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Deltic Timber 10-Q 2014

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
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 June 30, 2014

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 July 23, 2014, was 12,579,950.

 

 

 


Table of Contents

TABLE OF CONTENTS – SECOND QUARTER 2014 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      33   
Item    4.   Controls and Procedures      34   
     PART II – Other Information   
Item    1.   Legal Proceedings      35   
Item    1A.   Risk Factors      35   
Item    2.   Unregistered Sales of Equity Securities and Use of Proceeds      35   
Item    3.   Defaults Upon Senior Securities      35   
Item    4.   Mine Safety Disclosures      35   
Item    5.   Other Information      35   
Item    6.   Exhibits      36   
Signatures        37   


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

 

(Thousands of dollars)

 

     June 30,
2014
    December 31,
2013
 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 8,115        4,374   

Trade accounts receivable, net of allowance for doubtful accounts of $132 and $172, respectively

     11,176        7,331   

Inventories

     12,689        12,439   

Prepaid expenses and other current assets

     3,030        3,155   
  

 

 

   

 

 

 

Total current assets

     35,010        27,299   

Investment in real estate held for development and sale

     56,454        57,953   

Timber and timberlands – net

     365,977        248,833   

Property, plant, and equipment – net

     73,012        75,259   

Deferred charges and other assets

     1,822        2,000   
  

 

 

   

 

 

 

Total assets

   $ 532,275        411,344   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities

    

Trade accounts payable

   $ 5,749        8,198   

Accrued taxes other than income taxes

     2,943        2,210   

Income taxes payable

     653        1,077   

Deferred revenues and other accrued liabilities

     10,606        10,330   
  

 

 

   

 

 

 

Total current liabilities

     19,951        21,815   

Long-term debt

     210,000        90,000   

Deferred tax liabilities – net

     6,677        7,514   

Other noncurrent liabilities

     25,164        25,743   

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

     84,971        84,796   

Retained earnings

     196,125        189,720   

Treasury stock

     (8,143     (5,693

Accumulated other comprehensive loss

     (2,598     (2,679
  

 

 

   

 

 

 

Total stockholders’ equity

     270,483        266,272   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 532,275        411,344   
  

 

 

   

 

 

 

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
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

Net sales

   $ 58,605        53,247        113,984        94,810   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses

        

Cost of sales

     39,529        34,444        76,135        57,972   

Depreciation, amortization, and cost of fee timber harvested

     4,621        4,155        9,464        6,806   

General and administrative expenses

     4,721        4,454        9,844        9,374   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     48,871        43,053        95,443        74,152   

Gain on involuntary conversion

     —          797        —          881   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     9,734        10,991        18,541        21,539   

Equity in earnings of Del-Tin Fiber

     —          —          —          1,084   

Interest income

     1        5        3        8   

Interest and other debt expense, net of capitalized interest

     (1,560     (1,291     (2,735     (2,321

Gain on bargain purchase

     —          3,285        —          3,285   

Other income/(expense)

     (18     3,245        43        3,225   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     8,157        16,235        15,852        26,820   

Income tax expense

     (2,859     (4,967     (5,643     (8,778
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,298        11,268        10,209        18,042   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share

        

Basic

   $ .42        .89        .80        1.42   

Assuming dilution

   $ .42        .88        .80        1.42   

Dividends per common share

        

Paid

   $ .10        .10        .20        .20   

Declared

   $ .20        .20        .30        .30   

Weighted average common shares outstanding (thousands)

        

Basic

     12,545        12,583        12,551        12,573   

Assuming dilution

     12,591        12,628        12,603        12,627   

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)

 

     Six Months Ended
June 30,
 
     2014     2013  

Net income

   $ 10,209        18,042   
  

 

 

   

 

 

 

Other comprehensive income

    

Items related to employee benefit plans:

    

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

    

Amortization of prior service cost

     3        2   

Amortization of actuarial loss

     139        284   

Amortization of plan amendment

     (61     (60
  

 

 

   

 

 

 

Other comprehensive income

     81        226   
  

 

 

   

 

 

 

Comprehensive income

   $ 10,290        18,268   
  

 

 

   

 

 

 

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)

 

     Six Months Ended
June 30,
 
     2014     2013  

Operating activities

    

Net income

   $ 10,209        18,042   

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

    

Depreciation, amortization, and cost of fee timber harvested

     9,464        6,806   

Deferred income taxes

     (1,207     1,318   

Real estate development expenditures

     (512     (293

Real estate costs recovered upon sale

     1,732        1,517   

Timberland costs recovered upon sale

     174        676   

Equity in earnings of Del-Tin Fiber

     —          (1,084

Gain on previously held equity interest

     —          (3,165

Gain on bargain purchase

     —          (3,285

Stock-based compensation expense

     1,606        1,375   

Net increase in liabilities for pension and other postretirement benefits

     481        907   

Net decrease in deferred compensation for stock-based liabilities

     (583     (706

Increase in operating working capital other than cash and cash equivalents

     (6,658     (425

Other changes in assets and liabilities

     133        (1,391
  

 

 

   

 

 

 

Net cash provided by operating activities

     14,839        20,292   
  

 

 

   

 

 

 

Investing activities

    

Capital expenditures requiring cash, excluding real estate development

     (6,231     (11,202

Timberland acquisition expenditures requiring cash

     (118,106     (8,596

Business acquisition, net of cash acquired

     —          (5,170

Net change in purchased stumpage inventory

     (588     (1,736

Advances to Del-Tin Fiber (prior to acquisition)

     —          (1,025

Repayments from Del-Tin Fiber (prior to acquisition)

     —          781   

Net change in funds held by trustee

     —          (14

Other – net

     275        1,204   
  

 

 

   

 

 

 

Net cash required by investing activities

     (124,650     (25,758
  

 

 

   

 

 

 

Financing activities

    

Proceeds from borrowings

     120,000        12,000   

Repayments of notes payable and long-term debt

     —          (4,000

Treasury stock purchases

     (3,790     (10

Common stock dividends paid

     (2,539     (2,542

Proceeds from stock option exercises

     59        750   

Excess tax benefits from stock-based compensation expense

     143        407   

Other – net

     (321     (973
  

 

 

   

 

 

 

Net cash provided by financing activities

     113,552        5,632   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     3,741        166   

Cash and cash equivalents at January 1

     4,374        5,613   
  

 

 

   

 

 

 

Cash and cash equivalents at June 30

   $ 8,115        5,779   
  

 

 

   

 

 

 

Some 2013 amounts have been revised to conform to the 2014 presentation.

