As filed with the Securities and Exchange Commission on September 9, 1996
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10
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 7000
EL DORADO, ARKANSAS
(Address of Principal 71731-7000
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 The New York Stock Exchange, Inc.
$.01 per share
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
Item Location In Information Statement
---- ---------------------------------
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
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
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2.1 Form of Distribution Agreement between Murphy Oil Corporation
("Murphy") and the Registrant.*
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.*
3.2 Amended and Restated Bylaws of the Registrant.*
4.1 Form of Rights Agreement between the Registrant and ,
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.
- --------------
* To be filed by amendment.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this 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: September 9, 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 , 1996. In the distribution, you will receive
shares of Deltic common stock for every 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 " ."
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 36,000 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 September 9, 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 the 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 , 1996 (the "Record Date") on the basis
of shares of Company Common Stock for every 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 , 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 on or about the
Record Date. Application will be made to list the Company Common Stock on the
New York Stock Exchange under the symbol " ." See "Trading Market."
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.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Introduction .............................................................. 1
Summary ................................................................... 2
Risk Factors .............................................................. 9
The Distribution .......................................................... 13
Relationship Between the Company and Murphy ............................... 15
Trading Market ............................................................ 18
Dividends ................................................................. 19
Pro Forma Consolidated Financial Statements ............................... 20
Pro Forma Capitalization .................................................. 26
Selected Historical Financial Data ........................................ 27
Management's Discussion and Analysis of Financial Condition and
Results of Operations ..................................................... 29
Business .................................................................. 36
Management ................................................................ 44
Security Ownership of Certain Beneficial Owners and Management ............ 47
Description of Capital Stock .............................................. 49
Certain Statutory, Charter and Bylaw Provisions and Rights Agreement ...... 50
Independent Auditors ...................................................... 54
Additional Information .................................................... 54
Index to Financial Statements ............................................. F-i
<PAGE>
INTRODUCTION
On , 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 , 1996 (the "Record Date") of shares of
Company Common Stock for every 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 (the "Distribution Agent"), ; or Murphy
Oil Corporation, W. Bayless Rowe, Secretary, 200 Peach Street, El Dorado,
Arkansas 71731-7000. The Distribution Agent's telephone number is .
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, Ron L. Pearce, President, 200
Peach Street, El Dorado, Arkansas 71731-7000. 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.
<PAGE>
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 36,000 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. ("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
<PAGE>
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 36,000 acres of farmland in northeastern Louisiana and
southeastern Arkansas. Approximately 25,000 acres of the total are farmed by
Deltic, while the remaining 11,000 acres are rented to third parties. The
primary crops are cotton, soybeans, corn, wheat, and rice.
The Company was incorporated in September 1996 and, immediately prior to
the Distribution, will become the successor to Deltic Farm & Timber Co., Inc.,
an Arkansas corporation.
<PAGE>
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 , 1996, it is estimated
that approximately 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.............. shares of Company Common Stock for every
shares of Murphy Common Stock held by
Murphy stockholders of record on the Record
Date.
Record Date..................... , 1996 (4 p.m. New York time).
Distribution Date............... , 1996 (4 p.m. New York time).
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 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 on or about the Record Date.
Application will be made to list the Company
Common Stock on the New York Stock Exchange
under the symbol " ." See "Trading
Market."
<PAGE>
Tax Consequences................ Murphy has filed an application for a private
letter ruling from the Internal Revenue
Service to the effect that the Distribution
will qualify as a tax-free distribution for
federal income tax purposes. It is a condition
precedent to Murphy's obligation to consummate
the Distribution that the Company receive (i)
a favorable private letter ruling from the
Internal Revenue Service or (ii) an opinion of
counsel satisfactory to Murphy, in either case
relating to the tax-free nature of the
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.
<PAGE>
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 June 30, 1996 and 1995 and for the six-month
periods ended June 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
six-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
Six Months Ended
June 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>
Financial Data:
Income Statement Data:
Net sales....................... $38,811 $42,422 $80,662 $92,457 $69,448 $60,528 $50,553
------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Cost of sales................. 26,024 26,877 58,731 56,521 43,925 42,416 38,464
Depreciation,
amortization,
and cost of
fee timber harvested........ 2,089 1,973 4,053 3,886 3,488 3,152 3,231
Selling and
general expenses............ 1,836 1,695 4,535 3,675 4,657 5,596 4,674
------- ------- ------- ------- ------- ------- -------
Total costs and expenses. 29,949 30,545 67,319 64,082 52,070 51,164 46,369
------- ------- ------- ------- ------- ------- -------
Operating income................ 8,862 11,877 13,343 28,375 17,378 9,364 4,184
Interest income................. 1,369 1,290 2,668 1,634 1,075 1,202 1,225
Interest expense................ (140) (133) (309) (5) (14) (50) (87)
Other income.................... 407 97 192 572 100 474 200
------- ------- ------- ------- ------- ------- -------
Income before
income taxes and accounting
changes....................... 10,498 13,131 15,894 30,576 18,539 10,990 5,522
Income tax expense.............. (4,183) (5,096) (5,878) (12,434) (7,128) (4,329) (1,934)
------- ------- ------- ------- ------- ------- -------
Income before accounting changes 6,315 8,035 10,016 18,142 11,411 6,661 3,588
Cumulative effect of accounting
changes....................... -- -- -- -- (4,076) -- --
------- ------- ------- ------- ------- ------- -------
Net income...................... $6,315 $8,035 $10,016 $18,142 $7,335 $6,661 $3,588
======= ======= ======= ======= ======= ======= =======
Balance Sheet Data and Ratios:
Total assets ................... $189,606 $182,383 $185,247 $169,373 $150,761 $139,478 $133,547
Working capital ................ 9,787 9,609 6,822 11,314 11,520 9,824 8,041
Current ratio .................. 2.6 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) ..................... $ 2,686 $ 3,697 $ 2,817 $ 163 $ 54 $ 174 $ 570
Stockholder's equity ........... 176,604 168,308 170,289 160,273 142,131 134,796 129,493
Debt to stockholder's equity
ratio ........................ .015 to 1 .022 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 ...... $ 7,084 $ 9,154 $ 16,865 $ 23,894 $ 16,200 $ 11,679 $ 8,855
Cash required by investing
activities ................... 7,630 10,570 16,134 23,875 16,215 10,835 9,240
Cash required by financing
activities ................... 355 32 1,644 101 401 379 370
EBITDA(1) ...................... 10,951 13,850 17,396 32,261 20,866 12,516 7,415
Capital expenditures requiring
cash ......................... 4,765 6,153 7,361 10,176 10,682 8,849 4,194
Cash and equivalents at end of
period ....................... 530 896 1,431 2,344 2,426 2,842 2,377
Operating Data:
Thousands of acres owned
at end of period ............. 386 386 386 387 387 388 387
Pine sawtimber harvested
from fee lands (MBF-DS)(2).... 24,163 25,388 35,736 40,616 37,635 30,177 32,956
Average pine sawtimber
prices ($/MBF-DS) ............ 346 437 406 372 310 274 202
Finished lumber production
(MBF)(3) ..................... 70,411 72,147 140,555 136,713 112,365 101,203 92,846
Annual sawmill capacity at
end of period (MBF)........... 165,000 165,000 165,000 165,000 122,600 100,100 100,100
Finished lumber sales (MBF)..... 70,417 72,390 140,549 138,377 115,136 105,619 95,024
Average finished lumber sales
prices ($/MBF) ............... 316 332 318 363 335 259 215
Residential lots sold .......... 54 35 71 163 81 134 50
Average price for residential
lots sold ($/lot) ............ 53,200 55,900 52,900 56,700 60,000 38,800 61,400
Commercial acres sold(4) ....... -- -- -- -- -- -- 17
Average price for commercial
acres sold ($/acre) .......... -- -- -- -- -- -- 32,700
Number of employees at end of
period ....................... 348 370 358 317 301 296 266
<FN>
- -------------------
(1) EBITDA is defined as earnings before other income, interest income,
interest expense, income taxes, and depreciation, amortization and cost
of fee timber harvested. EBITDA does not represent cash flows as
defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of the
Company's cash needs. EBITDA should not be considered in isolation or
as a substitute for net income, cash from operating activities or other
measures of liquidity determined in accordance with generally accepted
accounting principles.
(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>
<PAGE>
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 six months ended June 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 June
30, 1996 as if the Distribution had occurred on June 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 conditions 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.
