As filed with the Securities and Exchange Commission on November 27, 1996
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------
AMENDMENT NO. 2
TO
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------------
DELTIC TIMBER CORPORATION
(Exact name of registrant as specified in its charter)
----------------
DELAWARE 71-0795870
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
200 PEACH STREET
P.O. BOX 7200
EL DORADO, ARKANSAS
(Address of Principal 71731-7200
executive offices) (Zip Code)
(501) 881-6634
(Registrant's telephone number, including area code)
Securities to be registered
pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Common Stock, par value $.01 per share The New York Stock Exchange, Inc.
Preferred Stock Purchase Rights The New York Stock Exchange, Inc.
Securities to be registered
pursuant to Section 12(g) of the Act:
None.
==============================================================================
Deltic Timber Corporation
Information Included In Information Statement
And Incorporated In Form 10 By Reference
Cross-Reference Sheet Between Information Statement
And Items of Form 10
<TABLE>
<CAPTION>
Item Location In Information Statement
---- ---------------------------------
<S> <C> <C>
Item 1. Business......................................... Summary; Risk Factors; The Distribution;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Consolidated Financial Statements
Item 2. Financial Information............................ Summary; Risk Factors; Pro Forma Capitalization;
Pro Forma Consolidated Financial Statements;
Selected Historical Financial Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Consolidated Financial
Statements
Item 3. Properties....................................... Business
Item 4. Security Ownership of Certain Beneficial
Owners and Management............................ Security Ownership of Certain Beneficial Owners
and Management
Item 5. Directors and Executive Officers................. Management
Item 6. Executive Compensation........................... Management; Security Ownership of Certain
Beneficial Owners and Management
Item 7. Certain Relationships and Related Transactions... Summary; Relationship Between the Company
and Murphy; The Distribution; Management
Item 8. Legal Proceedings................................ Business
Item 9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters.............................. Summary; Risk Factors; The Distribution; Trading
Market; Dividends; Security Ownership of Certain
Beneficial Owners and Management; Description
of Capital Stock
Item 10. Recent Sales of Unregistered Securities.......... Description of Capital Stock
Item 11. Description of Registrant's Securities to be
Registered....................................... Risk Factors; Description of Capital Stock;
Certain Statutory, Charter and Bylaw Provisions
and Rights Agreement
Item 12. Indemnification of Directors and Officers........ Liability and Indemnification of Directors and
Officers
Item 13. Financial Statements and Supplementary Data...... Summary; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Consolidated Financial Statements
Item 14. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure....................................... None
Item 15. Financial Statements and Exhibits
(a)Financial Statements.......................... See Index To Consolidated Financial Statements
(b)Exhibits...................................... See Exhibit Index
</TABLE>
EXHIBIT INDEX
<TABLE>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Form of Distribution Agreement between Murphy Oil Corporation ("Murphy") and the Registrant.*
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant.*
3.2 Form of Amended and Restated Bylaws of the Registrant.*
4.1 Form of Rights Agreement between the Registrant and Harris Trust and Savings Bank, as Rights
Agent.*
10.1 Form of Tax Sharing Agreement between Murphy and the Registrant.*
10.2 Fiber Supply Agreement dated as of February 21, 1995 between Del-Tin Fiber L.L.C. and the
Registrant.*
21.1 Subsidiaries of the Registrant.*
27.1 Financial Data Schedule.*
<FN>
- -----------
*Previously filed.
</TABLE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
DELTIC TIMBER CORPORATION
By: /s/ W. Bayless Rowe
----------------------------------------
Name: W. Bayless Rowe
Title: Vice President and Secretary
Date: November 27, 1996
[Murphy Oil Corporation Letterhead]
, 1996
Dear Stockholder:
I am pleased to inform you that the Board of Directors of Murphy Oil
Corporation ("Murphy") has approved a distribution to our stockholders of
all the outstanding shares of common stock of Murphy's wholly-owned
subsidiary, Deltic Timber Corporation ("Deltic"), to holders of record of
Murphy common stock on December 2, 1996. In the distribution, you will
receive one share of Deltic common stock for every 3.5 shares of Murphy
common stock you hold on the record date. Shares of Deltic are expected to
trade on the New York Stock Exchange under the symbol "DEL".
Deltic is a natural resources company engaged primarily in the growing and
harvesting of timber and the manufacture and marketing of lumber in the
southern United States. In addition, Deltic owns a real estate development
project in Little Rock, Arkansas and approximately 33,000 acres of
farmland.
Your Board of Directors has concluded that the distribution is in the best
interests of Murphy, Deltic and Murphy's stockholders in light of various
factors, including increasing the ability of Deltic to finance growth
plans, allowing the management of each company to focus attention and
financial resources on its respective businesses, enabling the financial
markets to evaluate the companies more effectively, and permitting the
companies to offer management incentives in a manner that is more directly
linked to the performance of the respective companies, thereby better
aligning these incentives with the interests of stockholders.
The enclosed Information Statement explains the proposed distribution in
detail and provides important financial and other information regarding
Deltic. We urge you to read it carefully. Holders of Murphy common stock
are not required to take any action to participate in the distribution. A
stockholder vote is not required in connection with this matter and,
accordingly, your proxy is not being sought. Very truly yours,
Claiborne P. Deming
President and Chief Executive Officer
Preliminary and Subject to Completion, Dated November 27, 1996
INFORMATION STATEMENT
DELTIC TIMBER CORPORATION
COMMON STOCK
(par value $.01 per share)
This Information Statement relates to the distribution (the
"Distribution") by Murphy Oil Corporation ("Murphy") of 100% of the shares of
common stock, par value $.01 per share, including associated preferred stock
purchase rights (the "Company Common Stock"), of Deltic Timber Corporation, a
Delaware corporation ("Deltic" or the "Company"), outstanding on the
Distribution Date (as defined below) to holders of Murphy's common stock, par
value $1.00 per share ("Murphy Common Stock"). Such shares of Company Common
Stock will represent all of the Company Common Stock owned by Murphy on the
Distribution Date and will be distributed by Murphy to its stockholders of
record as of the close of business on December 2, 1996 (the "Record Date") on
the basis of one share of Company Common Stock for every 3.5 shares of Murphy
Common Stock held of record on the Record Date. No consideration will be paid
to Murphy or the Company by Murphy stockholders for the shares of Company
Common Stock received in the Distribution. Following the Distribution, Murphy
will own no shares of Company Common Stock or other securities of the Company.
The Distribution is currently expected to be effected on or
about December 31, 1996 (the date on which the Distribution is effected being
the "Distribution Date"). Certificates representing the shares of Company
Common Stock will be mailed to Murphy stockholders on the Distribution Date or
as soon thereafter as practicable.
There has been no trading market for the Company Common
Stock, although it is expected that a "when-issued" trading market may
develop prior to the Distribution Date. The Company Common Stock has been
approved for listing on the New York Stock Exchange, subject to official
notice of issuance, under the symbol "DEL".
In reviewing this Information Statement, stockholders should
carefully consider the matters described under the section entitled "Risk
Factors" on page 9.
STOCKHOLDER APPROVAL IS NOT REQUIRED IN CONNECTION WITH THE
DISTRIBUTION. WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The date of this Information Statement is , 1996.
TABLE OF CONTENTS
PAGE
----
Introduction........................................................... 1
Summary................................................................ 2
Risk Factors........................................................... 9
The Distribution.......................................................13
Relationship Between the Company and Murphy............................16
Trading Market.........................................................19
Dividends..............................................................20
Pro Forma Consolidated Financial Statements............................21
Pro Forma Capitalization...............................................27
Selected Historical Financial and Operating Data.......................28
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................31
Business...............................................................39
Management.............................................................47
Security Ownership of Certain Beneficial Owners and Management.........52
Description of Capital Stock...........................................53
Certain Statutory, Charter and Bylaw Provisions and Rights Agreement...54
Independent Auditors...................................................58
Additional Information.................................................58
Index to Financial Statements.........................................F-i
INTRODUCTION
On November 11, 1996, the Board of Directors of 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 Company
Common Stock for every 3.5 shares of Murphy Common Stock owned of record on
the Record Date. It is expected that certificates representing shares of
Company Common Stock will be mailed to Murphy stockholders on the Distribution
Date or as soon thereafter as practicable.
As a result of the Distribution, 100% of the outstanding shares
of Company Common Stock will be distributed to Murphy stockholders. Murphy
will not own any securities of the Company immediately after the Distribution.
Murphy stockholders with inquiries relating to the Distribution
should contact Harris Trust and Savings Bank (the "Distribution Agent"), 111
West Monroe, P.O. Box 755, Chicago, Illinois 60690-0755; or Murphy Oil
Corporation, Secretary, 200 Peach Street, P.O. Box 7000, El Dorado, Arkansas
71731-7000. The Distribution Agent's telephone number is (312) 360-5166.
Murphy's telephone number is (501) 862-6411. After the Distribution,
stockholders of the Company with inquiries relating to the Distribution should
contact Deltic Timber Corporation, W. Bayless Rowe, Secretary, 200 Peach
Street, P.O. Box 7200, El Dorado, Arkansas 71731-7200. The Company's
telephone number is (501) 881-6634.
No action is required by Murphy stockholders in order to
receive the Company Common Stock to which they are entitled in the
Distribution.
SUMMARY
The following is a brief summary of the matters covered by this
Information Statement and is qualified in its entirety by the more detailed
information (including the consolidated financial statements and the notes
thereto) included elsewhere herein. Unless the context indicates
otherwise, the "Company" or "Deltic" means Deltic Timber Corporation and
its subsidiaries.
The Company
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 341,000 acres of timberland in Arkansas and
northern Louisiana (the "Timberlands"), 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"). The Company also holds a
50-percent interest in a joint venture to manufacture and market medium
density fiberboard, which is expected to be operational in early 1998. 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
33,000 acres of farmland.
The Company 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 the Company's most valuable assets,
and the harvest of this stumpage to be the Company's most significant source
of income. Estimated pine sawtimber inventory as of December 31, 1995 was 8.1
million tons. 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. The Company'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 1995, the Company harvested
approximately 268,000 tons of pine sawtimber from the 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
1995, the Company's sawmills processed approximately 671,000 tons of timber,
some of which came from the Timberlands and the remainder of which was 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 $15 million has been invested in upgrades of the two sawmills
over the past five years, expanding both production 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.
Deltic owns a 50-percent interest in Del-Tin Fiber L.L.C., a
joint venture with Temple-Inland Forest Products Corporation to manufacture
and market medium density fiberboard ("MDF"). The plant will be located near
El Dorado, Arkansas. Construction commenced in mid-1996, with initial
production scheduled for early 1998. MDF, which is used in the furniture,
flooring and molding 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.
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 Company has
been developing a 4,300-acre planned community centered around a Robert Trent
Jones, Jr. designed golf course. The property is being developed in stages,
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 33,000 acres of farmland in northeastern
Louisiana. Approximately 23,000 acres of the total are farmed by Deltic,
while the remaining 10,000 acres are rented to third parties. The primary
crops are cotton, soybeans, corn, wheat, and rice.
The Company was incorporated in September 1996 and, prior to
the Distribution, will become the successor to Deltic Farm & Timber Co., Inc.,
an Arkansas corporation.
The Distribution
The following is a brief summary of certain terms of the Distribution.
Distributing Company............. Murphy Oil Corporation. After the
Distribution, Murphy will own no shares of
Company Common Stock.
Primary Purposes of the
Distribution.................... Murphy has concluded that the
Distribution is in the best interests of
Murphy, the Company and Murphy's
stockholders in light of various factors,
including increasing the ability of
Deltic to finance growth plans, allowing
the management of each company to focus
attention and financial resources on its
respective businesses, enabling the
financial markets to evaluate both Murphy
and the Company more effectively, and
permitting Murphy and the Company to
offer management incentives that are more
directly linked to the performance of the
respective businesses. See "The
Distribution--Background to and Reasons
for the Distribution."
Securities To Be Distributed..... All of the outstanding shares of Company
Common Stock. Based on the number of shares
of Murphy Common Stock outstanding as of
September 30, 1996, it is estimated that
approximately 12.8 million shares of Company
Common Stock will be distributed to Murphy
stockholders in the Distribution. After the
Distribution, the Company estimates that the
Company Common Stock will be held by
approximately 4,200 stockholders of record,
although some of the shares may be
registered in nominee names representing an
additional number of stockholders.
Distribution Ratio............... One share of Company Common Stock for every
3.5 shares of Murphy Common Stock held by
Murphy stockholders of record on the Record
Date.
Record Date...................... December 2, 1996 (close of business New York
time).
Distribution Date................ December 31, 1996. Certificates
representing the shares of Company Common
Stock will be mailed to Murphy stockholders
on the Distribution Date or as soon
thereafter as practicable.
Distribution Agent............... Prior to the Distribution Date, the Company
will appoint Harris Trust and Savings Bank
to serve as Distribution Agent in
connection with the Distribution.
Trading Market and Symbol........ There has been no trading market for the
Company Common Stock, although it is
expected that a "when-issued" trading market
may develop prior to the Distribution Date.
The Company Common Stock has been
approved for listing on the New York
Stock Exchange, subject to official
notice of issuance, under the symbol
"DEL". See "Trading Market."
Tax Consequences................. Murphy has received a ruling from the
Internal Revenue Service to the effect that
the Distribution will qualify as a tax-free
distribution for federal income tax
purposes. See "The Distribution--Certain
Federal Income Tax Consequences" for a more
detailed description of the federal income
tax consequences of the Distribution.
Risk Factors..................... Stockholders should carefully consider the
matters discussed under the section entitled
"Risk Factors" in this Information Statement.
No Fractional Shares............. No fractional shares of Company Common Stock
will be distributed. All fractional share
interests will be aggregated and sold by the
Distribution Agent on behalf of stockholders
and the cash proceeds distributed to those
stockholders otherwise entitled to a
fractional interest. See "The
Distribution-- Description of the
Distribution."
Relationship with Murphy
After the Distribution.......... In connection with the Distribution, Murphy
and the Company will enter into the
Distribution Agreement and the Tax Sharing
Agreement described under "Relationship
Between the Company and Murphy." These
agreements are not the result of arm's
length negotiations. Additional or modified
agreements, arrangements and transactions
may be entered into between Murphy and the
Company after the Distribution, which will
be negotiated at arm's length.
Summary Selected Historical Financial and Operating Data
The following table sets forth for the periods and at the dates
indicated selected historical financial and operating data for the Company on
a consolidated basis. The selected historical financial data as of December
31, 1993, 1992 and 1991 and for each of the years in the two-year period ended
December 31, 1992 are derived from the Company's unaudited historical
financial statements not included in this Information Statement. The selected
historical financial data as of December 31, 1995 and 1994 and for each of the
years in the three-year period ended December 31, 1995 are derived from the
Company's audited historical consolidated financial statements and should be
read in conjunction with such financial statements included elsewhere in this
Information Statement. The historical financial data as of September 30, 1996
and 1995 and for the nine-month periods ended September 30, 1996 and 1995 are
derived from the unaudited historical consolidated financial statements of the
Company, which are included elsewhere in the Information Statement. In the
opinion of the Company's management, these nine-month consolidated financial
statements include all adjustments, consisting of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
interim periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Consolidated Financial Statements."
Earnings per share data are presented elsewhere in this Information Statement
on a pro forma basis only. See "Unaudited Pro Forma Consolidated Financial
Statements." The historical financial data presented below reflect periods
during which the Company did not operate as an independent company.
Therefore, such data may not reflect the results of operations or the
financial condition which would have resulted if the Company had operated as a
separate, independent company during such periods, and are not necessarily
indicative of the Company's future results of operation or financial condition.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(dollars in thousands, except ratios and operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Data:
Income Statement Data:
Net sales........................... $ 64,462 $ 61,996 $ 80,662 $ 92,457 $ 69,448 $ 60,528 $ 50,553
-------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Cost of sales..................... 44,045 42,475 58,731 56,521 43,925 42,416 38,464
Depreciation, amortization,
and cost of fee timber
harvested....................... 3,104 3,010 4,053 3,886 3,488 3,152 3,231
Selling and general expenses...... 3,583 3,281 4,535 3,675 4,657 5,596 4,674
Total costs and expenses........ 50,732 48,766 67,319 64,082 52,070 51,164 46,369
-------- -------- -------- -------- -------- -------- --------
Operating income.................... 13,730 13,230 13,343 28,375 17,378 9,364 4,184
Interest income..................... 2,209 1,975 2,668 1,634 1,075 1,202 1,225
Interest expense.................... (210) (216) (309) (5) (14) (50) (87)
Other income........................ 1,173 127 192 572 100 474 200
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes and accounting
changes........................... 16,902 15,116 15,894 30,576 18,539 10,990 5,522
Income tax expense.................. (6,621) (5,877) (5,878) (12,434) (7,128) (4,329) (1,934)
-------- -------- -------- -------- -------- -------- --------
Income before accounting
changes........................... 10,281 9,239 10,016 18,142 11,411 6,661 3,588
Cumulative effect of
accounting changes................ -- -- -- -- (4,076) -- --
-------- -------- -------- -------- -------- -------- --------
Net income.......................... $ 10,281 $ 9,239 $ 10,016 $ 18,142 $ 7,335 $ 6,661 $ 3,588
======== ======== ======== ======== ======== ======== ========
Balance Sheet Data and Ratios:
Total assets........................ $194,109 $184,714 $185,247 $169,373 $150,761 $139,478 $133,547
Working capital..................... 13,644 11,035 6,822 11,314 11,520 9,824 8,041
Current ratio....................... 3.4 to 1 2.6 to 1 1.9 to 1 3.4 to 1 4.5 to 1 3.9 to 1 3.9 to 1
Long-term debt (noncurrent
portion).......................... $ 2,685 $ 3,634 $ 2,817 $163 $ 54 $ 174 $ 570
Stockholder's equity................ 180,570 169,512 170,289 160,273 142,131 134,796 129,493
Debt to stockholder's equity
ratio............................. .015 to 1 .021 to 1 .017 to 1 .001 to 1 .001 to 1 .001 to 1 .004 to 1
Cash Flow and Other Data:
Cash flow from operations........... $ 13,566 $ 10,327 $ 16,865 $ 23,894 $ 16,200 $ 11,679 $ 8,855
Cash required by
investing activities.............. 9,131 11,523 16,134 23,875 16,215 10,835 9,240
Cash required by
financing activities.............. 419 77 1,644 101 401 379 370
EBITDA(1)........................... 16,834 16,240 17,396 32,261 20,866 12,516 7,415
Capital expenditures
requiring cash.................... 5,886 5,792 7,361 10,176 10,682 8,849 4,194
Cash and equivalents at end
of period......................... 5,447 1,071 1,431 2,344 2,426 2,842 2,377
Operating Data:
Thousands of acres
owned at end of
period............................ 383 386 386 387 387 388 387
Pine sawtimber harvested
from fee lands
(MBF-DS)(2)....................... 32,437 31,138 35,736 40,616 37,635 30,177 32,956
Average pine sawtimber
prices ($/MBF-DS)................. 342 422 406 372 310 274 202
Finished lumber
production (MBF)(3).............. 107,697 108,572 140,555 136,713 112,365 101,203 92,846
Annual sawmill capacity at
end of period (MBF)............... 165,000 165,000 165,000 165,000 122,600 100,100 100,100
Finished lumber sales (MBF)......... 108,693 108,278 140,549 138,377 115,136 105,619 95,024
Average finished lumber
sales prices ($/MBF).............. 330 329 318 363 335 259 215
Residential lots sold............... 78 51 71 163 81 134 50
Average price for
residential lots sold
($/lot)........................... 55,000 53,800 52,900 56,700 60,000 38,800 61,400
Commercial acres sold(4)............ 2 -- -- -- -- -- 17
Average price for commercial
acres sold ($/acre)............... 199,500 -- -- -- -- -- 32,700
Number of employees at
end of period..................... 350 360 358 317 301 296 266
<FN>
- ----------------
(1) EBITDA is defined as earnings before interest and other income,
interest expense, depreciation, amortization and cost of fee timber
harvested, and income taxes. EBITDA is presented by the Company
because it is one measure commonly used by Company management and
certain investors to analyze companies based on operating performance.
EBITDA does not represent net income or cash flows as defined by
generally accepted accounting principles and it should not be
considered as an alternative to, or more meaningful than, net income or
cash flows as an indicator of the Company's operating performance or
liquidity. EBITDA does not necessarily indicate that operating results
are sufficient to fund all of the Company's cash needs. Since
presentation of EBITDA is not defined within generally accepted
accounting principles, there can be no assurance that EBITDA as
presented by the Company is comparable to similarly titled disclosures
provided by other companies.
(2) "MBF-DS" means thousand board feet (Doyle Log Scale).
(3) "MBF" means thousand board feet.
(4) The commercial acres sold in 1991 were sold for church sites.
