Deltic Timber DEF 14A 2011
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 28, 2011, at 10:00 a.m., Central Daylight Savings 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 14, 2011, 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 2010 Annual Report to Stockholders and Annual Report on Securities and Exchange Commission (SEC) Form 10-K are enclosed.
By Order of the Board of Directors,
Jim F. Andrews, Jr.
El Dorado, Arkansas
March 21, 2011
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.
Important notice regarding the availability of proxy materials for the Annual Meeting to be held on April 28, 2011. The Companys Proxy Statement and Annual Report to security holders for the fiscal year ended December 31, 2010 is also available at http://www.deltic.com.
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 28, 2011, in El Dorado, Arkansas. Only stockholders of record at the close of business on March 14, 2011, (the Record Date) are entitled to notice of, and to vote at, the meeting. There were 12,564,451 shares of Deltic Common Stock outstanding and entitled to vote on March 14, 2011. This amount does not include 249,248 shares of treasury stock. Each share of outstanding Deltic Common Stock is entitled to one vote on each matter properly brought before the meeting.
Commencing approximately on March 21, 2011, the Company will mail its Annual Report for the year ended December 31, 2010 and its Annual Report on Form 10-K for 2010 as filed with the Securities and Exchange Commission (SEC), together with this Proxy Statement and the enclosed proxy card to holders of Deltic Common Stock on the Record Date.
VOTING OF PROXIES
Your vote is important. Shares can be voted at the Annual Meeting only if you are present in person or represented by proxy. Even if you plan to attend the meeting, you are urged to vote either telephonically or 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 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; FOR the ratification of the selection of KPMG LLP as the Companys independent auditors for 2011; FOR the approval of the compensation of the Companys named executive officers; and FOR an annual advisory vote regarding the compensation of the Companys named executive officers. 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 28, 2011, the date of the meeting (only the latest telephonic or internet votes will be counted); (b) executing a later-dated proxy; (c) voting by ballot at the meeting, however your mere attendance at the meeting will not revoke your proxy unless you vote in person 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 non-votes are counted as present for purposes of determining a quorum. A broker non-vote occurs when a nominee holding shares of Deltic Common Stock for a beneficial owner does not vote on a particular non-routine proposal because the nominee does not have discretionary voting power with respect to that item pursuant to the applicable rules of the New York Stock Exchange (NYSE) and has not otherwise received voting instructions from the beneficial owner.
The election of directors (Item 1) and the two advisory votes regarding the compensation of the Companys named executive officers (Items 3 and 4) are considered non-routine matters under applicable NYSE rules and, therefore, if you hold your shares through a bank, broker or other similar organization, the organization may not vote your shares on these voting items absent specific instructions from you. Accordingly, there may be broker non-votes with respect to these matters.
Pursuant to Delaware law and assuming a quorum is present, the affirmative vote of a plurality of the votes cast by the shares entitled to vote in the election of directors (Item 1) at the meeting is required for the election of each nominee to the Board of Directors. Abstentions and broker non-votes are not counted as votes cast and will have no effect on the outcome of the vote.
The affirmative vote of a majority of the shares present, in person or by proxy, at the annual meeting is required to approve the appointment of KPMG LLP as independent auditors of the Company for the year 2011 (Item 2). Abstentions will have the same effect as a vote against this voting item. Brokers, banks and other nominees holding shares of Deltic Common Stock for beneficial owners have discretionary voting power on this voting item, and broker non-votes will not occur with respect to this matter.
Generally, our bylaws provide that approval of any matter presented to stockholders (other than the election of directors) requires the affirmative vote of a majority of the shares present, in person or by proxy, at the annual meeting and entitled to vote on the subject matter. The votes required by Items 3 and 4, however, are merely advisory and are not binding on the Company, the Board of Directors, or the Executive Compensation Committee of the Board of Directors. Despite the fact these votes are non-binding, the Board of Directors will take the results of these advisory votes under advisement. In addition, if none of the frequency options under Item 4 receives majority support, the option receiving the greatest number of votes will be considered the frequency recommended by the Companys stockholders. With respect to these voting items, abstentions will have the same effect as a vote against each item, but broker non-votes will not be counted as votes cast and will have no effect on the outcome of each 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 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, which for the 2012 Annual Meeting of Shareholders, will be January 29, 2012. 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, age, skills, background and experience. In addition, although the Company does not have a specific diversity policy, it considers the diversity of the candidate with regard to viewpoint, professional experience, education and skills that are relevant to the Companys activities. Other 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 and have evidenced in their personal and professional affairs proper judgment, independence, business acumen and an understanding of the Companys 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, which for the 2012 Annual Meeting of Shareholders, will be January 29, 2012. 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 above provided Company address.
