Notes to Consolidated Financial Statements
December 31, 2016
Note 1 Significant Accounting Policies
Description of Business
Deltic Timber Corporation (Deltic or the Company) is a
natural resources company engaged primarily in the growing and harvesting of timber and the manufacturing and marketing of lumber and medium density fiberboard (MDF). Deltic owns approximately 530,000 acres of timberland, primarily in
Arkansas and north Louisiana. The Companys sawmill operations are located at Ola in central Arkansas and at Waldo in south Arkansas, and the MDF plant is located near El Dorado, Arkansas. In addition to its timber, lumber, and MDF operations,
the Company is engaged in real estate development in central Arkansas.
Business Environment
The Company is primarily a wood products producer operating in a commodity-based business environment with a major diversification in real estate development. This environment is affected by a number of factors including general economic conditions,
interest rates, credit availability, building product imports, foreign exchange rates, housing starts, new and existing housing inventory, foreclosures, residential repair and remodeling, commercial construction and repair, industry capacity and
production levels, the availability of contractors for logging, hauling, and shipping, the availability of raw materials, natural gas pricing, costs of fuel, and weather conditions.
Principles of Consolidation
The consolidated financial statements of Deltic Timber Corporation include the
accounts of Deltic, all majority-owned subsidiaries, and any variable interest entities of which it is the primary beneficiary. Equity investments and joint ventures are accounted for under the equity method, if it is determined that the Company
does not have control of the entity. Significant intercompany transactions and accounts have been eliminated.
Business Combinations
The Company accounts for business combinations using the acquisition method. The
assets acquired and liabilities assumed are measured at fair value on the acquisition date using appropriate valuation methods. The operations of the acquisitions are included in the consolidated financial statements from the date of acquisition.
Use of Estimates
In the preparation of the Companys financial statements in conformity
with accounting principles generally accepted in the United States of America, management has made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities.
Actual results may differ from those estimates.
Cash Equivalents
Cash equivalents include
investments that have a maturity of three months or less from the date of purchase.
Accounts Receivable
and Allowance for Doubtful Accounts
The Company records trade accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the trade
accounts receivable balances and is charged to the provision for doubtful accounts. The allowance is based upon review of specific receivables outstanding and considers factors such as current overall economic conditions, industry-specific economic
conditions, historical customer performance, and anticipated customer performance. In the consolidated statements of income, bad debt expense is included in cost of sales. Provisions for bad debt expense were $168,000, $133,000, and $150,000, in
2016, 2015, and 2014, respectively. Charges to the allowance for doubtful accounts were $183,000, $133,000, and $188,000, in 2016, 2015, and 2014, respectively. At December 31, 2016 and 2015, the balance in the allowance account was $130,000
for both years.
50
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 1 Significant Accounting Policies (cont.)
Inventories
Inventories of logs, wood fiber, lumber, MDF,
and supplies are stated at the lower of cost or market within Deltics operating areas, primarily using the average cost method. Log costs include harvest and transportation costs as appropriate. Lumber and MDF costs include materials, labor,
and production overhead. (For additional information, see Note 2 Inventories.)
Investment in Real
Estate Held for Development and Sale
Real estate held for development and sale includes direct costs of land and land development and indirect costs, including amenities. Indirect and amenity costs are allocated to individual lots or
acreage sold based on relative retail sales values. Direct costs are allocated to a specific neighborhood or commercial real estate tract, while indirect costs for the Companys four developments Chenal Valley, Wildwood Place, Chenal
Downs, and Red Oak Ridge are allocated to neighborhoods over the entire respective development area based on relative retail sales values.
Timber and Timberlands
Timber and timberlands, which include timberland, fee timber, purchased stumpage inventory, and logging facilities, are stated at cost, less the cost of fee timber
harvested and accumulated depreciation of logging facilities, and include no estimated future reforestation costs. The cost of timber consists of fee timber acquired and reforestation costs, which include site preparation, seedlings, and labor. The
cost of fee timber harvested is based on the volume of timber harvested in relation to the estimated volume of timber recoverable. Logging facilities, which consist primarily of roads constructed and other land improvements, are depreciated using
the straight-line method over a
ten-year
estimated life. The Company estimates its fee timber inventory using statistical information and data obtained from physical measurements and other information
gathering techniques. Fee timber carrying costs, commercial thinning, silviculture, and timberland management costs are expensed as incurred.
The Company classifies its timberlands and fee timber as either strategic or
non-strategic.
Strategic timberlands, including pine forest and pine plantations, are
prime pine sawtimber-growing platforms located within or immediately adjacent to the Company sawmills operating regions. Deltic manages these acres using modern silviculture methods to achieve optimal volume and quality of its pine sawtimber.
The Company harvests pine sawtimber and pine pulpwood in accordance with its harvest plans and generally converts pine sawtimber into lumber in its own sawmills and sells pine pulpwood, hardwood pulpwood, and hardwood sawtimber in the market. Upon
harvest, strategic timberlands are reforested. The Companys timberland acquisition program is focused on the acquisition of pine-growing timberland in its current operating regions. This investment in strategic fee timber is a productive
asset, and any occasional sale of strategic timberland or any expenditure to acquire such timber and timberlands is included in and classified as an investing activity in the Companys consolidated statements of cash flows. The Company
has legacy hardwood and other acreage which cannot be harvested for conversion in Company sawmills, reforested as pine plantations, or managed efficiently using modern silviculture methods either due to the size of the tract or lack of proximity to
other Deltic fee timberlands. These timberlands have been identified as
non-strategic
and/or higher and better use timberlands and are expected to be sold over time. The Company considers these sales to be an
operating activity of its Woodlands segment.
51
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 1 Significant Accounting Policies (cont.)
In order to acquire and sell assets, primarily timberlands, in a tax efficient manner,
the Company enters into
tax-deferred,
like-kind exchange (LKE) transactions when possible. The Company generally enters into forward transactions, in which property is sold and the proceeds are
reinvested by acquiring similar property, and reverse transactions, in which property is acquired and similar property is subsequently sold. A qualified LKE intermediary is used to facilitate LKE transactions. Proceeds from forward LKE transactions
are held by the intermediary and are classified as restricted cash, because the funds must be reinvested in similar properties. If the acquisition of suitable LKE properties is not completed within 180 days of the sale of the Company-owned property,
the proceeds are distributed to Deltic by the intermediary and are reclassified as available cash, and applicable income taxes are determined. Amounts deposited with a third party towards the potential future purchase of property are included in
deferred charges and other assets in the consolidated balance sheets and as an investing activity as changes in funds held by trustee in the consolidated statements of cash flows. The Company had $1,000 of proceeds from land sales deposited with an
LKE intermediary at December 31, 2015 and none at December 31, 2016. An exchange accommodation titleholder, a type of variable interest entity, is used to facilitate reverse like-kind exchanges. The acquired assets are held by the exchange
accommodation titleholder until the exchange transactions are complete. If the Company determines that it is the primary beneficiary of the exchange accommodation titleholder, Deltic includes the assets held by the exchange accommodation titleholder
in timber and timberlands assets on the consolidated balance sheets and recognizes any income or expense attributed to the property in the consolidated income statements.
Property, Plant, and Equipment
Property, plant, and equipment assets are stated at cost less accumulated
depreciation. Depreciation of buildings, equipment, and other depreciable assets is calculated primarily using the straight-line method. Expenditures that substantially improve and/or increase the useful life of facilities or equipment are
capitalized. Maintenance and repair costs are expensed as incurred. Gains and losses on disposals or retirements are recognized in the period they occur.
Property, plant, and equipment assets are evaluated for possible impairment on a specific asset basis or in groups of similar assets, as applicable, whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future net cash flows to be generated by the asset. If
the carrying amount of an asset exceeds its estimated future cash flows, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell, and depreciation ceases.
Revenue
Recognition
The Company recognizes revenue when the following criteria are met: (1) persuasive evidence of an agreement exists, (2) delivery has occurred or services have been rendered, (3) the price to the buyer is fixed and
determinable, and (4) collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. Revenue from the sale of lumber, MDF, and wood
by-products
is recorded at the time of shipment due to terms of such sale being designated free on board (f.o.b.) shipping point. Revenue from consignment sales is recorded when the customer assumes
ownership of the product. Revenue from the sale of timber-cutting rights to third parties is recorded when legal title passes to the purchaser, which is generally upon delivery of a legally executed timber deed and receipt of payment for the timber.
Revenue from intersegment timber sales is recorded when the timber is harvested; such intersegment sales, which are made at prices which generally approximate market within Deltics operating area, are eliminated in the consolidated financial
statements.
52
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 1 Significant Accounting Policies (cont.)
Revenue from the leasing of land for hunting purposes is deferred when received and
subsequently recognized over the
one-year
lease term, which begins September 1 of each year. At December 31, 2016 and 2015, the Company had deferred hunting lease revenue totaling $2,131,000 and
$2,060,000, respectively, reflected in the consolidated balance sheets in deferred revenues and other accrued liabilities. Revenue from mineral lease rental payments is deferred when received and recognized ratably over the lease term. At
December 31, 2016 and 2015, the Company had deferred mineral lease revenue of $168,000 and $446,000, respectively, of which $36,000 and $115,000 were included in other noncurrent liabilities for 2016 and 2015, respectively, and $132,000 and
$331,000 were included in other current liabilities, respectively. Mineral royalty payments are recognized when received. Revenue from sales of timberland and real estate is recorded when the sale is closed and legal title is transferred and the
buyers initial and continuing investment is adequate, which is generally at the time the purchaser executes the real estate closing documents and makes payment to the title company handling the closing.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this
method, the provision for income taxes includes amounts currently payable and amounts deferred as tax assets and liabilities, based on differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities,
and is measured using the enacted tax rates that are expected to be in effect when the differences reverse. Deferred tax assets are reduced by a valuation allowance, which is established when it is
more-likely-than-not
that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax law is recognized in income in the period
that includes the enactment date. The Company continuously reviews state and federal tax returns for uncertain tax provisions. Liabilities for uncertain tax positions are recorded if it is deemed
more-likely-than-not
that the positions will not be sustained upon examination by the taxing authorities. These liabilities are adjusted in the period in which it is determined that the issue is settled with
the relevant taxing authority, or there has been an expiration of statute of limitation for a tax year in question, or a change in tax laws, or other facts become known.
Property Taxes
Property taxes applicable to the Companys assets are estimated and accrued in the
period of assessment. At December 31, 2016 and 2015, the Company had accrued property tax expense totaling $1,822,000 and $1,932,000, respectively, reflected in the consolidated balance sheets in accrued taxes other than income taxes.
Share-Based Compensation
The Company applies a fair value-based measurement method in
accounting for share-based payment transactions with employees, recognizing the cost as the services are performed. (For additional information, see Note 16 Incentive Plans.)
Pensions and Other Postretirement Benefits
The Company sponsors both qualified and nonqualified,
noncontributory, defined benefit retirement plans that cover all eligible employees, excluding employees of the subsidiaries. Benefits are based on years of service and final
career-average-pay
formulas as
defined by the plans. The qualified plan is funded to accumulate sufficient assets to provide for accrued benefits and was frozen to new employees on January 1, 2015. The nonqualified plan, a supplemental executive plan, is not funded; payments
to retirees due under this plan are made on a monthly basis.
The Company also sponsors a defined benefit health care plan and
a life insurance benefit plan for all eligible retired employees, excluding employees of the subsidiaries. The Company measures the costs of its obligations for these plans based on its health care cost trends and actuarial assumptions, including
discount rates, mortality rates, assumed rates of return, compensation increases, and turnover rates. The Company reviews its assumptions on an annual basis and makes modifications
53
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 1 Significant Accounting Policies (cont.)
to the assumptions based on current rates and trends when it is appropriate to do so.