</TABLE>
Summary Selected Pro Forma Financial Data
The following summary pro forma financial data include
adjustments to the historical statements of income of the Company for nine
months ended September 30, 1996 and the year ended December 31, 1995 as if the
Distribution had occurred on January 1, 1995 and to the historical balance
sheet of the Company as of September 30, 1996 as if the Distribution had
occurred on September 30, 1996. Such adjustments result from, among other
things, increased expenses associated with operating as an autonomous entity
rather than as a wholly-owned subsidiary of Murphy and elimination of an
intercompany receivable from Murphy. See "Pro Forma Consolidated Financial
Statements" and the notes thereto. The following pro forma financial data are
provided for information purposes only and should not be construed to be
indicative of the Company's results of operations or financial condition had
the Distribution occurred on the dates assumed, may not reflect the results of
operations or financial condition which would have resulted had the Company
been operated as a separate, independent company during such period, and are
not necessarily indicative of the Company's future results of operations or
financial condition.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
------------------- -----------------
(dollars in thousands, except earnings per share)
<S> <C> <C>
Income Statement Data:
Net sales.................................... $ 64,462 $ 80,662
Operating income............................. 13,415 13,014
Net income................................... 9,482 8,965
Earnings per share........................... 0.74 0.70
Balance Sheet Data:
Total assets................................. $ 177,106
Total long-term debt (including
current portion)........................... 4,383
Stockholders' equity......................... 164,839
</TABLE>
RISK FACTORS
In addition to the other information contained in this
Information Statement, stockholders should carefully review the following
factors.
This Information Statement contains certain forward looking
statements regarding the Company's operations, economic performance and
financial condition, including, in particular, statements made as to the
Company's strategy for growth through significant timberland acquisitions, an
increase in harvest levels and expansion into engineered wood products. Such
forward looking statements are subject to known and unknown risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those identified under "Risk
Factors" and elsewhere in this Information Statement.
Cyclicality of Forest Products Industry
The Company's results of operations are, and will continue to
be, affected by the cyclical nature of the forest products industry. Prices
and demand for logs and manufactured wood products have been, and in the
future can be expected to be, subject to cyclical fluctuations. The demand
for logs and lumber is primarily affected by the level of new residential
construction activity, which activity is subject to fluctuations due to
changes in economic conditions, interest rates, population growth, weather
conditions and other factors. Decreases in the level of residential
construction activity will be reflected in reduced demand for logs and lumber
resulting in lower prices for the Company's products and lower revenues,
profits and cash flows. In addition to housing starts, demand for wood
products is also significantly affected by repair and remodeling activities
and industrial uses, demand for which has historically been less cyclical.
Furthermore, changes in industry supply of timber have an effect on prices. In
the recent past the United States government has significantly reduced its
sales of timber in response to environmental and endangered species concerns,
resulting in increased prices for logs and lumber. Such reduction is
continuing to affect prices for logs and lumber. Although the Company
believes that sales of timber by United States government agencies will remain
at historically low levels for the foreseeable future, any reversal of policy
that substantially increased such sales could significantly reduce prices for
logs and lumber, which could have a material adverse effect on the Company.
Furthermore, increased imports from Canada and other foreign countries could
reduce the prices the Company receives for its products.
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 1995 and the nine months ended September 30, 1996,
the Company acquired approximately nine 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.
Limitations on the Company's Ability to Harvest Timber
Revenues from the Company's future operations will depend to a
significant extent on its ability to harvest timber pursuant to its harvest
plans from its approximately 341,000 acres of timberlands (the "Timberlands").
The Company's harvest plans through the year 2000 currently anticipate
harvesting certain of the Timberlands at an accelerated pace. The
implementation of such harvest plans, however, will require the Company to
increase its timber inventory through significant timberland acquisitions.
See "Business--Growth Strategy." There can be no assurance that such
acquisitions will be made or that the Company will in the future achieve the
levels contemplated by current harvest plans.
Harvesting of the Timberlands may be affected by various
natural factors, including damage by fire, insect infestation, disease,
prolonged drought, severe weather conditions and other causes. The effects of
such natural disasters may be particularly damaging to young timber. To the
extent possible, the Company implements measures to limit the risk of damage
from such natural causes. The Company is a participant with state agencies
and other timberland owners in cooperative fire fighting and fire surveillance
programs. In addition, the Timberlands' extensive system of access roads and
the physical separation of various tracts provide some protection against fire
damage. Nonetheless, one or more major fires on the Timberlands could
adversely affect Deltic's operating results. In addition, the Timberlands may
also be affected by insect infestation, particularly by the southern pine
beetle, and disease. In recent years, there have not been significant
outbreaks of either insect infestation or disease. The outbreaks that have
occurred have been addressed by the harvesting of affected trees and buffer
areas to prevent spreading, and the injection of surrounding trees.
Additionally, the Timberlands may be affected by severe weather conditions,
especially tornados, ice storms and heavy winds. Although damage from such
natural causes usually is localized and affects only a limited percentage of
the timber, there can be no assurance that any damage affecting the
Timberlands will, in fact, be so limited. As is typical in the forest
products industry, the Company does not maintain insurance coverage with
respect to damage to the Timberlands. The Company does, however, maintain
insurance for loss of logs due to fire and other occurrences following their
receipt at the Company's sawmills.
In conducting its harvesting activities, the Company
voluntarily complies with the "Best Management Practices" recommended by the
Arkansas Forestry Commission. From time to time, proposals have been made in
state legislatures regarding the regulation of timber harvesting methods.
There can be no assurance that such proposals, if adopted, will not adversely
affect the Company or its ability to harvest and sell logs or timber in the
manner currently contemplated. However, the impact, if any, if such proposals
were enacted should not be unique to the Company.
Operation of Sawmills
The Company's sawmills are located at Ola in central Arkansas
and Waldo in southern Arkansas. The operations of the sawmills are dependent
on various factors and there can be no assurance that the Company will be able
to continue such operations at current levels of production or that suspension
of such operations may not be required in the future. One such factor is the
ability of the Company to procure sufficient logs at favorable prices. The
Company obtains logs for its sawmills from the Timberlands, other private
sources and federal lands. As discussed above, prices for logs are cyclical
and affected primarily by demand for lumber and other products produced from
logs. Another such factor is the ability of the Company to find an outlet for
the large volume of residual wood products that result from the milling
process. The Company currently markets such products to third parties for the
production of paper and other uses. In the future, the Company expects to
sell a significant portion of its residue wood chips to Del-Tin Fiber L.L.C.
("Del-Tin"), a joint venture for the construction and operation of a medium
density fiberboard plant near El Dorado, Arkansas in which the Company owns a
50-percent interest. Such facility is expected to be operational in early
1998. In addition, the continued operation of the sawmills is subject
generally to the risk of business interruption in the event of a fire or other
natural disaster, regulatory actions or other causes. The Company mitigates
this risk through the procurement of business interruption insurance.
Competition
The forest products industry is highly competitive in terms of
price and quality. Many of the Company's competitors are fully integrated
companies with substantially greater financial and operating resources than the
Company. The products of the Company are subject to increasing competition
from a variety of non-wood and engineered wood products. In addition, the
Company is subject to a potential increase in competition from lumber products
and logs imported from foreign sources. Any significant increase in
competitive pressures from substitute products or other domestic or foreign
suppliers could have a material adverse effect on the Company. See
"Business--Products and Competition."
Federal and State Environmental Regulation
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, the provisions and enforcement of which are
expected to become more stringent in the future. The Company has made and
will continue to make non-material expenditures to comply with such
provisions. In addition, the Federal Endangered Species Act protects species
threatened with possible extinction and restricts the Company's harvesting
activities on certain of the Timberlands on which the Red Cockaded Woodpecker,
a protected species, is present. Based on currently available information,
including the fact that the Company is not presently aware of any facts that
indicate that the Company will be required to incur any material costs
relating to environmental matters, the Company believes that environmental
regulation will not materially adversely effect the Company, but there can be
no assurances that environmental regulation will not have a material adverse
effect on the financial condition, results of operations or liquidity of the
Company in the future. See "Business--Environmental Matters."
Geographic Concentration of Real Estate Development
The Company's real estate development project ("Chenal Valley")
is a 4,300-acre planned community in western Little Rock, Arkansas.
Accordingly, the Company's real estate operations are particularly vulnerable
to any economic downturns or other adverse events that may occur in this
region and to competition from nearby residential housing developments. From
the project's commencement, the Company has developed and sold lots on the
Chenal Valley property primarily for the construction of residences, although
the sale of commercial tracts has also begun. As a result, the Company's
results of operations may be affected by the cyclicality of the homebuilding
and real estate industries generally. Factors include changes in general and
local economic conditions, such as employment levels, consumer confidence and
income, housing demand, availability of financing and interest rates, and
changes in government regulation regarding the environment, zoning, real
estate taxes and other local government fees.
The Chenal Valley residential properties are centered around
the Chenal Country Club golf course. 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 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 a 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 and has been submitted to the Club members for approval.
There can be no assurance that such approval will be obtained.
Risk Inherent in the Farming Industry
The Company's farming operations consist of approximately
33,000 acres in northeastern Louisiana, about 70 percent of which is farmed by
the Company and 30 percent of which is rented to third parties. The Company's
primary crops are cotton, soybeans, corn, wheat and rice. The Company's
farming operations are subject to numerous variable factors, including weather
conditions, insect infestation, crop disease, animal damage, the timing and
amount of rainfall, and environmental factors relating to pesticides, among
other things. Although the Company, to the extent possible, takes measures to
mitigate the potential risk of loss, there can be no assurance that the
Company's farming operations will not be adversely affected by any one or a
combination of these factors. In addition, agricultural products are subject
to rapid and significant price fluctuations. Such fluctuations can impact
revenues, operating costs and cash flow, thereby impacting profitability.
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 do not generate
significant sales and operating income until crops are harvested and sold in
the second half of the year.
Lack of Operating History as a Independent Company
Prior to the Distribution, the Company has been operated as a wholly-owned
subsidiary of Murphy. As such, the Company does not have an operating history
as an independent public company. The Company has historically relied upon
Murphy for certain administrative services in areas such as financial affairs,
environmental affairs, human resources, information systems, insurance, law,
purchasing, treasury and tax. Following the consummation of the Distribution,
the Company will be responsible for maintaining its own administrative
functions, except for certain services to be provided by Murphy for a
transitional period after the Distribution. See "Relationship between the
Company and Murphy--Terms of the Distribution Agreement--Transitional
Services." There can be no assurance as to the Company's future operating
results as an independent public company.
Reliance on Key Personnel
The Company believes that its continued success will depend in
large part on its ability to attract and retain highly skilled and qualified
personnel. The Company believes that the Distribution will, among other
things, permit the Company to offer management incentives in a manner that is
more directly linked to the Company's performance, which the Company believes
will facilitate the attraction, retention and motivation of highly skilled and
qualified personnel. In this regard, the Company has taken steps to retain
its key personnel, including the provision of competitive employee benefit
programs. See "Management." Although the Company will seek to employ a
qualified person to fill his or her position with the Company in the event
that any officer or director of the Company ceases to be associated with the
Company, there can be no assurance that such individuals could be engaged by
the Company.
Dividend Policy
The Company currently intends to pay modest quarterly cash
dividends. However, the Company anticipates that future earnings will for the
most part be used to support operations and finance growth of the business.
The payment of any dividends will be at the discretion of the Company's Board
of Directors (the "Company Board"). The declaration of dividends and the
amount thereof will depend on a number of factors, including the Company's
financial condition, capital requirements, funds from operations, future
business prospects and such other factors as the Company Board may deem
relevant, and no assurance can be given as to the timing or amount of any
dividend payments.
No Prior Market for Common Stock
Prior to the Distribution, there has been no public market
for the Company Common Stock, and there can be no assurance that an active
trading market will develop or be sustained in the future. The Company
Common Stock has been approved for listing on the New York Stock Exchange,
subject to official notice of issuance, under the symbol "DEL". There can
be no assurance as to the price at which the Company Common Stock will
trade. See "Trading Market."
There can be no assurance that the Company Common Stock will
not experience substantial price volatility, particularly as a result of
quarter to quarter variations in the actual or anticipated financial results
of the Company or other companies in the forest products industry. In
addition, the stock market has experienced extreme price and volume
fluctuations that have affected the market price of many stocks and that have
often been unrelated or disproportionate to the operating performance of
individual companies. These and other factors, such as investor perception of
the Company, the depth and liquidity of the market for shares of the Company
Common Stock, changes in economic conditions in the forest products industry
and general economic and market conditions, may influence and adversely affect
the market price of the Company Common Stock.
Possibility of Substantial Sales of Common Stock
The Distribution will involve the distribution of an aggregate
of approximately 12.8 million shares of Company Common Stock to the
stockholders of Murphy. Substantially all of such shares would be eligible
for immediate resale in the public market. The Company is unable to
predict whether substantial amounts of Company Common Stock will be sold in
the open market in anticipation of, or following, the Distribution. Any
sales of substantial amounts of Company Common Stock in the public market,
or the perception that such sales might occur, whether as a result of the
Distribution or otherwise, could materially adversely affect the market
price of the Company Common Stock.
Anti-Takeover Effects of Certain Statutory, Charter, Bylaw and Contractual
Provisions
Several provisions of the Company's Certificate of
Incorporation and Bylaws (as will be in effect as of the Distribution) and of
the Delaware General Corporation Law could discourage potential acquisition
proposals and could deter or delay unsolicited changes in control of the
Company, including provisions creating a classified Board of Directors,
limiting the stockholders' powers to remove directors, and prohibiting the
taking of action by written consent in lieu of a stockholders' meeting. The
preferred stock purchase rights attached to the Company Common Stock could
have similar anti-takeover effects. In addition, the Company Board has the
authority, without further action by the stockholders, to fix the rights and
preferences of and to issue preferred stock. The issuance of preferred stock
could adversely affect the voting power of the owners of Company Common Stock,
including the loss of voting control to others. Pursuant to the Tax Sharing
Agreement, the Company will agree to refrain from engaging in certain
transactions for two years following the Distribution Date unless it shall
first provide Murphy with a ruling from the Internal Revenue Service or an
unqualified opinion acceptable to Murphy of a nationally recognized
independent tax counsel that the transaction will not cause Murphy or its
stockholders to recognize taxable income by virtue of the Distribution.
Transactions subject to these restrictions will include, among other things,
the liquidation of the Company, the merger, consolidation or other combination
or affiliation of the Company with another company, discontinuance of or
material change in the conduct of a material portion of its businesses
independently and with its own employees, redemption or other reacquisition of
Company Common Stock, and the sale, distribution or other disposition of
assets of the Company out of the ordinary course of business. The Company
will generally agree to indemnify Murphy against any tax liability resulting
from the Company's breach of any covenant or representation contained in the
Tax Sharing Agreement.
These provisions and others that could be adopted in the future
could discourage unsolicited acquisition proposals or delay or prevent changes
in control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions could limit the ability
of stockholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock" and "Certain Statutory,
Charter, Bylaw Provisions and Rights Agreement."
THE DISTRIBUTION
Background to and Reasons for the Distribution
Murphy's Board of Directors (the "Murphy Board") has
determined, for the reasons set forth below, that it is in the best interests
of Murphy, Deltic and Murphy's stockholders to undertake the Distribution.
In early 1996, Murphy began to consider strategies for
improving the performance of the Company's timber, farming and real estate
businesses. At a series of meetings, the Murphy Board, assisted by Murphy's
financial advisors and the management of Murphy and the Company, explored
various alternatives for effecting such improvement, including the separation
of the Company's businesses from Murphy. The Murphy Board concluded, among
other things, that the Company's timber business offers substantial
opportunity for growth, primarily by significantly increasing the harvest of
the Company's Southern Yellow Pine sawtimber in combination with an aggressive
but flexible timberland acquisition program, while continuing to add value to
timber production through downstream investment. The Murphy Board further
concluded that to take advantage of such opportunities, the Company will
require significant capital investment. The Murphy Board reviewed a variety
of alternative approaches for providing for the capital needs of the Company's
business and determined that the most efficient way to raise the needed
additional capital is through the Distribution and a subsequent offering of
equity of the Company. The Company currently intends to make an offering of
$30-40 million of equity of the Company within one year of the Distribution,
consistent with representations made to the Internal Revenue Service for
purposes of receiving a ruling that the Distribution will qualify as tax-free
to Murphy and its stockholders under Section 355 of the Internal Revenue Code
of 1986, as amended (the "Code"). 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 then-existing market conditions. There can be no assurance,
however, that the Company will be able to successfully complete an offering or
otherwise fund its expansion plans. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." In addition, the Distribution will create the opportunity for
the Company to use its capital stock as an "acquisition currency" to finance
all or a part of any future timberland acquisitions and other capital needs.
Before concluding that an equity offering as a stand-alone
entity was the preferable means of satisfying the Company's capital needs, the
Murphy Board considered several alternative transactions, including (i) an
offering of Murphy Common Stock, with the Company remaining a wholly-owned
subsidiary of Murphy; (ii) an offering of less than 100% of the Company, with
Murphy retaining the remaining interest; (iii) an offering of 100% of the
Company; and (iv) reconfiguring the Company's assets into a partnership, with
an offering of master limited partnership ("MLP") units. The current
strategy was considered preferable to each of these alternatives. First,
unlike the first and second alternatives, the Distribution will permit the
Company to efficiently raise additional capital because the Company will
become a stand-alone entity. As such, the Distribution is intended to enable
the financial markets to evaluate both the Company and Murphy more effectively
by using valuation methods suitable to each particular industry. Further, the
Distribution will allow the management of each company to focus attention and
financial resources on its respective businesses, and will provide each
company with greater flexibility to pursue its independent business
objectives. And, the Distribution will permit the Company and Murphy to offer
management incentives in a manner more directly linked to the performance of
the respective companies, thereby better aligning these incentives with the
interests of stockholders. Second, unlike the second and third alternatives,
the Distribution will allow the market to evaluate the Company as a public
entity prior to any equity offering, thereby maximizing the efficiency of any
such offering. Finally, the current strategy was preferable to the fourth
alternative because the Company's growth objectives and resulting cash flow
needs were considered not optimal for meeting the expectations of MLP
investors.
Description of the Distribution
The general terms and conditions relating to the Distribution
are set forth in the Distribution Agreement between Murphy and the Company.
See "Relationship between the Company and Murphy--Terms of the Distribution
Agreement."
Murphy will effect the Distribution on December 31, 1996 (the
"Distribution Date") by the delivery of the shares of Company Common Stock to
the Distribution Agent for distribution to the holders of record of Murphy
Common Stock on December 2, 1996 (the "Record Date"). The Distribution will
be made on the basis of one share of Company Common Stock for every 3.5 shares
of Murphy Common Stock outstanding on the Record Date. The actual total
number of shares of Company Common Stock to be distributed will depend on the
number of shares of Murphy Common Stock outstanding on the Record Date. Based
upon the number of shares of Murphy Common Stock outstanding on September 30,
1996, approximately 12.8 million shares of Company Common Stock will be
distributed to Murphy stockholders, which will constitute all of the shares of
Company Common Stock owned by Murphy. As a result of the Distribution, 100%
of the outstanding shares of Company Common Stock will be distributed to
Murphy stockholders. The shares of Company Common Stock will be fully paid
and nonassessable, and the holders thereof will not be entitled to preemptive
rights. See "Description of Capital Stock." Certificates representing the
shares of the Company Common Stock will be mailed to Murphy stockholders on
the Distribution Date or as soon as practicable thereafter.
No certificates or scrip representing fractional shares of
Company Common Stock will be issued to Murphy stockholders as part of the
Distribution. The Distribution Agent will aggregate fractional shares into
whole shares and sell them in the open market at then prevailing prices on
behalf of holders who otherwise would be entitled to receive fractional share
interests, and such persons will receive instead a cash payment in the amount
of their pro rata share of the total sale proceeds thereof. Proceeds from
sales of fractional shares will be paid by the Distribution Agent based upon
the average gross selling price per share of Company Common Stock of all such
sales. See "The Distribution--Federal Income Tax Consequences." Such sales
are expected to be made as soon as practicable after the Distribution Date.
None of Murphy, the Company or the Distribution Agent will guarantee any
minimum sale price for the fractional shares of Company Common Stock, and no
interest will be paid on the proceeds of such shares.
Certain Federal Income Tax Consequences
The following is a summary of the material federal income tax
consequences of the Distribution to Murphy and its stockholders. Murphy has
received a ruling from the Internal Revenue Service to the effect that the
Distribution will qualify as tax-free to Murphy and its stockholders under
Section 355 of the Code, and accordingly, for federal income tax purposes:
(i) Except as described below with respect to fractional shares, a
Murphy stockholder will not recognize gain or loss as a result of the
Distribution. Gain or loss will be recognized to the recipient
stockholder to the extent of the difference between the stockholder's
basis in the fractional share and the amount received for the
fractional share. Provided the fractional share interest is held as a
capital asset by the recipient stockholder, such gain or loss will
constitute capital gain or loss.
(ii) A Murphy stockholder will apportion its tax basis for its Murphy
Common Stock between such Murphy Common Stock and Company Common Stock
received in the Distribution in proportion to the relative fair market
values of such Murphy Common Stock and Company Common Stock on the
Distribution Date.
(iii) A Murphy stockholder's holding period for the Company Common
Stock received in the Distribution will include the period during which
such stockholder held the Murphy Common Stock with respect to which the
Distribution was made, provided that such Murphy Common Stock is held
as a capital asset by such stockholder as of the Distribution Date.
Current Treasury regulations require each Murphy stockholder
who receives Company Common Stock pursuant to the Distribution to attach to
its federal income tax return for the year in which the Distribution occurs a
descriptive statement concerning the Distribution. Murphy will make available
on a timely basis requisite information to each such stockholder.
ALL STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS
REGARDING THE PARTICULAR FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF
THE DISTRIBUTION TO THEM.
For a description of agreements pursuant to which Murphy and
the Company have provided for certain tax sharing and other tax matters, see
"Relationship Between the Company and Murphy--Terms of the Tax Sharing
Agreement."
