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Deltic Timber 10-Q 2013

Documents found in this filing:

  1. 10-Q
  2. Ex-31
  3. Ex-31
  4. Ex-32
  5. Ex-32

      

      

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 September 30, 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 October 23, 2013, was 12,679,019.

      

   


TABLE OF CONTENTS – THIRD 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  

24

   

   

   

   

Item 3.

   

Quantitative and Qualitative Disclosures About Market Risk  

37

   

   

   

   

Item 4.

   

Controls and Procedures  

38

   

   

   

   

   

   

PART II – Other Information

   

   

   

   

   

Item 1.

   

Legal Proceedings  

39

   

   

   

   

Item 1A.

   

Risk Factors  

39

   

   

   

   

Item 2.

   

Unregistered Sales of Equity Securities and Use of Proceeds  

39

   

   

   

   

Item 3.

   

Defaults Upon Senior Securities  

39

   

   

   

   

Item 4.

   

Mine Safety Disclosures  

39

   

   

   

   

Item 5.

   

Other Information  

39

   

   

   

   

Item 6.

   

Exhibits  

40

   

   

   

   

Signatures  

41

   

   


   

PART I – FINANCIAL INFORMATION

   

Item 1. Financial Statements

 

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(Thousands of dollars)

   

 

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

September 30,
2013

   

   

   

December 31,
2012

   

Assets

   

   

   

   

   

   

   

Current assets

   

   

   

   

   

   

   

Cash and cash equivalents

$

5,998

   

   

   

5,613

   

Trade accounts receivable, net of allowance for doubtful accounts of $172 and $127, respectively

   

10,576

   

   

   

5,277

   

Inventories

   

13,095

   

   

   

4,894

   

Prepaid expenses and other current assets

   

3,871

   

   

   

2,808

   

Total current assets

   

33,540

   

   

   

18,592

   

   

   

   

   

   

   

   

   

Investment in real estate held for development and sale

   

55,604

   

   

   

57,088

   

Investment in Del-Tin Fiber

   

—  

   

   

   

6,293

   

Timber and timberlands – net

   

249,192

   

   

   

240,215

   

Property, plant, and equipment – net

   

74,520

   

   

   

26,668

   

Deferred charges and other assets

   

2,096

   

   

   

4,353

   

   

   

   

   

   

   

   

   

Total assets

$

414,952

   

   

   

353,209

   

   

   

   

   

   

   

   

   

Liabilities and Stockholders’ Equity

   

   

   

   

   

   

   

Current liabilities

   

   

   

   

   

   

   

Trade accounts payable

$

7,397

   

   

   

1,981

   

Accrued taxes other than income taxes

   

2,230

   

   

   

1,951

   

Income taxes payable

   

990

   

   

   

—  

   

Deferred revenues and other accrued liabilities

   

12,648

   

   

   

9,094

   

Total current liabilities

   

23,265

   

   

   

13,026

   

   

   

   

   

   

   

   

   

Long-term debt

   

94,000

   

   

   

63,000

   

Deferred tax liabilities – net

   

2,049

   

   

   

471

   

Other noncurrent liabilities

   

43,511

   

   

   

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

   

84,085

   

   

   

82,597

   

Retained earnings

   

187,383

   

   

   

168,608

   

Treasury stock

   

(5,704

)

   

   

(5,000

)

Accumulated other comprehensive loss

   

(13,765

)

   

   

(14,103

)

Total stockholders’ equity

   

252,127

   

   

   

232,230

   

   

   

   

   

   

   

   

   

Total liabilities and stockholders’ equity

$

414,952

   

   

   

353,209

   

   

See accompanying notes to consolidated financial statements.