The effect of modifications to those assumptions is recorded in accumulated other comprehensive income/(loss) and amortized to net periodic cost over future periods using the corridor method. The Company believes that the assumptions utilized in
recording its obligations under its plans are reasonable based on its experience and market conditions.
Net periodic costs are
recognized as employees render the services necessary to earn these post- retirement benefits. (For additional information, see Note 15 Employee and Retiree Benefit Plans.)
Advertising Costs
Advertising costs, primarily related to marketing efforts for the Companys real
estate developments, are expensed as incurred. These costs amounted to $831,000 in 2016, $784,000 in 2015, and $764,000 in 2014 and are reflected in the consolidated statements of income.
Capitalized Interest
The Company capitalizes interest for qualifying assets during construction by
applying the Companys capitalization rate to the average amount of accumulated expenditures for the asset during the period. Interest is most often capitalized as an indirect cost for real estate development in the Companys real estate
operations. (For additional information, see Note 17 Supplemental Cash Flows Disclosures.)
Timberland Acquisition Expenditures
These expenditures are the costs incurred to purchase timber and
timberland, and the costs which are allocated to timber, reforestation, or land are based on various factors such as age and number of trees on the acreage acquired. These expenditures are classified as investing activities in the Companys
consolidated statements of cash flows.
Capital Expenditures
Capital expenditures
include additions to investment in real estate held for development and sale; capitalized reforestation costs and logging facilities of timber and timberlands; and property, plant, and equipment.
Net Change in Purchased Stumpage Inventory
Purchased stumpage inventory consists of timber-cutting rights
purchased from third parties specifically for use in the Companys sawmills. Depending on the timing of acquisition and usage of this acquired stumpage inventory, the net change in this inventory can either be a source or use of cash in the
investing activities of the Companys consolidated statements of cash flows.
Earnings per Common
Share
Basic earnings per share is computed using the
two-class
method and is based on earnings available to common shareholders less accrued preferred dividends, if any, and the weighted average
number of common shares outstanding. The diluted earnings per share amounts are computed based on earnings available to common shareholders and the weighted average number of common shares outstanding, including shares assumed to be issued under the
Companys stock incentive plans using the treasury-stock method, unless anti-dilutive. (For a reconciliation of amounts used in per share computations, see Note 18 Earnings per Share.)
Shipping and Handling Costs
Shipping and handling costs, such as freight to the customers
destinations, are included in cost of sales in the Companys consolidated statements of income. These costs, when included in the amount invoiced to customers, are also recognized in net sales.
Off-Balance
Sheet Arrangements
The Company evaluates its
transactions to determine if any variable interest entities exist. If it is determined that Deltic is the primary beneficiary of a variable interest entity, that entity is consolidated into Deltics financial statements.
54
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 1 Significant Accounting Policies (cont.)
Effect of Recently Issued Authoritative Accounting Guidance
Financial Accounting Standards Update (ASU)
No. 2014-09,
Revenue from Contracts with Customers, requires an entity to recognize the amount of revenue it expects to be
entitled to for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2018,
and early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company continues to evaluate the standard and has not yet selected a transition method but believes the
standard is expected to have little impact on its consolidated financial statements and disclosures.
In July 2015, FASB
issued ASU
2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net
realizable value for entities that do not measure inventory using either the
last-in,
first-out
(LIFO) or retail inventory method. The ASU also eliminates the
requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The update to the standard is effective for the Company on January 1, 2017, and is expected
to have little impact on its consolidated financial statements and disclosures.
In November 2015, FASB issued ASU
2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as
non-current.
The ASU is effective for the Company on January 1, 2017. As of December 31, 2016 the Company had $1,895,000 reported as short-term deferred tax assets that will be reclassed and combined with
long-term deferred tax liabilities on January 1, 2017.
In February 2016, the Financial Accounting Standards Board
(FASB) issued Accounting Standard Update (ASU)
2016-02,
Leases, which supersedes Topic 840 and among other things, requires lessees to recognize most leases
on-balance
sheet. The new standard will be effective for the Company on January 1, 2019, and is not expected to have a material impact on its financial statements.
On March 30, 2016, FASB issued ASU
2016-09,
Improvements to Employee Share-Based
Payment Accounting. This ASU changes several aspects of the accounting for share-based payments award transactions, including accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures,
minimum statutory tax withholding requirements, and the classification of employee taxes paid on the statement of cash flows when an employer withholds shares for
tax-withholding
purposes. This update will be
effective for the Company on January 1, 2017. The Company has evaluated the effect ASU
2016-09
will have on its consolidated financial statements and related disclosures and deems it immaterial.
In June 2016, FASB issued ASU
2016-13,
Measurement of Credit Losses on
Financial Instruments. The ASU changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life. This update will be effective for
the Company on January 1, 2020, and is not expected to have a material impact on its financial statements.
55
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 2 Inventories
Inventories at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
Raw materials - Logs
|
|
$
|
1,920
|
|
|
|
1,975
|
|
-
Del-Tin
wood fiber
|
|
|
463
|
|
|
|
615
|
|
Finished goods - Lumber
|
|
|
4,817
|
|
|
|
4,142
|
|
- Medium density fiberboard (MDF)
|
|
|
2,575
|
|
|
|
2,516
|
|
- MDF consigned to others
|
|
|
1,000
|
|
|
|
1,031
|
|
Supplies
|
|
|
1,453
|
|
|
|
1,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,228
|
|
|
|
11,917
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company utilizes the lower of cost or market basis for determining inventory-carrying values. Lumber
and MDF inventory amounts at December 31, 2016 and 2015 are stated at the lower of cost or net realizable value.
Note 3
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets at December 31 consisted of the
following:
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
Short-term deferred tax assets
|
|
$
|
1,895
|
|
|
|
2,131
|
|
Refundable income taxes
|
|
|
|
|
|
|
3,062
|
|
Prepaid expenses
|
|
|
905
|
|
|
|
687
|
|
Other current assets
|
|
|
534
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,334
|
|
|
|
6,392
|
|
|
|
|
|
|
|
|
|
|
56
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 4 Timber and Timberlands
Timber and timberlands at December 31 consisted of the
following:
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
Purchased stumpage inventory
|
|
$
|
3,684
|
|
|
|
2,437
|
|
Timberlands
|
|
|
156,579
|
|
|
|
155,997
|
|
Fee timber
|
|
|
331,121
|
|
|
|
326,327
|
|
Logging facilities
|
|
|
1,231
|
|
|
|
1,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
492,615
|
|
|
|
485,982
|
|
Less accumulated cost of fee timber harvested and facilities depreciation
|
|
|
(132,592
|
)
|
|
|
(124,292
|
)
|
|
|
|
|
|
|
|
|
|
Strategic timber and timberlands
|
|
|
360,023
|
|
|
|
361,690
|
|
Non-strategic
timber and timberlands
|
|
|
160
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
360,183
|
|
|
|
361,856
|
|
|
|
|
|
|
|
|
|
|
Deltic acquired 1,009 acres of timberlands located in its current operating area in 2016 with cash
payments of $1,757,000. The Company acquired 514 acres of timberland in 2015, 474 acres were acquired by cash payments totaling $824,000 and 40 acres were acquired in a
non-monetary
exchange transaction and in
2014 the Company acquired 72,170 acres for cash payments of $118,203,000. Deltic invests in and holds strategic fee timber as a productive asset, and any expenditure to acquire such timber and timberlands is an investing activity on the
Companys Consolidated Statements of Cash Flows.
The Company actively upgrades its timberland portfolio by selling
non-strategic
timberlands and using the sales proceeds to purchase pine timberlands that are strategic to its operations. The Company identifies tracts of pine timberland that cannot be strategically managed due to
size or location, and also tracts of hardwood bottomland that cannot be converted into pine-growing acreage, to be sold. As of December 31, 2016 and 2015, approximately 240 acres and 250 acres, respectively, were available for sale. Included in
the Woodlands operating income are gains from sales of timberland of $33,000, $656,000, and $857,000 in 2016, 2015, and 2014, respectively. Occasionally Deltic engages in
land-for-land
exchanges that are recorded as sales due to the nature of the land involved. In 2016 and 2014, there were no gains from
non-monetary
exchanges included in operating income, while there were $25,000 of exchange gains in 2015.
Cost of fee timber harvested amounted to $8,207,000, $7,110,000, and $5,544,000 in 2016, 2015, and 2014, respectively. Depreciation of logging facilities was $94,000, $98,000, and $91,000 for the years
2016, 2015, and 2014, respectively.
57
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 5 Property, Plant, and Equipment
Property, plant, and equipment at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
Useful Lives
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
|
N/A
|
|
|
$
|
947
|
|
|
|
947
|
|
Land improvements
|
|
|
10-20 years
|
|
|
|
20,707
|
|
|
|
10,409
|
|
Buildings and structures
|
|
|
10-20
years
|
|
|
|
27,801
|
|
|
|
23,900
|
|
Machinery and equipment
|
|
|
3-15
years
|
|
|
|
175,515
|
|
|
|
158,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,970
|
|
|
|
193,641
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(122,080
|
)
|
|
|
(108,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
102,890
|
|
|
|
85,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant, and equipment charged to operations was $15,106,000, $13,888,000, and
$12,707,000 in 2016, 2015, and 2014, respectively. Gains or (losses) on disposals or retirements of assets included in operating income were ($239,000), $308,000, and ($1,071,000) in 2016, 2015, and 2014, respectively. The 2015 gains are inclusive
of the involuntary gain on conversion of assets at the Companys MDF plant. (For additional information see Note 20 Business Interruption Claim and Gain on Involuntary Conversion of Assets.)
Note 6 Deferred Revenues and Other Accrued Liabilities
Deferred revenues and other accrued liabilities at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
Deferred revenues current
|
|
$
|
2,776
|
|
|
|
2,877
|
|
Vacation accrual
|
|
|
1,666
|
|
|
|
1,360
|
|
Deferred compensation
|
|
|
816
|
|
|
|
619
|
|
Interest and commitment fees payable
|
|
|
1,770
|
|
|
|
1,467
|
|
All other current liabilities
|
|
|
1,480
|
|
|
|
1,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$8,508
|
|
|
|
7,607
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7 Other Noncurrent Liabilities
Other noncurrent liabilities at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
Accumulated postretirement benefit obligation
|
|
$
|
13,770
|
|
|
|
12,295
|
|
Excess retirement plan
|
|
|
7,865
|
|
|
|
12,764
|
|
Accrued pension liability
|
|
|
17,798
|
|
|
|
15,698
|
|
Deferred revenue long-term portion
|
|
|
36
|
|
|
|
115
|
|
All other noncurrent payables
|
|
|
1,626
|
|
|
|
1,487
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,095
|
|
|
|
42,359
|
|
|
|
|
|
|
|
|
|
|
58
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 8 Credit Facilities
The Company has an agreement with SunTrust Bank together with other banks, which provides an unsecured and committed revolving credit
facility totaling $430,000,000 and includes an option to request an increase in the amount of aggregate revolving commitments by $50,000,000, and includes options to request two twelve-month extensions of the facility maturity date. Effective
January 6, 2016, Deltic entered into a second amendment to the Companys Second Amended and Restated Revolving Credit Agreement with the consent of the lenders thereto, in which it exercised the first of its two options and extended the
termination date by one year to November 17, 2020. On July 29, 2016, the Company utilized a portion of the $50,000,000 letter of credit component available under its revolving credit facility to replace the letter of credit that expired on
August 31, 2016 that supported the Union County, Arkansas Taxable Industrial Revenue Bonds that total $29,000,000. With this, the borrowing capacity of the revolving credit facility was reduced by the amount of the letter of credit issued. The
credit facility had $112,000,000 and $55,000,000, respectively, outstanding at December 31, 2016 and 2015 leaving $288,000,000 and $375,000,000, available in excess of all borrowings and letters of credit outstanding under or supported by the
respective facilities. Borrowings under the current agreement bear interest at a base rate or an adjusted Eurodollar rate plus an applicable margin, depending upon the type of loan the Company executes. The applicable margin component of the
interest rate varies with the type of loan and the Companys total debt to capital ratio. The agreement contains certain restrictive financial covenants, including a leverage ratio of no greater than .65 to 1, minimum timber market value
greater than 175 percent of outstanding total senior indebtedness, and limitations on the incurrence of debt. Fees associated with the current revolving credit facility include a commitment fee of .20 to .35 percent per annum on the unused
portion of the committed amount.
