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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 September 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 October 15, 2014, was 12,581,902.

 

 

 


Table of Contents

TABLE OF CONTENTS – THIRD 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      21   

Item

  3.    Quantitative and Qualitative Disclosures About Market Risk      34   

Item

  4.    Controls and Procedures      35   
     PART II – Other Information   

Item

  1.    Legal Proceedings      36   

Item

  1A.    Risk Factors      36   

Item

  2.    Unregistered Sales of Equity Securities and Use of Proceeds      36   

Item

  3.    Defaults Upon Senior Securities      36   

Item

  4.    Mine Safety Disclosures      36   

Item

  5.    Other Information      36   

Item

  6.    Exhibits      37   

Signatures

     38   


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(Thousands of dollars)

 

     September 30,
2014
    December 31,
2013
 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 4,681        4,374   

Trade accounts receivable, net of allowance fordoubtful accounts of $120 and $172, respectively

     10,730        7,331   

Inventories

     13,408        12,439   

Prepaid expenses and other current assets

     3,903        3,155   
  

 

 

   

 

 

 

Total current assets

     32,722        27,299   

Investment in real estate held for development and sale

     56,058        57,953   

Timber and timberlands – net

     365,044        248,833   

Property, plant, and equipment – net

     73,697        75,259   

Deferred charges and other assets

     1,325        2,000   
  

 

 

   

 

 

 

Total assets

   $ 528,846        411,344   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities

    

Trade accounts payable

   $ 8,390        8,198   

Accrued taxes other than income taxes

     2,116        2,210   

Income taxes payable

     —          1,077   

Deferred revenues and other accrued liabilities

     11,052        10,330   
  

 

 

   

 

 

 

Total current liabilities

     21,558        21,815   

Long-term debt

     205,000        90,000   

Deferred tax liabilities – net

     5,912        7,514   

Other noncurrent liabilities

     24,198        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

     85,746        84,796   

Retained earnings

     200,848        189,720   

Treasury stock

     (11,987     (5,693

Accumulated other comprehensive loss

     (2,557     (2,679
  

 

 

   

 

 

 

Total stockholders’ equity

     272,178        266,272   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 528,846        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
September 30,
    Nine Months Ended
September 30,
 
     2014     2013     2014     2013  

Net sales

   $ 58,301        56,520        172,285        151,330   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses

        

Cost of sales

     39,539        37,289        115,674        95,261   

Depreciation, amortization, and cost of fee timber harvested

     4,716        4,421        14,180        11,227   

General and administrative expenses

     5,264        5,211        15,108        14,585   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     49,519        46,921        144,962        121,073   

Gain on involuntary conversion

     —          —          —          881   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     8,782        9,599        27,323        31,138   

Equity in earnings of Del-Tin Fiber

     —          —          —          1,084   

Interest income

     —          4        3        12   

Interest and other debt expense, net of capitalized interest

     (1,081     (1,110     (3,816     (3,431

Gain on bargain purchase

     —          —          —          3,285   

Other income

     238        22        281        3,247   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     7,939        8,515        23,791        35,335   

Income tax expense

     (1,965     (2,702     (7,608     (11,480
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,974        5,813        16,183        23,855   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share

        

Basic

   $ .47        .46        1.28        1.88   

Assuming dilution

   $ .47        .46        1.27        1.87   

Dividends per common share

        

Paid

   $ .10        .10        .30        .30   

Declared

   $ .10        .10        .40        .40   

Weighted average common shares outstanding (thousands)

        

Basic

     12,448        12,571        12,516        12,572   

Assuming dilution

     12,495        12,619        12,571        12,628   

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)

 

     Nine Months Ended
September 30,
 
     2014     2013  

Net income

   $ 16,183        23,855   
  

 

 

   

 

 

 

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

     4        3   

Amortization of actuarial loss

     209        426   

Amortization of plan amendment

     (91     (91
  

 

 

   

 

 

 

Other comprehensive income

     122        338   
  

 

 

   

 

 

 

Comprehensive income

   $ 16,305        24,193   
  

 

 

   

 

 

 

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)

 

     Nine Months Ended
September 30,
 
     2014     2013  

Operating activities

    

Net income

   $ 16,183        23,855   

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

    

Depreciation, amortization, and cost of fee timber harvested

     14,180        11,227   

Deferred income taxes

     (2,080     1,582   

Real estate development expenditures

     (1,053     (943

Real estate costs recovered upon sale

     2,522        2,127   

Timberland costs recovered upon sale

     174        801   

Equity in earnings of Del-Tin Fiber (prior to acquisition)

     —          (1,084

Gain on previously held equity interest

     —          (3,165

Gain on bargain purchase

     —          (3,285

Stock-based compensation expense

     2,409        2,086   

Net increase in liabilities for pension and other postretirement benefits

     817        1,429   

Net decrease in deferred compensation for stock-based liabilities

     (413     (287

Decrease/(increase) in operating working capital other than cash and cash equivalents

     (6,871     1,232   

Other changes in assets and liabilities

     (810     (1,601
  

 

 

   

 

 

 

Net cash provided by operating activities

     25,058        33,974   
  

 

 

   

 

 

 

Investing activities

    

Capital expenditures requiring cash, excluding real estate development

     (11,013     (14,727

Timberland acquisition expenditures requiring cash

     (118,156     (8,691

Business acquisition, net of cash acquired

     —          (5,170

Net change in purchased stumpage inventory

     78        (1,888

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

     —          7   

Other – net

     1,047        1,294   
  

 

 

   

 

 

 

Net cash required by investing activities

     (128,044     (29,419
  

 

 

   

 

 

 

Financing activities

    

Proceeds from borrowings

     120,000        12,000   

Repayments of notes payable and long-term debt

     (5,000     (10,000

Treasury stock purchases

     (7,866     (2,224

Common stock dividends paid

     (3,797     (3,812

Proceeds from stock option exercises

     245        750   

Excess tax benefits from stock-based compensation expense

     160        407   

Other – net

     (449     (1,291
  

 

 

   

 

 

 

Net cash provided/(required) by financing activities

     103,293        (4,170
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     307        385   

