Deltic Timber DEF 14A 2008
Documents found in this filing:
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 24, 2008, 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 7, 2008, 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 or internet 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 2007 Annual Report to Stockholders and Annual Report on Form 10-K are enclosed.
By Order of the Board of Directors,
Phillip A. Pesek
El Dorado, Arkansas
March 17, 2008
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE EITHER TELEPHONICALLY OR ON THE INTERNET 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 24, 2008, in El Dorado, Arkansas. Only stockholders of record at the close of business on March 7, 2008, (the Record Date) are entitled to notice of, and to vote at, the meeting. There were 12,456,156 shares of Deltic Common Stock outstanding and entitled to vote on March 7, 2008. This amount does not include 357,723 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 17, 2008, the Company is mailing its Annual Report for the year ended December 31, 2007 and its Annual Report on Form 10-K for 2007 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, on the internet, or to sign, date and return the accompanying proxy card.
When you vote by one of these three 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 or internet 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 or internet 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 2008. 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 or on the internet at any time up to 1:00 a.m. CDT on April 24, 2008, the date of the meeting (only the latest telephonic or internet 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.
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
Nominations. 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 Company or related industries.
Proposals. 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 in order to have a stockholder proposal included in the Companys proxy materials.
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 2009 ANNUAL MEETING
Stockholder proposals intended to be presented at Deltics 2009 Annual Meeting of Stockholders must be received by Deltics Secretary no later than January 23, 2009. 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 2009 proxy materials, applicable rules and regulations of the SEC.
STOCKHOLDER, EMPLOYEE, AND INTERESTED PARTY
COMMUNICATION WITH DIRECTORS
As set forth in the Companys Corporate Governance Guidelines, it is the policy of the Board of Directors that stockholders, employees, and other interested parties be able to communicate directly with members of the Board of Directors, including non-management and independent directors. All 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. Employees of the Company may also utilize this 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 2007, Deltics Board of Directors held six meetings. Also during the year, the Boards Audit Committee, Executive Committee, Executive Compensation Committee and Nominating and Corporate Governance Committee, held eight, six, three and five 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 2007 Annual Meeting of Stockholders, except for O.H. Darling, Jr.
On February 15, 2007, the Company announced several changes to its Board of Directors. A recommendation from the Boards Nominating and Corporate Governance Committee was unanimously approved and a new director was elected to each of the three classes of the Board. The new directors and their respective Board Class are Randolph C. Coley Class II, David L. Lemmon Class III, and Robert B. Tudor, III Class I.
Alex R. Lieblong, a founding member of the Companys Board, retired from Board service effective February 15, 2007, and John C. Shealy, another founding member of the Board, retired from Board service when his term of office expired at the Annual Meeting of Stockholders on April 26, 2007. The Company also announced that O.H. Darling, Jr., a founding member of the Companys Board, will not seek re-election to the Board and will retire from Board service when his term of office expires at this years Annual Meeting of Stockholders on April 24, 2008.
To assist in fulfilling its responsibilities, Deltics Board of Directors has established four principal committees: the Audit Committee; the Executive Committee; the Executive Compensation Committee and the Nominating and Corporate Governance 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. Coley, Pierson, Lemmon and Tudor. 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 is attached hereto as Appendix A to this Notice of Meeting and Proxy Statement, 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 47 through 48 of this Proxy Statement for the Committees 2007 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 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, Darling, Murphy and Roach. 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 other matters, 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. Nolan, ex officio, Pierson, Roach, Tudor, Lemmon 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.
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, Nolan, ex officio, Roach and Coley. 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.
Preceding sections of this Proxy Statement have referenced the determination of the Board of Directors regarding the independence of the Companys directors, the Companys Code of Business Conduct and Ethics and Corporate Governance Guidelines. This section provides additional information concerning these subjects.
Annually, 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, (i) 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 (ii) the director or an immediate family member is currently a partner (or employee who participates in the audit of or tax compliance for the Company) of the Companys independent auditor, or was within the last three years (but is no longer) the director or an immediate family member was a partner or employee of such firm and personally worked on the Companys audit within that time, or (iii) if any executive officer of the Company was a member of the compensation committee of the board of directors of a company that employed either the director or an immediate family member of the director as an executive 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 (not including director and committee fees) 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 is an employee of, or whose immediate family members is a current executive officer of, another company that has made payments to or received payments from the Company for property or services in an amount that in any of the last three fiscal years exceeds the greater of $1,000,000 or two percent of the other companys consolidated gross revenues.
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. Coley, Darling, Lemmon, Murphy, Nolan, Pierson, Roach, Tudor 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 as chairman of 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, employee, and other interested party 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 of Directors. 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.
ELECTION OF CLASS III DIRECTORS
(ITEM 1 ON PROXY CARD)
The Board of Directors currently consists of ten members, although this will decrease to nine members following Mr. Darlings retirement as a director on April 24, 2008. Directors are divided into three Classes, as equal in number as possible. 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 is elected each year to succeed the directors whose terms are expiring. Except for Mr. Lemmon, who was one of the new directors elected to the Board of Directors on February 15, 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 and will stand for
re-election for a three-year term at this years meeting. Except for Mr. Tudor, who was one of the new directors elected to the Board on February 15, 2007, the directors in Class I were elected at the 2006 Annual Meeting to serve for a term expiring at the Companys Annual Meeting in the year 2009. The directors in Class II were elected at the 2007 Annual Meeting to serve for a term expiring at the Companys Annual Meeting in the year 2010.
Deltics Board of Directors has proposed the following nominees for election as directors at the 2008 Annual meeting:
NOMINEES FOR CLASS III DIRECTORS
With Terms Expiring at the Annual Meeting in the Year 2011:
Christoph Keller, III
David L. Lemmon
R. Madison Murphy
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 IIITerms Expiring in 2011
Reverend Christoph Keller, III, 53, 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 Board of Directors Executive Compensation Committee.
David L. Lemmon, 66, was elected to fill a newly created position on the Companys Board of Directors on February 15, 2007. Mr. Lemmon served as President and Chief Executive Officer of Colonial Pipeline from November 1997 until his retirement in March 2006. Prior to his tenure at Colonial Pipeline, Mr. Lemmon held various positions with Amoco Corporation over thirty-two years. Mr. Lemmon was elected as a director of Pacific Energy from July 2002 until the company was sold in November 2006, and served on that companys Audit, Conflicts, and Nominating and Compensation committees. Mr. Lemmon is currently a member of the Board of Directors for Kirby Corporation and Teekay Offshore Partners where he serves on the Audit Committee and Audit and Conflicts Committees, respectively, for the two companies. Mr. Lemmon serves as a member of the Board of Directors Audit Committee and the Executive Compensation Committee.