The Company may also borrow up to $1,000,000 under a short-term credit facility with
BancorpSouth. The agreement expires December 31, 2017, with annual renewal. The amount available to the Company under this facility is reduced by any borrowings by the Company. As of December 31, 2016 and 2015, Deltic had no borrowings
outstanding under this line of credit, resulting in $1,000,000 available to the Company. Borrowings bear interest based upon the New York Prime rate. Deltic also has an agreement with BancorpSouth to provide letters of credit. New letters of credit
are requested by the Company and are approved and issued by BancorpSouth on a
case-by-case
basis. Outstanding letters of credit as of December 31, 2016 and 2015
were $394,000 and $491,000, respectively.
59
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 9 Indebtedness
The Companys indebtedness at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
Notes payable, 2.24%¹, due 2020 (See Note 8 Credit Facilities)
|
|
$
|
112,000
|
|
|
|
55,000
|
|
Senior notes payable, 6.10%, due 2016
|
|
|
|
|
|
|
40,000
|
|
Term loan credit agreement, 4.05%, due 2025
|
|
|
100,000
|
|
|
|
100,000
|
|
Union County, Arkansas Taxable Industrial Revenue Bonds, .55%², due 2027
|
|
|
29,000
|
|
|
|
29,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241,000
|
|
|
|
224,000
|
|
Less unamortized debt issuance costs
|
|
|
(161
|
)
|
|
|
(247
|
)
|
|
|
|
|
|
|
|
|
|
Total debt, net
|
|
|
240,839
|
|
|
|
223,753
|
|
Less current maturities
|
|
|
|
|
|
|
(39,917
|
)
|
|
|
|
|
|
|
|
|
|
Long term debt
|
|
$
|
240,839
|
|
|
|
183,836
|
|
|
|
|
|
|
|
|
|
|
|
¹
|
Weighted average interest rate for Notes payable at December 31, 2016 and 2015 was 2.24% and 2.01%, respectively.
|
|
²
|
Weighted average interest rate for Bonds at December 31, for both 2016 and 2015 was .55%.
|
The Company retired the private placement debt of $40,000,000 of Series A Senior Notes (Notes) with Pacific Coast Farm Credit,
a division of American AgCredit, on December 18, 2016. The interest rate for the Notes had been 6.10 percent since December 18, 2008.
Deltic entered into a $100,000,000
ten-year
term loan credit agreement (the Credit Agreement) with American AgCredit, PCA, effective August 27,
2015. The Credit Agreement has a 4.05 percent fixed rate of interest and a maturity date of August 27, 2025. The Credit Agreement has the same financial covenants as those found in the Companys Second Amended and Restated Revolving
Credit Agreement as amended on January 4, 2016.
With consolidation of
Del-Tin
Fiber into the Companys financial statements on April 1, 2013, Deltics long-term debt includes $29,000,000 in Union County, Arkansas Taxable Industrial Revenue Bonds
(Del-Tin
Fiber project)
1998 Series due October 1, 2027 (the Bonds). Neither the State of Arkansas, nor Union County, Arkansas has any liability under the Bonds.
Del-Tin
Fiber and Union County contemporaneously
entered into a lease agreement (the Lease Agreement) that obligated
Del-Tin
Fiber to make lease payments in an amount necessary to fund the debt service on the Bonds. The Company utilized the
letter of credit component under its revolving credit facility to support the respective Bonds under the Loan Agreement and the Lease Agreement with Union County, Arkansas. Fees associated with the letter of credit included $557,000 in 2016 and
$488,000 in 2015 and are included in interest expense in the Consolidated Statements of Income. The Company has unconditionally guaranteed the payment of all amounts owing under the Bonds to the bondholders. The Companys indebtedness has been
presented in these financial statements as though the Company was directly liable for the Bonds. If the Bonds are not remarketed as allowed under the agreement, the letter of credit and the commitment of the lenders are available to support
repayment. These Bonds bear interest at a variable rate determined weekly by the remarketing agent of the Bonds. Interest is due on the first business day of the month, and all unpaid interest and all principal is due on October 1, 2027. The
average interest rate on the Bonds was .55 percent in 2016, .28 percent in 2015, and .29 percent in 2014.
60
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 9 Indebtedness (cont.)
As of December 31, 2016, there were no scheduled maturities of long-term debt in 2017, 2018 or 2019, $112,000,000 in 2020 and none in
2021. (For additional information regarding financial instruments, see Note 8 Credit Facilities and Note 12 Fair Value of Financial Instruments.)
The table below sets forth the ratio requirements of the covenants in the revolving credit facility, and the Term Loan Credit Agreement and the status with respect to these covenants as of
December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenants
Requirements
|
|
|
Actual Ratios at
Dec. 31, 2016
|
|
|
Actual Ratios at
Dec. 31, 2015
|
|
Leverage ratio should be less than:
1
|
|
|
.65 to 1
|
|
|
|
.490 to 1
|
|
|
|
.469 to 1
|
|
|
|
|
|
Total outstanding debt as a percentage of total debt allowed based on the minimum timber market value covenant:
2
|
|
|
|
2
|
|
|
79.59
|
%
|
|
|
74.01
|
%
|
1
|
The leverage ratio is calculated as total debt divided by total capital employed. Total debt includes indebtedness for borrowed money, secured
liabilities, obligations in respect of letters of credit, and guarantees. Total capital employed is the sum of total debt and net worth. Net worth is calculated as total assets minus total liabilities, as reflected on the balance sheet. This
covenant is applied at the end of each quarter.
|
2
|
Timber market value must be greater than 175 percent of total debt (as defined in (1) above). The timber market value is calculated by
multiplying the average price received for sales of timber for the preceding four quarters by the current quarters ending inventory of timber. This covenant is applied at the end of the quarter on a rolling four-quarter basis.
|
Based on managements current operating projections, the Company believes it will remain in compliance with the debt
covenants and have sufficient liquidity to finance operations and pay all obligations. However, depending on market conditions and should there be a return of economic uncertainties, the Company could request amendments, or waivers for covenants, or
obtain refinancing in future periods. There can be no assurance that the Company will be able to obtain amendments or waivers or negotiate agreeable refinancing terms should it become necessary.
61
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 10 Income Taxes
The components of income tax expense/(benefit) related to
pre-tax
income for the years ended
December 31, 2016, 2015, and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
2,789
|
|
|
|
1,508
|
|
|
|
9,959
|
|
Deferred
|
|
|
(380
|
)
|
|
|
(590
|
)
|
|
|
(961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,409
|
|
|
|
918
|
|
|
|
8,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
762
|
|
|
|
510
|
|
|
|
887
|
|
Deferred
|
|
|
104
|
|
|
|
(328
|
)
|
|
|
(292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
866
|
|
|
|
182
|
|
|
|
595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
3,275
|
|
|
|
1,100
|
|
|
|
9,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation of the Companys income tax expense at the statutory
U.S. federal rate of 35 percent to the actual income tax expense for the years ended December 31, 2016, 2015, and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
U.S. federal income tax using statutory tax rate
|
|
$
|
4,382
|
|
|
|
1,260
|
|
|
|
10,239
|
|
State tax, net of federal tax benefit
|
|
|
564
|
|
|
|
121
|
|
|
|
1,130
|
|
Permanent differences
|
|
|
(363
|
)
|
|
|
(89
|
)
|
|
|
(1,000
|
)
|
Tax effects resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate difference on timber gains
|
|
|
(1,308
|
)
|
|
|
(192
|
)
|
|
|
|
|
Reversal of uncertain state income tax position
|
|
|
|
|
|
|
|
|
|
|
(776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision as reported
|
|
$
|
3,275
|
|
|
|
1,100
|
|
|
|
9,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective income tax rate in 2016 and 2015 benefitted from the passage in December 2015 of federal
legislation which reduced the maximum income tax rate to 23.8 percent for the tax year 2016 on capital gains for timber held by the Company for longer than 15 years and harvested within the year. Income tax benefits of $192,000 were recognized
in 2015 due to the change in income tax rate applied to the amount of temporary differences expected to be realized in timber gains during 2016.
The Companys deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Investment in real estate held for development and sale
|
|
$
|
17,627
|
|
|
|
17,564
|
|
Postretirement and other employee benefits
|
|
|
20,047
|
|
|
|
21,725
|
|
Other deferred tax assets
|
|
|
1,630
|
|
|
|
1,861
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
39,304
|
|
|
|
41,150
|
|
|
|
|
|
|
|
|
|
|
62
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 10 Income Taxes (cont.)
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Timber and timberlands
|
|
|
(29,645
|
)
|
|
|
(27,950
|
)
|
Property, plant, and equipment
|
|
|
(9,289
|
)
|
|
|
(11,370
|
)
|
Other deferred tax liabilities
|
|
|
(219
|
)
|
|
|
(224
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(39,153
|
)
|
|
|
(39,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
151
|
|
|
|
1,606
|
|
|
|
|
|
|
|
|
|
|
The deferred tax assets and liabilities are classified in the accompanying consolidated balance sheets as
follows:
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
Current tax assets
|
|
$
|
1,895
|
|
|
|
2,131
|
|
Long-term tax liabilities
|
|
|
(1,744
|
)
|
|
|
(525
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
151
|
|
|
|
1,606
|
|
|
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets, Deltics management considers whether it is
more-likely-than-not
that some portion or all of the Companys total deferred tax assets will not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this
assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences are anticipated to reverse, management believes it is
more-likely-than-not
that the Company will realize the benefits of its deferred tax assets at December 31, 2016, as reductions of future taxable income or by utilizing available tax planning strategies.
However, the amount of the net deferred tax assets considered realizable could be adjusted in the future if estimates of taxable income are revised. Any liabilities established for unrecognized tax benefits may not be combined with deferred tax
assets or liabilities, except when offset by net operating losses. There were no unrecognized tax benefits at December 31, 2016 or 2015.
The Company is no longer subject to federal and state income tax examination by tax authorities for years before 2013.
Note 11 Stockholders Rights Plan
The Company Stockholders Rights
Plan which was in effect as amended on October 19, 2006, expired as of December 31, 2016.
63
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 12 Fair Value of Financial Instruments
Fair value measurement accounting establishes a fair value hierarchy based on the quality of inputs used to measure fair value, with
Level 1 being the highest quality and Level 3 being the lowest quality. Level 1 inputs are quoted prices in active markets on identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included
in Level 1. Level 3 inputs are unobservable inputs which reflect assumptions about pricing by market participants.
Information pertaining to the fair value of the pension plan assets is found in Note 15 Employee and Retiree Benefit Plans.
The following is a description of the valuation methodologies used for liabilities measured at fair value.
Nonqualified Employee Savings Plan
Consists of mutual funds, which are valued at the net asset value of shares held by the
plan at
year-end,
at quoted market prices.