STOCKHOLDER PROPOSALS FOR 2012 ANNUAL MEETING
Any stockholder proposal to be presented at the 2012 Annual Meeting of Stockholders should be directed to the Secretary of the Company, and must be received by the Company on or before November 22, 2011 in order to be eligible for inclusion in the Companys proxy statement and form of proxy. Any such proposal must comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934 (or any successor rule).
Additionally, the Companys Bylaws contain an advance notice provision, which provides that a matter may not be brought before the Companys annual meeting by a stockholder unless the proposal is delivered in writing to the principal executive office of the Company no later than 90 days prior to the first anniversary of the most recent annual meeting of stockholders (by January 29, 2012).
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 are 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, which is elected by the Companys stockholders. The Chairman of the Board of Directors, the independent directors, and the Chief Executive Officer bring different perspectives and roles to the Companys management, oversight and strategic development. The Companys directors bring experience and expertise from both inside and outside the Company and its industry, while the Chief Executive Officer is most familiar with the Companys business and its industry, and most capable of leading the execution of the Companys strategy. The Board has determined that it remains advantageous and a benefit for the Company and its stockholders that the positions of Chairman of the Board and President and Chief Executive Officer be bifurcated because it provides the appropriate balance between strategy development and independent oversight of management. Pursuant to this structure, the Chairman is responsible for running the Board and the Chief Executive Officer is responsible for running the Company. The position of the Companys Chairman of the Board is held by Robert C. Nolan, who is not an employee or executive of the Company. As Chairman, Mr. Nolan provides leadership to the Board and facilitates communication among the directors. He also works with the Chief Executive Officer in setting the Board agenda and regularly conducts executive sessions of the Board in which management does not participate. 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.
Management is responsible for the day-to-day risk management processes of the Company, subject to Board oversight. The Board exercises risk management oversight both directly and indirectly, the latter through various Board Committees. The Board reviews information regarding the Companys credit, liquidity and operations, including the risks associated with each at its regularly scheduled Board meetings and Board Committee meetings. The Companys Executive Compensation Committee is responsible for overseeing the management of risks relating to the Companys executive compensation plans and arrangements including the retention of capable, competent, and qualified people in management positions. The Audit Committee is responsible for oversight of financial risks, including the steps the Company has taken to monitor and mitigate these risks. The Nominating & Governance Committee, in its role of reviewing and maintaining the Companys corporate governance guidelines, manages risks associated with the independence of the Board and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about such risks. The Boards risk management oversight role has not specifically affected the Boards leadership structure.
During 2010, 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 nine, five, two and two meetings, respectively. All of the Companys directors attended at least 75 percent of Board of Directors and their respective committee meetings. It is the policy of the Board of Directors that directors attend stockholder, Board of Directors, and committee meetings unless extenuating circumstances make such attendance impracticable. All of the Companys directors attended the Companys 2010 Annual Meeting of Stockholders.
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 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 approves all audit, audit-related and non-audit services of the independent auditors. The Committee is chaired by Mr. Roach with its other members being Messrs. Coley, Pierson, and Lemmon. 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(b)(1) 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. A copy of the Committees written charter can be accessed on the Companys website at www.deltic.com under the Corporate Governance part of the Investor Relations section. Please see pp. 50 - 51 of this Proxy Statement for the Committees 2010 report.
The Executive 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, 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 represents for some matters and otherwise acts to assist the Board of Directors, in other matters, in fulfilling its oversight responsibility for the Company, 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, 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 can be accessed on the Companys website at www.deltic.com under the Corporate Governance part of the Investor Relations section.
The duties of the Board of Directors Nominating and Corporate Governance 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. 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 can be accessed on the Companys website at www.deltic.com under the Corporate Governance part of the Investor Relations section.
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 is currently an employee or partner of the Companys independent auditor, or an immediate family member is a current partner or an employee of the Companys independent auditor who participated in the Companys audit, assurance or tax compliance practice, 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) 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 $120,000 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. The lease of Company office space at local market rates from Union Building, LLC, in which Mr. Murphy has an indirect interest, was specifically reviewed and also determined to be an immaterial relationship.
Following its deliberations, the Board of Directors affirmatively determined that Messrs. Coley, 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 and determined that his service as chairman of the Audit Committee of another public company would not impair his ability to effectively chair the Companys Audit Committee. Further, that Mr. Lemmons service on the Audit Committees of two other public companies would not impair his ability to effectively serve on 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 within four business days of such determination. The Code can be accessed on the Companys website at www.deltic.com under Corporate Governance of the Investor Relations section.
