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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-12147
DELTIC TIMBER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 71-0795870
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
200 Peach Street, P. O. Box 7200, El Dorado, Arkansas 71731-7200
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 881-6634
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Series A Participating Cumulative New York Stock Exchange, Inc.
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No ____.
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based on the closing sales price of the Common Stock on the New York
Stock Exchange on February 28, 1997, was $188,982,387. For purposes of this
computation, all officers, directors, and 5% beneficial owners of the registrant
(as indicated in Item 12) are deemed to be affiliates. Such determination
should not be deemed an admission that such directors, officers, or 5% benficial
owners are, in fact, affiliates of the registrant.
Number of shares of Common Stock, $.01 Par Value, outstanding at February 28,
1997, was 12,798,323.
Documents incorporated by reference:
The Registrant's definitive Proxy Statement relating to the Annual Meeting of
Stockholders on May 21, 1997, and Amendment No. 2 to Form 10/A, as filed with
the Securities and Exchange Commission on November 27, 1996. (Part III)
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TABLE OF CONTENTS - 1996 FORM 10-K REPORT
Page
Numbers
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PART I
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 39
PART III
Item 10. Directors and Executive Officers of the Registrant 40
Item 11. Executive Compensation 40
Item 12. Security Ownership of Certain Beneficial Owners
and Management 40
Item 13. Certain Relationships and Related Transactions 40
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 41
Signatures 43
2
PART I
ITEM 1. BUSINESS
Introduction. 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. The Company owns
approximately 343,000 acres of timberland (the "timberlands") in Arkansas and
northern Louisiana, much of which was acquired in the 1920s. The Company's
sawmill operations commenced in 1971, and now consist of two mills; one located
at Ola, in central Arkansas, and another at Waldo, in southern Arkansas.
In addition to its timber and lumber operations, Deltic is engaged in a
real estate development project in Little Rock, Arkansas, and owns approximately
36,000 acres of farmland. The Company also holds a 50-percent interest in a
joint venture to manufacture and market medium density fiberboard ("MDF"), which
is expected to be operational during the first half of 1998.
Deltic believes that its primary strengths are its strategically located
timberlands, its efficient sawmill operations, its experienced management team,
and its capacity to pursue a timber-based acquisition strategy.
The timberlands consist primarily of Southern Yellow Pine. Management
considers the timberlands to be Deltic's most valuable asset, and the harvest of
this stumpage to be the Company's most significant source of income. Estimated
pine sawtimber inventory as of December 31, 1996 was 771 million board feet.
The southern United States, in which all of the Company's operations are
located, is a major timber and lumber producing region. Although there can be
no assurance, management expects that the southern U.S. timber resource will be
subject to particularly strong demand in the future and believes that the South
will have a strategic advantage over other U.S. timber producing regions due to
regulatory, geographic, and other factors. Unlike other major timber-producing
areas in North America, most timber acreage in the southern United States is
privately held, rendering it potentially available for acquisition. Deltic's
current growth strategy emphasizes a significant timberlands acquisition program
in such region, which will facilitate an increase in harvest levels.
The Company harvests timber from the timberlands in accordance with its
harvest plans and either sells timber in the domestic market or converts timber
to lumber in its sawmills. In 1996, Deltic harvested approximately 39 million
board feet of pine sawtimber from its timberlands. The Company's two sawmills
employ modern technology in order to improve efficiency, reduce labor costs,
maximize utilization of the timber resource, and maintain high quality standards
of production. In addition, each sawmill is strategically located near
significant portions of the timberlands. In 1996, Deltic's sawmills processed
approximately 95 million board feet of logs, some of which came from the
timberlands and the remainder obtained from public and private landowners. The
Company selects logs for processing in its sawmills based on size, grade, and
the then prevailing market price. The Ola Mill is equipped for maximum
utilization of smaller diameter logs, while the Waldo Mill can process both
smaller and larger diameter logs. Approximately $17 million has been invested
in upgrades of the two sawmills over the past five years, expanding both
production capacity and product lines. Combined annual capacity is currently
165 million board feet. The Company's sawmills produce a wide variety of
products, including dimension lumber, boards, timbers, and decking. The lumber
is sold primarily to wholesalers and treaters in the South and Midwest and is
used in residential construction, roof trusses, laminated beams, and
remanufactured items.
The Company's real estate operations ("Chenal Valley") were started in 1985
to take advantage of timberland strategically located in the growth corridor of
Little Rock, Arkansas. Since that time, the
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Company has been developing a 4,300-acre planned community, centered around a
Robert Trent Jones, Jr. designed golf course at Chenal Valley Country Club. The
property is being developed in phases, and real estate sales to date have
consisted primarily of residential lots. Commercial development began in 1996,
with the construction of a Deltic-owned, 50,000 square-foot office building,
half of which has been leased to General Motors Acceptance Corporation.
The Company owns 36,000 acres of farmland in northeastern Louisiana.
Approximately 23,000 acres of the total are farmed by Deltic, while the
remaining 13,000 acres are rented to third parties. The primary crops are
soybeans, corn, cotton, and wheat.
Deltic owns a 50-percent interest in Del-Tin Fiber, L.L.C. ("Del-Tin
Fiber"), a joint venture with Temple-Inland Forest Products Corporation, to
manufacture and market medium density fiberboard. The plant will be located
near El Dorado, Arkansas. Construction commenced in mid-1996, with initial
production scheduled for the first half of 1998. MDF, which is used in the
furniture, flooring, and moulding industries, is manufactured from sawmill
residuals, such as chips, shavings, and sawdust, held together by an adhesive
bond. The plant is designed to have an annual production capacity of
approximately 150 million square feet ( 3/4" basis), making it one of the
largest of its type in the world. The plant is also expected to add value to and
provide an additional outlet for wood chip production from the Waldo Mill.
FOREST PRODUCTS
The demand for, and prices of, logs and manufactured wood products depend
upon international and domestic market forces, the value of the U.S. dollar in
foreign exchange markets, competition, and other factors. In particular, the
demand for logs and various commodity wood products, including dimension lumber
and boards, is affected by the level of residential construction activity.
Residential construction activity is subject to cyclical fluctuations due to
changes in economic conditions, interest rates, population growth, weather
conditions, and other economic and demographic factors. Reductions in levels of
residential construction activity are generally followed by declining lumber
prices which are ordinarily followed by declining log prices within two or three
months.
The worldwide timber supply/demand balance has tightened in recent years
and such trend has continued through 1996. This has primarily been the result
of a number of factors that have negatively impacted supply. The major factors
impacting supply include a significant reduction in the timber harvest from
government-owned lands in the western United States and British Columbia due to
environmental concerns, reduced exports from Southeast Asia, and a continued
decline in harvest levels in Russia.
The southern United States, in which all of the Company's operations are
located, is a major timber and lumber producing region. There are an estimated
209 million acres of timberland in the region, of which approximately 91 million
represent softwood, predominately Southern Yellow Pine. Unlike other major
timber-producing areas in North America, most of this acreage is privately held.
The estimated breakdown of ownership of softwood timberland in the southern
United States is 89 percent private, seven percent national forest, and four
percent other public. Although there can be no assurance, management
anticipates that the southern U.S. timber resource will be subject to
particularly strong demand in the future and also believes that the South will
have a strategic advantage over other U.S. timber-producing regions due to
regulatory, geographic, and other factors.
FOREST PRODUCTS - WOODLANDS
The Company owns approximately 343,000 acres of timberland in Arkansas and
northern Louisiana, consisting primarily of Southern Yellow Pine. Management
considers the timberlands to be Deltic's most valuable asset and the harvest of
this stumpage to be the Company's most significant
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source of income. The following tables provide a breakdown of the acreage at
year-end 1996:
Timberland Acres
---------- -----
Pine plantation (less than 15 years old) 79,594
Pine forest 225,218
Hardwood forest 33,740
Other 4,389
-------
Total 342,941
=======
Timber Inventory. The Company's estimated standing timber inventory on
this acreage is calculated for each tract by utilizing growth formulas based on
representative sample tracts and tree counts for various diameter
classifications. The calculation of pine inventory is subject to periodic
adjustments based on sample cruises or actual volumes harvested from related
tracts. The hardwood inventory shown in the following table is only an
approximation, so physical quantity of such timber may vary significantly from
this approximation. Estimated inventory of standing timber as of December 31,
1996 was as follows:
Estimated
Volume
Sawtimber (Million board ft.)
--------- -------------------
Pine sawtimber 771
Hardwood sawtimber 101
Estimated
Volume
Pulpwood (000s Cords)
-------- ------------
Pine pulpwood 1,295
Hardwood pulpwood 399
The majority of products manufactured from pine sawtimber, such as
dimension lumber, boards, and timbers, are used in residential construction. The
hardwood sawtimber is sold to third parties and is primarily used in the
production of railroad ties, flooring, and pallets. Pulpwood consists of logs
with a diameter of less than nine inches. Both pine and hardwood pulpwood are
chipped by the Company or third parties for use in the manufacture of paper. In
the future, Deltic expects to sell certain of its residual wood products to Del-
Tin Fiber for the production of MDF. See "--Growth Strategy."
Timber Growth. Timber growth rate is a very important variable for a
forest products company, as it ultimately determines how much timber can be
harvested. A higher growth rate permits larger annual harvests as replacement
timber regenerates. Growth rates vary depending on species, location, age, and
forestry practice. The growth rate for Deltic's Southern Yellow Pine is on
average, net of mortality, approximately four to five percent of standing
inventory per annum.
The Company's timberlands are well diversified by age distribution. A
significant portion of the timberlands contains mature timber that is ready to
be harvested in the next several years. The Company considers a 30 to 35 year
rotation optimal for most of the timberlands. Timber under 15 years of age is
generally considered premerchantable.
Access. Substantially all of the timberlands are accessible by a system of
low-maintenance
5
roads. Deltic generally uses third-party road crews to conduct construction and
maintenance of these roads and the Company regularly exchanges access easements
and cooperates with the U.S. Forest Service.
Reforestation. Deltic has developed and operates its own seed orchard.
Seeds from the orchard are grown by third parties to produce genetically
superior seedlings for planting. These seedlings are developed through
selective cross-pollination to produce trees with preferred characteristics,
including higher growth rates, fewer limbs, straighter trunks, and greater
resistance to disease. The seedlings are planted in all-aged stands or the site
is completely replanted with these superior seedlings in the case of a
regeneration harvest. The Company meets or exceeds in all material respects the
reforestation recommendations of the Arkansas Forestry Commission's Best
Management Practices.
Harvest Plans. Management views the timberlands as assets with substantial
inherent value apart from the sawmills and intends to manage the timberlands on
a basis that permits regeneration of the timberlands over time. During the next
several years, certain of the timberlands are expected to be harvested at
accelerated levels compared to recent years. However, the Company intends to
continue to manage the timberlands on a sustainable yield basis and has no plans
to harvest timber at levels that exceed growth. Under the current plan, Deltic
intends to increase its harvest level to 47 million board feet of pine sawtimber
in 1997, an increase of 20 percent over 1996 levels. See "--Growth Strategy."
The Company's harvest plans are generally designed to project harvest
schedules for ten-year periods. In addition, harvest plans are updated at least
annually and reviewed on a monthly basis to monitor performance and to make any
necessary modifications to the plans in response to changing forestry
conditions, market conditions, contractual obligations, regulatory limitations
and other relevant conditions.
Since harvest plans are based on projections of demand, price, availability
of timber from other sources, and other factors that may be outside of the
Company's control, actual harvesting levels may vary. Management believes that
the Company's harvest plans, which are reviewed monthly and revised at least
annually, are sufficiently flexible to permit modification in response to
fluctuations in the markets for logs and lumber.