The fair value measurements for the
Companys financial liabilities accounted for at fair value on a recurring basis at December 31, 2016 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
December 31,
|
|
|
Quoted Prices in
Active
Markets for
Identical
Liabilities Inputs
|
|
|
Significant
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
(Thousands of dollars)
|
|
2016
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified employee savings plan
|
|
$
|
1,626
|
|
|
|
1,626
|
|
|
|
|
|
|
|
|
|
Long-term Debt, Including Current Maturities
The fair value is estimated by discounting the
scheduled debt payment streams to present value based on market rates for which the Companys debt could be refinanced.
The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at
December 31, 2016 and 2015. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The table excludes financial instruments included in current assets
and liabilities, except current maturities of long-term debt, all of which have fair values approximating carrying values.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
(Thousands of dollars)
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current maturities
|
|
$
|
240,839
|
|
|
|
241,213
|
|
|
|
223,753
|
|
|
|
225,123
|
|
64
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 13 Concentration of Credit Risks
Financial instruments, which potentially subject the Company to credit risk, are trade accounts receivable. These receivables normally
arise from the sale of wood products, MDF, and real estate. Concentration of credit with respect to these trade accounts receivable is limited due to the large number of customers comprising the Companys customer base. No single recurring
customer accounted for a significant amount of the Companys sales of wood products, MDF, or real estate in 2016, 2015, or 2014. At December 31, 2016 and 2015, there was one significant accounts receivable of $879,000 and $844,000,
respectively from a single customer. The Company performs ongoing credit evaluations of its customers and generally does not require collateral to support accounts receivable.
Note 14 Other Comprehensive Income Disclosures
The following tables
detail the changes in accumulated other comprehensive loss (AOCL) by component for the twelve months ended December 31, 2016, 2015, and 2014:
Changes in Accumulated Other Comprehensive Loss by Component (Net of Tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
Defined
Benefit
Funded
Retirement
Plan
|
|
|
Defined
Benefit
Unfunded
Retirement
Plan
|
|
|
Post-
Retirement
Benefit
Plan
|
|
|
Total
|
|
AOCL at January 1, 2016
|
|
$
|
(7,071
|
)
|
|
|
(4,309
|
)
|
|
|
(214
|
)
|
|
|
(11,594
|
)
|
Amounts reclassified from AOCL -
|
|
|
516
|
|
|
|
46
|
|
|
|
|
|
|
|
562
|
|
Net gain/(loss) arising during period
|
|
|
(1,086
|
)
|
|
|
3,134
|
|
|
|
(569
|
)
|
|
|
1,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income/(loss)
|
|
|
(570
|
)
|
|
|
3,180
|
|
|
|
(569
|
)
|
|
|
2,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AOCL at December 31, 2016
|
|
$
|
(7,641
|
)
|
|
|
(1,129
|
)
|
|
|
(783
|
)
|
|
|
(9,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
Defined
Benefit
Funded
Retirement
Plan
|
|
|
Defined
Benefit
Unfunded
Retirement
Plan
|
|
|
Post-
Retirement
Benefit
Plan
|
|
|
Total
|
|
AOCL at January 1, 2015
|
|
$
|
(7,615
|
)
|
|
|
(3,064
|
)
|
|
|
(732
|
)
|
|
|
(11,411
|
)
|
Amounts reclassified from AOCL
|
|
|
512
|
|
|
|
369
|
|
|
|
20
|
|
|
|
901
|
|
Net gain/(loss) arising during period
|
|
|
32
|
|
|
|
(1,614
|
)
|
|
|
498
|
|
|
|
(1,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income/(loss)
|
|
|
544
|
|
|
|
(1,245
|
)
|
|
|
518
|
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AOCL at December 31, 2015
|
|
$
|
(7,071
|
)
|
|
|
(4,309
|
)
|
|
|
(214
|
)
|
|
|
(11,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 14 Other Comprehensive Income Disclosures (cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
Defined
Benefit
Funded
Retirement
Plan
|
|
|
Defined
Benefit
Unfunded
Retirement
Plan
|
|
|
Post-
Retirement
Benefit
Plan
|
|
|
Total
|
|
AOCL at January 1, 2014
|
|
$
|
(2,410
|
)
|
|
|
(482
|
)
|
|
|
213
|
|
|
|
(2,679
|
)
|
Amounts reclassified from AOCL
|
|
|
111
|
|
|
|
173
|
|
|
|
(121
|
)
|
|
|
163
|
|
Net loss arising during period
|
|
|
(5,316
|
)
|
|
|
(2,755
|
)
|
|
|
(824
|
)
|
|
|
(8,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive loss
|
|
|
(5,205
|
)
|
|
|
(2,582
|
)
|
|
|
(945
|
)
|
|
|
(8,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AOCL at December 31, 2014
|
|
$
|
(7,615
|
)
|
|
|
(3,064
|
)
|
|
|
(732
|
)
|
|
|
(11,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification Out of Accumulated Other Comprehensive Loss
Details about AOCL Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
(Thousands of dollars)
|
|
Defined
Benefit
Funded
Retirement
Plan
|
|
|
Defined
Benefit
Unfunded
Retirement
Plan
|
|
|
Post-
Retirement
Benefit
Plan
|
|
|
Total
|
|
Amortization of actuarial losses
|
|
|
850
|
|
|
|
75
|
|
|
|
|
|
|
|
925
|
|
Income tax expense
|
|
|
(334
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications net of tax
|
|
$
|
516
|
|
|
|
46
|
|
|
|
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2015
|
|
(Thousands of dollars)
|
|
Defined
Benefit
Funded
Retirement
Plan
|
|
|
Defined
Benefit
Unfunded
Retirement
Plan
|
|
|
Post-
Retirement
Benefit
Plan
|
|
|
Total
|
|
Amortization of prior service costs
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Amortization of actuarial losses
|
|
|
839
|
|
|
|
607
|
|
|
|
79
|
|
|
|
1,525
|
|
Amortization of plan amendment
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before tax
|
|
|
843
|
|
|
|
607
|
|
|
|
33
|
|
|
|
1,483
|
|
Income tax expense
|
|
|
(331
|
)
|
|
|
(238
|
)
|
|
|
(13
|
)
|
|
|
(582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications net of tax
|
|
$
|
512
|
|
|
|
369
|
|
|
|
20
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in parentheses indicate expenses. These items are included in the computation of net periodic
retirement and postretirement costs. See Note 15 Employee and Retiree Benefit Plans.
66
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 14 Other Comprehensive Income Disclosures (cont.)
Reclassification Out of Accumulated Other Comprehensive Loss (cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2014
|
|
(Thousands of dollars)
|
|
Defined
Benefit
Funded
Retirement
Plan
|
|
|
Defined
Benefit
Unfunded
Retirement
Plan
|
|
|
Post-
Retirement
Benefit
Plan
|
|
|
Total
|
|
Amortization of prior service costs
|
|
$
|
17
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
10
|
|
Amortization of actuarial losses
|
|
|
165
|
|
|
|
292
|
|
|
|
|
|
|
|
457
|
|
Amortization of plan amendment
|
|
|
|
|
|
|
|
|
|
|
(199
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before tax
|
|
|
182
|
|
|
|
285
|
|
|
|
(199
|
)
|
|
|
268
|
|
Income tax benefit/(expense)
|
|
|
(71
|
)
|
|
|
(112
|
)
|
|
|
78
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications net of tax
|
|
$
|
111
|
|
|
|
173
|
|
|
|
(121
|
)
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in parentheses indicate expenses. These items are included in the computation of net periodic
retirement and postretirement costs. See Note 15 Employee and Retiree Benefit Plans.
Tax Effects by Component
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
(Thousands of dollars)
|
|
Before
Tax
Amount
|
|
|
Tax
(Expense)
or Benefit
|
|
|
Net
of
Tax
Amount
|
|
Gains/(losses) arising during the period
|
|
$
|
2,433
|
|
|
|
(954
|
)
|
|
|
1,479
|
|
Amortization of actuarial losses/(gains)
|
|
|
925
|
|
|
|
(363
|
)
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,358
|
|
|
|
(1,317
|
)
|
|
|
2,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2015
|
|
(Thousands of dollars)
|
|
Before
Tax
Amount
|
|
|
Tax
(Expense)
or Benefit
|
|
|
Net
of
Tax
Amount
|
|
Gains/(losses) arising during the period
|
|
$
|
(1,784
|
)
|
|
|
700
|
|
|
|
(1,084
|
)
|
Amortization of prior service costs
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
2
|
|
Amortization of actuarial losses/(gains)
|
|
|
1,525
|
|
|
|
(598
|
)
|
|
|
927
|
|
Amortization of plan amendment
|
|
|
(46
|
)
|
|
|
18
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(301
|
)
|
|
|
118
|
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 14 Other Comprehensive Income Disclosures (cont.)
Tax Effects by Component (cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2014
|
|
(Thousands of dollars)
|
|
Before
Tax
Amount
|
|
|
Tax
(Expense)
or Benefit
|
|
|
Net of
Tax
Amount
|
|
Gains/(losses) arising during the period
|
|
$
|
(14,636
|
)
|
|
|
5,741
|
|
|
|
(8,895
|
)
|
Amortization of prior service costs
|
|
|
10
|
|
|
|
(4
|
)
|
|
|
6
|
|
Amortization of actuarial losses/(gains)
|
|
|
457
|
|
|
|
(179
|
)
|
|
|
278
|
|
Amortization of plan amendment
|
|
|
(199
|
)
|
|
|
78
|
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(14,368
|
)
|
|
|
5,636
|
|
|
|
(8,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 15 Employee and Retiree Benefit Plans
The Company has a funded, qualified defined benefit retirement plan (Retirement Plan) that covers each employee of Deltic
Timber Corporation, excluding employees of the subsidiaries, who were employed on December 31, 2014 and had completed 1,000 hours of service for a twelve-month period, once employment has commenced, and continues to meet both the 1,000 hours
requirement and the employment requirement for each twelve-month period. The Retirement Plan was not open to new participants beginning January 1, 2016. An unfunded, nonqualified supplemental executive retirement plan is maintained for certain
current and former employees. All contributions to both plans are made by the Company. The plans provide defined benefits based on years of benefit service and average monthly compensation as defined by the Companys Retirement Plan. The
Company determines the vested benefit obligation on the actuarial present value based on the employees expected date of retirement. For the December 31, 2016, measurement of Deltics defined benefit obligations, the Company selected
the
RP-2014
Mortality Tables using Projection Scale
MP-2016
as issued by the Society of Actuaries, since it was determined that those rates represented the best estimate
of mortality for the participants in the Companys plans. The Company also sponsors a plan for retired employees, excluding employees of the subsidiaries, that provides comprehensive healthcare benefits (supplementing Medicare benefits, for
those eligible) and life insurance benefits. Costs are accrued for this plan during the service lives of covered employees. Retirees contribute a portion of the self-funded cost of healthcare benefits and the Company contributes the remainder. The
Company pays premiums for life insurance coverage arranged through an insurance company. The health care plan is funded on a
pay-as-you-go
basis. The Company retains the right to modify or terminate the benefits and/or cost-sharing provisions.
68
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 15 Employee and Retiree Benefit Plans (cont.)