   

               

 

 1 


   

   

 

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(Thousands of dollars, except per share amounts)

   

   

 

   

   

Three Months Ended
September 30,

   

   

   

Nine Months Ended
September 30,

   

   

   

2013

   

   

   

2012

   

   

   

2013

   

   

   

2012

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net sales

$

56,520

      

   

   

36,499

      

   

   

151,330

      

   

   

104,243

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Costs and expenses

   

   

   

   

   

      

   

   

   

   

   

   

   

   

   

Cost of sales

   

37,289

      

   

   

23,564

      

   

   

95,261

      

   

   

69,750

      

Depreciation, amortization, and cost of fee timber harvested

   

4,421

      

   

   

2,698

      

   

   

11,227

      

   

   

8,321

      

General and administrative expenses

   

5,211

      

   

   

5,133

      

   

   

14,585

      

   

   

13,675

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   Total costs and expenses

   

46,921

      

   

   

31,395

      

   

   

121,073

      

   

   

91,746

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   Gain on involuntary conversion

   

—  

      

   

   

—  

      

   

   

881

      

   

   

—  

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Operating income

   

9,599

      

   

   

5,104

      

   

   

31,138

      

   

   

12,497

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Equity in earnings of Del-Tin Fiber

   

—  

      

   

   

510

      

   

   

1,084

      

   

   

602

      

Interest income

   

4

      

   

   

7

      

   

   

12

      

   

   

13

      

Interest and other debt expense, net of capitalized interest

   

(1,110

   

   

(1,003

   

   

(3,431

   

   

(3,074

Gain on bargain purchase

   

—  

   

   

   

—  

   

   

   

3,285

   

   

   

—  

   

Other income/(expense)

   

22

      

   

   

(13

)  

   

   

3,247

      

   

   

41

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Income before income taxes

   

8,515

      

   

   

4,605

      

   

   

35,335

      

   

   

10,079

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Income tax expense

   

(2,702

   

   

(1,387

   

   

(11,480

   

   

(3,248

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net income

$

5,813

      

   

   

3,218

      

   

   

23,855

      

   

   

6,831

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Earnings per common share

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Basic

$

.46

      

   

   

.25

      

   

   

1.88

      

   

   

.54

      

Assuming dilution

$

.46

      

   

   

.25

      

   

   

1.87

      

   

   

.54

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Dividends per common share

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Paid

$

.100

      

   

   

.075

   

   

   

.300

      

   

   

.225

      

Declared

$

.100

      

   

   

.075

      

   

   

.400

      

   

   

.300

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Weighted average common shares  outstanding (thousands)

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Basic

   

12,571

      

   

   

12,533

      

   

   

12,572

      

   

   

12,521

      

Assuming dilution

   

12,619

      

   

   

12,566

      

   

   

12,628

      

   

   

12,560

      

   

   

   

   

   

   

See accompanying notes to consolidated financial statements.

 

 2 


   

   

 

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(Thousands of dollars)

   

 

   

   

   

   

   

   

   

   

   

Nine Months Ended
September 30,

   

   

   

2013

   

   

2012

   

   

   

   

   

   

   

   

Net income

$

23,855

      

   

6,831

      

   

   

   

   

   

   

   

Other comprehensive income

   

   

   

   

   

   

Items related to employee benefit plans:

   

   

   

   

   

   

Reclassification adjustment for gains/(losses) included  in net income (net of tax)1:

   

   

   

   

   

   

 Amortization of prior service cost

   

3

      

   

4

      

 Amortization of actuarial loss

   

426

      

   

655

      

 Amortization of plan amendment

   

(91

   

(91

Other comprehensive income

   

338

      

   

568

      

   

   

   

   

   

   

   

Comprehensive income

$

24,193

      

   

7,399

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

1

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

   

See accompanying notes to consolidated financial statements.

   

       

 

 3 


   

   

 

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Thousands of dollars)

   

   

 

   

   

Nine Months Ended
September 30,

   

   

   

2013

   

   

   

2012

   

Operating activities

   

   

   

   

   

   

   

Net income

$

23,855

      

   

   

6,831

      

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

   

   

   

   

   

   

   

Depreciation, amortization, and cost of fee timber harvested

   

11,227

      

   

   

8,321

      

Deferred income taxes

   

1,582

      

   

   

(552

Real estate development expenditures

   

(943

   

   

(1,088

Real estate costs recovered upon sale

   

2,127

      

   

   

1,901

      

Timberland costs recovered upon sale

   

801

      

   

   

370

      

Equity in earnings of Del-Tin Fiber

   

(1,084

   

   

(602

Gain on previously held equity interest

   

(3,165

)

   

   

—  

      

Gain on bargain purchase

   

(3,285

)

   

   

—  

   

Stock-based compensation expense

   

2,086

      

   

   

1,716

      

Net increase in liabilities for pension and other  postretirement benefits

   

