Deltic Timber DEF 14A 2006
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
DELTIC TIMBER CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
DELTIC TIMBER CORPORATION
NOTICE OF ANNUAL MEETING
To The Stockholders of
Deltic Timber Corporation:
The Annual Meeting of Stockholders of Deltic Timber Corporation (Deltic or the Company) will be held at the South Arkansas Arts Center, 110 East 5th Street, El Dorado, Arkansas, on Thursday, April 27, 2006, at 10:00 a.m., Central Daylight Time, for the following purposes:
To transact such other business as may properly come before the meeting and any adjournment thereof.
Holders of record of Deltic Common Stock at the close of business on March 10, 2006, will be entitled to vote with respect to this solicitation. Stockholders are reminded that your shares of Deltic Common Stock cannot be voted unless you follow the telephonic voting procedures set forth on the enclosed proxy card, or execute and return the enclosed proxy card, or make other arrangements to have your shares represented at the meeting.
A copy of the 2005 Annual Report to Stockholders and annual report on Form 10-K are enclosed.
By Order of the Board of Directors,
W. Bayless Rowe
El Dorado, Arkansas
March 21, 2006
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE EITHER TELEPHONICALLY AS INSTRUCTED ON THE ENCLOSED PROXY CARD OR YOU MAY COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
DELTIC TIMBER CORPORATION
210 East Elm Street
El Dorado, Arkansas 71730
This proxy statement and the accompanying proxy card are being furnished in connection with the solicitation of proxies on behalf of the Board of Directors of Deltic Timber Corporation (Deltic or the Company) for the Annual Meeting of Stockholders to be held on April 27, 2006, in El Dorado, Arkansas. Only stockholders of record at the close of business on March 10, 2006, (the Record Date) are entitled to notice of, and to vote at, the meeting. There were 12,393,997 shares of Deltic Common Stock outstanding and entitled to vote on March 10, 2006. This amount does not include 419,882 shares of treasury stock. Each share of outstanding Deltic Common Stock is entitled to one vote on each matter properly brought before the meeting.
Commencing approximately on March 21, 2006, the Company is mailing its annual report for the year ended December 31, 2005 and its annual report on Form 10-K for 2005 as filed with the Securities and Exchange Commission (SEC), together with this proxy statement and the enclosed proxy card to holders of Deltic Common Stock on the Record Date.
VOTING OF PROXIES
Your vote is important. Shares can be voted at the annual meeting only if you are present in person or represented by proxy. Even if you plan to attend the meeting, you are urged to vote either telephonically or to sign, date and return the accompanying proxy card.
When you vote by one of these two methods, stock represented by the proxy will be voted in accordance with your directions. You can specify your voting instructions by following the instructions for telephonic voting on the enclosed proxy card or by marking the appropriate spaces on the proxy card and signing, dating and returning the proxy card. If you so elect when prompted in the telephonic voting process, or if your proxy card is signed and returned without specific voting instructions, your shares of Deltic Common Stock will be voted as recommended by the Board of Directors: FOR the election of the three nominees for director named in the proxy card and FOR the ratification of the selection of KPMG LLP as the Companys independent auditors for 2006. Abstentions marked on the proxy card are voted against the proposals and are counted in determination of a quorum.
You may change your voting instructions or revoke your proxy at any time before it is voted at the meeting by (a) re-voting telephonically (only the latest telephonic vote will be counted), (b) executing a later-dated proxy, (c) voting by ballot at the meeting, or (d) filing a notice of revocation with the inspectors of election in care of the Secretary of the Company at the above address.
VOTING SHARES HELD IN EMPLOYEE THRIFT PLAN
If you are a participant in the Deltic Stock Fund of the Deltic Timber Corporation Thrift Plan, the trustees of such plan will vote the number of shares allocated to your account pursuant to the instructions you provide. Please sign and return the instruction card to your trustee promptly.
The presence, in person or by proxy, of the holders of at least a majority of the shares of Deltic Common Stock outstanding on the Record Date is necessary to have a quorum for the annual meeting. Abstentions and broker no-votes are counted as present for purposes of determining a quorum. A broker no-vote occurs when a nominee holding shares of Deltic Common Stock for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner.
The affirmative vote of a majority of the shares present in person or by proxy at the meeting is required for the passage of the Board of Directors proposals (Items 1 and 2). Any shares voted with an abstention have the same effect as a vote against the abstained proposal(s). Broker no-votes have no effect on the outcome of the vote.
SOLICITATION OF PROXIES
Solicitation of proxies may be made by directors, officers, or employees of the Company through the mail, in person and by telecommunications. The cost of soliciting proxies will be borne by the Company. In accordance with the regulations of the SEC and the New York Stock Exchange (NYSE), the Company will also reimburse brokerage houses and other custodians, nominees, and fiduciaries for their expenses incurred in sending proxies and proxy materials to the beneficial owners of Deltic Common Stock.
PROCEDURES FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
Under the Companys Amended and Restated Bylaws (the Bylaws), nominations for director may be made only by the Board of Directors (or a committee of the Board of Directors), or by a stockholder that meets the requirements set forth in the Bylaws. The Bylaws require that for stockholder nominations, a written notice be delivered to the Companys Secretary at the Companys principal executive offices, which are located at 210 East Elm Street, El Dorado, Arkansas 71730, not less than 90 days prior to the first anniversary of the most recent annual meeting of stockholders. The written notice must be made by a stockholder of record at the time of giving the notice and who shall be entitled to vote for election of directors at the meeting for which the stockholders nomination relates. The written notice shall set forth as to the candidate all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, including such candidates written consent to be named in the proxy statement as a nominee and to serving as a director if elected. The notice shall also set forth as to the stockholder, the name and address as they appear on the Companys books of such stockholder; and the number of shares of the Companys Common Stock that are beneficially owned by the stockholder. The Board of Directors Nominating and Corporate Governance Committee (Committee) has been delegated the responsibility to oversee searches for, and to identify qualified individuals for membership on the Companys Board of Directors. The Committee will duly consider candidates for nomination that may be submitted by stockholders in compliance with the applicable provisions of the Bylaws, and will not apply different criteria to candidates submitted by a stockholder than it applies to other candidates. Generally, the Committee reviews a candidates qualifications by considering criteria approved by the Board of Directors, a candidates satisfaction of applicable independence measures (and enhanced independence, financial literacy and financial expertise standards for potential Audit Committee members), while also taking into consideration current challenges and needs of the Board of Directors regarding issues of judgment, diversity, age, skills, background, and experience. Specific criteria used by the Committee in reviewing a candidates qualifications are that the candidate shall: have the highest personal and professional ethics, integrity, and values; have diverse experience at policy making levels in business areas that are relevant to the Companys activities; and, have evidenced in their personal and professional affairs proper judgment, independence, business acumen, and an understanding of the Companys or related industries.
