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| DEL > SEC Filings for DEL > Form 10-Q on 3-Aug-2012 | All Recent SEC Filings |
3-Aug-2012
Quarterly Report
Executive Overview
The Company reported net income of $3.5 million for the second quarter of 2012, compared to $2 million for the same period of 2011. The increase was due to significantly improved operating results for Deltic's Mills segment which reported operating income of $5.7 million, an improvement of $6.5 million over the second quarter of 2011. The Mills segment benefitted from a $72 per thousand board feet ("MBF") increase in the average lumber sales price combined with a 5.4 million board feet increase in lumber sales volume. The Woodlands segment reported operating income of $4.7 million, a decrease of $.9 million from the $5.6 million reported a year ago. This was primarily due to lower revenues from the harvest of pine sawtimber, decreased net oil and gas royalty revenue, and reduced sales of nonstrategic recreational-use hardwood bottomland. The Real Estate segment had an operating loss of $.3 million compared to income of $1.7 million a year ago. The decrease was due to no sales of commercial real estate in the second quarter of 2012 versus the sale of a 26-acre commercial site in 2011. The Corporate segment's general and administrative expenses were $.6 million higher in the current-year quarter than in the same period a year ago, mainly due to increased employee incentive plan expenses that are impacted by the market performance of Deltic's equity combined with increased pension and post-retirement benefit obligations caused by lower interest rates. Deltic owns a 50 percent interest in Del-Tin Fiber LLC ("Del-Tin Fiber") and recorded breakeven results for the second quarter of 2012, a $.4 million decrease from the same period of 2011. The decrease was due primarily to higher manufacturing costs.
Deltic is primarily a wood products producer operating in a commodity-based business environment with a significant diversification in real estate development. The Company's operations and financial results are affected by a number of factors including general economic conditions, employment levels, interest rates, credit availability and associated costs, imports, foreign exchange rates, housing starts, new and existing home inventories, residential and commercial real estate foreclosures, residential repair and remodeling, commercial construction, industry capacity and production levels, the availability of raw materials, natural gas pricing, and weather conditions. Although there has been a recent rise in homebuilder confidence resulting from slightly increased demand for new homes and continued low mortgage interest rates, the Company remains cautious. Any benefit of this improvement is essentially offset by continued uncertainties regarding current and projected weak employment levels, global financial difficulties caused by sovereign debt issues, and recent declines in consumer confidence caused by the sluggish U.S. economy. In addition, the overall wood products and real estate markets that Deltic operates in continue to be challenging. This fact, combined with the Company's relative size, gives it little or no control over pricing or demand levels for its lumber products. Because of this, the Company continues to focus its attention on managing Deltic's diverse assets to capture market-driven opportunities and increasing productivity, while reducing controllable costs and expenses.
The Woodlands segment is the Company's core operating segment, providing the foundation for Deltic's other operations. In the second quarter of 2012, the pine sawtimber harvest was 156,512 tons, a decrease of 12,687 tons when compared to the 2011 second quarter harvest of 169,199 tons. While the current quarter included a slight decrease in pine sawtimber harvest volume, this was primarily the result of favorable logging conditions in the first quarter of 2012, as the Company achieved a greater percentage of its annual harvest plan than anticipated. The average sales price for pine sawtimber decreased eight percent, to $22 per ton, from the 2011 second quarter per-ton price of $24 due to the impact of lower demand for stumpage by sawmills in Deltic's operating area. The second quarter of 2012's pine pulpwood harvest of 115,965 tons was an increase of 14,043 tons from the harvest in the second quarter of 2011. The average sales price for pine pulpwood was $8 per ton for both quarters. The Company sold 322 acres of recreational-use hardwood bottomland at an average sales price of $1,657 per acre during the second quarter of 2012 compared to sales of 794 acres at an average price of $1,474 per acre for the same period of 2011. Hunting lease income was $.6 million for the second quarter of 2012 and $.5 million in the same period of 2011.
The Woodlands segment financial results include other benefits from land ownership, such as revenues from mineral lease rentals, mineral royalties, and land easements. In the second quarter of 2012, oil and gas lease rental income was $.6 million, a decrease of $.1 million from the same period of
2011. Oil and gas royalty payments, which are primarily from the Fayetteville Shale Play, were $.8 million in the second quarter of 2012, a $.3 million decrease from 2011, primarily due to lower natural gas prices. The impact of the lower price for natural gas was partially offset by an increase in the number of producing natural gas wells. The ultimate benefit to Deltic from mineral leases remains speculative and unknown and is contingent on the level of natural gas and crude oil prices and the successful completion of producing wells drilled on Company lands.