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
------------- -----------------
(dollars in thousands, except earnings per share)
Income Statement Data:
Net sales .................... $38,811 $80,662
Operating income ............. 8,209 12,212
Net income ................... 5,449 8,283
Earnings per share ........... [ ] [ ]
Balance Sheet Data:
Total assets .................. 157,217
Total long-term debt (including
current portion) ............ 4,448
Stockholders' equity .......... 145,067
<PAGE>
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 six months ended June 30, 1996, the Company acquired
approximately eight 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. In addition, as described below, harvesting may be affected by damage to
the Timberlands
<PAGE>
from natural disasters, future regulatory restrictions on the Company, and
general business conditions during such time period.
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."
<PAGE>
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 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, 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.
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 is also planned. 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. There can be no assurance that the Company
will receive payment in full for the Club Facilities by such date.
Risk Inherent in the Farming Industry
The Company's farming operations consist of approximately 36,000 acres in
northeastern Louisiana and southeastern Arkansas, 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.
<PAGE>
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 will apply for listing of the
Company Common Stock on the New York Stock Exchange. A condition to Murphy's
obligation to consummate the Distribution is that the Company Common Stock to be
issued in the Distribution shall have been approved for listing on the New York
Stock Exchange. 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 may 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 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
<PAGE>
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 of a nationally recognized independent tax counsel acceptable to Murphy
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, thereby separating Deltic's
timber, farming and real estate businesses from Murphy's core oil and gas
operations.
The Murphy Board believes 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.
See "Business--Growth Strategy." To take advantage of such opportunities,
the Company will require significant capital investment. The Murphy Board
has reviewed a variety of alternative approaches for providing for the
capital needs of the Company's business and has 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.
<PAGE>
In concluding that the Distribution is in the best interests of Murphy,
Deltic and Murphy's stockholders, the Murphy Board also considered, among other
things, that: (i) 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; (ii) the Distribution is intended, by separating the two companies,
to enable the financial markets to evaluate both Murphy and Deltic more
effectively; and (iii) the Distribution will permit Murphy and Deltic 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.
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 , 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 , 1996 (the "Record Date"). The Distribution
will be made on the basis of shares of Company Common Stock
for every 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 , 1996, approximately 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. Prior to the Distribution,
Murphy expects to receive 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.
<PAGE>
(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 (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) (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
<PAGE>
(and not to that of the Company Group) and (ii) Murphy will use its best efforts
to transfer to the Company 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).
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 or waived by Murphy prior to or as of the
Distribution Date: (i) the Company's Registration Statement on 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 Record 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
<PAGE>
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 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 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. 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. After 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 Common Stock, as well as options 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
benefit plans, in accordance with the agreement to provide transitional services
described above.
Intercompany Accounts
At June 30, 1996, the Company accounts reflected a $32.8 million receivable
from Murphy. Immediately prior to the Distribution, all indebtedness between
Murphy and the Company will be settled by a combination of cash repayment by
Murphy to the Company and a distribution by the Company to Murphy 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,
<PAGE>
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 of a nationally recognized independent
tax counsel acceptable to Murphy 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 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 on or
about the Record Date. The Company will apply for listing of the Company Common
Stock on the New York Stock Exchange under the symbol " ." It
is a condition to the obligation of Murphy to consummate the
<PAGE>
Distribution that the Company Common Stock to be issued in the Distribution
shall have been approved for listing on the New York Stock Exchange, subject to
official notice of issuance. See "Relationship Between the Company and
Murphy--Terms of the Distribution Agreement."
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 may 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. 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. 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.
<PAGE>
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 six months ended June 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 June 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 June 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.
<PAGE>
<TABLE>
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)
<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 (1,325)(B) 5,826
34 (A)
------ ------
Total costs and expenses ............................... 67,319 68,450
------ ------
Operating income ....................................... 13,343 12,212
Interest income ............................................ 2,668 (1,720)(C) 948
Interest expense ........................................... (309) (309)
Other income ............................................... 192 192
------ ------
Income before income taxes ................................. 15,894 13,043
Income taxes ............................................... (5,878) 1,118 (D) (4,760)
------ ----- ------
Net income ............................................. $10,016 $(1,733) $8,283
======= ======= ======
Earnings per share.......................................... $ [ ]
==========
Weighted average number of common shares outstanding (E).... [ ]
==========
See Notes to Unaudited Pro Forma Consolidated Statements of Income.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deltic Timber Corporation
Unaudited Pro Forma Consolidated Statement of Income
Six Months Ended June 30, 1996
($ in thousands, except per share
amounts and number of shares)
Adjustments Pro Forma
for for
Historical Distribution Distribution
---------- ------------ ------------
<S> <C> <C> <C>
Net sales .................................................. $38,811 $38,811
------- -------
Costs and expenses:
Cost of sales ............................................ 26,024 26,024
Depreciation, amortization, and cost of fee timber
harvested .............................................. 2,089 2,089
Selling and general expenses ............................. 1,836 $(653)(B) 2,489
------ ------
Total costs and expenses ............................... 29,949 30,602
------ ------
Operating income ....................................... 8,862 8,209
Interest income ............................................ 1,369 (771)(C) 598
Interest expense ........................................... (140) (140)
Other income ............................................... 407 407
------ ------
Income before income taxes ................................. 10,498 9,074
Income taxes ............................................... (4,183) 558(D) (3,625)
------ --- ------
Net income ............................................. $6,315 $(866) $5,449
====== ===== ======
Earnings per share ......................................... $[ ]
======
Weighted average number of common shares outstanding (E).... [ ]
======
See Notes to Unaudited Pro Forma Consolidated Statements of Income.
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Unaudited Pro Forma Consolidated Statements of Income
For the Year Ended December 31, 1995 and the
Six Months Ended June 30, 1996
The Unaudited Pro Forma Consolidated Statements of Income of the Company
for the year ended December 31, 1995 and the six months ended June 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 selling and general costs associated
with operations as an autonomous entity rather than as a wholly-owned
subsidiary of Murphy. The additional expenses primarily consist of
salaries and benefits due to additional personnel requirements, and
costs associated with public company reporting and Board of Directors'
fees. The additional expenses include consideration of transitional
services provided to the Company by Murphy.
(C) To reduce interest income for interest earned on receivable from
Murphy. Immediately prior to the Distribution, such amounts owed by
Murphy to the Company will be settled by a combination of a cash
repayment by Murphy to the Company and a distribution by the Company
to Murphy 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) The weighted average number of common shares outstanding reflects the
Distribution ratio times the number of shares of Murphy Common Stock
outstanding on the Record Date.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Deltic Timber Corporation
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 1996
($ in thousands)
Adjustments Pro Forma
for for
Historical Distribution Distribution
---------- ------------ ------------
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents ............... $ 530 $ [ ] (A) $ 530
Trade accounts receivable ............... 4,362 4,362
Inventories ............................. 5,390 5,390
Deferred income taxes ................... 1,217 1,217
Prepaid expenses and other current assets 4,299 4,299
-------- -------- --------
Total current assets ........... 15,798 15,798
Noncurrent receivable from Murphy ......... 32,826 (32,826) (A)
Property, plant, and equipment - net ...... 27,664 27,664
Timber and timberlands - net .............. 91,265 91,265
Real estate held for development and sale . 18,851 18,851
Other assets .............................. 3,202 661 (B) 3,639
(224) (C)
-------- -------- --------
Total assets ................... $189,606 $(32,389) $157,217
======== ======== ========
Liabilities and Stockholder's Equity:
Current liabilities:
Current maturities of long-term debt .... $ 1,762 $ 1,762
Trade accounts payable .................. 1,386 1,386
Accrued insurance obligations ........... 889 889
Accrued taxes other than income taxes ... 1,110 1,110
Other accrued liabilities ............... 491 491
State income taxes ...................... 373 373
-------- --------
Total current liabilities ....... 6,011 6,011
Long-term debt ............................ 2,686 2,686
Accrued postretirement benefits ........... 3,490 $ (1,322) (B) 2,168
Deferred credits and other liabilities .... 815 470 (C) 1,285
Stockholders' equity:
Common stock ............................ 321 [ ] (D) [ ]
Capital in excess of par value .......... 66,108 [ ] (D) [ ]
Retained earnings ....................... 110,175 (31,537) (E) 78,638
-------- --------
Total stockholders' equity ...... 176,604 145,067
-------- -------- --------
Total liabilities and
stockholders' equity............ $189,606 $(32,389) $157,217
======== ======== ========
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
</TABLE>
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Unaudited Pro Forma Consolidated Balance Sheet
at June 30, 1996
The Unaudited Pro Forma Consolidated Balance Sheet of Deltic as of June 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 cash repayment by Murphy to
the Company and a distribution by the Company to Murphy to the
extent of the remaining receivable. The pro forma adjustments
as presented assume no cash repayment; the actual amount of
the cash repayment will be determined prior to effectiveness
of the Form 10.