RELATIONSHIP BETWEEN THE COMPANY AND MURPHY
This section of the Information Statement describes certain
agreements between the Company and Murphy that will govern certain of the
on-going relationships between Murphy and the Company after the Distribution
and will provide for an orderly transition to the status of two separate,
independent companies. To the extent that they relate to the Distribution
Agreement or the Tax Sharing Agreement (collectively, the "Distribution
Documents"), the following descriptions describe the Distribution Documents as
they will be in effect as of the Distribution, do not purport to be complete
and are qualified in their entirety by reference to the Distribution
Documents, which are filed as exhibits to the Registration Statement on Form
10, as amended (the "Form 10"), filed with the Securities and Exchange
Commission (the "Commission") of which this Information Statement is a
part, and are incorporated herein by reference. For purposes of this
section of the Information Statement only, the "Company" means Deltic
Timber Corporation and the "Company Group" means Deltic Timber Corporation
and its subsidiaries.
The Distribution Documents will be entered into in connection
with the Distribution and are, therefore, not the result of arm's length
negotiation between independent parties. Additional or modified agreements,
arrangements and transactions may be entered into between Murphy and the
Company after the Distribution, which will be negotiated at arm's length.
Terms of the Distribution Agreement
Murphy and the Company will enter into a Distribution Agreement
(the "Distribution Agreement") prior to the Distribution, among other things,
to provide for the principal corporate transactions and certain procedures for
effecting the Distribution, to define certain aspects of the relationship
between Murphy and the Company after the Distribution and to provide for the
allocation of certain assets and liabilities between Murphy and the Company.
Transfer of Assets
Subject to receipt of any necessary consents of third parties
or regulatory bodies, (i) the Company will use its best efforts to transfer to
Murphy and its subsidiaries (other than the Company Group) (Murphy and such
subsidiaries being the "Murphy Group") all assets, if any, not already owned
by the Murphy Group and that relate solely to the business of the Murphy Group
(and not to that of the Company Group) and Murphy will assume all liabilities
associated with such assets and (ii) Murphy will use its best efforts to
transfer to the Company Group all assets, if any, not already owned by the
Company Group and that relate solely to the business of the Company Group (and
not to that of the Murphy Group) and the Company will assume all liabilities
associated with such assets.
Cross Indemnification
The Company and Murphy have agreed to indemnify one another
against certain liabilities. The Company has agreed to indemnify the Murphy
Group and the directors, officers, employees and affiliates of the Murphy
Group (collectively, the "Murphy Indemnitees") from and against any and all
damage, loss, liability and expense incurred or suffered by any of the Murphy
Indemnitees (i) arising out of or due to the failure of the Company Group to
pay, perform or otherwise discharge any obligations and liabilities, whenever
arising, of or relating to the Company Group (including all liabilities of the
Company Group under the Distribution Agreement) or arising from or in
connection with the conduct of the Company Group's business or the ownership
or use of assets in connection therewith and (ii) arising out of or in
connection with the provision by the Murphy Group of Services (as defined
below) to the Company Group pursuant to the Distribution Agreement.
Murphy has agreed to indemnify the Company Group and the
directors, officers, employees and affiliates of the Company Group
(collectively, the "Company Indemnitees") from and against any and all damage,
loss, liability and expense incurred or suffered by any of the Company
Indemnitees arising out of, or due to the failure of the Murphy Group to pay,
perform or otherwise discharge any obligations and liabilities, whenever
arising, of or relating to the Murphy Group (including all liabilities of the
Murphy Group under the Distribution Agreement) or arising from or in
connection with the conduct of the Murphy Group's business or the ownership
or use of assets in connection therewith.
The Company and Murphy have generally agreed to indemnify the
other and the other's affiliates and controlling persons from certain
liabilities under the securities laws in connection with the Form 10 and this
Information Statement or to contribute under certain circumstances to the
amount payable by the other in respect thereof.
None of the foregoing indemnities applies to indemnification
for tax liabilities, which are addressed in the Tax Sharing Agreement
described below. The Company does not believe that any of the foregoing
indemnities will have a material adverse effect on the business, financial
condition or results of operations of the Company.
The Distribution Agreement also includes procedures for notice
and payment of indemnification claims and provides that the indemnifying party
may assume the defense of a claim or suit brought by a third party. Any
indemnification paid under the foregoing indemnities is to be paid net of the
amount of any insurance or other amounts that would be payable by any third
party to the indemnified party in the absence of such indemnity.
Conditions to the Distribution
The Distribution Agreement provides that the Distribution is
subject to the following conditions being satisfied prior to or as of the
Distribution Date: (i) the Form 10 filed with the Commission shall have become
effective under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); (ii) the Company Common Stock shall have been approved for listing on
the New York Stock Exchange, subject to official notice of issuance; (iii) the
Murphy Board shall be satisfied that (A) both before and after giving effect
to the Distribution, Murphy is not and would not be insolvent, (B) after
giving effect to the Distribution, Murphy would be able to pay its liabilities
as they mature and become absolute, and Murphy would not have an unreasonably
small amount of capital with which to engage in its business and (C) the
Distribution will be made out of surplus within the meaning of Section 170 of
the Delaware General Corporation Law; (iv) the Murphy Board shall have
approved the Distribution and shall not have abandoned, deferred or modified
the Distribution at any time prior to the Distribution Date; (v) the Company
Board, as named in this Information Statement, shall have been elected by
Murphy as sole stockholder of the Company and the Company's Certificate of
Incorporation and Bylaws (each as defined under "Description of Capital Stock"
below) shall be in effect; (vi) the Tax Sharing Agreement shall have been duly
executed and delivered by the parties thereto; (vii) Murphy shall have
received a favorable private letter ruling issued by the Internal Revenue
Service or an opinion of counsel satisfactory to Murphy, in either case
relating to the tax-free nature of the Distribution; and (viii) a credit
facility shall have been made available to the Company by its lenders on terms
and in an amount satisfactory to Murphy and the Company.
Transitional Services
Murphy has agreed to provide or cause to be provided to the
Company Group certain specified services for a transitional period after the
Distribution. The transitional services to be provided (the "Services") will
be (i) rental of the office facilities that are occupied and in use by the
Company Group as of the Distribution Date (the "Office Facilities"); (ii)
services related to the use of the Office Facilities, including provision of
utilities, supplies and office equipment, certain maintenance services,
payment of property taxes and maintenance of insurance on the Office
Facilities; (iii) administrative services in certain areas, including
financial affairs, environmental affairs, human resources, information
systems, insurance, law, purchasing, treasury and tax; and (iv) insurance
administration services related to policies existing as of the Distribution
Date and covering the activities and assets of the Company Group. The
Services are to be provided in a manner generally consistent with the nature
of the Murphy Group's services and practices prior to the Distribution. The
Services are to be offered for a six-month period after the Distribution Date,
unless earlier terminated by the Company upon thirty days' notice to Murphy.
The total fee for the Services will be approximately $92,600 per month,
subject to adjustment by mutual agreement between Murphy and the Company.
Employee Benefits
Prior to the Distribution, the Company intends to establish new
benefit plans for its employees that substantially replicate the benefit plans
maintained by Murphy. The new plans will include the Retirement Plan of
Deltic Timber Corporation (the "Company Retirement Plan"), a defined benefit
retirement plan, and the Thrift Plan for Employees of Deltic Timber
Corporation (the "Company 401(k) Plan"), a defined contribution retirement
plan permitting elective pre-tax or after-tax plan contributions. The
Company will also assume sponsorship of the Thrift Plan for Employees of
Deltic Farm & Timber, Inc., a defined contribution plan covering hourly
employees at the Company. In addition, the Company will establish new
medical, disability and similar plans. After the distribution, the
Retirement Plan of Murphy Oil Corporation will transfer to the Company
Retirement Plan liabilities equal to the accrued benefits of active
employees of the Company, along with a proportionate share of plan assets.
The Thrift Plan for Employees of Murphy Oil Corporation will transfer to
the Company 401(k) Plan the accounts of active employees of the Company.
Prior to the Distribution, the Company expects to establish new stock-based
management incentive arrangements. These arrangements will likely provide
for the grant of restricted shares of Company Common Stock, as well as
options and stock appreciation rights with respect to such shares. It is
expected that such grants will be made on terms similar to those applicable
to awards with respect to Murphy Common Stock under the Murphy 1992 Stock
Incentive Plan.
For a period after the Distribution Date, it is expected that
Murphy will continue to provide administrative services with respect to the
Company's benefits plans, in accordance with the agreement to provide
transitional services described above.
Intercompany Accounts
At September 30, 1996, the Company accounts reflected a $34.4
million receivable from Murphy. Prior to the Distribution, all indebtedness
between Murphy and the Company will be settled by a combination of a $17
million dividend by the Company to Murphy and a cash repayment by Murphy to
the Company to the extent of the remaining receivable. For additional
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and Note A to the
Company's Unaudited Pro Forma Consolidated Balance Sheet.
Access to Information; Provision of Witnesses; Confidentiality
Pursuant to the Distribution Agreement, each of the Company
Group and the Murphy Group will afford the other and certain of their agents
reasonable access to all records in its possession relating to the business
and affairs of the other party as reasonably required, including, for
auditing, accounting, litigation, disclosure and reporting purposes, subject
to limited exceptions. Each party will also use its best efforts to make
available to the other, its officers, directors, employees and agents as
witnesses, and will otherwise cooperate with the other party, in connection
with any proceeding arising out of the business of it or the other party prior
to the Distribution.
Except as otherwise provided in the Distribution Agreement, the
Company, Murphy, and their respective officers, directors, employees and
agents will hold all information in its possession concerning the other party
in strict confidence.
Terms of the Tax Sharing Agreement
Prior to the Distribution, Murphy and the Company will enter
into a tax sharing agreement (the "Tax Sharing Agreement") that will set forth
each party's rights and obligations with respect to payments and refunds, if
any, with respect to taxes for periods before and after the Distribution and
related matters such as the filing of tax returns and the conduct of audits or
other proceedings involving claims made by taxing authorities.
In general, Murphy will be responsible for filing state and
consolidated federal income tax returns for periods through the Distribution
Date, and, in the case of federal tax returns, paying the associated taxes.
The Company will reimburse Murphy for the portion of such taxes, if any,
relating to the Company's businesses computed on a stand-alone basis. The
Company will be responsible for paying the taxes associated with all other tax
returns relating to pre-Distribution tax periods relating solely to the
Company's businesses. Murphy, however, will be responsible for preparing all
tax returns to be filed by the Company for tax periods that end on or before
the Distribution Date.
In general, the Company will agree to indemnify Murphy for
taxes, if any, imposed as a result of an audit adjustment and relating to a
pre-Distribution tax period to the extent such taxes are attributable to the
Company's businesses. The Tax Sharing Agreement will also provide that Murphy
will generally pay to the Company the net benefit, if any, realized by Murphy
relating to the Company's businesses from the carryback to pre-Distribution
tax periods of certain tax attributes, if any, of the Company arising in
post-distribution tax periods.
Pursuant to the Tax Sharing Agreement the Company will agree to
refrain from engaging in certain transactions for two years following the
Distribution Date unless it shall first provide Murphy with a ruling from the
Internal Revenue Service or an unqualified opinion acceptable to Murphy of a
nationally recognized independent tax counsel that the transaction will not
cause Murphy or its stockholders to recognize taxable income by virtue of the
Distribution. Transactions subject to these restrictions will include, among
other things, the liquidation of the Company, the merger, consolidation or
other combination or affiliation of the Company with another company,
discontinuation of or material change in the conduct of a material portion of
its businesses independently and with its own employees, redemption or other
reacquisition of Company Common Stock, and the sale, distribution or other
disposition of assets of the Company out of the ordinary course of business.
Certain transactions regarding the sale by the Company of certain of its
farmland holdings will not be subject to the above-described restrictions.
The above-described restrictions are intended to ensure, consistent with
representations made to the Internal Revenue Service for purposes of receiving
a favorable ruling, that the Distribution is not being used as a device for
distributing earnings and profits of Murphy or the Company, and that the
Company will continue to conduct the active business required to qualify the
Distribution as tax-free to Murphy and its stockholders under Section 355 of
the Code. The Company does not believe that these restrictions, including
restrictions on combination of the Company with another company, will
materially affect the Company's ability to pursue its growth strategy or to
effect acquisitions that are consistent with its growth strategy.
The Company will agree that, within one year of the
Distribution Date, it will use its best efforts to make an offering of $30-$40
million of equity of the Company, consistent with representations made to the
Internal Revenue Service for purposes of receiving a ruling that the
Distribution will qualify as tax-free to Murphy and its stockholders under
Section 355 of the Code. 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 then-existing market conditions. The Company will agree that
it will diligently undertake to effect its growth strategy, including the
acquisition of timber properties. The Company will generally agree to
indemnify Murphy against any tax liability resulting from the Company's breach
of any covenant or representation contained in the Tax Sharing Agreement.
TRADING MARKET
There has been no trading market for the Company Common
Stock, and there can be no assurances as to the establishment or continuity
of any such market. However, it is expected that a "when-issued" trading
market may develop prior to the Distribution Date. The Company Common
Stock has been approved for listing on the New York Stock Exchange, subject
to official notice of issuance, under the symbol "DEL".
Prices at which the Company Common Stock may trade prior to the
Distribution, on a "when-issued" basis, or after the Distribution cannot be
predicted. Prices at which trading in shares of Company Common Stock occurs
may fluctuate significantly. See "Risk Factors--No Prior Market for Common
Stock." The prices at which the Company Common Stock trades will be determined
by the marketplace and may be influenced by many factors, including, among
others, quarter to quarter variations in the actual or anticipated financial
results of the Company or other companies in the forest products industry.
See "Risk Factors." In addition, the stock market has experienced extreme
price and volume fluctuations that have affected the market price of many
stocks and that have often been unrelated or disproportionate to the operating
performance of individual companies. These and other factors, such as
investor perception of the Company, the depth and liquidity of the market for
shares of the Company Common Stock, changes in economic conditions in the
forest products industry and general economic and market conditions, may
influence and adversely affect the market price of the Company Common Stock.
The Company Common Stock received by Murphy stockholders
pursuant to the Distribution will be freely transferable, except for shares of
such Company Common Stock received by any person who may be deemed an
"affiliate" of the Company within the meaning of Rule 144 ("Rule 144") under
the Securities Act of 1933, as amended (the "Securities Act"). Persons who
may be deemed to be affiliates of the Company after the Distribution generally
include individuals or entities that directly, or indirectly through one or
more intermediaries, control, are controlled by, or are under common control
with, the Company, and may include the directors and principal executive
officers of the Company as well as any principal stockholder of the Company.
Persons who are affiliates of the Company will be permitted to sell their
Company Common Stock received pursuant to the Distribution only pursuant to an
effective registration statement under the Securities Act or pursuant to an
exemption from registration under the Securities Act, such as the exemption
afforded by Rule 144.
Except for the shares of Company Common Stock distributed in
the Distribution, no securities of the Company will be outstanding as of or
immediately following the Distribution. Except for the Rights Agreement, the
Company has not entered into any agreement or otherwise committed to register
any shares of Company Common Stock under the Securities Act for sale by
security holders. The Company intends to file a registration statement on
Form S-8 under the Securities Act to register shares of Company Common
Stock that may be issued pursuant to awards (which may include options,
stock appreciation rights and restricted stock awards) made under the
stock-based management incentive plan that the Company expects to establish
prior to the Distribution. Except for the shares registered on this
Registration Statement in connection with the Distribution, no common
equity of the Company is being publicly registered or offered by the
Company. The Company currently intends within one year of the
Distribution, however, to make an offering of $30-$40 million of equity of
the Company, consistent with representations made to the Internal Revenue
Service for purposes of receiving a ruling that the Distribution will
qualify as tax-free to Murphy and its stockholders under Section 355 of the
Code. 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
then-existing market conditions.
DIVIDENDS
The Company currently intends to pay modest quarterly cash
dividends. However, the Company anticipates that future earnings will for the
most part be used to support operations and finance growth of the business.
The payment of any dividends will be at the discretion of the Company Board.
The declaration of dividends and the amount thereof will depend on a number of
factors, including the Company's financial condition, capital requirements,
funds from operations, future business prospects and such other factors as the
Company Board may deem relevant, and no assurance can be given as to the
timing or amount of any dividend payments.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Prior to the Distribution Date, the Company has been operated
as part of Murphy. The following Unaudited Pro Forma Consolidated Statements
of Income set forth the historical statements of income of the Company for the
year ended December 31, 1995 and for the nine months ended September 30, 1996,
and as adjusted for the Distribution and the related transactions and events
described in the Notes to such Unaudited Pro Forma Consolidated Statements of
Income as if the Distribution and such transactions and events had been
consummated on January 1, 1995. The following Unaudited Pro Forma Consolidated
Balance Sheet sets forth the historical balance sheet of the Company as of
September 30, 1996, and as adjusted for the Distribution and the related
transactions and events described in the Notes to such Unaudited Pro Forma
Consolidated Balance Sheet as if the Distribution and such transactions and
events had been consummated on September 30, 1996.
The Pro Forma Consolidated Financial Statements set forth below
reflect pro forma adjustments as if the Company had operated as an independent
company. See the accompanying notes to Pro Forma Consolidated Financial
Statements.
Management believes that the assumptions used provide a
reasonable basis on which to present such Pro Forma Consolidated Financial
Statements. The Pro Forma Consolidated Financial Statements should be read in
conjunction with the historical Consolidated Financial Statements and Notes
thereto included elsewhere in this Information Statement and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Pro Forma Consolidated Financial Statements are provided for information
purposes only and should not be construed to be indicative of the Company's
results of operations or financial condition had the Distribution and the
transactions and events described above been consummated on the dates assumed,
may not reflect the results of operations or financial condition which would
have resulted had the Company been operated as a separate, independent company
during such period, and are not necessarily indicative of the Company's future
results of operations or financial condition.
Deltic Timber Corporation
Unaudited Pro Forma Consolidated Statement of Income
Year Ended December 31, 1995
($ in thousands, except per share
amounts and number of shares)
<TABLE>
<CAPTION>
Adjustments Pro Forma
for for
Historical Distribution Distribution
---------- ------------ ------------
<S> <C> <C> <C>
Net sales................................................... $80,662 $80,662
------- -------
Costs and expenses:
Cost of sales.............................................. 58,731 $160 (A) 58,571
Depreciation, amortization, and cost of fee timber
harvested................................................ 4,053 4,053
Selling and general expenses............................... 4,535 (523) (B) 5,024
34 (A)
------- -------
Total costs and expenses................................. 67,319 67,648
------- -------
Operating income......................................... 13,343 13,014
Interest income............................................. 2,668 (1,400) (C) 1,268
Interest expense............................................ (309) (309)
Other income................................................ 192 192
------- -------
Income before income taxes.................................. 15,894 14,165
Income taxes................................................ (5,878) 678 (D) (5,200)
------- ------- -------
Net income............................................... $10,016 $(1,051) $8,965
======= ======= =======
Earnings per share.......................................... $ .70
==========
Weighted average number of common shares outstanding (E).... 12,800,000
==========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Income.
Deltic Timber Corporation
Unaudited Pro Forma Consolidated Statement of Income
Nine Months Ended September 30, 1996
($ in thousands, except per share
amounts and number of shares)
<TABLE>
<CAPTION>
Adjustments Pro Forma
for for
Historical Distribution Distribution
---------- ------------ ------------
<S> <C> <C> <C>
Net sales................................................... $64,462 $64,462
------- ----------
Costs and expenses:
Cost of sales.............................................. 44,045 44,045
Depreciation, amortization, and cost of fee timber
harvested................................................ 3,104 3,104
Selling and general expenses............................... 3,583 $(315) (B) 3,898
------- ----------
Total costs and expenses................................. 50,732 51,047
------- ----------
Operating income......................................... 13,730 13,415
Interest income............................................. 2,209 (1,000) (C) 1,209
Interest expense............................................ (210) (210)
Other income................................................ 1,173 1,173
------- ----------
Income before income taxes.................................. 16,902 15,587
Income taxes................................................ (6,621) 516 (D) (6,105)
------- ----- ----------
Net income............................................... $10,281 $(799) $9,482
======= ===== ==========
Earnings per share.......................................... $ .74
==========
Weighted average number of common shares outstanding (E).... 12,800,000
==========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Income.
Deltic Timber Corporation
Notes to Unaudited Pro Forma Consolidated Statements of Income
For the Year Ended December 31, 1995 and the
Nine Months Ended September 30, 1996
The Unaudited Pro Forma Consolidated Statements of Income of
the Company for the year ended December 31, 1995 and the nine months ended
September 30, 1996 assume that the Company had operated as an autonomous
entity rather than as a wholly-owned subsidiary of Murphy, and this mode of
operation was effective at January 1, 1995. The pro forma adjustments, as
described below, are keyed to the corresponding amounts shown in the
"Adjustments for Distribution" columns of these statements.
(A) To reduce expenses for retirement plan and postretirement benefits to
reflect only the costs related to active employees of the Company.
Murphy intends to retain such obligations related to former employees of
the Company. Such amounts were not significant in 1996.
(B) To reflect anticipated additional costs associated with being an
autonomous entity rather than a wholly-owned subsidiary of Murphy. The
additional expenses primarily consist of costs associated with being a
public company.
(C) To reduce interest income for interest earned on the portion of the
receivable from Murphy that will be declared a dividend to Murphy prior
to the Distribution. Prior to the Distribution, such amounts owed by
Murphy to the Company will be settled by a combination of a $17 million
dividend by the Company to Murphy and a cash repayment by Murphy to the
Company to the extent of the remaining receivable.