Cash and cash equivalents at January 1

     4,374        5,613   
  

 

 

   

 

 

 

Cash and cash equivalents at September 30

   $ 4,681        5,998   
  

 

 

   

 

 

 

Some 2013 amounts have been reclassified 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)

 

     Nine Months Ended
September 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

     (37     124   

Stock-based compensation expense

     2,409        2,086   

Restricted stock awards

     (1,290     (935

Tax effect of stock awards

     (132     172   

Restricted stock forfeitures

     —          41   
  

 

 

   

 

 

 

Balance at end of period

     85,746        84,085   
  

 

 

   

 

 

 

Retained earnings

    

Balance at beginning of period

     189,720        168,608   

Net income

     16,183        23,855   

Common stock dividends declared

     (5,055     (5,080
  

 

 

   

 

 

 

Balance at end of period

     200,848        187,383   
  

 

 

   

 

 

 

Treasury stock

    

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

     (5,693     (5,000

Shares purchased – 131,947 and 36,314 shares, respectively

     (7,866     (2,224

Forfeited restricted stock – none and 570 shares, respectively

     —          (41

Shares issued for incentive plans – 34,579 and 43,998 shares, respectively

     1,572        1,561   
  

 

 

   

 

 

 

Balance at end of period – 231,977 and 134,860 shares, respectively

     (11,987     (5,704
  

 

 

   

 

 

 

Accumulated other comprehensive loss

    

Balance at beginning of period

     (2,679     (14,103

Change in other comprehensive income, net of tax

     122        338   
  

 

 

   

 

 

 

Balance at end of period

     (2,557     (13,765
  

 

 

   

 

 

 

Total stockholders’ equity

   $ 272,178        252,127   
  

 

 

   

 

 

 

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 September 30, 2014, and the results of its operations and cash flows for the three months and nine months ended September 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:

 

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

Raw materials

  - Logs    $ 1,588         1,612   
  - Del-Tin - wood fiber      488         440   

Finished goods

  - Lumber      4,722         4,145   
  - Medium density fiberboard (“MDF”)      2,846         3,110   
  - MDF consigned to others      1,022         708   

Supplies

       2,742         2,424   
    

 

 

    

 

 

 
     $ 13,408         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)    Sept. 30,
2014
     Dec. 31,
2013
 

Short-term deferred tax assets

   $ 2,008         1,901   

Prepaid expenses

     1,120         692   

Other current assets

     775         562   
  

 

 

    

 

 

 
   $ 3,903         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.

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. Net sales from Del-Tin Fiber for the three months and nine months ended September 30, 2014 were approximately $17,186,000 and $55,837,000, respectively, and were included in Deltic’s Consolidated Statements of Income. Subsequent to the acquisition date, for the three months ended September 30, 2013, the Company included net sales of approximately $18,281,000 and for the period of April 1, 2013 through September 30, 2013 the Company included net sales of approximately $36,405,000, from Del-Tin Fiber in its Consolidated Statements of Income. Prior to the acquisition, the Company reported Del-Tin Fiber as an equity method investment.

 

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 nine months ended September 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)    Nine Months Ended
September 30, 2013
 

Net sales

   $ 168,895   

Net income

     20,104   

Basic earnings per common share

     1.60   

Diluted earnings per common share

     1.59   

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)    Sept. 30,
2014
    Dec. 31,
2013
 

Purchased stumpage inventory

   $ 2,311        2,388   

Timberlands

     155,674        102,609   

Fee timber

     321,877        253,768   

Logging facilities

     2,641        2,628   
  

 

 

   

 

 

 
     482,503        361,393   

Less accumulated cost of fee timber harvested and facilities depreciation

     (117,781     (113,056
  

 

 

   

 

 

 

Strategic timber and timberlands

     364,722        248,337   

Non-strategic timber and timberlands

     322        496   
  

 

 

   

 

 

 
   $ 365,044        248,833   
  

 

 

   

 

 

 

During the three months ended September 30, 2014, Deltic acquired 30 acres of timberlands and approximately 72,100 acres for the nine months ended September 30, 2014. These acres were located in the Company’s current operating area. Cash payments for timberland acquisition expenditures totaled $50,000 and $118,156,000 in the three months and nine months ended September 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.

 

8


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 5 – Timber and Timberlands (cont.)

 

In 1999, the Company initiated a program to identify and sell non-strategic timberlands and use the sales proceeds to purchase pine timberlands that are strategic to its operations. In 2008, Deltic identified approximately 10,000 acres of non-strategic timberlands that existed within its timberlands base to be sold. Other non-strategic acreage exists within the Company’s land base, but Deltic has not completely identified the number of acres that fit within this category. As the Company identifies these acres and determines that they are either smaller tracts of pine timberlands that cannot be strategically managed or tracts of hardwood bottomland that cannot be converted into pine-growing acreage, they will be sold. As of September 30, 2014, approximately 655 acres of these lands were available for sale.

Included in the Woodlands operating income were gains on sales of timberland of $564,000 and $190,000 for the three months ended September 30, 2014 and 2013, respectively. The gains on timberland sales for the quarter ended September 30, 2014 included the sale of 127 acres of strategic timberland. The gains on sales of timberland were $857,000 and $1,548,000 for the nine months ended September 30, 2014 and 2013, respectively, were included in the Woodlands operating income.