1,429

      

   

   

1,241

      

Net decrease in deferred compensation for stock-based liabilities

   

(287

   

   

(281

Decrease in operating working capital other than cash and cash equivalents

   

1,232

   

   

   

3,879

   

Other – changes in assets and liabilities

   

(1,601

   

   

(742

Net cash provided by operating activities

   

33,974

      

   

   

20,994

      

   

   

   

   

   

   

   

   

Investing activities

   

   

   

   

   

   

   

Capital expenditures requiring cash, excluding real estate development

   

(23,418

   

   

(7,095

Business acquisition, net of cash acquired

   

(5,170

   

   

—  

      

Net change in purchased stumpage inventory

   

(1,888

   

   

33

   

Advances to Del-Tin Fiber

   

(1,025

   

   

(1,715

Repayments from Del-Tin Fiber

   

781

      

   

   

1,825

      

Net change in funds held by trustee

   

7

   

   

   

271

      

Other – net

   

1,294

      

   

   

662

      

Net cash required by investing activities

   

(29,419

   

   

(6,019

   

   

   

   

   

   

   

   

Financing activities

   

   

   

   

   

   

   

Proceeds from borrowings

   

12,000

      

   

   

3,000

      

Repayments of notes payable and long-term debt

   

(10,000

   

   

(14,556

Treasury stock purchases

   

(2,224

   

   

(19

Common stock dividends paid

   

(3,812

   

   

(2,848

Proceeds from stock option exercises

   

750

      

   

   

693

      

Excess tax benefits from stock-based compensation expense

   

407

      

   

   

546

      

Other – net

   

(1,291

   

   

(392

Net cash required by financing activities

   

(4,170

)

   

   

(13,576

)

   

   

   

   

   

   

   

   

Net increase in cash and cash equivalents

   

385

      

   

   

1,399

      

Cash and cash equivalents at January 1

   

5,613

      

   

   

3,291

      

   

   

   

   

   

   

   

   

Cash and cash equivalents at September 30

$

5,998

      

   

   

4,690

      

   

   

See accompanying notes to consolidated financial statements.

 

 4 


   

   

 

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

(Thousands of dollars)

   

   

 

   

   

Nine Months Ended
September 30,

   

   

   

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

      

   

   

88

      

Stock-based compensation expense

   

2,086

      

   

   

1,716

      

Restricted stock awards

   

(935

)

   

   

(1,393

Tax effect of stock awards

   

172

      

   

   

563

      

Restricted stock forfeitures

   

41

      

   

   

53

      

Balance at end of period

   

84,085

      

   

   

81,869

      

   

   

   

   

   

   

   

   

Retained earnings

   

   

   

   

   

   

   

Balance at beginning of period

   

168,608

      

   

   

163,170

      

Net income

   

23,855

      

   

   

6,831

      

Common stock dividends declared

   

(5,080

)

   

   

(3,797

Balance at end of period

   

187,383

      

   

   

166,204

      

   

   

   

   

   

   

   

   

Treasury stock

   

   

   

   

   

   

   

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

   

(5,000

)

   

   

(7,288

)

Shares purchased – 36,314 and 267 shares, respectively

   

(2,224

)

   

   

(19

Forfeited restricted stock – 570 and 785 shares, respectively

   

(41

)

   

   

(53

Shares issued for incentive plans – 43,998 and 56,943 shares, respectively

   

1,561

      

   

   

1,998

      

Balance at end of period – 134,860 and 152,405 shares, respectively

   

(5,704

)

   

   

(5,362

   

   

   

   

   

   

   

   

Accumulated other comprehensive loss

   

   

   

   

   

   

   

Balance at beginning of period

   

(14,103

)

   

   

(9,729

Change in other comprehensive income, net of tax

   

338

      

   

   

568

      

Balance at end of period

   

(13,765

)

   

   

(9,161

   

   

   

   

   

   

   

   

Total stockholders’ equity

$

252,127

      

   

   

233,678

      

   

   

   

   

   

   

   

   

See accompanying notes to consolidated financial statements.

   

       

 

 5 


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, as well as 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 September 30, 2013, and the results of its operations and cash flows for the three months and nine months ended September 30, 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.