The Bylaws also provide that except for stockholder proposals submitted in a timely manner for annual stockholders meetings, no business may be brought before any stockholders meeting unless specified in the notice of meeting or at the direction of the Board of Directors. The Bylaws further set forth procedures and requirements, including notice to the Company, for stockholders to submit business for proper consideration at annual meetings. Any stockholder who is a stockholder of record at the time of his/her notice, maintains his/her stock ownership so that he/she is entitled to vote at the annual stockholders meeting, and adheres to the Bylaws procedures and requirements, shall be entitled to present business for consideration at such meeting. In order to present business for consideration at an annual stockholders meeting, a stockholder must submit a notice which sets forth a description of the nature of the business to be considered, the stockholders name and address as it appears in the records of the Company, the number of shares beneficially owned and any material interest of the stockholder in the business sought to be included. In order to be timely, the notice must be received by the Companys Secretary at the principal executive office of the Company not less than 90 days prior to the anniversary of the preceding annual meeting. These requirements are separate and apart from, and in addition to the SECs requirements that a stockholder must comply with under SEC rules in order to have a stockholder proposal included in the Companys proxy statement.
A copy of the full text of the Companys Amended and Restated Bylaws may be obtained upon written request to the Companys Secretary at the address provided above.
STOCKHOLDER PROPOSALS FOR 2007 ANNUAL MEETING
Stockholder proposals intended to be presented at Deltics 2007 Annual Meeting of Stockholders must be received by Deltics Secretary no later than January 26, 2007. Such proposals must meet the requirements set forth in the Companys Bylaws, as well as, in order to be eligible for inclusion in the Companys 2007 proxy materials, the rules and regulations of the SEC.
STOCKHOLDER COMMUNICATION WITH DIRECTORS
As set forth in the Companys Corporate Governance Guidelines, it is the policy of the Board of Directors that stockholders and employees be able to communicate directly with members of the Board of Directors, including non-management and independent directors. All stockholder communications should be directed to the Companys Secretary, at the Companys principal executive offices, 210 East Elm Street, El Dorado, Arkansas 71730, and should prominently indicate on the outside of the envelope that it is intended for a specified director or to the non-management or independent directors of the Company as a group. Each communication intended for a director and received by the Secretary which is related to the operation or governance of the Company, and is not otherwise commercial in nature, will be promptly forwarded to the specified party following its clearance through normal security procedures. Assuming clearance, the communication will be forwarded unopened to the intended recipient. Employees of the Company may also utilize this stockholder communication procedure. Alternatively, employees may, if they so desire, utilize the confidential and/or anonymous procedures to send written, electronic, or toll-free telephonic communications through a third party as established under the Companys whistle-blower policy. Communications under the whistle-blower policy are initially directed to the Chairman of the Board of Directors Audit Committee.
The Company was incorporated in Delaware on September 4, 1996, in anticipation of the spin-off by Murphy Oil Corporation of its farm, timber and real estate business, then conducted by Deltic Farm & Timber Co. Inc., an Arkansas corporation (Deltic Farm & Timber). Effective December 17, 1996, Deltic Farm & Timber was merged with and into the Company, and effective December 31, 1996, Murphy Oil Corporation distributed all of the shares of the Companys Common Stock.
THE BOARD OF DIRECTORS
The responsibility and authority for managing the business of the Company rest with its Board of Directors, who are elected by the Companys stockholders. The Board of Directors sets strategic policy, approves business plans, and delegates authority to execute its policies and plans to the President and Chief Executive Officer. During 2005, Deltics Board of Directors held seven meetings. Also during the year, the Boards Executive Committee, Audit Committee, Nominating and Corporate Governance Committee, and Executive Compensation Committee held six, ten, five, and two meetings, respectively. All of the Companys directors attended at least 75 percent of Board of Directors and their respective committee meetings. It is the policy of the Board of Directors that directors attend stockholder, Board of Directors and Committee meetings unless extenuating circumstances make such attendance impracticable. All of the Companys directors attended the Companys 2005 Annual Meeting of Stockholders.
To assist in fulfilling its responsibilities, Deltics Board of Directors has established four principal committees: the Audit Committee; the Nominating and Corporate Governance Committee; the Executive Committee; and, the Executive Compensation Committee. These committees are briefly described as follows:
The Audit Committee (the Committee) meets regularly with the Companys independent auditors and internal auditor to assist the Board of Directors in fulfilling its oversight responsibility relating to the integrity of the Companys financial statements and other public disclosures, and the Companys compliance with legal and regulatory requirements, as well as assessing the qualifications, performance and independence of the Companys independent auditors and the performance of the Companys internal audit function. The Committee is responsible for selecting the Companys independent auditors. The Committee also negotiates and approves all audit, audit-related, and non-audit fees of the independent auditors. The Committee is chaired by Mr. Roach with its other members being Messrs. Darling, Pierson, and Shealy. Each member of the Committee has been affirmatively determined by the Board of Directors to be independent under applicable criteria for Committee membership under Section 10A-3 of the Securities Exchange Act of 1934, as amended, and Section 303A of the NYSEs Corporate Governance rules, and to meet financial literacy standards. In addition, the Board of Directors has designated Mr. Roach as the Committees financial expert based upon his professional experience and attributes. The Committees written charter was updated in December 2003 and adopted by the Companys Board of Directors. A copy of the Committees written charter was published as Annex A to its Notice of Meeting and Proxy Statement dated March 22, 2004, and can be accessed on the Companys website at www.deltic.com under the Corporate Governance part of the Investor Relations section. Please see pages 21 through 23 of this proxy statement for the Committees 2005 report. A copy of the charter will be mailed to stockholders who have requested the same in writing to the Companys Secretary at the address listed above.
The duties of the Board of Directors Nominating and Corporate Governance Committee (the Committee) include: the identification of individuals qualified to become directors and recommendation to the Board of Directors of nominees for election at the next annual or special meeting of stockholders at which directors are to be elected, or to fill vacancies or newly created directorships that may occur between such meetings; recommendation of directors for appointment to the committees of the Board of Directors; oversight of the evaluation of the Board of Directors and each of its committees and members; establishment of the cash component of compensation of non-employee directors and recommendation to the Boards Executive Compensation Committee of equity components of compensation of the non-employee directors of the Company; and, the review, suggestion of changes to and oversight of compliance with the Companys Corporate Governance Guidelines and Code of Business Conduct and Ethics. More specific responsibilities of the Committee on governance related matters include: the evaluation of the appropriateness of continued membership on the Companys Board of Directors upon a change in circumstance in and to professional roles and responsibilities of a director, or upon a director deciding to serve on another corporate or not-for-profit/tax
exempt board or government or advisory group that would be expected to require a significant devotion of time by such director; the review of any requests for waivers from provisions of the Companys Code of Business Conduct and Ethics; the review of situations that may involve a potential conflict of interest on the part of a director; and, the review of and authority to approve or disapprove all proposed related party transactions between the Company and its directors. The Committee is chaired by Rev. Keller with its other members being Messrs. Darling, Murphy, Roach and Shealy. Each member has been affirmatively determined by the Board of Directors to be independent under applicable criteria established in Section 303A of the NYSEs Corporate Governance rules. A written charter for the Committee has been adopted by the Board of Directors, and can be accessed on the Companys website at www.deltic.com under the Corporate Governance part of the Investor Relations section. A copy of the charter will be mailed to stockholders who have requested the same in writing to the Companys Secretary at the address listed above.
