Deltic Timber Corporation 2012 Annual Report 1 Highlights
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Deltic Timber Corporation 2012 Annual Report 1 Highlights 2 To Our Shareholders 4 Woodlands 6 Mills 8 Real Estate 10 Financial Review 11 Statistical Summary 12 Directors and Officers Form 10-K IBC Corporation Information Financial (Thousands of dollars, except per-share amounts) For the Year 2012 2011 2010 Deltic Timber Corporation is Net sales $ 140,908 121,847 141,623 a vertically integrated natural Operating income $ 17,132 7,459 17,909 Net income $ 9,235 2,659 12,397 resources company focused Earnings per common share $ 0.73 0.21 0.99 Net cash provided by on the efficient and operating activities $ 24,082 14,639 28,898 environmentally responsible Capital expenditures $ 24,034 15,697 15,568 management of its land At Year-End holdings. The Company Working capital $ 5,566 3,618 2,520 Total assets $ 353,209 341,870 343,273 owns 453,200 acres of Long-term debt $ 63,000 64,000 65,611 timberland, operates two Stockholders’ equity $ 232,230 227,123 230,011 Common shares sawmills, and is engaged in outstanding (thousands) 12,672 12,606 12,505 real estate development. Headquartered in Operating El Dorado, Arkansas, the Pine sawtimber harvested Company’s operations are from fee land (tons) 606,879 606,311 609,867 Pine sawtimber located primarily in Arkansas sales price (per ton) $ 22 23 27 Lumber sales (MBF) 272,875 254,291 270,834 and north Louisiana. Lumber sales price (per MBF) $ 309 254 290 Residential lot sales (lots) 50 31 28 Residential lot sales price (per lot) $ 69,600 63,500 81,400 Commercial acreage sales (acres) – 27.4 19.0 Commercial acreage sales price (per acre) $ – 116,700 334,000 To Our Shareholders With an improving housing environment, Deltic created additional shareholder value with its strategic vertical integration of land-based and manufacturing assets. The stewardship of these operating assets during the downturn in the wood products business and our solid balance sheet positions the From left, Ray C. Dillon, Robert C. Nolan Company for growth. During 2012, the market environment for housing in the United also saw the inventory of this valuable natural resource increase, as we States benefitted from reduced unemployment, record-low mortgage continued to manage the Company’s timberlands on a sustainable- rates, and a tight supply of new and previously occupied homes yield basis. Essentially all 606,879 tons of the quality pine timber available for sale. These factors resulted in increased home sales harvested were processed in our two sawmills, and we carefully activity, and prices, in most markets. They also persuaded builders to managed the purchase of third-party timber required to meet the start more new homes, which added to economic growth and balance of the mills’ raw material sawlog requirements. employment. For the year, builders started work on approximately Despite decreasing natural gas prices, we continued to see a 800,000 homes. While this was roughly one-half of the annual steady increase in the number of natural gas wells drilled in the number of housing starts during healthier markets, it was still an Fayetteville Shale area in which the Company has leased mineral increase of some 28 percent from 2011. This was the most starts since interests. During 2012, 93 additional wells were completed, bringing 2008, following the collapse of the housing market that began in late the total number of wells from which Deltic received royalty 2006 and 2007. As the year was ending, U.S. builders broke ground payments to 372. However, the lower prices received for the natural on houses and apartments in the month of December at a seasonally gas produced from these wells decreased the Company’s oil and adjusted annual rate of just over 950,000 units, nearly double the gas-related revenues for 2012 to $5.5 million, a decrease of $1.4 recession low in April 2009. As a result, demand for the dimension million from the revenues received in 2011. We also sold 1,776 acres lumber used to construct homes increased, resulting in increased of hardwood bottomland during 2012 for $2.8 million, as we prices for lumber. With the improved consumption and pricing levels continue to divest ourselves of this non-strategic acreage and replace it for lumber, your Company focused its efforts on capturing the with lands more suitable to growing Southern Pine timber. During value-creation opportunity resulting from the financial leverage that the year, we acquired almost 10,000 acres of pine timberland for a existed in its efficiently operated sawmills. Deltic Timber Corporation cost of $14.5 million and grew our core asset base. earned $9.2 million for 2012, or $.73 a share. These results compared The year of 2012 marked a dramatic improvement in the to $2.7 million, or $.21 a share, in 2011. financial performance of Deltic’s Mills segment, as