(D) To record a reduction in federal and state income taxes related to pro
forma adjustments (A) through (C) above.
(E) To reflect an approximation of the weighted average number of common
shares outstanding based on the Distribution ratio times the number of
shares of Murphy Common Stock outstanding on September 30, 1996.
Deltic Timber Corporation
Unaudited Pro Forma Consolidated Balance Sheet
September 30, 1996
($ in thousands)
<TABLE>
<CAPTION>
Adjustments for Pro Forma for
Historical Distribution Distribution
---------- --------------- -------------
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents....................... $ 5,447 $17,363 (A) $ 22,810
Trade accounts receivable....................... 4,630 4,630
Inventories..................................... 5,448 5,448
Deferred income taxes........................... 947 947
Prepaid expenses and other current assets....... 2,949 2,949
-------- --------
Total current assets........................... 19,421 36,784
Noncurrent receivable from Murphy................ 34,363 (34,363)(A) --
Property, plant, and equipment - net............. 27,063 27,063
Timber and timberlands - net..................... 89,637 89,637
Real estate held for development and sale........ 18,271 18,271
Other assets..................................... 5,354 661 (B) 5,351
(664)(C)
-------- -------- --------
Total assets................................... $194,109 $(17,003) $177,106
======== ======== ========
Liabilities and Stockholder's Equity:
Current liabilities:
Current maturities of long-term debt............ $ 1,698 $ 1,698
Trade accounts payable.......................... 1,614 1,614
Accrued insurance obligations................... 887 887
Accrued taxes other than income taxes........... 804 804
Other accrued liabilities....................... 499 499
State income taxes.............................. 275 275
-------- -- --------
Total current liabilities...................... 5,777 5,777
Long-term debt................................... 2,685 2,685
Accrued postretirement benefits.................. 3,531 $(1,291)(B) 2,240
Deferred credits and other liabilities........... 1,546 19 (C) 1,565
Stockholders' equity:
Common stock.................................... 321 (193)(D) 128
Capital in excess of par value.................. 66,108 193 (D) 66,301
Retained earnings............................... 114,141 (15,731)(E) 98,410
-------- ------- --------
Total stockholders' equity..................... 180,570 164,839
-------- -------- --------
Total liabilities and stockholders' equity..... $194,109 $(17,003) $177,106
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
Deltic Timber Corporation
Notes to Unaudited Pro Forma Consolidated Balance Sheet
at September 30, 1996
The Unaudited Pro Forma Consolidated Balance Sheet of Deltic as
of September 30, 1996 assumes that the Company was an autonomous entity rather
than a wholly-owned subsidiary of Murphy at that date. The pro forma
adjustments, as described below, are keyed to the corresponding amounts shown
in the "Adjustments for Distribution" column in the statement.
(A) To reduce the noncurrent receivable from Murphy prior to the
Distribution to effect an anticipated settlement of the receivable
by a combination of a $17 million dividend by the Company to Murphy
and a cash repayment by Murphy to the Company to the extent of the
remaining receivable. The cash balance is expected to be used to
fund an anticipated investment in Del-Tin and existing capital
expenditure commitments after the date of the Distribution. The
cash position is projected to be reduced significantly after payment
for such capital expenditure commitments.
(B) To adjust retirement plan and postretirement benefit account
balances to reflect anticipated retention by Murphy of plan
obligations related to former employees of the Company.
(C) To adjust deferred income tax balances associated with adjustments
described in (B) above.
(D) To reflect the recapitalization of the Company as an autonomous
entity based on changes to (i) the number of shares outstanding
(based on the Distribution ratio times the number of shares of
Murphy Common Stock to be outstanding on September 30, 1996) and
(ii) the par value of such shares.
(E) To adjust retained earnings of the Company to effect the pro forma
adjustments described in (A) through (C) above.
PRO FORMA CAPITALIZATION
Prior to the Distribution Date, the Company has been
operated as part of Murphy. The following table sets forth the
capitalization of the Company as of September 30, 1996, and as adjusted to
give effect to the Distribution and the related transactions and events
described in the notes hereto and the Notes to the Unaudited Pro Forma
Consolidated Balance Sheet included in this Information Statement as if the
Distribution and such transactions and events had been consummated on
September 30, 1996.
Management believes that the assumptions used provide a
reasonable basis on which to present such Pro Forma Capitalization. The Pro
Forma Capitalization table below should be read in conjunction with the
historical Financial Statements and Notes thereto included elsewhere in this
Information Statement, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Pro Forma Consolidated Financial
Statements." The Pro Forma Capitalization table below is provided for
information purposes only and should not be construed to be indicative of the
Company's capitalization or financial condition had the Distribution and such
related transactions and events been consummated on the date assumed, may not
reflect the capitalization or financial condition which would have resulted
had the Company been operated as a separate, independent company during such
period, and are not necessarily indicative of the Company's future
capitalization or financial condition.
<TABLE>
<CAPTION>
September 30, 1996
($ in thousands)
--------------------------------------------------------------
Adjustments
for Pro Forma
Historical Distribution for Distribution
---------- ------------ ----------------
<S> <C> <C> <C>
Current maturities of long-term debt............ $ 1,698 $ 1,698
======== ========
Long-term debt:
Installment timber notes....................... $ 1,905 $ 1,905
Other notes payable............................ 780 780
-------- --------
Total long-term debt....................... 2,685 2,685
Stockholders' Equity:
Preferred stock, par value $.01,
20,000,000 shares authorized, none issued.... N/A --
Common stock................................... 321 $ (193)(A) 128
Capital in excess of par value................. 66,108 193 (A) 66,301
Retained earnings.............................. 114,141 (15,731)(B) 98,410
-------- -------- --------
Total stockholders' equity................. 180,570 -- 164,839
-------- -------- --------
Total capitalization....................... $183,255 $(15,731) $167,524
======== ======== ========
</TABLE>
(A) To reflect the recapitalization of the Company as an autonomous entity
based on changes to the number of shares outstanding and the par value of
such shares. On a historical basis, the Company had authorized and issued
5,000 shares of common stock, no par value. On a pro forma basis upon the
Distribution, the Company will have authorized 50,000,000 shares of common
stock, $.01 par value, of which approximately 12.8 million will be issued
and outstanding (based on the Distribution ratio times the number of shares
of Murphy Common Stock outstanding on September 30, 1996).
(B) To reflect changes to Retained earnings for pro forma adjustments at
September 30, 1996.
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth for the periods and at the dates
indicated selected historical financial and operating data for the Company on
a consolidated basis. The selected historical financial data as of December
31, 1993, 1992 and 1991 and for each of the years in the two-year period ended
December 31, 1992 are derived from the Company's unaudited historical
financial statements not included in this Information Statement. The selected
historical financial data as of December 31, 1995 and 1994 and for each of the
years in the three-year period ended December 31, 1995 are derived from the
Company's audited historical consolidated financial statements and should be
read in conjunction with such financial statements included elsewhere in this
Information Statement. The historical financial data as of September 30, 1996
and 1995 and for the nine-month periods ended September 30, 1996 and 1995 are
derived from the unaudited historical consolidated financial statements of the
Company, which are included elsewhere in the Information Statement. In the
opinion of the Company's management, these nine-month consolidated financial
statements include all adjustments, consisting of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
interim periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Consolidated Financial Statements."
Earnings per share data are presented elsewhere in this Information Statement
on a pro forma basis only. See "Unaudited Pro Forma Consolidated Financial
Statements." The historical financial data presented below reflect periods
during which the Company did not operate as an independent company.
Therefore, such data may not reflect the results of operations or the
financial condition which would have resulted if the Company had operated as a
separate, independent company during such periods, and are not necessarily
indicative of the Company's future results of operation or financial
condition.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------------- ----------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ---------
(dollars in thousands, except ratios and operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Data:
Income Statement Data:
Net sales..................... $64,462 $61,996 $80,662 $92,457 $69,448 $60,528 $50,553
------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Cost of sales............... 44,045 42,475 58,731 56,521 43,925 42,416 38,464
Depreciation,
amortization, and
cost of fee
timber harvested.......... 3,104 3,010 4,053 3,886 3,488 3,152 3,231
Selling and general
expenses.................. 3,583 3,281 4,535 3,675 4,657 5,596 4,674
------- ------- ------- ------- ------- ------- -------
Total costs and expenses.. 50,732 48,766 67,319 64,082 52,070 51,164 46,369
------ ------- ------- ------- ------- ------- -------
Operating income.............. 13,730 13,230 13,343 28,375 17,378 9,364 4,184
Interest income............... 2,209 1,975 2,668 1,634 1,075 1,202 1,225
Interest expense.............. (210) (216) (309) (5) (14) (50) (87)
Other income.................. 1,173 127 192 572 100 474 200
------- ------- ------- ------- ------- ------- -------
Income before income
taxes and accounting
changes..................... 16,902 15,116 15,894 30,576 18,539 10,990 5,522
Income tax expense............ (6,621) (5,877) (5,878) (12,434) (7,128) (4,329) (1,934)
------- ------- ------- ------- ------- ------- -------
Income before accounting
changes..................... 10,281 9,239 10,016 18,142 11,411 6,661 3,588
Cumulative effect of
accounting changes.......... -- -- -- -- (4,076) -- --
------- ------- ------- ------- ------- ------- -------
Net income.................... $10,281 $9,239 $10,016 $18,142 $7,335 $6,661 $3,588
======= ======= ======= ======= ======= ======= =======
Balance Sheet Data and Ratios:
Total assets.................. $194,109 $184,714 $185,247 $169,373 $150,761 $139,478 $133,547
Working capital............... 13,644 11,035 6,822 11,314 11,520 9,824 8,041
Current ratio................. 3.4 to 1 2.6 to 1 1.9 to 1 3.4 to 1 4.5 to 1 3.9 to 1 3.9 to 1
Long-term debt (noncurrent
portion).................... $2,685 $3,634 $2,817 $163 $54 $174 $570
Stockholder's equity.......... 180,570 169,512 170,289 160,273 142,131 134,796 129,493
Debt to stockholder's equity
ratio....................... .015 to 1 .021 to 1 .017 to 1 .001 to 1 .001 to 1 .001 to 1 .004 to 1
Cash Flow and Other Data:
Cash flow from operations..... $13,566 $10,327 $16,865 $23,894 $16,200 $11,679 $8,855
Cash required by
investing activities........ 9,131 11,523 16,134 23,875 16,215 10,835 9,240
Cash required by
financing activities........ 419 77 1,644 101 401 379 370
EBITDA(1)..................... 16,834 16,240 17,396 32,261 20,866 12,516 7,415
Capital expenditures
requiring cash.............. 5,886 5,792 7,361 10,176 10,682 8,849 4,194
Cash and equivalents at end
of period................... 5,447 1,071 1,431 2,344 2,426 2,842 2,377
Operating Data:
Thousands of acres
owned at end of
period...................... 383 386 386 387 387 388 387
Pine sawtimber harvested
from fee lands
(MBF-DS)(2)................. 32,437 31,138 35,736 40,616 37,635 30,177 32,956
Average pine sawtimber prices
($/MBF-DS).................. 342 422 406 372 310 274 202
Finished lumber
production (MBF)(3)........ 107,697 108,572 140,555 136,713 112,365 101,203 92,846
Annual sawmill capacity at
end of period (MBF)......... 165,000 165,000 165,000 165,000 122,600 100,100 100,100
Finished lumber sales (MBF)... 108,693 108,278 140,549 138,377 115,136 105,619 95,024
Average finished lumber
sales prices ($/MBF)........ 330 329 318 363 335 259 215
Residential lots sold......... 78 51 71 163 81 134 50
Average price for
residential lots sold
($/lot)..................... 55,000 53,800 52,900 56,700 60,000 38,800 61,400
Commercial acres sold(4)...... 2 -- -- -- -- -- 17
Average price for
commercial acres sold
($/acre).................... 199,500 -- -- -- -- -- 32,700
Number of employees at
end of period............... 350 360 358 317 301 296 266
</TABLE>
(1) EBITDA is defined as earnings before interest and other income, interest
expense, depreciation, amortization and cost of fee timber harvested, and
income taxes. EBITDA is presented by the Company because it is one
measure commonly used by Company management and certain investors to
analyze companies based on operating performance. EBITDA does not
represent net income or cash flows as defined by generally accepted
accounting principles and it should not be considered as an alternative
to, or more meaningful than, net income or cash flows as an indicator
of the Company's operating performance or liquidity. EBITDA does not
necessarily indicate that operating results are sufficient to fund all
of the Company's cash needs. Since presentation of EBITDA is not
defined within generally accepted accounting principles, there can be
no assurance that EBITDA as presented by the Company is comparable to
similarly titled disclosures provided by other companies.
(2) "MBF-DS" means thousand board feet (Doyle Log Scale).
(3) "MBF" means thousand board feet.
(4) The commercial acres sold in 1991 were sold for church sites.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's historical Consolidated Financial Statements and Pro Forma
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Information Statement.
General
Prior to the Distribution Date, the Company has been 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 341,000 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"). The Company also holds a 50-percent interest in
a joint venture to manufacture and market medium density fiberboard, which is
expected to be operational in early 1998. 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 33,000 acres of farmland.
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
is 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
first nine months 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
Summary
Net income for the nine months ended September 30, 1996 was
$10.3 million, an increase of $1.1 million from the same period in 1995. For
the first nine months of 1996, the Company's net sales increased $2.5 million
compared to the same period of 1995, from $62 million to $64.5 million.
Improvements in both real estate and agricultural operating results more than
offset a decline in forest products operating results, which were impacted by
a 19-percent decline in the average sales price for pine sawtimber.
Residential lot sales increased from 51 during the first nine months of 1995
to 78 in the same period of 1996, a 53 percent increase. Above-average
soybean prices in 1996 benefited farming operating results.
The Company earned $10 million of consolidated net income in
the year ended December 31, 1995 compared to $18.1 million in 1994 and $7.3
million in 1993. Results in 1993 included a $4.1 million after-tax charge
related to adoption of two accounting standards. Net sales amounted to $80.7
million in 1995, $92.5 million in 1994, and $69.4 million in 1993.
The decrease in net income in 1995 was primarily caused by a
12-percent decline in finished lumber sales prices. Lumber prices were
adversely affected by a reduction in housing starts and a general slowdown of
the economy in 1995. Lumber production at the Company's sawmills increased
three percent during the year. Pine sawtimber harvested from the Timberlands
declined 12 percent to 35.7 million board feet (Doyle Log Scale) ("MMBF-DS")
in 1995 compared to 40.6 MMBF-DS in 1994, which decline was partially offset
by a nine-percent increase in average pine sawtimber sales prices from $372
per thousand board feet (Doyle Log Scale) ("MBF-DS") in 1994 to $406 per
MBF-DS in 1995. Also, 1995 was unfavorably affected by a reduction in
operating income in the real estate and agriculture segments. Residential lot
sales declined 56 percent and adverse weather conditions hurt crop yields in
1995.
The improvement in 1994 earnings compared to 1993 was due to
improved operating results in all three of the Company's segments. Harvests
of pine sawtimber from the Timberlands increased eight percent in 1994 at a
sale price that averaged 20-percent higher than in 1993. Lumber production in
1994 increased 22 percent over 1993 levels primarily due to improved yields
which resulted from the upgrade of the Company's Ola Mill completed in 1993.
Although sales prices for finished lumber increased eight percent in 1994,
sawmill log supply costs increased almost as much during this same period.
The improvement in real estate earnings resulted from an increase in lot sales
- -- 163 in 1994 compared to 81 in 1993. Favorable weather during the 1994
growing season led to improved crop yields as compared to the prior year's
results.
The following table sets forth the Company's net sales and
operating income by segment and net income for the nine months ended September
30, 1996 and 1995 and the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
----------------------- -----------------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ -------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Net sales:
Forest products............................. $54.0 $55.6 $68.3 $73.7 $57.1
Real estate................................. 5.1 3.0 4.2 9.6 5.4
Agriculture................................. 5.4 3.4 8.2 9.2 6.9
------ ------ ------ ------ -------
Net sales............................... $64.5 $62.0 $80.7 $92.5 $69.4
====== ====== ====== ====== =======
Operating income and net income:
Forest products............................. $13.1 $14.4 $14.7 $24.8 $18.6
Real estate................................. 1.5 0.7 1.0 3.7 1.8
Agriculture................................. 1.4 0.1 0.4 1.9 (0.1)
Corporate and other......................... (2.3) (2.0) (2.8) (2.0) (2.9)
------ ------ ------ ------ -------
Operating income........................ 13.7 13.2 13.3 28.4 17.4
Net interest income.......................... 2.0 1.8 2.4 1.6 1.0
Other income................................. 1.2 0.1 0.2 0.6 0.1
Income tax expense........................... (6.6) (5.9) (5.9) (12.5) (7.1)
Cumulative effect of accounting changes, net. -- -- -- -- (4.1)
------ ------ ------ ------ -------
Net income.............................. $10.3 $9.2 $10.0 $18.1 $7.3
====== ====== ====== ====== =======
</TABLE>
Nine Months Ended September 30, 1996 Compared With Nine Months
Ended September 30, 1995
Net sales for the nine-month period ended September 30, 1996
amounted to $64.5 million, a four-percent increase over the same period in
1995. Net income for the nine-month period ended September 30, 1996 was $10.3
million compared to $9.2 million in the corresponding period of the prior
year. The increase in net income was attributable to improved operating
results for the real estate and agricultural segments, which offset lower
forest products segment operating results.
Net sales in the Company's forest products segment totaled $54
million during the first nine months of 1996, a decline of $1.6 million from
the same period in 1995. Net sales of pine sawtimber decreased $2.5 million,
representing the net impact of a $2.9 million decrease in net sales
attributable to a lower average sales price and a $.4 increase in net sales
attributable to higher sales volume. Net sales of pine pulpwood and hardwood
increased $.4 million in 1996 due to both higher volume and sales price. Net
sales of finished lumber increased $.2 million and was equally caused by an
increased sales price from $329 per MBF in 1995 to $330 per MBF in 1996 and
slightly higher sales volume. All other net sales in the forest products
segment increased $.3 million. Pine sawtimber sales prices declined 19
percent in 1996 from $422 per MBF-DS in 1995 to $342 per MBF-DS in the current
period. 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. Operating income
of $13.1 million for the nine months ended September 30, 1996 was $1.3 million
less than the comparable period of 1995, a nine-percent decline. The decline
in operating income was primarily attributable to the decline in net sales
discussed above, partially offset by lower log costs at the Company's
sawmills. The Company's sawmills produced slightly less finished lumber for
the nine-month period ended September 30, 1996 with production totaling 107.7
MMBF. The production decline was attributable to an increase in kiln downtime
at the Ola Mill. Total production at the Waldo Mill increased slightly from
the same period of 1995.
The Company's real estate operations at Chenal Valley in
western Little Rock had net sales of $5.1 million for the nine months ended
September 30, 1996, a 70-percent increase from $3 million for the comparable
1995 period. Operating income also increased from $.7 million in the first
nine months of 1995 to $1.5 million in the same period of 1996. The increase
was attributable to a 53-percent increase in the number of single-family
residential lots sold in 1996, 78 lots in the first nine months of 1996 versus
51 in the same period of 1995. The average price of lots sold in the first
nine months of 1996 was $55,000, an increase of $1,200 from the average sales
price in the prior year. The Company is developing an additional 72
residential lots which will be offered for sale at Chenal in the last quarter
of 1996. A 2.1 acre commercial tract was sold during the third quarter of
1996 for $199,500 per acre; no commercial tracts were sold during the nine
months ended September 30, 1995.
Farming operations generated net sales of $5.4 million for the
first nine months of 1996, a $2 million increase from the same period in 1995.
Operating income also increased from $.1 million for the nine-month period
ended September 30, 1995 to $1.4 million for the comparable period of 1996.
Higher sales prices for soybeans and corn, in addition to improved yields, in
1996 benefited agricultural results for the first nine months of 1996,
compared to hot, dry conditions which adversely affected 1995 crop yields. In
1996 harvests of soybeans increased 48 percent and corn harvested increased 23
percent, while sales prices for soybeans and corn increased 22 percent and 29
percent respectively.
Corporate operating expense was $2.3 million in the first nine
months of 1996 compared to $2 million in the comparable period of 1995, due to
increased general and administrative expenses.
Net interest income increased from $1.8 million in the nine
months ended September 30, 1995 to $2 million for the same period in 1996.
Interest income earned on interest-bearing amounts due from Murphy increased
$.3 million in 1996. Other income of $1.2 million for the first nine months
of 1996 was $1.1 million more than the comparable period of 1995, due
primarily to a $.7 million gain realized on the sale of approximately 3,200
acres of Arkansas farmland. Income tax expense increased to $6.6 million in
1996 from $5.9 million in 1995 due to a similar increase in pretax earnings.
The effective income tax rate was 39 percent in both periods.
Year Ended December 31, 1995 Compared With Year Ended December
31, 1994
The Company's 1995 net sales were $80.7 million, a 13-percent
decrease from the $92.5 million of 1994. As more fully explained in the
following paragraphs, the decline in net sales was primarily related to
reductions in the forest products and real estate segments. Net income was
$10 million in 1995 compared with $18.1 million in 1994.