The Executive Committee (the Committee) generally meets in the months that no meeting of the Board of Directors is scheduled and acts as surrogate for the Board of Directors by maintaining surveillance over operations and exercising the general powers of the Board of Directors when the Board of Directors is not in session. The Committee does not have the power, among other things, to: declare dividends; issue stock; amend the Bylaws; or, approve any merger or share exchange. The Committee is chaired by Mr. Nolan with its other members being Messrs. Dillon, Lieblong, Murphy and Shealy. Except for Mr. Dillon, each member of the Committee has been affirmatively determined by the Board of Directors to be independent under applicable criteria established in Section 303A of the NYSEs Corporate Governance rules.
The Executive Compensation Committee (the Committee) represents for some matters and otherwise acts to assist the Board of Directors in fulfilling its oversight responsibility for the Company, including specifically to oversee the Companys equity-based and other compensation and benefits plans and policies. The Committee administers the Companys annual incentive and stock incentive plans and is authorized under the stock incentive plans to make awards of incentive and non-qualified stock options, restricted stock, performance units and other types of awards permitted under the plans. The Committee also acts upon the recommendations of the Nominating and Corporate Governance Committee regarding equity-based compensation for the Companys non-employee directors under the Companys 2002 Stock Incentive Plan. Additionally, the Committee reviews the performance levels of Deltics executive officers and determines base salaries and short and long-term incentive awards for such executive officers, including the Companys President and Chief Executive Officer. Further, the Committee reviews and reports to the Board of Directors on the Companys succession planning. The Committee is chaired by Mr. Murphy, with its other members being Messrs. Lieblong, Pierson, Roach and Rev. Keller. Each member has been affirmatively determined by the Board of Directors to be independent under applicable criteria established in Section 303A of the NYSEs Corporate Governance rules. A written charter for the Committee has been adopted by the Board of Directors, and can be accessed on the Companys website at www.deltic.com. under the Corporate Governance part of the Investor Relations section. A copy of the charter will be mailed to stockholders who have requested the same in writing to the Companys Secretary at the address listed above. Please see pages 12 through 15 of this proxy statement for the Committees report on its actions regarding compensation matters for 2005.
Preceding sections of this Proxy Statement have referenced the determination of the Board of Directors regarding the independence of the Companys directors, and the Companys Code of Business Conduct and Ethics and Corporate Governance Guidelines. This section provides additional information concerning these subjects.
On an annual, or if the circumstances dictate a more frequent basis, the Board of Directors considers the independence of each director. To be considered independent, a director must be affirmatively determined by resolution to have no material relation with the Company other than as a director. In each case, broad
consideration is given to all relevant facts and circumstances, not only as to the respective director, but also as to persons or organizations with which the director has an affiliation. Consistent with published commentary by the NYSE regarding determinations of independence, the Board of Directors has deemed that a primary consideration is independence from the Companys management, so that the Board of Directors essential oversight role over the affairs of the Company is not compromised due to any such relationship. Ownership of even a significant amount of the Companys stock, by itself, is not viewed as a bar to an independence determination, but rather, stock ownership by the Companys directors is encouraged in order to align directors interests with those of all stockholders and to provide additional incentive for proper and effective stewardship.
Categorical standards adopted by the Board of Directors to assist in its determinations are: (a) A director will not be determined to be independent if, within the preceding three years, the director was an employee of the Company or an immediate family member was employed by the Company or its subsidiaries as an executive officer, or the director or an immediate family member is currently or was within the last three years employed as a partner, principal or manager of the Companys independent auditor, or if any executive officer of the Company was a member of the board of directors of a company that employed either the director or an immediate family member of the director as an officer; (b) A director will not be determined to be independent if the director or an immediate family member has received more than $100,000 in direct compensation from the Company during any twelve month period within the last three years; (c) A director will not be determined to be independent under applicable standards for Audit Committee membership if the director or the directors immediate family members and/or affiliates have received during the last three years any consulting, advisory or other compensatory fee from the Company and its subsidiaries other than director and committee fees, or if the director is an affiliated person of the Company owning 10 percent or more of the Companys stock; and, (d) A director will not be determined to be independent if the director or the directors immediate family members and/or affiliates conduct commercial activities with the Company that involve sums in excess of $1,000,000 or if greater, two percent of the gross revenue of the Company or the other entity.
During its deliberations regarding director independence, in addition to the categories and factors identified above, and even though they did not approach the dollar threshold cited in category (d) above, the Board of Directors also reviewed the extent of all commercial relationships, including immaterial relationships, between the Company and its directors and their respective immediate family members and affiliates. Land management services provided by the Company on the same terms and conditions as for all land management clients were specifically reviewed and determined to be immaterial relationships.
Following its deliberations, the Board of Directors affirmatively determined that Messrs. Darling, Lieblong, Murphy, Nolan, Pierson, Roach, Shealy and Reverend Keller met applicable standards, and each was determined to be independent. In addition, specific consideration of the enhanced independence requirements for members of the Companys Audit Committee was made and all members of the Audit Committee were determined to be independent and financially literate under applicable SEC and NYSE requirements. The Board of Directors also discussed the professional experience and attributes of Mr. Roach and designated him as the Audit Committees financial expert. Further, the Board of Directors determined that Mr. Roachs service on the audit committee of another public company would not impair his ability to effectively serve on and chair the Companys Audit Committee.
All of Deltics directors and employees, including its President and Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer are required to adhere to the provisions of the Companys Code of Business Conduct and Ethics (the Code). The Code addresses areas of professional conduct deemed to be essential in carrying out the Companys business in a legal and ethical manner. Specific areas included are employment practices, conflicts of interest, and protection of confidential information and prohibition of its use for personal gain, as well as strict adherence to all laws applicable to the conduct of Deltics business. Under the Code, employees are required to report any conduct they believe to be an actual or apparent violation of the Code. Biannual certifications of compliance with the Code are required. No waivers to the provisions of the Code have been requested, but should any waivers to the provisions of the Code ever be allowed by the Board of
Directors Nominating and Corporate Governance Committee, such action will be promptly posted on the Companys website, www.deltic.com under the Corporate Governance part of the Investor Relations section, and disclosed in a current report on Form 8-K that will be filed with the SEC. The Code can be accessed on the Companys website at www.deltic.com under the Corporate Governance part of the Investor Relations section. A copy will be mailed to stockholders who have requested the same in writing to the Companys Secretary at the address listed above.