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)

 

     Six Months Ended
June 30,
 
     2014     2013  

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 2014 and 2013

     128        128   
  

 

 

   

 

 

 

Capital in excess of par value

    

Balance at beginning of period

     84,796        82,597   

Exercise of stock options

     8        124   

Stock-based compensation expense

     1,606        1,375   

Restricted stock awards

     (1,290     (935

Tax effect of stock awards

     (149     172   

Restricted stock forfeitures

     —          41   
  

 

 

   

 

 

 

Balance at end of period

     84,971        83,374   
  

 

 

   

 

 

 

Retained earnings

    

Balance at beginning of period

     189,720        168,608   

Net income

     10,209        18,042   

Common stock dividends declared

     (3,804     (3,813
  

 

 

   

 

 

 

Balance at end of period

     196,125        182,837   
  

 

 

   

 

 

 

Treasury stock

    

Balance at beginning of period – 134,609 and 141,974 shares, respectively

     (5,693     (5,000

Shares purchased – 63,366 and 134 shares, respectively

     (3,790     (10

Forfeited restricted stock – none and 570 shares, respectively

     —          (41

Shares issued for incentive plans – 30,106 and 43,998 shares, respectively

     1,340        1,561   
  

 

 

   

 

 

 

Balance at end of period – 167,869 and 98,680 shares, respectively

     (8,143     (3,490
  

 

 

   

 

 

 

Accumulated other comprehensive loss

    

Balance at beginning of period

     (2,679     (14,103

Change in other comprehensive income, net of tax

     81        226   
  

 

 

   

 

 

 

Balance at end of period

     (2,598     (13,877
  

 

 

   

 

 

 

Total stockholders’ equity

   $ 270,483        248,972   
  

 

 

   

 

 

 

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, 2013. Preparation of consolidated financial statements requires management to make estimates and assumptions. These estimates and assumptions affect reported amounts of assets and liabilities, 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 June 30, 2014, and the results of its operations and cash flows for the three months and six months ended June 30, 2014 and 2013. 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

On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017 and early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating what effect ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

 

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)    June 30,
2014
     Dec. 31,
2013
 

Raw materials

   - Logs    $ 1,390         1,612   
   - Del-Tin – wood fiber      413         440   

Finished goods

   - Lumber      4,714         4,145   
   - Medium density fiberboard (“MDF”)      2,888         3,110   
   - MDF consigned to others      725         708   

Supplies

        2,559         2,424   
     

 

 

    

 

 

 
      $ 12,689         12,439   
     

 

 

    

 

 

 

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)    June 30,
2014
     Dec. 31,
2013
 

Short-term deferred tax assets

   $ 1,926         1,901   

Prepaid expenses

     560         692   

Other current assets

     544         562   
  

 

 

    

 

 

 
   $ 3,030         3,155   
  

 

 

    

 

 

 

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”). Del-Tin Fiber was an existing joint venture that operates an MDF manufacturing facility in El Dorado, Arkansas. With this acquisition, Deltic obtained complete 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. Prior to the acquisition, the Company reported Del-Tin Fiber as an equity method investment. 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.

 

7


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 4 – Business Combinations (cont.)

 

The following unaudited supplemental pro forma financial information for the six months ended June 30, 2013 represents the results of operations of Deltic Timber Corporation as if the Del-Tin Fiber acquisition had occurred on January 1, 2013. This information is based on historical results of operations, adjusted for certain acquisition accounting adjustments, and does not purport to represent Deltic’s actual results of operation as if the acquisition transaction described above would have occurred as of January 1, 2013 nor is it necessarily indicative of future results.

 

(Thousands of dollars, except per share amounts)    Six Months Ended
June 30, 2013
 

Net sales

   $ 112,376   

Net income

     13,262   

Basic earnings per common share

     1.05   

Diluted earnings per common share

     1.05   

For additional information concerning the acquisition of Del-Tin Fiber, see Note 4 of the Notes to Consolidated Financial Statements included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2013.

Note 5 – Timber and Timberlands

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

 

(Thousands of dollars)    June 30,
2014
    Dec. 31,
2013
 

Purchased stumpage inventory

   $ 2,976        2,388   

Timberlands

     162,333        102,609   

Fee timber

     313,985        253,768   

Logging facilities

     2,632        2,628   
  

 

 

   

 

 

 
     481,926        361,393   

Less accumulated cost of fee timber harvested and facilities depreciation

     (116,271     (113,056
  

 

 

   

 

 

 

Strategic timber and timberlands

     365,655        248,337   

Non-strategic timber and timberlands

     322        496   
  

 

 

   

 

 

 
   $ 365,977        248,833   
  

 

 

   

 

 

 

During the three months and six months ended June 30, 2014, Deltic acquired approximately 7,600 acres and 71,800 acres, respectively of timberlands located in the Company’s current operating area. Cash payments for timberland acquisition expenditures totaled $11,479,000 and $118,106,000 in the three months and six months ended June 30, 2014, respectively. Deltic invests in and holds strategic fee timber as a productive asset, and any expenditure to acquire such timber and timberlands is an investing activity on the Company’s Consolidated Statements of Cash Flows.

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

 

8


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 5 – Timber and Timberlands (cont.)

 

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. As of June 30, 2014, approximately 655 acres of these lands were available for sale. Included in the Woodlands operating income were gains from sales of non-strategic timberland of $221,000 and $980,000 for the three months ended June 30, 2014, and 2013, respectively, and $293,000 and $1,358,000 for the six months ended June 30, 2014 and 2013, respectively.

Note 6 – Property, Plant, and Equipment

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

 

                                                 
(Thousands of dollars)    June 30,
2014
    Dec. 31,
2013
 

Land

   $ 947        947   

Land improvements

     9,016        8,835   

Buildings and structures

     22,818        22,599   

Machinery and equipment

     148,964        145,741   
  

 

 

   

 

 

 
     181,745        178,122   

Less accumulated depreciation

     (108,733     (102,863
  

 

 

   

 

 

 
   $ 73,012        75,259   
  

 

 

   

 

 

 

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)    June 30,
2014
     Dec. 31,
2013
 

Deferred revenues – current

   $ 4,417         3,697   

Dividend payable

     1,265         —     

Vacation accrual

     1,381         1,290   

Deferred compensation

     1,558         3,442   

All other current liabilities

     1,985         1,901   
  

 

 

    

 

 

 
   $ 10,606         10,330   
  

 

 

    

 

 

 

 

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Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 8 – Other Noncurrent Liabilities

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

 

(Thousands of dollars)    June 30,
2014
     Dec. 31,
2013
 

Accumulated postretirement benefit obligation

   $ 10,679         10,391   

Excess retirement plan

     4,675         4,457   

Accrued pension liability

     6,146         6,383   

Deferred revenue – long-term portion

     474         649   

Uncertain tax positions liability

     1,185         1,185   

Other noncurrent liabilities

     2,005         2,678   
  

 

 

    

 

 

 
   $ 25,164         25,743   
  

 

 

    

 

 

 

Note 9 – Income Taxes

The Company’s effective tax rate for the three months and six months ended June 30, 2014, was 35 percent and 36 percent, respectively. The Company’s policy is to recognize interest expense related to unrecognized tax benefits in interest expense and penalties in other expenses. During the six months ended June 30, 2014, the Company recognized $93,000 in interest expense from these items. The Company had approximately $750,000 accrued in deferred revenues and other accrued liabilities for interest and penalties at June 30, 2014. 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.