   

   

Business Combinations

   

The Company accounts for business combinations using the acquisition method.  The assets acquired and liabilities assumed are measured at fair value on the acquisition date using appropriate valuation methods.  The operations of the acquisitions are included in the consolidated financial statements from the date of acquisition.  (For additional information, see Note 4 – Business Combinations.)

   

   

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 for the Company on January 1, 2013.  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 12 – Other Comprehensive Income Disclosures.)

 

 6 


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)

   

Sept. 30,
2013

   

      

   

Dec. 31,
2012

   

   

   

   

   

   

   

   

   

Raw materials — Logs

$

1,360

      

      

   

1,341

      

    — Del-Tin – wood fiber

   

578

   

   

   

—  

   

Finished goods— Lumber

   

4,012

      

      

   

3,231

      

    — Medium density fiberboard

   

4,382

   

   

   

—  

   

Supplies

   

2,763

      

      

   

322

      

   

$

13,095

      

      

   

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)

   

Sept. 30,
2013

   

      

   

Dec. 31,
2012

   

   

   

   

   

   

   

   

   

Short-term deferred tax assets

$

2,121

      

      

   

2,074

      

Prepaid expenses

   

1,277

      

      

   

88

      

Other current assets

   

473

      

      

   

646

      

   

$

3,871

      

      

   

2,808

      

   

   

   

Note 4 – Business Combinations

   

On April 1, 2013, the Company acquired the remaining 50 percent membership interest of Del-Tin Fiber L.L.C. (“Del-Tin Fiber”) for an agreed-upon amount of approximately $20,000,000 which was considered to be comprised of a cash payment of $5,170,000 and the value of 50 percent of the long-term debt. Del-Tin Fiber was an existing joint venture that operates a medium density fiberboard (“MDF”) manufacturing facility in El Dorado, Arkansas.  This facility has a rated annual production capacity of 150,000,000 square feet, on a   34 inch basis. The acquisition resulted in Deltic obtaining a controlling financial interest in Del-Tin Fiber due to the Company’s 100 percent ownership of the membership interest of Del-Tin Fiber.  As a result, Deltic began treating Del-Tin Fiber as a consolidated subsidiary of the Company as of the acquisition date.  With this consolidation, on April 1, 2013, Deltic’s Consolidated Balance Sheet included the $29,000,000 of long-term debt of Del-Tin Fiber, which represents the L.L.C.’s recorded liability for the outstanding industrial bonds due in 2027.  This acquisition was consistent with Deltic’s strategy of growth through acquisitions and vertical integration, since Del-Tin Fiber uses residual by-products generated by Deltic’s sawmill operations as the raw material in its manufacturing process.  

   

   

 

 7 


DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Note 4 – Business Combinations (cont.)

   

Prior to this acquisition, the Company owned 50 percent of the membership interest of Del-Tin Fiber, and reported it as an equity method investment. In accordance with ASC 805, Deltic accounted for the acquisition as a business combination achieved in stages.  Thus, the Company remeasured the carrying amount of its previously held investment in the joint venture to current fair value, and recorded a $3,165,000 pretax remeasurement gain, determined by the amount by which the acquisition-date fair value of this investment, of $10,786,000, exceeded its previous carrying amount of $7,621,000.  This gain was included in Other Income in the Company’s Consolidated Statements of Income for the nine months ended September 30, 2013.  

   

The acquisition date fair value of the Company’s existing 50 percent equity interest in Del-Tin Fiber was derived by applying the ownership percentage to the fair value of the net assets of Del-Tin Fiber.  It was determined that no discounting was required, since prior to the acquisition, there was equally shared control of the joint venture by the owning members without specific benefit identified that related to the existence of control.  In addition, Deltic continues to operate the existing facility to produce MDF.  

   

The fair value of assets acquired and liabilities assumed was determined using a combination of various methodologies, as appropriate, depending on the asset type and classification.  Current assets and liabilities were valued at book value since carrying value approximated fair value. Property, plant, and equipment assets were valued under various methodologies, including the market approach using comparable sales for real estate and the cost approach discounted for obsolescence for plant and equipment.  Intangible assets were valued using the discounted income approach and using a discount rate of 15 percent.  Long-term debt was valued at book value since it approximated fair value.  There was no tax deductible goodwill as a result of the Del-Tin Fiber acquisition.