Timber Resource Management. The Company's timber operations involve forest
management, harvesting operations, and ongoing reforestation. Forest management
decisions are based upon information which includes site indices, classification
of soils, the types and number of trees by size and age classification and
stocking per acre, as well as information on forest management costs. From this
data, Deltic develops its annual harvest plans, which are based upon
silvicultural considerations and existing and expected future economic and
market conditions, with a view toward maximizing the value of its timber and
timberland assets over time.
Particular forestry practices vary by geographic region and depend upon
factors such as soil productivity, weather, terrain, tree size, age and
stocking. Forest stands are thinned periodically to improve growth and stand
quality until they are harvested. Different areas within a forest may be planted
or seeded in successive years to provide a distribution of age classes within
the forest. A distribution of age classes will tend to provide a regular source
of cash flow, as the various timber stands reach harvestable age.
The timing of harvest of merchantable timber depends in part on growth
cycles and in part on economic conditions. Growth cycles for timber tend to
change over time as a result of technological and genetic advances that improve
forest management practices. The Company will continue to develop its forest
management operations to take advantage of such advances and improve timber
yields.
6
The Company actively utilizes commercial thinning timber management
practices. In the context of long-term value maximization, commercial thinning
improves the overall productivity of the timberlands by enhancing the growth of
the remaining trees and generates revenues.
Client-Land Management. In addition to managing its own timberlands,
Deltic also manages timberlands owned by third parties. This program provides
harvest planning, silvicultural improvements, and maintenance work for over
85,000 acres.
FOREST PRODUCTS - SAWMILLS
The Company's two sawmills are located at Ola, in central Arkansas, and at
Waldo, in southern Arkansas, near significant portions of the timberlands. The
Ola Mill is equipped for maximum utilization of smaller diameter logs, while the
Waldo Mill can process both smaller and larger diameter logs. Approximately $17
million has been invested in the two sawmills over the past five years,
expanding both production and product lines. Combined annual capacity is
currently 165 million board feet.
Deltic employs modern technology in its sawmills in order to improve
efficiency, reduce labor costs, maximize utilization of the timber resource, and
maintain high-quality standards of production. Recent upgrades to the Company's
sawmills have expanded and diversified the output of the mills. An expansion of
the Waldo Mill, including the conversion of four existing kilns to steam-dry and
the addition of two steam-dry kilns, two boilers, and a band mill, was completed
in the third quarter of 1995. The expansion provides Deltic the product
flexibility needed to extract maximum value from each log processed, and also
has enabled the Company to enter the export market in 1996. Replacement of the
planer mill at the Waldo Mill is scheduled to be completed in 1997. The Company
also intends to install a finger jointing operation and stress-rated lumber
capability in 1997 at the Waldo Mill. A sorter system upgrade at the Ola Mill
was completed in 1996.
The Company pursues waste minimization practices at both of its sawmills.
Wood chips are usually sold to paper mills, and bark is frequently sold for use
as fuel. Bark, sawdust, shavings, and wood chips that cannot be sold are used
as "hog fuel" to fire the boilers that heat the drying kilns. In the future,
the Company expects to sell a significant portion of its residue wood chips to
Del-Tin Fiber pursuant to a fiber supply agreement. The Del-Tin Fiber MDF
facility is expected to be operational in the first half of 1998.
Each mill facility has the capability to ship its lumber by truck or rail.
While the cyclicality of the lumber market may occasionally require the
interruption of operations at one or both of the Company's sawmills, suspension
of milling activities is unusual. Management is not currently anticipating any
interruption of operations at either of Deltic's sawmills, but no assurance can
be given that market conditions or other factors will not render such an action
economically advisable in the future.
GROWTH STRATEGY
The Company's current strategy for growth emphasizes: a significant
timberland acquisitions program, which will facilitate an increase in harvest
levels, and expansion into engineered wood products.
Timberland Acquisitions and Increase in Harvest Levels. The Company plans
to combine a timberland acquisitions program with greater utilization of even-
aged management, the land management technique described below. This
combination will enable the Company to increase harvest
7
levels while expanding its timber inventory. In addition, it will allow the
Company to maintain or increase its level of self-sufficiency (its ability to
fulfill the log requirements for both of the Company's sawmills from its own
timberlands) as it is expanding lumber production.
Timberland acquisitions are necessary for continued growth in harvest
levels over the long-term. The Company intends to focus its acquisitions program
on timberlands in the southern United States that range from fully-stocked to
cutover tracts. Timberland in the southern United States is 89-percent owned by
private landowners, rendering it potentially available for acquisition. There
can be no assurance that timber properties suitable for acquisition will be
identified by the Company, or that once identified, such properties will
ultimately be acquired by the Company.
The Company currently anticipates a gradual conversion, beginning in 1997,
of a portion of the timberlands to even-aged management. This land management
technique involves the cutting of timber tracts and the replacement of the
harvested timber with better, faster growing seedlings. Even-aged management
reduces the time required to reach full stocking, accelerates the introduction
of genetically superior seedlings, and results in harvest rotations
substantially shorter than those required under the presently employed all-aged
management technique. While shorter rotations yield sawlogs with a reduced
diameter, engineered wood products are increasingly being substituted for long
and wide lumber in many applications thereby reducing the premium for large
diameter logs. The vast majority of timberlands, however, are and will remain
in all-aged forestry management. This strategy of combining acquisitions with
even-aged management practices is expected to allow Deltic to increase harvest
levels while expanding its standing timber inventory.
Engineered Wood Products. Engineered wood products ("EWPs") are structural
products made from lumber, roundwood, or residue materials produced by wood
processing operations. These materials are then bonded together with an
adhesive agent to produce products with specific definable mechanical
properties. Examples of EWPs include MDF, particleboard, laminated veneer
lumber, wood I-joists, laminated beams, plywood, and oriented strandboard. EWPs
offer certain advantages over conventional lumber products, including: a
competitive price relative to lumber, a more consistent range of performance,
and in certain cases, an ability to more effectively implement certain complex
construction features.
The Company's 50-percent interest in Del-Tin Fiber will permit expansion of
the Company's business into the EWPs market. Del-Tin Fiber is a joint venture
with Temple-Inland Forest Products Corporation to manufacture and market MDF.
The plant will be located near El Dorado, Arkansas. The construction cost of
the facility is projected to be $90-100 million. Construction commenced in mid-
1996, with initial production scheduled for the first half of 1998. The plant
is designed to have an annual production capacity of 150 million square feet (
3/4" basis), making it one of the largest of its type in the world. MDF, which
is used in the furniture, flooring, and moulding industries, is manufactured
from sawmill residuals such as chips, shavings, and sawdust held together by an
adhesive bond. Although the technology has existed for decades, recent
improvements in the manufacture of MDF have increased both the quality and
consistency of the product. MDF, with its "real wood" appearance and ability to
be finely milled and accept a variety of finishes, competes primarily against
lumber. In addition to providing an entry into the MDF market, the Del-Tin
Fiber project is expected to provide an outlet for a significant portion of the
Company's wood chips. Pursuant to a fiber supply agreement, the Company has
agreed to sell, and Del-Tin Fiber to buy, all residue wood chips from the Waldo
Mill. In addition, Del-Tin Fiber has an option to purchase residue wood chips
from the Ola Mill and roundwood chips, shavings, and sawdust from the Waldo
Mill.
Deltic's management intends to explore additional opportunities for future
expansion into engineered wood products.
8
RAW MATERIALS
Logs processed by the Company's two sawmills in 1996 totaled 95 million
board feet, and were obtained from the timberlands and also purchased from
public and private landowners. In 1996, the Company harvested 18 million board
feet of pine sawtimber from the timberlands for use in its two sawmills.
Various factors, including environmental and endangered species concerns,
have limited, and will likely continue to limit, the amount of timber offered
for sale by United States government agencies. Because of this reduced
availability of federal timber for harvesting, the Company believes that its
supply of timber from the timberlands is a significant competitive advantage.
Deltic has historically supplied a significant portion of the timber processed
in the sawmills from its timberlands.
In order to operate its sawmills economically, the Company relies on
purchases of timber from third parties to supplement its own timber harvests
from the timberlands. The Company has an active timber procurement department
for each of its sawmills. As of December 31, 1996, the Company had under
contract approximately 40 million board feet of timber on land owned by other
parties (including the U.S. Forest Service), which is expected to be cut over
the next three years. During 1996, the Company harvested third-party stumpage
or purchased logs from third parties totaling 72 million board feet. Of this
volume, purchases from the U.S. Forest Service during this period represented 14
percent. The balance of such purchases was acquired from private lands.
As a result of the reduced availability of federal timber, demand for
privately owned timber has increased (along with prices), and the Company has
increased and foresees further increases in its harvesting and purchasing
activities from private timberlands. A number of these private timber sources
only occasionally sell their timber commercially, but have been prompted to do
so by rising prices. Deltic's sources of private timber are many and diverse.
The key factors in a landowner's determination of whether to sell timber to the
Company are price, the Company's relationships with logging contractors, and the
ability of the Company to demonstrate the quality of its logging practices to
adjacent landowners. As a result, a landowner will be more likely to sell timber
to a forest products company whose own land has been responsibly managed and
harvested. There is a substantial amount of other private timber acreage in
proximity to each of Deltic's sawmills.
PRODUCTS AND COMPETITION
The Company's principal products are timber, lumber products, and residual
wood products.
Timber. Timber harvested from the timberlands is utilized by the Company's
sawmills or sold to third parties. The Company's timber sales to third parties
accounted for approximately 14 percent, 17 percent, and 12 percent of net sales
in 1994, 1995, and 1996, respectively.
The Company competes in the domestic timber market with numerous private
industrial and non-industrial land and timber owners. Competitive factors with
respect to the domestic timber market generally include price, species and
grade, proximity to wood consuming facilities, and ability to meet delivery
requirements.
Lumber Products. The Company's mills produce a wide variety of products,
including dimension lumber, boards, timbers, and decking. The lumber is sold
primarily to wholesalers and treaters in the South and Midwest and is used in
residential construction, roof trusses, laminated beams, and remanufactured
items. During 1994, 1995, and 1996, lumber sales as a percentage of net sales
were approximately 54 percent, 55 percent, and 55 percent, respectively.
9
The forest products market is highly competitive with respect to price and
quality of products. In particular, competition in the commodity-grade lumber
market in which the Company competes is primarily based on price. Deltic
competes with major forest products companies operating in Arkansas (many of
which have significantly greater financial resources than the Company) as well
as privately-held lumber producers. In addition, Deltic's management expects
the Company's products to experience increased competition from engineered wood
products and other substitute products. Due to the geographic location of the
timberlands, its high-quality timber, its active timber management, its
strategically located sawmills, its efficient sawmill operations, and its highly
motivated workforce, the Company has been able to compete effectively.
Chips. The Company's sawmills produce wood chips as by-products of the
applicable conversion process. Chips are typically sold to paper mills. During
1996, Deltic's sawmills produced 306,346 tons of wood chips. During 1994, 1995,
and 1996, sales of wood chips and other by-products of the Company's sawmills
accounted for 10 percent, 11 percent, and 11 percent, respectively, of Deltic's
net sales. In the future, the Company expects to sell certain of its residual
wood products to Del-Tin Fiber for the production of MDF. See "--Growth
Strategy."
REAL ESTATE OPERATIONS
Deltic's Real Estate operations in Chenal Valley were started in 1985 to
take advantage of timberland strategically located in the growth corridor of
Little Rock, Arkansas. Since that time the Company has been developing a 4,300-
acre planned community centered around a Robert Trent Jones, Jr. designed golf
course. The golf course was completed in 1990. The property has been developed
in stages, and real estate sales to date have consisted primarily of residential
lots.