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
June 30,
    Six Months Ended
June 30,
 
(Thousands of dollars)    2014     2013     2014     2013  

Funded qualified retirement plan

        

Service cost

   $ 369        387        738        774   

Interest cost

     459        389        919        778   

Expected return on plan assets

     (572     (473     (1,145     (946

Amortization of prior service cost

     4        4        9        9   

Recognized actuarial loss

     41        213        82        426   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net retirement expense

   $ 301        520        603        1,041   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 10 – Employee and Retiree Benefit Plans (cont.)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
(Thousands of dollars)    2014     2013     2014     2013  

Unfunded nonqualified retirement plan

        

Service cost

   $ 75        36        151        72   

Interest cost

     93        48        186        96   

Amortization of prior service cost

     (2     (3     (4     (6

Recognized actuarial loss

     74        19        147        38   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net retirement expense

   $ 240        100        480        200   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other postretirement benefits

        

Service cost

   $ 105        112        210        225   

Interest cost

     124        108        248        216   

Recognized actuarial loss

     —          2        —          4   

Amortization of plan amendment

     (50     (49     (100     (99
  

 

 

   

 

 

   

 

 

   

 

 

 

Net other postretirement benefits expense

   $ 179        173        358        346   
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company made contributions to its qualified plan of $750,000 during the first six months of 2014, and expects to continue to fund the plan at the same level over the remainder of 2014. 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 for the six months ended June 30, 2014 and 2013:

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, 2014

   $ (2,410     (482     213        (2,679

Amounts reclassified from AOCL

     55        87        (61     81   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income

     55        87        (61     81   
  

 

 

   

 

 

   

 

 

   

 

 

 

AOCL at June 30, 2014

   $ (2,355     (395           152          (2,598
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 11 – Other Comprehensive Income Disclosures (cont.)

 

(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

     265        19        (58     226   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income

     265        19        (58     226   
  

 

 

   

 

 

   

 

 

   

 

 

 

AOCL at June 30, 2013

   $ (9,287     (3,361     (1,229     (13,877
  

 

 

   

 

 

   

 

 

   

 

 

 

Reclassification Out of Accumulated Other Comprehensive Loss

Details about AOCL Components:

 

     Six Months Ended June 30, 2014  
(Thousands of dollars)    Defined
Benefit
Funded
Retirement
Plan
    Defined
Benefit
Unfunded
Retirement
Plan
    Post
Retirement
Benefit
Plan
    Total  

Amortization of prior service costs

   $ 9        (4     —          5   

Amortization of actuarial losses

     82        147        —          229   

Amortization of plan amendment

     —          —          (100     (100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total before tax

     91        143        (100     134   

Income tax benefit/(expense)

     (36     (56     39        (53
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reclassifications – net of tax

   $   55        87        (61     81   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months Ended June 30, 2013  
(Thousands of dollars)    Defined
Benefit
Funded
Retirement
Plan
    Defined
Benefit
Unfunded
Retirement
Plan
    Post
Retirement
Benefit
Plan
    Total  

Amortization of prior service costs

   $ 9        (6     —          3   

Amortization of actuarial losses

     426          38        4        468   

Amortization of plan amendment

     —          —            (99     (99
  

 

 

   

 

 

   

 

 

   

 

 

 

Total before tax

     435        32        (95     372   

Income tax benefit/(expense)

     (170     (13     37        (146
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reclassifications – net of tax

   $ 265        19        (58     226   
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts in parentheses indicate expenses. 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

 

     Six Months Ended June 30, 2014  
(Thousands of dollars)    Before
Tax
Amount
    Tax
(Expense)
or Benefit
    Net of
Tax
Amount
 

Amortization of prior service costs

   $ 5        (2     3   

Amortization of actuarial losses

     229        (90     139   

Amortization of plan amendment

     (100     39        (61
  

 

 

   

 

 

   

 

 

 
   $ 134        (53     81   
  

 

 

   

 

 

   

 

 

 

 

     Six Months Ended June 30, 2013  
(Thousands of dollars)    Before
Tax
Amount
    Tax
(Expense)
or Benefit
    Net of
Tax
Amount
 

Amortization of prior service costs

   $ 3        (1     2   

Amortization of actuarial losses

     468        (184     284   

Amortization of plan amendment

     (99     39        (60
  

 

 

   

 

 

   

 

 

 
   $ 372        (146     226   
  

 

 

   

 

 

   

 

 

 

Note 12 – Stock-Based Compensation

The Consolidated Statements of Income for the three months ended June 30, 2014 and 2013, included $804,000 and $711,000, respectively, of stock-based compensation expense reflected in general and administrative expenses. For the six months ended June 30, 2014 and 2013, the amounts were $1,606,000 and $1,375,000, respectively.

Assumptions for the valuation of 2014 stock options and restricted stock performance units consisted of the following:

 

     2014  

Expected term of options (in years)

     6.27   

Weighted expected volatility

     37.38

Dividend yield

     .55

Risk-free interest rate – performance restricted shares

     1.23

Risk-free interest rate – options

     2.99

Stock price as of valuation date

   $ 63.21   

Restricted performance share valuation

   $ 80.56   

Grant date fair value – stock options

   $ 21.87   

 

13


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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 12 – Stock-Based Compensation (cont.)

 

Stock Options – A summary of stock options as of June 30, 2014, and changes during the six-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, 2014

     131,456      $ 59.64         

Granted

     26,611        63.35         

Exercised

     (1,194     49.40         

Expired

     (460     36.61         
  

 

 

         

Outstanding at June 30, 2014

     156,413      $ 60.42         6.5       $ 613   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at June 30, 2014

     92,212      $ 56.19         5.1       $ 613   
  

 

 

   

 

 

    

 

 

    

 

 

 

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 June 30, 2014, 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 June 30, 2014, there was $1,272,000 of unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a weighted-average period of 2.1 years.

Restricted Stock and Restricted Stock Units – A summary of nonvested restricted stock as of June 30, 2014, and changes during the six-month period then ended are presented below:

 

Nonvested Restricted Stock

   Shares     Weighted
Average
Grant-Date
Fair Value
 

Nonvested at January 1, 2014

     79,591      $ 62.31   

Granted

     24,951        63.30   

Vested

     (19,132     44.84   
  

 

 

   

 

 

 

Nonvested at June 30, 2014

     85,410      $ 66.51   
  

 

 

   

As of June 30, 2014, there was $3,166,000 of unrecognized compensation cost related to nonvested restricted stock. That cost is expected to be recognized over a weighted-average period of 2.2 years.

 

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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 12 – Stock-Based Compensation (cont.)

 

Performance Units – A summary of nonvested restricted stock performance units as of June 30, 2014, and changes during the six months then ended are presented below:

 

Nonvested Restricted Stock Performance Units

   Shares     Weighted
Average
Grant-Date
Fair Value
 

Nonvested at January 1, 2014

     52,625      $ 80.87   

Granted

     16,613        80.70   

Units not meeting vesting conditions

     (12,652     58.66   
  

 

 

   

 

 

 

Nonvested at June 30, 2014

     56,586      $ 85.78   
  

 

 

   

As of June 30, 2014, there was $2,695,000 of unrecognized compensation cost related to nonvested restricted stock performance units. That cost is expected to be recognized over a weighted-average period of 2.2 years.

Note 13 – Contingencies

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

 

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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 14 – 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.

The 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 June 30, 2014, are presented in the following table:

 

            Fair Value Measurements at Reporting Date Using  
     June 30,      Quoted Prices in
Active Markets
for Identical
Liabilities
Inputs
     Significant
Observable
Inputs
     Significant
Unobservable
Inputs
 
(Thousands of dollars)    2014      Level 1      Level 2      Level 3  

Liabilities

           

Nonqualified employee savings plan

   $ 1,432         1,432         —           —     

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 June 30, 2014 and 2013. 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.

