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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
AMENDMENT NO. 2
TO
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-12147
DELTIC TIMBER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 71-0795870
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
200 Peach Street, P. O. Box 7200, El Dorado, Arkansas 71731-7200
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (870) 881-6634
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Series A Participating Cumulative New York Stock Exchange, Inc.
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based on the closing sales price of the Common Stock on the New York
Stock Exchange on February 28, 1997, was $188,982,387. For purposes of this
computation, all officers, directors, and 5% beneficial owners of the registrant
(as indicated in Item 12) are deemed to be affiliates. Such determination
should not be deemed an admission that such directors, officers, or 5% benficial
owners are, in fact, affiliates of the registrant.
Number of shares of Common Stock, $.01 Par Value, outstanding at February 28,
1997, was 12,798,323.
Documents incorporated by reference:
The Registrant's definitive Proxy Statement relating to the Annual Meeting of
Stockholders on May 21, 1997, and Amendment No. 2 to Form 10/A, as filed with
the Securities and Exchange Commission on November 27, 1996. (Part III)
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.
Common Stock of Deltic Timber Corporation is traded on the New York Stock
Exchange under the symbol DEL. The first day that Deltic's Common Stock was
traded on the New York Stock Exchange was January 2, 1997. Deltic paid a cash
dividend of $0.0625 per share on its Common Stock for the first quarter of 1997
on March 15, 1997 to stockholders of record as of March 1, 1997. On March 20,
1997, Deltic's Board of Directors declared a cash dividend of $0.0625 per share
on the Common Stock of Deltic for the second quarter of 1997, payable June 15,
1997 to stockholders of record as of June 1, 1997. As of March 24, 1997, there
were 4,200 holders of record of the Common Stock of Deltic.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents certain selected consolidated financial data
for each of the years ended in the five-year period ended December 31, 1996:
<TABLE>
<CAPTION>
(Dollars, except per share amounts, in thousands) 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS FOR THE YEAR
Net sales.......................................... $ 86,498 80,662 92,457 69,448 60,528
Operating income................................... $ 17,940 13,343 28,375 17,378 9,364
Income before income taxes......................... $ 21,933 15,894 30,576 18,539 10,990
Net income......................................... $ 13,161 10,016 18,142 7,335 6,661
Net income per Common share*....................... $ 1.03 N/A N/A N/A N/A
Net cash provided by operating activities.......... $ 21,731 16,865 23,894 16,200 11,679
Percentage return on
Average stockholders' equity................... 7.8 6.1 12.0 5.3 5.0
Average borrowed and invested capital.......... 7.9 6.2 12.0 5.3 5.1
Average total assets........................... 7.2 5.7 11.3 5.1 4.9
CAPITAL EXPENDITURES FOR THE YEAR
Forest Products................................ $ 2,900 7,216 6,167 4,573 5,691
Real Estate.................................... 6,669 4,638 3,849 5,674 2,659
Agriculture.................................... 272 245 266 395 480
Corporate...................................... 1,512 1,538 66 40 19
-------- ------- ------- ------- -------
$ 11,353 13,637 10,348 10,682 8,849
======== ======= ======= ======= =======
FINANCIAL CONDITION AT YEAR-END
Working capital................................ $ 25,758 6,822 11,314 11,520 9,824
Current ratio.................................. 5.3 to 1 1.9 to 1 3.4 to 1 4.5 to 1 3.9 to 1
Total assets................................... $180,078 185,247 169,373 150,761 139,478
Long-term debt................................. $ 2,685 2,817 163 54 174
Stockholders' equity........................... $166,706 170,289 160,273 142,131 134,796
Debt to equity ratio........................... .016 to 1 .017 to 1 .001 to 1 .001 to 1 .001 to 1
</TABLE>
*1996 amount presented on a pro forma basis.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
On November 11, 1996, the Board of Directors of Murphy Oil Corporation
("Murphy") declared a dividend payable to holders of record of Murphy Common
Stock at the close of business on December 2, 1996 (the "Record Date") of one
share of Deltic Timber Corporation ("Deltic" or the "Company") Common Stock for
every 3.5 shares of Murphy Common Stock owned of record on the Record Date. As
a result, 100 percent of the outstanding shares of Company Common Stock were
distributed to Murphy shareholders on December 31, 1996 (the "Distribution
Date"). Prior to the Distribution Date, the Company was operated as part of
Murphy. The historical financial information presented herein reflects periods
during which the Company did not operate as an independent company. Such
information, therefore, may not necessarily reflect the results of operations or
the financial condition of the Company which would have resulted had the Company
been an independent, public company during the reporting periods, and are not
necessarily indicative of the Company's future operating results or financial
condition.