(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 outstanding on the Record
Date) 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.
<PAGE>
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
June 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 June 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>
June 30, 1996
($ in thousands)
----------------------------------------------
Adjustments Pro Forma
for for
Historical Distribution Distribution
---------- ------------ ------------
<S> <C> <C> <C>
Current maturities of long-term debt ...... $ 1,762 $ 1,762
========= ========
Long-term debt:
Installment timber notes ................ $ 1,905 $ 1,905
Other notes payable ..................... 781 781
--------- --------
Total long-term debt .................. 2,686 2,686
Stockholders' Equity:
Preferred stock, par value $.01,
20,000,000 shares authorized, none
issued ............................... N/A --
Common stock ............................ 321 [ ] (A) [ ]
Capital in excess of par value .......... 66,108 [ ] (A) [ ]
Retained earnings ....................... 110,175 (31,537)(B) 78,638
--------- --------
Total stockholders' equity ............ 176,604 145,067
--------- --------- --------
Total capitalization .................. $ 179,290 $ (31,537) $147,753
========= ========= ========
-------------------
(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 will be issued and outstanding (based on the Distribution
ratio times the number of shares of Murphy Common Stock outstanding
on the Record Date).
(B) To reflect changes to Retained earnings for pro forma adjustments at June
30, 1996.
</TABLE>
<PAGE>
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 June 30, 1996 and 1995 and for the six-month
periods ended June 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
six-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>
Six Months Ended
June 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.................... $ 38,811 $ 42,422 $ 80,662 $ 92,457 $ 69,448 $ 60,528 $ 50,553
-------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Cost of sales.............. 26,024 26,877 58,731 56,521 43,925 42,416 38,464
Depreciation, amortization,
and cost of fee timber
harvested ............... 2,089 1,973 4,053 3,886 3,488 3,152 3,231
Selling and
general expenses ........ 1,836 1,695 4,535 3,675 4,657 5,596 4,674
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses ............ 29,949 30,545 67,319 64,082 52,070 51,164 46,369
-------- -------- -------- -------- -------- -------- --------
Operating income ............ 8,862 11,877 13,343 28,375 17,378 9,364 4,184
Interest income ............. 1,369 1,290 2,668 1,634 1,075 1,202 1,225
Interest expense ............ (140) (133) (309) (5) (14) (50) (87)
Other income ................ 407 97 192 572 100 474 200
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes and accounting
changes ................... 10,498 13,131 15,894 30,576 18,539 10,990 5,522
Income tax expense.... (4,183) (5,096) (5,878) (12,434) (7,128) (4,329) (1,934)
-------- -------- -------- -------- -------- -------- --------
Income before accounting
changes ................... 6,315 8,035 10,016 18,142 11,411 6,661 3,588
Cumulative effect of
accounting changes......... -- -- -- -- (4,076) -- --
-------- -------- -------- -------- -------- -------- --------
Net income ........... $ 6,315 $ 8,035 $ 10,016 $ 18,142 $ 7,335 $ 6,661 $ 3,588
======== ======== ======== ======== ======== ======== ========
Balance Sheet Data and Ratios:
Total assets ................ $189,606 $182,383 $185,247 $169,373 $150,761 $139,478 $133,547
Working capital ............. 9,787 9,609 6,822 11,314 11,520 9,824 8,041
Current ratio ............... 2.6 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) .................. $ 2,686 $ 3,697 $ 2,817 $ 163 $ 54 $ 174 $ 570
Stockholder's equity ........ 176,604 168,308 170,289 160,273 142,131 134,796 129,493
Debt to stockholder's equity
ratio ..................... .015 to 1 .022 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 ... $ 7,084 $ 9,154 $ 16,865 $ 23,894 $ 16,200 $ 11,679 $ 8,855
Cash required by investing
activities ................ 7,630 10,570 16,134 23,875 16,215 10,835 9,240
Cash required by financing
activities ................ 355 32 1,644 101 401 379 370
EBITDA(1) ................... 10,951 13,850 17,396 32,261 20,866 12,516 7,415
Capital expenditures
requiring cash ............ 4,765 6,153 7,361 10,176 10,682 8,849 4,194
Cash and equivalents at end
of period ................. 530 896 1,431 2,344 2,426 2,842 2,377
Operating Data:
Thousands of acres owned
at end of period .......... 386 386 386 387 387 388 387
Pine sawtimber harvested
from fee lands (MBF-DS)(2). 24,163 25,388 35,736 40,616 37,635 30,177 32,956
Average pine sawtimber
prices ($/MBF-DS) ......... 346 437 406 372 310 274 202
Finished lumber production
(MBF)(3) .................. 70,411 72,147 140,555 136,713 112,365 101,203 92,846
Annual sawmill capacity at
end of period (MBF)........ 165,000 165,000 165,000 165,000 122,600 100,100 100,100
Finished lumber sales (MBF).. 70,417 72,390 140,549 138,377 115,136 105,619 95,024
Average finished lumber sales
prices ($/MBF) ............ 316 332 318 363 335 259 215
Residential lots sold ....... 54 35 71 163 81 134 50
Average price for residential
lots sold ($/lot) ......... 53,200 55,900 52,900 56,700 60,000 38,800 61,400
Commercial acres sold(4) .... -- -- -- -- -- -- 17
Average price for commercial
acres sold ($/acre) ....... -- -- -- -- -- -- 32,700
Number of employees at end of
period .................... 348 370 358 317 301 296 266
<FN>
- -------------------
(1) EBITDA is defined as earnings before other income, interest income,
interest expense, income taxes, and depreciation, amortization and
cost of fee timber harvested. EBITDA does not represent cash flows
as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all of
the Company's cash needs. EBITDA should not be considered in
isolation or as a substitute for net income, cash from operating
activities or other measures of liquidity determined in accordance
with generally accepted accounting principles.
(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>
<PAGE>
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 36,000 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 half 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 six months ended June 30, 1996 was $6.3 million, down
$1.7 million from the same period in 1995. Net sales declined $3.6 million in
the first half of 1996 compared to the first half of 1995, amounting to $38.8
million. The decline in both net sales and net income was primarily attributable
to the Company's core forest products business, as average sales prices for pine
sawtimber harvested and finished lumber declined 21 percent and five percent,
respectively.
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")
<PAGE>
in 1995 compared 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
forest products, real estate and agricultural operating results. 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 six months ended June 30, 1996 and 1995 and
the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
------------------------- ------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Net sales:
Forest products .......................... $ 35.2 $ 39.5 $ 68.3 $ 73.7 $ 57.1
Real estate .............................. 3.0 2.1 4.2 9.6 5.4
Agriculture .............................. 0.6 0.8 8.2 9.2 6.9
------- ------- ------- ------- -------
Net sales .............................. $ 38.8 $ 42.4 $ 80.7 $ 92.5 $ 69.4
======= ======= ======= ======= =======
Operating income and net income:
Forest products .......................... $ 8.9 $ 12.1 $ 14.7 $ 24.8 $ 18.6
Real estate .............................. 0.9 0.6 1.0 3.7 1.8
Agriculture .............................. -- -- 0.4 1.9 (0.1)
Corporate and other ...................... (0.9) (0.8) (2.8) (2.0) (2.9)
------- ------- ------- ------- -------
Operating income ....................... 8.9 11.9 13.3 28.4 17.4
Net interest income ........................ 1.2 1.1 2.4 1.6 1.0
Other income ............................... 0.4 0.1 0.2 0.6 0.1
Income tax expense ......................... (4.2) (5.1) (5.9) (12.5) (7.1)
Cumulative effect of accounting changes, net -- -- -- -- (4.1)
------- ------- ------- ------- -------
Net income ............................. $ 6.3 $ 8.0 $ 10.0 $ 18.1 $ 7.3
======= ======= ======= ======= =======
</TABLE>
Six Months Ended June 30, 1996 Compared With Six Months Ended June 30, 1995
Net sales for the six-month period ended June 30, 1996 amounted to $38.8
million, an eight-percent decrease over the same period in 1995. Net income for
the six-month period ended June 30, 1996 was $6.3 million compared to $8 million
in the corresponding period of the prior year. The decline in net income was
attributable to lower operating results for the forest products segment.