Deltics Board of Directors has also adopted written Corporate Governance Guidelines (the Guidelines) that along with the Bylaws of the Company, its policies and procedures, and the charters of the Board of Directors committees provide the framework for the governance of the Company. The Guidelines provide generally, that the Companys business is conducted by its employees, managers and officers under the direction of the President and Chief Executive Officer and the oversight of the Board of Directors to enhance the value of the Company for its stockholders. The guidelines address several important subjects, including: composition of the Board of Directors and criteria for membership; director qualifications; bifurcation of the duties of Chairman and President and Chief Executive Officer; conflicts of interest and prohibition of loans; director responsibilities, including participation and preparation for meetings; director access to management and employees and authority to hire independent legal, financial or other advisors; director orientation and continuing education; evaluation of management performance and succession; stockholder and employee communication with directors; and, annual performance evaluations of the Board of Directors, each of the Board of Directors committees and each individual director. The Guidelines also codify the Companys practice of conducting routine executive sessions of the non-management, and if different, independent members of the Board of Directors. Mr. Nolan, the non-employee Chairman of the Board of Directors, has been affirmatively determined to be independent, and presides at all such executive sessions of the Board. Should Mr. Nolans independence status change, the Guidelines establish procedures for selection of an appropriate director to preside at such executive session meetings. The Guidelines can be accessed on the Companys website at www.deltic.com under the Corporate Governance part of the Investor Relations section. A copy will be mailed to stockholders who have requested the same in writing to the Companys Secretary at the address listed above.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company were paid in 2005 an annual retainer of $20,000, a $1,000 fee for each meeting attended of the Board of Directors, and a $500 fee for each meeting attended of any committee thereof. In addition to the regular retainer and meeting fees, the Companys non-employee Chairman, Mr. Nolan, was paid $75,000 during 2005 and the respective chairmen of the Board of Directors Audit Committee, Executive Compensation Committee, and Nominating and Corporate Governance Committee were paid a $3,000 per year chairmans retainer. Retainer and meeting fees are paid quarterly in arrears. Also, a 500 share time based restricted stock award, which vests in four years from its February 2005 grant date was made to each director who is not an employee of the Company pursuant to provisions of the Companys 2002 Stock Incentive Plan. Such time based restricted stock awards otherwise contained terms consistent with those of employees described in the Executive Compensation Committees Report in this proxy statement beginning on page 12. Directors are also reimbursed their travel, meal and lodging expenses for attending meetings.
ELECTION OF CLASS I DIRECTORS
(ITEM 1 ON PROXY CARD)
The Board of Directors currently consists of three classes of directors, equal in number. Directors hold office for staggered terms of three years (or less if they are filling a vacancy) and until their successors are elected and qualified. One of the three classes, comprising one-third of the directors, is elected each year to succeed the directors whose terms are expiring. Mr. Lieblong and Mr. Nolan were elected at the 2003 annual meeting to serve for a term expiring at the Companys annual meeting in the year 2006 and will stand for
re-election at this years meeting. Mr. Dillon, the Companys President and Chief Executive Officer was elected to the Board upon his employment on July 1, 2003. The directors in Class II were elected at the 2004 annual meeting to serve for a term expiring at the Companys annual meeting in the year 2007. The directors in Class III were elected at the 2005 annual meeting to serve for a term expiring at the Companys annual meeting in the year 2008.
Deltics Board of Directors has proposed the following nominees for election as directors at the 2006 annual meeting:
NOMINEES FOR CLASS I DIRECTORS
With Terms Expiring at the Annual Meeting in the Year 2009:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE ABOVE-NAMED NOMINEES AS DIRECTORS FOR A TERM OF THREE YEARS.
Information is provided below with respect to each nominee for election and for each director whose term expires in subsequent years. Should one or more of these nominees be unavailable to accept nomination or election as a director, the individuals named as proxies on the enclosed proxy card will vote the shares that they represent for the election of such other persons as the Board of Directors may recommend unless the Board of Directors reduces the number of directors. The Board of Directors knows of no reason why any of the nominees will be unavailable or unable to serve if elected.
NOMINEES FOR ELECTION AS DIRECTORS
Class I Terms Expire in 2009
Ray C. Dillon, 50, has been the Companys President and Chief executive officer and a director since July 1, 2003. Mr. Dillon has 27 years experience in the paper and forest products industry and served from April 2000 through December 2002, as Executive Vice President of Gaylord Container Corporation. Previously, he served as that companys Vice President of Primary Production from April 1997. Mr. Dillon serves on the Board of Directors Executive Committee.
Alex R. Lieblong, 55, has been a director since December 17, 1996. In 1997, Mr. Lieblong formed his own full service securities firm, Lieblong & Associates, Inc., where he is President and principal owner. Prior to formation of Lieblong & Associates, Inc., Mr. Lieblong was Branch Manger, Corporate Vice President of PaineWebber, Inc. Mr. Lieblong also serves on the Board of Directors and is Vice Chairman of Home Bankshares. Mr. Lieblong serves as a member of the Board of Directors Executive Committee, and Executive Compensation Committee.
Robert C. Nolan, 64, has been the Companys non-employee Chairman of the Board of Directors since December 17, 1996. For the past 34 years, Mr. Nolan has been Managing Member of Munoco Company, L.C., an Arkansas limited liability company, engaged in, among other activities, the exploration for and production of oil and gas and timberland management. Mr. Nolan has over 32 years experience in timberland management. Mr. Nolan is also a director of BancorpSouth, Inc. Mr. Nolan is Chairman of the Board of Directors Executive Committee, and by virtue of his position serves as an ex officio member of all other committees of the Board of Directors, except the Audit Committee. As an ex officio committee member, Mr. Nolan is vested with full rights, privileges, and responsibilities, including voting rights.
DIRECTORS WHOSE TERM OF OFFICE CONTINUE
Class II Terms Expiring in 2007
John C. Shealy, 77, has been a director since December 17, 1996. Mr. Shealy was Vice President and General Manager, Southern Region of Willamette Industries, Inc. from 1981 until his retirement in 1994. Mr. Shealy was also formerly Chairman of the American Bank N.A. of Ruston, Louisiana until February 2002. Mr. Shealy serves as a member of the Board of Directors Audit Committee, Nominating and Corporate Governance Committee, and Executive Committee.
R. Hunter Pierson, Jr., 54, has been a director since December 16, 1999. Following ten years as a commercial lending officer at a large bank, Mr. Pierson has been engaged since 1981 in private investments, including timberlands, commercial real estate development, and securities. Mr. Pierson serves as a member of the Board of Directors Audit Committee and Executive Compensation Committee.