The Company's forest products segment generated net sales of
$68.3 million, down seven percent from the $73.7 million in 1994. The $5.4
million decline in forest products net sales was primarily caused by lower
finished 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 finished lumber net sales represents
the net impact of a $6.3 million decrease in net sales attributable to a lower
average sales price and a $.8 increase in net sales attributable to higher
sales volume. The $.6 million decline in pine sawtimber net sales represents
the net impact of a $2 million decrease in net sales attributable to lower
sales volume and a $1.4 million increase in net sales attributable to a higher
average sales price. Net sales of hardwood and pine pulpwood increased due to
higher sales volume. All other net sales in the forest products segment
increased $.1 million. Operating income from this segment was $14.7 million
in 1995 compared with $24.8 million in the prior year. The decrease in
operating income was primarily attributable to a 12-percent decline in average
finished lumber sales prices, which adversely affected sawmill margins during
the year. 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. The
Company harvested 35.7 MMBF-DS of pine sawtimber from the Timberlands in 1995,
down from 40.6 MMBF-DS in 1994. The Company's sales price for pine sawtimber
averaged $406 per MBF-DS in 1995 compared to $372 per MBF-DS in 1994.
Real estate operations generated net sales of $4.2 million in
1995, down from $9.6 million in the prior year. 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.
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 did lead to
higher average crop prices in 1995, and the Company benefited from higher
sales prices for cotton and soybean production.
Corporate operating expense in 1995 was $2.8 million, an
increase of $.8 million from 1994 in which there had been a $1.1 million
reduction in administrative expense related to reallocation of certain
retirement plan assets among affiliates of Murphy.
Net interest income during 1995 increased 50 percent to $2.4
million primarily due to higher average interest-bearing amounts receivable
from Murphy during the year. Other income decreased from $.6 million in 1994
to $.2 million in 1995 due primarily to a $.6 million gain on a land sale in
1994. The Company's income tax expense declined from $12.5 million in 1994 to
$5.9 million in 1995 primarily due to lower pre-tax earnings. The Company's
effective income tax rate decreased from 41 percent in 1994 to 37 percent in
1995 due to prior period tax adjustments--a $.3 million credit in 1995 versus
a $.5 million charge in 1994.
Year Ended December 31, 1994 Compared With Year Ended December
31, 1993
Net sales in 1994 were $92.5 million versus $69.4 million in
1993, up 33 percent. Net income was $18.1 million in 1994 compared to $7.3
million in 1993. Net income in 1993 reflected a $4.1 million after-tax charge
related to adoption of two accounting standards.
Net sales for forest products operations increased 29 percent
in 1994 and totaled $73.7 million. This segment's operating income also rose
33 percent from $18.6 million in 1993 to $24.8 million in 1994. Total
production from the Company's sawmills was up 22 percent due primarily to an
additional shift being added following completion of the Company's Ola Mill
upgrade. The average sales price for the Company's finished lumber was $363
per MBF in 1994, an increase of eight percent from 1993. Sawmill operating
costs increased $9.2 million during 1994 due primarily to the increased cost
of logs. The Company benefited from continued economic prosperity in the
United States and from an increase in housing starts in 1994. Lumber prices
also were favorably affected during the year by shortfalls in available
sawmill feedstocks, primarily due to lower harvests from U.S. government lands
in the Pacific Northwest. Pine sawtimber harvested from the Timberlands
increased eight percent to 40.6 MMBF-DS and the average sales price rose 20
percent to $372 per MBF-DS.
The Company's real estate segment contributed net sales of $9.6
million in 1994, up from $5.4 million in 1993. Operating income for this
segment more than doubled in 1994 and amounted to $3.7 million. The Company
sold 163 single-family residential lots in 1994 at an average price of
$56,700, while 81 were sold at an average price of $60,000 in 1993. Neither
year included commercial sales.
Farming operations generated net sales of $9.2 million in 1994,
an increase of 33 percent from the previous year. Operating income of $1.9
million in 1994 represented a substantial improvement from the weather-related
loss of $.1 million in 1993. Yields in 1994 were improved for all crops.
Corporate operating expense of $2 million in 1994 was $.9
million less than in 1993 due primarily to an administrative expense reduction
of $1.1 million related to reallocation of certain retirement plan assets
among affiliates of Murphy in 1994.
Net interest income increased from $1 million in 1993 to $1.6
million in 1994 due to higher interest-earning receivable balances placed with
Murphy. Other income was $.6 million in 1994, $.5 million more than in 1993
due primarily to a $.6 million gain on land sales. Income tax expense
increased from $7.1 million in 1993 to $12.5 million in 1994, primarily
related to improved earnings before income taxes.
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 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
The Company's net cash provided by operating activities for the
nine-month period ended September 30, 1996 totaled $13.6 million, compared
with $10.3 million for the same period in 1995. The Company's accompanying
Consolidated Statements of Cash Flows identify major differences between net
income and cash provided by operating activities. Dispositions of assets
provided $2.8 million in the first nine months of 1996, primarily from the
sale of approximately 3,200 acres of Arkansas farmland. The noncurrent
receivable from Murphy increased by $2.8 million in the first nine months of
1996 and $5.6 million in the same period in 1995. Advances to the joint
venture formed to construct and operate a medium density fiberboard plant near
El Dorado, Arkansas required cash of $3.2 million during the first nine months
of 1996 and is included in other investing activities. Cash required to repay
long-term debt amounted to $.4 million in the first nine months of 1996
arising from installment payments on notes used to finance a portion of the
Company's timber requirements. Capital expenditures required $5.9 million of
cash for the nine months ended September 30, 1996 and $5.8 million in the
corresponding period of the prior year. Seller-financed capital expenditures
not requiring cash included $5.5 million for timber purchases in the first
nine months of 1995.
During the year ended December 31, 1995, the Company's net cash
provided by operating activities totaled $16.9 million, compared with $23.9
million in 1994 and $16.2 million in 1993. The decline in 1995 compared to
1994, and the increase in 1994 compared to 1993, is mainly due to similar
variances in net income. Changes in operating working capital other than cash
and cash equivalents provided cash of $1.6 million in 1995 and $.2 million in
1994; such changes required cash of $1.8 million in 1993. The noncurrent
receivable from Murphy increased by $8.7 million in 1995, $14.7 million in
1994, and $5.5 million in 1993. Cash required to repay long-term debt
amounted to $1.6 million in 1995, $.1 million in 1994, and $.4 million in
1993. Larger cash requirements to repay debt in the latest year arose from
installment payments on notes used to finance a portion of the Company's
timber requirements. Capital expenditures required $7.4 million of cash in
1995, $10.2 million in 1994, and $10.7 million in 1993. Other seller-financed
capital expenditures not requiring cash included a land acquisition of $.7
million in 1995, and 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 nine months ended September 30, 1996 and for the years ended December 31,
1995, 1994 and 1993.
Nine Months
Ended
September 30, Years Ended December 31,
------------- -----------------------------
1996 1995 1994 1993
------------- ------ ------ -------
(dollars in millions)
Forest products............. $1.1 $7.2 $6.1 $4.6
Real estate................. 4.2 4.7 3.8 5.7
Agriculture................. 0.2 0.2 0.3 0.4
Corporate and other......... 0.4 1.5 0.1 --
---- ----- ----- -----
$5.9 $13.6 $10.3 $10.7
==== ===== ===== =====
Capital expenditures for timber operations included $1.8
million in 1995 and $6.5 million in 1994 for expansion of the Waldo Mill;
expenditures in 1993 included $2.3 million related to upgrading the Ola Mill
which allowed a more valuable mix of finished lumber to be produced. Timber
capital expenditures also included net cash and non-cash costs of $4.5 million
in 1995 for purchase of the Company's timber requirements. Capital
expenditures for real estate operations related to costs of lot development
and construction of infrastructure at Chenal Valley, and a 40-acre land
acquisition. Agricultural expenditures are mainly replacements of machinery
and equipment. Capital expenditures in 1995 for corporate and other
operations consisted of mineral leases acquisitions in Union and Columbia
Counties in Arkansas.
At December 31, 1995 the Company had commitments for capital
expenditures in the amount of $11.4 million.
The Company has been a subsidiary of an integrated oil and gas
company. As such, its capital expenditure program has historically been
subject to periodic review and adjustment based in part on the operating
results of affiliated companies. The Company expects to have capital
expenditures of approximately $16 million during 1996, including $7.3 million
related to lot development, infrastructure construction, and amenity
improvements at Chenal Valley and $3.6 million of the initial stages of a
planer upgrade at the Waldo Mill. In addition, the Company has committed to
invest $10 million in Del-Tin during late 1996. This investment, along with
similar amounts to be invested by the other joint venturer and third-party
borrowings, will be used to finance construction of a medium density
fiberboard plant near El Dorado, Arkansas.
Financial Condition
Working capital was $13.6 million at September 30, 1996, an
improvement of $6.8 million since December 31, 1995. The improvement was
primarily caused by a decrease in accounts payable of $2.3 million and a $.3
million decrease in the current portion of long-term debt since the prior year
end. The change in accounts payable was affected by timing of cash
disbursements. The current ratio improved from 1.9 to 1 at December 31, 1995
to 3.4 to 1 at September 30, 1996. The debt to stockholder's equity ratio
was .02 to 1 at September 30, 1996, essentially unchanged from December 31,
1995.
Working capital amounted to $6.8 million and $11.3 million,
respectively, at December 31, 1995 and 1994. The Company's current ratio was
1.9 to 1 at the end of 1995 and was 3.4 to 1 at the end of 1994. The major
factors causing the $4.5 million decline in working capital in 1995 were an
increase in the current portion of long-term debt of $2 million, an increase
in accounts payable of $1.4 million, and a reduction in accounts receivable of
$l million. The current portion of long-term debt relates to financing a
portion of long-term timber requirement purchases. The decline in accounts
receivable is primarily due to timing of collection of agricultural products
sales.
Liquidity
The Company's primary source of liquidity has been internal
funds generated by operations. Internal funds are generated by net earnings
adjusted by certain non-cash items such as depreciation, amortization, and cost
of fee timber harvested, deferred income taxes, and recoveries of development
costs on real estate sales. The Company was named as a potential borrower
under Murphy's committed credit facilities at September 30, 1996. Such credit
facilities will not be available to the Company subsequent to the
Distribution. The Company is currently negotiating other credit facilities
which are expected to ultimately replace the credit facilities available
through Murphy.
The Company expects that cash flows from operations and
borrowings under the anticipated credit facilities described above will be
adequate to meet the Company's working capital needs; however, the significant
growth plans of the Company's business will require additional capital
financing. The Company believes that it will be able to obtain sufficient
debt and equity financing on competitive terms for its growth and capital
projects, but debt and equity markets may, at any particular time, be
unattractive or unavailable to the Company. The Company currently intends to
make an offering of $30-40 million of equity of the Company within one year
of the Distribution, consistent with representations made to the Internal
Revenue Service for purposes of receiving a ruling that the Distribution will
qualify as tax-free to Murphy and its stockholders under Section 355 of the
Code. 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
then-existing market conditions. The Company intends to use the proceeds of
such offering to finance its growth plans. See "Business--Growth Strategy."
There can be no assurance, however, that the Company will be able to
successfully complete an offering or otherwise fund its expansion plans. The
successful completion of such offering will depend on the facts and
circumstances at that time relating to market conditions, the Company's
financial condition and capital needs, and the availability and cost of
suitable acquisitions and other expansion opportunities. The inability to
obtain necessary capital could limit the Company's ability to fully implement
its growth strategy.
Since the mid-1980's, Deltic has transferred excess cash
generated by operations above its operating and capital needs to Murphy.
Since December 31, 1992, the Company has transferred to Murphy under this
arrangement $31.7 million of net available excess funds generated from
operations. Such transfers have given rise to a net noncurrent,
interest-bearing receivable from Murphy of $34.4 million at September 30,
1996. This receivable from Murphy is expected to be settled prior to the
Distribution. The settlement is expected to entail a combination of a $17
million dividend by the Company to Murphy and a repayment by Murphy to the
Company to the extent of the remaining receivable. Based on the September
30, 1996 balance, the expected cash receipt upon settlement of the
receivable from Murphy is $17.4 million. The Company expects to use this
additional cash to fund an anticipated additional investment in Del-Tin of
$7 million, with the remainder being used to pay for existing capital
expenditure commitments after the Distribution Date. These capital
commitments primarily consist of purchases of additional timberland of $3
million, in-progress sawmill improvement project expenditures of $4
million, and additional real estate development costs of $3 million. Since
the receivable from Murphy will be settled by the Distribution Date, the
Company will no longer generate interest income from such intercompany
receivable from Murphy after the Distribution.
Other Matters
General inflation has not had a significant effect on the
Company's operating results during the three years ended December 31, 1995.
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.
As shown in the Pro Forma Consolidated Financial Statements,
the Company expects that operating expenses will increase when Deltic operates
as an autonomous entity, rather than as a wholly owned subsidiary of Murphy.
BUSINESS
Introduction
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 341,000 acres of timberland in Arkansas and
northern Louisiana (the "Timberlands"), 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. The Company also holds a 50-percent interest in a joint
venture to manufacture and market medium density fiberboard, which is expected
to be operational in early 1998. 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 33,000 acres of farmland.
The Company 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 the Company's most valuable assets,
and the harvest of this stumpage to be the Company's most significant source
of income. Estimated pine sawtimber inventory as of December 31, 1995 was 8.1
million tons. 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. The Company'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 1995, the Company harvested
approximately 268,000 tons of pine sawtimber from the 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
1995, the Company's sawmills processed approximately 671,000 tons of timber,
some of which came from the Timberlands and the remainder of which was
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 $15 million has been invested in upgrades of
the two sawmills over the past five years, expanding both production and
product lines. Combined annual capacity is currently 165 MMBF. 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.
Deltic owns 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 ("MDF"). The plant will
be located near El Dorado, Arkansas. Construction commenced in mid-1996, with
initial production scheduled for early 1998. MDF, which is used in the
furniture, flooring and molding 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.
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 Company has
been developing a 4,300-acre planned community centered around a Robert Trent
Jones, Jr. designed golf course. The property is being developed in stages,
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 33,000 acres of farmland in northeastern
Louisiana. Approximately 23,000 acres of the total are farmed by Deltic,
while the remaining 10,000 acres are rented to third parties. The primary
crops are cotton, soybeans, corn, wheat, and rice.
The Company was incorporated in September 1996 and, prior to
the Distribution, will become the successor to Deltic Farm & Timber Co., Inc.,
an Arkansas corporation.
Timber Industry Overview
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 the first nine months 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.
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 such region, of which
approximately 91 million represent softwood, predominately Southern Yellow
Pine. Unlike other major 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 61-percent private, 28-percent
forest products industry, 7-percent national forest, and 4-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 believes that the South will have a strategic advantage over
other U.S. timber producing regions due to regulatory, geographic and other
factors.
The Timberlands
The Company owns 341,000 acres of timberland, primarily
consisting of Southern Yellow Pine, in Arkansas and northern Louisiana.
Management considers the Timberlands to be the Company's most valuable assets,
and the harvest of this stumpage to be the Company's most significant source
of income. The following table provides a breakdown of the acreage at
year-end 1995:
Timberland Acres
---------- -----
Pine Plantation (<15 years old).................... 79,594
Pine Forest....................................... 223,366
Hardwood Forest................................... 33,740
Other............................................. 4,389
-------
Total............................................. 341,089
=======
Timber Inventory. The Company's estimated standing timber
inventories on this acreage are calculated for each tract by utilizing growth
formulas based on representative sample tracts and tree counts for various
diameter classifications. The calculations of pine inventories are subject to
periodic adjustments based on sample cruises or actual volumes harvested from
related tracts. The hardwood inventories shown in the following table are
only approximations, so physical quantities of such timber may vary
significantly from these approximations. Estimated inventory of standing
timber as of December 31, 1995 was as follows:
Estimated
Volume
Timber (000s tons)
------ ----------
Pine sawtimber........................... 8,063
Hardwood sawtimber....................... 1,219
Pine pulpwood............................ 3,911
Hardwood pulpwood........................ 1,162
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, the Company expects to sell certain of its residual wood
products to Del-Tin 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 or unharvested timber grows more quickly.
Growth rates vary depending on species, location, age and forestry practice.
The annual growth rate for the Company's Timberlands is on average
approximately four percent per annum of standing inventory.
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 roads. The Company generally uses third-party
road crews to conduct construction and maintenance and the Company regularly
exchanges access easements and cooperates with the U.S. Forest Service.
Reforestation. The Company owns and operates a seed orchard.
Seeds from such orchard are grown by third parties under contract with the
Company for the purposes of producing genetically superior seedlings for
planting. Genetically superior 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 introduced to the Company's Timberlands by means
of selective planting in all-aged stands or, in the case of a regeneration
harvest, the site is completely replanted with these superior seedlings. 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, the Company intends to increase its harvest level to 353,000
tons of pine sawtimber in 1997, an increase of 24 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. Development of annual
harvest plans begins approximately one year in advance and is completed by
mid-October of the calendar year preceding the period covered by the plans.
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, the Company 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 to improve timber yields.
The Company actively utilizes commercial thinning timber
management practices. In the context of long-term value maximization,
commercial thinning can be a worthwhile investment. The Company has found that
such thinning improves the overall productivity of the Timberlands by
enhancing the growth of the remaining trees. In addition to enhancing growth,
commercial thinning also generates revenues.
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 $15 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 MMBF.
The Company 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 the Company 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 planing mill at the Waldo
Mill is scheduled to be completed in 1997. The Company also intends to
install a finger jointing operation 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 its
sawmills. Sawdust, shavings and wood chips are usually sold to paper mills,
and bark is frequently sold to cogeneration plants 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
pursuant to a fiber supply agreement. The Del-Tin MDF facility is expected to
be operational in early 1998.
Each mill facility has the capability to ship its lumber by
truck or rail.
While the cyclicality of the lumber market may from time to
time require the interruption of operations at one or both of the Company's
sawmills, a suspension of milling activities is unusual. Management is not
currently anticipating any interruption of operations at the Company'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: (i) a
significant timberland acquisitions program, which will facilitate an increase
in harvest levels and (ii) 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 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
its requirements for harvested timber 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 such
acquisitions program on timberlands in the southern United States that range
from fully stocked to cut over tracts. Timberland in the southern United
States is 61-percent owned by private landowners, rendering it potentially
available for acquisition. In particular, the Company plans to fill a niche
in the acquisition market by pursuing tracts that are too small to be of
interest to the major companies but too large for the small private companies
and individual investors to finance. There can 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, will remain in all-aged forestry management.
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 adhered
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 (i) a competitive price relative to lumber, (ii) a more consistent
range of performance and (iii) in certain cases, an ability to more
effectively implement certain complex construction features.
The Company's 50-percent interest in Del-Tin will permit
expansion of the Company's business into the EWPs market. Del-Tin is a joint
venture with Temple-Inland Forest Products Corporation to manufacture and
market MDF. The plant will be located near El Dorado, Arkansas. Construction
commenced in mid-1996, with initial production scheduled for early 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 molding 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 in the structural panel market against lumber. In
addition to providing an entry into the MDF market, the Del-Tin 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 to buy, all residue wood chips from the Waldo Mill.
In addition, Del-Tin has an option to purchase residue wood chips from the
Ola Mill and roundwood chips, shavings and sawdust from the Waldo Mill.
Management intends to explore additional opportunities for
further expansion into engineered wood products.
Raw Materials
Logs processed by the Company's sawmills in 1995 totaled
671,000 tons, and were obtained from the Timberlands and also purchased from
public and private landowners. In 1995, the Company harvested 268,000 tons of
pine sawtimber from the Timberlands.
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. The Company 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 September 30, 1996, the Company
had under contract approximately 286,000 tons of timber on land owned by other
parties (including the U.S. Forest Service), which is expected to be cut in
the next three years. During the nine months ended September 30, 1996, the
Company harvested third-party stumpage or purchased logs from third parties
totaling 428,000 tons. Of this volume, purchases from the U.S. Forest Service
during this period represented seven 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. The Company'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 much more likely to sell his 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 the
Company'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, 14 percent, 17
percent and 15 percent of net sales in 1993, 1994, 1995 and the first nine
months of 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 1993, 1994, 1995, and the first nine months of
1996, lumber sales accounted for approximately 56 percent, 54 percent, 55
percent and 56 percent, respectively, of net sales.
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. The Company competes with several 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, 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 in the
past 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 the nine months ended September 30, 1996, the Company's
sawmills produced 227,400 tons of wood chips. During 1993, 1994, 1995 and the
first nine months of 1996, sales of wood chips and other by-products of the
Company's sawmills accounted for 11 percent, 10 percent, 11 percent and 9
percent, respectively, of the Company's net sales. In the future, the Company
expects to sell certain of its residual wood products to Del-Tin for the
production of MDF. See "--Growth Strategy."
Real Estate Operations
The Company's Chenal Valley real estate operations 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 a 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 and has been submitted to the Club members for approval.
There can be no assurance that such approval will be obtained.
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 provided 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 have 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 substantial commercial development. Management expects the
undeveloped portion of Chenal Valley will provide growth and development
opportunities in the future.
The table below summarizes developed and undeveloped tracts at
September 30, 1996:
Developed Undeveloped
----------------- -----------
Sold Unsold
------- ------
Residential:
Lots................................ 688 188 3,080
Average price ($/lot)............... 55,000
Commercial:(1)
Acres............................... 2 13 612
Average price ($/acre).............. 199,500
__________
(1) Excludes GMAC Building, church sites, "green" areas and school sites.
Of the 688 residential lots that have been sold, construction
has been completed on approximately 550 and is currently ongoing on
approximately 65. The Company has not been engaged in the construction of
residences on such lots.
Farming
Deltic owns 33,000 acres of farmland in northeastern Louisiana.