R. Madison Murphy, 50, 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 a director of Murphy Oil Corporation where he chairs that companys Audit Committee and is a member of its Executive Committee and also is a director of BancorpSouth, Inc. and serves on that companys Audit Committee. Mr. Murphy serves as Chairman of the Board of Directors Executive Compensation
Committee and as a member of the Executive Committee and the Nominating and Corporate Governance Committee.
DIRECTORS WHOSE TERM OF OFFICE CONTINUE
Class ITerms Expire in 2009
Ray C. Dillon, 52, has been the Companys President and Chief Executive Officer and a director since July 1, 2003. Mr. Dillon has 29 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.
Robert C. Nolan, 66, has been the Companys non-employee Chairman of the Board of Directors since December 17, 1996. For the past 36 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 34 years experience in timberland management. Mr. Nolan is also a director of BancorpSouth, Inc. and serves on that Companys Executive, Executive Compensation and Nominating committees. Mr. Nolan is Chairman of the Board of Directors Executive Committee, and by virtue being Chairman of the Board 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.
Robert B. Tudor, III, 49, was elected to fill a vacancy on the Companys Board of Directors on February 15, 2007. Mr. Tudor has been the Chief Executive Officer and a partner of the investment banking firm of Tudor, Pickering & Co. since 2006. Prior to the formation of Tudor, Pickering & Co., Mr. Tudor worked for Goldman Sachs where he served as a Managing Director in its London, England, and later its Houston, Texas offices from August 2000 through May 2005. Mr. Tudor serves as a member of the Board of Directors Audit Committee and Executive Compensation Committee.
Class IITerms Expire in 2010
Randolph C. Coley, 61, was elected to fill a newly created position on the Companys Board of Directors on February 15, 2007. Mr. Coley is a partner in the Houston, Texas office of the King & Spalding LLP law firm where his practice is concentrated in the areas of corporate and securities law. Mr. Coley was managing partner of the firms Houston office from 2001 to 2005. Mr. Coley serves as a member of the Board of Directors Audit Committee and Nominating and Corporate Governance Committee.
R. Hunter Pierson, Jr., 56, 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, 66, has been a director since December 18, 2000. Mr. Roach has been engaged since 2002 in private investments. Previously he served as President, Chief Executive Officer, and a director of HaloSource Corporation, (2000-2001) and as Chief Financial Officer and Senior Vice President of Owens Corning (1998-2000). From 1979 to 1998, Mr. Roach served in a variety of executive positions with Simpson Timber Company and its successor, retiring as Vice-Chairman. 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 is also a director of CellFor Inc., a Canadian company and NBBJ Design LLP, a Seattle, Washington partnership. Mr. Roach serves as Chairman of the Board of Directors Audit Committee, and as a member of the Board of Directors Executive Committee, Nominating and Corporate Governance Committee and Executive Compensation Committee. The Board of Directors has designated Mr. Roach as the Audit Committees financial expert.
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 12 of this Proxy Statement.
The Nominating and Corporate Governance Committee, pursuant to its charter, reviews all related party transactions and determines whether such transactions are appropriate for the Company to undertake. In addition, each January, every officer and director receives a questionnaire, which asks questions, among other things, relating to possible relationships, transactions and indebtedness that could lead to a reportable related party transaction. In 2007, no reportable transactions occurred.
The Company also manages timberland for third parties, which include certain directors or companies in which they hold a direct or indirect material interest. Such directors or companies pay fees to the Company related to the timberland management (on a per acre charge), silviculture (administrative fee) and/or timber sales (commission percentage). The fees paid are based upon the same rates charged to any other non-related third party. In 2007, no fees paid to the Company by the affected directors or their companies, on an individual basis, exceeded the threshold amount of $120,000.
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 filed during the year 2007, Form 5s filed 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 2007.
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 (i) 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, (ii) for each director (including those nominated for re-election), (iii) each of the named executives listed in the Summary Compensation Table on page 30 of this Proxy Statement, and (iv) directors and officers as a group.
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OWNERSHIP OF DIRECTORS AND OFFICERS (1)
Compensation Discussion and Analysis
Overview of the Companys Compensation Program
The ultimate responsibility for structuring, implementing, and overseeing the compensation programs of Deltic Timber Corporation (the Company) lies with its Board of Directors (the Board). The Executive Compensation Committee (the Committee) of the Companys Board represents for some matters, and in other matters, acts to assist, the Board in fulfilling its compensation-related responsibilities. For additional information regarding the Committee, please refer to its description on page 5. Throughout the year ended December 31, 2007, except as noted otherwise, the members of the Committee were: R. Madison Murphy, Chairman; Reverend Christoph Keller, III; Robert C. Nolan, ex officio; R. Hunter Pierson, Jr.; J. Thurston Roach; David L. Lemmon (since February 15, 2007) and Robert B. Tudor, III (since February 15, 2007). All Committee members are directors appointed by the Board, and affirmatively determined to meet the independence requirements established in Section 303A of the NYSE Corporate Governance rules. The Committee, in consideration of the Companys compensation philosophy and objectives, established the total compensation paid to the Companys employees in fiscal 2007 of whom five are its most highly compensated executives, including the Companys Chief Executive Officer and Chief Financial Officer, and two executives who retired during fiscal 2007. Throughout this Compensation Discussion and Analysis, these five most highly compensated executives and two retired executives, as listed in the Summary Compensation Table, are referred to as the Named Executive Officers.
Compensation Philosophy and Objectives
The Companys basic compensation philosophy is that an effective executive compensation program must be fair and reasonable, but also competitive. It must also be structured with the objectives to (i) attract talented, competent, and resourceful executives capable of leading a resource-challenged company in meeting its fair, but aggressive performance targets, (2) reward achievement of Company strategic objectives and goals, (iii) retain executive talent through the use of such compensation features as vesting requirements and competitive retirement and benefit programs that encourages and rewards tenure, and (iv) align the executive officers financial interests with those of the stockholders for the ultimate objective of increasing stockholder value. To this end, the Committee annually reviews, among other factors, progress toward and/or attainment of strategic objectives established by the Board, the Companys periodic operational and financial performance, the competitiveness of the Companys compensation program and stockholder returns. Accordingly, the Committee
specifically structures how the components of the total compensation, including base salary, various forms of incentive compensation, equity compensation, and other benefits are to be paid to each of the Named Executive Officers in furtherance of the Companys compensation philosophy and objectives.