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 regular executive sessions of the independent members of the Board of Directors in lieu of regular meetings of non-management directors. Mr. Nolan, the non-employee Chairman of the Board of Directors, has been affirmatively determined to be independent, 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 of the Investor Relations section.
ELECTION OF CLASS III DIRECTORS
(ITEM 1 ON PROXY CARD)
The Board of Directors currently consists of nine members. 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) until their successors are elected and qualified. One of the three classes is elected each year to succeed the directors whose terms are expiring. The directors in Class I were elected at the 2009 Annual Meeting to serve for a term expiring at the Companys Annual Meeting in the year 2012. The directors in Class II were elected at
the 2010 Annual Meeting to serve for a term expiring at the Companys Annual Meeting in the year 2013. The directors in Class III were elected at the 2008 Annual Meeting and will stand for re-election for a three-year term at this years Annual Meeting.
The Board of Directors, acting through the Nominating and Corporate Governance Committee, is responsible for assembling a group of nominees each year that have the experience, qualifications, attributes and skills necessary and appropriate for serving as a Board member. Notwithstanding the staggered terms of office, the Board of Directors also undergoes an evaluation process each year to ensure that all members of the Board of Directors continue to meet the criteria for a Board member, as enumerated on p. 3. In addition, the Nominating and Corporate Governance Committee regularly reviews the composition of the entire Board of Directors in light of the Companys changing requirements and its assessment of the Boards performance. As a result of these reviews and evaluations, Deltics Board of Directors (i) affirms that each member of the Board of Directors possesses the requisite experience, qualifications, attributes and skills necessary for membership on Deltics Board of Directors; and (ii) proposes the following nominees for election as directors at the 2011 Annual Meeting:
NOMINEES FOR CLASS III DIRECTORS
With Terms Expiring at the Annual Meeting in the Year 2014:
Christoph Keller, III
David L. Lemmon
R. Madison Murphy
THE BOARD OF DIRECTORS UNANIMOUSLY 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 2014
Reverend Dr. Christoph Keller, III, 56, has been a director since December 17, 1996 and as a result, is intimately familiar with the Companys history and operations. Rev. Keller has been an Episcopal priest since 1982, and is currently Theologian-in-Residence for St. Margarets Episcopal Church in Little Rock, Arkansas. He was founding pastor of St. Margarets Episcopal Church, serving from 1991 to 1998. In that role, he was in charge of all business operations of the church including budgeting, accounting and auditing. He is a member of the Board of Trustees of General Theological Seminary in New York City, and a past board member of the Episcopal Church Building Fund, also in New York City. Reverend Keller has served as manager of Keller Enterprises, L.L.C., a firm with farming operations and real estate and venture capital investments (1998-2008), has served on its board, and currently chairs its Executive Compensation Committee.
Reverend Kellers farming operations and real estate experience provides relevant insights for the Boards timberland management and real estate development strategies. Reverend Kellers theological background provides a unique perspective for the Board committees upon which he serves. Reverend Kellers knowledge of the Company, acquired through years of service to the Company, combined with his personal stake in its success qualifies him to serve on the Companys Board.
Class IIITerms Expiring in 2014, continued
David L. Lemmon, 68, has been a director since February 15, 2007. From November 1997 until his retirement in March 2006, Mr. Lemmon served as President and Chief Executive Officer of Colonial Pipeline, an interstate common carrier of petroleum products, which delivers daily an average of 100 million gallons of gasolines, kerosenes, home heating oils, diesel fuels and national defense fuels to shipper terminals in 12 states and the District of Columbia. Prior to his tenure at Colonial Pipeline, Mr. Lemmon held various positions, including President, with Amoco Pipeline Co., which is now BP Amoco - Pipelines North America, another large interstate common carrier of petroleum products, for over thirty-two years.
Mr. Lemmons experience as a corporate President and Chief Executive Officer, as well as his current service on the Audit Committees of two other public companies, provides invaluable operational insight and financial expertise for the Board and the Board Committees on which he serves. Additionally, Mr. Lemmons knowledge and experience attained while in Board service to the National Council of Economic Education (NCEE) provides keen macroeconomic insight that qualifies him to serve on the Companys Board.
R. Madison Murphy, 53, has been a director since December 17, 1996 and as a result, is intimately familiar with the Companys history and operations. Mr. Murphy has been the Managing Member of Murphy Family Management, LLC since 1998, which is engaged in investments, farm, timber and real estate operations. Mr. Murphy has been the President of The Murphy Foundation since 1994 which is a substantial private foundation providing charitable support for a range of initiatives, predominantly in Arkansas with an emphasis on education scholarships and support. Mr. Murphy is also the owner of Presquile Winery and Vineyards. Prior to these positions, Mr. Murphy held various executive level positions with Murphy Oil Corporation, a Fortune 500 company, including Chairman of the Board of Directors (1994-2004) and Chief Financial Officer (1992-1994).