Note 6 – Property, Plant, and Equipment

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

 

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

Land

   $ 947        947   

Land improvements

     9,130        8,835   

Buildings and structures

     22,859        22,599   

Machinery and equipment

     152,634        145,741   
  

 

 

   

 

 

 
     185,570        178,122   

Less accumulated depreciation

     (111,873     (102,863
  

 

 

   

 

 

 
   $ 73,697        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)    Sept. 30,
2014
     Dec. 31,
2013
 

Deferred revenues – current

   $ 4,304         3,697   

Dividend payable

     1,258         —     

Vacation accrual

     1,426         1,290   

Deferred compensation

     1,998         3,442   

All other current liabilities

     2,066         1,901   
  

 

 

    

 

 

 
   $ 11,052         10,330   
  

 

 

    

 

 

 

 

9


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)    Sept. 30,
2014
     Dec. 31,
2013
 

Accumulated postretirement benefit obligation

   $ 10,846         10,391   

Excess retirement plan

     4,777         4,457   

Accrued pension liability

     6,102         6,383   

Deferred revenue – long-term portion

     346         649   

Uncertain tax positions liability

     —           1,185   

Other noncurrent liabilities

     2,127         2,678   
  

 

 

    

 

 

 
   $ 24,198         25,743   
  

 

 

    

 

 

 

Note 9 – Income Taxes

The Company’s effective tax rate for the three months and nine months ended September 30, 2014, was 25 percent and 32 percent, respectively. The effective tax rates benefitted from the reversal, due to the expiration of statute of limitations, of approximately $776,000 in uncertain state tax liabilities that arose in 2010. In addition, the accrued liability balances for interest expense and penalties related to the uncertain tax liabilities mentioned above were reversed and recognized as reductions to interest expense and an increase to other income in the current period, respectively. Currently there are no liabilities for uncertain tax liabilities recorded on the balance sheet The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2011.

The following table provides a reconciliation of the Company’s effective income tax rates on continuing operations to the U.S. federal statutory tax income rate for the nine months ended September 30, 2014.

 

     2014  

U.S. Federal income tax rate

     35

State income tax rate

     6

Permanent differences

     (6 )% 

Reversal of uncertain state tax positions

     (3 )% 
  

 

 

 

Effective tax rate

     32
  

 

 

 

 

10


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 10 – Employee and Retiree Benefit Plans

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

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
(Thousands of dollars)    2014     2013     2014     2013  

Funded qualified retirement plan

        

Service cost

   $ 369        388        1,107        1,162   

Interest cost

     460        389        1,379        1,167   

Expected return on plan assets

     (572     (474     (1,717     (1,420

Amortization of prior service cost

     4        4        13        13   

Recognized actuarial loss

     41        213        123        639   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net retirement expense

   $ 302        520        905        1,561   
  

 

 

   

 

 

   

 

 

   

 

 

 

Unfunded nonqualified retirement plan

        

Service cost

   $ 75        35        226        107   

Interest cost

     94        48        280        144   

Amortization of prior service cost

     (2     (2     (6     (8

Recognized actuarial loss

     73        18        220        56   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net retirement expense

   $ 240        99        720        299   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other postretirement benefits

        

Service cost

   $ 104        113        314        338   

Interest cost

     125        107        373        323   

Recognized actuarial loss

     —          2        —          6   

Amortization of plan amendment

     (49     (50     (149     (149
  

 

 

   

 

 

   

 

 

   

 

 

 

Net other postretirement benefits expense

   $ 180        172        538        518   
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company made contributions to its qualified plan of $1,050,000 during the first nine months of 2014, and expects to fund the plan with an additional $150,000 through the end of 2014. The expected long-term rate of return on pension plan assets is 7.50 percent.

 

11


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 11 – Other Comprehensive Income Disclosures

The following tables detail the changes in accumulated other comprehensive loss (“AOCL”) by component for the nine months ended September 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

     83        130        (91     122   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income

     83        130        (91     122   
  

 

 

   

 

 

   

 

 

   

 

 

 

AOCL at September 30, 2014

   $ (2,327     (352     122        (2,557
  

 

 

   

 

 

   

 

 

   

 

 

 
(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

     396        29        (87     338   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income

     396        29        (87     338   
  

 

 

   

 

 

   

 

 

   

 

 

 

AOCL at September 30, 2013

   $ (9,156     (3,351     (1,258     (13,765
  

 

 

   

 

 

   

 

 

   

 

 

 

 

12


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 11 – Other Comprehensive Income Disclosures (cont.)

 

Reclassification Out of Accumulated Other Comprehensive Loss

Details about AOCL Components:

 

     Nine Months Ended September 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

   $ 13        (6     —          7   

Amortization of actuarial losses

     123        220        —          343   

Amortization of plan amendment

     —          —          (149     (149
  

 

 

   

 

 

   

 

 

   

 

 

 

Total before tax

     136        214        (149     201   

Income tax benefit/(expense)

     (53     (84     58        (79
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reclassifications – net of tax

   $ 83        130        (91     122   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Nine Months Ended September 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

   $ 13        (8     —          5   

Amortization of actuarial losses

     639        56        6        701   

Amortization of plan amendment

     —          —          (149     (149
  

 

 

   

 

 

   

 

 

   

 

 

 

Total before tax

     652        48        (143     557   

Income tax benefit/(expense)

     (256     (19     56        (219
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reclassifications – net of tax

   $ 396        29        (87     338   
  

 

 

   

 

 

   

 

 

   

 

 

 

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.

Tax Effects by Component

 

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

Amortization of prior service costs

   $ 7        (3     4   

Amortization of actuarial losses

     343        (134     209   

Amortization of plan amendment

     (149     58        (91
  

 

 

   

 

 

   

 

 

 
   $ 201        (79     122   
  

 

 

   

 

 

   

 

 

 

 

13


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 11 – Other Comprehensive Income Disclosures (cont.)

Tax Effects by Component (cont.)

 

 

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

Amortization of prior service costs

   $ 5        (2     3   

Amortization of actuarial losses

     701        (275     426   

Amortization of plan amendment

     (149     58        (91
  

 

 

   

 

 

   

 

 

 
   $ 557        (219     338   
  

 

 

   

 

 

   

 

 

 

Note 12 – Stock-Based Compensation

The Consolidated Statements of Income for the three months ended September 30, 2014 and 2013, included $803,000 and $711,000, respectively, of stock-based compensation expense reflected in general and administrative expenses. For the nine months ended September 30, 2014 and 2013, the amounts were $2,409,000 and $2,086,000, 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   

 

14


Table of Contents

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 September 30, 2014, and changes during the nine-month period then ended are presented below:

 

                  Weighted         
           Weighted      Average      Aggregate  
           Average      Remaining      Intrinsic  
           Exercise      Contractual      Value  

Options

   Shares     Price      Term (Years)      ($ 000)  

Outstanding at January 1, 2014

     131,456      $ 59.64         

Granted

     26,611        63.35         

Exercised

     (5,667     43.25         

Expired

     (460     36.61         
  

 

 

         

Outstanding at September 30, 2014

     151,940      $ 60.97         6.4       $ 679   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at September 30, 2014

     87,739      $ 56.93         4.9       $ 679   
  

 

 

   

 

 

    

 

 

    

 

 

 

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 September 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 September 30, 2014, there was $1,119,000 of unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a weighted-average period of 1.8 years.