Structuring Executive Compensation
Based on the foregoing considerations, the Committee ultimately exercises its collective business judgment, which necessarily entails both objective and subjective elements, in structuring the total compensation paid to the Named Executive Officers. In an effort to further objectify the structuring of the Companys executive compensation programs and in adherence with its philosophy that compensation be fair, reasonable and competitive, the Committee undertook a comprehensive review of the Companys compensation programs for all employees, to include the Named Executive Officers, in 2003. To assist its review, the Committee retained the services of a compensation consultant, the independent and nationally recognized firm of Mercer Human Resource Consulting (Mercer). Mercer was asked to survey various peer groups (discussed below) and recommend market-based, position-based levels in the following three areas of compensation, (i) base salary, (ii) non-equity compensation targets, and (iii) equity-based compensation. Each year, Mercer provides the Company with this data.
In addition to utilizing the data provided by Mercer, each year, the Committee takes into consideration the following factors in making any compensation decision. These are:
Position, Experience and Responsibility
In determining the level of benefit for each Named Executive Officer, the Committee takes into account the nature and responsibility of the respective positions. Therefore, the CEO, due to the nature of his experience, duties and responsibilities, receives a larger base salary and greater benefits than a Vice President reporting to him, who has a narrower scope of responsibilities. However, one Vice President may have a larger base salary and greater benefits than another officer if the Vice President has more duties, experience and responsibilities than the other officer. Therefore, the Committee reviews the experience, duties and responsibilities with regard to each Named Executive Officer to make this determination.
Compensation decisions, although largely objective under the Companys compensation philosophy, can be influenced by good or bad performance as it relates to the Companys approved budget. Therefore, the Committee looks to the CEO for his recommendation with regard to each Named Executive Officer, except for himself. The CEOs recommendations are, for the most part, subjective, but can influence the Named Executive Officers base salary and equity awards. The Committee will make its own independent review of the CEOs performance.
In setting compensation levels, it is important to make sure such compensation levels are competitive in the industry in which the Company competes. The Committee worked with Mercer to develop a compensation peer group for benchmarking the Companys compensation programs to those of other, similarly situated companies. In selecting the peer group companies, consideration was given to the Companys size and its product markets. Companies of relatively similar size and/or within the Companys same product markets were determined to best represent the Companys most direct competition for raw materials, products, human resources (including executive talent), and stockholder investment. Accordingly, the peer group developed by Mercer and the Committee consists of relevant cross sections from within three distinct subset groups, which are: (1) a group of large forest products peer companies; (2) a group of small forest products peer companies; and (3) a group of relevant multiple survey sources developed from Mercers proprietary database. As recommended by Mercer, and selected by the Committee, the companies currently comprising the Committees compensation peer group are listed as follows:
After it was developed in 2003, the compensation peer group became the primary factor that the Committee has employed in structuring fair, reasonable, and competitive levels of total compensation for the Companys employees including its Named Executive Officers. This group represents the market from which the Committee benchmarks a fair value to be paid for human capital, including executive talent. Generally, as a matter of business judgment, the Committee seeks to maintain levels of total compensation for each of the Named Executive Officers that will be near the median of that provided to their peers by the companies within the compensation peer group. The median information is determined and reported annually by Mercer, which employs quantitative methods of statistical and actuarial data analysis of various forms of publicly reported market information as well as from its own internally generated data. Mercer also provides its own qualitative observations regarding compensation to the Committee.
Total Compensation Goal
As will be explained in more detail in the following section, the Committee takes into consideration the above factors when it creates a total compensation package for each Named Executive Officer to accomplish its compensation philosophy. The Committee annually reviews the data and information provided by Mercer during its February meeting when making compensation decisions regarding the Companys Named Executive Officers. The review entails, in part, the use of tally sheets, which show a historical summary of base salary, annual bonus, and equity awards for each Named Executive Officer. Such are useful, when reviewed against individual performance, in determining the extent and justification for awarding increases in the various components of total compensation and in setting incentives for the Companys Named Executive Officers.
The various allocations of base salary, performance-based non-equity incentive compensation, long-term equity-based compensation, and other forms of compensation paid to each of the Named Executive Officers represent the collective business judgment of the Committee made in the furtherance of the Companys operating
objectives. Accordingly, the allocated percentage of each compensation component, in relation to the total compensation paid, will vary with each of the Named Executive Officers and may vary from year to year. These differences may reflect a restructuring of a Named Executive Officers total compensation in response to changes in the Companys operating objectives, or changes in the compensation peer groups practices, but may also merely reflect the individuals personal vesting and exercise of equity awards previously granted, or assumption of additional responsibilities. These allocations of compensation are reviewed annually due to the dynamics of the markets in which the Company operates and competes, and in consideration of updated compensation consultant data and updated public reports from the Companys compensation peer group.
In summary, the executive compensation practices and trends of the Companys compensation peer group, as reported by Mercer, have a considerable bearing upon how the Committee structures total compensation packages designed to reward executive performance, retain executive talent, and align the executive officers financial interests with those of the Companys stockholders.
Components of Executive Compensation in 2007
The Companys executive compensation program consists of several components, as illustrated in the table below. A detailed discussion of each compensation component will follow the table.
The primary purpose of the base salary component is to provide the recipient a steady stream of income consistent with the level of responsibility, qualifications and contribution over time. Base salary is determined and reviewed annually in February for each Named Executive Officer by the Committee which considers the following factors:
For each Named Executive Officer, specific base salary data of other executives within the Companys peer group, and the resulting statistical median level, is provided by Mercer and reviewed by the Committee. The Committee may adjust the Named Executive Officers base salary to (i) reflect changes in the aforementioned compensation peer group data, (ii) reward performance, and (iii) reflect increased responsibilities and/or promotions. Adjustments in base salary are usually made effective March 1 of each year unless circumstances may otherwise dictate (e.g. upon promotion).
During 2007, the base salaries for all Named Executive Officers were changed as follows:
Performance-Based Non-Equity Incentive Compensation
The primary purpose of performance-based non-equity incentive compensation is to motivate and reward performance and it takes the form of an annual cash payment, paid in arrears, to reward the achievement of specific Company-wide and/or business segment performance goals during the prior fiscal year. The Company-wide performance goal for the 2007 fiscal year was a financial measure based on GAAP net income, as set by the Committee in February 2007. In previous years, the Company used return on capital employed (ROCE). However, in 2007, the Committee concluded that the change to an audited GAAP financial figure would add an unquestionable component to the calculation of non-equity compensation. In setting the Companys net income target, the Committee utilized its collective business judgment in its review and establishment of Company objectives based on the Companys business plan for the year, along with its key underlying assumptions and expectations, as well as then-existing (and anticipated) market conditions for the Companys products. The calculation of the compensation to be paid to the Named Executive Officers, under the Companys non-equity incentive plan, is dependent upon the actual net income figure achieved by the Company for the subject year. The greater the net income result, the greater the cash award paid to the Named Executive Officers and other participants in the annual incentive plan.