In connection with its residential development activities, the Company
entered into an agreement with the Chenal Country Club (the "Club"), whereby the
Company developed the above-described golf course, a clubhouse, and related
facilities (collectively, the "Club Facilities") for use by club members, and
the Club agreed to purchase the Club Facilities with payments to be made on
specified terms through 1999. The Company has made a proposal to the Club for
restructuring the existing agreement. Pursuant to the proposal, the Company
would retain ownership of the Club Facilities, and the Club members would make
ongoing membership fee payments to the Company. In addition, the Company would
agree to undertake substantial remodeling and expansion of the Club Facilities.
The proposal was endorsed by the Club's Board of Directors, approved by the Club
members in early 1997, and is expected to be effected during 1997.
Commercial development began in 1996 with the construction of a Deltic-
owned office building. The building has two stories and 50,000 square feet of
office space, 25,000 square feet of which are leased to General Motors
Acceptance Corporation for a term of five years with options to renew for an
additional 15 years. Residential development and infrastructure investment are
expected to result in additional commercial activity.
Infrastructure and other improvements to support the development and sale
of residential and commercial property are funded directly by the Company and/or
through Real Property Improvement Districts. Such properties are developed only
when sufficient demand exists and all infrastructure is completed as of such
time. Future infrastructure investments are necessary only for the development
and sale of additional property.
The combination of a number of factors has added significant value to the
undeveloped portion of the Company's property. Such factors include: the
overall success of Chenal Valley as a residential development and its image as
one of the premier developments in Arkansas, the continued westward growth of
Little Rock, the Company's investment in infrastructure in the area, and the
established residential base which is now large enough to support commercial
development. Management expects
10
the undeveloped portion of Chenal Valley to provide growth and development
opportunities in the future.
When fully developed, Chenal Valley will include approximately 4,000
residential homesites. To date, approximately 700 homesites have been developed
and sold, with about 600 residences constructed. Of its 627 total commercial
acres, Chenal will offer acreage for office tracts, multi-family development,
and retail locations. The development plan supports the area's growing demand
for corporate and service-oriented products.
FARMING
Deltic owns 36,000 acres of farmland in northeastern Louisiana.
Approximately 23,000 acres of the total are farmed by Deltic, while the
remaining 13,000 acres are rented to third parties. The primary crops are
soybeans, corn, cotton, and wheat.
SEASONALITY
The Company's Forest Products and Agriculture segments are subject to
variances in financial results due to several seasonal factors. The majority of
timber sales are generated in the first half of the year due primarily to
weather conditions and stronger timber prices. Increased housing starts during
the spring usually push lumber prices up and, in turn, can result in higher
timber prices. Forestry operations generally incur expenses related to
silvicultural treatments which are applied during the fall season to achieve
maximum effectiveness. Farming operations generally do not generate significant
sales and operating income until crops are harvested and sold in the second half
of the year.
DECLINE IN AVAILABILITY OF FEDERAL TIMBER
Various factors, including environmental and endangered species concerns,
have limited, and will likely continue to limit, the amount of timber offered
for sale by certain United States government agencies, which historically have
been major suppliers of timber to the United States forest products industry.
During 1996, the Company acquired approximately 17 percent of its timber supply
for its Ola, Arkansas sawmill (the "Ola Mill") from federal sources (the
Ouachita and Ozark National Forests). Any future decline in the availability of
timber from federally owned lands will require that the Company, in order to
supply the Ola Mill, rely more heavily on harvests from the Company's
timberlands (including harvests from timberlands acquired in the future to the
extent that suitable opportunities arise) and on the acquisition of timber from
other sources, such as private timber owners. The Company's Waldo, Arkansas
sawmill does not currently process any timber acquired from federal sources.
ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing federal, state, and local
environmental laws and regulations relating to the protection of human health
and the environment, including laws relating to air and water emissions, the use
of pesticides and herbicides on the farm and timberlands, regulation of
"wetlands", and the protection of endangered species and is subject to
requirements which may be imposed by applicable federal, state, and local
environmental agencies. Environmental legislation and regulations and the
interpretation and enforcement thereof are expected to become increasingly
stringent. The Company has made and will continue to make non-material
expenditures to comply with such requirements in the ordinary course of its
operations. Liability under certain environmental regulations may be imposed
without regard to fault or the legality of the original actions, and may be
joint and several with other responsible parties. As a result, in addition to
ongoing compliance costs, the Company may be subject to liability for activities
undertaken on its properties prior to its ownership or operation and by third
parties, including tenants. The Company currently leases the rights to drill
for oil and gas on some of its lands to third parties. Pursuant to these
leases, the lessee indemnifies the Company from environmental liability relating
to the lessee's operations. Based on its present
11
knowledge, including the fact that the Company is not currently aware of any
facts that indicate that the Company will be required to incur any material
costs relating to environmental matters, and currently applicable laws and
regulations, the Company believes that environmental matters are not likely to
have a material adverse effect on the Company's financial condition, results of
operations or liquidity.
In addition, the federal Endangered Species Act protects species threatened
with possible extinction and restricts timber harvesting activities on private
and federal lands. Certain of the Company's timberlands are subject to such
restrictions due to the presence on the lands of the Red Cockaded Woodpecker, a
species protected under the Act. There can be no assurance that the presence of
this species or the discovery of other protected species will not subject the
Company to future harvesting restrictions. However, based on the Company's
knowledge of its timberlands, the Company does not believe that its ability to
harvest its timberlands will be materially adversely effected by the protection
of endangered species.
EMPLOYEES
As of December 31, 1996, the Company had 344 employees.
ITEM 2. PROPERTIES
The Company's properties consist principally of fee timber and timberlands,
purchased stumpage inventory, farmland, land held for residential and commercial
development and sale, and two sawmills. As of December 31, 1996, the Company's
gross investment in timber and timberlands, gross property, plant and equipment,
and investment in real estate held for development and sale consisted of the
following:
Timberlands $ 37,401
Fee timber and logging facilities 73,507
Purchased stumpage inventory 7,235
Real estate held for development and sale 19,558
Land and land improvements 7,272
Buildings and structures 6,836
Machinery and equipment 45,782
--------
$197,591
========
"Timberlands" consist of the historical cost of land on which fee timber is
grown and related land acquisitions stated at acquisition cost. "Fee timber"
consists of the historical cost of company standing timber inventory and related
timber acquisitions stated at acquisition cost. "Logging facilities" consist
primarily of the costs of roads constructed and other land improvements.
"Purchased stumpage inventory" consists of the purchase price paid for
unharvested third party timber. "Real estate held for development and sale"
consist primarily of the unamortized costs incurred to develop the real estate
for sale. "Land and land improvements" consist primarily of the farmland.
"Buildings and structures" and "machinery and equipment" consist of the sawmill
buildings and equipment, farming structures and equipment, and a commercial
building held for lease.
The Company owns all of the properties discussed above. Other than
approximately $3.6 million of timber notes payable for certain investments in
timber, the Company's properties are not subject to mortgages or other forms of
debt financing. For further information on the location and type of the
Company's properties, see the descriptions of the Company's operations in
Item 1.
12
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to its
business. Currently, there are no material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In anticipation of the December 31, 1996 distribution of all the Company's
Common Stock by Murphy Oil Corporation ("Murphy") to its stockholders, the
Company, a wholly-owned subsidiary of Murphy, submitted four matters to a vote
of its security holder as follows:
(1) On December 11, 1996, Murphy took action by written consent in lieu of
a stockholder meeting pursuant to Section 228 of the General
Corporation Law of the State of Delaware to approve the form of the
Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws (the "Company Charter Documents").
(2) On December 11, 1996, Murphy took action by written consent in lieu of
a stockholder meeting pursuant to Section 228 of the General
Corporation Law of the State of Delaware to elect the individuals
listed below, effective December 17, 1996, as directors of the Company,
in the respective Class of the Board of Directors specified below, to
serve until his successor is elected and qualified or until his earlier
death, resignation or removal:
Class I Class II Class III
---------------- ----------------- --------------------------
Alex R. Lieblong Eric M. Heiner O. H. Darling, Jr.
Robert C. Nolan William L. Rosoff Rev. Christoph Keller, III
Ron L. Pearce John C. Shealy R. Madison Murphy
(3) On December 16, 1996, Murphy took action by written consent in lieu of
a stockholder meeting pursuant to Section 228 of the General
Corporation Law of the State of Delaware to approve the transfer of
sponsorship of the Hourly Thrift Plan of Deltic Farm & Timber Co., Inc.
from Murphy to the Company.
(4) On December 16, 1996, Murphy took action by written consent in lieu of
a stockholder meeting, pursuant to Section 228 of the General
Corporation Law of the State of Delaware, to approve the Deltic Timber
Corporation 1996 Stock Incentive Plan (the "1996 SIP") and the
reservation for issuance under the 1996 SIP of common stock of the
Company.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Executive Officers, set forth at Item 10 in Part III
hereof, is incorporated in Part I of this Report by reference.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.
Common Stock of Deltic Timber Corporation is traded on the New York Stock
Exchange under the symbol DEL. The first day that Deltic's Common Stock was
traded on the New York Stock Exchange was January 2, 1997. Deltic paid a cash
dividend of $0.0625 per share on its Common Stock for the first quarter of 1997
on March 15, 1997 to stockholders of record as of March 1, 1997. On March 20,
1997, Deltic's Board of Directors declared a cash dividend of $0.0625 per share
on the Common Stock of Deltic for the second quarter of 1997, payable June 15,
1997 to stockholders of record as of June 1, 1997. As of March 24, 1997, there
were 4,200 holders of record of the Common Stock of Deltic.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents certain selected consolidated financial data
for each of the years ended in the five-year period ended December 31, 1996:
(Dollars, except per share amounts, in thousands) 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
RESULTS OF OPERATIONS FOR THE YEAR
Net sales $ 86,498 80,662 92,457 69,448 60,528
Operating income $ 17,940 13,343 28,375 17,378 9,364
Income before income taxes $ 21,933 15,894 30,576 18,539 10,990
Net income $ 13,161 10,016 18,142 7,335 6,661
Net income per Common share $ 1.03 .78 1.42 .57 .52
Net cash provided by operating activities $ 21,731 16,865 23,894 16,200 11,679
Percentage return on
Average stockholders' equity 7.8 6.1 12.0 5.3 5.0
Average borrowed and invested capital 7.9 6.2 12.0 5.3 5.1
Average total assets 7.2 5.7 11.3 5.1 4.9
CAPITAL EXPENDITURES FOR THE YEAR
Forest Products $ 2,900 7,216 6,167 4,573 5,691
Real Estate 6,669 4,638 3,849 5,674 2,659
Agriculture 272 245 266 395 480
Corporate 1,512 1,538 66 40 19
-------- ------- ------- ------- -------
$ 11,353 13,637 10,348 10,682 8,849
======== ======= ======= ======= =======
FINANCIAL CONDITION AT YEAR-END
Working capital $ 25,758 6,822 11,314 11,520 9,824
Current ratio 5.3 to 1 1.9 to 1 3.4 to 1 4.5 to 1 3.9 to 1
Total assets $180,078 185,247 169,373 150,761 139,478
Long-term debt $ 2,685 2,817 163 54 174
Stockholders' equity $166,706 170,289 160,273 142,131 134,796
Debt to equity ratio .016 to 1 .017 to 1 .001 to 1 .001 to 1 .001 to 1
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
On November 11, 1996, the Board of Directors of Murphy Oil Corporation
("Murphy") declared a dividend payable to holders of record of Murphy Common
Stock at the close of business on December 2, 1996 (the "Record Date") of one
share of Deltic Timber Corporation ("Deltic" or the "Company") Common Stock for
every 3.5 shares of Murphy Common Stock owned of record on the Record Date. As
a result, 100 percent of the outstanding shares of Company Common Stock were
distributed to Murphy shareholders on December 31, 1996 (the "Distribution
Date"). Prior to the Distribution Date, the Company was operated as part of
Murphy. The historical financial information presented herein reflects periods
during which the Company did not operate as an independent company. Such
information, therefore, may not necessarily reflect the results of operations or
the financial condition of the Company which would have resulted had the Company
been an independent, public company during the reporting periods, and are not
necessarily indicative of the Company's future operating results or financial
condition.