Net sales in the Company's forest products segment totaled $35.2 million
during the first six months of 1996. This was a decline of $4.3 million from the
same period in 1995. The decrease was primarily attributable to a 21-percent
decline in sales prices for pine sawtimber to $346 per MBF-DS in 1996. The
Company harvested 24.2 MMBF-DS of pine sawtimber from the Timberlands in the
first half of 1996 versus 25.4 MMBF-DS in 1995. The price decline 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. Sales prices
for finished lumber were five percent lower
<PAGE>
in 1996 than in 1995 due to extremely weak prices in the first quarter of 1996,
which averaged only $298 per MBF. Average prices in the first six months of 1996
were $316 per MBF versus $332 per MBF in the prior year. The Company's sawmills
produced two percent less finished lumber in the first half of 1996, with
production totaling 70.4 MMBF. The production decline was virtually all
attributable to an increase in kiln downtime at the Ola Mill. Total production
at the Waldo Mill was essentially unchanged from the first half of 1995. Total
sales of finished lumber was down three percent in 1996, essentially in line
with lower lumber production. The decline in sales prices in the first half of
1996 significantly reduced the operating income at the Company's sawmills,
although the mills did produce a modest profit during the period. Harvesting of
timber from the Company's fee properties will be lower in the second half of
1996, as approximately two-thirds of anticipated 1996 harvests occurred in the
first half of the year.
Net sales for the Company's real estate operations at Chenal Valley in
western Little Rock were $3 million in the first six months of 1996, a
43-percent increase from the comparable 1995 period. Operating income also
increased from $.6 million in the first half of 1995 to $.9 million in the first
half of 1996, a 50-percent improvement between periods. The improvement was
attributable to a 54-percent increase in the number of single-family residential
lots sold in 1996. Fifty-four lots were sold in the first half of 1996 versus 35
in the same period of 1995. The average price of lots sold in the first half of
1996 was $53,200, a $2,700 decline 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 later in 1996. Neither of the two six-month periods
discussed herein includes the sale of commercial plots. However, the Company
expects to sell two commercial tracts in the second half of 1996.
Both the first halves of 1996 and 1995 reflect break-even results for the
farming operations. These operations ordinarily do not generate significant
sales and operating income until crop harvesting is completed in the second half
of the calendar year.
Corporate operating expense was $.9 million in the first half of 1996
compared to $.8 million in the comparable period of 1995, due to increased
general and administrative expenses.
Net interest income was essentially unchanged in the first half of 1996.
Interest income earned on interest-bearing amounts due from Murphy increased $.1
million in 1996, but was mostly offset by slightly higher interest expense.
Other income increased from $.1 million in the first six months of 1995 to $.4
million in the same period of 1996. Income tax expense declined to $4.2 million
in 1996 from $5.1 million in 1995 due to a similar decline in pretax earnings.
The effective income tax rate was 40 percent in the first half of 1996 compared
to 39 percent in the same period of 1995.
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. 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. Operating income from this
segment was $14.7 million in 1995 compared with $24.8 million in the prior year.
The decrease was primarily attributable to a 12-percent decline in average
finished lumber sales prices. 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, 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. Operating income for this segment decreased
from $3.7 million in 1994 to $1 million in 1995. The decline was caused by a
56-percent decrease in the number of lots sold from 163 in 1994 to 71 in 1995.
Higher interest rates in
<PAGE>
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. 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.
<PAGE>
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 six-month
period ended June 30, 1996 totaled $7.1 million, compared with $9.2 million for
the same period in 1995. The decline in 1996 is due primarily to lower net
income in the 1996 period as compared to the same period in 1995. The noncurrent
receivable from Murphy increased by $1.2 million in 1996 and $4.4 million in
1995. Advances to the joint venture formed to construct and operate a medium
density fiberboard plant near El Dorado, Arkansas required cash of $1.5 million
during the first six months of 1996. Cash required to repay long-term debt
amounted to $.4 million in 1996 arising from installment payments on notes used
to finance a portion of the Company's timber requirements. Capital expenditures
required $4.8 million of cash for the first six months of 1996 and $6.2 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 half 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 six months ended June 30, 1996 and for the years
ended December 31, 1995, 1994 and 1993.
Six Months Ended Years Ended December 31,
June 30, 1996 1995 1994 1993
---------------- ---- ---- ----
(dollars in millions)
Forest products ... $ 1.1 $ 7.2 $ 6.1 $ 4.6
Real estate ....... 3.3 4.7 3.8 5.7
Agriculture ....... 0.1 0.2 0.3 0.4
Corporate and other 0.3 1.5 0.1 --
------- ------- ------- -------
$ 4.8 $ 13.6 $ 10.3 $ 10.7
======= ======= ======= =======
<PAGE>
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.
Financial Condition
Working capital was $9.8 million at June 30, 1996, an improvement of $3
million since December 31, 1995. The improvement was primarily caused by a
decrease in accounts payable of $2.5 million and a $.2 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 2.6 to 1 at June 30, 1996. The
debt to stockholder's equity ratio was .02 to 1 at June 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 June 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.
<PAGE>
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 $28.9 million
of net available excess funds generated from operations. Such transfers have
given rise to a net noncurrent, interest-bearing receivable from Murphy of $32.8
million at June 30, 1996. This receivable from Murphy is expected to be settled
prior to the distribution of the Company's stock to Murphy's shareholders. The
settlement is expected to entail a combination of partial repayment to the
Company by Murphy and a distribution of any remaining receivable to Murphy by
the Company. As a result, 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.
<PAGE>
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 36,000 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.
<PAGE>
The Company owns 36,000 acres of farmland in northeastern Louisiana and
southeastern Arkansas. Approximately 25,000 acres of the total are farmed by
Deltic, while the remaining 11,000 acres are rented to third parties. The
primary crops are cotton, soybeans, corn, wheat, and rice.
The Company was incorporated in September 1996 and, immediately 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 half 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:
<PAGE>
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. The seedlings
are introduced to Deltic's forest 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. Certain of the
Timberlands are, however, expected to be harvested at accelerated levels during
the next several years in connection with the Company's growth plans. See
"--Growth Strategy." The Company pursues an active management approach,
including commercial thinning, in order to enhance productivity on a long-term
basis.
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.
Under the current plan, the Company intends to increase its harvest level
to 345,000 tons of pine sawtimber in 1997, an increase of 30 percent over 1996
levels. See "--Growth Strategy."
<PAGE>
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.
<PAGE>
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
<PAGE>
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 June 30, 1996, the Company had under contract
approximately 336,000 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 six months ended June 30, 1996, the Company harvested third-party
stumpage or purchased logs from third parties totaling 259,000 tons. Of this
volume, purchases from the U.S. Forest Service during this period represented
six 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 19 percent of
net sales in 1993, 1994, 1995 and the first half 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,
<PAGE>
1995, and the first half of 1996, lumber sales accounted for approximately 56
percent, 54 percent, 55 percent and 57 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 six months ended June 30, 1996, the Company's sawmills produced 149,000 tons
of wood chips. During 1993, 1994, 1995 and the first half of 1996, sales of wood
chips and other by-products of the Company's sawmills accounted for 11 percent,
10 percent, 11 percent and 12 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 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. There can be no assurance that the Company will
receive payment in full for the Club Facilities by such date.
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 have
resulted in additional commercial activity. Contracts for the sale of two
commercial tracts (20.03 acres) with a combined sales price of $2.2 million were
signed in the second quarter of 1996 and are expected to close prior to year-end
1996.
The success of Chenal Valley as a residential community and its emerging
potential as a suburban commercial center add significant value to the
undeveloped portion of the Company's property, which management expects will
provide growth and development opportunities in the future.
The table below summarizes developed and undeveloped tracts at June 30,
1996:
<PAGE>
Developed Undeveloped
------------------------ -----------
Sold Unsold
--------- -----------
Residential:
Lots ............................ 664 212 3,080
Price ($/lot) ................... 54,900
Commercial:(1)
Acres ........................... 0 15 612
- --------------
(1) Excludes GMAC Building, church sites, "green" areas and school sites.