In structuring the non-equity compensation targets, the Committee determined the nature of the duties performed by Messrs. Dillon, Mann, Walker, Vaughan and Rowe were pervasive to the Companys operations. Accordingly, their targets under the non-equity incentive compensation plan are linked exclusively to the Companys net income figure. By contrast, the duties of Messrs. Streeter and Meghreblian are more narrowly focused on the Companys operations and Real Estate segments, respectively, which in turn significantly impact the Companys overall performance. Accordingly, their targets reflect an equal weighting between the performance of their respective segments and the Companys overall performance as expressed in the net income calculation. Each business segments operating performance is measured against the business segments Board-approved financial budget, which budget is approved in December before the start of the fiscal year.
In February, 2007, the Committee established the following performance target and pay-out percentages:
For the year 2007, the Companys calculated net income of $11.111 million exceeded the threshold level of $10.6 million. The difference by which the calculated net income figure exceeded the threshold level yielded an interpolated bonus payout percentage of 58.81% of target, which provided the non-equity incentive compensation calculations for the Named Executive Officers as follows:
Long-Term Equity-Based Compensation
As a measure to retain employees and to align their interests, and directors interests, with those of the stockholders, the Company has adopted stockholder-approved equity-based compensation plans. Equity-based compensation plans are similarly employed by the Companys compensation peer group for, presumably, the same reason. The Company currently has no formal requirement for its employees, to include the Named Executive Officers, or for its directors to hold equity in the Company, but encourages it, as all grants of equity-based compensation from the Committee have entailed a time vesting requirement. The terms of the particular form of the grant dictate the rights conferred to the recipient and are issued as an incentive for the recipients, including the Named Executive Officers, to hold equity in the Company over time in anticipation of realizing maximum gain with regard to these awards. Because the equity awards conferred under these plans are generally non-assignable, the Company currently has no policies regarding hedging agreements for these awards, which can take the various forms as described in the Companys two equity-based incentive plans described below.
The 1996 Stock Incentive Plan. The Companys first equity-based compensation plan, the 1996 Deltic Timber Corporation Stock Incentive Plan (the 1996 SIP), was superseded by the Deltic Timber Corporation 2002 Stock Incentive Plan (the 2002 SIP). As detailed herein at the 2007 Outstanding Equity Awards At Fiscal Year-End Table, p. 35, some stock option awards granted to certain of the Named Executive Officers under the 1996 SIP still remain active.
The 2002 Stock Incentive Plan. The Deltic Timber Corporation 2002 Stock Incentive Plan (the 2002 SIP) was approved by the Companys stockholders at its annual stockholders meeting on April 25, 2002 as the
successor plan to the 1996 SIP. Equity incentive awards granted by the Committee in February 2002 were granted under the 2002 SIP subject to its approval by the stockholders. Following the approval, no new awards could be granted under the 1996 SIP. As of December 31, 2007, there were 29,179 shares underlying option awards granted under the provisions of the 1996 SIP that remained outstanding. Of these 18,929 shares underlie grants to the Named Executive Officers. The Company filed its registration statement for 1,800,000 common shares designated for the 2002 SIP with the Securities and Exchange Commission on June 7, 2002.
The Committee administers the 2002 SIP and has broad discretion in the granting of awards including, but not limited to, the number of shares and provisions regarding grant price, expiration date, exercisability, vesting, forfeiture, transfer restrictions and payment and the impact, if any, of termination of employment on the foregoing. Awards that may be granted to the Companys employees, including its Named Executive Officers, and its non-employee directors by the Committee include:
(1) Options. The Committee may grant incentive stock options (ISOs) or non-qualified stock options, which are the contractual right to purchase a specified number of shares of the Companys common stock at a specified price (the exercise price) within a time period not to exceed ten years after the grant date. Originally, the Company granted a combination of both ISOs and non-qualified stock options, but has not issued any ISOs since 1999. Exercise of options, subject to the rules imposed by the Committee, may be paid in whole or in part in (i) cash, (ii) whole shares of common stock evidenced by negotiable certificates valued at the fair market value on the date of exercise, (iii) by a combination, or (iv) by such methods of payment or other consideration as shall be approved by the Committee.
(2) Performance Units. The Committee may grant performance units, subject to the terms of the plan, which may be payable in cash, stock (to include restricted stock), other securities, or other awards or other property, and which shall confer on the Participant a contractual right to redeem, in whole or in part, upon the achievement of such performance goals as the Committee shall establish for the respective performance period. The Committee determines the performance goals (discussed below) to be achieved, the length of the performance period, the amount of the performance units granted and the amount of any payment or transfer to be made pursuant to any performance unit. Thus far, the performance units that have been granted have been in the form of performance-based restricted stock.
(3) Restricted Stock and Restricted Stock Units. The Committee may grant restricted stock and restricted stock units, although, to date, only restricted stock has been issued. Shares of restricted stock will be subject to the conditions as the Committee may impose, which may include prohibitions against selling, transferring, pledging, assigning or other alienation or hypothecation until such time or until the satisfaction of such conditions or the occurrence of such events as shall be determined by the Committee either at or after the time of grant. Participants holding shares of restricted stock may exercise full voting rights with respect to those shares during the time such are restricted and, subject to forfeiture and transfer restrictions, be entitled to receive all dividends and other distributions paid with respect to those shares.
(4) Other Stock-Based Awards. The Committee may grant other stock-based awards including stock appreciation rights (SARs), rights to dividends, and dividend equivalents, but, to date, has not issued any such awards. An SAR represents the contractual right to receive, upon exercise, an amount equal to the excess, if any, of the fair market value of underlying shares over the pre-established exercise price. SARs may be granted to Participants at such times as shall be determined by the Committee and subject to the terms and conditions, not inconsistent with the plan, as the Committee may impose.