   

The total cost of the acquisition has been allocated to the assets acquired and the liabilities assumed based upon their estimated fair values at the date of the acquisition and is presented in the table below. The purchase price allocation and gain on bargain purchase are preliminary estimates and are subject to change during the measurement period as the deferred taxes related to the acquired assets are finalized.

   

 

 8 


DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Note 4 – Business Combinations (cont.)

   

The preliminary purchase price allocated to the net tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date and the calculation of the gain on bargain purchase were as follows:

 

   

   

 

(Thousands of dollars)

   

   

   

   

   

   

   

Accounts receivable

$

4,229

      

Inventories

   

4,805

      

Other current assets

   

360

      

Property, plant, and equipment

   

40,960

      

Intangible assets1

   

1,700

      

  Other assets

   

171

      

Current liabilities

   

(1,653

Deferred tax liabilities

   

(2,331

Long-term liabilities

   

(29,000

Net assets acquired

   

19,241

      

Cash paid

   

(5,170

)

Fair value of previously held investment in Del-Tin Fiber

   

(10,786

)

      Gain on bargain purchase

$

3,285

   

   

   1The acquired intangible assets consist of internally developed software which is being amortized over three years.

   

   

The preliminary purchase price allocation resulted in the recognition of a gain on bargain purchase of approximately $3,285,000, which was included in the Consolidated Statements of Income for the nine months ended September 30, 2013.  The gain on bargain purchase was the result of the fair value of the identifiable net assets acquired exceeding the purchase price paid for the acquisition.  The seller, Deltic’s former joint venture partner, was motivated to sell its half of Del-Tin Fiber in order to facilitate the sale of its remaining building products business to a major building products company that had no interest in owning a membership interest in a joint venture.  This sale was part of the former joint venture partner’s stated plan to divest itself of its building product assets by the end of the year 2013.  

   

Transaction costs related to the acquisition of Del-Tin Fiber were insignificant and were expensed as incurred. The cash paid to the seller at the closing of the acquisition was funded by cash on hand.

   

The results of Del-Tin Fiber’s operations have been included in the consolidated financial statements subsequent to the acquisition date and were included in the Company’s Manufacturing segment. Subsequent to the acquisition date, for the three months and nine months ended September 30, 2013, the Company included net sales of approximately $17,156,000 and $34,593,000, respectively from  Del-Tin Fiber in its Consolidated Statements of Income.  Deltic’s operating income for the three months and nine months ended September 30, 2013, included $2,440,000 and $3,911,000, respectively, from Del-Tin Fiber operations.   

 

 9 


DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Note 4 – Business Combinations (cont.)

   

The following unaudited supplemental pro forma financial information in the table below summarizes the Company’s combined results of operations as if the acquisition of Del-Tin Fiber had occurred at the beginning of the periods presented.  The pro forma financial information is not necessarily indicative of the results of operations that would have occurred if the acquisition had been completed on January 1, 2012.  

   

 

   

   

Nine Months Ended
September 30,

   

      (Thousands of dollars, except per share amounts)

   

2013

   

   

   

2012

   

   

   

   

   

   

   

   

   

Net sales

$

168,895

      

      

$

154,177

      

Net income

   

20,104

      

      

   

6,633

      

Basic net income per share

   

1.60

      

      

   

.53

      

Diluted net income per share

   

1.59

      

      

   

.53

      

   

   

   

Note 5 – Timber and Timberlands

   

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

   

   

 

(Thousands of dollars)

   

Sept. 30,
2013

   

   

   

Dec. 31,
2012

   

   

   

   

   

   

   

   

   

Purchased stumpage inventory

$

2,790

      

   

   

902

      

Timberlands

   

102,687

      

   

   

99,159

      

Fee timber

   

253,501

      

   

   

246,105

      

Logging facilities

   

2,636

      

   

   

2,601

      

   

   

361,614

      

   

   

348,767

      

Less accumulated cost of fee timber harvested and facilities  depreciation

   

(112,422

   

   

(108,873

Strategic timber and timberlands

   

249,192

      

   

   

239,894

      

Non-strategic timber and timberlands

   

—  

      

   

   

321

      

   

$

249,192

      

   

   

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 they are either smaller tracts of pine timberlands that cannot be strategically managed or tracts of hardwood bottomland that cannot be converted into pine growing acreage, they will be sold.  Included in the Woodlands operating income were gains from sales of non-strategic timberland of $190,000 and $305,000 for the three months ended September 30, 2013, and 2012, respectively, and $1,548,000 and $942,000 for the nine months ended September 30, 2013 and 2012, respectively.