The average lumber sales price in the second quarter of 2012 was $317 per thousand board feet, an increase of $72 per thousand board feet, or 29 percent, when compared to the same period in 2011. The Mills segment sold 70.3 million board feet in the second quarter of 2012, an increase of 5.4 million board feet when compared to 64.9 million board feet sold in the second quarter a year ago, as the Company capitalized on increased demand. Additionally, the segment benefitted from lower raw material log costs and higher hourly productivity rates. However, as with any commodity market, the Company expects the historical lumber market volatility to continue in the future. As such, Deltic will continue to adjust production levels to meet market demand.
The Real Estate segment sold 11 residential lots during the second quarters of both 2012 and 2011, with an average per-lot sales price of $68,000 in 2012 compared to an average per-lot sales price of $65,500 in 2011's second quarter. During the second quarter of 2012, there were no commercial acreage sales, while in the second quarter of 2011 there was a commercial real estate sale of 26 acres with an average sales price of $101,000 per acre. Commercial real estate acreage within Chenal Valley continues to receive interest, especially for the property located near "The Promenade at Chenal," an upscale shopping center that includes internationally branded retailers, and property located adjacent to St. Vincent West, a medical center that opened recently. However, due to the unpredictable nature of commercial real estate sales activity, the Company cannot predict the timing of closing of any commercial real estate transaction.
Operating results for Del-Tin Fiber are affected by the overall medium density fiberboard ("MDF") market and the plant's operating performance. Equity in earnings of Del-Tin Fiber was at breakeven during the second quarter of 2012, a decrease of $.4 million from the second quarter of 2011. This decrease was primarily due to higher manufacturing costs, mainly from raw materials in the current-year quarter. Partially offsetting the increased manufacturing costs were improved average per-unit sales prices, as price increases to offset some of the increase in raw materials cost were accomplished. Regarding the Company's equity position in Del-Tin Fiber, Deltic continues to reduce depreciation expense related to the add-back per thousand square feet manufactured, which relates to the impairment taken by the Company in 2002 that was not recorded at the Del-Tin Fiber level. The difference in basis between the Company and Del-Tin Fiber is being adjusted to account for Del-Tin Fiber's operating results as if it were a consolidated subsidiary. (For further discussion, refer to Note 4 to the consolidated financial statements.)
Results of Operations
Three Months Ended June 30, 2012 Compared with Three Months Ended June 30, 2011
In the following tables, Deltic's net sales and results of operations are
presented for the quarters ended June 30, 2012 and 2011. Explanations of
significant variances and additional analyses for the Company's consolidated and
segment operations follow the tables.
Quarter Ended June 30,
(Millions of dollars, except per share amounts) 2012 2011
Net sales
Woodlands $ 9.3 10.5
Mills 27.9 20.6
Real Estate 3.3 5.4
Eliminations (3.4 ) (4.2 )
Net sales $ 37.1 32.3
Operating income
Woodlands $ 4.7 5.6
Mills 5.7 (.8 )
Real Estate (.3 ) 1.7
Corporate (3.7 ) (3.1 )
Eliminations (.1 ) .1
Operating income 6.3 3.5
Equity in earnings of Del-Tin Fiber - .4
Interest and other debt expense (1.1 ) (1.0 )
Other income .1 -
Income taxes (1.8 ) (.9 )
Net income $ 3.5 2.0
Income per common share
Basic and diluted $ .28 .16
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Consolidated
The $1.5 million increase in net income was primarily due to improved operating results for the Mills segment, partially offset by reduced operating results for the Woodlands and Real Estate segments, lower equity in earnings of Del-Tin Fiber, and higher Corporate general and administrative expenses.
Operating income increased $2.8 million. The Woodlands segment's operating income was $.9 million less than the prior year mainly due to a lower average sales price received for pine sawtimber harvested, fewer tons of pine sawtimber harvested, reduced oil and gas royalty revenues, and a decrease in the number of acres of nonstrategic recreational-use timberland sold. The Mills segment's operating income improved $6.5 million due to a higher average sales price per MBF of lumber sold, an increase in lumber sales volume, and a lower per-unit manufacturing cost. The Real Estate segment's results decreased $2 million, primarily due to selling no commercial real estate acreage in 2012, versus a sale of 26 acres of commercial real estate in the same period of 2011. Corporate expense increased $.6 million due to higher general and administrative expenses.
Woodlands
Selected financial and statistical data for the Woodlands segment is shown in
the following table.