J. Thurston Roach, 64, has been a director since December 18, 2000. Mr. Roach is currently a private investor. Previously, from October 2000 to November 2001, he served as President, Chief Executive Officer, and a director of HaloSource Corporation, a chemtech company based in Seattle, Washington. From January 1999 through March 2000, he served as Chief Financial Officer and Senior Vice President of Owens Corning; and from February 1998 through December 1998, he was President of its North American Building Materials Systems Business. Due to the adverse financial impact of numerous claims alleging injury from exposure to asbestos, Owens Corning filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in October 2000. Prior to his positions at Owens Corning, Mr. Roach served as Vice Chairman of Simpson Investment Company, and previous to that, as President of Simpson Timber Company. Mr. Roach has been a director of Pope Resources since March 2003 where he chairs that Companys Audit Committee and is a member of its Human Resources Committee. Mr. Roach serves as Chairman of the Board of Directors Audit Committee, and as a member of the Nominating and Corporate Governance Committee and Executive Compensation Committee. The Board of Directors has designated Mr. Roach as the Audit Committees financial expert.
Class III Terms Expire in 2008
O. H. Darling, Jr., 77, has been a director since December 17, 1996. Mr. Darling was Forestry Division Manager, Crossett Division, Georgia Pacific Corporation from 1978 until his retirement in 1994. Mr. Darling was appointed to a nine-year term on the Board of Commissioners of the Arkansas Forestry Commission in 1995, and served in 2002 as Chairman of its Board of Commissioners. In 2005, Mr. Darling became the fourteenth person elected to The Arkansas Foresters Hall of Fame by the Society of American Foresters for Arkansas. Mr. Darling serves as a member of the Board of Directors Audit Committee and Nominating and Corporate Governance Committee.
Reverend Christoph Keller, III, 51, has been a director since December 17, 1996. Rev. Keller has been an Episcopal priest since 1982, and is currently Theologian-in-Residence for St. Margarets Episcopal Church in Little Rock, Arkansas. Rev. Keller is also a member of the Board of Directors of Inglewood Land and Development Company of Alexandria, Louisiana and is one of the managing members of Keller Enterprises, L.L.C. Rev. Keller serves as Chairman of the Board of Directors Nominating and Corporate Governance Committee, and as a member of the Executive Compensation Committee.
R. Madison Murphy, 48, has been a director since December 17, 1996. Mr. Murphy is currently the Managing Member of Murphy Family Management, LLC and Managing Partner of Hard Bargain Farms. Mr. Murphy is also a director of Murphy Oil Corporation where he chairs that companys Audit Committee, and is a director of BancorpSouth, Inc. Mr. Murphy serves as Chairman of the Board of Directors Executive Compensation Committee and as a member of the Nominating and Corporate Governance Committee and the Executive Committee.
CERTAIN STOCK OWNERSHIP
The following tables sets forth information, by the categories listed, concerning beneficial ownership of Common Stock of the Company with respect to each person or entity who has filed reports with the Company pursuant to applicable SEC rules disclosing ownership of as much as five percent of the Companys Common Stock and for each director (including those nominated for re-election), each of the named executives listed in the Summary Compensation Table on pages 16 and 17 of this proxy statement, and directors and officers as a group.
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OWNERSHIP OF DIRECTORS AND OFFICERS (1)
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Murphy, Nolan and Rev. Keller are first cousins and Mr. Pierson is the spouse of a first cousin of Messrs. Murphy, Nolan and Rev. Keller. These four directors, their spouses, and members of their extended families directly or indirectly own in the aggregate approximately 26 percent of the outstanding stock of the Company. The members of these extended families cover four generations and number in excess of a hundred individuals. There is no formal or informal agreement to act in concert or as a group regarding each family members investment in the Company. No member of these extended families is employed by the Company. See also Ownership of Directors and Officers on page 11 of this proxy statement.
The Company manages under contract timberland in which it does not own an interest for third parties. Messrs. Nolan, Murphy, Pierson, and Rev. Keller, and/or members of their respective families (the families) are parties to management contracts with the Company for timberland which is owned by them or entities of which they are officers, directors, stockholders, trustees, and/or partners. The Companys standard terms and conditions are utilized in all arrangements with third parties, including those with the families. These terms and conditions include an annual per acre fee, cost plus 15 percent for special silvicultural projects and a five percent commission from the proceeds of timber sales. The families own approximately 96 percent of the outstanding shares of Loutre Land and Timber Company, an Arkansas corporation. Loutre Land and Timber Company owns in fee or has an undivided interest in approximately 43,600 acres of timberland, a portion of which is managed by the Company. In 2005, Loutre Land and Timber Company paid to Deltic $65,493 for management fees, special silvicultural services, and timber sales commissions. Management fees, special silvicultural services, and timber sales commissions paid to the Company in 2005 from entities affiliated with Mr. Nolan, and that for purposes hereof are attributed to him even though he does not beneficially own all of such entities, totaled $75,891.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under the securities laws and regulations promulgated thereunder, the Companys directors and executive officers are required to report their beneficial ownership (as defined in such laws and regulations) of the Companys Common Stock and any changes in that ownership to the SEC and NYSE. Specific due dates for the reports have been established and the Company is required to report in this Proxy Statement any failure to file by said due dates. Based solely upon a review of Form 4s during fiscal year 2005, Form 5s with respect to such year and information provided in an annual Directors and Officers Questionnaire, each of the Companys directors and executive officers satisfied their filing requirements for fiscal 2005.
REPORT OF EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee (the Committee) oversees and reviews the Companys compensation philosophy as well as the competitiveness of Deltics total compensation practices, and administers programs and plans covering executive officers and key management employees. In addition, the Committee specifically reviews the performance levels of Deltics officers and pursuant to delegated authority from the Board of Directors, determines base salaries and incentive awards for such executive officers. During 2005, the Committee was comprised of five independent, non-employee directors elected by the Board of Directors. In 2005, the Committee met on February 16, 2005, to address matters as discussed below that it traditionally considers on an annual basis. The Committee also met on October 19, 2005, to receive reports from its independent compensation consultant regarding the appropriate data to be prepared to assist the Committee in its 2006 deliberations. This report is provided by the Committee to assist stockholders in understanding the philosophy and objectives of the Committee and actions taken by the Committee in 2005 and 2006 regarding executive compensation for 2005.
A major objective of the Committee is to design compensation programs to attract and retain individuals of outstanding ability for the Company, and to provide incentives for such individuals to strive to enhance
stockholder value. Philosophically, the Committee believes its objectives can be met when the compensation of the Companys executives is closely linked to the Companys business performance and attainment of strategic objectives as established by the Board of Directors. The Committees compensation program seeks to: encourage stock ownership by executives in order to directly align their interests with those of all stockholders; maintain an appropriate balance between base salary and annual and long-term incentive opportunities; and recognize and reward exceptional individual contributions to the Companys success.