In 2007, under the provisions of the 2002 SIP, the Committee granted non-qualified stock options and shares of time-based and performance-based restricted stock to certain of the Companys employees, including the Named Executive Officers, and to the Companys non-employee directors. The 2007 awards to the Named Executive Officers are listed below as well as in the 2007 Grants of Plan-Based Awards Table, p. 33. The cumulative awards are shown in the Outstanding Equity Awards At Fiscal Year-End Table, p. 35, and the Director Compensation Table, p. 41. These awards vest with the passage of time as determined by the Committee at the time of grant. The details of these grants are described in the footnotes to those tables.
In order to determine the amount of each annual equity award, the Committee, in its February meeting, with the assistance of Mercer, determines a specific dollar amount for each officer or manager eligible for such awards. The specific dollar amount is based upon the median amount of equity-based compensation of the same compensation peer group, established by Mercer, as used is setting base salary. The dollar amount is calculated, taking into consideration the nature of the officers or managers position, his/her responsibilities and contributions to the Company and equivalent awards to officers or managers in similar positions within the Companys compensation peer group. Once a dollar amount is calculated, it is distributed equally between (i) time-based restricted stock, (ii) performance-based restricted stock, and (iii) non-qualified stock options. The Committee uses the following methodology to convert the dollar amounts to specific shares or options. With regard to time-based restricted stock, the dollar amount is divided by a share price that is chosen by the Committee, which closely approximates the trading value of the Companys stock before the February meeting. In 2007, the stock price chosen was $52.00. With regard to performance-based restricted stock, the target shares are calculated by dividing the number of time-based restricted shares by 88%, which represents a 12% discount (discount of 3% per year of vesting) to take into account the nature of the risk of performance-based restricted shares. With regard to the stock options, the dollar amount is divided by the Black-Scholes value of the stock option, which in 2007 was $19.06.
In 2007, the following equity awards were made to the Named Executive Officers.
Performance GoalsPerformance-Based Restricted Stock Awards. The vesting of performance-based restricted stock awards is both time and performance-based. Although the restricted stock award includes the targeted amount of shares, the actual number of shares, if any, that vest for each of the Named Executive Officers will be determined at the end of a four-year period (the Restricted Period). The ultimate vesting of the performance stock is dependent upon the Companys performance, in terms of its Total Stockholder Returns, relative to the composite of Total Stockholder Returns for a select group of companies during two measurement periods. The measurement periods for each grant are: (1) the first market trading day in the year of grant through the end of the day of the Committees February meeting that year; and (2) the first market trading day in the year of vesting through the end of the day of the Committees February meeting that year. Total Stockholder Returns is defined as an investments percentage change from the initial measuring period to the ultimate measuring period, factoring in dividends, capital gains and reinvestment of distributions.
The following companies were selected by the Committee for purposes of establishing the composite Total Stockholder Returns:
The Committee, in its collective business judgment, selected these companies for measuring the Companys performance with regard to awards of the performance-based restricted stock as best representing the Companys most direct competition for investment from the stock market. The Committee believes that Total Stockholder Returns is a key factor for investors that choose to invest in the Companys market sectors. The reporting of the Total Stockholder Returns figure to the Committee is performed by the firm of Standard and Poors. As of December 31, 2007, none of the performance-based restricted stock awards have vested.
For all performance-based restricted stock awards granted since 2004, the Committee has established the following vesting schedule for each award:
Employment Termination. With regard to both the 1996 SIP and 2002 SIP, and unless otherwise determined by the Committee, if a Participants employment terminates (i) at normal retirement time, (ii) for permanent and total disability, (iii) with Company approval and without being terminated for cause or (iv) by reason of death, any options granted that remain outstanding may be exercised by the Participant (or the Participants beneficiary or legal representative) upon the earlier of the options expiration date or within two years of the termination of
employment. Also, and unless otherwise determined by the Committee, any time-based or performance-based restricted share awards then outstanding shall be prorated based on the number of months of actual participation within the relevant restricted period.
Amendments to the Plans. To prevent dilution or enlargement of the benefits intended, the Committee may in such manner, as it deems equitable, make certain adjustments in the terms and conditions of the 1996 SIP and 2002 SIP in recognition of unusual or non-recurring events affecting the Companys shares. The Board may amend the plans or any provision thereof without the consent of the stockholders except in the case of any amendments that require stockholder approval in order to comply with applicable law or with the NYSE listing requirements. The Board may terminate the plan in whole or in part at any time provided that no such termination will impair the terms of the awards then outstanding under which the obligations of the Company have not been fully discharged.
Retirement Benefits and Retirement Savings Plan
The Company offers certain retirement benefits and a retirement savings plan to its employees, including the Named Executive Officers. Those retirement benefits and retirement savings plans are described as follows:
Retirement Benefits. All employees, including the Named Executive Officers, are eligible to participate in the Retirement Plan of Deltic Timber Corporation (the Retirement Plan), a qualified defined benefit retirement plan, upon achieving 1,000 hours of service during a 12 month period after beginning employment with the Company. All participants earn the right to receive a monthly benefit for life upon retirement at the normal retirement age of 65. The retirement benefit is defined by a calculation, which is illustrated below:
[1.6% x Average Monthly Compensation x years of benefit service] minus
[1.5% x Primary Social Security Benefit x years of benefit service (limited to 33 1 /3 years)]
Average Monthly Compensation is defined as the employees highest 36 consecutive months of total compensation (salary and bonus) out of his/her final 120 months of employment covered by the Retirement Plan.
Primary Social Security Benefit is defined as the amount of the estimated Social Security benefit available at the normal retirement age of 65.
If the participant retires between the ages of 55 and 61 and has 10 or more years of vesting service, the participant can begin receiving a reduced monthly benefit as defined by formula in the Retirement Plan. The Retirement Plan does not require participants to retire at the normal retirement age. For those participants that retire later, the benefit calculation will use the actual retirement date and in no event will such benefit be less than that accrued at the normal retirement date increased actuarially to the later retirement date.
The entire cost of the Retirement Plan is paid by the Company (the Sponsor) and employees are neither required nor permitted to make contributions to the Retirement Plan. Five years of service is the vesting period for the Retirement Plan. The provisions of the Retirement Plan, and the investment of its assets, are overseen by the Companys Pension Investment & Employee Benefits Committee, whose members are appointed by the Board. These members are currently the Named Executive Officers, Ray C. Dillon and Kenneth Mann as well as Phillip A. Pesek, who deliver a report annually to the Executive Compensation Committee. Trusco Capital Management, a subsidiary of SunTrust Bank of Nashville, Tennessee, serves as the Retirement Plans trustee and the Pension Investment & Employee Benefits Committee has retained the firm of Merrill-Lynch to assist it in investment management oversight. The independent employee benefits consulting firm of Bryan, Pendleton, Swats and McAllister of Jackson, Mississippi, serves as actuary for the Retirement Plan.