 

 10 


DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Note 6 – Property, Plant, and Equipment

   

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

   

   

 

(Thousands of dollars)

   

Sept. 30,
2013

   

   

   

Dec. 31,
2012

   

   

   

   

   

   

   

   

   

Land

$

947

      

   

   

357

      

Land improvements

   

8,312

      

   

   

6,322

      

Buildings and structures

   

22,578

      

   

   

13,985

      

Machinery and equipment

   

142,569

      

   

   

99,867

      

   

   

174,406

      

   

   

120,531

      

Less accumulated depreciation

   

(99,886

   

   

(93,863

   

$

74,520

      

   

   

26,668

      

   

   

   

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)

   

Sept. 30,
2013

   

      

   

Dec. 31,
2012

   

   

   

   

   

   

   

   

   

Deferred revenues – current

$

4,538

      

      

   

3,794

      

Dividend payable

   

1,268

      

      

   

—  

      

Vacation accrual

   

1,338

      

      

   

971

      

Deferred compensation

   

3,116

      

      

      

2,720

      

All other current liabilities

   

2,388

      

      

   

1,609

      

   

$

12,648

      

      

   

9,094

      

   

   

   

Note 8 – Other Noncurrent Liabilities

   

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

   

   

 

(Thousands of dollars)

   

Sept. 30,
2013

   

      

   

Dec. 31,
2012

   

   

   

   

   

   

   

   

   

Accumulated postretirement benefit obligation

$

12,655

      

      

   

12,132

      

Excess retirement plan

   

9,135

      

      

   

9,063

      

Accrued pension liability

   

17,262

      

      

   

17,254

      

Deferred revenue – long-term portion

   

913

      

      

   

2,064

      

Uncertain tax positions liability

   

1,185

      

      

   

1,325

      

Other noncurrent liabilities

   

2,361

      

      

   

2,644

      

   

$

43,511

      

      

      

44,482

      

   

 

 11 


DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Note 9 – Credit Facilities and Debt

   

On May 2, 2013, the Company amended and extended its unsecured and committed revolving credit agreement. Pursuant to the amendment, the amount was increased from $297,500,000 to $340,000,000; the term was extended to May 1, 2018; and the pricing of applicable margins and commitment fees were amended.  To facilitate the amendment, the Company incurred $765,000 in fees that will be amortized over the length of the agreement, together with the remaining unamortized costs of $617,000 from the previous amendment.  

   

With consolidation of Del-Tin Fiber into the Company’s financial statements on April 1, 2013,  Deltic’s long-term debt includes $29,000,000 in Union County, Arkansas Taxable Industrial Revenue Bonds (Del-Tin Fiber project) 1998 Series due October 1, 2027, (the “Bonds”).  Prior to the April 1, 2013 acquisition of Del-Tin Fiber, Deltic was a guarantor of one-half of the letter of credit supporting the bonds.  These Bonds bear interest at a variable rate determined weekly by the remarketing agent of the Bonds.  Interest is due on the first business day of the month, and all unpaid interest and all principal is due on October 1, 2027.  The average interest rate on the Bonds was .70 percent in 2012 and .87 percent in 2011.  

   

   

Note 10 – Income Taxes

   

The Company’s effective tax rate for the three months and nine months ended September 30, 2013, was 32 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 nine months ended September 30, 2013, the Company recognized $76,000 in interest expense from these items.  The Company had approximately $558,000 accrued in deferred revenues and other accrued liabilities for interest and penalties at September 30, 2013.  If the Company were to prevail on all unrecognized tax benefits recorded on the balance sheet, approximately $776,000 would benefit the effective rate.  The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2010.

   

   

 

 12 


DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Note 11 – Employee and Retiree Benefit Plans

   

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

   

   

 

   

Three Months Ended
September 30,

   

   

Nine Months Ended
September 30,

   

(Thousands of dollars)

2013

   

   

2012

   

   

2013

   

   

2012