The three main elements of Deltics compensation program are base salary, annual bonus, and long-term incentives. Base salary and bonus are keyed to recognition of individual performance and achievement of business objectives each year. The value of long-term incentives is directly linked to the performance of Deltics Common Stock and, therefore, to total stockholder return. In evaluating the compensation programs and taking actions pursuant thereto, the Committee considers the total amounts and values of the compensation arrangements for the Companys President and Chief Executive, and its other officers.
Generally for base salaries, Deltic maintains an administrative framework of job levels into which positions are assigned based on internal comparability and external market data. Base salaries are reviewed annually and adjusted as appropriate to reward performance and maintain a competitive position.
Annual bonuses are awarded if the Company meets or exceeds certain performance measures which are established each year by the Committee and/or an individuals contributions are recognized as exceptional by the Committee. Communication of the applicable performance measures is promptly made to each participant after it has been determined by the Committee.
At the Annual Meeting of Stockholders held on April 25, 2002, the Companys stockholders voted to approve adoption of the Deltic Timber Corporation 2002 Stock Incentive Plan (2002 SIP) that had been recommended by the Committee and the Board of Directors. The Companys 2002 SIP vests with the Committee the authority to award incentive and non-qualified stock options, stock appreciation rights, restricted stock, performance units and other forms of equity-based compensation. Such awards are intended under the 2002 SIP to foster and promote the long-term financial success of the Company and materially increase stockholder value by motivating superior performance and encouraging and providing for the acquisition of an ownership interest in the Company by non-employee directors and those employees upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent. The 2002 SIP establishes an aggregate number of shares which may be issued, sets a limit on the percentage of restricted stock which may be issued in total and to any individual, and provides for other terms and conditions applicable to the different types of awards. As discussed below under 2005 Compensation Actions, at its February 2005 meeting, the Committee made certain awards under the 2002 SIP.
2005 Compensation Actions
At its meeting in February 2005, the Committee acted in regard to each of the Companys three main elements of compensation. First, the Committee determined that the objective aspect of the 2004 performance measure, which had been established in February 2004, by the Committee under the Companys Annual Incentive Compensation Plan, had been met resulting in a pay-out of 120 percent of the targeted bonus. The objective aspect under the plan for 2004 was a financial performance based upon return on capital employed (ROCE) by the Company during the year. The remaining aspect of the 2004 performance measure established by the Committee was its assessment of business segment operational and financial performance and of individual performance during the year. The Committee noted that significant progress had been made on several important financial, operational and strategic areas during the year including: significantly improving the financial results at the sawmills, Del-Tin Fiber reporting its first profitable year of operation, record sales of residential lots in real estate, and attainment of a stockholder return which was among the highest for the year
compared to a group of publicly owned companies in the forest products industry. The Committee accordingly determined to make cash bonus awards to participants under the plan. Even though the actual determination and the resulting payments were made in early 2005, the Committee recognized that the rewards were based on 2004 performance and instructed the Companys Secretary to include such amounts as may be applicable in the Summary Compensation Table of the Companys Proxy Statement for the Annual Meeting of Stockholders held April 28, 2005. The Committee next considered appropriate performance measure for 2005 under the Annual Incentive Compensation Plan. The Committee decided that the financial performance measure for earning a bonus under the Annual Incentive Compensation Plan for 2005 would be based on targeted ROCE by the Company. In addition, the Committee adopted business segment performance measures related to their respective budgets. Such measures were made applicable for all plan participants, and promptly thereafter communicated to them, although some participants potential bonuses would be dependent solely on attainment of the financial performance measure, some on a combination of the financial performance measure, business segment performance measures and assessment of individual performance, and some solely on business segment performance measures. For 2005, the Committee established a minimum ROCE threshold, and determined if financial results were below such threshold, no bonuses would be awarded to those participants whose potential bonuses are dependent upon attainment of the financial performance measure.
The Committee also addressed the following matters at its February 2005 meeting. Awards of stock options were made under the provisions of the 2002 SIP. Each stock option was priced at the fair market value on the date of grant ($44.355 per share) and will become exercisable 25 percent on the anniversary date of the awards for each of the following four years. Subject to various conditions, all options have a term of ten years from the date of grant and will expire after such time. All of the stock options awarded in 2005 were designated as non-qualified stock options. Time based restricted stock awards and performance based restricted stock awards (designated Performance Units under the 2002 SIP) were also made. The time based restricted stock awards fully vest, subject to continued employment by the Company, after four years. The performance based restricted stock awards may vest, if at all, in the amount awarded or a lesser or greater amount, after four years dependent upon Deltics total stockholder return measured against the relative total return of a Paper and Forest Products Index selected by the Committee and calculated by Standard & Poors (S&P) over the same four-year period. A representative of the Committees independent compensation consulting firm prepared materials which were discussed by the Committee, including the subject of director equity compensation and trends of stock incentive awards among publicly owned companies in the forest products industry and from the consultants much larger data base of other companies. The Committee considered such information useful to its objective of attracting and retaining individuals of outstanding ability for the Company, but also recognized that the Company has unique characteristics including its size and the location, extent and nature of its operations. Upon the recommendation of the Board of Directors Nominating and Corporate Governance Committee, the Committee also made awards under the 2002 SIP of 500 shares of time based restricted stock to each of the Companys non-employee directors.
As was the case in prior years meetings, the Committee discussed the concept of stock ownership guidelines for participants in the 2002 SIP and after reviewing beneficial ownership among certain plan participants, determined mandatory minimum stock ownership levels are not needed at the present time.
At its February 2005 meeting, the Committee also addressed 2005 base salary compensation for the Companys executive officers. The Committee based its action after reviewing comparative data from its consultant, the Companys financial and operating performance in 2004, the respective performance of each of the Companys business segments and progress toward achievement of strategic objectives established by the Companys Board of Directors. As to Mr. Dillon, the Companys President and Chief Executive Officer, the Committee adopted an increase from $375,000 to $450,000 effective March 1, 2005. The Committee believed that Mr. Dillons duties as the chief executive had been performed in an exemplary manner, and that progress had been achieved regarding attainment of business operational and strategic objectives.