Approximately 23,000 acres of the total are farmed by Deltic, while the
remaining 10,000 acres are rented to third parties. The primary crops are
cotton, soybeans, corn, wheat, and rice.
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 of the wells.
Based on its present 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.
Litigation
There are no material legal proceedings pending against the
Company.
Employees
As of September 30, 1996, the Company had 350 employees.
MANAGEMENT
Structure of Company's Board of Directors
The Company will amend its Certificate of Incorporation prior
to the Distribution to provide for a classified board of directors consisting
of nine directors (as indicated in the table below). The Company Board will
be divided into three classes of directors. The term of office of the first
class ("Class I") expires at the 1997 annual meeting, the term of office of
the second class ("Class II") expires at the 1998 annual meeting and the term
of office of the third class ("Class III") expires at the 1999 annual meeting.
At each annual meeting held thereafter, a class of directors will be elected
for a three year term to replace the class whose term has then expired. See
"Certain Statutory, Charter and Bylaw Provisions and Rights
Agreement--Classified Board of Directors."
The Company Board further expects to establish an Audit
Committee, an Executive Committee, a Nominating Committee and an Executive
Compensation Committee following the Distribution.
Directors and Executive Officers
The following tables set forth certain information concerning
the directors and executive officers of the Company who will be serving or in
office as of the Distribution Date.
Name Age Position
---- --- --------
Robert C. Nolan 55 Chairman of the Board (Class I)
O.H. Darling, Jr. 68 Director (Class III)
Eric M. Heiner 51 Director (Class II)
Rev. Christoph Keller, III 41 Director (Class III)
Alex R. Lieblong 46 Director (Class I)
R. Madison Murphy 38 Director (Class III)
William L. Rosoff 50 Director (Class II)
John C. Shealy 68 Director (Class II)
Ron L. Pearce 55 President, Chief Executive Officer and
Director (Class I)
Emily R. Evers 46 Controller
W. Bayless Rowe 44 General Counsel and Secretary
Clefton D. Vaughan 55 Vice President, Finance and
Administration
Robert C. Nolan will serve as Chairman of the Board of the
Company as of the Distribution. 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. Mr.
Nolan is a director of First United Bancshares, Inc. and First National
Bank of El Dorado.
O.H. Darling, Jr. will serve as a director of the Company as of
the Distribution. Mr. Darling was Division Manager, Crossett Division,
Georgia Pacific Corporation from 1978 until his retirement in April 1994.
Eric M. Heiner will serve as a director of the Company as of
the Distribution. Since 1975, Mr. Heiner has been involved in real estate
development and investments.
Rev. Christoph Keller, III will serve as a director of the
Company as of the Distribution. Rev. Keller has been a clergyman since 1982
and the Vicar of St. Margaret's Episcopal Church in Little Rock, Arkansas since
June 1990. Rev. Keller is also Chairman of Inglewood Land and Development
Company of Alexandria, Louisiana.
Alex R. Lieblong will serve as a director of the Company as of
the Distribution. Since 1987, Mr. Lieblong has been Branch Manager, Corporate
Vice President of PaineWebber, Inc.
R. Madison Murphy will serve as a director of the Company as of
the Distribution. Since October 1994, Mr. Murphy has been Chairman of the
Board of Murphy. Prior to such time, Mr. Murphy served as Executive Vice
President and Chief Financial and Administrative Officer of Murphy (from March
1992 to October 1994, with the Chief Administrative position added in February
1993), Vice President of Planning of Murphy (February 1988 to March 1992) and
Treasurer of Murphy (July 1990 to August 1991). Mr. Murphy is also a director
of First United Bancshares, Inc. After the Distribution, Mr. Murphy will
continue to serve as Chairman of the Board of Murphy and will receive
compensation from Murphy for such services. Mr. Murphy will also receive
compensation from the Company pursuant to the Company's compensation policy
for directors.
William L. Rosoff will serve as a director of the Company as of
the Distribution. Since 1985, Mr. Rosoff has been a partner of Davis Polk &
Wardwell, a law firm which has represented Murphy in various corporate
matters. Davis Polk & Wardwell has advised Murphy and the Company in
connection with the Distribution. Deltic expects to continue to retain the
services of Davis Polk & Wardwell following the Distribution.
John C. Shealy will serve as director of the Company as of the
Distribution. Mr. Shealy was Vice President and General Manager, Southern
Region of Willamette Industries, Inc. from 1981 until his retirement in 1994.
Mr. Shealy is also Chairman of American Bank of Ruston, Louisiana.
Ron L. Pearce will serve as President and Chief Executive
Officer and a director of the Company as of the Distribution. Since June
1993, Mr. Pearce has been President of Deltic Farm & Timber Co., Inc., the
predecessor corporation to the Company ("Deltic Farm & Timber"). 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 will serve as Controller of the Company as of
the Distribution. Since 1989, Ms. Evers has been Controller of Deltic Farm &
Timber.
W. Bayless Rowe will serve as General Counsel and Secretary of
the Company as of the Distribution. Since 1988, Mr. Rowe has been Secretary
and General Attorney of Murphy.
Clefton D. Vaughan will serve as Vice President, Finance and
Administration of the Company as of the Distribution. 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 & Production Company.
Mr. Nolan, Mr. Murphy and Rev. Keller are first cousins.
Mr. Heiner is married to a first cousin of Messrs. Nolan and Murphy and
Rev. Keller.
Compensation of Directors
Directors who are not employees of the Company will be paid an
annual retainer fee of $16,000, a $1,000 fee for each meeting attended of the
Company Board and a $500 fee for each meeting attended of any committee
thereof.
Executive Compensation
The following sets forth the compensation earned by the
Company's President for the year ended December 31, 1995 (in such capacity, a
"Named Executive Officer"). No other executive officer of the Company received
more than $100,000 in annual compensation from the Company during such period.
Long-Term
Compensation Awards
------------------------
Securities
Name and Restricted Underlying All other
Position Salary(1) Bonus Stock Awards Options(2) Compensation(3)
- --------- --------- ----- ------------ ---------- ---------------
Ron L. Pearce $126,250 $ -- -- 5 ,000 $5,407
President
__________
(1) Includes amounts of cash compensation earned and received by Mr. Pearce as
well as amounts earned but deferred at his election.
(2) Represents options to purchase Murphy Common Stock. See "Option and
Restricted Stock Grants."
(3) Represents $1,625 in dividends on restricted shares of Murphy Common
Stock, $3,158 in contributions pursuant to the Thrift Plan for Employees
of Murphy Oil Corporation and $624 in a benefit attributable to a
Murphy-sponsored term life insurance policy. Cash dividends are paid on
restricted stock at the same rate paid to all other holders of Murphy
Common Stock. See "Option and Restricted Stock Grants."
Option and Restricted Stock Grants
Several of the Company's employees, including Ron L. Pearce,
have been awarded options to purchase shares of Murphy Common Stock, as well
as restricted shares of Murphy Common Stock, under Murphy's 1992 Stock
Incentive Plan (the "Murphy Stock Incentive Plan"). Options granted under
this plan vest in two equal installments on the second and third anniversaries
of the date of grant. In connection with the Distribution, the Executive
Compensation and Nominating Committee of Murphy's Board of Directors (the
"Murphy Compensation Committee") has determined to treat each employee of the
Company who holds options under the Murphy Stock Incentive Plan as if such
employee had retired from Murphy as of the Distribution Date. As a result,
all such options which are not vested, as of the Distribution Date, will be
forfeited by the Company employees. Company employees will have two years
from the Distribution Date in which to exercise their vested options.
During the fiscal year ended December 31, 1995, Mr. Pearce was
awarded options to purchase 5,000 shares of Murphy Common Stock, under the
Murphy Stock Incentive Plan. The exercise price for such options was $43.9375
per share. As of the Distribution Date, these options will not have vested;
accordingly, these options will be forfeited.
The value of each award of restricted stock under the Murphy
Stock Incentive Plan is based on a five-year performance period commencing
with the year of award, during which recipients are entitled to full voting and
cash dividend rights. Of each award, the number of shares to which
participants ultimately become entitled depends on the total return to
Murphy's stockholders in comparison to a peer group of companies over the
applicable five-year performance period. In connection with the Distribution,
the Murphy Compensation Committee has determined to treat each employee of the
Company who holds restricted stock under the Murphy Stock Incentive Plan as if
such employee had retired from Murphy as of the Distribution Date. As a
result, the number of restricted shares held by each Company employee will be
reduced pro-rata for the actual time of employment by Murphy of that employee
during each performance period. The number of shares earned by Company
employees with respect to each award will be determined at the end of the
relevant performance period. Holders of restricted shares of Murphy Common
Stock will not receive shares of Company Common Stock in connection with the
Distribution. Instead, the Murphy Compensation Committee has determined to
substitute shares of Murphy Common Stock of equivalent value for the shares of
Company Common Stock that would otherwise have been received by holders of
such restricted shares in connection with the Distribution.
During the fiscal year ended December 31, 1995, no awards of
restricted shares of Murphy Common Stock were made under the Murphy Stock
Incentive Plan.
Prior to the Distribution, the Company expects to establish a
new stock-based management incentive plan for its key employees. The plan will
be administered by the Executive Compenstion Committee (the "Committee") of
the Company Board and will provide that the Committee may grant awards of
restricted shares of Company Common Stock, as well as options and stock
appreciation rights with respect to such stock, on terms similar to those
applicable to under the Murphy Stock Incentive Plan. It is expected that
during each year awards with respect to up to one-half of one percent of the
outstanding Company Common Stock, determined as of December 31 of the
previous year, will be authorized for issuance under the new plan. An
additional number of awards is expected to be authorized for issuance
during 1997, to replace awards under the Murphy Stock Incentive Plan that
are forfeited by Company employees as a result of the Distribution, as
described above.
Retirement Plans
Prior to the Distribution, the Company's employees have been
participants in the Retirement Plan of Murphy Oil Corporation (the "Murphy
Retirement Plan") and the Murphy Oil Corporation Supplemental Benefit Plan
(the "Murphy Supplemental Benefit Plan"). Effective at the time of the
Distribution, the Company will adopt the Retirement Plan of Deltic Timber
Corporation (the "Company Retirement Plan") and the Deltic Timber Corporation
Supplemental Benefit Plan (the "Company Supplemental Benefit Plan"), which
will replicate, in all material respects, the Murphy Retirement Plan and
the Murphy Supplemental Benefit Plan, respectively. The Company Retirement
Plan will be a non-contributory pension plan that covers all employees who
meet certain minimum age and service requirements, including Mr. Pearce.
The Company Supplemental Benefit Plan will provide benefits otherwise
payable under the Company Retirement Plan, to the extent such benefits
exceed legislative limitations applicable to qualified retirement plans.
The following table shows the estimated annual pension benefit
payable, at age 65, under the Company Retirement Plan at December 31, 1996 for
the salary and length of service indicated.
Pension Plan Table
Years of Service
------------------------------------------------------------
Remuneration 15 20 25 30 35 40
- ------------ ------ ------ ------- ------- ------- -------
$100,000.... 24,000 32,000 40,000 48,000 56,000 64,000
$150,000.... 36,000 48,000 60,000 72,000 84,000 96,000
$200,000.... 48,000 64,000 80,000 96,000 112,000 128,000
$250,000.... 60,000 80,000 100,000 120,000 140,000 160,000
$300,000.... 72,000 96,000 120,000 144,000 168,000 192,000
The amounts shown above are computed on the basis of a
straight-life annuity, and are subject to reduction for Social Security
benefits. The amounts shown do not reflect any reductions in retirement
benefits that would result from the selection of one of the Company Retirement
Plan's various available survivorship options, nor the actuarial reductions
required by the Plan for retirement earlier than age 62. A portion of the
benefits shown above would be paid under the Company's Supplemental Benefit
Plan, to the extent such benefits exceed legislative limitations.
As of September 30, 1996, Mr. Pearce had five years of service
for which he will receive credit under the Company Retirement Plan.
Executive Compensation Committee Interlocks and Insider Participation
The Company does not currently have an Executive Compensation
Committee. Prior to the Distribution, compensation was determined by the
Company Board. Following the Distribution, the Company expects to establish
an Executive Compensation Committee, the majority of the members of which will
be independent directors.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Set forth in the table below is information as of September 30,
1996 (or as of the dates specified in the explanatory footnotes in the case of
five-percent stockholders) with respect to the number of shares of Murphy
Common Stock beneficially owned by (i) each person or entity known by the
Company to own more than five percent of the outstanding Murphy Common Stock,
(ii) each director (and nominee as director) of the Company, (iii) each of the
Named Executive Officers of the Company and (iv) all directors and executive
officers of the Company as a group. Also set forth below are the number of
shares of Company Common Stock that each such person or entity would own
immediately after the Distribution on a pro forma basis. To the Company's
knowledge, unless otherwise indicated, each person or entity has sole voting
and investment power with respect to the shares set forth opposite the
person's or entity's name.
<TABLE>
<CAPTION>
MURPHY COMPANY PRO FORMA
------------------------------------ ----------------------------
Number of Number of
Shares Percent of Shares Percent of
Beneficially Outstanding Beneficially Outstanding
Beneficial Owner Owned(1) Shares Owned Shares
---------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Directors and Named Executive Officers
Robert C. Nolan.......................... 598,946(2) 1.3% 171,127 1.3%
Ron L. Pearce............................ 6,385 * 1,824 *
O.H. Darling, Jr......................... -- -- -- --
Eric M. Heiner........................... 545,179(3) 1.2% 155,765 1.2%
Rev. Christoph Keller, III............... 347,736(4) * 99,353 *
Alex R. Lieblong......................... -- -- -- --
R. Madison Murphy........................ 1,418,561(5) 3.2% 405,303 3.2%
William L. Rosoff........................ -- -- -- --
John C. Shealy........................... -- -- -- --
All Directors and Executive Officers as a
Group (12 persons)...................... 2,950,353 6.6% 842,958 6.6%
Other 5% Stockholders
C.H. Murphy, Jr.
c/o Murphy Oil Corporation
200 Peach Street
El Dorado, Arkansas 71730................ 4,188,709(6) 9.3% 1,196,774 9.3%
First United Bancshares, Inc.
Main at Washington Street
El Dorado, Arkansas 71730................ 2,543,419(7) 5.7% 726,691 5.7%
The Capital Group Companies, Inc.
333 South Hope Street
Los Angeles, California 90071............ 3,583,300(8) 8.0% 1,023,800 8.0%
</TABLE>
__________
* Less than one percent
(1) Of the shares of stock shown as beneficially owned, the following shares
are not currently owned but are subject to options which were
outstanding on September 30, 1996 and were exercisable within 60 days
thereafter: Mr. Pearce, 6,000 shares; Mr. Heiner, 5,000 shares.
(2) Includes 87,902 shares with respect to which Mr. Nolan has sole voting and
dispositive power and 511,044 shares held by trusts of which Mr. Nolan is
either a beneficiary or trustee.
(3) Includes 24,789 shares with respect to which Mr. Heiner has sole voting
and dispositive power and 520,390 shares owned by Mr. Heiner's spouse or
other household members either directly or as trustees or beneficiaries
of trusts.
(4) Includes 78,169 shares with respect to which Rev. Keller has sole voting
and dispositive power, 28,712 shares owned by Rev. Keller's spouse or
other household members and 240,855 shares held in trusts of which
Rev. Keller is a trustee and/or beneficiary.
(5) Includes 107,111 shares with respect to which Mr. Murphy has sole voting
and dispositive power, 619,052 shares held by trusts for others, of which
Mr. Murphy is a trustee, 610,862 shares held by a trust of which Mr.
Murphy is the beneficiary, and 81,536 shares owned by Mr. Murphy's
spouse or other household members.
(6) Includes 1,188,361 shares with respect to which Mr. Murphy has sole voting
and dispositive power, 3,036 shares owned by Mr. Murphy's spouse or other
household members and 2,997,312 shares held by trusts of which Mr. Murphy
is a trustee or by a corporation or other organization of which Mr. Murphy
is an officer.
(7) A Schedule 13G dated February 13, 1996 was filed with the Commission by
First United Bancshares, Inc. disclosing beneficial ownership of more than
five percent of Murphy Common Stock. According to the statement, First
United Bancshares, Inc. has (i) sole voting power with respect to 65,453
shares, (ii) shared voting power with respect to 2,477,956 shares, (iii)
sole dispositive power with respect to 70,856 shares and (iv) shared
dispositive power with respect to 2,472,553 shares, as the parent company
of First National Bank of El Dorado and First National Bank of Magnolia,
which held 2,543,409 shares and 10 shares, respectively, in various trust
accounts.
(8) A Schedule 13G dated February 6, 1996 was filed with the Commission by The
Capital Group Companies, Inc. and Capital Research and Management,
disclosing beneficial ownership of more than five percent of Murphy Common
Stock. According to the statement, The Capital Companies Group, Inc. has
sole dispositive power with respect to 3,583,300 shares as the parent
company of each of Capital Guardian Trust Company and Capital Research and
Management Company, which have sole dispositive power with respect to
232,900 and 3,350,400 shares, respectively.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company
is based upon the Company's Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") and its Amended and Restated Bylaws (the
"Bylaws") which are to be in effect as of the Distribution, and by applicable
provisions of law. The following description is qualified in its entirety by
reference to such Certificate of Incorporation and Bylaws, which are filed as
exhibits to the Form 10.
The Company's Certificate of Incorporation authorizes the
issuance of 50 million shares of Company Common Stock, par value $.01 per
share, and 20 million shares of preferred stock par value $.01 per share (the
"Company Preferred Stock"). The outstanding capital stock of the Company
currently consists of 100 shares of Company Common Stock, all of which are,
and will be prior to the Distribution, held beneficially and of record by
Murphy. Such shares were issued to Murphy on September 4, 1996 for a total of
$1.00 in connection with the incorporation of the Company. Such issuance was
exempt from registration under the Securities Act pursuant to Section 4(2) of
the Securities Act. Effective upon the filing of the Certificate of
Incorporation, each share of Company Common Stock then issued and outstanding
shall be subdivided and converted, without any action on the part of the
holder thereof, into a specified number of fully paid and nonassessable shares
of Company Common Stock issued and outstanding, such that the aggregate number
of shares issued and outstanding will be sufficient to permit the Distribution.
Company Common Stock
Subject to the rights of the holders of any Company Preferred
Stock which may be outstanding, each holder of Company Common Stock on the
applicable record date is entitled to receive such dividends as may be
declared by the Company Board out of funds legally available therefor, and, in
the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment or providing for the payment of liabilities and
the liquidation preference of any outstanding Company Preferred Stock. Each
holder of Company Common Stock is entitled to one vote for each share held of
record on the applicable record date on all matters presented to a vote of
stockholders, including the election of directors. Holders of Company Common
Stock have no cumulative voting rights or preemptive rights to purchase or
subscribe for any stock or other securities and there are no conversion rights
or redemption or sinking fund provisions with respect to such stock. Based on
the number of shares of Murphy Common Stock outstanding on September 30, 1996
and the distribution ratio of one share of Company Common Stock for every 3.5
shares of Murphy Common Stock, it is anticipated that there will be
approximately 12.8 million shares of Company Common Stock outstanding upon
consummation of the Distribution.
The shares of the Company Common Stock distributed in the
Distribution will be fully paid and nonassessable. The Company's Certificate
of Incorporation contains no restrictions on the alienability of the Company
Common Stock. For further information on the securities laws restrictions,
if any, on transferability of the Company Common Stock, see "Trading Market."
Except as disclosed in the section entitled "Certain Statutory, Charter and
Bylaw Provisions and Rights Agreement," no provision of the Certificate of
Incorporation and no provision of any agreement or plan involving the Company
is in effect that would discriminate against any existing or prospective
holder of such securities as a result of such security holder owning a
substantial amount of securities.
Preferred Stock
Under the Certificate of Incorporation, the Company Board will
have the authority to create one or more series of preferred stock, to issue
shares of preferred stock in such series up to the maximum number of shares
of preferred stock authorized, and to determine the preferences, rights,
privileges and restrictions of any series, including the dividend rights,
voting rights, rights and terms of redemption, liquidating preferences, the
number of shares constituting any such series and the designation of such
series. The authorized shares of Company Preferred Stock, as well as
authorized but unissued shares of Company Common Stock, will be available for
issuance without further action by the Company's stockholders, unless
stockholder action is required by applicable law or by the rules of a stock
exchange on which any series of the Company's stock may then be listed. No
shares of Company Preferred Stock will be issued in connection with the
Distribution, although 150,000 shares of Series A Preferred Stock (as defined
below) have been reserved for issuance in connection with the Rights Agreement
(as defined below).
Registrar and Transfer Agent
Harris Trust and Savings Bank will serve as the Registrar and
Transfer Agent for the Company Common Stock.
CERTAIN STATUTORY, CHARTER AND BYLAW PROVISIONS AND RIGHTS AGREEMENT
Certain provisions of the Certificate of Incorporation and
Bylaws of the Company and of the Rights Agreement summarized in the following
paragraphs may be deemed to have an anti-takeover effect and may delay, defer
or prevent a tender offer or takeover attempt that a stockholder might
consider in its best interest, including those attempts that might result in a
premium over the market price for the shares held by stockholders. The
following is a summary of certain of these provisions. The Certificate of
Incorporation, the Bylaws and the Rights Agreement are filed as exhibits to
the Form 10, and the following summary is qualified in its entirety by
reference to such documents.