 

     June 30, 2014      June 30, 2013  
(Thousands of dollars)    Carrying
Amount
     Estimated
Fair Value
     Carrying
Amount
     Estimated
Fair Value
 

Financial liabilities

           

Long-term debt, including current liabilities

   $ 210,000         214,300         100,000         104,155   

 

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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 15 – 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
June 30,
     Six Months Ended
June 30,
 
(Thousands, except per share amounts)    2014      2013      2014      2013  

Net earnings allocated to common stock

   $ 5,239         11,151         10,098         17,858   

Net earnings allocated to participating securities

     59         117         111         184   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income allocated to common stock and participating securities

   $ 5,298         11,268         10,209         18,042   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common shares used in basic EPS

     12,545         12,583         12,551         12,573   

Effect of dilutive stock awards

     46         45         52         54   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     12,591         12,628         12,603         12,627   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share

           

Basic

   $ .42         .89         .80         1.42   

Assuming dilution

   $ .42         .88         .80         1.42   

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 diluted effect of common stock equivalents using the treasury stock method.

The following table provides information about potentially dilutive securities that were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive, or in the case of the restricted performance shares, did not meet the metrics established for awarding:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2014      2013      2014      2013  

Options

     103,119         50,197         103,119         50,197   

Restricted performance shares

     56,586         52,625         56,586         52,625   

 

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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 16 – Supplemental Cash Flow Disclosures

Additional information concerning cash flows is as follows:

 

     Six Months Ended
June 30,
 
(Thousands of dollars)    2014     2013  

Income taxes paid in cash

   $ 7,021        6,268   

Interest paid

     2,012        1,641   

Interest capitalized

     (49     (17

Non-cash investing and financing activities excluded from the Consolidated Statement of Cash Flows include:

 

     Six Months Ended
June 30,
 
(Thousands of dollars)    2014      2013  

Issuance of restricted stock

   $ 1,290         935   

Capital expenditures accrued, not paid

     287         546   

Fair value of Del-Tin Fiber net assets acquired

     —           19,241   

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

 

     Six Months Ended
June 30,
 
(Thousands of dollars)    2014     2013  

Trade accounts receivable

   $ (3,845     (3,289

Other receivables

     13        8   

Inventories

     (250     (1,710

Prepaid expenses and other current assets

     163        (200

Trade accounts payable

     (2,162     2,480   

Accrued taxes other than income taxes

     734        990   

Deferred revenues and other accrued liabilities

     (1,311     1,296   
  

 

 

   

 

 

 
   $ (6,658     (425
  

 

 

   

 

 

 

 

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Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 17 – Business Segments

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
(Thousands of dollars)    2014     2013     2014     2013  

Net sales

        

Woodlands

   $ 10,097        9,401        20,499        18,774   

Manufacturing2

     49,203        43,700        95,743        77,808   

Real Estate

     3,585        3,828        7,088        6,157   

Eliminations1

     (4,280     (3,682     (9,346     (7,929
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 58,605        53,247        113,984        94,810   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

        

Operating income/(loss)

        

Woodlands

   $ 5,237        4,871        10,550        9,505   

Manufacturing2

     8,648        10,158        16,990        21,495   

Real Estate

     266        151        419        (493

Corporate

     (4,447     (4,180     (9,273     (8,823

Eliminations

     30        (9     (145     (145
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     9,734        10,991        18,541        21,539   

Equity in earnings of Del-Tin Fiber2

     —          —          —          1,084   

Interest income

     1        5        3        8   

Interest and other debt expense, net of capitalized interest

     (1,560     (1,291     (2,735     (2,321

Gain on bargain purchase

     —          3,285        —          3,285   

Other income/(expense)

     (18     3,245        43        3,225   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 8,157        16,235        15,852        26,820   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation, amortization, and cost of fee timber harvested

        

Woodlands

   $ 1,482        1,207        3,285        2,499   

Manufacturing2

     3,033        2,837        5,970        4,087   

Real Estate

     86        87        169        172   

Corporate

     20        24        40        48   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 4,621        4,155        9,464        6,806   
  

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures

        

Woodlands

   $ 426        407        1,843        2,164   

Manufacturing2

     2,383        6,544        3,807        9,332   

Real Estate

     473        196        771        538   

Corporate

     32        3        35        7   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 3,314        7,150        6,456        12,041   
  

 

 

   

 

 

   

 

 

   

 

 

 

Timberland acquisition expenditures

   $ 11,479        74        118,106        8,596   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

1 

Primarily intersegment sales of timber from Woodlands to Manufacturing.

2 

Del-Tin Fiber became a consolidated subsidiary, reported in the Manufacturing segment, upon acquisition of a controlling interest of its ownership effective April 1, 2013.

 

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 $5.3 million for the second quarter of 2014, compared to $11.2 million for the same period of 2013. The 2013 results included $5.2 million of non-recurring, after-tax gains resulting from the acquisition of the remaining ownership interest of Del-Tin Fiber L.L.C. (“Del-Tin Fiber”), completed in April 2013. The Woodlands segment reported $5.3 million in operating income during the second quarter of 2014, an increase of $.4 million when compared to the second quarter of 2013. The improvement was mainly due to increased revenues from pine sawtimber and pine pulpwood sales and increased oil and gas royalty income, partially offset by a lower margin on timberland sales. The Manufacturing segment reported $8.7 million in operating income, a decrease of $1.5 million from the $10.2 million reported a year ago, as increased raw material and manufacturing costs more than offset the benefit from increased sales volumes. In addition, the Manufacturing segment benefitted from a $.8 million gain from an involuntary conversion of an asset in 2013. The Real Estate segment had operating income of $.2 million in the second quarter of 2014, the same as in the second quarter of 2013. The Corporate segment’s operating expenses were $.2 million higher in the current-year quarter than in the same period a year ago, due primarily to increased general and administrative expenses. Interest expense was $1.5 million in the second quarter of 2014, an increase of $.2 million when compared to the same period of 2013. The increase was the result of borrowings for timberland acquisitions in 2014. Income tax expense decreased $2.1 million in the second quarter of 2014 when compared to 2013’s second quarter primarily because of lower pretax income.

Deltic is a vertically integrated natural resources company operating in a commodity-based business environment that is engaged in the growing and harvesting of timber, and the manufacture and marketing of lumber and medium density fiberboard (“MDF”), 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, United States employment levels, interest rates, credit availability and associated costs, imports of lumber and MDF, 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. During the second quarter of 2014, harsh winter weather conditions that existed for much of the first quarter subsided, and Deltic benefitted from increased sales volumes for both lumber and MDF. As with most commodity markets, and Deltic’s relative size, the Company has little or no influence over pricing or demand levels for its wood products. Deltic’s management will continue to focus its attention on managing the Company’s diverse asset base, maximize its vertical integration strategy, and at the same time using its size advantage to quickly adjust production levels to capture market-driven opportunities, while working to reduce controllable costs and expenses.