Finally, at its February 2005 meeting, the Committee again discussed the subject of employment contracts and related types of agreements between the Company and its executive officers. Following its discussions, the
Committee determined to: (1) reaffirm Mr. Dillons change-in-control agreement disclosed in the Companys proxy statement dated March 22, 2004, under which the Company agreed to pay two years base salary and benefits, plus two years of the target bonus percentage should there occur a change in control of the Company, and Mr. Dillon is dismissed or suffers a reduction in salary and potential bonus and/or a meaningful diminution of job responsibility within two years of the change in control event; (2) approved change in-control agreements for the named executive officers other than Mr. Dillon, entitling each of them to one years salary, bonus, and benefits upon the same terms as described above for Mr. Dillons agreement; and (3) established an involuntary severance agreement for Mr. Dillon whereby should he be terminated for any reason other than by the Company for cause, Mr. Dillon will be entitled to two years salary, bonus, and benefits.
On October 19, 2005, the Committee met to receive reports from its consultant regarding the appropriate data to be utilized by the Committee in its 2006 deliberations. After an extensive review of various alternatives, the Committee determined the data they desired to review in February 2006.
2006 Compensation Actions
On February 15, 2006, the Committee met to address matters that it traditionally considers on an annual basis. Included among such matters was consideration of awards under the Companys Annual Incentive Compensation Plan based on 2005 performance. The Committee has included information related to such awards in this report because even though made in early 2006, the awards are relevant to its 2005 compensation actions, and the Companys Secretary has been instructed to include such amounts as may be applicable in the Summary Compensation Table of the Companys Proxy Statement for the Annual Meeting of Stockholders to be held April 27, 2006. The Companys financial performance in 2005 created a return on capital employed that exceeded the performance measures target level. For the business segment performance measures, the Committee noted each of the Companys operating segments had produced positive results and the Committee considered each participants efforts and contributions to such improvement. The Committee accordingly determined to make cash bonus awards to all participants under the plan in various amounts that reflected obtainment of the ROCE financial performance measure as applied to each participants respective bonus target percentage, its assessment of each business units performance relative to their targets and the performance by individual participants. In the case of Mr. Dillon, an award of $ 340,200.00 was made.
Executive Compensation Committee
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
There were no committee interlocks. Messrs. Murphy, Pierson, Nolan and Rev. Keller are related by consanguinity and/or affinity as described in the Certain Relationships and Related Transactions section supra. As noted in such section, a private company in which these directors own stock paid to the Company per acre timber management fees, overhead charges on silvicultural services and timber sales commissions in the amount of $65,493, and entities affiliated with Mr. Nolan paid to the Company $75,891 for the same type of services. The Company believes these transactions and relationships during 2005 were reasonable and in the best interest of the Company.
The following tables set forth information with respect to compensation for the Companys President and Chief Executive Officer and the four other most highly compensated executive officers of the Company for the year ending December 31, 2005.
Summary Compensation Table
Option Grants in Last Fiscal Year
The following table summarizes options granted during fiscal year 2005 to the named executives listed in the Summary Compensation Table, and the potential value of the shares subject to such options if the options were exercised at their expiration date.
Aggregated Option Exercises in the Last Fiscal Year
And Fiscal Year-end Option Value Table
Three named executives exercised stock options during fiscal year 2005. The following table shows on an aggregate basis the number of shares acquired and value realized from such exercises, and summarizes the value at December 31, 2005, of all of the shares subject to options granted to the named executives of the Company.
Long-Term Incentive Plans-Awards in Last Fiscal Year
The following performance graph compares the cumulative total returns for Deltics Common Stock, the S&Ps Small Cap 600 Index and the S&Ps 500 Paper and Forest Products Index for the period December 31, 2000, through December 31, 2005. The performance graph assumes an investment on December 31, 2000, of $100 each in Deltics Common Stock, the stocks comprising the S&Ps Small Cap 600 Index and the S&Ps 500 Paper and Forest Products Index, and that all dividends were reinvested.
All rights reserved.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code generally limits the corporate tax deduction for compensation paid during a year to a public companys chief executive officer and its four other most highly compensated executive officers to $1,000,000 per individual, unless specified conditions are met. Certain performance-based compensation is not subject to the deduction limitation. The Company did not have non-deductible compensation expense during 2005 and is not expected to have such in 2006. Nevertheless, the Executive Compensation Committee intends to review this matter from time to time and, if appropriate and consistent with the Companys compensation philosophy, may recommend in the future that actions be taken, if needed, to maximize the amount of compensation expense that is deductible to the Company.
Effective upon the spin-off from Murphy Oil Corporation, the Company established its retirement plans for its employees. The following table shows the estimated annual pension benefit payable, at normal retirement age, under Deltic Timber Corporations Retirement Plan at December 31, 2005, for the compensation level and length of service indicated. The amounts shown are subject to reduction for social security benefits.
Pension Plan Table
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 2 ON PROXY CARD)
The Board of Directors desires to obtain from the stockholders an indication of their approval or disapproval of the Audit Committees action in appointing KPMG LLP, Certified Public Accountants, and an Independent Registered Accounting Firm, as independent auditors of the Company for the year 2006. KPMG LLP has been serving as the Companys independent auditors for the past nine years. The firm has advised the Company that its members have no direct or indirect financial interest in the Company or any of its subsidiaries. Members of the firm are expected to be present at the Annual Meeting for the purpose of responding to inquiries by stockholders and such representatives will have an opportunity to make a statement if they desire to do so.
In the event a majority of the stockholders voting should indicate they disapprove the appointment of KPMG LLP, the adverse vote will be considered as a directive to the Board of Directors to select other auditors for the following year. Because of the difficulty and expense of making any substitution of auditors during a year, it is contemplated that the appointment for 2006 will be permitted to stand unless the Audit Committee or Board of Directors finds other good reason for making a change.
REPORT OF THE AUDIT COMMITTEE
From its beginning as a publicly owned company at the end of 1996, the Company has had an Audit Committee (Committee) composed entirely of non-employee directors. All members of the Committee have been affirmatively determined by the Board to be independent under applicable SEC and NYSE criteria, and to meet financial literacy requirements. The Board of Directors has also determined that the Committees Chairman, J. Thurston Roach, meets or exceeds applicable professional experience and attribute requirements and has designated Mr. Roach as the Committees financial expert. The Committee has a written charter outlining the practices it follows that has been approved and adopted by the Companys Board of Directors. The Committees Charter can be accessed on the Companys website at www.deltic.com under the Corporate Governance part of the Investors Relations section, and was published as Annex A to the Companys Notice of Meeting and Proxy Statement dated March 22, 2004.
During the year 2005, at each of its meetings, the Committee met with senior members of the Companys financial management team, its internal auditor, the Companys General Counsel, and its independent auditors. The Committees agenda is established by the Committees Chairman. The Committee had private sessions at its meetings at least once each quarter with the Companys independent auditors and, separately, with the internal auditor, at which candid discussions took place regarding financial management, accounting, and internal control issues.