Charter and Bylaw Provisions
Classified Board of Directors; Removal of Directors. The
Certificate of Incorporation and the Bylaws provide for the Company Board to
be divided into three classes of directors. The term of office of the first
class expires at the 1997 annual meeting, the term of office of the second
class expires at the 1998 annual meeting, and the term of office of the third
class expires at the 1999 annual meeting. At each annual meeting held
thereafter, a class of directors will be elected to replace the class whose
term has then expired. As a result, approximately one-third of the members of
the Company Board will be elected each year and, except as described above,
each of the directors serves a staggered three-year term. See
"Management--Directors and Executive Officers." Moreover, as is permitted
under the Delaware General Corporation Law only in the case of a corporation
having a classified board, the Certificate of Incorporation and the Bylaws
provide that directors may be removed only for cause.
These provisions could prevent a stockholder (or group of
stockholders) having majority voting power from obtaining control of the
Company Board until the second annual stockholders' meeting following the date
the acquiror obtains such voting power. Accordingly, these provisions could
have the effect of discouraging a potential acquiror from making a tender
offer or otherwise attempting to obtain control of the Company.
Stockholder Action by Written Consent; Special Meetings. The
Certificate of Incorporation and the Bylaws provide that no action required or
permitted to be taken at an annual or special meeting of stockholders may be
taken without a meeting, and that no action may be taken by the written
consent of stockholders in lieu of a meeting. The Certificate of
Incorporation also provides that special meetings of the Company's stockholders
may only be called by the Company Board or the Chairman of the Company Board.
These provisions may make it more difficult for stockholders to take action
opposed by the Board.
Advance Notice Provisions. The Bylaws establish an advance
written notice procedure for stockholders seeking to nominate candidates for
election as directors at an annual meeting of stockholders or to bring
business before an annual meeting of stockholders of the Company. The Bylaws
provide that only persons who are nominated by or at the direction of the
Company Board, or by a stockholder who has given timely written notice to the
Secretary of the Company prior to the meeting at which directors are to be
elected, will be eligible for election as directors of the Company. The
Bylaws also provide that at any meeting of stockholders only such business may
be conducted as has been brought before the meeting by or at the direction of
the Company Board or, in the case of an annual meeting of stockholders, by a
stockholder who has given timely written notice to the Secretary of the
Company of such stockholder's intention to bring such business before such
meeting. Under the Bylaws, for any such stockholder notice to be timely, such
notice must be received by the Company in writing not less than 90 days prior
to the first anniversary of the most recent annual meeting of stockholders.
Under the Bylaws, a stockholder's notice must also contain certain information
specified in the Bylaws. These provisions may preclude or deter some
stockholders from bringing matters before, or making nominations for directors
at, an annual meeting.
Preferred Stock. Under the Certificate of Incorporation, the
Company Board will have the authority, without further stockholder approval,
to create one or more series of preferred stock, to issue shares of preferred
stock in such series up to the maximum number of shares of preferred stock
authorized, and to determine the preferences, rights, privileges and
restrictions of any series, including the dividend rights, voting rights,
rights and terms of redemption, liquidating preferences, the number of shares
constituting any such series and the designation of such series. Pursuant to
this authority, the Company Board could create and issue a series of preferred
stock with rights, privileges or restrictions having the effect of
discriminating against an existing or prospective holder of such securities as
a result of such security holder beneficially owning or commencing a tender
offer for a substantial amount of Company Common Stock. One of the effects of
authorized but unissued and unreserved shares of capital stock may be to
render more difficult or discourage an attempt by a potential acquiror to
obtain control of the Company by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of the Company's
management. The issuance of such shares of capital stock may have the effect
of delaying, deferring or preventing a change in control of the Company
without any further action by the stockholders of the Company.
Amendment of Certain Charter and Bylaw Provisions. The
Certificate of Incorporation provides that the Company Board may adopt, amend
or repeal any provision of the Bylaws. The Certificate of Incorporation and
the Bylaws also provide that Bylaw provisions may be adopted, amended or
repealed by the affirmative vote of stockholders holding not less than 80
percent of the total number of votes entitled to be cast in the election of
directors.
Any amendment, modification or repeal of the provisions of the
Certificate of Incorporation relating to the election and removal of
directors, the right to call special meetings, the prohibition on action by
written consent, amendment of the Bylaws and the limitation of liability and
indemnification of officers and directors will require approval by the
affirmative vote of stockholders holding at least 80 percent of the total
number of votes entitled to vote generally in the election of directors.
Rights Agreement
Prior to the Distribution, the Company Board will declare a
dividend of one right (a "Right") for each outstanding share of Company Common
Stock. As a result, each share of Company Common Stock distributed in the
Distribution will also represent one Right. Each Right, under certain
circumstances as described below, will entitle the registered holder to
purchase from the Company one one-hundredth of a share (each such
one-hundredth, a "Unit") of Series A Participating Cumulative Preferred Stock,
par value $.01 per share (the "Series A Preferred Stock"), at a purchase price
of $75.00 per Unit, subject to adjustment (the "Purchase Price"). One Unit
entitles the holder thereof to the same dividend and voting rights as the
holder of one share of Company Common Stock. In addition, each Right, under
certain circumstances as described below, will entitle the registered holder
to purchase shares of Company Common Stock, or securities of a company that
acquires the Company. The terms of the Rights are set forth in a Rights
Agreement between the Company and Harris Trust and Savings Bank, as Rights
Agent (the "Rights Agreement").
Prior to the Rights Distribution Date (as defined below), the
Rights will not be exercisable, and will be evidenced by the certificates for,
and will trade with, the Company's Common Stock. As soon as practicable after
the earlier of (i) the tenth day (or such later day as may be designated by a
majority of the Continuing Directors (as defined below)) after the date (the
"Stock Acquisition Date") of the first public announcement that a person
(other than Charles H. Murphy, Jr. and his affiliates and associates) or group
of affiliated or associated persons has acquired beneficial ownership (as
defined in the Rights Agreement) of 15 percent or more of the outstanding
shares of Company Common Stock (any such person, an "Acquiring Person") and
(ii) the tenth business day (or such later day as may be designated by a
majority of the Continuing Directors) after the date of the commencement of a
tender or exchange offer by any person (other than the Company, any of its
subsidiaries or any employee benefit plan of the Company or any of its
subsidiaries) if, upon consummation thereof, such person would be an Acquiring
Person (the earlier of such dates being referred to as the "Rights
Distribution Date"), the Company will issue separate certificates evidencing
the Rights and the Rights will begin to trade separately from the Company
Common Stock. The Rights are not exercisable until the Rights Distribution
Date and will expire at the close of business on December 31, 2006 (the
"Rights Expiration Date"), unless previously redeemed by the Company as
described below.
After the Rights Distribution Date, each holder of a Right
(other than Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by an Acquiring Person (which will
thereafter be void)) will thereafter have the right to receive upon exercise
thereof at the then current Purchase Price, Company Common Stock having a
market value equal to two times the Purchase Price.
If at any time following the Stock Acquisition Date, (i) the
Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation or the Company Common Stock
is exchanged for other securities or assets or (ii) 50 percent or more of the
Company's assets or earning power is sold, each holder of a Right will
thereafter have the right to receive, upon exercise thereof at the then
current Purchase Price, common stock of the acquiring company having a market
value equal to two times the Purchase Price.
The Rights may, at the option of the Board of Directors, be
redeemed in whole, but not in part, at a price of $.01 per Right at any time
prior to the earlier of the tenth day after the Stock Acquisition Date (or
such later date as a majority of the Continuing Directors may designate) and
the Rights Expiration Date. Under certain circumstances set forth in the
Rights Agreement, the decision to redeem shall require the concurrence of a
majority of the Continuing Directors. Immediately upon the requisite action of
the Board of Directors ordering exchange or redemption of the Rights, the
Rights will terminate, and thereafter the only right of the holders of Rights
will be to receive the redemption price.
"Continuing Director" means any member of the Company Board who
was a member of the Company Board immediately prior to the time an Acquiring
Person becomes such, or any person who is subsequently elected to the Company
Board if such person is recommended or approved by a majority of the
Continuing Directors. "Continuing Director" does not include an Acquiring
Person, or an affiliate or associate of an Acquiring Person, or any
representative of any of the foregoing entities.
The Purchase Price payable, and the number of Units of Series A
Preferred Stock or other securities or property issuable upon exercise of the
Rights, are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A Preferred Stock, (ii) if holders of the
Series A Preferred Stock are granted certain rights or warrants to subscribe
for Series A Preferred Stock or convertible securities at less than the then
current market price of the Series A Preferred Stock or (iii) upon the
distribution to holders of the Series A Preferred Stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above). With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments amount to at least one percent of the Purchase Price.
No fractional Units are required to be issued and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Series A
Preferred Stock on the last trading date prior to the date of exercise.
Until a Right is exercised, the holder will, as result thereof,
have no rights as a stockholder of the Company, including the right to vote or
to receive dividends.
Stockholders may, depending upon the circumstances, recognize
taxable income in the event that the Rights become exercisable for Series A
Preferred Stock or other consideration as set forth above.
Prior to the Rights Distribution Date, the Rights Agreement
may, if the Company so directs, be amended by the Company and the Rights Agent
in any manner that the Company may deem necessary or desirable without the
approval of any holders of Company Common Stock. After the Rights
Distribution Date, the Rights Agreement may be amended to cure any ambiguity
or may be amended in any respect that does not adversely affect Rights
holders; provided that, after a person becomes an Acquiring Person, any
amendment requires the concurrence of a majority of the Continuing Directors.
The Rights have certain anti-takeover effects which may prevent
stockholders from receiving a premium for their Company Common Stock and may
also have a depressive effect on the market price of the Company Common Stock.
The Rights may cause substantial dilution to a person or group that attempts
to acquire the Company without a condition to such an offer that a substantial
number of the Rights be acquired or the Rights are rendered inapplicable by
Board action or otherwise. The Company's ability to amend the Rights
Agreement may, depending upon the circumstances, increase or decrease the
anti-takeover effects of the Rights. The Rights do not prevent the Company
Board from approving any merger or other business combination (under some
circumstances, with the concurrence of the Continuing Directors) since the
Rights may be redeemed by the Board of Directors as described above. The
presence of the Rights may also discourage attempts to obtain control of
the Company by means of a hostile tender offer, even if such offer would be
beneficial to stockholders generally, and thereby protect the continuity of
management.
Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General
Corporation Law ("Section 203"). In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder, unless (i) prior to such
date either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the board of
directors of the corporation, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85 percent of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding for purposes of
determining the number of shares outstanding, shares owned by (A) persons who
are both directors and officers and (B) employee stock plans in certain
circumstances), or (iii) on or after such date the business combination is
approved by the board and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3 percent of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" includes a merger,
consolidation, asset sale, or other transaction resulting in a financial
benefit to the interested stockholder. An "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three
years, did own) 15 percent or more of the corporation's voting stock. The
restrictions imposed by Section 203 will not apply to a corporation if, among
other things, (i) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203 or
(ii) 12 months have passed after the corporation, by action of its
stockholders holding a majority of the outstanding stock, adopts an amendment
to its certificate of incorporation or bylaws expressly electing not to be
governed by Section 203. The Company has not elected out of Section 203 and,
therefore, the restrictions imposed by Section 203 will apply to the Company.
Liability and Indemnification of Directors and Officers
Certain provisions of the Delaware General Corporation Law and
the Company's Certificate of Incorporation and Bylaws relate to the limitation
of liability and indemnification of directors and officers of the Company.
These various provisions are described below.
The Certificate of Incorporation provides that the Company's
directors are not personally liable to the Company or its stockholders for
monetary damages for breach of their fiduciary duties as a director to the
fullest extent permitted by Delaware law. Under existing Delaware law,
directors would not be personally liable to the Company or its stockholders
for monetary damages for breach of their fiduciary duties as a director,
except for (i) any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (iii) any transaction
from which the director derived improper personal benefit or (iv) the unlawful
payment of dividends or unlawful stock repurchases or redemptions. This
indemnification provision may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter
stockholders or the Company from bringing a lawsuit against directors of the
Company for breach of their fiduciary duties as directors. However, the
provision does not affect the availability of equitable remedies such as an
injunction or rescission.
The Certificate of Incorporation also provides that each person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed civil or criminal action or proceeding by reason of the
fact that such person is or was a director of the Company or is or was serving
at the request of the Company as a director of another corporation,
partnership, joint venture, trust or other enterprise, shall be indemnified
and held harmless by the Corporation to the fullest extent permitted by
Delaware Law. This right to indemnification shall also include the right to
be paid by the Company the expenses incurred in connection with any such
proceeding in advance of its final disposition to the fullest extent
authorized by Delaware Law. This right to indemnification shall be a contract
right. The Company may, by action of the Company Board, provide
indemnification to such of the officers, employees and agents of the Company
to such extent and to such effect as the Company Board determines to be
appropriate and authorized by Delaware law.
The Company intends to purchase and maintain insurance on
behalf of any person who is or was a director or officer of the Company, or is
or was serving at the request of the Company as a director or officer of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her
status as such, whether or not the Company would have the power or the
obligation to indemnify him or her against such liability under the provisions
of the Company's Certificate of Incorporation.
INDEPENDENT AUDITORS
The Company Board has appointed KPMG Peat Marwick LLP as the
Company's independent accountants to audit the Company's financial statements
for fiscal year 1996. KPMG Peat Marwick LLP has served as Murphy's auditors
throughout the periods covered by the financial statements included in this
Information Statement.
ADDITIONAL INFORMATION
The Company has filed the Form 10 with the Commission under the
Exchange Act with respect to the shares of Company Common Stock being received
by Murphy stockholders in the Distribution. This Information Statement does
not contain all of the information set forth in the Form 10 and the exhibits
and schedules thereto, to which reference is hereby made. For additional
information, reference is made to the Form 10 and the exhibits thereto, which
are on file at the offices of the Commission and may be inspected and copied
as set forth below.
The Form 10 and the exhibits thereto filed by the Company with
the Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
DC 20549, as well as at the Regional Offices of the Commission at Northwest
Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, 13th floor, New York, New York 10048. Copies of such
information can be obtained by mail from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, DC 20549 at prescribed
rates.
INDEX TO FINANCIAL STATEMENTS
Page
----
Deltic Farm & Timber Co., Inc.
Independent Auditors' Report......................................... F-1
Consolidated Balance Sheets as of September 30, 1996 (unaudited),
December 31, 1995 and December 31, 1994............................ F-2
Consolidated Statements of Income for the Nine Months Ended
September 30, 1996 and 1995 (unaudited)
and the Years Ended December 31, 1995, 1994 and 1993............... F-3
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 (unaudited) and the Years Ended
December 31, 1995, 1994 and 1993..................................... F-4
Consolidated Statements of Stockholder's Equity for the Nine Months
Ended September 30, 1996 (unaudited) and the Years Ended
December 31, 1995, 1994 and 1993................................... F-5
Notes to Consolidated Financial Statements........................... F-6
Deltic Timber Corporation
Independent Auditors' Report........................................ F-16
Balance Sheet as of September 4, 1996............................... F-17
Note to Balance Sheet............................................... F-18
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Deltic Farm & Timber Co., Inc.:
We have audited the accompanying consolidated balance sheets of Deltic Farm &
Timber Co., Inc. (a subsidiary of Murphy Oil Corporation) and Consolidated
Subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, stockholder's equity, and cash flows for each of the
years in the three-year period ended December 31, 1995. 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
Farm & Timber Co., Inc. and Consolidated Subsidiaries as of December 31, 1995
and 1994, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note C to the consolidated financial statements, in 1993 the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, and Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes.
KPMG Peat Marwick LLP
Shreveport, Louisiana
June 27, 1996
DELTIC FARM & TIMBER CO., INC.
Consolidated Balance Sheets
(Thousands of dollars)
<TABLE>
<CAPTION>
December 31,
September 30, -----------------------
1996 1995 1994
-------------- ------- --------
(unaudited)
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents.............................. $5,447 $1,431 $2,344
Trade accounts receivable, less allowance for
doubtful accounts of $136 in 1996, $98 in
1995, and $49 in 1994................................ 4,630 3,564 4,606
Inventories............................................ 5,448 7,538 7,088
Deferred income taxes.................................. 947 527 948
Prepaid expenses and other current assets.............. 2,949 1,562 1,085
-------- -------- --------
Total current assets................................. 19,421 14,622 16,071
Noncurrent receivable from Parent........................ 34,363 29,951 21,271
Property, plant, and equipment - net..................... 27,063 27,012 25,751
Timber and timberlands - net............................. 89,637 91,778 87,958
Real estate held for development and sale................ 18,271 19,356 16,741
Other assets............................................. 5,354 2,528 1,581
-------- -------- --------
Total assets......................................... $194,109 $185,247 $169,373
======== ======== ========
Liabilities and Stockholder's Equity:
Current liabilities:
Current maturities of long-term debt................... $1,698 $1,985 $7
Trade accounts payable................................. 1,614 3,899 2,492
Accrued insurance obligations.......................... 887 705 487
Accrued taxes other than income taxes.................. 804 730 599
Other accrued liabilities.............................. 499 422 282
State income taxes..................................... 275 59 890
-------- -------- --------
Total current liabilities............................ 5,777 7,800 4,757
Long-term debt........................................... 2,685 2,817 163
Accrued postretirement benefits.......................... 3,531 3,352 3,225
Deferred credits and other liabilities................... 1,546 989 955
Stockholder's equity:
Common stock........................................... 321 321 321
Capital in excess of par value......................... 66,108 66,108 66,108
Retained earnings...................................... 114,141 103,860 93,844
-------- -------- --------
Total stockholder's equity........................... 180,570 170,289 160,273
-------- -------- --------
Total liabilities and stockholder's equity........... $194,109 $185,247 $169,373
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
DELTIC FARM & TIMBER CO., INC.
Consolidated Statements of Income
(Thousands of dollars)
<TABLE>
Nine Months Ended
September 30, Years Ended December 31,
--------------------- -------------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales................................... $64,462 $61,996 $80,662 $92,457 $69,448
------- ------- ------- -------- -------
Costs and expenses:
Cost of sales.............................. 44,045 42,475 58,731 56,521 43,925
Depreciation, amortization, and
cost of fee timber harvested............. 3,104 3,010 4,053 3,886 3,488
Selling and general expenses............... 3,583 3,281 4,535 3,675 4,657
------- ------- ------- -------- -------
Total costs and expenses............... 50,732 48,766 67,319 64,082 52,070
------- ------- ------- -------- -------
Operating income....................... 13,730 13,230 13,343 28,375 17,378
Interest income............................. 2,209 1,975 2,668 1,634 1,075
Interest expense............................ (210) (216) (309) (5) (14)
Other income................................ 1,173 127 192 572 100
------- ------- ------- -------- -------
Income before income taxes and
accounting changes......................... 16,902 15,116 15,894 30,576 18,539
Income taxes................................ (6,621) (5,877) (5,878) (12,434) (7,128)
------- ------- ------- -------- -------
Income before accounting changes............ 10,281 9,239 10,016 18,142 11,411
Cumulative effect of accounting changes,
net of income taxes........................ -- -- -- -- (4,076)
------- ------- ------- -------- -------
Net income............................. $10,281 $ 9,239 $10,016 $18,142 $ 7,335
======= ======= ======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
DELTIC FARM & TIMBER CO., INC.
Consolidated Statements of Cash Flows
(Thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
---------------------- -------------------------------------
1996 1995 1995 1994 1993
------- -------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Income before cumulative effect of changes
in accounting principles....................... $10,281 $ 9,239 $10,016 $18,142 $11,411
Adjustments to reconcile above income to
net cash provided by operating activities:
Depreciation, amortization and cost of
fee timber harvested........................ 3,104 3,010 4,053 3,886 3,488
Deferred income tax charges
(credits)..................................... (163) (417) (624) (540) (301)
(Gains) losses from disposition of
assets...................................... (832) (6) (4) (659) (117)
Real estate costs recovered upon sale......... 2,427 1,435 1,984 4,719 2,500
(Increases)/decreases in operating
working capital other than cash
and cash equivalents:
Account receivable........................ (1,066) (321) 1,042 385 (298)
Inventories............................... 2,090 157 (450) (2,286) (800)
Deferred income tax assets................ (420) 239 421 1,110 (903)
Prepaid expenses and other
current assets........................... (1,387) (3,261) (477) (527) (3)
Accounts payable ......................... (2,285) 657 1,407 970 (523)
Accrued liabilities....................... 549 (443) (342) 509 694
Other......................................... 1,268 38 (161) (1,815) 1,052
------- ------- ------- ------- -------
Net cash provided by operating
activities................................ 13,566 10,327 16,865 23,894 16,200
Investing activities:
Capital expenditures requiring cash............... (5,886) (5,792) (7,361) (10,176) (10,682)
Proceeds from disposition of property,
plant, and equipment............................ 2,824 106 126 1,129 168
Net additions to noncurrent receivable from
Parent.......................................... (2,756) (5,644) (8,680) (14,697) (5,544)
Other - net....................................... (3,313) (193) (219) (131) (157)
------- ------- ------- ------- -------
Net cash required by investing
activities................................ (9,131) (11,523) (16,134) (23,875) (16,215)
------- ------- ------- ------- -------
Financing activities - cash required for
reductions of long-term debt...................... (419) (77) (1,644) (101) (401)
------- ------- ------- ------- -------
Net decrease in cash and cash equivalents.......... 4,016 (1,273) (913) (82) (416)
Cash and cash equivalents at beginning of period... 1,431 2,344 2,344 2,426 2,842
------- ------- ------- ------- -------
Cash and cash equivalents at end of period......... $ 5,447 $ 1,071 $ 1,431 $ 2,344 $ 2,426
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
DELTIC FARM & TIMBER CO., INC.