Mr. Murphys corporate experience, along with his current board service to Murphy Oil Corporation and to BancorpSouth, Inc., provides invaluable corporate leadership and financial expertise for the Board and for the Board Committees on which he serves. Mr. Murphys extensive experience in timberland management and real estate operations provides relevant insights to the Boards timberland management and real estate development strategies. Mr. Murphys knowledge of the Company, acquired through years of service to the Company, combined with his personal stake in its success qualifies him to serve on the Companys Board.
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
Class ITerms Expiring in 2012
Ray C. Dillon, 55, has been the Companys President and Chief Executive Officer and a director since July 1, 2003. Mr. Dillon has 30 years experience in the paper and forest products industry. Prior to his present position, Mr. Dillon served in various executive positions with Gaylord Container Corporation, a manufacturer and distributor of corrugated containers, containerboard, unbleached kraft paper, multiwall bags, grocery bags and sacks, and specialty chemicals, from 1994 through mid-2003, including Executive Vice President from 2000 through mid-2003, Vice President Primary Products from 1997 through 2000, and Vice President Mill Operations from 1994 through 1997.
Mr. Dillons day-to-day experience as the Companys President and Chief Executive Officer gives him intimate executive insight into the Companys challenges, opportunities, and operations. Mr. Dillons extensive experience in the paper and forest products industry, combined with his personal stake in the success of the Company, qualifies him to serve on the Companys Board and to serve on its Executive Committee.
Robert C. Nolan, 69, has been the Companys non-employee Chairman of the Board of Directors since December 17, 1996 and as a result, is intimately familiar with the Companys history and operations. For the past 38 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 35 years experience in timberland management.
Mr. Nolans extensive experience in timberland management and oil and gas exploration and development provides broad and critical expertise on these subjects for the Board in its oversight of Company operations. Mr. Nolans knowledge of the Company, acquired through years of service to the Company, combined with his personal stake in its success qualifies him to serve on the Companys Board and as an ex officio member of all Board Committees (except the Audit Committee).
Robert B. Tudor, III, 51, has been a director since February 15, 2007. Mr. Tudor has been the Chairman and Chief Executive Officer and a partner of Tudor, Pickering, Holt & Co., LLC since 2006. Tudor, Pickering, Holt & Co., LLC is an integrated energy investment and merchant banking boutique, providing high quality advice and services to institutional and corporate clients. Prior to the formation of Tudor, Pickering, Holt & Co., LLC, Mr. Tudor had a 20-year career with Goldman Sachs, where he worked in the New York, London, and Houston offices, in varying capacities including head of the southwest region and head of the European Industrial & Natural Resources Group. Mr. Tudor also has a doctorate of jurisprudence from Tulane Law School.
Mr. Tudors legal and investment banking experience with the internationally-recognized firm of Goldman Sachs provides an invaluable financial perspective as to Company operations and brings additional financial expertise to the Board. While at Goldman Sachs, Mr. Tudor was an advisor in the Companys spin-off from its former parent corporation. His knowledge of the Company qualifies him to serve on the Companys Board and to serve on its Executive Compensation Committee.
Class IITerms Expiring in 2013
Randolph C. Coley, 64, has been a director since February 15, 2007. Mr. Coley is a retired partner of King & Spalding LLP, an AmLaw 100 law firm, where his practice was concentrated in advising corporate clients in the areas of corporate law, corporate governance, and securities law. Mr. Coley was the head of the firms corporate group from 1994 to 1996, and was managing partner of the firms Houston office from 2001 to 2005. Mr. Coley was also Executive Managing Director and head of Investment Banking for Morgan Keegan & Company, Inc. from 1996 to 1998.
Mr. Coleys legal practice experience in corporate governance while a partner in a nationally-recognized law firm provides invaluable corporate governance expertise and counsel to the Board. Mr. Coleys legal and investment banking experience provides an invaluable financial perspective as to Company operations and brings additional financial expertise to the Board which qualifies him to serve on the Companys Board and to serve on its Audit Committee and its Nominating and Corporate Governance Committee.
R. Hunter Pierson, Jr., 59, has been a director since December 16, 1999 and as a result, is intimately familiar with the Companys history and operations. Following ten years as a commercial lending officer at First National Bank of Commerce, which is now JP Morgan/Chase, Mr. Pierson has been engaged since 1981 in private investments, including timberlands, commercial real estate development, and securities.