Farming
Deltic owns 36,000 acres of farmland in northeastern Louisiana and
southeastern Arkansas. Approximately 25,000 acres of the total are farmed by
Deltic, while the remaining 11,000 acres are rented to third parties. The
primary crops are cotton, soybeans, corn, wheat, and rice. A letter of intent to
sell certain farmland in Arkansas (approximately 3,200 acres) for $2.9 million
has been signed, and the sale is expected to close prior to year-end 1996.
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. 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
expenditures to comply with such provisions. 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
members of the Murphy Group and to other 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 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 June 30, 1996, the Company had 348 employees.
<PAGE>
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 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 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 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
Eric M. Heiner Director
R. Madison Murphy 38 Director
Rt. Rev. Christophe Keller Director
Ron L. Pearce 55 President, Chief Executive Officer and Director
Emily R. Evers 46 Controller
Robert C. Nolan will serve as Chairman of the Board of the Company as of
the Distribution. For the past five 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. Mr. Nolan is a director of First
United Bancshares, Inc. and First National Bank of El Dorado.
Eric M. Heiner will serve as a director of the Company as of the
Distribution. Information regarding Mr. Heiner's business experience during the
past five years will be provided in a subsequent filing of the Form 10.
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.
Rt. Rev. Christophe Keller will serve as a director of the Company as of
the Distribution. Information regarding Rt. Rev. Keller's business experience
during the past five years will be provided in a subsequent filing of the Form
10.
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.
<PAGE>
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.
Mr. Nolan, Mr. Murphy and Rt. Rev. Keller are first cousins. Mr. Heiner is
married to a first cousin of Messrs. Nolan and Murphy and Rt. Rev. Keller.
Information regarding additional directors and executive officers will be
provided in a subsequent filing of the Form 10.
Compensation of Directors
Information regarding compensation of directors will be provided in a
subsequent filing of the Form 10.
Executive Compensation
The following sets forth the compensation earned by the Company's President
for the year ended December 31, 1995. No other executive officer of the Company
received more than $100,000 in annual compensation 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 option was $43.9375 per share.
<PAGE>
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.
After 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 Common Stock, as well as options 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 Stock Incentive Plan.
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.
<TABLE>
<CAPTION>
Pension Plan Table
Years of Service
-----------------------------------------------------------------------------
Remuneration 15 20 25 30 35 40
------------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
$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 10,000 120,000 140,000 160,000
$300,000.......................... 72,000 96,000 120,000 144,000 168,000 192,000
</TABLE>
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 June 30, 1996, Mr. Pearce had five years of service for which he will
receive credit under the Company Retirement Plan.
<PAGE>
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 comprised of independent directors.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Set forth in the table below is information as of June 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 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 Percent of
Shares Percent of Shares Outstanding
Beneficially Outstanding Beneficially Shares
Beneficial Owner Owned(1) Shares Owned
---------------- ----------- ------------ ------------- -----------
Directors and Named Executive Officers
<S> <C> <C> <C> <C>
Ron L. Pearce.......................... 6,385 *
Robert C. Nolan........................ ** **
Eric M. Heiner......................... ** **
R. Madison Murphy(2)................... 1,418,561 3.2%
Rt. Rev. Christophe Keller............. ** **
All Directors and Officers as a Group..... ** **
Other 5% Stockholders
C.H. Murphy, Jr.(3)
c/o Murphy Oil Corporation
200 Peach Street
El Dorado, Arkansas 71730.............. 4,188,709 9.3%
First United Bancshares, Inc.(4)
Main at Washington Street
El Dorado, Arkansas 71730.............. 2,543,419 5.7%
The Capital Group Companies, Inc.(5)
333 South Hope Street
Los Angeles, California 90071.......... 3,583,300 8.0%
<FN>
- -------------------
* Less than one percent
** Information will be provided in a subsequent filing of the Form 10.
(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 June 30, 1996 and were exercisable within 60 days thereafter: Mr.
Pearce, 6,000 shares.
(2) R. Madison Murphy (i) has sole voting and dispositive power with respect to
107,111 shares, (ii) has shared voting and dispositive power with respect
to 619,052 shares as trustee for others and (iii) is the beneficiary of a
trust holding 610,862 shares. In addition, 81,536 shares are owned by Mr.
Murphy's spouse and other household members.
(3) C.H. Murphy, Jr. has (i) sole voting and dispositive power with respect to
1,188,361 shares and (ii) shared voting and dispositive power with respect
to 2,997,312 shares as trustee for others and as an officer of a
corporation or other
</TABLE>
<PAGE>
organization that owns such shares. In addition, 3,036 shares are owned by
Mr. Murphy's spouse and other household members.
(4) 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.
(5) 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.
<PAGE>
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 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 , 1996 and the distribution ratio of shares
of Company Common Stock for every shares of Murphy Common Stock,
it is anticipated that there will be approximately 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
<PAGE>
Stock will be issued in connection with the Distribution, although
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
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
<PAGE>
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
Immediately 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 will entitle
the registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share (a "Unit") of Series A Participating Cumulative
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"),
at a purchase price of $ per Unit, subject to adjustment (the "Purchase
Price"). The terms of the Rights are set forth in a Rights Agreement
between the Company and , 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
<PAGE>
are not exercisable until the Rights Distribution Date and will expire at the
close of business on , 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.
<PAGE>
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.
<PAGE>
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, officer, employee or agent of the Company, or
is or was serving at the request of the Company as a director, officer, employee
or agent 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.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Deltic Farm & Timber Co., Inc.
Independent Auditors' Report............................................... F-1
Consolidated Balance Sheets as of June 30, 1996 (unaudited),
December 31, 1995 and December 31, 1994............................... F-2
Consolidated Statements of Income for the Six Months Ended
June 30, 1996 and 1995 (unaudited)
and the Years Ended December 31, 1995, 1994 and 1993.................. F-3
Consolidated Statements of Cash Flows for the Six Months Ended
June 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
Six Months Ended June 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
F-i
<PAGE>
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
F-1
<PAGE>
<TABLE>
DELTIC FARM & TIMBER CO., INC.
Consolidated Balance Sheets
(Thousands of dollars)
<CAPTION>
December 31,
-------------------
June 30, 1996 1995 1994
------------- ---- ----
(unaudited)
Assets:
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents..................................... $ 530 $ 1,431 $ 2,344
Trade accounts receivable, less allowance for
doubtful accounts of $122 in 1996, $98 in
1995, and $49 in 1994....................................... 4,362 3,564 4,606
Inventories................................................... 5,390 7,538 7,088
Deferred income taxes......................................... 1,217 527 948
Prepaid expenses and other current assets.....................
4,299 1,562 1,085
--------- ---------- -----------
Total current assets........................................ 15,798 14,622 16,071
Noncurrent receivable from Parent................................ 32,826 29,951 21,271
Property, plant, and equipment - net............................. 27,664 27,012 25,751
Timber and timberlands - net..................................... 91,265 91,778 87,958
Real estate held for development and sale........................ 18,851 19,356 16,741
Other assets..................................................... 3,202 2,528 1,581
--------- ---------- -----------
Total assets................................................
$ 189,606 $ 185,247 $ 169,373
========= ========== ===========
Liabilities and Stockholder's Equity:
Current liabilities:
Current maturities of long-term debt.......................... $ 1,762 $ 1,985 $ 7
Trade accounts payable........................................ 1,386 3,899 2,492
Accrued insurance obligations................................. 889 705 487
Accrued taxes other than income taxes......................... 1,110 730 599
Other accrued liabilities..................................... 491 422 282
State income taxes............................................ 373 59 890
--------- ---------- -----------
Total current liabilities................................... 6,011 7,800 4,757
Long-term debt................................................... 2,686 2,817 163
Accrued postretirement benefits.................................. 3,490 3,352 3,225
Deferred credits and other liabilities........................... 815 989 955
Stockholder's equity:
Common stock.................................................. 321 321 321
Capital in excess of par value................................ 66,108 66,108 66,108
Retained earnings............................................. 110,175 103,860 93,844
--------- ---------- -----------
Total stockholder's equity.................................. 176,604 170,289 160,273
--------- ---------- -----------
Total liabilities and stockholder's equity.................. $ 189,606 $ 185,247 $ 169,373
========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
DELTIC FARM & TIMBER CO., INC.