Restricted Stock and Restricted Stock Units – A summary of nonvested restricted stock as of September 30, 2014, and changes during the nine-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 September 30, 2014

     85,410      $ 66.51   
  

 

 

   

As of September 30, 2014, there was $2,810,000 of unrecognized compensation cost related to nonvested restricted stock. That cost is expected to be recognized over a weighted-average period of 2 years.

 

15


Table of Contents

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 September 30, 2014, and changes during the nine 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 September 30, 2014

     56,586      $ 85.78   
  

 

 

   

As of September 30, 2014, there was $2,389,000 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 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.

 

16


Table of Contents

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 September 30, 2014, are presented in the following table:

 

     Fair Value Measurements at Reporting Date Using  
     September 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

   $ 1,474         1,474         —           —     

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 September 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.

 

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

Financial liabilities

           

Long-term debt, including current liabilities

   $ 205,000         209,160         94,000         98,307   

 

17


Table of Contents

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
September 30,
     Nine Months Ended
September 30,
 
(Thousands, except per share amounts)    2014      2013      2014      2013  

Net earnings allocated to common stock

   $ 5,907         5,753         16,006         23,611   

Net earnings allocated to participating securities

     67         60         177         244   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income allocated to common stock and participating securities

   $ 5,974         5,813         16,183         23,855   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common shares used in basic EPS

     12,448         12,571         12,516         12,572   

Effect of dilutive stock awards

     47         48         55         56   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     12,495         12,619         12,571         12,628   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share

           

Basic

   $ .47         .46         1.28         1.88   

Assuming dilution

   $ .47         .46         1.27         1.87   

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
September 30,
     Nine Months Ended
September 30,
 
     2014      2013      2014      2013  

Options

     76,968         76,568         103,119         50,197   

Restricted performance shares

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

 

18


Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

Note 16 – Supplemental Cash Flow Disclosures

Additional information concerning cash flows is as follows:

 

     Nine Months Ended  
     September 30,  
(Thousands of dollars)    2014     2013  

Income taxes paid in cash

   $ 11,564        8,527   

Interest paid

     2,854        2,072   

Interest capitalized

     (61     (27

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

 

     Nine Months Ended  
     September 30,  
(Thousands of dollars)    2014      2013  

Issuance of restricted stock

   $ 1,290         935   

Capital expenditures accrued, not paid

     501         1,174   

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:

 

     Nine Months Ended  
     September 30,  
(Thousands of dollars)    2014     2013  

Trade accounts receivable

   $ (3,399     (1,067

Other receivables

     7        5   

Inventories

     (969     (3,396

Prepaid expenses and other current assets

     (634     (680

Trade accounts payable

     (310     2,996   

Accrued taxes other than income taxes

     (93     236   

Income taxes payable

     (1,076     990   

Deferred revenues and other accrued liabilities

     (397     2,148   
  

 

 

   

 

 

 
   $ (6,871     1,232   
  

 

 

   

 

 

 

 

19


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     Nine Months Ended  
     September 30,     September 30,  
(Thousands of dollars)    2014     2013     2014     2013  

Net sales

        

Woodlands

   $ 9,488        8,410        29,987        27,184   

Manufacturing2

     49,415        48,841        145,158        126,649   

Real Estate

     3,196        2,710        10,284        8,867   

Eliminations1

     (3,798     (3,441     (13,144     (11,370
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 58,301        56,520        172,285        151,330   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

        

Operating income/(loss)

        

Woodlands

   $ 5,026        3,977        15,576        13,482   

Manufacturing2

     9,112        11,370        26,102        32,865   

Real Estate

     (273     (680     146        (1,173

Corporate

     (5,012     (4,969     (14,285     (13,792

Eliminations

     (71     (99     (216     (244
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     8,782        9,599        27,323        31,138   

Equity in earnings of Del-Tin Fiber2

     —          —          —          1,084   

Interest income

     —          4        3        12   

Interest and other debt expense, net of capitalized interest

     (1,081     (1,110     (3,816     (3,431

Gain on bargain purchase

     —          —          —          3,285   

Other income/(expense)

     238        22        281        3,247   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 7,939        8,515        23,791        35,335   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation, amortization, and cost of fee timber harvested

        

Woodlands

   $ 1,561        1,400        4,846        3,899   

Manufacturing2

     3,041        2,912        9,011        6,999   

Real Estate

     94        86        263        258   

Corporate

     20        23        60        71   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 4,716        4,421        14,180        11,227   
  

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures

        

Woodlands

   $ 1,296        965        3,139        3,129   

Manufacturing2

     4,229        3,185        8,036        12,517   

Real Estate

     587        650        1,358        1,188   

Corporate

     5        3        40        10   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 6,117        4,803        12,573        16,844   
  

 

 

   

 

 

   

 

 

   

 

 

 

Timberland acquisition expenditures

   $ 50        95        118,156        8,691   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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.

 

20


Table of Contents

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

Executive Overview

The Company reported net income of $6 million for the third quarter of 2014 compared to $5.9 million for the same period of 2013. The Woodlands segment reported $5 million in operating income for the third quarter of 2014, an increase of $1.1 million when compared to the third quarter of 2013. The improvement was mainly due to increased revenues from harvesting fee timber combined with a higher margin on timberland sales and increased oil and gas lease rental and net royalty income. The Manufacturing segment reported $9.1 million in operating income, a decrease of $2.3 million from the $11.4 million reported a year ago, primarily as a result of maintenance-related expenses and downtime at the Company’s medium density fiberboard plant. The Real Estate segment had an operating loss of $.3 million in the third quarter of 2014, an improvement of $.4 million from the same quarter of 2013, mainly due to an increased margin on residential lot sales. Income tax expense decreased $.7 million in the third quarter of 2014 when compared to 2013’s third quarter. The decrease was due to a benefit related to recording a discrete state income tax item. (For additional information abut the Company’s income taxes, refer to Note 9 to the Consolidated Financial Statements.)