Quarter Ended June 30,
2012 2011
Net sales (millions of dollars)
Pine sawtimber $ 3.4 4.1
Pine pulpwood .9 .8
Hardwood sawtimber .1 .1
Hardwood pulpwood .3 .2
Oil and gas lease rentals .6 .7
Oil and gas royalties .8 1.1
Hunting leases .6 .5
Sales volume (thousands of tons)
Pine sawtimber 156.5 169.2
Pine pulpwood 116.0 101.9
Hardwood sawtimber 3.1 2.6
Hardwood pulpwood 19.1 31.0
Sales price (per ton)
Pine sawtimber $ 22 24
Pine pulpwood 8 8
Hardwood sawtimber 39 30
Hardwood pulpwood 15 6
Timberland
Net sales (millions of dollars) $ .5 1.2
Sales volume (acres) 322 794
Sales price (per acre) $ 1,657 1,474
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Net sales decreased $1.2 million in the second quarter of 2012 when compared to the 2011 second quarter. Sales of pine sawtimber decreased $.7 million due to a lower average sales price of $22 per ton, which was eight percent less than the $24 per ton received in the second quarter of 2011. In addition, the volume of pine sawtimber harvested declined 12,687 tons, a seven percent decrease when compared to 2011's harvest volume. Oil and gas royalty revenue decreased $.3 million due to lower prices for natural gas, which were partially offset by an increase in the number of producing wells. Sales of nonstrategic recreational-use timberland decreased $.7 million mainly due to a decrease in the number of acres sold in the current quarter. Operating income was $4.7 million in the second quarter of 2012 compared to $5.6 million in the second quarter of 2011. This was mainly due to the same factors that decreased current-period net sales, but was partially offset by lower cull timber removal expense and reduced cost of fee timber harvested.
Mills
Selected financial and statistical data for the Mills segment is shown in the
following table.
Quarter Ended June 30,
2012 2011
Net sales (millions of dollars)
Lumber $ 22.3 15.9
Residual by-products 4.1 3.4
Lumber
Finished production (MMBF) 69.2 61.8
Sales volume (MMBF) 70.3 64.9
Sales price (per MBF) $ 317 245
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Net sales increased $7.3 million, or 35 percent, due to a higher average lumber sales price and an increased lumber sales volume. The average lumber sales price in the second quarter of 2012 increased 29 percent, or $72 per MBF, from the second quarter of 2011, and the lumber sales volume increased eight percent, or 5.4 million board feet, from the second quarter of 2011. Operating income increased $6.5 million due to the same factors affecting net sales combined with lower raw material log cost and the benefit of improved operating efficiencies.
Real Estate
Selected financial and statistical data for the Real Estate segment is shown in
the following table.
Quarter Ended June 30,
2012 2011
Net sales (millions of dollars)
Residential lots $ .7 .7
Commercial acres - 2.6
Speculative homes .5 -
Chenal Country Club 2.0 2.0
Sales volume
Residential lots 11 11
Commercial acres - 26
Speculative homes 1 -
Average sales price (thousands of dollars)
Residential lots $ 68 65
Commercial acres - 101
Speculative homes 491 -
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Net sales for the second quarter of 2012 decreased $2.1 million from the second quarter of 2011. This decrease was due to no sales of commercial real estate acreage in 2012, partially offset by revenues from the sale of a speculative home. The current-period operating income was $2 million less than in 2011 due to the same factors affecting net sales.
Corporate
The $.6 million increase in operating expense for Corporate functions was due primarily to higher general and administrative expenses, mainly expenses associated with pension and post-retirement benefits and employee incentive plan expenses.
Eliminations
Intersegment sales of timber from Deltic's Woodlands to the Mills segment decreased $.8 million, to $3.4 million. The decrease was due to a lower transfer price and smaller harvest volume from the Woodlands segment's fee timberlands. Transfer prices are approximately that of market which were higher in the same quarter last year.
Equity in Del-Tin Fiber
For the second quarter of 2012, Deltic's equity in earnings of Del-Tin Fiber was
breakeven compared to $.4 million for the same period of 2011. The $.4 million
decrease was primarily due to higher manufacturing costs, mainly raw material
wood and resin. Additional selected financial and statistical data for Del-Tin
Fiber is shown in the following table.
Quarter Ended June 30,
2012 2011
Net sales (millions of dollars) $ 15.9 14.9
Finished production (MMSF) 30.9 32.7
Sales volume (MMSF) 30.5 30.4
Sales price (per MSF) $ 522 491
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Income Taxes
The effective income tax rate was 34 percent for 2012 and 32 percent for 2011. The increase in income tax expense was due to higher pretax income along with a smaller benefit from permanent tax differences when compared to the same period of 2011.
Six Months Ended June 30, 2012 Compared with Six Months Ended June 30, 2011
In the following tables, Deltic's net sales and results of operations are
presented for the six months ended June 30, 2012 and 2011. Explanations of
significant variances and additional analyses for the Company's consolidated and
segment operations follow the tables.