The Woodlands segment is the Company’s core operating segment, with its pine timberlands providing the foundation for Deltic’s vertical integration structure by generally supplying more than half of the Manufacturing segment’s raw material needs. In the second quarter of 2014, the pine sawtimber harvest was 170,737 tons, an increase of 10,840 tons when compared to the 2013 second quarter harvest of 159,897 tons. The average sales price for pine sawtimber was $25 per ton in the second quarter of 2014 versus $22 per ton in the same quarter of 2013. The second quarter of 2014’s pine pulpwood harvest of 123,707 tons was an increase of 42,787 tons, or 53 percent, from the harvest in the second quarter of 2013. The volume increase was largely due to the composition of stumpage on the timberland tracts the Company harvested during the respective quarters and to thinning operations in pine plantations. The average sales price for pine pulpwood was $8 per ton for the second quarter of both years. During the second quarter of 2014, the Company sold 185 acres of non-strategic recreational-use hardwood bottomland at an average sales price of $1,700 per acre, compared to sales of 1,082 acres at an average price of $1,400 per acre for the same period of 2013. In the second quarter of 2014, Deltic acquired approximately 7,600 acres of pine timberland, for a total of approximately 71,800 acres of timberland acquired thus far in 2014. (For additional information, refer to Note 5 to the Consolidated Financial Statements.)

 

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The Woodlands segment’s financial results include other benefits from land ownership, such as revenues from hunting leases, mineral lease rentals, mineral royalties, and land easements. Hunting lease revenues were $.6 million for the second quarters of both 2014 and 2013. In the second quarters of 2014 and 2013, oil and gas lease rental income was $.4 million. Oil and gas royalty receipts, primarily from gas wells in the Fayetteville Shale Play, were $1.3 million in the second quarter of 2014, a $.4 million increase from 2013, primarily due to an increase in natural gas prices. In addition, gas production from new wells drilled continued to offset the decline in production from older wells. The ultimate benefit to Deltic from mineral leases remains speculative and unknown since it is contingent on natural gas and crude oil prices and the successful completion of producing wells drilled on Company lands.

The Manufacturing segment produces both lumber and MDF. The average lumber sales price in the second quarter of 2014 was $393 per thousand board feet, a $6 per thousand board feet lower price when compared to the same period in 2013. The Manufacturing segment sold 65 million board feet of lumber in the second quarter of 2014, an increase of 10 million board feet, or 18 percent, when compared to 55 million board feet sold in the second quarter a year ago. The average sales price for MDF during the current year’s second quarter was $583 per thousand square feet, a slight increase from the average sales price of $582 per thousand square feet in 2013’s second quarter. MDF sales volume for the second quarter of 2014 was 31.1 million square feet, compared to 27.8 million square feet in the same period of 2013. As with any commodity market, the Company expects the historical lumber market volatility to continue in the future. As such, Deltic will continue to adjust production levels to meet market demand. The Manufacturing segment recorded a $.8 million benefit during the second quarter of 2013 from a gain on the involuntary conversion of an asset.

The Real Estate segment reported a sale of a commercial site of approximately 1.72 acres for $500,900 per acre in the current-year second quarter which compares to no sale in the same period of 2013. Other commercial real estate acreage within Chenal Valley continues to receive interest from potential buyers. However, due to the unpredictable nature of commercial real estate sales activity, the Company cannot predict the timing of closing of any commercial real estate transaction. There were 7 residential lots sold during the second quarter of 2014, compared to 22 lots sold in the second quarter of 2013, as the prior year quarter benefitted from the timing of new residential lot offerings. The average per-lot sales price was $92,300 in 2014 compared to an average per-lot sales price of $76,900 in 2013’s second quarter, due to the mix of lots sold.

 

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Results of Operations

Three Months Ended June 30, 2014 Compared with Three Months Ended June 30, 2013

In the following tables, Deltic’s net sales and results of operations are presented for the quarters ended June 30, 2014 and 2013. Explanations of significant variances and additional analyses for the Company’s consolidated and segment operations follow the tables.

 

     Quarter Ended June 30,  
(Millions of dollars, except per share amounts)    2014     2013  

Net sales

    

Woodlands

   $ 10.1        9.5   

Manufacturing

     49.2        43.7   

Real Estate

     3.6        3.8   

Eliminations

     (4.3     (3.7
  

 

 

   

 

 

 

Net sales

   $ 58.6        53.3   
  

 

 

   

 

 

 

Operating income

    

Woodlands

   $ 5.3        4.9   

Manufacturing

     8.7        10.2   

Real Estate

     .2        .2   

Corporate

     (4.5     (4.3

Eliminations

     .1        —     
  

 

 

   

 

 

 

Operating income

     9.8        11.0   

Interest and other debt expense

     (1.5     (1.3

Gain on bargain purchase

     —          3.3   

Other income

     (.1     3.2   

Income taxes

     (2.9     (5.0
  

 

 

   

 

 

 

Net income

   $ 5.3        11.2   
  

 

 

   

 

 

 

Earnings per common share

    

Basic

   $ .42        .89   

Assuming dilution

     .42        .88   

Consolidated

Net income decreased $5.9 million from the prior-year second quarter, as the second quarter of 2013 included non-recurring gains, consisting of $5.7 million in after-tax gains related to the acquisition of the remaining 50 percent ownership of Del-Tin Fiber and an involuntary conversion of assets. In the second quarter of 2014, the Manufacturing segment reported decreased operating income, and the Corporate segment had increased general and administrative expenses and interest expense. These unfavorable variances were partially offset by improved operating income for the Woodlands segment.

Operating income decreased $1.2 million from the second quarter of 2013. The Woodlands segment’s operating income increased $.4 million primarily due to increases in the harvest volumes of sawtimber and pulpwood along with increased oil and gas royalty revenues, partially offset by a decrease in the number of timberland acres sold. The Manufacturing segment’s operating income decreased $1.5 million from the second quarter of 2013. In 2013, there was a $.8 million gain on an involuntary conversion of an asset, while there was none in 2014. Additionally, the 2014 cost of sales per unit of lumber sold increased due to a higher raw material log cost at the Company’s sawmills and to the MDF plant experiencing maintenance-related downtime, resulting in increased per-unit manufacturing costs for MDF produced. The Real Estate segment’s operating income was $.2 million, the same as reported in the prior-year second quarter, as the benefit of a sale of a commercial site in Chenal Valley offset a decrease in the number of residential lots sold when compared to the second quarter of 2013.

 

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Corporate expense increased $.2 million in the second quarter of 2014 due to higher general and administrative expenses when compared to the corresponding quarter of 2013.