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. Both the economy and the housing market continued to sustain modest growth through the third quarter. This has led to steady demand for lumber and MDF during the quarter and an increase in the sales prices received for lumber sold. 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 about one-half of the raw material needs of the Company’s sawmills. In the third quarter of 2014, the pine sawtimber harvest was 153,930 tons, a decrease of 7,202 tons when compared to the 2013 third quarter harvest of 161,132 tons. The average sales price for pine sawtimber was $24 per ton in the third quarter of 2014, a $3 per ton or 14 percent increase, from the $21 per ton received in the same quarter of 2013. The third quarter of 2014’s pine pulpwood harvest of 87,755 tons was a decrease of 8,764 tons from the harvest in the third quarter of 2013. The average sales price for pine pulpwood was $8 per ton for the third quarter of 2014, a $1 per ton increase from the same period of 2013. The decrease in the harvest volume of both pine sawtimber and pine pulpwood was due to timing and mix of timber inventory growing on the tracts of fee timberland harvested in the third quarter of 2014. During the third quarter of 2014, the Company sold 127 acres of non-strategically located timberland with potential for higher and better use at an average sales price of $5,009 per acre, compared to sales of 254 acres of recreational-use hardwood bottomland at an average price of $1,269 per acre for the same period of 2013. In the third quarter of 2014, Deltic acquired approximately 30 acres of pine timberland, for a total of approximately 72,100 acres of timberland acquired thus far in 2014 for $118.2 million. (For additional information about Deltic’s timberland sales and acquisitions, refer to Note 5 to the Consolidated Financial Statements.)

Other benefits from land ownership for the Woodlands segment are revenues from hunting leases, mineral lease rentals, mineral royalties, and land easements. Hunting lease revenues were $.7 million for the third quarter of 2014 and $.6 million in the third quarter of 2013. This increase was due to an increased number of acres available to lease combined with higher per-acre lease rates in the current year. In the third quarter of 2014, oil and gas lease rental income was $.5 million versus $.4 million in the third quarter of 2013. Oil and gas royalty receipts, primarily from gas wells in the

 

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Fayetteville Shale Play, were $1.2 million in the third quarter of 2014, a $.1 million increase from the same period of 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 third quarter of 2014 was $398 per thousand board feet, a $17 per thousand board feet higher price when compared to the same period in 2013. The Manufacturing segment sold 70.3 million board feet of lumber in the third quarter of 2014, an increase of .8 million board feet when compared to 69.5 million board feet sold in the third quarter a year ago. The average sales price for MDF during the current year’s third quarter was $583 per thousand square feet, a $2 per thousand square feet decrease from the average sales price of $585 per thousand square feet in 2013’s third quarter. MDF sales volume for the third quarter of 2014 was 27.1 million square feet, compared to 28.2 million square feet in the same period of 2013. During the third quarter of 2014, the Company’s MDF facility conducted its annual summer maintenance outage, which impacted production volume, while it also incurred related maintenance expenses. 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 Real Estate segment reported sales of 15 residential lots during the third quarter of 2014, compared to 16 lots sold in the third quarter of 2013. The average per-lot sales price was $99,700 in 2014 compared to an average per-lot sales price of $70,000 in 2013’s third quarter, due to the mix of lots sold. In the third quarter of 2014, the Company offered 23 residential lots in a new small-lot neighborhood near Deltic’s Chenal Valley development and placed 21 of these lots under sales contracts during the quarter. Three of these lots closed in the current quarter and the remaining 18 sales contracts are expected to close by year end. There were no sales of commercial sites in the third quarter of 2014 or 2013. Commercial real estate acreage within Chenal Valley continues to receive interest from potential buyers, especially near the key intersection of Rahling Road and the Chenal Parkway, where “The Promenade at Chenal” an upscale shopping center and the nearby St. Vincent West health care campus are located. 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.

 

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Results of Operations

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

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

 

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

Net sales

    

Woodlands

   $ 9.5        8.4   

Manufacturing

     49.4        48.8   

Real Estate

     3.2        2.8   

Eliminations

     (3.8     (3.5
  

 

 

   

 

 

 

Net sales

   $ 58.3        56.5   
  

 

 

   

 

 

 

Operating income

    

Woodlands

   $ 5.0        3.9   

Manufacturing

     9.1        11.4   

Real Estate

     (.3     (.7

Corporate

     (5.0     (4.9

Eliminations

     (.1     (.1
  

 

 

   

 

 

 

Operating income

     8.7        9.6   

Interest and other debt expense

     (1.1     (1.1

Other income

     .3        —     

Income taxes

     (1.9     (2.6
  

 

 

   

 

 

 

Net income

   $ 6.0        5.9   
  

 

 

   

 

 

 

Earnings per common share

    

Basic

   $ .47        .46   

Assuming dilution

     .47        .46   

Consolidated

Net income increased $.1 million from the prior-year third quarter to $6 million. In the third quarter of 2014, the Woodlands and Real Estate segments reported improved financial results, which were partially offset by lower financial results for the Manufacturing segment. In addition, Deltic had a lower effective income tax rate in the current period due to a benefit from recording a discrete state income tax item. (For additional information abut the Company’s income taxes, refer to Note 9 to the Consolidated Financial Statements.)

Operating income decreased $.9 million from the third quarter of 2013. The Woodlands segment’s operating income increased $1.1 million primarily due to increases in the average per-ton sales price for pine sawtimber and pulpwood, along with increased oil and gas royalty revenues and a higher margin on timberland sales. The Manufacturing segment’s operating income decreased $2.3 million from the third quarter of 2013. The decrease was mainly due to higher per-unit cost of sales at the Company’s MDF plant due to maintenance-related downtime and costs incurred for the plant’s annual summer maintenance outage. The Real Estate segment’s operating results improved $.4 million over the prior-year third quarter, due to an increase in the average per-lot margin on residential lots sold when compared to the third quarter of 2013.