Consolidated Statements of Stockholder's Equity
(Thousands of dollars)
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Years Ended December 31,
------------- ------------------------------------
1996 1995 1994 1993
------------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C>
Common Stock, No Par*:
Balance at beginning and end of period........ $321 $321 $321 $321
-------- -------- -------- --------
Capital in Excess of Par Value:
Balance at beginning and end of period........ 66,108 66,108 66,108 66,108
-------- -------- -------- --------
Retained Earnings:
Balance at beginning of period................ 103,860 93,844 75,702 68,367
Net income for period......................... 10,281 10,016 18,142 7,335
-------- -------- -------- --------
Balance at end of period...................... 114,141 103,860 93,844 75,702
-------- -------- -------- --------
Total Stockholder's Equity..................... $180,570 $170,289 $160,273 $142,131
======== ======== ======== ==------
</TABLE>
__________
* 5,000 shares authorized, issued, and outstanding at beginning and end of each
period.
See accompanying notes to consolidated financial statements.
Deltic Farm & Timber Co., Inc.
Notes to Consolidated Financial Statements
September 30, 1996 and 1995 and December 31, 1995, 1994, and 1993
A. Description of the Company
Deltic Farm & Timber Co., Inc. ("Deltic" or the "Company") is a wholly
owned subsidiary of Murphy Oil Corporation ("Murphy"). The Company is a
natural resources company that is engaged in timber, lumber manufacturing,
real estate development, land management, and agricultural activities
primarily in Arkansas and Louisiana. At December 31, 1995, the Company
owned 341,000 acres of timberland, two dimension-lumber sawmills, and
36,000 acres of farmland. Deltic also is developing a 4,300-acre planned
community ("Chenal Valley") on Company fee lands in western Little Rock,
Arkansas. Deltic is a 50-percent owner of Del-Tin Fiber L.L.C. ("Del-Tin
Fiber"), a limited liability company that is constructing a medium density
fiberboard plant in Union County, Arkansas. The fiberboard plant is
expected to commence operations in early 1998.
B. Significant Accounting Policies
Principles of Consolidation and Use of Estimates -- The consolidated
financial statements include the accounts of Deltic and all wholly owned
subsidiaries after elimination of significant intercompany transactions
and accounts. The investment in the 50-percent-owned limited liability
company will be accounted for using the equity method.
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 liabilities. Actual
results may differ from the estimates.
Interim Statements -- The historical consolidated balance sheet at
September 30, 1996, and the consolidated statements of income, cash
flows and stockholder's equity for the nine-month periods ended
September 30, 1996 and 1995 are unaudited, and in the opinion of the
Company's management include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the
Company's financial position and results of operations for these interim
periods.
Cash Equivalents -- Cash equivalents consist of cash in banks and U.S.
government securities that have a maturity of three months or less from
the date of purchase.
Revenue Recognition -- Revenue from the sale of lumber, wood by-products,
and agricultural goods is generally recorded as operating revenue 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 generally recorded when the sale is closed and legal
title is transferred.
Inventories -- Inventories of logs, lumber, agricultural products, and
supplies are stated at the lower of cost or market, primarily using the
average cost method. Lumber costs include materials, labor, and
production overhead. Log costs include harvest and transportation costs
as appropriate.
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.
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.
Timber and Timberlands -- Timber and timberlands, which includes logging
facilities, is stated at acquisition cost less cost of fee timber
harvested and accumulated amortization of logging facilities. The cost
of fee timber harvested and amortization of logging facilities is based
on the volume of timber harvested in relation to the estimated volume of
timber recoverable. 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.
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 tract
basis, while indirect costs are allocated over the entire Chenal Valley
project.
Income Taxes -- The Company is included in the consolidated federal income
tax return of Murphy; 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 uses the asset and liability method of accounting for income
taxes. Under this method, the provision for income taxes includes
amounts currently payable and amounts deferred as tax assets and
liabilities based on differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities
and measured using the enacted tax rates that are assumed will be in
effect when the differences reverse.
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.
C. Accounting Changes
Effective January 1, 1993, the Company elected the immediate recognition
basis for implementing SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. This accounting standard
requires that these costs (supplemental health care and life insurance) be
accrued over the service lives of employees. The cumulative effect upon
adoption was a charge against income of $1,661,000, after an income tax
effect of $856,000. Excluding the cumulative effect, adoption of the
standard did not significantly affect 1993 net income.
Effective January 1, 1993, the Company also adopted SFAS No. 109,
Accounting for Income Taxes, without restating prior years' results. The
cumulative effect of the change on 1993 net income was a charge of
$2,415,000. Excluding the cumulative effect, adoption of the standard did
not significantly affect 1993 net income.
D. Inventories
Inventories consisted of the following at December 31.
1995 1994
------ ------
(thousands of dollars)
Logs........................ $3,799 $3,097
Finished products........... 3,563 3,799
Materials and supplies...... 176 192
------ ------
$7,538 $7,088
====== ======
E. Property, Plant, and Equipment
Property, plant, and equipment consisted of the following at December 31.
Range of
Useful Lives 1995 1994
------------ ------ -------
(thousands of dollars)
Land and land improvements -- $9,969 $8,626
Buildings and structures.. 10-20 years 2,794 2,373
Machinery and equipment... 3-10 years 42,921 43,096
------- -------
55,684 54,095
Less accumulated depreciation (28,672) (28,344)
------- -------
$27,012 $25,751
======= =======
Commitments for capital expenditures were approximately $6,100,000 for
property, plant, and equipment, and $5,300,000 for real estate held for
development and sale at December 31, 1995.
F. Timber and Timberlands
Timber and timberlands consisted of the following at December 31.
1995 1994
-------- --------
(thousands of dollars)
Timberlands............................... $ 37,565 $ 37,501
Timber and logging facilities............. 80,882 75,956
-------- --------
118,447 113,457
Less accumulated costs of timber
harvested and facilities
amortization............................ (26,669) (25,499)
-------- --------
$ 91,778 $ 87,958
======== ========
Cost of fee timber harvested amounted to $1,073,000 in 1995, $1,310,000 in
1994, and $1,242,000 in 1993. Amortization of logging facilities for the
three years ended December 31, 1995 were: 1995, $97,000; 1994, $108,000;
and 1993, $100,000.
The Company obtains a portion of its timber requirements through cutting
contracts with various private and governmental landowners. These
contracts have terms ranging from a few months to several years. At
December 31, 1995, the Company's total commitment under such contracts
amounted to approximately $4,300,000. Based on lumber prices at December
31, 1995, management estimated the fair value of timber under such
contracts to be approximately $3,100,000. Depending on the market value of
this timber at time of harvest, the Company's sawmills may experience
favorable or unfavorable timber supply costs. In September 1996,
management estimated that the fair value of timber under these contracts
had improved to approximately $4,300,000.
G. Supplemental Cash Flows Disclosures
Interest paid was $273,000, $17,000, and $37,000 in 1995, 1994, and 1993.
Cash paid for state income taxes, net of refunds, was $1,825,000,
$1,797,000, and $926,000 in 1995, 1994, and 1993. Federal income taxes are
included in Murphy's consolidated tax return and are settled through
intercompany accounts.
Noncash investing and financing activities excluded from the Consolidated
Statements of Cash Flows were the assumption of debt in the amount of
$6,276,000 in 1995 and $172,000 in 1994 related to acquisition of land and
timber-cutting rights.
H. Financing Arrangements
At December 31, 1995, Murphy had two committed credit facilities with major
banks totaling $200 million. The Company is named as a potential borrower
under these credit facilities. Depending upon the credit facility,
borrowings bear interest at prime or various cost of funds options.
Facility fees are due at varying rates on the commitments and are paid by
Murphy. The facilities expire at dates ranging from 1996 through 1999. No
amount was outstanding under these facilities at December 31, 1995.
I. Long-Term Debt
Long-term debt consisted of the following at December 31.
1995 1994
------ ------
(thousands of dollars)
Installment timber notes payable, average
interest rate of 5.8%,
due 1996-2000.......................... $4,006 $ 116
Note payable, 8%, due 1999.............. 750 --
Other notes payable, 9%, due 1996-2000.. 46 54
------ -----
4,802 170
Less current maturities................. 1,985 7
------ -----
$2,817 $ 163
====== =====
Amounts becoming due after 1996 are: 1997, $1,698,000; 1998, $133,000;
1999, $868,000; and 2000, $118,000.
J. Income Taxes
The components of income tax expense (benefits) for the three years ended
December 31, 1995 were as follows.
1995 1994 1993
------ ------ ------
(thousands of dollars)
Federal
Current......... $5,086 $10,006 $6,917
Deferred........ (203) 570 (1,084)
------ ------- ------
4,883 10,576 5,833
State - Current... 995 1,858 1,295
------ ------- ------
Total......... $5,878 $12,434 $7,128
====== ======= ======
Following is a reconciliation of the U.S. statutory income tax rate to the
Company's effective rates on income before income taxes.
1995 1994 1993
---- ---- ----
Statutory income tax rate......................... 35% 35% 35%
State income taxes, net of federal income tax
benefit......................................... 4 4 4
Other............................................. (2) 2 (1)
--- --- ---
Effective income tax rate........................ 37% 41% 38%
=== === ===
An analysis of the Company's deferred tax assets and deferred tax
liabilities at December 31, 1995 and 1994 showing the tax effects of
significant temporary differences follows.
1995 1994
------ ------
(thousands of dollars)
Deferred tax assets:
Postretirement and other employee benefits $1,299 $1,203
Real estate held for development
and sale............................. 2,371 2,398
Other deferred tax assets.............. 305 254
------ ------
Total deferred tax assets............ 3,975 3,855
------ ------
Deferred tax liabilities:
Property, plant, and equipment......... (1,973) (1,618)
Timber and timberlands................. (512) (1,005)
Other deferred tax liabilities......... (462) (402)
------ ------
Total deferred tax liabilities....... (2,947) (3,025)
------ ------
Net deferred tax assets.............. $1,028 $ 830
====== ======
Net noncurrent deferred tax assets of $501,000 are included in the
Consolidated Balance Sheet in Other Assets at December 31, 1995, and net
noncurrent deferred tax liabilities of $118,000 are included in Deferred
Credits and Other Liabilities at December 31, 1994.
In management's judgment, the Company's tax assets at December 31, 1995
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 any of the three
years ended December 31, 1995.
K. Employee and Retiree Benefits
Retirement Plans - Murphy has defined benefit retirement plans that cover
substantially all employees of the Company. Benefits are based on years of
service and final-pay formulas as defined by the plans. All plans are
noncontributory.
Retirement expense (expense reduction) and its components for the three
years ended December 31, 1995, are shown in the following table.
1995 1994 1993
------ ------ ------
(thousands of dollars)
Service cost -- benefits earned during
the year............................ $284 $327 $406
Interest accrued on benefits earned
in prior years...................... 644 618 590
Actual return on plan assets.......... (2,074) (243) (491)
Net amortization and deferral......... 1,134 (705) (430)
------ ----- -----
Net retirement expense (expense
reduction)*........................ $(12) $(3) $75
====== ===== =====
__________
* Major assumptions were discount rates of 7.5% for 1995 and 6.75% for 1994
and 1993; assumed long-term rate of return on plan assets was 8.5% for
1995, 1994 and 1993.
Amounts contributed to funded plans are actuarially determined and are 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 at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
-------- -------
(thousands of dollars)
<S> <C> <C>
Present value of accumulated benefit based on years of service,
applicable pay formulas, and present pay levels
Vested.............................................................. $7,343 $6,525
Nonvested........................................................... 540 336
Accumulated benefit obligation(1)................................ 7,883 6,861
Provision for future pay increases.................................... 1,680 1,708
------ ------
Projected benefit obligation(1).................................. 9,563 8,569
Plan assets -- at market value(2)..................................... 11,617 9,918
------ ------
Plan assets in excess of projected benefit obligation............ 2,054 1,349
Unrecognized net asset from transition to SFAS No. 87(3).............. (1,087) (1,230)
Unrecognized net loss from unfavorable actuarial experience........... 249 1,101
Unrecognized prior service cost....................................... 83 91
------ ------
Prepaid retirement cost(4)....................................... $1,299 $1,311
====== ======
</TABLE>
__________
(1) Major assumptions were discount rates of 7% for 1995 and 7.5% for
1994 and future pay rate increases of 4.6% for 1995 and 5% for 1994.
(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 "Other
Assets".
Thrift Plans - Employees of the Company may participate in thrift plans
sponsored by Murphy by allotting up to a specified percentage of their base
pay. The Company matches contributions at a stated percentage of each
employee's allotment based on length of participation in the plans.
Company contributions to these plans were $172,000 in 1995, $151,000 in
1994, and $145,000 in 1993.
Postretirement Benefits - Murphy sponsors plans that provide comprehensive
health care benefits (supplementing Medicare benefits for those eligible)
and life insurance benefits for qualified retired employees. Costs are
accrued for these plans during the service lives of covered employees.
Retirees and the Company contribute to the self-funded cost of health care
benefits. The Company pays premiums for life insurance coverage, arranged
through an insurance company. The health care plan is funded on a
pay-as-you-go basis. The Company has the right to modify the benefits
and/or cost-sharing provisions.
Based on actuarial computations, postretirement expense and its components
for 1995, 1994, and 1993 are shown below.
1995 1994 1993
---- ---- ----
(thousands of dollars)
Service cost...................... $90 $146 $74
Amortization of net actuarial loss 60 38 --
Interest cost..................... 316 301 248
---- ---- ----
Postretirement expense......... $466 $485 $322
==== ==== ====
A summary follows of the postretirement benefit obligations recorded in the
Consolidated Balance Sheets at December 31, 1995 and 1994. Calculation of
the amount of accumulated unfunded postretirement benefit obligations
(APBO) was based on discount rates of 7.0 percent and 7.75 percent in 1995
and 1994.
1995 1994
------ ------
(thousands of dollars)
APBO
Retirees......................... $2,718 $2,171
Fully eligible active
participants................... 581 625
Other active participants........ 1,266 1,694
------ ------
Total unfunded APBO........... 4,565 4,490
Unrecognized net actuarial loss.... (1,213) (1,265)
------ ------
Accrued APBO obligations...... $3,352 $3,225
====== ======
In determining the APBO at December 31, 1995, health care inflation cost
was assumed to increase at an annual rate of 8.5 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 both the 1995
postretirement benefit expense and the APBO at December 31, 1995 by 13.9
percent.
L. Related Party Transactions
Under Murphy's consolidated cash management policy, Deltic remits cash
funds generated in excess of its daily requirements to Murphy. Such
remitted funds have given rise to an interest-bearing receivable from
Murphy that is due on demand. The Company classified the receivable as
noncurrent since it does not anticipate receiving payment within the next
year. At December 31, 1995, the receivable earned interest at a rate of
5.61 percent. The receivable from Murphy totaled $29,951,000 at December
31, 1995, and $21,271,000 at December 31, 1994. Deltic's interest income
from this receivable was $1,978,000 in 1995, $1,047,000 in 1994, and
$563,000 in 1993. Murphy charged Deltic $2,015,000 in 1995, $1,935,000 in
1994, and $2,175,000 in 1993 for administrative and financial services it
provided on Deltic's behalf. These amounts were included in Selling and
General Expenses on the Consolidated Statement of Income, except for
$228,000 of costs capitalized in 1995 related to acquisition of mineral
leases. Selling and General Expenses in 1994 included a reduction of
$1,056,000 related to reallocation of certain retirement plan assets among
affiliates of Murphy Oil Corporation.
M. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values
of financial instruments held by the Company at December 31, 1995 and 1994.
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 trade accounts receivable, trade accounts
payable, and accrued liabilities, all of which had fair values
approximating carrying values.
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
Carrying or Carrying or
Notional Estimated Notional Estimated
Amount Fair Value Amount Fair Value
----------- ---------- ----------- ----------
(thousands of dollars)
<S> <C> <C> <C> <C>
Financial liabilities
Long-term debt, including current
maturities....................... $(4,802) $(4,878) $(170) $(170)
Off-balance-sheet exposures
Letters of credit................... (682) (682) (563) (563)
</TABLE>
Long-term debt, including current maturities - The fair value is estimated
based on current rates offered the Company for debt of the same maturities.
Letters of credit - The fair value is based on the estimated cost to settle
these obligations.
N. Concentration of Credit Risk
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,
1995, the Company had no significant concentration of credit risk
outside the timber and wood products industry.
O. Del-Tin Fiber
Deltic and Temple-Inland Forest Products Corporation jointly own Del-Tin
Fiber, which has committed to build a medium density fiberboard plant near
El Dorado, Arkansas. The cost of the plant has been estimated at
approximately $100,000,000. Financing arrangements have not been
finalized. Each owner has tentatively committed funding of up to
$10,000,000 for the project, with the remainder to be financed with
borrowings. Each owner is expected to be 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. At December 31,
1995, $114,000 of costs were capitalized in Other Assets in the
Consolidated Balance Sheet related to the Company's investment in Del-Tin
Fiber.
P. Business Segments
Information about the Company's business segments is summarized in the
following tables. Intrasegment transfers are at market prices.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------------- ---------------------------------------
(unaudited)
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Net sales:
Forest products................... $53,999 $55,584 $68,258 $73,636 $57,138
Real estate....................... 5,095 3,041 4,188 9,635 5,360
Agriculture....................... 5,368 3,371 8,216 9,186 6,950
------- ------- ------- ------- -------
$64,462 $61,996 $80,662 $92,457 $69,448
======= ======= ======= ======= =======
Income before income taxes and
accounting changes:
Forest products................. $13,098 $14,364 $14,748 $24,818 $18,650
Real estate..................... 1,471 753 999 3,637 1,787
Agriculture..................... 1,394 104 373 1,896 (125)
Corporate and other............. (2,233) (1,991) (2,777) (1,976) (2,934)
------- ------- ------- ------- -------
Operating income............. 13,730 13,230 13,343 28,375 17,378
Interest income................. 2,209 1,975 2,668 1,634 1,075
Interest expense................ (210) (216) (309) (5) (14)
Other income.................... 1,173 127 192 572 100
-------- -------- -------- -------- --------
$ 16,902 $ 15,116 $ 15,894 $ 30,576 $ 18,539
======== ======== ======== ======== ========
Identifiable assets at period-end:
Forest products................... $116,640 $121,944 $118,797 $114,725 $110,085
Real estate....................... 22,400 17,847 20,539 17,770 18,414
Agriculture....................... 10,940 13,487 11,613 12,420 12,710
Corporate and other............... 44,129 31,860 34,298 24,458 8,622
-------- -------- -------- -------- --------
$194,109 $185,138 $185,247 $169,373 $149,831
======== ======== ======== ======== ========
Depreciation, amortization, and
cost of fee timber
harvested:
Forest products................. $2,737 $2,478 $3,307 $3,270 $2,872
Real estate..................... 77 27 31 25 24
Agriculture..................... 381 424 561 561 580
Corporate and other............. (91) 81 154 30 12
-------- -------- -------- -------- --------
$ 3,104 $ 3,010 $ 4,053 $ 3,886 $ 3,488
======== ======== ======== ======== ========
Capital expenditures:
Forest products................... $ 1,083 $ 8,103 $ 7,216 $ 6,167 $ 4,573
Real estate....................... 4,212 1,828 4,638 3,849 5,674
Agriculture....................... 156 114 245 266 395
Corporate and other............... 435 1,273 1,538 66 40
-------- -------- -------- -------- --------
$ 5,886 $ 11,318 $ 13,637 $ 10,348 $ 10,682
======== ======== ======== ======== ========
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Deltic Timber Corporation:
We have audited the accompanying balance sheet of Deltic Timber Corporation as
of September 4, 1996. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Deltic Timber Corporation at
September 4, 1996 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Shreveport, Louisiana
September 5, 1996
DELTIC TIMBER CORPORATION
Balance Sheet
as of September 4, 1996
ASSETS
------
Cash.................................................. $ 1
---
Total Assets.................................... $ 1
===
STOCKHOLDER'S EQUITY
--------------------
Common stock, 100 shares authorized,
100 issued at $.01 par value........................ $ 1
---
Total stockholder's equity...................... $ 1
===
See note to balance sheet.
Deltic Timber Corporation
Note to Balance Sheet
DESCRIPTION OF BUSINESS
Deltic Timber Corporation (the "Company"), a Delaware
corporation, is a wholly-owned subsidiary of Murphy Oil Corporation
("Murphy"). Murphy currently intends to make a distribution (the
"Distribution") to its stockholders of all the outstanding shares of the
Company owned by Murphy. Prior to the Distribution, (i) the Company will
become the successor by merger to Deltic Farm & Timber Co., Inc., an Arkansas
corporation (the "Predecessor Company"), (ii) the Company's certificate of
incorporation will be amended to provide for authorized capital stock of
70,000,000 shares, including 50,000,000 shares of common stock, par value $.01
per share ("Common Stock"), and 20,000,000 shares of preferred stock, par
value $.01 per share, and (iii) each share of Common Stock then issued and
outstanding shall be subdivided and converted, without any action on the part
of the holder thereof, into a specified number of fully paid and
non-assessable shares of Common Stock, such that the aggregate number of
shares of Common Stock then issued and outstanding will be sufficient to
permit to the Distribution.
The financial statements of the Predecessor Company are
included in the Registration Statement on Form 10 filed by the Company with
the Securities and Exchange Commission in connection with the Distribution.
The Company is not engaged in any other activity.