Retirement Savings Plan. The Company offers a qualified defined contribution savings plan [Internal Revenue Code Section 401(k)] to its employees, to include the Named Executive Officers, known as the Thrift Plan of Deltic Timber Corporation (the Thrift Plan), for which the Company will fully match the first 5% of tax-deferred base salary and non-equity compensation contributed by the employee. All contributions, to include the Company match, are fully vested upon contribution. No Company matching levels exist beyond the employees 5% contribution, but employees are otherwise able to contribute up to the limit prescribed by the Internal Revenue Code to the plan on a pre-tax basis. Thereafter, employees may also make contributions to a supplemental account on an after-tax basis.
The Thrift Plan provides various investment funds to which employee contributions, along with the Companys match, may be directed by the employee for investment. With limited exceptions as provided by the Internal Revenue Code, the before-tax invested funds may not be withdrawn until the participant reaches age 59 1/2. The provisions of the Thrift Plan, and the investment of its assets, are overseen by the Companys Pension Investment & Employee Benefits Committee, described above. SunTrust Bank of Nashville, Tennessee serves as the trustee and administrator. The Thrift Plan began in 1983 and was amended to its current form, in conjunction with the Companys stock becoming publicly traded, effective January 1, 1997.
Supplemental Executive Retirement Plan
In addition to the Retirement Plan and Thrift Plan listed above, which are provided to all employees, the Company provides a supplemental executive retirement plan (the SERP) to its Named Executive Officers. The current SERP was amended and restated effective January 1, 2005 for conformance with the requirements of Internal Revenue Code Section 409(a) and has the intended purpose of restoring Retirement Plan and Thrift Plan benefits that would otherwise be unavailable to the Named Executive Officers due to limitations imposed by the Internal Revenue Code. The SERP constitutes an unsecured promise of the Company to pay benefits to the Named Executive Officers, and their beneficiaries, in the future upon the occurrence of certain payment events. Currently, the SERP is unfunded for federal tax purposes and for purposes of Title I of the Employee Retirement Income Security Act (ERISA) of 1974. Though unfunded, the SERP account of each Named Executive Officer remains an unsecured contractual obligation of the Company. The amounts of those obligations are detailed in the 2007 Non-Qualified Deferred Compensation Table, p.40.
The provisions of the SERP, and the investment of its assets, are overseen by the Committee. Investment options available to the Named Executive Officers in their SERP accounts are the same that are available to all employees under the Thrift Plan. Accordingly, the earnings on these investments are not regarded as preferential.
Perquisites and Other Personal Benefits
Incidental to their employment by, and the nature of their duties to the Company, the Named Executive Officers receive other forms of compensation including perquisites and personal benefits. For the 2007 fiscal year, none of the Named Executive Officers reported receiving total perquisites and personal benefits that met the disclosure threshold of $10,000. As to other types of compensation received in 2007 that do not fit within the definition of perquisites or personal benefits, such includes, among other things, a Company match on Thrift Plan contributions and the sale of up to one week accrued, but unused vacation time back to the Company each year. These other income items are detailed for each of the Named Executive Officers in the 2007 All Other Compensation Table, p.32.
Role of Executive Officers in Compensation Decisions
The Committee annually reviews each component of the total compensation paid to each Named Executive Officer during its February meeting. Such entails salary review as well as the establishment of performance
targets related to the Companys incentive compensation plans. At this meeting, the President and Chief Executive Officer presents his evaluation of the performance of the other Named Executive Officers and his compensation recommendations to the Committee. The Committee exercises its discretion in accepting or modifying these recommendations and independently makes the performance evaluation and compensation decisions with regard to the President and Chief Executive Officer. No other Named Executive Officer presents compensation recommendations to the Committee. The Committee members also variously interact with the Named Executive Officers through the Companys internal reporting procedures and during Board meetings and Board committee meetings where their own personal performance evaluations of the Named Executive Officers can be made.
Agreements Between The Company and The Named Executive Officers
In the event of an unforeseen event (e.g. sale of the Company followed by termination, reduction in benefits or responsibilities), each executives financial future should be protected to a certain degree, based upon the executives position and responsibility. Therefore, the Company has change-in-control agreements in place with each of the Named Executive Officers except for Mr. Walker, all of which were amended on October 18, 2006 and were duly reported on Form 8-K filed with the SEC. The Committee approved the terms of these agreements, which are intended to conform with the provisions of Internal Revenue Code Section 409A. For purposes of these agreements, a change in control has the same definition as that provided in the Companys 2002 Stock Incentive Plan. These agreements, each with a double trigger feature, will result in the transfer of benefits to the affected Named Executive Officer if a change in control of the Company occurs, and he is involuntarily dismissed within two years without cause or suffers (i) a reduction in salary and potential bonus and/or (ii) a meaningful diminution in job responsibility as a consequence of such a change in control. In such events, the benefits, and the terms for the benefits, to be transferred to the Named Executive Officers are as follows:
The specifics of potential payments under these agreements are listed in the 2007 Potential Payments Upon Termination or Change Of Control Table, p. 43.
Involuntary Severance Agreements
The Company has an involuntary severance agreement in place with its President and Chief Executive Officer, Mr. Dillon, which was amended on October 18, 2006 and duly reported on Form 8-K filed with the SEC. The Committee approved the terms of this agreement, which upon an involuntary termination without cause, will result in the transfer of the following benefits:
The specifics of potential payments under this agreement are listed in the 2007 Potential Payments Upon Termination or Change Of Control Table, p. 43.
No other terms, conditions, or agreements are applicable to these aforementioned change-in-control agreements or severance agreement.
Tax and Accounting Implications
Tax Deductibility of Executive Compensation
The Committee annually reviews and considers the deductibility of executive officer compensation under Section 162(m) of the Internal Revenue Code, which is discussed herein at page 47.
Non-Qualified Deferred Compensation
The tax rules applicable to non-qualified deferred compensation arrangements were impacted by the enactment of the American Jobs Creation Act on October 22, 2004. As of December 31, 2007, the final regulations were not yet effective. However, the Company believes it is operating in good faith with regard to the statutory provisions that were effective as of January 1, 2005.
