillon
      Ray C. Dillon, President
      (Principal Executive Officer)

 

Date: May 3, 2013     By:   /s/Kenneth D. Mann
      Kenneth D. Mann, Vice President,
     

Finance and Administration

(Principal Financial Officer)

 

Date: May 3, 2013     By:   /s/Byrom L. Walker
      Byrom L. Walker, Controller
      (Principal Accounting Officer)
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