Consolidated Statements of Income
(Thousands of dollars)
Six Months Ended
June 30, Years Ended December 31,
---------------------- -----------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales ................................. $ 38,811 $ 42,422 $ 80,662 $ 92,457 $ 69,448
-------- -------- -------- -------- --------
Costs and expenses:
Cost of sales ........................... 26,024 26,877 58,731 56,521 43,925
Depreciation, amortization, and cost of
fee timber harvested .................. 2,089 1,973 4,053 3,886 3,488
Selling and general expenses .............. 1,836 1,695 4,535 3,675 4,657
-------- -------- -------- -------- --------
Total costs and expenses ............ 29,949 30,545 67,319 64,082 52,070
-------- -------- -------- -------- --------
Operating income .................... 8,862 11,877 13,343 28,375 17,378
Interest income ........................... 1,369 1,290 2,668 1,634 1,075
Interest expense .......................... (140) (133) (309) (5) (14)
Other income .............................. 407 97 192 572 100
-------- -------- -------- -------- --------
Income before income taxes and accounting
changes ................................. 10,498 13,131 15,894 30,576 18,539
Income taxes .............................. (4,183) (5,096) (5,878) (12,434) (7,128)
-------- -------- -------- -------- --------
Income before accounting changes .......... 6,315 8,035 10,016 18,142 11,411
Cumulative effect of accounting changes,
net of income taxes ..................... -- -- -- -- (4,076)
-------- -------- -------- -------- --------
Net income .......................... $ 6,315 $ 8,035 $ 10,016 $ 18,142 $ 7,335
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
DELTIC FARM & TIMBER CO., INC.
Consolidated Statements of Cash Flows
(Thousands of dollars)
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
-------------------- ----------------------------------
1996 1995 1995 1994 1993
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating activities:
Income before cumulative effect of changes in S
accounting principles........................... $ 6,315 $ 8,035 $ 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............................ 2,089 1,973 4,053 3,886 3,488
Deferred income tax charges (credits).......... 277 (225) (624) (540) (301)
(Gains) losses from disposition of (117)
assets...................................... (69) 2 (4) (659)
Real estate costs recovered upon sale.......... 1,560 1,016 1,984 4,719 2,500
(Increases)/decreases in operating working
capital other than cash and cash equivalents:
Account receivable....................... (798) (353) 1,042 385 (298)
Inventories.............................. 2,148 1,952 (450) (2,286) (800)
Deferred income tax assets............... (690) 243 421 1,110 (903)
Prepaid expenses and other
current assets........................... (2,737) (2,866) (477) (527) (3)
Accounts payable ........................ (2,513) (475) 1,407 970 (523)
Accrued liabilities...................... 947 (205) (342) 509 694
Other..........................................
555 57 (161) (1,815) 1,052
-------- -------- --------- --------- ---------
Net cash provided by operating
activities............................... 7,084 9,154 16,865 23,894 16,200
-------- -------- --------- --------- ---------
Investing activities:
Capital expenditures requiring cash................. (4,765) (6,153) (7,361) (10,176) (10,682)
Proceeds from disposition of property, plant,
and equipment.................................... 97 91 126 1,129 168
Net additions to noncurrent receivable from
Parent........................................... (1,219) (4,366) (8,680) (14,697) (5,544)
Other - net......................................... (1,743) (142) (219) (131) (157)
-------- -------- --------- --------- ---------
Net cash required by investing
activities............................... (7,630) (10,570) (16,134) (23,875) (16,215)
-------- -------- --------- --------- ---------
Financing activities - cash required for reductions
of long-term debt................................... (355) (32) (1,644) (101) (401)
-------- -------- --------- --------- ---------
Net decrease in cash and cash equivalents.............. (901) (1,448) (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............. $ 530 $ 896 $ 1,431 $ 2,344 $ 2,426
======== ======== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
DELTIC FARM & TIMBER CO., INC.
Consolidated Statements of Stockholder's Equity
(Thousands of dollars)
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, -----------------------------
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 ...................... 6,315 10,016 18,142 7,335
-------- -------- -------- --------
Balance at end of period ................... 110,175 103,860 93,844 75,702
-------- -------- -------- --------
Total Stockholder's Equity ...................... $176,604 $170,289 $160,273 $142,131
======== ======== ======== ========
<FN>
- -------------------
* 5,000 shares authorized, issued, and outstanding at beginning and end of
each period.
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Deltic Farm & Timber Co., Inc.
Notes to Consolidated Financial Statements
June 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 June
30, 1996, and the consolidated statements of income, cash flows
and stockholder's equity for the six-month periods ended June 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.
F-6
<PAGE>
Deltic Farm & Timber Co., Inc.
Notes to Consolidated Financial Statements (Cont'd)
June 30, 1996 and 1995 and December 31, 1995, 1994, and 1993
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.
F-7
<PAGE>
Deltic Farm & Timber Co., Inc.
Notes to Consolidated Financial Statements (Cont'd)
June 30, 1996 and 1995 and December 31, 1995, 1994, and 1993
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.
F-8
<PAGE>
Deltic Farm & Timber Co., Inc.
Notes to Consolidated Financial Statements (Cont'd)
June 30, 1996 and 1995 and December 31, 1995, 1994, and 1993
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 June 1996, management estimated that the fair value of timber under
these contracts had improved to approximately $4,200,000.
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.
F-9
<PAGE>
Deltic Farm & Timber Co., Inc.
Notes to Consolidated Financial Statements (Cont'd)
June 30, 1996 and 1995 and December 31, 1995, 1994, and 1993
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.
F-10
<PAGE>
Deltic Farm & Timber Co., Inc.
Notes to Consolidated Financial Statements (Cont'd)
June 30, 1996 and 1995 and December 31, 1995, 1994, and 1993
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.
1995 1994
---- ----
(thousands of dollars)
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
======== =======
F-11
<PAGE>
Deltic Farm & Timber Co., Inc.
Notes to Consolidated Financial Statements (Cont'd)
June 30, 1996 and 1995 and December 31, 1995, 1994, and 1993
(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
F-12
<PAGE>
Deltic Farm & Timber Co., Inc.
Notes to Consolidated Financial Statements (Cont'd)
June 30, 1996 and 1995 and December 31, 1995, 1994, and 1993
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
F-13
<PAGE>
Deltic Farm & Timber Co., Inc.
Notes to Consolidated Financial Statements (Cont'd)
June 30, 1996 and 1995 and December 31, 1995, 1994, and 1993
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>
Six Months Ended June 30, Years Ended December 31,
------------------------- ------------------------------------
(unaudited)
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Net sales:
Forest products .............. $ 35,167 $ 39,468 $ 68,258 $ 73,636 $ 57,138
Real estate .................. 3,045 2,136 4,188 9,635 5,360
Agriculture .................. 599 818 8,216 9,186 6,950
--------- --------- --------- --------- ---------
$ 38,811 $ 42,422 $ 80,662 $ 92,457 $ 69,448
========= ========= ========= ========= =========
Income before income taxes and
accounting changes:
Forest products .............. $ 8,939 $ 12,055 $ 14,748 $ 24,818 $ 18,650
Real estate .................. 864 612 999 3,637 1,787
Agriculture .................. 5 8 373 1,896 (125)
Corporate and other .......... (946) (798) (2,777) (1,976) (2,934)
--------- --------- --------- --------- ---------
Operating income .......... 8,862 11,877 13,343 28,375 17,378
Interest income .............. 1,369 1,290 2,668 1,634 1,075
Interest expense ............. (140) (133) (309) (5) (14)
Other income ................. 407 97 192 572 100
--------- --------- --------- --------- ---------
$ 10,498 $ 13,131 $ 15,894 $ 30,576 $ 18,539
========= ========= ========= ========= =========
</TABLE>
<TABLE>
Deltic Farm & Timber Co., Inc.
Notes to Consolidated Financial Statements (Cont'd)
June 30, 1996 and 1995 and December 31, 1995, 1994, and 1993
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
------------------------- ------------------------------------
(unaudited)
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Identifiable assets at period-end:
Forest products .............. $ 116,773 $ 122,845 $ 118,797 $ 114,725 $ 110,085
Real estate .................. 22,453 17,673 20,539 17,770 18,414
Agriculture .................. 12,781 12,959 11,613 12,420 12,710
Corporate and other .......... 37,599 28,906 34,298 24,458 8,622
--------- --------- --------- --------- ---------
$ 189,606 $ 182,383 $ 185,247 $ 169,373 $ 149,831
========= ========= ========= ========= =========
Depreciation, amortization, and cost of
fee timber harvested:
Forest products .............. $ 1,917 $ 1,646 $ 3,307 $ 3,270 $ 2,872
Real estate .................. 10 13 31 25 24
Agriculture .................. 263 290 561 561 580
Corporate and other .......... (101) 24 154 30 12
--------- --------- --------- --------- ---------
$ 2,089 $ 1,973 $ 4,053 $ 3,886 $ 3,488
========= ========= ========= ========= =========
Capital expenditures:
Forest products .............. $ 1,057 $ 9,556 $ 7,216 $ 6,167 $ 4,573
Real estate .................. 3,312 1,223 4,638 3,849 5,674
Agriculture .................. 145 93 245 266 395
Corporate and other .......... 251 807 1,538 66 40
--------- --------- --------- --------- ---------
$ 4,765 $ 11,679 $ 13,637 $ 10,348 $ 10,682
========= ========= ========= ========= =========
</TABLE>
F-14
<PAGE>
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
F-16
<PAGE>
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.