Mr. Piersons career in banking, timberlands, and commercial real estate development provides a broad base of relevant financial and operations experience to the Board. Mr. Piersons knowledge of the Company acquired through years of service to the Company, combined with his personal stake in its success, qualifies him to serve on the Companys Board and on its Audit Committee and its Nominating and Corporate Governance Committee.
J. Thurston Roach, 69, has been a director since December 18, 2000 and as a result, is intimately familiar with the Companys history and operations. 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), a leading clean water and antimicrobial technology company, and as Chief Financial Officer and Senior Vice President of Owens Corning (1998-2000), a market-leading innovator of glass fiber technology. From 1979 1998, Mr. Roach served in a variety of executive positions with Simpson Timber Company and its successor, including Senior Vice President and Chief Financial Officer, President, retiring as Vice-Chairman.
Mr. Roachs career experience as a corporate Chief Executive Officer and also as a Chief Financial Officer provides invaluable executive insight and financial expertise to the Board. His extensive timber industry experience supplements the Boards extensive collective expertise and qualifies him to serve on the Companys Board and on its Audit Committee, Executive Committee, and its Nominating and Corporate Governance Committee.
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 pp. 16 - 17 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. With respect to Company employees, officers, and directors, the review is governed by the Companys Code of Business Conduct and Ethics (the Code), which provides that waivers are disfavored and may only be granted by the Board and must be promptly disclosed to stockholders. A copy of the Code can be accessed under the Investor Relations section on the Companys website at www.deltic.com. The review, with respect to directors also entails an analysis of whether a proposed transaction could affect a directors independence determination under applicable rules of the NYSE and the SEC. 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 2010, no reportable related party transactions occurred and no waivers were requested or granted.
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 2010, no fees paid to the Company by the affected directors or their companies, on an individual basis, exceeded the threshold amount of $120,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 2010, Form 5s filed with respect to such year and information provided in an annual Directors and Officers Questionnaire, we believe each of the
Companys directors and executive officers satisfied their filing requirements for our fiscal year ended December 31, 2010, except that a Form 3, disclosing the Initial Statement of Beneficial Ownership of Securities of Jim F. Andrews, Jr., was inadvertently filed [29 days] late.
CERTAIN STOCK OWNERSHIP
The following tables set 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 or more 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 p. 34 of this Proxy Statement, and (iv) directors and officers as a group.
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OWNERSHIP OF DIRECTORS AND OFFICERS(1)
EXECUTIVE COMPENSATION DISCUSSION & 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 p. 6. Throughout the year ended December 31, 2010, the members of the Committee were: R. Madison Murphy, Chairman; Reverend Christoph Keller, III; Robert C. Nolan, ex officio; R. Hunter Pierson, Jr.; David L. Lemmon; and Robert B. Tudor, III. 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 2010 of whom five are reported herein as its most highly compensated executives, including the Companys Chief Executive Officer and Chief Financial Officer. Throughout this Executive Compensation Discussion and Analysis, these five most highly compensated executives, as listed in the Summary Compensation Table, are referred to as the Named Executive Officers or NEOs.
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, (ii) 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: (1) salary; (2) non-equity compensation targets; and (3) equity-based compensation. In prior years, including in 2010, Mercer was engaged by the Company to provide an update of this data and consulting services as to 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 makes 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 approximate the median (50th percentile), depending upon tenure in an executive position, of that provided to their peers by the companies within the compensation peer group. The median information is determined and reported to the Committee 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. In 2010, Mercer did not provide any other type of consulting services to the Company.
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 an 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.
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. It is the goal of the Committee to maintain levels of total compensation for Named Executive Officers that approximate the median (50th percentile) of similarly situated employees of companies in the compensation peer group. As a result of this philosophy, Mr. Dillons total compensation is higher than the total compensation of the other Named Executive Officers because the median total compensation for his contemporaries in the peer group is higher than that of the other Named Executive Officers.
Components of Executive Compensation in 2010
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.
Components of Executive Compensation in 2010, continued
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 (50th percentile), is provided by Mercer and reviewed by the Committee. The Committee may adjust the Named Executive Officers base salary to (i) reflect changes in these 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 2010, and in the interest of meeting the Companys compensation objectives and in maintaining a base salary level proximate to the peer groups median level (50th percentile), the base salaries for most of the Companys Named Executive Officers were increased as noted below:
The Committee believes that the resulting salary levels for each NEO approximate the targeted competitive median (50th percentile) for each position at peer group companies or are within an acceptable range.