The following table sets forth the plans benefit obligations, fair value of plan
assets, and funded status at December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Funded
Retirement
Plan
|
|
|
Defined
Benefit
Unfunded
Retirement
Plan
|
|
|
Other
Postretirement
Benefit
Plan
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period
|
|
$
|
48,058
|
|
|
|
47,750
|
|
|
|
13,036
|
|
|
|
9,644
|
|
|
|
12,675
|
|
|
|
12,698
|
|
Service cost
|
|
|
1,642
|
|
|
|
1,959
|
|
|
|
212
|
|
|
|
518
|
|
|
|
379
|
|
|
|
527
|
|
Interest cost
|
|
|
2,097
|
|
|
|
2,021
|
|
|
|
322
|
|
|
|
494
|
|
|
|
576
|
|
|
|
559
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
92
|
|
Actuarial (gain)/loss
|
|
|
1,180
|
|
|
|
(2,406
|
)
|
|
|
(5,157
|
)
|
|
|
2,655
|
|
|
|
937
|
|
|
|
(819
|
)
|
Benefits paid
|
|
|
(1,340
|
)
|
|
|
(1,266
|
)
|
|
|
(276
|
)
|
|
|
(275
|
)
|
|
|
(456
|
)
|
|
|
(382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period
|
|
$
|
51,637
|
|
|
|
48,058
|
|
|
|
8,137
|
|
|
|
13,036
|
|
|
|
14,198
|
|
|
|
12,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
32,360
|
|
|
|
32,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
2,104
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
1,050
|
|
|
|
775
|
|
|
|
276
|
|
|
|
275
|
|
|
|
369
|
|
|
|
290
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
92
|
|
Benefits paid
|
|
|
(1,340
|
)
|
|
|
(1,266
|
)
|
|
|
(276
|
)
|
|
|
(275
|
)
|
|
|
(456
|
)
|
|
|
(382
|
)
|
Expenses
|
|
|
(335
|
)
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period
|
|
$
|
33,839
|
|
|
|
32,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plans
|
|
$
|
(17,798
|
)
|
|
|
(15,698
|
)
|
|
|
(8,137
|
)
|
|
|
(13,036
|
)
|
|
|
(14,198
|
)
|
|
|
(12,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
|
|
|
|
|
|
|
|
(271
|
)
|
|
|
(272
|
)
|
|
|
(428
|
)
|
|
|
(380
|
)
|
Noncurrent liability
|
|
$
|
(17,798
|
)
|
|
|
(15,698
|
)
|
|
|
(7,866
|
)
|
|
|
(12,764
|
)
|
|
|
(13,770
|
)
|
|
|
(12,295
|
)
|
Deferred income taxesnet
|
|
$
|
6,981
|
|
|
|
6,157
|
|
|
|
3,192
|
|
|
|
5,113
|
|
|
|
5,568
|
|
|
|
4,647
|
|
Accumulated other comprehensive (income)/loss
|
|
$
|
7,641
|
|
|
|
7,071
|
|
|
|
1,128
|
|
|
|
4,308
|
|
|
|
784
|
|
|
|
215
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrecognized (gain)/loss
|
|
$
|
12,570
|
|
|
|
11,633
|
|
|
|
1,856
|
|
|
|
7,088
|
|
|
|
1,271
|
|
|
|
334
|
|
Unrecognized prior service cost/(credit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effects
|
|
|
(4,929
|
)
|
|
|
(4,562
|
)
|
|
|
(728
|
)
|
|
|
(2,780
|
)
|
|
|
(487
|
)
|
|
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,641
|
|
|
|
7,071
|
|
|
|
1,128
|
|
|
|
4,308
|
|
|
|
784
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 15 Employee and Retiree Benefit Plans (cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
Benefit
Funded
Retirement
Plan
|
|
|
Defined
Benefit
Unfunded
Retirement
Plan
|
|
|
Other
Postretirement
Benefit
Plan
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Assumptions used in measurement of benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.16
|
%
|
|
|
4.47
|
%
|
|
|
4.16
|
%
|
|
|
4.47
|
%
|
|
|
4.19
|
%
|
|
|
4.50
|
%
|
Rate of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Accumulated benefit obligations at year end
|
|
$
|
46,867
|
|
|
|
42,829
|
|
|
|
7,906
|
|
|
|
8,813
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic retirement expense and other postretirement benefits expense consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Defined benefit funded retirement plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,642
|
|
|
|
1,959
|
|
|
|
1,476
|
|
Interest cost
|
|
|
2,097
|
|
|
|
2,021
|
|
|
|
1,839
|
|
Expected return on plan assets
|
|
|
(2,375
|
)
|
|
|
(2,410
|
)
|
|
|
(2,290
|
)
|
Amortization of prior service cost
|
|
|
|
|
|
|
4
|
|
|
|
17
|
|
Amortization of actuarial loss
|
|
|
850
|
|
|
|
839
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
2,214
|
|
|
|
2,413
|
|
|
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit unfunded retirement plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
212
|
|
|
|
518
|
|
|
|
302
|
|
Interest cost
|
|
|
322
|
|
|
|
494
|
|
|
|
373
|
|
Amortization of prior service credit
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Amortization of actuarial loss
|
|
|
75
|
|
|
|
607
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
609
|
|
|
|
1,619
|
|
|
|
960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other postretirement benefit plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
379
|
|
|
|
527
|
|
|
|
418
|
|
Interest cost
|
|
|
576
|
|
|
|
559
|
|
|
|
497
|
|
Amortization of prior service credit
|
|
|
|
|
|
|
(46
|
)
|
|
|
(199
|
)
|
Amortization of actuarial loss
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
955
|
|
|
|
1,119
|
|
|
|
716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 15 Employee and Retiree Benefit Plans (cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Assumptions used to determine net periodic benefit cost defined benefit pension plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.47
|
%
|
|
|
4.21
|
%
|
|
|
4.84
|
%
|
Expected long-term rate of return on plan assets
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
Rate of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Assumptions used to determine net periodic benefit cost other postretirement plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
4.50
|
%
|
|
|
4.25
|
%
|
|
|
4.85
|
%
|
Other changes in plan assets and benefit obligations recognized in other comprehensive (income)/loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrecognized loss/(gain)
|
|
$
|
(2,433
|
)
|
|
|
1,784
|
|
|
|
14,636
|
|
Amortization of prior service credit
|
|
|
|
|
|
|
(4
|
)
|
|
|
(10
|
)
|
Amortization of actuarial losses
|
|
|
(925
|
)
|
|
|
(1,525
|
)
|
|
|
(457
|
)
|
Amortization of plan amendment
|
|
|
|
|
|
|
46
|
|
|
|
199
|
|
Tax effect of changes
|
|
|
1,317
|
|
|
|
(118
|
)
|
|
|
(5,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
$
|
(2,041
|
)
|
|
|
183
|
|
|
|
8,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
Defined
Benefit
Funded
Retirement
Plan
|
|
|
Defined
Benefit
Unfunded
Retirement
Plan
|
|
|
Other
Post-
Retirement
Benefit
Plan
|
|
Estimated benefit payments by year
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
1,589
|
|
|
|
272
|
|
|
|
428
|
|
2018
|
|
|
1,729
|
|
|
|
417
|
|
|
|
478
|
|
2019
|
|
|
1,889
|
|
|
|
413
|
|
|
|
533
|
|
2020
|
|
|
2,103
|
|
|
|
408
|
|
|
|
574
|
|
2021
|
|
|
2,325
|
|
|
|
405
|
|
|
|
614
|
|
2022 2026
|
|
|
14,128
|
|
|
|
2,532
|
|
|
|
3,517
|
|
The estimated net loss for the defined benefit funded and unfunded retirement pension plans that will be
amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $1,093,000.
The amount of projected expense in 2017 for the defined benefit funded and unfunded retirement plans are expected to be $2,375,000 and
$528,000, respectively. The Company expects to make contributions during 2017 of approximately $1,200,000 to the defined benefit funded retirement plan, $272,000 to fund benefits paid from its defined benefit unfunded retirement plan, and
approximately $428,000 to fund the other postretirement benefit plan.
71
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 15 Employee and Retiree Benefit Plans (cont.)
The discount rate assumption used by the Company to measure benefit obligations and net
periodic expenses is based on a spot-rate yield curve using current rates of return on high-quality fixed-income investments at the measurement date, reflect the rates at which the pension benefits can be effectively settled and is used to determine
the present value of the expected future cash flows at the measurement date. Additionally, a single rate is determined so that the present value of the benefit obligations using the single rate equals the present value using the spot rate yield
curve. The yield curve only includes bonds that meet the following criteria: (1) have maturities between 6 months and 30 years; (2) are noncallable, nonputable, and do not have a sinking fund provision; (3) have fixed coupon payments
with a single payment at maturity; (4) have more than $250 million par outstanding; (5) are U.S. dollar-denominated bonds; and (6) have an average rating of
AA-
(S&P/Fitch) or Aa3
(Moodys) and higher. Any taxable municipal bond, Build America bonds, or bonds that are issued by any U.S. Government entity that fit under the above criteria are excluded.
To develop the expected long-term rate of return on asset assumption, the Company considered the rates of return of assets the
Companys pension plan invested in and compared them to the historical rates of return on investments in similar assets. Further, these returns were compared to plans of other companies which had similar investment philosophies. After a review
of the rate of inflation and its impact, management made the selection of the 7.50 percent assumption.
In determining the
benefit obligation for health care at December 31, 2016, health care inflation cost was assumed to increase at an annual rate of five percent in 2016. Assumed health care cost trend rates have a significant effect on the amounts reported for
the health care plan. A one percentage-point increase in the assumed health care cost trend rate would increase the aggregate service and interest cost components of periodic benefit cost for 2016 by $184,000 and the benefit obligation by
$2,343,000, while a one percentage-point decrease in the assumed rate would decrease the 2016 cost components by $143,000 and the benefit obligation by $1,851,000.
Funded Plan
The assets of the defined benefit funded retirement plan (the Plan) are contained
in a trust, sponsored by Deltic, and administered by a trustee appointed by the Companys Pension Investment and Employees Benefits Committee.
The investment policy of the Plan is to achieve growth with the preservation of principal. To achieve the goal of growth of plan assets (excluding contributions and withdrawals) at a rate that exceeds
inflation, a balanced portfolio consisting of equities, fixed income, alternative investments, and cash equivalents is maintained. The components of the portfolio should be securities that have readily available prices and can be sold easily without
significantly impacting the price of the securities, with an exception for professionally managed hedge funds. The minimum and maximum asset allocation levels in total, are equities, 45 to 70 percent, fixed income, 25 to 55 percent,
alternative investments, zero to 15 percent, and up to 5 percent in cash equivalents. Further, the total equity minimum and maximum allocation levels at market, for large cap equity is 40 to 60 percent, mid and small cap equity is 5
to 15 percent, and international equity is zero to 25 percent, with international emerging not to exceed 40 percent of international equities allocation.
Not more than 2.5 percent of the market value of Plan assets may be held in the securities of any single issuer with the exception of the U.S. government or its agencies. As of December 31,
2016, less than 3 percent of the total market value of the Plan assets was invested in collateralized mortgage obligations and asset-backed security issues.
72
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 15 Employee and Retiree Benefit Plans (cont.)
The following types of securities are permitted in the Plan:
|
|
|
|
|
Equities
|
|
|
|
Common stocks, preferred stocks, convertible preferred stocks, convertible bonds, American depository receipts, proprietary funds, mutual funds, and exchange-traded
funds.
|
|
|
|
|
|
|
|
|
Fixed income
|
|
|
|
U.S. government securities, corporate debt obligations, U.S. government agency securities, mortgage-backed security issues, international bonds, and asset-backed
securities.
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
U.S. government securities.
|
|
|
|
|
|
|
|
|
Alternative investments, hedge funds
|
|
|
|
Qualified fund of funds limited partnership shares or fund of funds in a mutual fund wrapper.
|
Fair Value Measurement
Following is a description of the valuation methodologies used for
retirement plan assets measured at fair value.
Common stock, preferred securities, and exchange-traded funds:
Valued at
the closing price reported on the active market on which the individual securities are traded.
Mutual funds:
Valued at
the net asset value (NAV) of shares held by the Plan at
year-end,
at quoted market prices.
Alternative investment funds:
Valued by company or industry source.
U.S.
treasuries and government agency securities:
Valued using quoted prices for similar assets in active markets.
Corporate debt obligations and U.S. government and agency securities:
Valued using pricing models that utilize trade,
bid, and other market information; or benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing.