Deltic is a natural resources company engaged primarily in the growing and
harvesting of timber and the manufacture and marketing of lumber. The Company
owns approximately 343,000 acres of timberland in Arkansas and northern
Louisiana, much of which was acquired in the 1920s. The Company's sawmill
operations commenced in 1971 and now consist of two mills, one located at Ola in
central Arkansas (the "Ola Mill") and another at Waldo in southern Arkansas (the
"Waldo Mill"). In addition to its timber and lumber operations, the Company is
engaged in a real estate development project in Little Rock, Arkansas, and owns
approximately 36,000 acres of farmland. The Company also holds a 50-percent
interest in Del-Tin Fiber, L.L.C. ("Del-Tin"), a joint venture with Temple-
Inland Forest Products Corporation to manufacture and market medium density
fiberboard, which is expected to be operational in 1998.
The Company's results of operations are affected by several factors, which
include general industry conditions, prices for logs and lumber, and other
factors such as supply and demand for logs and lumber, competition, and
seasonality. The primary factors affecting demand for lumber are residential
construction activity, including new home construction and, to a lesser extent,
home remodeling activity. The worldwide timber supply/demand balance has
tightened in recent years and such trend has continued through the year of 1996.
This has been the result primarily of a number of factors that have negatively
impacted supply. The major factors impacting supply include a significant
reduction in the timber harvest from government-owned lands in the western
United States and British Columbia due to environmental concerns, reduced
exports from Southeast Asia, and a continued decline in harvest levels in
Russia.
RESULTS OF OPERATIONS
Consolidated net income for 1996 was $13.2 million, $1.03 a share on a pro
forma basis, an increase of 31 percent when compared to $10 million in 1995.
The Company earned $18.1 million in 1994.
In 1996, operating income in all areas increased $4.7 million. The Forest
Products segment increased $1.2 million due primarily to a five-percent increase
in finished lumber sales price, which more than offset an 18-percent decline in
the average price for pine sawtimber. Real Estate operations increased $.6
million and benefited from a 34-percent increase in residential lot sales.
Agriculture operating results increased $2.4 million over 1995 as crop prices
and yields increased significantly. The
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cost of corporate functions decreased $.5 million compared to 1995.
Operating income decreased $15.1 million in 1995 across all segments. A
12-percent decline in finished lumber sales prices, in addition to a 12-percent
decrease in pine sawtimber harvested, adversely affected Forest Products
operating results, which were $10.1 million less than in 1994. Real Estate
operating income was down $2.7 million due primarily to a 56-percent reduction
in residential lots sales. Adverse weather conditions hurt crop yields in 1995
and resulted in a $1.5 million decrease in Agriculture results. The cost of
corporate functions in 1995 increased $.8 million when compared to 1994.