Woodlands

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

 

     Quarter Ended June 30,  
     2014      2013  

Net sales (millions of dollars)

     

Pine sawtimber

   $ 4.2         3.6   

Pine pulpwood

     .9         .6   

Hardwood pulpwood

     .3         .1   

Oil and gas lease rentals

     .4         .4   

Oil and gas royalties

     1.3         .9   

Hunting leases

     .6         .6   

Hauling to other mills

     1.7         1.3   

Sales volume (thousands of tons)

     

Pine sawtimber

     170.7         159.9   

Pine pulpwood

     123.7         80.9   

Hardwood sawtimber

     .4         .5   

Hardwood pulpwood

     14.2         11.4   

Sales price (per ton)

     

Pine sawtimber

   $ 25         22   

Pine pulpwood

     8         8   

Hardwood sawtimber

     33         41   

Hardwood pulpwood

     19         11   

Timberland

     

Net sales (millions of dollars)

   $ .3         1.6   

Sales volume (acres)

     185         1,082   

Sales price (per acre)

   $ 1,708         1,449   

Net sales increased $.6 million in the second quarter of 2014 when compared to the second quarter of 2013. Pine sawtimber sales revenue was $.6 million higher in 2014’s second quarter due to an increase in harvest volume combined with a $3 per ton increase in average per-ton sales price. Revenues from sales of pine pulpwood were $.3 million more due to a 53 percent increase in tons harvested in the current-year second quarter. The increase in pine pulpwood harvest volume was due to a combination of thinning operations on pine plantations and the composition of stumpage on the timberland tracts harvested in the current quarter. Revenues from hardwood pulpwood sales were $.2 million higher in the second quarter of 2014 versus 2013. Revenues from sales of timberland were $1.3 million lower in the second quarter of 2014, due to the decrease in the number of acres sold from the prior-year quarter, partially offset by an increase in the average sales price per acre sold. Net oil and gas royalties increased $.3 million from 2013’s second quarter due primarily to higher prices for natural gas in 2014 when compared to 2013. Revenue from hauling stumpage to other mills was $.4 million higher in the second quarter of 2014 versus the same period of 2013. Operating income was $5.3 million in the second quarter of 2014 compared to $4.9 million in the second quarter of 2013. This was mainly due to the same factors that affected net sales, combined with increased cost for hauling timber to other mills and a higher cost of timber harvested.

 

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Manufacturing

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

 

     Quarter Ended June 30,  
     2014      2013  

Net sales (millions of dollars)

     

Lumber

   $ 25.6         22.0   

Residual by-products

     2.2         1.9   

Medium density fiberboard (“MDF”)

     18.1         16.2   

Freight invoiced to customers

     3.4         3.0   

Lumber

     

Finished production (MMBF)

     63.5         55.9   

Sales volume (MMBF)

     65.0         55.0   

Sales price (per MBF)

   $ 393         399   

MDF (3/4 inch basis)

     

Finished production (MMSF)

     28.5         31.3   

Sales volume (MMSF)

     31.1         27.8   

Sales price (per MSF)

   $ 583         582   

Net sales increased $5.5 million in 2014’s second quarter versus the same period of 2013. The volume of lumber sold increased 10 million board feet, or 18 percent, in the second quarter of 2014 compared to the second quarter of 2013, while the average lumber sales price decreased $6 per MBF from 2013’s second quarter prices. MDF sales volume in the second quarter of 2014 was 3.3 million square feet more than the same period a year ago and the average sales price was $1 per MSF higher than in the second quarter of 2013. However, operating income decreased $1.5 million, due to higher raw material costs at the sawmills and to maintenance-related downtime at the MDF plant, which led to increased manufacturing costs per unit of both lumber and MDF produced. Additionally, 2013 second quarter results included a $.8 million gain on the involuntary conversion an of asset, while there were no such gains in 2014’s second quarter.

 

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Real Estate

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

 

     Quarter Ended June 30,  
     2014      2013  

Net sales (millions of dollars)

     

Residential lots

   $ .7         1.7   

Commercial acres

     .9         —     

Chenal Country Club

     2.0         2.0   

Sales volume

     

Residential lots

     7         22   

Commercial acres

     1.72         —     

Average sales price (thousands of dollars)

     

Residential lots – per lot

   $ 92         77   

Commercial acres – per acre

     501         —     

Net sales for the second quarter of 2014 decreased $.2 million from the second quarter of 2013. The decrease was due to a reduced number of residential lots sold in 2014’s second quarter, essentially offset by a sale of commercial acreage in the second quarter of 2014. The 2013 second quarter benefitted from the timing of new residential lot offerings. Current-period operating income was the same as in 2013 due primarily to the same factors affecting net sales.

Corporate

The $.2 million increase in Corporate operating expense during the second quarter of 2014 was primarily due to higher general and administrative expenses when compared to the same period of 2013.

Eliminations

Intersegment sales of timber from Deltic’s Woodlands to the Manufacturing segment during the second quarter of 2014 increased $.6 million, to $4.3 million when compared to the same quarter of last year. The increase was due to a larger harvest volume from the Woodlands segment’s fee timberlands that were transferred to the sawmills and the increase in the transfer price quarter to quarter. Current period transfer prices are approximately that of market.

Income Taxes

The effective income tax rate was 35 percent for 2014’s second quarter and 31 percent for the same period of 2013. The difference was due to the prior-year’s second quarter having a discrete tax item related to the gain on bargain purchase that was properly reported as a reduction in the bargain purchase gain rather than an increase in income tax expense.

 

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Six Months Ended June 30, 2014 Compared with Six Months Ended June 30, 2013

In the following tables, Deltic’s net sales and results of operations are presented for the six months ended June 30, 2014 and 2013. Explanations of significant variances and additional analyses for the Company’s consolidated and segment operations follow the tables.

 

     Six Months Ended June 30,  
(Millions of dollars, except per share amounts)    2014     2013  

Net sales

    

Woodlands

   $ 20.5        18.8   

Manufacturing1

     95.7        77.8   

Real Estate

     7.1        6.1   

Eliminations

     (9.3     (7.9
  

 

 

   

 

 

 

Net sales

   $ 114.0        94.8   
  

 

 

   

 

 

 

Operating income and net income

    

Woodlands

   $ 10.6        9.5   

Manufacturing1

     17.0        21.5   

Real Estate

     .4        (.5

Corporate

     (9.3     (8.9

Eliminations

     (.1     (.1
  

 

 

   

 

 

 

Operating income

     18.6        21.5   

Equity in earnings of Del-Tin Fiber1

     —          1.1   

Interest and other debt expense

     (2.7     (2.3

Gain on bargain purchase

     —          3.3   

Other income

     —          3.2   

Income taxes

     (5.7     (8.8
  

 

 

   

 

 

 

Net income

   $ 10.2        18.0   
  

 

 

   

 

 

 

Earnings per common share

    

Basic

   $ .80        1.42   

Assuming dilution

     .80        1.42   

 

1 

Beginning April 1, 2013, Del-Tin Fiber’s results were consolidated into the Manufacturing segment, while during the first quarter of 2013, results from Del-Tin Fiber were reported in equity in earnings of Del-Tin Fiber.

Consolidated

Net income for the first six months of 2014 decreased $7.8 million from the same period of 2013. The decrease, when compared to 2013, was primarily due to the prior-year period including $5.7 million of non-recurring Del-Tin acquisition-related gains, combined with decreased operating income from the Manufacturing segment and increased Corporate general and administrative expenses, in addition to no equity in earnings of Del-Tin Fiber for 2014. These decreases were partially offset by increased operating income for the Woodlands and Real Estate segments.