 

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Woodlands

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

 

     Quarter Ended Sept. 30,  
     2014      2013  

Net sales (millions of dollars)

     

Pine sawtimber

   $ 3.8         3.4   

Pine pulpwood

     .7         .7   

Hardwood sawtimber

     .1         .1   

Hardwood pulpwood

     .3         .2   

Oil and gas lease rentals

     .5         .4   

Oil and gas royalties

     1.2         1.1   

Hunting leases

     .7         .6   

Hauling to other mills

     1.4         1.4   

Sales volume (thousands of tons)

     

Pine sawtimber

     153.9         161.1   

Pine pulpwood

     87.8         96.5   

Hardwood sawtimber

     2.3         2.0   

Hardwood pulpwood

     14.9         16.3   

Sales price (per ton)

     

Pine sawtimber

   $ 24         21   

Pine pulpwood

     8         7   

Hardwood sawtimber

     59         49   

Hardwood pulpwood

     22         12   

Timberland

     

Net sales (millions of dollars)

   $ .6         .3   

Sales volume (acres)

     127         254   

Sales price (per acre)

   $ 5,009         1,269   

Net sales increased $1.1 million in the third quarter of 2014 when compared to the third quarter of 2013. Pine sawtimber sales revenue was $.4 million higher in 2014’s third quarter due to a $3 per ton, or 14 percent, increase in the average per-ton sales price, partially offset by the impact of a four percent decrease in the harvest volume. Revenues from hardwood pulpwood were $.1 million higher due primarily to an increased average per-ton sales price, while harvest volume was less than in the prior year. Revenues from the sales of timberland were $.3 million higher in the third quarter of 2014 due to the sale of approximately 127 acres of non-strategically located timberland with higher and better use potential at an average sales price of $5,009 per acre versus sales of 254 acres at $1,269 per acre in the prior-year third quarter. Oil and gas lease rental and royalty income were $.2 million higher in the current-year period compared to the same period of 2013. Operating income was $5 million in the third quarter of 2014 compared to $3.9 million in the third quarter of 2013. The $1.1 million increase was due to the same factors that affected net sales.

 

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Manufacturing

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

 

     Quarter Ended Sept. 30,  
     2014      2013  

Net sales (millions of dollars)

     

Lumber

   $ 27.9         26.5   

Residual by-products

     2.7         2.8   

Medium density fiberboard (“MDF”)

     15.8         16.5   

Freight invoiced to customers

     3.4         3.3   

Lumber

     

Finished production (MMBF)

     70.1         69.0   

Sales volume (MMBF)

     70.3         69.5   

Sales price (per MBF)

   $ 398         381   

MDF (3/4 inch basis)

     

Finished production (MMSF)

     27.3         30.0   

Sales volume (MMSF)

     27.1         28.2   

Sales price (per MSF)

   $ 583         585   

Net sales increased $.6 million in 2014’s third quarter versus the same period of 2013. The lumber sales volume increased .8 million board feet and the average lumber sales price improved $17 per MBF, or four percent, from 2013’s third quarter price. MDF sales volume in the third quarter of 2014 was 1.1 million square feet less than the same period a year ago and the average sales price was $2 per MSF less than in the third quarter of 2013. Operating income decreased $2.3 million in the third quarter of 2014 from the same period of 2013, due to higher raw material log cost at the Company’s sawmills due to recent increases in pine sawtimber stumpage prices, combined with the impact of maintenance-related costs and downtime at the MDF plant as a result of the annual summer outage that led to increased per-unit manufacturing costs for the MDF produced.

 

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Real Estate

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

 

     Quarter Ended Sept. 30,  
     2014      2013  

Net sales (millions of dollars)

     

Residential lots

   $ 1.5         1.1   

Chenal Country Club

     1.6         1.5   

Sales volume

     

Residential lots

     15         16   

Average sales price (thousands of dollars)

     

Residential lots – per lot

   $ 100         70   

Net sales for the third quarter of 2014 increased $.4 million from the third quarter of 2013. The increase was primarily due to a higher average sales price per lot sold in the 2014 third quarter, as more of these were golf course-influenced lots. Current-period operating income was $.4 million more than in 2013 due primarily to the same factors affecting net sales combined with reduced property owner association assessment expenses.

Corporate

The $.1 million increase in Corporate operating expense during the third 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 third quarter of 2014 increased $.3 million, to $3.8 million when compared to the same quarter of last year. The quarter-to-quarter increase was due to higher transfer price for sawtimber harvested from the Woodlands segment fee timberlands and transferred to the sawmills. Current period transfer prices are approximately that of market.

Income Taxes

The effective income tax rate was 25 percent for 2014’s third quarter and 32 percent for the same period of 2013. The decrease in the effective income tax rate when compared to the same period of 2013 was primarily due to the recognition of a tax benefit due to changes in balances of uncertain state tax liabilities during the third quarter of 2014 combined with the impact of recording the true-up of the annual tax accrual estimates to the 2013 filed income tax return.

 

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Nine Months Ended September 30, 2014 Compared with Nine Months Ended September 30, 2013

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

 

     Nine Months Ended  
     September 30,  
     2014     2013  

Net sales

    

Woodlands

   $ 30.0        27.2   

Manufacturing*

     145.1        126.6   

Real Estate

     10.3        8.9   

Eliminations

     (13.1     (11.4
  

 

 

   

 

 

 

Net sales

   $ 172.3        151.3   
  

 

 

   

 

 

 

Operating income and net income

    

Woodlands

   $ 15.6        13.4   

Manufacturing*

     26.1        32.9   

Real Estate

     .1        (1.2

Corporate

     (14.3     (13.8

Eliminations

     (.2     (.2
  

 

 

   

 

 

 

Operating income

     27.3        31.1   

Equity in earnings of Del-Tin Fiber*

     —          1.1   

Interest and other debt expense

     (3.8     (3.4

Gain on bargain purchase

     —          3.3   

Other income

     .3        3.2   

Income taxes

     (7.6     (11.4
  

 

 

   

 

 

 

Net income

   $ 16.2        23.9   
  

 

 

   

 

 

 

Earnings per common share

    

Basic

   $ 1.28        1.88   

Assuming dilution

     1.27        1.87   

 

*  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 nine months of 2014 decreased $7.7 million from the same period of 2013. The decrease 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, increased Corporate general and administrative expenses, no equity in earnings of Del-Tin Fiber for 2014 due to the 2013 acquisition, and increased interest expense. These unfavorable variances were partially offset by increased operating income for the Woodlands and Real Estate segments.