Accounting for Equity-Based Compensation
Beginning January 1, 2006, the Company began accounting for equity-based awards granted under the 1996 SIP and the 2002 SIP in accordance with the requirements of the Financial Accounting Standards Boards (FASB) Statement 123(R) on a going forward basis. Prior to January 1, 2006, the Company utilized the Accounting Principles Boards (APB) Opinion No. 25 to account for equity-based payments granted under its 1996 SIP and its 2002 SIP.
COMPENSATION COMMITTEE REPORT
The Executive Compensation Committee of the Board of Directors for Deltic Timber Corporation has reviewed and discussed the contents of this Compensation Discussion and Analysis, required by Item 402(b) of SEC Regulation S-K, with the Companys management and its executive officers and, based on such review and discussions, recommended to the Board that it be included in this Proxy Statement.
THE EXECUTIVE COMPENSATION COMMITTEE
R. Madison Murphy, Chairman
Christoph Keller, III
Robert C. Nolan, ex officio
R. Hunter Pierson, Jr.
J. Thurston Roach
David L. Lemmon
Robert B. Tudor, III
2007 SUMMARY COMPENSATION TABLE
The Summary Compensation Table shown below summarizes the total compensation earned by the Companys Chief Executive Officer, Chief Financial Officer, and its three other most highly compensated officers- the Named Executive Officers- for the year ended December 31, 2007. Messrs. Dillon, Streeter and Meghreblian served in their individual capacities, as designated below, during the entire year. Mr. Mann served as Chief Financial Officer and Mr. Walker served as Controller from May 1, 2007. The Summary Compensation Table also summarizes the total compensation earned by Mr. Clefton D. Vaughan, the retired Vice President, Treasurer & Chief Financial Officer and Mr. W. Bayless Rowe, the retired Vice President, General Counsel and Secretary, who are also included among the Named Executive Officers.
As shown below, the Named Executive Officers each received base salary, equity awards, option awards, non-equity incentive plan compensation, and other forms of compensation during the year. The Companys method for determining the total compensation paid to these officers is discussed under the heading Structuring Executive Compensation starting at page 14.
2007 ALL OTHER COMPENSATION TABLE
The All Other Compensation Table shown below is a supplement to the Summary Compensation Table and details the amounts shown therein at column (i).
2007 GRANTS OF PLAN-BASED AWARDS TABLE
The Grants of Plan-Based Awards Table shown below details the non-equity incentive (cash) awards and the equity-based awards granted to the Named Executive Officers by the Committee on February 14, 2007. The equity-based awards were granted under the Companys 2002 Stock Incentive Plan. These grants include stock options, restricted stock awards, and performance units.
2007 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
The Outstanding Equity Awards At Fiscal Year-End Table shown below details the number of stock options, both vested and unvested, and their respective exercise prices and expiration dates held by each of the Named Executive Officers as of December 31, 2007. The table also shows the number of shares of restricted stock or performance units, and the respective vesting status, also held by each of the Named Executive Officers as of December 31, 2007. Unless otherwise denoted, the awards shown below were granted under the provisions of the Companys 2002 Stock Incentive Plan.
2007 OPTION EXERCISES AND STOCK VESTED TABLE
The Option Exercises and Stock Vested Table shown below details the cash payments received by the Named Executive Officers upon their exercise of vested stock option awards (Option Awards) during the year ended December 31, 2007. Per the terms of the Companys 1996 SIP and 2002 SIP, these awards are measured in shares. Each of the Named Executive Officers utilized a broker assisted cashless exercise process in their respective option exercises. With regard to the Stock Awards shown below, none of these types of equity awards previously granted to the Named Executive Officers vested during the year of 2007. Consequently, no restricted stock or performance units were acquired by any of the Named Executive Officers under these award types during 2007.
2007 PENSION BENEFITS TABLE
The Pension Benefits Table below shows the actuarial present values of accumulated benefits payable to each of the Named Executive Officers, upon retirement, under The Retirement Plan of Deltic Timber Corporation (Retirement Plan) and under The Supplemental Executive Retirement Plan of Deltic Timber Corporation (SERP). Details regarding the accounting policies used by the Company for its pension plans are discussed under Item 8, Financial Statements and Supplementary Data, at Note 1, Significant Accounting Policies and at Note 15, Employee and Retiree Benefit Plans in the Companys annual report filed on Form 10-K with the SEC on March 10, 2008. Information regarding these plans, such as the Retirement Plan benefit formula, can be found under the heading Retirement Benefits and Retirement Savings Plans, p.25.
2007 NON-QUALIFIED DEFERRED COMPENSATION TABLE
The Non-Qualified Deferred Compensation Table shown below details the elections of non-qualified deferral of salary amounts, in excess of Internal Revenue Code limits for 401(k) contributions, by each of the Named Executive Officers for the year 2007. These deferrals are made under the Companys Supplemental Executive Retirement Plan (SERP) and include the Companys matching contributions. The SERP, discussed on p. 26, exists to restore retirement savings benefits, on a pre-tax basis, to the Named Executive Officers that would otherwise be lost due to limitations imposed by the Internal Revenue Code. Deferred salary contribution amounts are permitted up to 50% of salary.
2007 DIRECTOR COMPENSATION TABLE
A combination of cash and equity-based compensation is utilized to attract, retain, and compensate qualified candidates to serve on the Companys Board. Director compensation, which consists of fees paid for meetings attended and an annual retainer, is determined by the Nominating and Corporate Governance Committee. Equity awards (granted under the Companys 2002 SIP), are granted by the Executive Compensation Committee based upon the determination of the Boards Nominating and Corporate Governance Committee. For the year ended December 31, 2007, the non-employee directors were entitled to receive an annual cash retainer of $25,000, and $1,000 for each Board meeting attended, $1,000 for each Board committee meeting attended and $500 for each Board committee meeting attended telephonically, except for Audit Committee meetings, which were compensated at $1,000 per meeting regardless of physical or telephonic attendance. The Chairman of each of the Boards committees received additional compensation, as detailed below, for the additional responsibility that each assumed in those roles. Retainer fees and meeting fees are paid quarterly in arrears. Directors are also reimbursed for their travel, meal and lodging expenses for attending meetings. A portion of director compensation is based on equity awards to further align their financial interests with those of the Companys stockholders.
2007 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
The Potential Payments upon Termination or Change in Control Table shown below reflects the amount of compensation payable, as of December 31, 2007, to each of the Named Executive Officers in the event of: (1) involuntary severance without cause; (2) a change in control of the Company with involuntary dismissal within two years without cause or (i) a reduction in salary and potential bonus and/or (ii) a meaningful diminution in job responsibility as a result of such change; (3) voluntary severance other than retirement; (4) death; (5) long-term disability; (6) early retirement and (7) retirement at normal retirement age. In each case, the actual amounts to be paid can only be determined at the time the Named Executive Officer separates from the Company.