In the following tables, the Company's net sales and results of operations
for the three years ended December 31, 1996, are presented by segment. A review
of the information follows the table.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1996 1995 1994
-------- -------- --------
(millions of dollars)
<S> <C> <C> <C>
Net sales
Forest Products $69.6 68.3 73.7
Real Estate 6.3 4.2 9.6
Agriculture 10.6 8.2 9.2
----- ----- -----
Net sales $86.5 80.7 92.5
===== ===== =====
Operating income and net income
Forest Products $15.9 14.7 24.8
Real Estate 1.6 1.0 3.7
Agriculture 2.8 0.4 1.9
Corporate (2.3) (2.8) (2.0)
----- ----- -----
Operating income 18.0 13.3 28.4
Net interest income 2.8 2.4 1.6
Other income 1.2 0.2 0.6
Income tax expense (8.8) (5.9) (12.5)
----- ----- -----
Net income $13.2 10.0 18.1
===== ===== =====
</TABLE>
Forest Products
Net sales in the Company's Forest Products segment totaled $69.6 million
for 1996, $68.3 million for 1995, and $73.7 million for 1994. Operating income
was $15.9 million for 1996, $14.7 million for 1995, and $24.8 million for 1994.
During 1996, net sales of pine sawtimber decreased $1.5 million,
representing the net impact of a $2.6 million decrease attributable to a lower
average sales price and a $1.1 million increase due to a higher sales volume.
Pine sawtimber sales prices declined 18 percent in 1996 from $406 per MBF-DS in
1995 to $333 per MBF-DS in 1996. This decline in the price of pine sawtimber
was caused by softness in the market for logs and finished lumber due to a
continuation of the prior year's decline in new housing starts in the United
States. Pine sawtimber harvested by the Company increased ten percent in 1996
to 39.2 MMBF-DS from 35.7 MMBF-DS in 1995. Net sales of pine pulpwood and
hardwood increased $.2 million in 1996 due to higher sales price. Finished
lumber net sales increased $3.3 million and was caused equally by increased
sales price from $318 per MBF in 1995 to $335 per MBF in 1996 and slightly
higher sales volume, 143.4 million board feet in 1996 compared to 140.5 million
board feet in 1995. Other net sales in the Forest Products segment decreased
$.7 million.
Forest Products net sales declined $5.4 million during 1995, caused
primarily by lower finished
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lumber sales of $5.5 million and lower pine sawtimber sales of $.6 million,
partially offset by higher net sales of hardwood and pine pulpwood of $.6
million. The $5.5 million decline in net sales of finished lumber represents the
net impact of a $6.3 million decrease in net sales attributable to a lower
average sales price and a $.8 million increase in net sales due to a higher
sales volume. Although the Company's sawmills experienced a three-percent
increase in production of finished lumber to 140.6 MMBF in 1995, sales prices
for finished lumber averaged $318 per MBF as compared to $363 per MBF in 1994,
and were adversely affected by a general slowdown in the U.S. economy and a
decline nationwide in the number of housing starts as compared to 1994. In 1995,
pine sawtimber sales were $.6 million lower than in 1994, which reflects the net
impact of a $2 million decrease due to lower sales volume and a $1.4 million
increase attributable to a higher average sales price. The Company harvested
35.7 MMBF-DS of pine sawtimber in 1995, down from 40.6 MMBF-DS in 1994. Average
sales price for the Company's pine sawtimber was $406 per MBF-DS in 1995
compared to $372 per MBF-DS in 1994. Net sales of hardwood and pine pulpwood
increased $.6 million due to higher sales volume. Other net sales in the Forest
Products segment increased $.1 million.
Operating income of $15.9 million for 1996 was $1.2 million more than for
1995, an eight-percent increase, primarily attributable to increased finished
lumber sales discussed above, partially offset by higher log costs at the
Company's sawmills. Production of finished lumber from the Company's sawmills
increased slightly in 1996 with production totaling 141.2 MMBF.
In 1995, operating income from this segment was $14.7 million, a decline of
$10.1 million. The decrease was primarily attributable to a 12-percent decline
in average finished lumber sales price and to an eight-percent increase in log
costs at the Company's sawmills, which adversely affected sawmill margins during
the year.
Real Estate
The Company's Real Estate operations at Chenal Valley in western Little
Rock had net sales of $6.3 million for 1996, $4.2 million for 1995, and $9.6
million for 1994. Operating income was $1.6 million in 1996, $1 million in
1995, and $3.7 million in 1994.