Money market funds:
Valued at par, which approximates fair value.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of
future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
Fair value measurement accounting
establishes a fair value hierarchy based on the quality of inputs used to measure fair value, with Level 1 being the highest quality and Level 3 being the lowest quality. Level 1 inputs are quoted prices in active markets on identical
assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included in Level 1. Level 3 inputs are unobservable inputs which reflect assumptions about pricing by market participants.
73
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 15 Employee and Retiree Benefit Plans (cont.)
The following table sets forth by level within the fair value hierarchy the Plans
investments at fair value as of December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Thousands of dollars)
|
|
Percent
of
Total
|
|
|
Total
Carrying
Value at
Dec. 31,
2016
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Plan Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
2.6
|
|
|
$
|
871
|
|
|
|
871
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
.1
|
|
|
|
47
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
U.S. Govt. and agency securities
|
|
|
13.6
|
|
|
|
4,608
|
|
|
|
2,694
|
|
|
|
1,914
|
|
|
|
|
|
Corporate debt obligations
|
|
|
10.0
|
|
|
|
3,385
|
|
|
|
|
|
|
|
3,385
|
|
|
|
|
|
Municipal debt obligations
|
|
|
1.2
|
|
|
|
401
|
|
|
|
|
|
|
|
401
|
|
|
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and growth
|
|
|
18.0
|
|
|
|
6,085
|
|
|
|
6,085
|
|
|
|
|
|
|
|
|
|
International and emerging markets
|
|
|
5.2
|
|
|
|
1,767
|
|
|
|
1,767
|
|
|
|
|
|
|
|
|
|
Fixed income
|
|
|
2.2
|
|
|
|
733
|
|
|
|
733
|
|
|
|
|
|
|
|
|
|
Exchange-traded funds
|
|
|
39.6
|
|
|
|
13,411
|
|
|
|
13,411
|
|
|
|
|
|
|
|
|
|
Alternative investment funds
|
|
|
7.5
|
|
|
|
2,531
|
|
|
|
|
|
|
|
|
|
|
|
2,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan investments at fair value
|
|
|
100.0
|
|
|
$
|
33,839
|
|
|
|
25,608
|
|
|
|
5,700
|
|
|
|
2,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of fair value hierarchy
|
|
|
|
|
|
|
100
|
|
|
|
75.7
|
|
|
|
16.8
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the activity in the Level 3 investments for the year ended
December 31, 2016.
|
|
|
|
|
|
|
Fair Value Measurements
Using Significant
Unobservable
Inputs
(Level 3)
|
|
(Thousands of dollars)
|
|
Alternative Investment
Funds
|
|
Beginning balance at December 31, 2015
|
|
$
|
2,567
|
|
Actual return on plan assets:
|
|
|
|
|
Relating to assets still held at the reporting date
|
|
|
(36
|
)
|
Purchases, sales, and settlements
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31, 2016
|
|
$
|
2,531
|
|
|
|
|
|
|
74
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 15 Employee and Retiree Benefit Plans (cont.)
The following table sets forth by level within the fair value hierarchy the Plans
investments at fair value as of December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Thousands of dollars)
|
|
Percent
of Total
|
|
|
Total
Carrying
Value at
Dec. 31,
2015
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Plan Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
2.3
|
|
|
$
|
738
|
|
|
|
738
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
.1
|
|
|
|
46
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
U.S. Govt. and agency securities
|
|
|
15.7
|
|
|
|
5,093
|
|
|
|
2,901
|
|
|
|
2,192
|
|
|
|
|
|
Corporate debt obligations
|
|
|
9.7
|
|
|
|
3,144
|
|
|
|
|
|
|
|
3,144
|
|
|
|
|
|
Municipal debt obligations
|
|
|
.3
|
|
|
|
95
|
|
|
|
|
|
|
|
95
|
|
|
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and growth
|
|
|
34.2
|
|
|
|
11,057
|
|
|
|
11,057
|
|
|
|
|
|
|
|
|
|
International and emerging markets
|
|
|
5.4
|
|
|
|
1,739
|
|
|
|
1,739
|
|
|
|
|
|
|
|
|
|
Fixed income
|
|
|
2.3
|
|
|
|
733
|
|
|
|
733
|
|
|
|
|
|
|
|
|
|
Exchange-traded funds
|
|
|
22.1
|
|
|
|
7,148
|
|
|
|
7,148
|
|
|
|
|
|
|
|
|
|
Alternative investment funds
|
|
|
7.9
|
|
|
|
2,567
|
|
|
|
|
|
|
|
|
|
|
|
2,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan investments at fair value
|
|
|
100.0
|
|
|
$
|
32,360
|
|
|
|
24,362
|
|
|
|
5,431
|
|
|
|
2,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of fair value hierarchy
|
|
|
|
|
|
|
100
|
|
|
|
75.3
|
|
|
|
16.8
|
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the activity in the Level 3 investments for the year ended
December 31, 2015.
|
|
|
|
|
|
|
Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)
|
|
(Thousands of dollars)
|
|
Alternative Investment
Funds
|
|
Beginning balance at December 31, 2014
|
|
$
|
2,189
|
|
Actual return on plan assets:
|
|
|
|
|
Relating to assets still held at the reporting date
|
|
|
(122
|
)
|
Purchases, sales, and settlements
|
|
|
500
|
|
|
|
|
|
|
Ending balance at December 31, 2015
|
|
$
|
2,567
|
|
|
|
|
|
|
75
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 15 Employee and Retiree Benefit Plans (cont.)
Thrift Plan
Employees of the Company and subsidiaries may
participate in its thrift plan by allotting up to a specific percentage of their base pay. The Company matches contributions at a stated percentage of each employees allotment and also provides
non-elective
contributions. Company contributions to this plan were $1,079,000 in 2016, $935,000 in 2015, and $829,000 in 2014.
Note 16 Incentive Plans
Stock Incentive Plan
On April 26, 2012, the Companys shareholders approved an amendment to extend the Deltic Timber Corporation 2002 Stock Incentive
Plan (the 2002 Plan) for ten years, giving the plan an expiration date of April 26, 2022. The 2002 Plan replaced the 1996 Stock Incentive Plan, which was terminated. The 2002 Plan permits annual awards of shares of the
Companys common stock to executives, other key employees, and nonemployee directors. Under the plan, the Executive Compensation Committee (the Committee) is authorized to grant: (1) stock options; (2) restricted stock and
restricted stock units; (3) performance units; and (4) other stock-based awards, including stock appreciation rights and rights to dividends and dividend equivalents. The number of shares originally registered for issuance under the 2002
Plan was 1,800,000 shares. Additional shares may be issued if an adjustment is determined necessary by the Committee as the result of dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation,
split-up,
spin-off,
combination, repurchase or exchange of common stock, or other corporate transaction in order to prevent dilution or enlargement of
benefits or potential benefits intended to be made available. At December 31, 2016, 731,102 of these 1,800,000 shares were available for award under the 2002 Plan. No participant in the 2002 Plan may receive options and stock appreciation
rights in any calendar year that relates to more than 50,000 shares, and the maximum number of shares, which may be awarded as restricted stock and restricted stock units or other stock-based awards, is 75,000 shares. The Company has a policy of
issuing treasury stock to satisfy all share-based incentive plans.
Under the fair value recognition provisions for share-based
payments, share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award. The fair value of stock options granted is determined using a
binomial model. The fair value of restricted stock awards is determined by reference to the fair market value of the Companys common stock on the date of grant. Restricted stock performance units are valued using a Monte Carlo simulation
model. Compensation cost is recognized on a straight-line basis over the requisite service period. The benefits of tax deductions in excess of recognized compensation cost is to be reported as a financing cash flow.
Deltic issues restricted stock performance units whose vesting is contingent upon meeting certain financial performance goals based upon
the Companys total stockholder return compared to the total return of a Paper and Forest Products Index selected by the Committee and calculated by Standard and Poors. Determining the appropriate amount to expense is based on likelihood
of achievement of the stated goals and requires judgment, including forecasting future financial results.
76
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 16 Incentive Plans (cont.)
The expected option term is based on the term of the option and historical exercise and
expiration experience. The Company uses historical volatility over a
ten-year
trading life to determine weighted expected volatility assumptions. The expected dividend yield is based on the Companys
average dividend yield from 2012 to 2015. Risk-free interest rates are based on historical rates and forward-looking factors. The
pre-vesting
forfeiture rate is based on past forfeiture rates and expected
trends.
Assumptions for the 2016, 2015, and 2014 valuation of stock options and restricted stock
performance units consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Expected term of options (in years)
|
|
|
6.27
|
|
|
|
6.27
|
|
|
|
6.27
|
|
Weighted expected volatility
|
|
|
38.16
|
%
|
|
|
38.64
|
%
|
|
|
37.38
|
%
|
Dividend yield
|
|
|
.59
|
%
|
|
|
.56
|
%
|
|
|
.55
|
%
|
Risk-free interest rate - performance restricted shares
|
|
|
1.34
|
%
|
|
|
1.15
|
%
|
|
|
1.23
|
%
|
Risk-free interest rate - stock options
|
|
|
2.13
|
%
|
|
|
1.92
|
%
|
|
|
2.99
|
%
|
Stock price as of valuation date
|
|
$
|
55.94
|
|
|
|
65.89
|
|
|
|
63.21
|
|
Restricted performance share valuation
|
|
$
|
68.88
|
|
|
|
77.52
|
|
|
|
80.56
|
|
Grant date fair value - stock options
|
|
$
|
20.39
|
|
|
|
24.40
|
|
|
|
21.87
|
|
The consolidated statements of income for the years ended December 31, 2016, 2015, and 2014 included
$4,221,000, $3,324,000, and $3,238,000, respectively, of stock-based compensation expense reflected in general and administrative expenses. The potential excess income tax benefit derived from all share-based payment arrangements with employees was
$500,000, $36,000, and $160,000 for the years ended December 31, 2016, 2015, and 2014, respectively.
Stock Options
For each option granted under the 2002 Plan, the Committee fixes the option price at not less
than fair market value on the date of the grant and the option term, not to exceed ten years from date of grant. Options granted after 1998 have been issued with terms of ten years and are nonqualified. For all options granted since 2003,
one-fourth
vest after each
one-year
period over the subsequent four years from issuance. The resulting fixed stock-based compensation cost was recognized over the vesting
period for these options. All outstanding options have an option price not less than the market value on the grant date, with a range in option prices of $34.41 to $71.35 per share.
77
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 16 Incentive Plans (cont.)
A summary of stock options as of December 31, 2016, and changes during the year
ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
$(000)
|
|
Outstanding at January 1, 2016
|
|
|
147,870
|
|
|
$
|
63.86
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
28,533
|
|
|
|
55.94
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(93,427
|
)
|
|
|
61.84
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(2,941
|
)
|
|
|
62.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
80,035
|
|
|
$
|
63.24
|
|
|
|
6.8
|
|
|
$
|
1,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
40,057
|
|
|
$
|
65.13
|
|
|
|
5.4
|
|
|
$
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014
was $908,000, $430,000, and $124,000, respectively. At December 31, 2016, there was $583,000 of unrecognized compensation cost related to nonvested stock options. The weighted average period remaining to vest is 1.6 years.