Operating income decreased $2.9 million from 2013’s reported results for the first six months. The Woodlands segment’s operating income increased $1.1 million due to increased timber harvest revenues, and higher oil and gas royalties, partially offset by fewer acres of timberland sold. The Manufacturing segment’s operating income decreased $4.5 million due to higher raw material costs in the

 

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sawmills, no gain on involuntary conversion of assets in 2014 as occurred in 2013, and higher manufacturing costs for MDF due to increased maintenance-related downtime. The Real Estate segment’s operating income increased $.9 million, mainly due to the sale of a commercial site in Chenal Valley and to an increased margin on residential lot sales in 2014. Corporate expenses were $.4 million higher due to increased general and administrative expenses.

Woodlands

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

 

     Six Months Ended June 30,  
     2014      2013  

Net sales (millions of dollars)

     

Pine sawtimber

   $ 9.1         7.7   

Pine pulpwood

     1.8         1.5   

Hardwood sawtimber

     .1         .1   

Hardwood pulpwood

     .5         .3   

Oil and gas lease rentals

     .8         .9   

Oil and gas royalties

     2.4         1.8   

Hunting leases

     1.3         1.2   

Hauling to other mills

     3.5         2.9   

Sales volume (thousands of tons)

     

Pine sawtimber

     380.3         341.0   

Pine pulpwood

     232.7         177.9   

Hardwood sawtimber

     2.1         1.4   

Hardwood pulpwood

     31.7         25.9   

Sales price (per ton)

     

Pine sawtimber

   $ 24         23   

Pine pulpwood

     8         9   

Hardwood sawtimber

     41         40   

Hardwood pulpwood

     17         11   

Timberland

     

Net sales (millions of dollars)

   $ .5         2.1   

Sales volume (acres)

     345         1,370   

Sales price (per acre)

   $ 1,362         1,524   

Net sales for the first six months of 2014 increased $1.7 million from 2013. Revenue from sales of pine sawtimber increased $1.4 million due to an increased pine sawtimber harvest volume and a higher average pine sawtimber sales price in 2014 when compared to 2013. Net sales from pine pulpwood were $.3 million higher than in 2013 due to an increased harvest volume, partially offset by a lower per-ton average sales price. The increase in harvest volume of pine pulpwood was due to the composition of the timber on tracts being harvested and to thinning operations in pine plantations. Net sales from hardwood sawtimber and pulpwood were $.2 million more in 2014 than in the same period of 2013 due to higher harvest volumes and sales prices. Sales of timberland were $1.6 million less in 2014 due primarily to fewer acres sold. Net oil and gas royalties were $.6 million more than in the same period of 2013 due to increases in both natural gas production volume and the price received for natural gas. Revenues from hauling stumpage to other mills were $.6 million more in 2014 when compared to 2013. Operating income was $10.6 million, $1.1 million higher than in the first six months of 2013, due to the same factors affecting net sales, combined with lower replanting costs, increased hauling expenses, and a higher cost of fee timber harvested in 2014.

 

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Manufacturing

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

 

     Six Months Ended June 30,  
     2014      2013  

Net sales (millions of dollars)

     

Lumber

   $ 49.9         50.5   

Residual by-products1

     4.9         6.2   

Medium density fiberboard (“MDF”)2

     34.6         16.2   

Freight invoiced to customers

     6.5         4.2   

Lumber

     

Finished production (MMBF)

     130.1         126.3   

Sales volume (MMBF)

     129.3         126.2   

Sales price (per MBF)

   $ 386         400   

MDF (3/4 inch basis)2

     

Finished production (MMSF)

     59.1         31.3   

Sales volume (MMSF)

     59.6         27.8   

Sales price (MSF)

   $ 580         582   

 

1 

Prior year amounts have been revised to conform to the 2014 presentation. Intrasegment residual sales have been eliminated.

2 

Deltic acquired the remaining ownership of Del-Tin Fiber from its joint venture partner on April 1, 2013 and the amounts for 2013 include only activity from that date. Prior to the acquisition, Del-Tin Fiber was treated as an equity investment.

Net sales increased $17.9 million from the prior-year period primarily due to the inclusion of the net sales of Del-Tin Fiber in the Manufacturing segment for six months of 2014 compared to only three months for 2013. Lumber sales revenue decreased by $.6 million from the first six months of 2013 due to a lower average sales price in 2014, which was partially offset by an increase in sales volume for the first six months of 2014. Total operating income decreased $4.5 million from the same period of 2013. The decrease in operating income was due to increased raw material and per-unit manufacturing costs at the sawmills, an increased manufacturing cost per-unit at the MDF plant due to maintenance-related downtime, and to no gain on involuntary conversion of assets in 2014 compared to gains of $.9 million in 2013.

As a result of the acquisition of Del-Tin Fiber, selected information below has been included for comparative purposes, which represents six months results for Del-Tin Fiber for the prior year presented.

 

     Six Months Ended
June 30, 2013
 

MDF (3/4 inch basis)*

  

Net sales

   $ 32.8   

Finished production (MMSF)

     59.9   

Sales volume (MMSF)

     56.9   

Sales price (per MSF)

     577   

 

* Information presented for 2013 represents the six months’ totals for Del-Tin Fiber of which the first three months were previously presented as information for the equity investment.

 

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Real Estate

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

 

     Six Months Ended June 30,  
     2014      2013  

Net sales (millions of dollars)

     

Residential lots

   $ 2.7         2.6   

Commercial acres

     .9         —     

Chenal Country Club

     3.2         3.4   

Sales volume

     

Residential lots

     30         34   

Commercial acres

     1.72         —     

Average sales price (thousands of dollars)

     

Residential lots – per lot

   $ 90         76   

Commercial acres – per acre

     501         —     

2014’s net sales increased $1 million when compared to 2013 due primarily to a commercial acreage sale in 2014. Though the number of residential lots sold decreased in 2014, the average per-lot sales price increased $14,000 per lot due to the mix of lots sold. The $.9 million improvement in the Real Estate segment’s operating results was due mainly to the same factors affecting net sales.

Corporate

Operating expenses for the Corporate segment were $.4 million higher during the first six months of 2014 versus 2013, mainly due to increased general and administrative expenses.

Eliminations

Intersegment sales of timber from Deltic’s Woodlands to the Manufacturing segment increased $1.4 million to $9.3 million for the first six months of 2014. The increase was mainly due to a higher volume of the timber transferred to the sawmills combined with a higher per-ton transfer price. Logs supplied by the Woodlands segment to Company sawmills are transferred at prices that approximate market.

Income Taxes

The effective income tax rate was 36 percent for the six months ended June 30, 2014, and 33 percent for the same period of 2013. The difference in the effective tax rate was due to the prior year having a discrete tax item related to the gain on bargain purchase that was properly reported as a reduction in the bargain purchase gain rather than an increase in income tax expense.

Liquidity and Capital Resources

Cash Flows and Capital Expenditures

Net cash provided by operating activities totaled $14.8 million for the first six months of 2014 compared to $20.3 million for the same period of 2013. Cash from operations and borrowings under the Company’s revolving credit facility have provided the cash needed for capital expenditures and timberland acquisition expenditures. Changes in operating working capital, other than cash and cash

 

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equivalents required cash of $6.7 million in 2014 and $.4 million in 2013. The Company’s accompanying Consolidated Statements of Cash Flows identifies other differences between net income and cash provided by operating activities for each reporting period.