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 2010 fiscal year was a financial measure based on audited GAAP net income, as set by the Committee in February 2010. In previous years, the Company used return on capital employed (ROCE). However, since 2007, the Committee has 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, and Walker 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 2010, the Committee established the following Company performance targets and pay-out percentages:
For the year 2010, the Companys audited GAAP net income of $12.4 million exceeded the maximum level of $12.0 million. Therefore, non-equity compensation was paid for 2010 at the 200% payout percentage. The resulting non-equity compensation paid out to each Named Executive Officer was as follows:
The Committee believes that the target payouts of non-equity compensation approximate the targeted competitive median (50th percentile) for each position at peer group companies or are within an acceptable range.
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 equity-based incentive plan described below.
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 Meeting of Stockholders on April 25, 2002 as the successor plan to the 1996 Deltic Timber Corporation Stock Incentive Plan. 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 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 2010, 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 granted shares of time-based restricted stock to the Companys non-employee directors. The 2010 awards to the Named Executive Officers are listed below as well as in the 2010 Grants of Plan-Based Awards Table, p. 36. The cumulative awards are shown in the Outstanding Equity Awards At Fiscal Year-End Table, p. 38. The 2010 grants to directors are shown in the Director Compensation Table, p. 43. 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 general dollar amount is based upon the median (50th percentile) amount of equity-based compensation of the same compensation peer group, established by Mercer, as used in setting base salary. The specific dollar amount is calculated, taking into consideration the nature of the officers position, his/her responsibilities and contributions to the Company and equivalent awards to officers in similar positions within the Companys compensation peer group. Once a dollar amount is calculated by Mercer, it is distributed equally into thirds between: (1) time-based restricted stock; (2) performance-based restricted stock; and (3) non-qualified stock options. The Committee uses the following methodology to convert the respective Mercer dollar amounts to a specific number of restricted shares or options granted:
(1) For time-based restricted stock, the dollar amount allotted is divided by a share price that is chosen by the Committee, which closely approximates the trading value of the Companys stock before its February meeting. In 2010, the stock price chosen by the Committee was $45.00 per share.
(2) For performance-based restricted stock, the target shares are calculated by dividing the number of time-based restricted shares, as calculated in (1) above, by 88% (.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.
(3) For stock options, the target shares are calculated by dividing the dollar amount allotted by the Black-Scholes value of the stock option, which in 2010 was $17.82.
In 2010, and based on the above-described methodology, 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 nationally recognized firm of Standard and Poors.
For all performance-based restricted stock awards granted since 2004, the Committee has established the following vesting schedule for each award:
On February 15, 2010, the 2006 award of performance-based restricted stock vested. Because the Companys Total Stockholder Return versus the Composite Total Stockholder Return was greater than 130%, accordingly 200% of the target shares were awarded to all award participants who were still employees of the Company. As a result, the Named Executive Officers received the following share amounts.
Employment Termination. With regard to the 2002 SIP, and unless otherwise determined by the Committee, if a Participants employment terminates (1) at normal retirement time, (2) for permanent and total disability, (3) with Company approval and without being terminated for cause or (4) 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 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.
The Committee believes that the target payouts of Long-Term Equity-Based compensation approximate the targeted competitive median (50th percentile) for each position at peer group companies or are within an acceptable range.
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 Monthly Social Security Benefit x years of benefit service (limited to 33 1/3 years)]
Average Monthly Compensation is calculated using 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 Monthly Social Security Benefit is defined as the monthly 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.
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, Ray C. Dillon, Kenneth D. Mann, and Jim F. Andrews, Jr., who deliver a report annually to the Executive Compensation Committee. SunTrust Institutional Investment Solutions, 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 409A 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 2010 Non-Qualified Deferred Compensation Table, p. 42.
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 2010 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 2010 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 2010 All Other Compensation Table in footnote 8 on p. 35.
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.
On an annual basis, the Company conducts an annual risk assessment with respect to compensation of the executive officers, with the assistance of Mercer. This risk assessment includes an analysis of alignment of the Boards expressed compensation philosophy and compensation goals with the Companys strategic goals, short-term and long-term focus and timing issues, compensation drivers and potential risks of each type of pay component, vesting periods, stock ownership, and other factors. Benefit plans, stock plans, and compensation policies are also examined. This assessment is reviewed annually with the Committee. As a result of this process, the conclusion was that the Companys 2010 compensation policies were not reasonably likely to have a material adverse effect on the Company.
Agreements Between The Company and The Named Executive Officers
The Company believes that 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, all of which, except for
Mr. Walkers agreement, 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:
Any cash payments made as the result of a dismissal without cause will be paid in one lump sum payment on the 15th day of the month following the month in which dismissal occurs. Any cash payments made as the result of a reduction in salary and potential bonus and/or a meaningful diminution in job responsibility will be paid in one lump sum on the 15th day of the seventh month following the month the Named Executive Officer separates from service.