F-17
<PAGE>
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.
Immediately 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.
F-18
Exhibit 10.2
FIBER SUPPLY AGREEMENT
THIS FIBER SUPPLY AGREEMENT is entered into as of February
21, 1995, between Del-Tin Fiber L.L.C., an Arkansas limited liability
company ("Del-Tin"), and Deltic Farm & Timber Co., Inc., an Arkansas
corporation ("Deltic").
A. Del-Tin plans to construct, own and operate a facility (the "Facility")
to manufacture medium density fiberboard ("MDF").
B. Deltic owns a fifty percent membership interest in Del-Tin. Deltic has
approximately 313,000 acres of timberland in Arkansas, and produces
sawdust, shavings and chips (collectively, "Wood Fiber") from two
sawmills and a chipping facility.
C. It is projected that the Facility will require approximately 450,000
tons of Wood Fiber per year when it is operating at full capacity.
D. It is projected that Deltic will produce approximately 200,000 tons of
residue chips per year from its sawmill in Waldo, Arkansas (the "Waldo
Residue Chips"), after addition of second shift at the Waldo sawmill.
E. Del-Tin desires to secure a supply of Wood Fiber for the Facility, and
Deltic desires to supply Wood Fiber to Del-Tin.
In consideration of the mutual covenants and agreements set
forth herein, the parties agree as follows:
1. Fiber Supply.
1.1 Preferred Supplier. Deltic shall be the preferred supplier of
Wood Fiber to Del-Tin. Del-Tin shall purchase residue chips from
third parties only to the extent Del-Tin's residue chip
requirements exceed the quantity of Waldo Residue Chips made
available to Del-Tin in accordance with the terms of this
Agreement.
1.2 Residue Chips from Waldo Sawmill. Deltic agrees to sell to
Del-Tin, and Del-Tin agrees to purchase from Deltic, all Waldo
Residue Chips. Notwithstanding the foregoing, Deltic may, at its
option, withhold up to 10% of the Waldo Residue Chips. The
delivered price (F.O.B. Del-Tin's facility) for Waldo Residue
Chips shall approximate the weighted average delivered price of
like-kind residue chips available to Del-Tin from third parties
located within a 70 mile radius of the facility. Prior to the
Commencement Date, and prior to the commencement of each calendar
year thereafter, Deltic and Del-Tin shall agree upon the delivered
price for Waldo Residue Chips. The agreed price shall be firm
until the beginning of the next calendar year.
1.3 Secondary Fiber. Del-Tin shall have first call on Wood Fiber from
the following Deltic secondary sources (collectively, "Secondary
Fiber"):
(a) residue chips produced at Deltic's sawmill in Ola, Arkansas;
(b) roundwood chips produced at Deltic's chipping facility in
Waldo, Arkansas; and
(c) shavings and/or sawdust produced at Deltic's sawmill in
Waldo, Arkansas.
Any Secondary Fiber so called by Del-Tin shall be sold at market
prices F.O.B. Deltic's facilities. Deltic shall not be required
to breach any contract or agreement to accommodate a call for
Secondary Fiber by Del-Tin.
1.4 Displacement by Deltic. At any time on ten days' notice, Deltic
may displace any or all Wood Fiber being acquired by Del-Tin from
third parties ("Third Party Fiber") with a like volume of like
kind Secondary Fiber; provided, however, that Del-Tin shall not be
required to breach any contract or agreement to accommodate such
displacement. Any Secondary Fiber so put by Deltic shall be at
the same total cost to Del-Tin (inclusive of transportation) as
the Third Party Fiber being displaced.
2. Term.
2.1 Definitions. The following terms shall have the meanings
indicated:
2.1.1 "Start-Up Date" means the first day of production of
MDF at the Facility.
2.1.2 "Commencement Date" means a date approximately 60
days prior to the Start-Up Date. The
Commencement Date shall be set by agreement
between Del-Tin and Deltic.
2.1.3 "Ramp-Up Period" means the period from the
Commencement Date to the Start-Up Date, and
continuing for so long thereafter as may be
necessary to allow the Facility to reach full
production.
2.2 Term; Renewal; Termination. The Initial term of this
Agreement shall commence on the Commencement Date and shall
continue for a period of five years from the Start-Up Date.
The term of this Agreement shall be automatically extended
for successive five year periods unless either party
notifies the other in writing at least 180 days prior to the
effective date of such extension of its desire not to extend
the term of this Agreement. Notwithstanding the foregoing,
this Agreement may be terminated by either party on 60 days'
notice to the other if Deltic ceases to own at least a 50
percent membership interest in Del-Tin.
2.3 Obligations During Ramp-Up Period. Deltic acknowledges that
Del-Tin's chip requirements during the Ramp-Up Period are
projected to be less than will be required when the Facility
reaches full production. Accordingly, during the Ramp-Up
Period, the purchase and sale obligations of Del-Tin and
Deltic, respectively, shall be reduced to the extent that
Del-Tin's chip requirements are less than Deltic's output
capabilities for Waldo Residue Chips.
3. Deltic's Obligations.
3.1 Order Acceptance. To the extent of Deltic's production
capability (subject to the above holdback provisions),
Deltic shall accept and fill on a timely basis orders from
Del-Tin for Waldo Residue Chips.
3.2 Regularity. Deltic shall endeavor to deliver Del-Tin's
orders for Wood Fiber in regular, uniform quantities unless
delivery in such a fashion is not possible due to events
beyond Deltic's reasonable control.
3.3 Transportation. Deltic agrees to make all necessary and
reasonable arrangements to provide an adequate supply of
suitably constructed and equipped trucks to transport Wood
Fiber from its facilities to Del-Tin.
4. Del-Tin's Obligations.
4.1 Wood Fiber Usage Budget. Del-Tin shall prepare and submit
to Deltic a budget containing Wood Fiber usage projections
for the Facility. The first Wood Fiber usage budget shall
be submitted to Deltic at least 30 days prior to the
estimated Start-Up Date. Thereafter, a Wood Fiber usage
budget shall be submitted to Deltic annually at least 30
days prior to the beginning of each calendar year.
4.2 Regularity. Del-Tin shall endeavor to purchase Wood Fiber
from Deltic in regular, uniform quantities unless purchases
in such a fashion are not possible due to events beyond
Del-Tin's reasonable control.
5. Payment.
5.1 Basis for Payment. The gross and tare weights of all
shipments of Wood Fiber to Del-Tin shall be determined by
means of Del-Tin's truck scales which will weigh and
automatically record on weight scale tickets the weight of
the trucks and the cargo therein. Each such weight scale
ticket shall show the date and time of delivery and
departure.
5.2 Payment Schedule. Del-Tin agrees to pay Deltic weekly for
all Wood Fiber sold and delivered to Del-Tin by Deltic.
Payments shall be calculated based upon the weight scale
tickets, and shall be due and payable on Friday of each
week, for shipments received the next preceding week.
Accompanying each payment, Del-Tin agrees to furnish Deltic
with the appropriate weight scale tickets evidencing the
quantities of Wood Fiber delivered and accepted by Del-Tin
during the next preceding calendar week.
6. Title and Risk of Loss.
Title to Wood Fiber shall pass to Del-Tin when the Wood Fiber
is unloaded at Del-Tin's facility. Responsibility for loss of,
or damage to, the Wood Fiber shall pass from Deltic to Del-Tin
upon the passage of title.
7. Insurance.
7.1 Liability Insurance. Deltic shall submit to Del-Tin
certificates evidencing that insurance of the types and the
amounts specified below has been obtained by Deltic, and
Deltic shall maintain such insurance at all times during the
term of this Agreement or any extension or renewal thereof:
(a) Statutory workers' compensation coverage, and
employers liability coverage with minimum limits of
liability of $500,000.