the strengthened The foundation of Deltic’s financial stability is its timberland housing market pushed prices for lumber to more profitable levels. As holdings, and our core Woodlands segment reported operating sawmills increased their production in response to the higher income of $18.4 million for 2012. We again achieved the planned consumption of lumber, they also increased their requirements for harvest level for the pine sawtimber growing on these timberlands. We logs used to produce lumber. While this would normally increase pine Southern Pine timber drives Deltic’s Efficient operation of Deltic’s sawmills capitalizes The residential housing recovery creates growth in lot sales vertical integration strategy. on the increased lumber demand. activity in Deltic’s developments. stumpage prices in response to the greater demand, such was not the manufacture of MDF. While the plant struggled with some produc- case in 2012, primarily due to favorable logging conditions as a result tion issues in the first six months of the year, these issues were resolved of persistent dry weather. During the year, we realized a 22 percent during the plant’s annual July outage, and operating performance increase in the average sales price received for the lumber we sold, improved for the remainder of the year. With the acquisition of the while we saw a four percent decrease in pine stumpage prices. The remaining 50 percent membership interest in Del-Tin, we will own result was unit margins for lumber sales not seen for some time. Our the plant outright and utilize our proven ability to be very efficient Mills segment produced operating income in 2012 of $18.1 million operators to further improve the operating performance and financial compared to $1 million in 2011. In addition, these operations results of the plant. The acquisition fits well in our vertically integrated generated cash flows of some $22.9 million. structure since Del-Tin utilizes residual by-products generated by our In our real estate development operations, we accomplished the sawmills that result from their production of lumber produced from sale of 50 residential lots, compared to the 31 lots sold in 2011. Sales timber from our fee lands. activity improved as 2012 progressed, consistent with the housing Inclusive of timberland acquisitions, our capital program for 2012 recovery seen throughout the U.S. In December, we offered a new totaled $24 million. Due to the outstanding amount of cash flow mid-sized lot neighborhood for sale in our flagship Chenal Valley generated by the business during the year, we funded this capital development, and 16 of the 20 lots offered were put under contract program, including the growth expenditures for the timberland the day of the offering. While we also continued to see interest in our acquired, and distributed $3.8 million to our shareholders through commercial real estate properties, potential developers remained dividend payments, while reducing the Company’s debt outstanding hindered by the availability of financing for their projects. As such, we by another $2.1 million. Essentially $275 million of our revolving had no sales of commercial real estate acreage in our development credit facility was available for use as of year end. during the year. In 2013, the focus of our efforts will be to build on We are pleased to report the financial and operating results the current momentum for residential lot sales activity, while working achieved during 2012, and believe the performance of your to achieve sales of commercial property. Company’s excellent assets that are being operated under intensive While 2012 was a challenging year for Del-Tin Fiber, the facility management is creating additional value for our shareholders. In returned to profitability for the year, reporting income of $326,000. addition, our solid stewardship of Deltic’s balance sheet has placed us The medium density fiberboard (“MDF”) market was also fairly in the enviable position of being perfectly poised for future growth. robust in 2012, as a result of the improved housing market, but the We appreciate your continued interest and support. plant continued to see high costs for the resin glue utilized in the Robert C. Nolan, Chairman Ray C. Dillon, President and Chief Executive Officer Deltic’s Woodlands segment is the primary driver of the Company’s vertical integration strategy. Increased demand for wood products, produced from the timber harvested from these timberlands, positions the Company for future growth. Over 450,000 acres of Southern Pine timberland benefied from the responsible stewardship of Deltic’s sustainable-yield harvest strategy. Creating value for shareholders begins with the 1,700 acres of hardwood bottomland suitable for strategic management of Deltic’s primary asset of recreational use, and used the sales proceeds to over 450,000 acres of Southern Pine timberland.