Additional information about stock options outstanding at December 31, 2016, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number
of
Options
|
|
|
Average
Life in
Years
|
|
|
Average
Exercise
Price
|
|
|
Number
of
Options
|
|
|
Average
Exercise
Price
|
|
$31.00$35.00
|
|
|
315
|
|
|
|
2.1
|
|
|
$
|
34.41
|
|
|
|
315
|
|
|
$
|
34.41
|
|
$41.00$45.00
|
|
|
2,364
|
|
|
|
3.1
|
|
|
$
|
44.84
|
|
|
|
2,364
|
|
|
$
|
44.84
|
|
$51.00$55.00
|
|
|
18,403
|
|
|
|
9.0
|
|
|
$
|
55.89
|
|
|
|
220
|
|
|
$
|
51.74
|
|
$56.00$65.00
|
|
|
20,291
|
|
|
|
6.1
|
|
|
$
|
63.32
|
|
|
|
12,363
|
|
|
$
|
63.39
|
|
$66.00$75.00
|
|
|
38,662
|
|
|
|
6.4
|
|
|
$
|
68.05
|
|
|
|
24,795
|
|
|
$
|
68.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,035
|
|
|
|
|
|
|
|
|
|
|
|
40,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock and Restricted Stock Units
The Committee may grant restricted stock and
restricted stock units to selected employees, with conditions to vesting for each grant established by the Committee. During the vesting period, the grantee may vote and receive dividends on the shares, but shares are subject to transfer
restrictions and are all, or partially, forfeited if a grantee terminates, depending on the reason. Restricted stock and restricted stock units granted since 2003 have vested after four years, and the stock-based compensation is recognized on a
straight-line basis over the requisite service period for the entire award.
78
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 16 Incentive Plans (cont.)
A summary of nonvested restricted stock as of December 31, 2016, and changes during
the year then-ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Nonvested at January 1, 2016
|
|
|
87,105
|
|
|
$
|
67.04
|
|
|
|
|
Granted
|
|
|
36,048
|
|
|
|
58.70
|
|
Vested
|
|
|
(35,125
|
)
|
|
|
66.26
|
|
Forfeited
|
|
|
(858
|
)
|
|
|
64.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2016
|
|
|
87,170
|
|
|
$
|
66.54
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, there was $2,522,000 of unrecognized compensation cost related to nonvested
restricted stock. That cost is expected to be recognized over a weighted-average period of 1.8 years.
Performance Units
Performance units granted under the 2002 Plan may be denominated in cash, common shares,
other securities, other awards allowed under the 2002 Plan, or other property and shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder, in whole or in part, upon achievement of
such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the 2002 Plan, the performance goals to be achieved during any performance period, the length of any performance period, the amount of
any performance unit granted, and any payment or transfer to be made pursuant to any performance unit shall be determined by the Committee. During 2016, 2015, and 2014, the Company issued performance units in the form of restricted stock with
specified performance requirements. During the vesting period, the grantee may vote and receive dividends on the shares, but shares are subject to transfer restrictions and are all, or partially, forfeited if a grantee terminates, depending on the
reason. Performance units granted since 2003 have vested after four years, and the stock-based compensation is recognized on a straight-line basis over the requisite service period for the entire award. During 2016 and 2015, the performance shares
granted in 2012 and 2011, respectively, did not meet vesting conditions and were returned to treasury stock.
79
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 16 Incentive Plans (cont.)
A summary of nonvested restricted stock performance units as of December 31,
2016,
and changes during the year then-ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Nonvested at January 1, 2016
|
|
|
63,900
|
|
|
$
|
83.24
|
|
|
|
|
Granted
|
|
|
29,041
|
|
|
|
68.35
|
|
Units not meeting vesting conditions
|
|
|
(11,263
|
)
|
|
|
90.61
|
|
Vested
|
|
|
(21,279
|
)
|
|
|
73.83
|
|
Forfeited
|
|
|
(13,249
|
)
|
|
|
80.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2016
|
|
|
47,150
|
|
|
$
|
77.67
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, there was $1,708,000 of unrecognized compensation cost related to nonvested
restricted stock performance units. That cost is expected to be recognized over a weighted-average period of 1.8 years.
Other Stock-Based Awards
The Committee may also grant other awards, including but not limited to, stock appreciation rights and rights to dividends and dividend equivalents that are
denominated, or payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of the Companys common stock, including securities convertible in its common stock, as deemed by the Committee to be consistent
with the purpose of the 2002 Plan. No such other stock-based awards have been granted.
Cash Incentive Compensation Plan
The Company has an incentive compensation plan that provides for annual cash awards to officers and key employees based on
actual results for a year compared to objectives established at the beginning of that year by the Executive Compensation Committee, which administers the Plan. The Company recorded expenses for cash incentive awards of $1,050,000, $16,000, and
$586,000 in 2016, 2015, and 2014, respectively. The Company had accrued provisions for cash incentive awards totaling $816,000 and $50,000 at December 31, 2016 and 2015, respectively, reflected in the consolidated balance sheets in deferred
revenues and other accrued liabilities.
Note 17 Supplemental Cash Flows Disclosures
Additional information concerning cash flows at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income taxes paid in cash
|
|
$
|
326
|
|
|
|
2,517
|
|
|
|
14,976
|
|
Interest paid
|
|
|
9,173
|
|
|
|
5,679
|
|
|
|
5,420
|
|
Interest capitalized
|
|
|
(810
|
)
|
|
|
(103
|
)
|
|
|
(70
|
)
|
80
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 17 Supplemental Cash Flows Disclosures (cont.)
Non-cash
investing and financing activities
excluded from the Consolidated Statement of Cash Flows include:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Issuance of restricted stock
|
|
$
|
3,218
|
|
|
|
1,677
|
|
|
|
1,290
|
|
Capital expenditures, adjusted for
non-cash
accrued liabilities
|
|
|
(2,307
|
)
|
|
|
1,603
|
|
|
|
738
|
|
Timberland exchanges
|
|
|
|
|
|
|
39
|
|
|
|
|
|
(Increases)/decreases in operating working capital, other than cash and cash equivalents, for each of the
three years ended December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Trade accounts receivable
|
|
$
|
(1,672
|
)
|
|
|
2,091
|
|
|
|
(1,756
|
)
|
Other receivables
|
|
|
59
|
|
|
|
(11
|
)
|
|
|
8
|
|
Inventories
|
|
|
(311
|
)
|
|
|
(423
|
)
|
|
|
945
|
|
Prepaid expenses and other current assets
|
|
|
2,749
|
|
|
|
(441
|
)
|
|
|
(2,543
|
)
|
Trade accounts payable
|
|
|
2,054
|
|
|
|
420
|
|
|
|
(2,123
|
)
|
Accrued taxes other than income taxes
|
|
|
(67
|
)
|
|
|
(31
|
)
|
|
|
(61
|
)
|
Deferred revenues and other accrued liabilities
|
|
|
2,815
|
|
|
|
1,302
|
|
|
|
(3,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,627
|
|
|
|
2,907
|
|
|
|
(9,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by other operating activities included a decrease in deferred long-term mineral lease
rental revenue of $80,000 in 2016, $267,000 in 2015, and $266,000 in 2014. Total cash payments received were $80,000 in 2016, $81,000 in 2015, and $711,000 in 2014. These payments will be recognized over the term of the
lease.
Note 18 Earnings per Share
The amounts used in computing earnings per share and the effect on income and weighted-average number of shares outstanding of dilutive
potential common stock consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net earnings allocated to common stock
|
|
$
|
9,128
|
|
|
|
2,623
|
|
|
|
19,445
|
|
Net earnings allocated to participating securities
|
|
|
117
|
|
|
|
31
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common stock and participating securities
|
|
$
|
9,245
|
|
|
|
2,654
|
|
|
|
19,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 18 Earnings per Share (cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Weighted average number of common shares used in basic EPS
|
|
|
12,010
|
|
|
|
12,407
|
|
|
|
12,497
|
|
Effect of dilutive stock awards
|
|
|
64
|
|
|
|
60
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and dilutive potential common stock used in EPS assuming dilution
|
|
|
12,074
|
|
|
|
12,467
|
|
|
|
12,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.76
|
|
|
|
.21
|
|
|
|
1.56
|
|
Assuming dilution
|
|
$
|
.76
|
|
|
|
.21
|
|
|
|
1.55
|
|
Diluted earnings per common share is computed using the weighted-average number of shares determined for
the basic earnings per common share computation plus the dilutive effect of common stock equivalents using the treasury stock method.
The following table provides information about potentially dilutive securities that were outstanding but were not included in the computation of diluted earnings per share, because they were anti-dilutive
or, in the case of the restricted performance shares, did not meet the metrics established for awarding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Options
|
|
|
38,662
|
|
|
|
72,213
|
|
|
|
76,968
|
|
Restricted performance shares
|
|
|
10,162
|
|
|
|
63,900
|
|
|
|
56,586
|
|
Note 19 Commitments and Contingencies
Commitments
Commitments for capital expenditures at December 31, 2016 were approximately $353,000 for timberland
acquisitions, $6,626,000 for property, plant, and equipment; and $3,059,000 for investment in real estate held for development and sale.
The Company is also involved in litigation incidental to its business from time to time. Currently, there are no material legal proceedings outstanding.
82
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 20 Business Interruption Claim and Gain on Involuntary Conversion of Assets
On March 10, 2015, the Company experienced a fire at its MDF plant located in El Dorado, Arkansas. Damage was limited
to the press portion of the facility and operations at the facility were temporarily suspended while repairs were made to the damaged area. Most of the repairs were completed in April 2015 and the plant became fully operational in that month. The
Company maintains insurance coverage for both business interruption and property damage. Deltic settled the insurance claims during the second quarter of 2015 and recorded the applicable income from the business interruption claim and gains on
involuntary conversion of assets in the operating income section of the consolidated income statement. The claim for business interruption insurance was settled for a total of $2,452,000, of which $516,000 was reported in Other Operating Income in
the Companys Consolidated Statements of Income for the quarter ending June 30, 2015 and $1,936,000 was a reimbursement of business operating expenses. The total deductible for the business interruption policy was approximately $948,000,
which was recognized as expense in the first half of 2015. The Company had adequate property damage insurance coverage to enable it to recover the replacement cost of its property and equipment that was destroyed by the fire. During the second
quarter of 2015, the Company settled property claims of $5,969,000 for property damage. The claims for property damage included $4,379,000 for inventory, contents, and repair costs, and $1,590,000 for replacement cost of a new press belt and DPA
duct. The total deductible for the property policy was $1,000,000, which was recognized as expense in the first quarter of 2015. After a
write-off
of basis in the amount of $886,000 for the old press belt and
DPA duct in the first quarter of 2015, the Company recognized a gain from involuntary conversion of assets in the amount of $704,000 which was reported in Other Operating Income in the Companys Consolidated Statement of Income for the quarter
ending June 30, 2015.
Note 21Subsequent Events
On February 27, 2017, the Company announced the appointment of John D. Enlow as its new President and Chief Executive Officer, effective March 8, 2017. Separately, on February 21, 2017,
Kenneth D. Mann, Vice President, Finance and Administration, Treasurer and Chief Financial Officer of the Company, was placed on administrative leave and his responsibilities, including those as principal financial officer, were assigned on an
interim basis to Byrom L. Walker, the Companys Controller and principal accounting officer. Mr. Manns employment was terminated for cause by the Board of Directors on February 24, 2017 for misappropriating certain company
assets for personal use, at which time the Board formally appointed Mr. Walker as interim Vice President, Finance and Administration, Treasurer and Chief Financial Officer.
83
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 22 Business Segments
The Companys four reporting segments consist of Deltics three operating business units and its corporate function. Each
reporting entity has a separate management team and infrastructure that offers different products or services.
Woodlands
operations manage the Companys Southern Pine timberlands located primarily in Arkansas and north Louisiana and derive revenue from the harvest of timber from the timberlands in accordance with its harvest plans, and either sells timber to
third parties in the domestic market or to the Companys sawmills for conversion into lumber. In addition, this segment may, from time to time, identify and sell a portion of its timberland holdings that are either
non-strategic
to future timberland management activities or that have appreciated, due primarily to location, to a level that exceeds its value as a timber-growing asset. This segment also generates revenue from oil
and gas royalties and the leasing of hunting, oil and gas, and other rights on its timberlands.