Operating income decreased $3.8 million from 2013’s reported results for the first nine months. The Woodlands segment’s operating income increased $2.2 million due to increased timber harvest revenues, higher oil and gas royalties, and lower replanting expenses, partially offset by fewer acres of timberland sold and a higher cost of fee timber harvested. The Manufacturing segment’s operating income decreased $6.8 million due to higher raw material log cost in the sawmills, no gain on involuntary conversion of assets in 2014 as occurred in the 2013 period, and higher manufacturing costs for MDF due to increased maintenance-related expenses and downtime. The Real Estate segment’s operating income increased $1.3 million, due mainly to a sale of commercial acreage in Chenal Valley and to an increased margin on residential lot sales in 2014. Corporate expenses were $.5 million higher due to increased general and administrative expenses.

 

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Woodlands

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

 

     Nine Months Ended  
     September 30,  
     2014      2013  

Net sales (millions of dollars)

     

Pine sawtimber

   $ 12.9         11.1   

Pine pulpwood

     2.5         2.2   

Hardwood sawtimber

     .2         .2   

Hardwood pulpwood

     .9         .5   

Oil and gas lease rentals

     1.3         1.3   

Oil and gas royalties

     3.6         2.9   

Hunting leases

     1.9         1.8   

Hauling to other mills

     4.9         4.4   

Sales volume (thousands of tons)

     

Pine sawtimber

     534.2         502.1   

Pine pulpwood

     320.5         274.4   

Hardwood sawtimber

     4.4         3.4   

Hardwood pulpwood

     46.6         42.2   

Sales price (per ton)

     

Pine sawtimber

   $ 24         22   

Pine pulpwood

     8         8   

Hardwood sawtimber

     51         45   

Hardwood pulpwood

     18         12   

Timberland

     

Net sales (millions of dollars)

   $ 1.1         2.4   

Sales volume (acres)

     472         1,624   

Sales price (per acre)

   $ 2,344         1,484   

Net sales for the first nine months of 2014 increased $2.8 million from 2013. Revenue from sales of pine sawtimber increased $1.8 million due to a six percent increase in the pine sawtimber harvest volume, due to timing of the harvest, combined with a $2 per ton 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 a 17 percent increase in harvest volume. The increase in harvest volume of pine pulpwood was due to the composition of the timber on tracts being harvested. Net sales from hardwood pulpwood were $.4 million more in 2014 than in the same period of 2013 due to a higher harvest volume and average per-ton sales price. Sales of timberland were $1.3 million less in 2014 due to fewer acres sold, partially offset by a higher average sales price per acre received for sales in the 2014. Oil and gas royalties were $.7 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. Revenue from hauling stumpage to other mills was $.5 million more in 2014 when compared to 2013. Operating income was $15.6 million, $2.2 million higher than in the first nine months of 2013, due to the same factors affecting net sales, combined with lower replanting expense, partially offset by increased expense for hauling to others 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.

 

     Nine Months Ended  
     September 30,  
     2014      2013  

Net sales (millions of dollars)

     

Lumber

   $ 77.8         77.0   

Residual by-products

     7.5         9.7   

Medium density fiberboard (“MDF”)1

     50.3         32.7   

Freight invoiced to customers

     10.0         7.5   

Lumber

     

Finished production (MMBF)

     200.2         195.3   

Sales volume (MMBF)

     199.6         195.7   

Sales price (per MBF)

   $ 390         394   

MDF (3/4 inch basis) 1

     

Finished production (MMSF)

     86.3         61.3   

Sales volume (MMSF)

     86.6         56.0   

Sales price (MSF)

   $ 581         583   

 

1  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 by $18.5 million. Of this increase, $16.6 million was primarily due to the inclusion of the net sales of Del-Tin Fiber in the Manufacturing segment for nine months of 2014 compared to only six months for 2013. Lumber sales revenue increased by $.8 million from the first nine months of 2013 mainly due to an increase in sales volume for the first nine months of 2014, partially offset by a lower average lumber sales price. Net sales in 2013 included $.6 million of net gains on involuntary conversion of assets, whereas 2014 had $.5 million in losses on disposal of assets. Total operating income decreased $6.8 million from the same period of 2013. The decrease in operating income was due to increased raw material log costs for the sawmills and an increased manufacturing cost per-unit at the MDF plant due to maintenance-related expenses and downtime.

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

 

     Nine Months Ended  
     September 30,  
     2013  

MDF (3/4 inch basis)2

  

Net sales

   $ 49.3   

Finished production (MMSF)

     91.4   

Sales volume (MMSF)

     85.1   

Sales price (per MSF)

   $ 580   

 

2  Information presented for 2013 represents the nine 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.

 

     Nine Months Ended  
     September 30,  
     2014      2013  

Net sales (millions of dollars)

     

Residential lots

   $ 4.1         3.7   

Commercial acres

     .9         —     

Chenal Country Club

     4.8         4.9   

Sales volume

     

Residential lots

     45         50   

Commercial acres

     1.72         —     

Average sales price (thousands of dollars)

     

Residential lots – per lot

   $ 93         74   

Commercial acres – per acre

     501         —     

Net sales increased $1.4 million when compared to 2013 due to the 2014 period including both a commercial acreage sale and higher revenues from residential lot sales in 2014. While the number of residential lots sold in 2014 decreased by 5 lots, the average per-lot sales price increased $19,000 per lot due to the mix of lots sold. The $1.3 million improvement in the Real Estate segment’s operating results was due mainly to the same factors affecting net sales, combined with lower property owner association assessment expense.