Unless otherwise denoted, all payments shown above represent amounts payable in lump sum and without tax gross up or tax reimbursement.
In the case of an involuntary severance without cause, and except in the case of Mr. Dillon as shown above, the Named Executive Officers retention of his vested stock options, restricted stock, and performance units is subject to Company approval. Otherwise, such are forfeited. In the case of involuntary severance for cause, all vested and unvested stock options, restricted stock, and performance units are forfeited. Also, in the cases of an involuntary severance without cause and involuntary severance for cause, the Named Executive Officer may continue to participate in the Companys health care coverage under the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA). Except in the case of Mr. Dillon, as shown above, such participation is not funded by the Company.
For the Named Executive Officers and in the case of change in control of the Company that results in (i) a reduction in salary and potential non-equity compensation and/or (ii) a meaningful diminution in job responsibility, a lump sum payment will be made on the 15th day of the seventh month following the month of separation from service. For payments to be made to each of the Named Executive Officers, a change in control event has the same meaning as defined in the 2002 SIP, which was filed in the Companys 2002 proxy statement with the SEC on March 22, 2002. Such can be retrieved on the SEC website at http://www.sec.gov/Archives/edgar/data/1022469/000093066102000828/ddef14a.txt.
Values shown in the table above do not reflect payments for accrued, but unused vacation time that might be owed to the employee at the time of term termination. Values above also do not reflect amounts accrued in the Thrift Plan (401k) accounts of the Named Executive Officers.
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 2007 and is not expected to have such in 2008. 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.
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, p.10.
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 2008. KPMG LLP has been serving as the Companys independent auditors for the past eleven 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 Audit Committee 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 2008 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 is published hereto as Appendix A to the Companys Notice of Meeting and Proxy Statement.
During the year 2007, 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 take 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.
Management has reviewed the audited financial statements and related notes in the Annual Report on Form 10-K for the year ended December 31, 2007 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 2007 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, 2007, 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 2007, 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, 2007, for filing with the SEC.
FEES PAID TO KPMG LLP IN 2006 AND 2007
For the years 2006 and 2007, 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 2008 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.
Phillip A. Pesek
DELTIC TIMBER CORPORATION
AUDIT COMMITTEE CHARTER
The purpose of this charter, as adopted and approved by the Board of Directors of Deltic Timber Corporation (the Company) is to establish and govern the Audit Committee of the Company in compliance with Section 10A of the Securities Exchange Act of 1934 as amended by the Sarbanes-Oxley Act of 2002. The purpose of the Audit Committee shall be to represent and assist the Companys Board of Directors (Board) in fulfilling its oversight responsibility to the Companys stockholders, the investment community, and the public relating to: (1) the integrity of the Companys financial statements and other disclosures; (2) the Companys compliance with legal and regulatory requirements; (3) the qualifications, performance and independence of the Companys independent auditor; (4) the performance of the Companys internal audit function and its internal auditors.
The Audit Committee shall also annually prepare the report required by the Securities and Exchange Commission (SEC) for inclusion in the Companys annual proxy statement.
The Audit Committee shall be appointed by the Board and shall be comprised of at least three directors, each of whom are independent of management and the Company. No member of the Audit Committee may serve on the Audit Committees of more than two other public companies without specific approval by the Board of Directors. All Audit Committee members shall be financially literate (as determined by the Board of Directors in its business judgement), or shall become financially literate shortly after appointment, and at least one member, with significant accounting or related financial management expertise, shall be designated by the Board and disclosed as the Audit Committees financial expert. Further, designation as the financial expert shall not increase or decrease an individuals duties, obligations, or potential liability as an Audit Committee member.
Director independence, as defined by applicable SEC rules and regulations and listing standards of the New York Stock Exchange, shall be determined by the Board. Generally, directors shall be considered independent if they have no material relationship that may interfere with the exercise of their independence from management and the Company. Specifically, the members of the Audit Committee must not: (1) accept any consulting, advisory or other compensatory fees from the Company or any of its subsidiaries other than those paid in their capacity as a member of the Board and any committee thereof; or (2) be an affiliated person of the Company or any subsidiary, other than in their capacity as a member of the Board and any committee thereof.
The Audit Committee shall meet, at a minimum, quarterly and otherwise as often as it is deemed necessary to discharge its duties. During its quarterly meetings and at other meetings as may be deemed useful or necessary, the Audit Committee shall meet with management, the internal auditor, and with the independent auditor in separate executive sessions. Further, the Audit Committee may invite outside counsel, financial advisors or other experts and consultants to its meetings and executive sessions as it deems necessary to discharge its duties.
Annual Performance Evaluation
The Audit Committee shall conduct an annual self-performance evaluation of its activity and shall review and reassess the adequacy of its charter, proposing changes thereto if appropriate and obtain the annual approval of its charter by the Companys Board of Directors (Board).
Authority and Responsibilities
It is the responsibility of the Audit Committee to maintain free and open communication between itself, the independent auditors, the internal auditor, and the management of the Company. In discharging its oversight responsibilities, the Audit Committee is empowered with full authority to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and the power to engage, retain or terminate the services of outside counsel, financial advisors or other experts as it deems necessary for this purpose. The Company shall fund such services.
The Audit Committee shall regularly report to the Board with respect to the integrity of the Companys financial statements, its compliance with legal or regulatory requirements, the independence and performance of the Companys independent auditors and the performance of the internal audit function. Management is responsible for preparing the Companys financial statements, and the independent auditors are responsible for auditing those financial statements. The Audit Committee in carrying out its responsibilities believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The Audit Committee should take appropriate actions to set the overall corporate tone for quality financial reporting, sound business risk practices, and ethical behavior.
The following shall be the principal responsibilities of the Audit Committee, which are set forth as a guide and may be supplemented as required:
Integrity of the Companys Financial Statements and other Disclosures
(b) any material changes in accounting principles or practices used in preparing the financial statements prior to filing a report on Form 10-K or Form 10-Q with the SEC; the effect of new regulatory and accounting initiatives, as well as off balance sheet structures and transactions, if any.
Companys Compliance with Legal and Regulatory Requirements
Qualifications and Independence of the Companys Independent Auditors
Companys Internal Audit Function and Internal Auditor
qIF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
Proxy Deltic Timber Corporation
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING, APRIL 24, 2008
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 24, 2008, 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.
qIF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
Change of Address Please print your new address below.
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.