Deltic is a natural resources company engaged primarily in the growing and
harvesting of timber and the manufacture and marketing of lumber. The Company
owns approximately 343,000 acres of timberland in Arkansas and northern
Louisiana, much of which was acquired in the 1920s. The Company's sawmill
operations commenced in 1971 and now consist of two mills, one located at Ola in
central Arkansas (the "Ola Mill") and another at Waldo in southern Arkansas (the
"Waldo Mill"). In addition to its timber and lumber operations, the Company is
engaged in a real estate development project in Little Rock, Arkansas, and owns
approximately 36,000 acres of farmland. The Company also holds a 50-percent
interest in Del-Tin Fiber, L.L.C. ("Del-Tin"), a joint venture with Temple-
Inland Forest Products Corporation to manufacture and market medium density
fiberboard, which is expected to be operational in 1998.
The Company's results of operations are affected by several factors, which
include general industry conditions, prices for logs and lumber, and other
factors such as supply and demand for logs and lumber, competition, and
seasonality. The primary factors affecting demand for lumber are residential
construction activity, including new home construction and, to a lesser extent,
home remodeling activity. The worldwide timber supply/demand balance has
tightened in recent years and such trend has continued through the year of 1996.
This has been the result primarily of a number of factors that have negatively
impacted supply. The major factors impacting supply include a significant
reduction in the timber harvest from government-owned lands in the western
United States and British Columbia due to environmental concerns, reduced
exports from Southeast Asia, and a continued decline in harvest levels in
Russia.
RESULTS OF OPERATIONS
Consolidated net income for 1996 was $13.2 million, $1.03 a share, an
increase of 31 percent when compared to $10 million, $.78 a share in 1995. The
Company earned $18.1 million, $1.42 a share in 1994. (Per share amounts are
based on shares issued in connection with the spin-off.)
In 1996, operating income in all areas increased $4.7 million. The Forest
Products segment increased $1.2 million due primarily to a five-percent increase
in finished lumber sales price, which more than offset an 18-percent decline in
the average price for pine sawtimber. Real Estate operations increased $.6
million and benefited from a 34-percent increase in residential lot sales.
Agriculture operating results increased $2.4 million over 1995 as crop prices
and yields increased significantly. The
15
cost of corporate functions decreased $.5 million compared to 1995.
Operating income decreased $15.1 million in 1995 across all segments. A
12-percent decline in finished lumber sales prices, in addition to a 12-percent
decrease in pine sawtimber harvested, adversely affected Forest Products
operating results, which were $10.1 million less than in 1994. Real Estate
operating income was down $2.7 million due primarily to a 56-percent reduction
in residential lots sales. Adverse weather conditions hurt crop yields in 1995
and resulted in a $1.5 million decrease in Agriculture results. The cost of
corporate functions in 1995 increased $.8 million when compared to 1994.
In the following tables, the Company's net sales and results of operations
for the three years ended December 31, 1996, are presented by segment. A review
of the information follows the table.
Years Ended December 31,
------------------------
1996 1995 1994
------- ----- ------
(millions of dollars)
Net sales
Forest Products $69.6 68.3 73.7
Real Estate 6.3 4.2 9.6
Agriculture 10.6 8.2 9.2
----- ---- -----
Net sales $86.5 80.7 92.5
===== ==== =====
Operating income and net income
Forest Products $15.9 14.7 24.8
Real Estate 1.6 1.0 3.7
Agriculture 2.8 0.4 1.9
Corporate (2.3) (2.8) (2.0)
----- ---- -----
Operating income 18.0 13.3 28.4
Net interest income 2.8 2.4 1.6
Other income 1.2 0.2 0.6
Income tax expense (8.8) (5.9) (12.5)
----- ---- -----
Net income $13.2 10.0 18.1
===== ==== =====
Forest Products
Net sales in the Company's Forest Products segment totaled $69.6 million
for 1996, $68.3 million for 1995, and $73.7 million for 1994. Operating income
was $15.9 million for 1996, $14.7 million for 1995, and $24.8 million for 1994.
During 1996, net sales of pine sawtimber decreased $1.5 million,
representing the net impact of a $2.6 million decrease attributable to a lower
average sales price and a $1.1 million increase due to a higher sales volume.
Pine sawtimber sales prices declined 18 percent in 1996 from $406 per MBF-DS in
1995 to $333 per MBF-DS in 1996. This decline in the price of pine sawtimber
was caused by softness in the market for logs and finished lumber due to a
continuation of the prior year's decline in new housing starts in the United
States. Pine sawtimber harvested by the Company increased ten percent in 1996
to 39.2 MMBF-DS from 35.7 MMBF-DS in 1995. Net sales of pine pulpwood and
hardwood increased $.2 million in 1996 due to higher sales price. Finished
lumber net sales increased $3.3 million and was caused equally by increased
sales price from $318 per MBF in 1995 to $335 per MBF in 1996 and slightly
higher sales volume, 143.4 million board feet in 1996 compared to 140.5 million
board feet in 1995. Other net sales in the Forest Products segment decreased
$.7 million.
Forest Products net sales declined $5.4 million during 1995, caused
primarily by lower finished
16
lumber sales of $5.5 million and lower pine sawtimber sales of $.6 million,
partially offset by higher net sales of hardwood and pine pulpwood of $.6
million. The $5.5 million decline in net sales of finished lumber represents
the net impact of a $6.3 million decrease in net sales attributable to a lower
average sales price and a $.8 million increase in net sales due to a higher
sales volume. Although the Company's sawmills experienced a three-percent
increase in production of finished lumber to 140.6 MMBF in 1995, sales prices
for finished lumber averaged $318 per MBF as compared to $363 per MBF in 1994,
and were adversely affected by a general slowdown in the U.S. economy and a
decline nationwide in the number of housing starts as compared to 1994. In
1995, pine sawtimber sales were $.6 million lower than in 1994, which reflects
the net impact of a $2 million decrease due to lower sales volume and a $1.4
million increase attributable to a higher average sales price. The Company
harvested 35.7 MMBF-DS of pine sawtimber in 1995, down from 40.6 MMBF-DS in
1994. Average sales price for the Company's pine sawtimber was $406 per MBF-DS
in 1995 compared to $372 per MBF-DS in 1994. Net sales of hardwood and pine
pulpwood increased $.6 million due to higher sales volume. Other net sales in
the Forest Products segment increased $.1 million.
Operating income of $15.9 million for 1996 was $1.2 million more than for
1995, an eight-percent increase, primarily attributable to increased finished
lumber sales discussed above, partially offset by higher log costs at the
Company's sawmills. Production of finished lumber from the Company's sawmills
increased slightly in 1996 with production totaling 141.2 MMBF.
In 1995, operating income from this segment was $14.7 million, a decline of
$10.1 million. The decrease was primarily attributable to a 12-percent decline
in average finished lumber sales price and to an eight-percent increase in log
costs at the Company's sawmills, which adversely affected sawmill margins during
the year.
Real Estate
The Company's Real Estate operations at Chenal Valley in western Little
Rock had net sales of $6.3 million for 1996, $4.2 million for 1995, and $9.6
million for 1994. Operating income was $1.6 million in 1996, $1 million in
1995, and $3.7 million in 1994.
Net sales in 1996 increased $2.1 million, 52 percent, from $4.2 million in
1995. Operating income also increased $.6 million in 1996 to $1.6 million.
Residential lot sales at the Chenal Valley development increased by 24 lots to
95 lots with the average sales price up five percent over 1995, from $52,900 to
$55,400. The Company is developing an additional 75 residential lots which will
be offered for sale at Chenal in early 1997. A 2.1 acre commercial tract was
sold in 1996 for $199,500 per acre, while no commercial development acreage was
sold in 1995.
Real Estate operations generated net sales of $4.2 million in 1995, a
decrease of $5.4 million. The decline in net sales was caused by a 56-percent
decrease in the number of lots sold from 163 in 1994 to 71 in 1995. Operating
income for this segment decreased from $3.7 million in 1994 to $1 million in
1995. Higher interest rates in the United States had an adverse affect on the
sale of lots at the Company's Chenal Valley development. The average sales
price for lots sold declined from $56,700 in 1994 to $52,900 in 1995. Neither
year included sales of commercial acreage. The Company continued to develop
acreage in Chenal and readied 137 lots for sale in 1995 versus 61 in 1994.
Agriculture
The Company's Agriculture operations generated net sales of $10.6 million
in 1996, $8.2 million in 1995, and $9.2 million in 1994. Operating income for
the segment was $2.8 million for 1996, $.4 million for 1995, and $1.9 million
for 1994.
Net sales increased $2.4 million, 29 percent, during 1996. Operating
income also increased $2.4
17
million from $.4 million in 1995. Higher sales prices for soybeans and corn, in
addition to improved yields, benefited agricultural results for 1996, compared
to hot, dry conditions which adversely affected 1995 crop yields. In 1996,
harvests of soybeans increased 47 percent and corn harvested increased 23
percent; in addition, sales prices for soybeans and corn increased 19 percent
and 29 percent respectively.
Agricultural operations contributed $8.2 million in net sales during 1995,
down $1 million from 1994. The decrease in net sales was primarily due to a
nine-percent reduction in harvests of cotton in 1995 compared to 1994, along
with 30-percent and 27-percent declines in harvests of soybeans and corn,
respectively. Operating income also declined from $1.9 million in 1994 to $.4
million in 1995, primarily due to hot and dry conditions during the last half of
the 1995 growing season, which adversely affected all crop yields. Region-wide
reductions in crop yields led to higher average crop prices in 1995, and the
Company benefited from higher sales prices for cotton and soybean production.
Corporate
Corporate operating expense was $2.3 million in 1996, $2.8 million in 1995,
and $2 million in 1994. The Company's general and administrative expenses
include the cost of administrative and financial services provided by Murphy Oil
Corporation (Deltic's parent company prior to being spun off). The cost of such
services was $1.3 million in 1996, $2 million in 1995, and $1.9 million in 1994.
Included in 1994's charge was a $1.1 million reduction in administrative expense
related to reallocation of certain retirement plan assets among affiliates of
Murphy. (Refer to Note L to the consolidated financial statements.)
Net interest income
Net interest income during 1996 was $2.8 million, compared to $2.4 million
in 1995 and $1.6 million in 1994. Interest income earned on interest-bearing
amounts due from Murphy increased $.4 million in 1996 and $.9 million in 1995,
due mainly to higher average balances outstanding. Since the receivable from
Murphy has been substantially settled, in part through the $18.8 million noncash
dividend by the Company, interest income from Murphy will not be realized after
December 31, 1996.
Other income
Other income was $1.2 million in 1996, $.2 million in 1995, and $.6 million
in 1994. During 1996, the Company realized a $.7 million gain on the sale of
approximately 3,200 acres of Arkansas farmland. Other income in 1994 included a
$.6 million gain on a land sale.
Income tax
The Company's income tax expense was $8.8 million for 1996, $5.9 million
for 1995, and $12.5 million for 1994. The effective income tax rate was 40
percent, 37 percent, and 41 percent in 1996, 1995, and 1994, respectively.
Income tax expense increased $2.9 million in 1996 due to a similar increase in
pretax earnings. The Company's income tax expense declined $6.6 million, from
$12.5 million in 1994, primarily due to lower pretax earnings. In addition,
prior period tax adjustments included a $.3 million credit in 1995 versus a $.5
million charge in 1994.