Six Months Ended June 30,
(Millions of dollars, except per share amounts) 2012 2011
Net sales
Woodlands $ 19.3 20.5
Mills 50.5 42.2
Real Estate 5.2 7.1
Eliminations (7.3 ) (8.1 )
Net sales $ 67.7 61.7
Operating income and net income
Woodlands $ 9.5 10.3
Mills 7.3 (.1 )
Real Estate (1.1 ) .9
Corporate (8.0 ) (7.1 )
Eliminations (.3 ) .1
Operating income 7.4 4.1
Equity in earnings of Del-Tin Fiber .1 .9
Interest and other debt expense (2.1 ) (1.9 )
Other income .1 -
Income taxes (1.9 ) (1.0 )
Net income $ 3.6 2.1
Income per common share
Basic and diluted $ .29 .17
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Consolidated
Net income increased $1.5 million due to improved operating results for the Mills segment, partially offset by reduced financial results for the Woodlands and Real Estate segments, lower equity in earnings of Del-Tin Fiber, and higher Corporate general and administrative expenses.
Operating income increased $3.3 million from 2011. The Woodlands segment decreased $.8 million mainly due to decreased revenues from pine sawtimber sales, reduced oil and gas lease rental and royalty revenue, and fewer sales of nonstrategic recreational-use timberland, partially offset by improved revenues from pine pulpwood sales. The Mills segment increased $7.4 million due to a higher average lumber sales price and an increased sales volume combined with a lower per-unit manufacturing cost. The Real Estate segment's operating income decreased $2 million primarily due to no sales of commercial real estate in the current period, partially offset by increased sales of residential lots. Equity in earnings of Del-Tin Fiber decreased $.8 million, and Corporate expenses increased $.9 million due to higher general and administrative expenses.
Woodlands
Selected financial and statistical data for the Woodlands segment is shown in
the following table.
Six Months Ended June 30,
2012 2011
Net sales (millions of dollars)
Pine sawtimber $ 7.1 7.9
Pine pulpwood 2.1 1.9
Hardwood sawtimber .2 .2
Hardwood pulpwood .4 .4
Oil and gas lease rentals 1.1 1.3
Oil and gas royalties 1.9 2.2
Hunting leases 1.1 1.1
Sales volume (thousands of tons)
Pine sawtimber 329.5 315.3
Pine pulpwood 250.9 227.4
Hardwood sawtimber 4.3 5.0
Hardwood pulpwood 34.2 58.8
Sales price (per ton)
Pine sawtimber $ 22 25
Pine pulpwood 8 8
Hardwood sawtimber 38 31
Hardwood pulpwood 13 6
Timberland
Net sales (millions of dollars) $ .9 1.6
Sales volume (acres) 592 1,101
Sales price (per acre) $ 1,562 1,442
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Net sales decreased $1.2 million from 2011. Sales of pine sawtimber decreased $.8 million due to a lower average sales price of $22 per ton, a 12 percent decrease from 2011's average of $25 per ton, partially offset by an increased harvest volume. Sales of pine pulpwood increased $.2 million due to a higher harvest volume. Oil and gas lease rentals and royalty revenue decreased $.5 million, while revenues from hauling stumpage to other mills increased $.5 million. Operating income was $.8 million lower in 2012. The decrease was due to the same factors impacting sales, partially offset by lower cost of fee timber harvested and cost of timberland sold, and reduced replanting and cull timber removal expenses, while the costs for hauling stumpage to other mills offset the increase in hauling revenues.
Mills
Selected financial and statistical data for the Mills segment is shown in the following table.
Six Months Ended June 30,
2012 2011
Net sales (millions of dollars)
Lumber $ 39.9 32.5
Residual by-products 8.0 7.2
Six Months Ended June 30,
2012 2011
Lumber
Finished production (MMBF) 135.2 125.4
Sales volume (MMBF) 135.3 127.3
Sales price (per MBF) $ 295 255
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Net sales increased $8.3 million due to a higher average lumber sales price and an increased sales volume. The average sales price for lumber increased 16 percent from 2011, while the sales volume increased six percent. Total operating income increased $7.4 million due to the same factors impacting net sales, combined with lower raw material log cost and the benefit of increased hourly productivity rates.
Real Estate
Selected financial and statistical data for the Real Estate segment is shown in
the following table.
Six Months Ended June 30,
2012 2011
Net sales (millions of dollars)
Residential lots $ 1.2 1.0
Commercial acres - 2.6
Speculative homes .5 -
Chenal Country Club 3.4 3.3
Sales volume
Residential lots 18 14
. . .
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