(b) Commercial general liability coverage with minimum
limits of $1,000,000 per occurrence bodily injury
liability and property damage liability combined and
$2,000,000 in the aggregate.
(c) Comprehensive automobile liability coverage insuring
all owned, non-owned and hired automobiles, with
minimum limits of liability of $1,000,000 per
occurrence for bodily injury and property damage
combined.
7.2 General Insurance Matters. The above policies shall be
endorsed to name Del-Tin as an additional insured. All
insurance certificates shall provide that the insurance will
not be cancelled without 30 days prior written notice to
Del-Tin. The above provisions with respect to Deltic
providing insurance are solely for the benefit of Deltic and
Del-Tin, and third parties shall have no rights under or by
reason of such provisions.
8. Force Majeure.
8.1 Defined. "Force Majeure" means any event or condition which
wholly or partially delays or prevents such party from
performing any of its obligations hereunder and is beyond
the reasonable control of, and occurs without the fault or
negligence of, the party affected thereby including, without
limitation, acts of God, acts of the public enemy,
insurrections, riots, labor disputes, labor or material
shortages, fires, explosions, floods, breakdowns of or
damages to plants, equipment or facilities, interruptions to
transportation, embargoes, or orders or acts of any court or
government authority having jurisdiction or any military
authority.
8.2 Suspension of Obligations. If, as a result of Force
Majeure, it becomes impossible or impractical for either
party to carry out its obligations hereunder (other than any
obligation to pay money when due in accordance with the
terms of this Agreement) in whole or in part, then such
obligations shall be suspended to the extent necessary by
such Force Majeure during its continuance. The party
affected by such Force Majeure shall give prompt written
notice to the other party of the nature and probable
duration of such Force Majeure, and of the extent of its
effects on such party's performance hereunder. Each party
shall, in the event it experiences Force Majeure, use all
commercially reasonable efforts to eliminate such Force
Majeure and/or its effects on such party's performance
hereunder insofar as is practicable and with all reasonable
dispatch; provided, that neither party shall be obligated to
expend monies in order to eliminate Force Majeure and/or its
effects, if in such party's sole judgment, such expenditures
would be economically unjustifiable.
9. Defaults; Termination.
In the event either party hereto defaults in or fails to comply
with any material provision herein contained, and such default
is not the result of Force Majeure, and if, within thirty days
(or within seven days, for any obligation to pay money when due
in accordance with the terms of this Agreement) after the
nondefaulting party gives written notice of such default or
noncompliance to the defaulting party, the defaulting party
fails to remedy such default or noncompliance, the
nondefaulting party may, at its option, either suspend its
performance under this Agreement, or terminate this Agreement,
effective in either case upon giving written notice to that
effect to the defaulting party; provided, however, that any
such suspension or termination shall not affect any obligation
then existing hereunder. Such right to suspend performance or
terminate this Agreement shall not be an exclusive remedy and
shall be in addition to all other remedies provided herein or
available at law or in equity. The failure to exercise any
right or insist upon strict adherence to any term or condition
in any one or more instances shall not be construed as a waiver
of the right of strict performance for the future or as a
relinquishment of such obligations, conditions or rights.
10. Impossibility and Frustration of Purpose.
The parties' failure, after good faith efforts, to reach agreement
as to the delivered price for Waldo Residue Chips [Section 1.2]
shall be deemed a frustration of purpose and render the
performance of this Agreement impossible.
11. Indemnification.
Each party agrees to indemnify and hold harmless from all loss,
damage and expense of any nature (including reasonable attorneys'
fees) to the extent caused by the negligence or wilful misconduct
of the indemnifying party, or the indemnifying party's agents,
employees or subcontractors; provided, however, that NEITHER PARTY
SHALL BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING LOSS OF SALES OR LOSS OF PROFITS) OF THE OTHER.
12. Notices.
Any notice required or permitted to be given by one party to the
other hereunder or by law shall be deemed on the first business
day after such notice is delivered by hand, courier or facsimile,
or mailed by certified mail, return receipt requested, postage
prepaid, as follows:
Deltic: Deltic Farm & Timber Co., Inc.
200 Peach Street (71730)
P.O. Box 7000
El Dorado, Arkansas 71731-7000
Facsimile No. (501) 864-6565
Attention: Ron L. Pearce
Del-Tin: Del-Tin Fiber L.L.C.
P.O. Box 1647
El Dorado, AR 71731-1647
Attention: Glenn Gray
or to such other address as may be designated by a party in accordance with
the provisions of this section.
13. Confidentiality.
In connection with this Agreement the parties may from time to
time exchange proprietary data and confidential information.
The parties agree to keep in confidence and not exploit all
such proprietary data and confidential information received in
connection with this Agreement. It is understood and agreed,
however, that such information may be disclosed when requested
by a court or government agency, or when a law or regulation
requires that it be reported to a regulatory agency. The
provisions of this Section 13 shall survive the termination or
expiration of this Agreement.
14. Miscellaneous.
14.1 No Assignment. Neither Deltic nor Del-Tin shall transfer or
assign this Agreement, or any of its rights or obligations
hereunder, in whole or in part, without the prior written
consent of the other party.
14.2 Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties with respect
to the subject matter hereof, and supersedes all prior and
contemporaneous negotiations, agreements, and understandings
between the parties.
14.3 Amendments. This Agreement shall not be amended except by a
writing, signed by both parties, containing the
restated/additional section.
14.4 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of
Arkansas.
14.5 Independent Contractor. Each party to this Agreement is an
independent contractor and neither shall have the right to
control the methods and means by which the other party or
any of its employees, agents or subcontractors conducts its
independent business operations.
14.6 Headings for Convenience Only. The insertion of headings
are for convenience of reference only and shall not affect
the construction or interpretation of this Agreement.
14.7 Severability. In the event that any part, article, section,
paragraph or clause of this Agreement shall be held to be
indefinite, invalid or otherwise unenforceable, the entire
Agreement shall not fail on account thereof and the balance
of the Agreement shall continue in full force and effect.
DEL-TIN FIBER L.L.C.
By: /s/ Glenn R. Gray
-----------------------------------
Glenn R. Gray
General Manager
DELTIC FARM & TIMBER CO., INC.
By: /s/ Ron L. Pearce
-----------------------------------
Ron L. Pearce
President
Exhibit 21
Subsidiaries of Deltic Timber Corporation
Jurisdiction of
Subsidiary Incorporation
- ---------- --------------
Chenal Properties, Inc. Arkansas
Deltic Timber Purchasers, Inc. Arkansas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY UNAUDITED FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996, AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996, OF
DELTIC FARM & TIMBER CO., INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 530
<SECURITIES> 0
<RECEIVABLES> 4,484
<ALLOWANCES> 122
<INVENTORY> 5,390
<CURRENT-ASSETS> 15,798
<PP&E> 176,139
<DEPRECIATION> 57,210
<TOTAL-ASSETS> 189,606
<CURRENT-LIABILITIES> 6,011
<BONDS> 2,686
<COMMON> 321
0
0
<OTHER-SE> 176,283
<TOTAL-LIABILITY-AND-EQUITY> 189,606
<SALES> 38,811
<TOTAL-REVENUES> 40,587
<CGS> 26,024
<TOTAL-COSTS> 28,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> 10,498
<INCOME-TAX> 4,183
<INCOME-CONTINUING> 6,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,315
<EPS-PRIMARY> 1,263.00
<EPS-DILUTED> 1,263.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY AUDITED FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995, AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995, OF
DELTIC FARM & TIMBER CO., INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,431
<SECURITIES> 0
<RECEIVABLES> 3,662
<ALLOWANCES> 98
<INVENTORY> 7,538
<CURRENT-ASSETS> 14,622
<PP&E> 174,131
<DEPRECIATION> 55,341
<TOTAL-ASSETS> 185,247
<CURRENT-LIABILITIES> 7,800
<BONDS> 2,817
<COMMON> 321
0
0
<OTHER-SE> 169,968
<TOTAL-LIABILITY-AND-EQUITY> 185,247
<SALES> 80,662
<TOTAL-REVENUES> 83,522
<CGS> 58,731
<TOTAL-COSTS> 62,784
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 309
<INCOME-PRETAX> 15,894
<INCOME-TAX> 5,878
<INCOME-CONTINUING> 10,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,016
<EPS-PRIMARY> 2,003.20
<EPS-DILUTED> 2,003.20
</TABLE>