Capital expenditures required cash of $6.7 million in the current-year period and $11.5 million a year ago. Capital expenditures by segment consisted of the following:

 

     Six Months Ended
June 30,
 
(Thousands of dollars)    2014      2013  

Woodlands

   $ 1,843         2,164   

Manufacturing

     3,807         9,332   

Real Estate, including development expenditures

     771         538   

Corporate

     35         7   
  

 

 

    

 

 

 

Capital expenditures

     6,456         12,041   

Adjustment for non-cash accrued liabilities

     287         (546
  

 

 

    

 

 

 

Capital expenditures requiring cash

   $ 6,743         11,495   
  

 

 

    

 

 

 

Timberland acquisition expenditures for the three months and six months ended June 30, 2014, were $11.5 million and $118.1 million, respectively, compared to $.1 million and $8.6 million for the three months and six months ended June 30, 2013, respectively. Funds for the current-year acquisitions were provided by the Company’s revolving credit facility.

Deltic acquired the other half of Del-Tin Fiber from its joint venture partner for $5.2 million in cash and the assumption of $14.5 million in debt on April 1, 2013. Del-Tin Fiber has been considered a consolidated subsidiary of Deltic since that date. In the first three months of 2013, prior to Deltic’s acquisition of the other 50 percent ownership in Del-Tin Fiber, Deltic advanced $1 million to Del-Tin Fiber, and received repayments of $.8 million. The net change in purchased stumpage inventory to be utilized in the Company’s sawmilling operations required cash of $.6 million in 2014 and $1.7 million in 2013. The Company borrowed $120 million and had no repayments in 2014 and had net borrowings of debt of $8 million in the first six months of 2013. The Company incurred $.8 million in fees to facilitate an amendment and extension of its unsecured and committed revolving credit facility in 2013, while there were no such costs in 2014. Dividends of $2.5 million were paid in the first six months of both 2014 and 2013. Proceeds from exercises of stock options and the related tax benefits were $.2 million in 2014 and $1.2 million in 2013. The Company used $3.8 million in cash to purchase treasury stock in 2014, with no stock purchases in 2013.

Financial Condition

Working capital totaled $15.1 million at June 30, 2014, and $5.5 million at December 31, 2013. Deltic’s working capital ratio at June 30, 2014 was 1.75 to 1, compared to 1.25 to 1 at the end of 2013. Cash and cash equivalents at the end of the second quarter of 2014 were $8.1 million, an increase of $3.7 million from the December 31, 2013 balance of $4.4 million. Deltic’s long-term debt to stockholders’ equity ratio was .776 to 1 at June 30, 2014 and .338 to 1 at December 31, 2013.

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.

 

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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 $340 million, and includes an option to request an increase in the amount of aggregate revolving commitments by $50 million. As of June 30, 2014, there was $141 million outstanding in borrowings on the credit facility, leaving $199 million available. The credit agreement contains restrictive covenants, including limitations on the incurrence of debt and requirements to maintain certain financial ratios. (For additional information about the Company’s current financing arrangements, refer to Notes 9 and 10 to the consolidated financial statements included in the Company’s 2013 annual report on Form 10-K.)

The table below sets forth the covenants in the credit facility and senior notes payable and status with respect to these covenants as of June 30, 2014 and December 31, 2013.

 

     Covenants
Requirements
    Actual Ratios at
June 30, 2014
    Actual Ratios at
Dec. 31, 2013
 

Leverage ratio should be less than:1

     .60 to 1        .438 to 1        .254 to 1   

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

     —   2      94.22     48.24

Fixed charge coverage ratio should be greater than:3

     2.50 to 1        8.20 to 1        10.04 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 market conditions and the possibility of the return of economic deterioration, the Company could request amendments, or waivers for the covenants, or obtain refinancing in future periods. There can be no assurance that the Company will be able to obtain amendments or waivers, or negotiate agreeable refinancing terms should it become needed.

 

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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 June 30, 2014, the Company had expended $20.6 million under this program, with the purchase of 469,945, shares at an average cost of $43.73 per share; 63,251 shares, at an average cost of $59.80 per share, have been purchased to date in 2014, and 36,180 shares, at an average cost of $61.22 per share, were purchased in calendar year 2013. In its two previous repurchase programs, Deltic purchased 479,601 shares at an average cost of $20.89 per share and 419,542 shares at a $24.68 per share average cost, respectively.

Off-Balance Sheet Arrangements, Contractual Obligations, and Commitments

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 2013 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
2014
     2015
to 2016
     2017
to 2018
     After
2018
 

Contractual cash payment obligations

              

Real estate development committed capital costs

   $ 11.0         8.3         1.8         .9         —     

Manufacturing committed capital costs

     10.3         7.7         2.6         —           —     

Long-term debt

     210.0         —           40.0         141.0         29.0   

Interest on debt*

     16.0         2.4         9.6         3.3         .7   

Retirement plans

     3.5         .9         .5         .5         1.6   

Other postretirement benefits

     4.9         .2         .8         .9         3.0   

Unrecognized tax benefits

     1.2         1.2         —           —           —     

Other liabilities

     4.3         2.2         2.1         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 261.2         22.9         57.4         146.6         34.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other commercial commitment expirations

              

Timber cutting agreements

   $ 1.5         1.0         .5         —           —     

Letters of credit

     .6         .1         .3         .2         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2.1         1.1         .8         .2         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

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Outlook

Deltic’s management believes that cash provided from its operations and the remaining amount available under its credit facility will be sufficient to meet its expected cash needs and planned expenditures, including those of the Company’s continued timberland acquisition, real estate development, and stock repurchase programs, 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 require 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 2013 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 third quarter of 2014 and 575,000 to 625,000 tons for the year. Finished lumber sales volumes are estimated at 65 to 75 million board feet for the third quarter and 260 to 280 million board feet for the year. MDF sales volumes for the third quarter and year of 2014 are estimated to be 25 to 35 million square feet and 110 to 130 million square feet, respectively. Actual lumber and MDF sales volumes are subject to market conditions. Residential lot sales are projected to be 5 to 10 lots and 60 to 80 lots for the third 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,” “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 2013 annual report on Form 10-K. Those disclosures should be read in conjunction with this Form 10-Q.

 

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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 June 30, 2014, the Chief Executive Officer and Chief Financial Officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and this information was accumulated and communicated to the Company’s Management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

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

 

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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 2013 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
 

April 1 through

           

April 30, 2014

     11,639       $ 59.90         11,639       $ 17,533,500   

May 1 through

           

May 31, 2014

     17,974       $ 59.83         17,974       $ 16,458,170   

June 1 through

           

June 30, 2014

     33,638       $ 59.75         33,638       $ 14,448,181   

 

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.

 

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

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 June 30, 2014, formatted in Extensible Business Reporting Language (“XBRL”): (1) the Consolidated Balance Sheets; (2) the Consolidated Statements of Income; (3) the Consolidated Statements of Other 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: August 1, 2014       By:  

/s/ Ray C. Dillon

        Ray C. Dillon, President
        (Principal Executive Officer)
Date: August 1, 2014       By:  

/s/ Kenneth D. Mann

        Kenneth D. Mann, Vice President,
        Finance and Administration
        (Principal Financial Officer)
Date: August 1, 2014       By:  

/s/ Byrom L. Walker

        Byrom L. Walker, Controller
        (Principal Accounting Officer)

 

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