The Committee engaged KPMG LLP, an independent registered public accounting firm, as the Companys independent auditors, and approves in advance all audit and other fees charged. Its procedures for pre-approval of fees are for the Committees Chairman to be the lead contact regarding fees, and that for the general audit engagement, including tax return services, and any other significant items, the Chairman reports the proposed fee structure to the Committee and seeks approval thereof. For any minor expense items or projects that might arise, the Committee has delegated authority to its Chairman to negotiate and approve such arrangements.
The Committee has also reviewed with the Companys financial managers, its independent auditors and the Companys internal auditor the respective auditors overall audit scopes and plans, the results of internal and external audit examinations, the Companys internal and disclosure controls, including internal controls over financial reporting, and the quality of the Companys financial reporting.
In 2005, the Committee met ten times. Four of such meetings were held from July 20 to August 12 to review the Companys financial results and related SEC filings for the second quarter of 2005, and to address the
discovery by management of an overstatement in the books and records of the Company of the carrying value of inventory of third-party purchases of standing timber used to supply its Ola sawmill. Upon managements prompt disclosure to the Committee as well as to KPMG LLP of its discovery of the overstatement, the Company initiated with advice and guidance from the Audit Committee an internal investigation to discern the facts related to and to quantify the amounts involved. The overstatement arose from a procurement managers failure to report to and his concealment from accounting personnel the differences between actual harvest volumes from certain tracts of third-party purchased timber and the original estimates of the timber volume on such tracts determined when they were purchased and placed on the Companys books. On August 3, the Audit Committee approved a recommendation by management that the Company should file an amendment to its Annual Report on Form 10-K for the year ended December 31, 2004 to amend and restate its financial statements for the years 2002 through 2004, for the third quarter of 2002, and for each quarter of 2003 and 2004. The Audit Committee further determined at the meeting that in light of the restatement, Deltics previously filed financial statements for these periods should no longer be relied upon. While preparation of the restated Annual Report on Form 10-K was underway, the Audit Committee retained independent counsel and forensic accountants to review the results of the Companys internal investigation. On August 12, after receiving the reports of management, KPMG LLP and the Committees independent counsel and accountants, the Audit Committee approved the filing of the Companys amended and restated Annual report on Form 10-K/A-1 for the year ended December 31, 2004 (filed August 15, 2005).
As part of the above referenced internal investigation, management reviewed and evaluated the Companys internal controls over financial reporting and determined that material weaknesses existed with respect to accounting for third-party purchased standing timber inventory, and that as a result of such material weaknesses, the Companys internal controls over financial reporting as of December 31, 2004 were not effective. In order to remediate the material weaknesses in the Companys internal controls over financial reporting, various measures and improvements have been implemented. These measures were reported to the Audit Committee which offered its advice and comments thereto, and the Committee has received regular reports regarding implementation, review, and testing of the measures.
Management has reviewed the audited financial statements and related notes in the Annual Report on Form 10-K for the year ended December 31, 2005 with the Committee including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. In addressing the quality of managements accounting judgments, members of the Committee asked for managements representations that the audited consolidated financial statements of the Company have been prepared in conformity with generally accepted accounting principles, and have expressed to both management and auditors their general preference for conservative policies when a range of accounting options is available.
The Committee also discussed with the independent auditors other matters required to be discussed by the auditors with the Committee under Statement on Auditing Standards No. 61 (communication with audit committees). The Committee received and discussed with the auditors their annual written report on their independence from the Company and its management, which is made under Independence Standards Board Standard No. 1 (independence discussions with audit committees), and considered with the auditors whether the provision of non-audit services provided by them to the Company during 2005 was compatible with the auditors independence. Also, the Committee reviewed the Companys Managements Discussions of Analysis of Financial Condition and Results of Operations in the Companys Annual Report on Form 10-K for the year ended December 31, 2005, including the Companys most critical accounting policies identified therein.
In performing all of these functions, the Committee acts only in an oversight capacity. The Committee reviewed prior to the Companys public quarterly and annual announcements, financial results applicable for 2005, as well as the financial results prior to filing formal reports with the SEC. In its oversight role, the Committee relies on the work and assurances of the Companys management, which has the primary
responsibility for financial statements and reports, and of the independent auditors, who, in their report, express an opinion on the conformity of the Companys annual financial statements to generally accepted accounting principles.
In reliance on these reviews and discussions, the report of the independent auditors and pursuant to delegated authority from the Board of Directors, the Committee has approved inclusion of the audited financial statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2005, for filing with the SEC.
FEES PAID TO KPMG LLP IN 2004 AND 2005
For the years 2004 and 2005, the Company paid KPMG LLP fees in the amounts listed below for its services.
OTHER MATTERS TO COME BEFORE THE MEETING
The Board of Directors does not know of any matters which will be brought before the 2006 annual meeting other than those specifically set forth in the notice of meeting. If any other matters are properly introduced at the meeting for consideration, including, among other things, consideration of a motion to adjourn the meeting to another time or place, the individuals named on the enclosed proxy card will have discretion to vote in accordance with their best judgment.
The above Notice and Proxy Statement are sent by Order of the Board of Directors.
W. Bayless Rowe
PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE VOTING INSTRUCTIONS.
A Election of Directors (Item 1 in Proxy Statement)
1. The Board of Directors recommends a vote FOR the listed nominees.
B Issue (Item 2 in Proxy Statement)
The Board of Directors recommends a vote FOR the below listed item.
C Authorized Signatures Sign Here This section must be completed for your instructions to be executed.
Please sign exactly as your name appears hereon. For joint accounts, each owner should sign. When signing as executor, administrator, attorney, trustee or guardian, etc., please give full title. Please return promptly.
Proxy Deltic Timber Corporation
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING, APRIL 27, 2006
The stockholder(s) whose name(s) appears on the reverse side hereby appoints Robert C. Nolan and Ray C. Dillon, or each of them, as the stockholders proxy or proxies, with full power of substitution, to vote all shares of Common Stock of Deltic Timber Corporation which the stockholder is entitled to vote at the Annual Meeting of Stockholders to be held at the South Arkansas Arts Center, 110 East 5th Street, El Dorado, Arkansas, on April 27, 2006, at 10:00 a.m., local time, and any adjournments thereof, as fully as the stockholder could if personally present.
IMPORTANT This Proxy must be signed and dated on the reverse side.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE ON THE REVERSE SIDE, BUT IF NONE ARE INDICATED, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED ON THE REVERSE SIDE, AND FOR ITEM 2.
(Continued on reverse side)
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED POSTMARKED ENVELOPE.
Telephone Voting Instructions
You can vote by telephone! Available 24 hours a day 7 days a week!
Instead of mailing your proxy, you may choose the voting method outlined below to vote your proxy. Have this proxy card in hand when you call.
To vote using the Telephone (within U.S. and Canada)
If you vote by telephone, please DO NOT mail back this proxy card.
Proxies submitted by telephone must be received by 1:00 a.m., Central Time, on April 27, 2006.
THANK YOU FOR VOTING