Corporate

Operating expense for the Corporate segment were $.5 million higher during the first nine months of 2014 versus 2013 due to increased general and administrative expenses.

Eliminations

Intersegment sales of timber from Deltic’s Woodlands to the Manufacturing segment increased $1.7 million to $13.1 million for the first nine 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 32 percent for the nine months ended September 30 for both 2014 and 2013, and was less than the statutory rate due primarily to permanent tax differences. The effective tax rate for 2014 also benefited from the reversal of $.8 million in uncertain state tax positions due to the expiration of statute of limitations for certain 2010 tax returns, while the effective tax rate for 2013 was affected by 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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Liquidity and Capital Resources

Cash Flows and Capital Expenditures

Net cash provided by operating activities totaled $25.1 million for the first nine months of 2014 compared to $34 million for the same period of 2013. Cash from operations and borrowings under Deltic’s revolving credit facility have provided the cash needed for the Company’s capital expenditures and timberland acquisition expenditures. Changes in operating working capital, other than cash and cash equivalents required cash of $6.9 million in 2014 and provided cash of $1.2 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 $12.1 million in the current-year period and $15.7 million a year ago. Capital expenditures by segment consisted of the following:

 

     Nine Months Ended  
     September 30,  
(Millions of dollars)    2014     2013  

Woodlands

   $ 3.2        3.2   

Manufacturing

     8.0        12.5   

Real Estate, including development expenditures

     1.4        1.2   
  

 

 

   

 

 

 

Capital expenditures

     12.6        16.9   

Adjustment for non-cash accrued liabilities

     (.5     (1.2
  

 

 

   

 

 

 

Capital expenditures requiring cash

   $ 12.1        15.7   
  

 

 

   

 

 

 

Timberland acquisition expenditures for the three months and nine months ended September 30, 2014, were $.1 million and $118.2 million, respectively, compared to $.1 million and $8.7 million for the three months and nine months ended September 30, 2013, respectively. Funds for 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 provided cash of $.1 million in 2014 and required $1.9 million in 2013. The Company had net borrowings of $115 million in 2014 and had net borrowings of $2 million in the first nine 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 $3.8 million were paid in the first nine months of both 2014 and 2013. Proceeds from exercises of stock options and the related tax benefits were $.4 million in 2014 and $1.2 million in 2013. The Company used $7.9 million in cash to purchase treasury stock in the first nine months of 2014, and $2.2 million in the same period of 2013.

Financial Condition

Working capital totaled $11.2 million at September 30, 2014, and $5.5 million at December 31, 2013. Deltic’s working capital ratio at September 30, 2014 was 1.52 to 1, compared to 1.25 to 1 at the end of 2013. Cash and cash equivalents at the end of the third quarter of 2014 were $4.7 million, an increase of $.3 million from the December 31, 2013 balance of $4.4 million. Deltic’s long-term debt to stockholders’ equity ratio was .753 to 1 at September 30, 2014 and .338 to 1 at December 31, 2013.

 

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Liquidity

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

To facilitate these growth plans, the Company has an agreement with a group of banks, which provides an unsecured and committed revolving credit facility totaling $340 million, and includes an option to request an increase in the amount of aggregate revolving commitments by $50 million. As of September 30, 2014, there was $136 million outstanding in borrowings on the credit facility, leaving $204 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 September 30, 2014 and December 31, 2013.

 

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

Leverage ratio should be less than:1

     .60 to 1        .430 to 1        .254 to 1   

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

     _ 2      89.07     48.24

Fixed charge coverage ratio should be greater than:3

     2.50 to 1        7.73 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 September 30, 2014, the Company had expended a total of $24.6 million under this program, with the purchase of 538,526, shares at an average cost of $45.73 per share. To date, in 2014, 131,832 shares, at an average cost of $59.61 per share, have been purchased 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

   $ 10.9         .4         8.2         2.3         —     

Woodlands committed capital costs

     .1         .1         —           —           —     

Manufacturing committed capital costs

     9.5         7.2         2.3         —           —     

Long-term debt

     205.0         —           40.0         136.0         29.0   

Interest on debt*

     15.1         1.8         9.5         3.1         .7   

Retirement plans

     3.0         .4         .5         .5         1.6   

Other postretirement benefits

     4.8         .1         .8         .9         3.0   

Other liabilities

     5.4         2.7         2.7         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 253.8         12.7         64.0         142.8         34.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other commercial commitment expirations

              

Timber cutting agreements

   $ .6         .1         .5         —           —     

Letters of credit

     .6         —           .4         .1         .1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1.2         .1         .9         .1         .1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

*  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 45,000 to 85,000 tons in the fourth quarter of 2014 and 580,000 to 620,000 tons for the year. Finished lumber sales volumes are estimated at 60 to 80 million board feet for the fourth quarter and 260 to 280 million board feet for the year. MDF sales volumes for the fourth quarter and year of 2014 are estimated to be 25 to 35 million square feet and 110 to 120 million square feet, respectively. Actual lumber and MDF sales volumes are subject to market conditions. Residential lot sales are projected to be 15 to 35 lots and 60 to 80 lots for the fourth 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 September 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

 

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

Period

   Purchased      Per Share      or Programs      Plans or Programs1  

July 1 through July 31, 2014

     68,581       $ 59.43         68,581       $ 10,372,403   

August 1 through August 31, 2014

     —         $ —           —         $ 10,372,403   

September 1 through September 30, 2014

     —         $ —           —         $ 10,372,403   

 

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 September 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: October 31, 2014     By:  

/s/ Ray C. Dillon

      Ray C. Dillon, President
      (Principal Executive Officer)
Date: October 31, 2014     By:  

/s/ Kenneth D. Mann

      Kenneth D. Mann, Vice President,
      Finance and Administration
      (Principal Financial Officer)
Date: October 31, 2014     By:  

/s/ Byrom L. Walker

      Byrom L. Walker, Controller
      (Principal Accounting Officer)

 

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