SEASONALITY
The Company's Forest Products and Agriculture segments are subject to
variances in financial results due to several seasonal factors. The majority of
timber sales are generated in the first half of the year due primarily to
weather conditions and stronger timber prices. Increased housing starts during
the
18
spring usually push lumber prices up and, in turn, can result in higher timber
prices. Forestry operations generally incur expenses related to silvicultural
treatments which are applied during the fall season to achieve maximum
effectiveness. Farming operations generally do not generate significant sales
and operating income until crops are harvested and sold in the second half of
the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Capital Expenditures
During the year ended December 31, 1996, the Company's net cash provided by
operating activities totaled $21.7 million, compared with $16.9 million in 1995
and $23.9 million in 1994. The Company's accompanying Consolidated Statements
of Cash Flows identify major differences between net income and cash provided by
operating activities for each of those years.
Capital expenditures required cash of $11.4 million in 1996, $7.4 million
in 1995, and $10.2 million in 1994. Other seller-financed capital expenditures
not requiring cash included a land acquisition of $.7 million in 1995, and
standing timber purchases in 1995 and 1994 amounting to $5.5 million and $.1
million, respectively. Total capital expenditures, including those not
requiring cash, are presented by segment in the following table for the years
ended December 31, 1996, 1995, and 1994.
Years Ended December 31,
-------------------------
1996 1995 1994
----- ---- ----
(millions of dollars)
Forest Products $ 2.9 7.2 6.1
Real Estate 6.7 4.7 3.8
Agriculture 0.3 0.2 0.3
Corporate 1.5 1.5 0.1
----- ---- ----
Capital expenditures $11.4 13.6 10.3
===== ==== ====
Forest Products expenditures in 1996 included land acquisitions of 3,136
acres for $2.5 million. In 1996, mill expenditures included $1.4 million for the
initial stages of a planer upgrade at the Waldo Mill and $.7 million for the Ola
Mill's sorter system. Capital expenditures for expansion of the Waldo Mill were
$1.8 million in 1995 and $6.5 million in 1994. Also included in capital
expenditures for 1995 were net cash and noncash costs of $4.5 million for
purchase of the Company's timber requirements. Capital expenditures as shown
are net of the consumption of stumpage purchased in prior periods, totaling $2.8
million in 1996 and $1.1 million in 1994.
Capital expenditures for Real Estate operations which related to costs of
lot development were $.4 million in 1996, $1.2 million in 1995, and $1.9 million
in 1994. Expenditures of $4.5 million in 1996 were for construction of a 50,000
square-foot office building which the Company is offering for lease in Chenal
Valley. Infrastructure construction totaled $.4 million in 1996, compared to
$.7 million in 1995 and $.9 million in 1994. In 1995, land adjoining Chenal
Valley was acquired for $1 million. Other expenditures were primarily for
various amenity improvements.
Agriculture expenditures are mainly replacements of various machinery and
equipment.
Capital expenditures for Corporate operations included $.9 million in 1996
for purchase of additional investment in a consolidated entity, and $1.4 million
in 1995 for mineral lease acquisitions in Union and Columbia Counties in
Arkansas.
19
At December 31, 1996, the Company had commitments of $10 million for
capital projects in progress, including $3.9 million for a planer upgrade at the
Waldo Mill and $3 million related to residential lot and commercial development,
infrastructure construction, and amenity improvements at Chenal.
Dispositions of assets provided $2.9 million in 1996, primarily from the
sale of approximately 3,200 acres of Arkansas farmland. During 1994, proceeds
from various land transactions totaled $1.1 million. As a part of the spin-off
of the Company by Murphy, the Company received a $17.2 million cash payment from
Murphy in partial settlement of its receivable due from Murphy. Prior to the
spin-off, the Company remitted to Murphy cash funds generated in excess of its
daily requirements. As a result, the receivable from Murphy had increased by
$7.9 million in 1996, $8.7 million in 1995, and $14.7 million in 1994. Also, in
connection with the spin-off, the Company recorded an $18.8 million noncash
dividend to Murphy which reduced the outstanding balance of the receivable.
(Refer to Note A to consolidated financial statements.) Advances to Del-Tin,
which was formed to construct and operate a medium density fiberboard plant near
El Dorado, Arkansas, required cash of $6.8 million during 1996.
Cash required to repay long-term debt amounted to $.4 million in 1996 and
$1.6 million in 1995 arising from installment payments on notes used to finance
a portion of the Company's timber requirements. During 1994, $.1 million of
cash was required to repay long-term debt.
Financial Condition
Year-end working capital totaled $25.8 million in 1996 and $6.8 million in
1995. Cash and cash equivalents at the end of 1996 were $16.6 million compared
to $1.4 million at the end of 1995. The improvement for 1996 was primarily
caused by the $17.2 million cash payment received from Murphy. In addition,
cash flow from operations exceeded the Company's investing and financing cash
needs for 1996. In 1995, to the extent that cash flow from operations exceeded
the Company's investing and financing needs, such amounts were remitted to
Murphy, increasing its noncurrent receivable from Murphy. The Company's current
ratio at the end of 1996 was 5.3 to 1, compared to 1.9 to 1 at the end of 1995.
Liquidity
The primary sources of the Company's liquidity are internally generated
funds, access to outside financing, and working capital. Deltic's current
strategy for growth emphasizes a significant timberland acquisitions program,
which will facilitate an increase in harvest levels through greater utilization
of even-aged timber management. This will enable the Company to maintain or
increase its level of self-sufficiency as it is expanding lumber production and
entering the engineered wood products market through its interest in Del-Tin.
The Company's growth plans will require additional capital financing. The
Company currently intends to make an equity offering of approximately $30
million before year-end 1997, consistent with representations made to the
Internal Revenue Service for purposes of receiving a ruling that the
distribution of its stock by Murphy will qualify as tax-free to Murphy and its
stockholders. The equity may be in the form of Company common stock,
convertible preferred stock, or straight preferred stock, which may be sold to
the public or in a private placement to financial institutions depending on the
existing market conditions.
At December 31, 1996, the Company had a committed credit facility with a
group of major banks totaling $100 million. Of the total credit facility, up to
$40 million may be designated as borrowings of Del-Tin, a joint venture.
Borrowings bear interest based upon prime or various cost of funds options.
Facility fees are accrued at .15 percent per annum for the unused commitment
balance and are payable quarterly. This facility expires December 31, 2001. At
December 31, 1996, no amounts were outstanding under this credit facility.
20
OTHER MATTERS
General inflation has not had a significant effect on the Company's
operating results during the three years ended December 31, 1996. The Company's
timber operations are more significantly impacted by the forces of supply and
demand in the southern United States than by changes in inflation. Sales of real
estate are affected by changes in the general economy and long-term interest
rates.
The Company expects that operating expenses will increase as Deltic
operates as an autonomous, public entity, rather than as a wholly-owned
subsidiary of Murphy.
The Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation" recommends use of a fair value method
of accounting for stock-based employee compensation plans. The Company plans,
as allowed by SFAS 123, to measure compensation cost for employee stock
compensation plans using the method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and will provide pro
forma disclosures in the Notes to the consolidated financial statements as
required by SFAS 123. At December 31, 1996, the Company had a Stock Incentive
Plan that permits annual awards of shares of the Company's Common Stock to
executives and other key employees. However, no options were outstanding at
December 31, 1996. (Refer to Note J to the consolidated financial statements.)
OUTLOOK
The Company's budgeted capital expenditures for 1997 total $46.7 million
for Forest Products operations, $10 million for Real Estate operations, $1.1
million for Agriculture operations, and $.1 million for miscellaneous items. A
major portion of the amount for Forest Products, $23.1 million, is allocated for
timberland acquisitions, while $9.8 million is designated for sawmill projects.
Planned real estate expenditures include $8 million related to lot development,
commercial development, infrastructure construction, and amenity improvements at
Chenal Valley. Agriculture expenditures are budgeted for replacements of
machinery and equipment and for construction of grain-drying facilities.
Capital and other expenditures are under constant review, and these budgeted
amounts may be adjusted to reflect changes in the Company's estimated cash flows
from operations, borrowings under credit facilities, or equity financing as
described above.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DELTIC TIMBER CORPORATION
Consolidated Balance Sheets
December 31, 1996 and 1995
---------------------------------
(Thousands of dollars)
1996 1995
-------- -------
Assets
Current assets
Cash and cash equivalents $ 16,635 1,431
U. S. government securities 1,527 -
Trade accounts receivable, less allowance for doubtful
accounts of $154 in 1996 and $98 in 1995 3,186 3,564
Other receivables 2,532 -
Inventories 5,436 7,538
Prepaid expenses and other current assets 2,386 2,089
-------- -------
Total current assets 31,702 14,622
Investment in real estate held for development and sale 19,558 19,778
Investment in Del-Tin Fiber, L.L.C. 6,811 -
Noncurrent receivable from Murphy - 29,951
Timber and timberlands - net 90,320 91,356
Property, plant, and equipment - net 28,902 27,012
Deferred charges and other assets 2,785 2,528
-------- -------
Total assets $180,078 185,247
======== =======
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 1,698 1,985
Trade accounts payable 2,031 3,899
Accrued insurance obligations 250 705
Accrued taxes other than income taxes 780 730
Other accrued liabilities 692 422
State income taxes 493 59
-------- -------
Total current liabilities 5,944 7,800
Long-term debt 2,685 2,817
Accrued postretirement benefits 2,187 3,352
Deferred credits and other liabilities 2,554 989
Stockholders' equity
Preferred stock - -
Common stock 128 128
Capital in excess of par value 68,372 66,301
Retained earnings 98,208 103,860
-------- -------
Total stockholders' equity 166,708 170,289
-------- -------
Total liabilities and stockholders' equity $180,078 185,247
======== =======
See accompanying notes to consolidated financial statements.
22
DELTIC TIMBER CORPORATION
Consolidated Statements of Income
Three Years Ended December 31, 1996
-----------------------------------
(Thousands of dollars)
1996 1995 1994
------------ ----------- -----------
Net sales $ 86,498 80,662 92,457
----------- ---------- ----------
Costs and expenses
Cost of sales 61,076 59,597 57,364
Depreciation, amortization, and
cost of fee timber harvested 4,109 4,053 3,886
General and administrative expenses 3,373 3,669 2,832
----------- ---------- ----------
Total costs and expenses 68,558 67,319 64,082
----------- ---------- ----------
Operating income 17,940 13,343 28,375
Interest income 3,070 2,668 1,634
Interest expense (284) (309) (5)
Other income 1,207 192 572
----------- ---------- ----------
Income before income taxes 21,933 15,894 30,576
Income taxes (8,772) (5,878) (12,434)
----------- ---------- ----------
Net income $ 13,161 10,016 18,142
=========== ========== ==========
Net income per Common share $1.03 .78 1.42
=========== ========== ==========
Average Common shares outstanding 12,798,323 12,798,323 12,798,323
=========== ========== ==========
See accompanying notes to consolidated financial statements.