The specifics of potential payments under these agreements are listed in the 2010 Potential Payments Upon Termination or Change Of Control Table, pp. 45 - 48.
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:
Any cash payments will be paid in one lump sum payment on the 15th day of the month following the month of involuntary termination.
The specifics of potential payments under this agreement are listed in the 2010 Potential Payments Upon Termination or Change Of Control Table, pp. 45 - 48.
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 p. 49.
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, codified at Internal Revenue Code Section 409A. As of December 31, 2010, the company is in full compliance with Internal Revenue Code Section 409A.
Accounting for Equity-Based Compensation
The Company applies a fair value-based measurement method in accounting for equity-based compensation, recognizing the cost as the services are performed in accordance with the provisions of Financial Accounting Standards Board (FASB) 718, Compensation-Stock Compensation.
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.
David L. Lemmon
Robert B. Tudor, III
2010 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 or NEO for the year ended December 31, 2010. Messrs. Dillon, Mann, Streeter, Meghreblian and Walker served in their individual capacities, as designated below, during the entire year.
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 p. 18.
2010 GRANTS OF PLAN-BASED AWARDS TABLE
The 2010 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 Executive Compensation Committee on February 17, 2010. The equity-based awards were granted under the Companys 2002 Stock Incentive Plan. These grants include stock options, restricted stock awards, and performance units.
2010 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
The 2010 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, 2010. 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, 2010. All awards shown below were granted under the provisions of the Companys 2002 Stock Incentive Plan.
2010 OPTION EXERCISES AND STOCK VESTED TABLE
The 2010 Option Exercises and Stock Vested Table shown below details the value received by the Named Executive Officers upon their exercise of vested stock option awards (Option Awards) during the year ended December 31, 2010. These awards are measured in shares. The table also details the number of shares and value realized by each affected NEO upon the vesting of time-based and performance-based restricted stock on February 15, 2010.
2010 PENSION BENEFITS TABLE
The 2010 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) as of December 31, 2010. All NEOs but for Mr. Walker have 5.0 years of credited service and are vested under the Retirement Plan. The table below assumes vesting in the Retirement Plan will occur for Mr. Walker upon his attainment of 5.0 years of credited service. All NEOs but for Mr. Walker were participants in the 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 4, 2011. Information regarding these plans, such as the Retirement Plan benefit formula, can be found under the heading Retirement Benefits and Retirement Savings Plans, supra.
2010 NON-QUALIFIED DEFERRED COMPENSATION TABLE
The 2010 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 2010. These deferrals are made under the Companys Supplemental Executive Retirement Plan (SERP) and include the Companys matching contributions. The SERP, discussed supra, 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.
2010 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 of Directors. 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, 2010, the non-employee directors were entitled to receive an annual cash retainer of $30,000, $1,500 for each Board meeting physically attended and $750 for each Board meeting telephonically attended, $1,000 for each Board committee meeting physically attended and $500 for each Board committee meeting telephonically attended, 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.
2010 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
The 2010 Potential Payments upon Termination or Change in Control Table shown below reflects the amount of compensation payable, as of December 31, 2010, 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 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 2010 and is not expected to have such in 2011. 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. 13.
COMPENSATION POLICIES/RISK MANAGEMENT
On an annual basis, the Company conducts a risk assessment with respect to compensation paid to all employees. On an annual basis, the Company conducts a risk assessment with respect to compensation paid to executive officers, with the assistance of Mercer. This risk assessment includes an analysis of alignment of the Boards expressed compensation philosophy and compensation goals with the Companys strategic goals, short-term and long-term focus and timing issues, compensation drivers and potential risks of each type of pay component, vesting periods, stock ownership, and other factors. Benefit plans, stock plans, and compensation policies are also examined. This assessment is reviewed annually with the Committee. As a result of this process, the conclusion was that the Companys 2010 compensation policies were not reasonably likely to have a material adverse effect on the Company.
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 2011. KPMG LLP has been serving as the Companys independent auditors for the past thirteen 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 2011 will be permitted to stand unless the Audit Committee or Board of Directors finds other good reason for making a change.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPOINTMENT OF KPMG LLP AS THE COMPANYS INDEPENDENT AUDITOR FOR 2011
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.
During the year 2010, at each of its meetings, the Committee met with senior members of the Companys financial management team, its internal auditor, the Companys General Counsel, and its independent auditors. The Committees agenda is established by the Committees Chairman. The Committee had private sessions at its meetings at least once each quarter with the Companys independent auditors and, separately, with the internal auditor, at which candid discussions took place regarding financial management, accounting, and internal control issues. None of the services described above were approved pursuant to the de minimis exception provided in Rule 2-01(c)(7)(i)(C) of Regulation S-X promulgated by the SEC.
