Deltic Timber shakes up executive ranks: hires new CEO, dismisses CFO amid approach from outside buyers

Deltic Timber Corp. on Monday (Feb. 27) announced the surprise appointment of a new CEO and the immediate dismissal of the company’s CFO for misappropriating company assets. This news comes after last’s week unexpected revelation that “multiple parties interested in merger or acquiring” had approached the El Dorado-based natural resources and timberland firm.

During a morning conference call, however, Deltic officials offered few details of the circumstances around the recent turmoil in the company’s executive suite that followed the recent unexpected resignation of longtime company president and CEO Ray Dillon in December.

Ahead of Monday’s market opening, Deltic announced that John Enlow was appointed president and CEO, effective March 8. A veteran forest resources executive, Enlow joins Deltic after most recently serving as vice president, real estate and southern timberlands at Weyerhaeuser, from 2014 to 2016, and after serving more than 16 years in roles of increasing responsibility at Rayonier Inc.

“We are pleased to welcome a proven leader of John’s caliber and experience to the Deltic team,” said Deltic Board Chairman Robert Nolan. “John’s broad industry expertise in forestry, real estate development, finance and operations will be invaluable as the Company continues to capitalize on momentum in the housing and wood products markets.”

Nolan continued, “Deltic has a strong foundation in place and we are confident that, under John’s leadership, Deltic will continue to deliver high quality products, achieve strong financial and operational performance and enhance shareholder value.”

Late last year, Deltic announced Dillon was retiring as president and CEO of the company after 13 years in the position. Mark Leland, a member of Deltic’s board, is filling both roles on an interim basis and will remain as a director of the company once Enlow takes over this new role.

CFO DISMISSED
Deltic also announced that Byrom Walker was appointed interim CFO after the board’s decision to terminate Kenneth Mann as the company’s chief financial executive. Leland said in the conference that Deltic has initiated a search process to identify a new CFO.

Walker has served as the controller of Deltic since May 2007. He has been with the company for 11 years, having joined Deltic in 2006 as manager of financial reporting. Deltic officials said the firing of Mann was completed after the board “became aware that he misappropriated certain company assets for personal use.”

“This action is not related to the company’s operating or financial performance and is not expected to have a material impact on Deltic’s previously issued financial statements,” Deltic said in statement, declining to answer any questions about the situation during the conference call.

According to an SEC disclosure filing, on Feb. 20, 2017, Mann informed Deltic’s General Counsel that he misappropriated certain company assets for personal use.

The filing states: “As noted under Item 5.02(c), on February 21, 2017, Mr. Mann was placed on administrative leave and on February 24, 2017 his employment was terminated for cause. Upon termination, the Company’s Board of Directors revoked all of Mr. Mann’s unvested equity awards, his 2017 cash incentive bonus, and equity awards that vested on February 20, 2017. The amount of assets Mr. Mann indicated he misappropriated is not financially material to the Company and is less than the value of the revoked cash incentive bonus.

“The Audit Committee of the Company’s Board of Directors has retained Davis Polk & Wardwell LLP to assist in its review of matters involving Mr. Mann. Upon conclusion of this review, the Company intends to seek full reimbursement from Mr. Mann for all misappropriated amounts.”

Deltic said subject to the audit committee’s efforts, it does not expect that matters involving Mann will have “a material impact on its previously issued financial statements.” The company still intends to file its annual report on Form 10-K for the year ended December 31, 2016 by the due date of March 16, 2017.

DELTIC REPORTS $3.1 MILLION 4Q PROFIT
Deltic reported fourth quarter earnings of $3.1 million, or 26 cents per share, compared to a net loss of $100,000 or one cent a share in the same period a year ago. Revenues rose 17.8% to $58.5 million compared to $49.6 million a year ago.

The Woodlands segment reported operating income of $4.2 million for the fourth quarter of both 2016 and 2015. The pine sawtimber harvest for the fourth quarter of 2016 was 179,158 tons, a 16% increase when compared to the 155,027 tons harvested in the prior-year period, while the average pine sawtimber sales price was $27 per ton in the fourth quarter of both 2016 and 2015.

Deltic’s manufacturing segment reported operating income of $3.2 million for the fourth quarter of 2016, compared to an operating loss of $.6 million for the same period a year ago. The increase was due primarily to a higher average sales price for both lumber and medium density fiberboard (MDF), combined with an increased sales volume of MDF.

The company’s Real Estate segment reported operating income of $6.4 million in the fourth quarter of 2016, compared to $1.7 million for the same period of 2015. Residential sales totaled 77 lots, compared to 52 residential lots sold in the fourth quarter of 2015. The average per-lot sales price in the fourth quarter of 2016 was $82,600, compared to $101,700 per lot for fourth quarter 2015.

Regarding the outlook for the first quarter and full year of 2017, the company anticipates the pine sawtimber harvest to be 200,000 to 225,000 tons and 750,000 to 775,000 tons, respectively, depending on weather conditions in Deltic’s operating area.

Residential lot sales are projected at 5 to 10 lots and 120 to 140 lots for the first quarter and full year of 2017, respectively. Commercial acreage within Chenal Valley continues to receive interest, but due to the volatile nature of commercial real estate transactions and significant number of factors involved, it is difficult to anticipate future closings, the company said.

Deltic did not take questions from Wall Street analysts during this morning’s conference call after Southeastern Asset Management of Memphis publicly disclosed in a Schedule 13G filing with the federal Securities and Exchange Commission that Deltic has been approached by multiple Real Estate Investment Trusts (REITs) concerning a possible merger or acquisition.

“It is our understanding based on conversations with Deltic’s senior management and other parties that Deltic has hired a financial advisor but refuses to enter into substantive negotiations with these potential partners that are willing to pay a price for Deltic in excess of current trading levels,” said Southeastern, now Deltic’s top institutional stockholder with a 15%, or $140 million stake in the Arkansas company.

In early morning trading, the New York Stock Exchange had delayed trading in Deltic shares. Since touching a 52-week high of $85.49 following Southeastern’s 13G filing on Wednesday, Deltic shares have lost nearly 10% of their value. The company closed on Friday at $77.10.