23
DELTIC TIMBER CORPORATION
Consolidated Statements of Cash Flows
Three Years Ended December 31, 1996
-----------------------------------
(Thousands of dollars)
1996 1995 1994
--------- -------- --------
Operating activities
Net income $ 13,161 10,016 18,142
Adjustments to reconcile above income to
net cash provided by operating activities
Depreciation, amortization, and cost of
fee timber harvested 4,109 4,053 3,886
Deferred income taxes 52 (624) (540)
Gains from dispositions of assets (844) (4) (659)
Real estate costs recovered upon sale 2,942 1,984 4,719
(Increases)/decreases in operating working
capital other than cash and cash equivalents
Trade accounts receivable 378 1,042 385
Other receivables (676) - -
Inventories 2,102 (450) (2,286)
Prepaid expenses and other current assets (297) (56) 583
Trade accounts payable (1,868) 1,407 970
Accrued liabilities 971 (342) 509
Other 1,701 (161) (1,815)
-------- ------- -------
Net cash provided by operating activities 21,731 16,865 23,894
-------- ------- -------
Investing activities
Capital expenditures requiring cash (11,353) (7,361) (10,176)
Purchases of U. S. government securities (1,527) - -
Proceeds from dispositions of property, plant, and
equipment 2,850 126 1,129
Net (additions)/reductions to noncurrent receivable
from Murphy 10,938 (8,680) (14,697)
Advances to Del-Tin Fiber, L.L.C. (6,811) - -
Other - net (207) (219) (131)
-------- ------- -------
Net cash required by investing activities (6,110) (16,134) (23,875)
-------- ------- -------
Financing activities
Cash required for reductions of long-term debt (419) (1,644) (101)
Other - net 2 - -
-------- ------- -------
Net cash required by financing activities (417) (1,644) (101)
-------- ------- -------
Net increase/(decrease) in cash and cash equivalents 15,204 (913) (82)
Cash and cash equivalents at beginning of year 1,431 2,344 2,426
-------- ------- -------
Cash and cash equivalents at end of year $ 16,635 1,431 2,344
======== ======= =======
See accompanying notes to consolidated financial statements.
24
DELTIC TIMBER CORPORATION
Consolidated Statements of Stockholders' Equity
Three Years Ended December 31, 1996
------------------------------------------------
(Thousands of dollars)
1996 1995 1994
-------- ------- -------
Cumulative Preferred Stock - $.01 par, authorized
20,000,000 shares, none issued $ - - -
-------- ------- -------
Common Stock - $.01 par, authorized 50,000,000
shares, 12,798,323 shares issued at beginning
and end of year 128 128 128
-------- ------- -------
Capital in excess of par value
Balance at beginning of year 66,301 66,301 66,301
Capital contributions by Murphy for administrative
and financial services, net of tax 384 - -
Transfer of prepaid retirement and accrued
postretirement benefit obligation from Murphy
at spin-off, net of tax 1,687 - -
-------- ------- -------
Balance at end of year 68,372 66,301 66,301
-------- ------- -------
Retained earnings
Balance at beginning of year 103,860 93,844 75,702
Net income for year 13,161 10,016 18,142
Noncash dividends to Murphy (18,813) - -
-------- ------- -------
Balance at end of year 98,208 103,860 93,844
-------- ------- -------
Total stockholders' equity $166,708 170,289 160,273
======== ======= =======
See accompanying notes to consolidated financial statements.
25
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
NOTE A - SPIN-OFF FROM MURPHY OIL CORPORATION
On August 28, 1996, the Board of Directors of Murphy Oil Corporation ("Murphy")
approved a plan to complete the tax-free spin-off of the common stock of the
Company through a special dividend to Murphy shareholders. The dividend was
declared on November 11, 1996, to the holders of record of Murphy Common Stock
at the close of business on December 2, 1996 (the "Record Date"). As a result
of the Distribution, 100 percent of the outstanding shares of Deltic Timber
Corporation ("Deltic" or the "Company") were distributed to Murphy shareholders
on December 31, 1996. Effective with the spin-off, the Company has a separate
Board of Directors, with only one Director in common between Deltic and Murphy.
All assets and liabilities of the Company prior to the Distribution remain
recorded in its financial statements at December 31, 1996, with the exception of
the noncurrent, interest-bearing receivable resulting from the advances to
Murphy of cash funds generated in excess of capital and daily operating
requirements. (See Note L - Related Party Transactions.) Settlement of this
receivable was accomplished by recording noncash dividends from Deltic to
Murphy, in the amount of $18,813,000, and a cash repayment by Murphy to the
Company of $17,200,000, leaving a balance due at December 31, 1996 of
$1,858,000, which is included in the Consolidated Balance Sheet in Other
Receivables. Payment of this final balance is expected during 1997. As a
result of this settlement, Deltic will no longer realize interest income from
Murphy.
To accomplish the spin-off, Murphy surrendered 100 percent of the outstanding
shares of the Company's Common Stock, which were redistributed to its
shareholders as a dividend at the ratio of one share of Deltic Common Stock for
every 3.5 shares of Murphy Common Stock owned by Murphy shareholders on the
Record Date. As a result, 12,798,323 shares of Common Stock, $.01 par value,
were issued and outstanding at December 31, 1996. To enhance comparability,
stockholders' equity has been restated to reflect the capital structure at the
end of 1996 for all periods presented.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements include
the accounts of Deltic and all majority-owned subsidiaries after elimination
of significant intercompany transactions and accounts. The Company's
investment in Del-Tin Fiber, L.L.C. ("Del-Tin Fiber"), the 50-percent owned
limited liability company, is accounted for using the equity method.
Use of Estimates -- In the preparation of financial statements of the Company
in conformity with generally accepted accounting principles, 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 U. S. government securities that
have a maturity of three months or less from the date of purchase.
Inventories -- Inventories of logs, lumber, agricultural products, and
supplies are stated at the lower of cost or market, primarily using the
average cost method. Log costs include harvest and transportation cost as
appropriate. Lumber costs include materials, labor, and production overhead.
26
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
Investment in Real Estate Held for Development and Sale -- Real estate held
for development and sale is stated at the lower of cost or net realizable
value, and includes direct costs of land and land development and indirect
costs, including amenities, less amounts charged to cost of sales. These costs
are allocated to individual lots or acreage sold based on relative sales
value. Direct costs are allocated on a specific neighborhood basis, while
indirect costs are allocated over the entire Chenal Valley project.
Timber and Timberlands -- Timber and timberlands, which includes purchased
stumpage inventory and logging facilities, is stated at acquisition cost less
cost of fee timber harvested and accumulated depreciation of logging
facilities. 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 the cost of roads constructed and other
land improvements, are depreciated by 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 are expensed as
incurred.
Property, Plant, and Equipment -- Property, plant, and equipment is stated at
cost less accumulated depreciation. Depreciation of buildings, equipment, and
other depreciable assets is primarily determined by using the straight-line
method. Expenditures that substantially improve and/or increase the useful
life of facilities and equipment are capitalized. Maintenance and repair costs
are expensed as incurred. Gains and losses on disposals or retirements are
included in income as they occur.
Impairment of Long-Lived Assets -- Effective October 1, 1995, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of. Under this standard, long-lived assets are evaluated on a
specific asset basis or in groups of similar assets, as applicable.
Recognition of an impairment loss is required when the undiscounted estimated
future net cash flows are less than the carrying value of an evaluated asset.
The adoption of this statement had no effect on the Company's 1995 results of
operations.
Revenue Recognition -- Revenue from the sale of lumber, wood by-products, and
agricultural goods is generally recorded at the time of shipment. Revenue from
the sale of timber-cutting rights to third parties is recorded when legal
title passes to the purchaser. Revenue from intrasegment timber sales is
recorded when the timber is harvested; such intrasegment sales, which are made
at market prices, are eliminated in the consolidated financial statements.
Revenue on real estate sales is recorded when the sale is closed and legal
title is transferred.
Income Taxes -- The Company is included in the consolidated federal income tax
return of Murphy for the three periods for which income statements are
presented; however, for financial accounting purposes, federal income tax has
been computed and recorded as if the Company filed a separate federal income
tax return. The Company will file a separate income tax return beginning in
1997.
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
27
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
and the tax bases of existing assets and liabilities and measured using the
enacted tax rates that are assumed will be in effect when the differences
reverse.
Capital Expenditures -- Capital expenditures include additions to Investment
in Real Estate Held for Development and Sale; Timber and Timberlands; and
Property, Plant, and Equipment. The Company also includes in capital
expenditures the amount representing the net change for the year in the
purchased stumpage inventory component of Timber and Timberlands. Depending on
the timing of acquisition and usage of this acquired stumpage inventory, the
impact on capital expenditures can be either an increase or a decrease.
Related Party Transactions -- Murphy historically has performed certain
administrative and financial services on behalf of the Company. These services
include, among others, cash management and consultation related to certain
personnel, employee benefit, and income tax matters.
As a result of the spin-off from Murphy, Deltic personnel will assume
responsibility for these functions. However, Murphy has agreed to provide, or
cause to be provided to the Company, certain specified services for a
transitional period after the spin-off. The services are offered for a six-
month period ending June 30, 1997, unless earlier terminated by Deltic upon
notice to Murphy.
Net Income per Common Share -- This amount is computed by dividing net income
for each period by the weighted average number of Common shares outstanding
during the period. For periods prior to December 31, 1996, this amount is
calculated based on the number of shares issued in connection with the spin-
off.
Reclassifications -- Certain prior year amounts have been reclassified to
conform to 1996 presentation format.
NOTE C - IVENTORIES
Inventories consisted of the following at December 31.
(Thousands of dollars) 1996 1995
------ -----
Logs $1,366 3,799
Finished products 3,912 3,563
Materials and supplies 158 176
------ -----
$5,436 7,538
====== =====
NOTE D - INVESTMENT IN DEL-TIN FIBER, L.L.C.
Deltic and Temple-Inland Forest Products Corporation jointly own (50 percent
each) Del-Tin Fiber, L.L.C., which has begun construction of a medium density
fiberboard plant near El Dorado, Arkansas. The cost of the plant has been
estimated at approximately $100,000,000. Each owner has committed funding of
up to $10,000,000 for the project, with the remainder to be financed by Del-
Tin Fiber with borrowings. Financing arrangements have been finalized with
each owner required to guarantee for an interim period half of Del-Tin Fiber's
borrowings, of which the Company's share could amount to $40,000,000. Under
the operating agreement, Del-Tin Fiber's employees will operate the plant.
Deltic has committed to provide a portion of the plant's fiber supply at
market prices.
28
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
NOTE E - TIMBER AND TIMBERLANDS
Timber and timberlands consisted of the following at December 31.
(Thousands of dollars) 1996 1995
--------- --------
Purchased stumpage inventory $ 7,235 10,015
Timberlands 37,401 37,143
Fee timber 71,919 69,288
Logging facilities 1,588 1,579
-------- -------
118,143 118,025
Less accumulated cost of fee timber harvested
and facilities depreciation (27,823) (26,669)
-------- -------
$ 90,320 91,356
======== =======
Cost of fee timber harvested amounted to $1,060,000 in 1996, $1,073,000 in
1995, and $1,310,000 in 1994. Depreciation of logging facilities for the three
years ended December 31, 1996 was: 1996, $94,000; 1995, $97,000; and 1994,
$108,000.
The Company obtains a portion of its sawmill log requirements by acquiring
purchased stumpage inventory through cutting contracts with various private
and governmental landowners. These contracts have terms ranging from a few
months to several years. At December 31, 1996, the Company's total commitment
under such contracts amounted to approximately $5,679,000. Based on lumber
prices at December 31, 1996, management estimated the fair value of stumpage
under such contracts to be approximately $5,844,000. Depending on the market
value of this stumpage at time of harvest, the Company's sawmills may
experience favorable or unfavorable log supply costs.
NOTE F - PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at December 31.
Range of
(Thousands of dollars) Useful Lives 1996 1995
------------ --------- --------
Land and land improvements --- $ 7,272 9,969
Buildings and structures 10-20 years 6,836 2,794
Machinery and equipment 3-10 years 45,782 42,921
-------- -------
59,890 55,684
Less accumulated depreciation (30,988) (28,672)
-------- -------
$ 28,902 27,012
======== =======
Commitments for capital expenditures at December 31, 1996, were approximately
$8,215,000 for property, plant, and equipment, and $1,798,000 for investment
in real estate held for development and sale.
29
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
NOTE G - FINANCING ARRANGEMENTS
At December 31, 1996, the Company had a committed credit facility with a group
of major banks totaling $100,000,000. Of the total credit facility, up to
$40,000,000 may be designated as borrowings of Del-Tin Fiber, L.L.C.