The Committee has engaged KPMG LLP, an independent registered public accounting firm, as the Companys independent auditors, and it approves in advance all audit and other services. 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, 2010 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 2010 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, 2010, 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
2010, 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 and an opinion on the effectiveness of the Companys internal controls over financial reporting.
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, 2010, for filing with the SEC.
FEES PAID TO KPMG LLP IN 2010 AND 2009
For the years 2010 and 2009, the Company paid KPMG LLP fees in the amounts listed below for its services.
ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
(ITEM 3 ON PROXY CARD)
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the Securities Exchange Act of 1934. As a result, the Companys stockholders to be provided an opportunity to vote to approve the compensation of the Companys Named Executive Officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the Securities and Exchange Commission. As this vote is an advisory vote, it is not binding upon the Company, the Board of Directors, or the Executive Compensation Committee of the Board of Directors. However, the Board of Directors will take the results of this advisory vote under advisement. Also, this vote is not intended to address any specific element of compensation, but rather relates to the overall compensation of the Companys Named Executive Officers as disclosed in this proxy statement.
As described in greater detail under the heading Executive Compensation Discussion and Analysis beginning on p. 18, the Company seeks to structure an effective compensation program that will facilitate the ultimate objective of increasing stockholder value. Accordingly, the Companys basic compensation philosophy is that an effective compensation program must be fair and reasonable, but also competitive so it: (1) attracts talent, (2) rewards achievement of Company objectives, (3) retains talent, and (4) aligns employee financial interests with those of the stockholders. To this end, the Company has structured the value of the total compensation paid to its Named Executive Officers to be a combination of salary, cash incentives, time-based and performance-based equity awards and other benefits with the goal that total compensation paid be proximate to the median (50th percentile) amount of total compensation paid to similarly situated executives within the Companys industry peer group. In 2010, as in previous years, the Executive Compensation Committee engaged the nationally recognized and independent firm of Mercer Human Resource Consulting to assist it in reviewing industry compensation data and in structuring the Companys compensation program to ensure it is fair, reasonable, and competitive.
Accordingly, we ask our stockholders to vote on the following resolution at the Annual Meeting of Stockholders:
RESOLVED, that the stockholders advise that they approve the compensation paid to the Companys Named Executive Officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, which disclosure shall include Executive Compensation Discussion and Analysis, compensation tables and narrative discussion set forth in the Companys proxy statement for its 2011 Annual Meeting of Stockholders, is hereby APPROVED.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS RESOLUTION
PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THIS RESOLUTION.
FREQUENCY OF FUTURE ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION
(ITEM 4 ON PROXY CARD)
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the Securities Exchange Act of 1934. As a result, the Companys stockholders are to be provided an opportunity to vote their preference as to the frequency of future advisory votes on the compensation of the Companys Named Executive Officers as disclosed in accordance with the compensation disclosure rules of the Securities and Exchange Commission. The advisory vote on the compensation of the Companys Named Executive Officers is required to be conducted at least every three years. Accordingly, and pursuant to this change in law, the Stockholders may indicate their preference for future advisory votes to be conducted: (1) once every year; (2) once every two years; or (3) once every three years. Stockholders may also abstain from voting on this proposal. As this vote is an advisory vote, it is not binding upon the Company, the Board of Directors, or the Executive Compensation Committee of the Board of Directors. However, the Board of Directors will take the results of this advisory vote under advisement.
The Board of Directors has determined that an annual advisory vote on the compensation of the Companys Named Executive Officers is the most appropriate alternative for the Company. As discussed on p. 18, The Executive Compensation Committee of the Board of Directors annually reviews and structures the compensation program for the Companys Named Executive Officers on an annual basis. Similarly, an annual Stockholder advisory vote on the compensation of the Companys Named Executive Officers will provide timely Stockholder feedback on the Companys compensation philosophy, policies and practices as disclosed in the Companys proxy statement each year.
Accordingly, Item 4 on the proxy ballot allows the Stockholders to cast a vote as to their preferred voting frequency by selecting the option of: (1) once every year; (2) once every two years; (3) once every three years; or (4) to abstain when voting their preference.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE OPTION OF ONCE EVERY YEAR
PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THIS RESOLUTION.
OTHER MATTERS TO COME BEFORE THE MEETING
The Board of Directors does not know of any matters which will be brought before the 2011 Annual Meeting of Stockholders 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.
Jim F. Andrews, Jr.
q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION,
DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q