The Manufacturing segment
consists of Deltics two sawmills which convert timber into lumber and
Del-Tin
Fiber, a plant which converts sawmill residuals and an adhesive bond into MDF. The sawmills purchase timber from third
parties or the Companys Woodlands segment. The MDF plant purchases sawmill residuals from third parties and from the Companys sawmills. The mills produce a variety of products, including dimension lumber, boards, and timbers, while the
MDF plant produces several different grades of MDF. The Manufacturing segments products are sold primarily to wholesale distributors, large retailers, lumber treaters, industrial accounts, and manufacturers in the South and Midwest and are
used in residential construction, roof trusses, remanufactured products, laminated beams, cabinets, flooring, and door parts.
The Real Estate operations, which include four real estate developments, add value to former legacy timberland by developing it into
upscale, planned residential and commercial developments. These developments, which are generally centered on a core amenity, are being developed in stages. Historically, real estate sales have consisted primarily of residential lots sold to
builders or individuals, commercial site sales, and sales of undeveloped acreage. In addition, this segment currently leases retail and office space to third parties in a retail center constructed by the Company, and held for sale, in one of its
developments. This segment also manages: (1) a real estate brokerage subsidiary which generates commission revenue by reselling existing homes and (2) a country club operation, Chenal Country Club, Inc., around which the Companys
Chenal Valley development is centered. This club operation derives its revenues from membership services, food and beverage sales, and membership dues.
Corporate operations consist primarily of senior management, accounting, information systems, human resources, purchasing, treasury, income tax, and legal staff functions that provide support services to
the operating business units. The Company currently does not allocate the cost of maintaining these support functions to its operating units.
The accounting policies of the reportable segments are the same as those described in Note 1 Significant Accounting Policies. The Company evaluates the performance of its segments based on
operating income before results of: any equity method investee; interest income and expense; other
non-operating
income or expense; and income taxes. Intersegment revenues consist primarily of timber sales
from the Woodlands segment to the sawmills operations (part of the Manufacturing segment) and are transferred at rates that approximate market for the respective operating area.
84
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 22 Business Segments (cont.)
Information about the Companys business segments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Woodlands
|
|
$
|
38,260
|
|
|
|
38,770
|
|
|
|
37,008
|
|
Manufacturing
2
|
|
|
178,307
|
|
|
|
160,688
|
|
|
|
189,561
|
|
Real Estate
|
|
|
24,796
|
|
|
|
15,276
|
|
|
|
16,283
|
|
Eliminations
1
|
|
|
(22,000
|
)
|
|
|
(20,883
|
)
|
|
|
(15,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
219,363
|
|
|
|
193,851
|
|
|
|
227,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Woodlands
|
|
$
|
18,016
|
|
|
|
20,141
|
|
|
|
19,113
|
|
Manufacturing
2
|
|
|
19,213
|
|
|
|
8,381
|
|
|
|
31,440
|
|
Real Estate
|
|
|
7,428
|
|
|
|
453
|
|
|
|
1,115
|
|
Corporate
|
|
|
(22,941
|
)
|
|
|
(17,325
|
)
|
|
|
(17,405
|
)
|
Eliminations
|
|
|
(76
|
)
|
|
|
(632
|
)
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
21,640
|
|
|
|
11,018
|
|
|
|
34,396
|
|
Interest income
|
|
|
14
|
|
|
|
4
|
|
|
|
5
|
|
Interest and other debt expense, net of capitalized interest
|
|
|
(9,392
|
)
|
|
|
(7,526
|
)
|
|
|
(5,430
|
)
|
Other income
|
|
|
258
|
|
|
|
258
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,520
|
|
|
|
3,754
|
|
|
|
29,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at
year-end
|
|
|
|
|
|
|
|
|
|
|
|
|
Woodlands
|
|
$
|
357,279
|
|
|
|
360,124
|
|
|
|
363,436
|
|
Manufacturing
2
|
|
|
111,300
|
|
|
|
92,077
|
|
|
|
80,023
|
|
Real Estate
|
|
|
60,188
|
|
|
|
59,744
|
|
|
|
57,646
|
|
Corporate
3
|
|
|
25,926
|
|
|
|
27,222
|
|
|
|
26,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
554,693
|
|
|
|
539,167
|
|
|
|
527,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization, and cost of fee timber harvested
|
|
|
|
|
|
|
|
|
|
|
|
|
Woodlands
|
|
$
|
8,448
|
|
|
|
7,351
|
|
|
|
5,765
|
|
Manufacturing
2
|
|
|
14,470
|
|
|
|
13,315
|
|
|
|
12,147
|
|
Real Estate
|
|
|
347
|
|
|
|
367
|
|
|
|
355
|
|
Corporate
|
|
|
141
|
|
|
|
63
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,406
|
|
|
|
21,096
|
|
|
|
18,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 22 Business Segments (cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Woodlands
|
|
$
|
3,828
|
|
|
|
3,667
|
|
|
|
4,038
|
|
Manufacturing
2
|
|
|
32,340
|
|
|
|
24,363
|
|
|
|
12,311
|
|
Real Estate
|
|
|
8,479
|
|
|
|
8,071
|
|
|
|
3,934
|
|
Corporate
|
|
|
148
|
|
|
|
1,704
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,795
|
|
|
|
37,805
|
|
|
|
20,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberland acquisition expenditures
|
|
$
|
1,757
|
|
|
|
863
|
|
|
|
118,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Primarily intersegment sales of timber from Woodlands to Manufacturing.
|
|
2
|
During March 2015, the Company experienced a fire in the press area at its MDF plant in El Dorado that affected the operating results.
|
|
3
|
Includes balance of timberland sale proceeds held by trustee of $1,000 as of December 31, 2015, and there were none as of December 31, 2016
and 2014.
|
Note 23 Financial Results by Quarter (Unaudited)
(Thousands of dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Year
|
|
Net sales
|
|
$
|
50,624
|
|
|
|
56,705
|
|
|
|
53,541
|
|
|
|
58,493
|
|
|
|
219,363
|
|
Gross profit
|
|
|
8,239
|
|
|
|
13,210
|
|
|
|
10,124
|
|
|
|
14,058
|
|
|
|
45,631
|
|
Operating income
|
|
|
3,217
|
|
|
|
8,228
|
|
|
|
4,562
|
|
|
|
5,633
|
|
|
|
21,640
|
|
Net income
1
|
|
|
395
|
|
|
|
4,220
|
|
|
|
1,487
|
|
|
|
3,143
|
|
|
|
9,245
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.03
|
|
|
|
.35
|
|
|
|
.12
|
|
|
|
.26
|
|
|
|
.76
|
|
Assuming dilution
|
|
|
.03
|
|
|
|
.35
|
|
|
|
.12
|
|
|
|
.26
|
|
|
|
.76
|
|
Dividends paid per common share
2
|
|
$
|
.10
|
|
|
|
.10
|
|
|
|
.10
|
|
|
|
.10
|
|
|
|
.40
|
|
|
|
|
|
2015
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Year
|
|
Net sales
|
|
$
|
48,379
|
|
|
|
45,681
|
|
|
|
50,150
|
|
|
|
49,641
|
|
|
|
193,851
|
|
Gross profit
|
|
|
9,378
|
|
|
|
7,150
|
|
|
|
5,989
|
|
|
|
5,749
|
|
|
|
28,266
|
|
Operating income
|
|
|
4,516
|
|
|
|
2,933
|
|
|
|
2,034
|
|
|
|
1,535
|
|
|
|
11,018
|
|
Net income
1
|
|
|
1,913
|
|
|
|
831
|
|
|
|
38
|
|
|
|
(128
|
)
|
|
|
2,654
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.15
|
|
|
|
.07
|
|
|
|
.00
|
|
|
|
(.01
|
)
|
|
|
.21
|
|
Assuming dilution
|
|
|
.15
|
|
|
|
.07
|
|
|
|
.00
|
|
|
|
(.01
|
)
|
|
|
.21
|
|
Dividends paid per common share
2
|
|
$
|
.10
|
|
|
|
.10
|
|
|
|
.10
|
|
|
|
.10
|
|
|
|
.40
|
|
86
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016
Note 23 Financial Results by Quarter (Unaudited) (cont.)
(Thousands of dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Year
|
|
Net sales
|
|
$
|
55,379
|
|
|
|
58,605
|
|
|
|
58,301
|
|
|
|
55,070
|
|
|
|
227,355
|
|
Gross profit
|
|
|
13,930
|
|
|
|
14,455
|
|
|
|
14,046
|
|
|
|
10,447
|
|
|
|
52,878
|
|
Operating income
|
|
|
8,807
|
|
|
|
9,734
|
|
|
|
8,782
|
|
|
|
7,073
|
|
|
|
34,396
|
|
Net income
|
|
|
4,911
|
|
|
|
5,298
|
|
|
|
5,974
|
|
|
|
3,479
|
|
|
|
19,662
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.39
|
|
|
|
.42
|
|
|
|
.47
|
|
|
|
.28
|
|
|
|
1.56
|
|
Assuming dilution
|
|
|
.39
|
|
|
|
.42
|
|
|
|
.47
|
|
|
|
.28
|
|
|
|
1.55
|
|
Dividends paid per common share
2
|
|
$
|
.10
|
|
|
|
.10
|
|
|
|
.10
|
|
|
|
.10
|
|
|
|
.40
|
|
1
|
During March 2015,
the Company experienced a fire in the press area at its MDF plant in El Dorado that affected the operating results for the second and third quarters of the year. (For additional information, see Note 20 Business Interruption Claim and Gain of
Involuntary Conversion of Assets.)
|
2
|
Payment of dividends is the means by which Deltic Timber Corporation makes distributions to its shareholders of profits and cash flows generated by the
Companys business operations. These dividends are declared by the Companys Board of Directors on a quarterly basis. The Companys dividend strategy is to grow the amount of the dividend over time, at a rate of increase that is
believed to be sustainable. The timing and amount of future increases are based on the estimated trend for future earnings and cash flows, taking into account other potential uses of the Companys capital resources including, but not limited
to, acquisition opportunities, capital expenditures for existing operations, debt repayments, and repurchases of the Companys common stock.
|
87
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Shareholders
Deltic Timber Corporation:
The management of Deltic Timber Corporation has prepared and is responsible for the Companys consolidated financial statements. The
statements are prepared in conformity with accounting principles generally accepted in the United States of America, appropriate in the circumstances. In preparing the financial statements, management has, when necessary, made judgments and
estimates with consideration given to materiality.
The Companys consolidated financial statements have been audited by KPMG LLP, an
independent registered public accounting firm, who have expressed their opinion with respect to the fairness of the consolidated financial statements in conformity with U.S. generally accepted accounting principles. Their audit was conducted in
accordance with the standards of the Public Company Accounting Oversight Board (United States). The Audit Committee of the Board of Directors (the Audit Committee) appoints the independent auditors; ratification of the appointment is
solicited annually from the shareholders.
The Audit Committee is composed of directors who are not officers or employees of the Company and
who have been determined by the Companys Board of Directors to meet applicable independence standards under the Securities Exchange Act of 1934. The Audit Committee meets periodically with KPMG LLP, the Companys internal auditor, and
representatives of management to review the Companys internal controls, the quality of its financial reporting, the scope and results of audits, and the independence of the external auditors. The Companys internal auditor and KPMG LLP
have unrestricted access to the Audit Committee, without managements presence, to discuss audit findings and other financial matters.
|
|
|
/s/D. Mark Leland
|
|
/s/Byrom L Walker
|
D. Mark Leland
|
|
Byrom L. Walker
|
Interim President and Chief Executive Officer
|
|
Interim Vice President and Chief Financial Officer
|
March 7, 2017
|
|
March 7, 2017
|
88