Borrowings bear interest based upon prime or other various cost of funds
options. Facility fees are accrued at .15 percent per annum for the unused
commitment balance and are payable quarterly. This facility expires December
31, 2001. At December 31, 1996, no amounts were outstanding under this credit
facility.
NOTE H - LONG-TERM DEBT
Long-term debt at each year-end consisted of the following:
(Thousands of dollars) 1996 1995
------ ------
Installment timber notes payable, average interest rate
of 5.8%, due 1997-2000 $ 3,595 4,006
Note payable, 8%, due 1999 750 750
Other notes payable, 9%, due 1997-2000 38 46
------- -------
4,383 4,802
Less current maturities (1,698) (1,985)
------- -------
$ 2,685 2,817
======= =======
Amounts becoming due after 1997 are: 1998, $1,699,000; 1999, $868,000; and
2000, $118,000.
NOTE I - INCOME TAXES
The components of income tax expense/(benefits) for the three years ended
December 31, 1996, were as follows.
(Thousands of dollars) 1996 1995 1994
------ ------ ------
Federal
Current $ 7,270 5,086 10,006
Deferred 52 (203) 570
------- ------- ------
7,322 4,883 10,576
State
Current 1,450 995 1,858
------- ------- ------
Total $ 8,772 5,878 12,434
======= ======= ======
Following is a reconciliation of the U. S. statutory income tax rate to the
Company's effective rates on income before income taxes.
1996 1995 1994
----- ----- -----
Statutory income tax rate 35% 35% 35%
State income taxes, net of federal income tax benefit 4 4 4
Other 1 (2) 2
---- ---- ----
Effective income tax rate 40% 37% 41%
==== ==== ====
30
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
An analysis of the Company's deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 showing the tax effects of significant temporary
differences follows.
(Thousands of dollars) 1996 1995
-------- -------
Deferred tax assets
Postretirement and other employee benefits $ - 1,299
Investment in real estate held for development and sale 3,150 2,371
Other deferred tax assets 284 305
------- ------
Total deferred tax assets 3,434 3,975
------- ------
Deferred tax liabilities
Postretirement and other employee benefits (106) -
Property, plant, and equipment (2,469) (1,973)
Timber and timberlands (296) (512)
Other deferred tax liabilities (172) (462)
------- ------
Total deferred tax liabilities (3,043) (2,947)
------- ------
Net deferred tax assets $ 391 1,028
======= ======
Net noncurrent deferred tax liabilities of $656,000 are included in the
Consolidated Balance Sheet in Deferred Credits and Other Liabilities at December
31, 1996, and net noncurrent deferred tax assets of $501,000 are included in
Deferred Charges and Other Assets at December 31, 1995. In addition, current
deferred tax assets of $1,047,000 at December 31, 1996 and $527,000 at December
31, 1995, are included in the Consolidated Balance Sheets in Prepaid Expenses
and Other Current Assets for the respective years.
In management's judgment, the Company's deferred tax assets at December 31,
1996, will more likely than not be realized as reductions of future taxable
income or by utilizing available tax planning strategies. There were no
valuation allowances for deferred tax assets at the end of the three years ended
December 31, 1996.
NOTE J - INCENTIVE PLANS
At December 31, 1996, the Company had a Stock Incentive Plan, approved by its
shareholder, Murphy Oil Corporation, that permits annual awards of shares of the
Company's Common Stock to executives and other key employees. Under the Plan,
the Executive Compensation Committee is authorized to grant: (1) stock options
(nonqualified or incentive), (2) stock appreciation rights, and (3) restricted
stock awards. No options were outstanding at December 31, 1996.
In January 1997, the Executive Compensation Committee granted replacement
options for 32,125 shares to certain executives and key employees. These
options replaced awards previously granted under the Murphy Oil Corporation
Stock Incentive Plan that expired upon the ceasing of employment of these
individuals from Murphy effective with the spin-off of Deltic Timber
Corporation.
Cost of options granted will be accrued over the vesting periods, beginning in
1997, and adjusted for subsequent changes in fair market value of the shares.
31
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
In addition to the above 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 measurable financial performance
objectives established at the beginning of that year. The Plan is administered
by the Executive Compensation Committee. Initial awards under the Plan will be
granted in 1998, based on 1997 results of operations. No provisions were
recorded in the periods presented through December 31, 1996.
NOTE K - EMPLOYEE AND RETIREE BENEFITS
As of December 31, 1996, Deltic employees were participants in the employee and
retiree benefit plans of Murphy Oil Corporation. Amounts presented for 1996,
1995, and 1994 reflect the Company's portion of the respective plans. Effective
January 1, 1997, separate plans were implemented for active Deltic employees.
Retirement Plans -- Murphy had defined benefit retirement plans that covered
substantially all employees of the Company. Benefits were based on years of
service and final-pay formulas as defined by the plans. All plans were
noncontributory.
Retirement expense/(expense reduction) and its components for 1996, 1995, and
1994 are shown in the following table.
(Thousands of dollars) 1996 1995 1994
------ ------- -----
Service cost - benefits earned during the year $ 337 284 327
Interest accrued on benefits earned in prior years 686 644 618
Actual return on plan assets (956) (2,074) (243)
Net amortization and deferral (136) 1,134 (705)
----- ------ ----
Net retirement expense/(expense reduction)* $ (69) (12) (3)
===== ====== ====
*Major assumptions were discount rates of 7% for 1996, 7.5% for 1995, and
6.75% for 1994; assumed long-term rate of return of plan assets was 8.5% of
1996, 1995, and 1994.
32
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
Amounts contributed to funded plans were actuarially determined and were at
least the minimum required by the Employee Retirement Income Security Act of
1974. The following table sets forth the funded status of the plans applicable
to the Company and the amounts recognized in the Consolidated Balance Sheets.
(Thousands of dollars) 1996 1995
-------- -------
Present value of accumulated benefit based on years of
service, applicable pay formulas, and present pay levels
Vested $2,747 7,343
Nonvested 571 540
------ ------
Accumulated benefit obligation/1/ 3,318 7,883
Provision for future pay increases 2,094 1,680
------ ------
Projected benefit obligation/1/ 5,412 9,563
Plan assets - at market value/2/ 8,032 11,617
------ ------
Plan assets in excess of projected benefit obligation 2,620 2,054
Unrecognized net asset from transition to SFAS No. 87/3/ (332) (1,087)
Unrecognized net loss from unfavorable actuarial experience (8) 249
Unrecognized prior service cost 266 83
------ ------
Prepaid retirement cost/4/ $2,546 1,299
====== ======
/1/ Major assumptions were discount rates of 7.5% for 1996 and 7% for
1995 and future pay rate increases of 4.6% for 1996 and 1995.
/2/ Primarily includes listed stocks and bonds, government securities, and
U. S. agency bonds.
/3/ Being amortized over a period of 15 years.
/4/ Included in the Consolidated Balance Sheets under the caption
"Deferred Charges and Other Assets".
Thrift Plans -- Employees of the Company could participate in thrift plans
sponsored by Murphy by allotting up to a specified percentage of their base
pay. The Company matched contributions at a stated percentage of each
employee's allotment based on length of participation in the plans. Company
contributions to these plans were $190,000 in 1996, $157,000 in 1995, and
$144,000 in 1994.
Postretirement Benefits -- Murphy sponsored plans that provided comprehensive
health care benefits (supplementing Medicare benefits for those eligible) and
life insurance benefits for qualified retired employees. Costs were accrued
for these plans during the service lives of covered employees. Retirees and
the Company contributed to the self-funded cost of health care benefits. The
Company paid premiums for life insurance coverage, arranged through an
insurance company. The health care plan was funded on a pay-as-you-go basis.
The Company had the right to modify the benefits and/or cost-sharing
provisions.
Based on actuarial computations, postretirement expense and its components for
1996, 1995, and 1994 are shown below.
(Thousands of dollars) 1996 1995 1994
----- ---- ----
Service cost $ 136 90 146
Amortization of net actuarial loss 1 60 38
Interest cost 296 316 301
----- ---- ----
Postretirement expense $ 433 466 485
===== ==== ====
33
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
A summary follows of the postretirement benefit obligations recorded in the
Consolidated Balance Sheets at December 31, 1996 and 1995. Calculation of the
amount of accumulated unfunded postretirement benefit obligations (APBO) was
based on discount rates of 7.5 percent and 7.0 percent in 1996 and 1995.
(Thousands of dollars) 1996 1995
------- -------
APBO
Retirees $ - 2,718
Fully eligible active participants 578 581
Other active participants 1,545 1,266
------ ------
Total unfunded APBO 2,123 4,565
Unrecognized net actuarial gain/(loss) 64 (1,213)
------ ------
Accrued APBO obligations $2,187 3,352
====== ======
In determining the APBO at December 31, 1996, health care inflation cost was
assumed to increase at an annual rate of 7.5 percent, gradually decreasing to
4.5 percent in 2002 and thereafter. An increase of one percent in the assumed
health care cost trend would increase the 1996 postretirement benefit expense by
8.2 percent and the APBO at December 31, 1996 by 6.5 percent.
NOTE L - RELATED PARTY TRANSACTIONS
Through December 10, 1996, the Company operated under Murphy's consolidated cash
management policy. Under this policy, Deltic remitted cash funds generated in
excess of its daily requirements to Murphy. Such remitted funds gave rise to an
interest-bearing receivable that was due on demand.
Prior to December 31, 1996, the Company classified the receivable as noncurrent
since it did not anticipate receiving payment within the next year. At December
31, 1996, the receivable has been included as a current asset in Other
Receivables since the intercompany relationship to Murphy has been dissolved and
since payment of the net balance due Deltic is expected within the next year.
The net receivable from Murphy totaled $1,858,000 at December 31, 1996 and
$29,951,000 at December 31, 1995. Deltic's interest income from this receivable
was $2,374,000 in 1996, $1,978,000 in 1995, and $1,047,000 in 1994. For 1997,
no interest income from Murphy will be realized due to the fact that the
receivable from Murphy, after December 31, 1996, will not be interest-bearing.
The Company recorded charges of $1,250,000 in 1996, $2,015,000 in 1995, and
$1,935,000 in 1994 for administrative and financial services provided by Murphy
on Deltic's behalf. Included in the 1996 charges is $460,000 allocated by
Murphy to the Company for its share of spin-off costs incurred. Of the total
amount expensed during 1996, $630,000 ($384,000 net of tax) was a capital
contribution by Murphy (recorded as an adjustment to Capital in Excess of Par
Value in the Consolidated Balance Sheet at December 31, 1996) since payment was
not required for this amount of services. These amounts were included in
General and Administrative Expenses in the Consolidated Statements of Income for
the respective years. General and Administrative Expenses in 1994 include a
credit of $1,056,000 related to reallocation of certain retirement plan assets
among affiliates of Murphy.
34
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
In addition, capital contributions by Murphy were recorded as a result of the
transfer of $1,177,000 for prepaid retirement cost and $1,419,000 for accrued
APBO obligations from Murphy to Deltic for employees and retirees transferred
between the two companies. These capital contributions ($1,687,000 net of tax)
were recorded as adjustments to Capital in Excess of Par Value in the
Consolidated Balance Sheet at December 31, 1996.
NOTE M - SUPPLEMENTAL CASH FLOWS DISCLOSURES
Interest paid was $110,000, $273,000, and $17,000 in 1996, 1995, and 1994. Cash
paid for state income taxes, net of refunds, was $1,016,000, $1,825,000, and
$1,797,000 in 1996, 1995, and 1994. Federal income taxes for the three years
ended December 31, 1996 were included in Murphy's consolidated tax return and
were settled through intercompany accounts.
Noncash investing and financing activities excluded from the Consolidated
Statements of Cash Flows were an addition of $1,656,000 during 1996 to the
noncurrent receivable from Murphy as a result of recording the transfer of all
mineral leases acquired by Deltic in 1995, and the assumption of debt in the
amount of $6,276,000 in 1995 related to acquisition of land and timber-cutting
rights.
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amount and estimated fair values of
financial instruments held by the Company at December 31, 1996 and 1995. 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 U. S. government securities, trade accounts receivable, trade accounts
payable, and accrued liabilities, all of which had fair values approximating
carrying values.
1996 1995
---------------------- ------------------------
Carrying or Estimated Carrying or Estimated
Notional Fair Notional Fair
(Thousands of dollars) Amount Value Amount Value
----------- --------- ------------ ----------
Financial liabilities
Long-term debt, including
current maturities $4,383 4,401 (4,802) (4,878)
Off-balance sheet exposures
Letters of credit 1,080 1,080 (682) (682)
Long-term debt, including current maturities -- The fair value is estimated
based on current rates offered the Company for debt of the same maturities.
Letter of credit -- The fair value is based on the estimated cost to settle
these obligations.
35
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
NOTE O - CONCENTRATION OF CREDIT RISKS
The Company's primary credit risk is from trade accounts receivable. These
receivables arise primarily from sales of timber and wood products to a large
number of customers. The credit history and financial condition of potential
customers are reviewed before credit is extended, security may be obtained then
or later, routine follow-up evaluations are made, and an allowance for doubtful
accounts is maintained, generally based upon a risk evaluation of specific
customers. Historically, the Company has not incurred any significant credit-
related losses, and at December 31, 1996, the Company had no significant
concentration of credit risk outside the timber and wood products industry.
NOTE P - BUSINESS SEGMENTS
Information about the Company's business segments is summarized in the
following tables.
(Thousands of dollars) 1996 1995 1994
--------- -------- --------
Net sales
Forest Products $ 69,567 68,258 73,636
Real Estate 6,346 4,188 9,635
Agriculture 10,585 8,216 9,186
-------- ------- -------
$ 86,498 80,662 92,457
======== ======= =======
Income before income taxes
Forest Products $ 15,870 14,748 24,818
Real Estate 1,578 999 3,637
Agriculture 2,760 373 1,896
Corporate (2,268) (2,777) (1,976)
-------- ------- -------
Operating income 17,940 13,343 28,375
Interest income 3,070 2,668 1,634
Interest expense (284) (309) (5)
Other income 1,207 192 572
-------- ------- -------
$ 21,933 15,894 30,576
======== ======= =======
Identifiable assets at year-end
Forest Products $117,518 118,375 114,725
Real Estate 25,516 20,961 17,770
Agriculture 11,697 11,613 12,420
Corporate 25,347 34,298 24,458
-------- ------- -------
$180,078 185,247 169,373
======== ======= =======
Depreciation, amortization, and
cost of fee timber harvested
Forest Products $ 3,556 3,307 3,270
Real Estate 120 31 25
Agriculture 515 561 561
Corporate (82) 154 30
-------- ------- -------
$ 4,109 4,053 3,886
======== ======= =======
36
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
(Thousands of dollars) 1996 1995 1994
-------- -------- -------
Capital expenditures
Forest Products $ 2,900 7,216 6,167
Real Estate 6,669 4,638 3,849
Agriculture 272 245 266
Corporate 1,512 1,538 66
------- ------ ------
$11,353 13,637 10,348
======= ====== ======
NOTE Q - FINANCIAL RESULTS BY QUARTER (UNAUDITED)
(Thousands of dollars - except per share amounts)
Three Months Ended
---------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
---------------------- --------------- -------------- --------------
1996 1995 1996 1995 1996 1995 1996 1995
------- ------ ------ ------ ------ ------ ------ ------
Net sales $19,318 22,612 19,493 19,810 25,651 19,574 22,036 18,666
------- ------ ------ ------ ------ ------ ------ ------
Cost and expenses
Cost of sales 12,784 13,262 13,604 14,012 18,273 15,828 16,415 16,495
Depreciation,
amortization, and
cost of fee timber
harvested 1,285 970 804 1,003 1,015 1,037 1,005 1,043
General and
administrative
expenses 990 650 999 648 978 1,356 406 1,015
------- ------ ------ ------ ------ ------ ------ ------
Total cost of
sales 15,059 14,882 15,407 15,663 20,266 18,221 17,826 18,553
------- ------ ------ ------ ------ ------ ------ ------
Operating income $ 4,259 7,730 4,086 4,147 5,385 1,353 4,210 113
======= ====== ====== ====== ====== ====== ====== ======
Net income $ 3,151 5,069 2,850 2,966 4,280 1,204 2,880 777
======= ====== ====== ====== ====== ====== ====== ======
Net income per
common share $.25 .40 .22 .23 .33 .09 .23 .06
======= ====== ====== ====== ====== ====== ====== ======
37
REPORT OF MANAGEMENT
--------------------
The management of Deltic Timber Corporation has prepared and is responsible for
the Company's consolidated financial statements. The statements are prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances. In preparing the financial statements, management has, when
necessary, made judgments and estimates with consideration given to materiality.
The Company maintains internal control systems and related policies and
procedures designed to provide reasonable assurance that assets are safeguarded
against loss or unauthorized use, that the accounting records accurately reflect
business transactions, and that the transactions are in accordance with
management's authorization. The design, monitoring, and revision of the systems
of internal control involve, among other things, our judgment with respect to
the relative cost and expected benefits of specific control measures. Since
being spun off by Murphy Oil Corporation on December 31, 1996, the Company has
engaged an outside accounting firm to provide internal audit services in order
to monitor the effectiveness of the controls, while independently and
systematically evaluating and formally reporting on the adequacy and
effectiveness of components of the system.
The Company's consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, who have expressed their
opinion with respect to the fairness of the consolidated financial statements.
Their audit was conducted in accordance with generally accepted auditing
standards, which includes the consideration of the Company's internal controls
to the extent necessary to form an independent opinion on the consolidated
financial statements prepared by management. The Board of Directors will
appoint the independent auditors; ratification of the appointment will be
solicited annually from the shareholders.
The Audit Committee of the Board of Directors is composed of directors who are
not officers or employees of the Company. The Committee will meet periodically
with the independent certified public accountants, the firm providing internal
audit services, and management. The Committee will consider the audit scope and
discuss internal control, financial and reporting matters, and the scope and
results of audits. The independent auditors have unrestricted access to the
Committee, without management's presence, to discuss audit findings and other
financial matters.
38
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Deltic Timber Corporation:
We have audited the accompanying consolidated balance sheets of Deltic Timber
Corporation and Consolidated Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Deltic Timber
Corporation and Consolidated Subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Shreveport, Louisiana
February 28, 1997
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The age (at January 1, 1997), present corporate office, and length of
service in office of each of the Company's executive officers and persons chosen
to become officers are reported in the following listing. Executive officers
are elected annually but may be removed from office at any time by the Board of
Directors.
Robert C. Nolan - Age 55; Chairman of the Board effective December 17,
1996. For the past 25 years, Mr. Nolan has been Managing Partner of Munoco
Company, an Arkansas partnership principally engaged in the exploration for and
production of oil and gas. In addition, Mr. Nolan has over 25 years experience
in timberland management.
Ron L. Pearce - Age 55; President and Chief Executive Officer and a
director of the Company effective December 17, 1996. Since June 1993, Mr.
Pearce has been President of Deltic Farm & Timber Co., Inc. ("Deltic Farm &
Timber"), the predecessor corporation of the Company. Prior to such time, Mr.
Pearce was Manager of Operations and Planning for Deltic Farm & Timber, a
position he held beginning in February, 1991.
Emily R. Evers - Age 46; Controller effective December 31, 1996. Since
1989, Ms. Evers has been Controller of Deltic Farm & Timber.
W. Bayless Rowe - Age 44; General Counsel and Secretary effective
December 31, 1996. Since 1988, Mr. Rowe has been Secretary and General Attorney
of Murphy Oil Corporation ("Murphy").
Clefton D. Vaughan - Age 55; Vice President, Finance and Administration
and Treasurer effective December 31, 1996. Since October 1994, Mr. Vaughan has
been Vice President of Murphy, a position he also held from 1989 through October
1992. From October 1992 to October 1994, Mr. Vaughan was Vice President of
Murphy Exploration and Production Company.
The balance of the information required by Item 10 is incorporated by
reference to the Registrant's definitive proxy statement relating to its 1997
annual meeting of stockholders (the "Proxy Statement"), which Proxy Statement
will be filed pursuant to Regulation 14A within 120 days after the end of the
last fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the
Proxy Statement.
40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. Financial Statement Schedules and Exhibits
1. Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended December 31,
1996, 1995, and 1994
Consolidated Statements of Cash Flows for the Years Ended December
31, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements, including Consolidated
Quarterly Income Information (unaudited)
Independent Auditors' Report on Consolidated Financial Statements and
Financial Statement Schedules
2. Financial Statement Schedules
Financial statement schedules are omitted because either they are not
applicable or the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits
3.1 Amended and Restated Certificate of Incorporation of Deltic
Timber Corporation as of December 17, 1996
3.2 Amended and Restated Bylaws of Deltic Timber Corporation
4 Instruments Defining the Rights of Security Holders. Rights
Agreement dated as of December 11, 1996 between Deltic Timber
Corporation and Harris Trust and Savings Bank, as Rights
Agent.
Deltic Timber Corporation is party to several long-term debt
instruments, none of which authorizes securities that exceed
10 percent of the total assets of Deltic Timber Corporation
and its subsidiaries on a consolidated basis. Pursuant to
Regulation S-K, item 601(b), paragraph 4(iii)(A), Deltic
agrees to furnish a copy of each such instrument to the
Securities and Exchange Commission upon request.
10.1 Deltic Timber Corporation 1996 Stock Incentive Plan
10.2 Distribution Agreement
10.3 Tax Sharing Agreement
21 Subsidiaries of the Registrant
41
27 Financial Data Schedule for 1996 (electronic filing only)
99 Form 11-K, Annual Report for the fiscal year ended December
31, 1996, covering Combined Thrift Plans for Employees of
Murphy Oil Corporation, Murphy Oil USA, Inc., and Deltic
Timber Corporation. To be filed as an amendment of this Annual
Report on Form 10-K, not later than 180 days after December
31, 1996.
Exhibits other than those listed above have been omitted since they
either are not required or are not applicable.
b. Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended December 31, 1996.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DELTIC TIMBER CORPORATION
By: /s/Ron L. Pearce Date: March 27, 1997
------------------------------------ -----------------------------
Ron L. Pearce, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 27, 1997 by the following persons on behalf of
the registrant and in the capacities indicated.
/s/Robert C. Nolan /s/William L. Rosoff
- --------------------------------------- ----------------------------------
Robert C. Nolan, Chairman and Director William L. Rosoff, Director
/s/Ron L. Pearce /s/O. H. Darling, Jr.
- --------------------------------------- ----------------------------------
Ron L. Pearce, President and Chief O. H. Darling, Jr., Director
Executive Officer and Director
(Principal Executive Officer)
/s/R. Madison Murphy /s/John C. Shealy
- --------------------------------------- -----------------------------------
R. Madison Murphy, Director John C. Shealy, Director
/s/Eric M. Heiner /s/Clefton D. Vaughan
- --------------------------------------- -----------------------------------
Eric M. Heiner, Director Clefton D. Vaughan, Vice President,
Finance and Administration
(Principal Financial Officer)
/s/Christoph Keller, III /s/Emily R. Evers
- --------------------------------------- -----------------------------------
Christoph Keller, III, Director Emily R. Evers, Controller
(Principal Accounting Officer)
/s/Alex R. Lieblong
- ---------------------------------------
Alex R. Lieblong, Director
43