Net sales in 1996 increased $2.1 million, 52 percent, from $4.2 million in
1995. Operating income also increased $.6 million in 1996 to $1.6 million.
Residential lot sales at the Chenal Valley development increased by 24 lots to
95 lots with the average sales price up five percent over 1995, from $52,900 to
$55,400. The Company is developing an additional 75 residential lots which will
be offered for sale at Chenal in early 1997. A 2.1 acre commercial tract was
sold in 1996 for $199,500 per acre, while no commercial development acreage was
sold in 1995.
Real Estate operations generated net sales of $4.2 million in 1995, a
decrease of $5.4 million. The decline in net sales was caused by a 56-percent
decrease in the number of lots sold from 163 in 1994 to 71 in 1995. Operating
income for this segment decreased from $3.7 million in 1994 to $1 million in
1995. Higher interest rates in the United States had an adverse affect on the
sale of lots at the Company's Chenal Valley development. The average sales
price for lots sold declined from $56,700 in 1994 to $52,900 in 1995. Neither
year included sales of commercial acreage. The Company continued to develop
acreage in Chenal and readied 137 lots for sale in 1995 versus 61 in 1994.
Agriculture
The Company's Agriculture operations generated net sales of $10.6 million
in 1996, $8.2 million in 1995, and $9.2 million in 1994. Operating income for
the segment was $2.8 million for 1996, $.4 million for 1995, and $1.9 million
for 1994.
Net sales increased $2.4 million, 29 percent, during 1996. Operating
income also increased $2.4
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million from $.4 million in 1995. Higher sales prices for soybeans and corn, in
addition to improved yields, benefited agricultural results for 1996, compared
to hot, dry conditions which adversely affected 1995 crop yields. In 1996,
harvests of soybeans increased 47 percent and corn harvested increased 23
percent; in addition, sales prices for soybeans and corn increased 19 percent
and 29 percent respectively.
Agricultural operations contributed $8.2 million in net sales during 1995,
down $1 million from 1994. The decrease in net sales was primarily due to a
nine-percent reduction in harvests of cotton in 1995 compared to 1994, along
with 30-percent and 27-percent declines in harvests of soybeans and corn,
respectively. Operating income also declined from $1.9 million in 1994 to $.4
million in 1995, primarily due to hot and dry conditions during the last half of
the 1995 growing season, which adversely affected all crop yields. Region-wide
reductions in crop yields led to higher average crop prices in 1995, and the
Company benefited from higher sales prices for cotton and soybean production.
Corporate
Corporate operating expense was $2.3 million in 1996, $2.8 million in 1995,
and $2 million in 1994. The Company's general and administrative expenses
include the cost of administrative and financial services provided by Murphy Oil
Corporation (Deltic's parent company prior to being spun off). The cost of such
services was $1.3 million in 1996, $2 million in 1995, and $1.9 million in 1994.
Included in 1994's charge was a $1.1 million reduction in administrative expense
related to reallocation of certain retirement plan assets among affiliates of
Murphy. (Refer to Note L to the consolidated financial statements.)
Net interest income
Net interest income during 1996 was $2.8 million, compared to $2.4 million
in 1995 and $1.6 million in 1994. Interest income earned on interest-bearing
amounts due from Murphy increased $.4 million in 1996 and $.9 million in 1995,
due mainly to higher average balances outstanding. Since the receivable from
Murphy has been substantially settled, in part through the $18.8 million noncash
dividend by the Company, interest income from Murphy will not be realized after
December 31, 1996.
Other income
Other income was $1.2 million in 1996, $.2 million in 1995, and $.6 million
in 1994. During 1996, the Company realized a $.7 million gain on the sale of
approximately 3,200 acres of Arkansas farmland. Other income in 1994 included a
$.6 million gain on a land sale.
Income tax
The Company's income tax expense was $8.8 million for 1996, $5.9 million
for 1995, and $12.5 million for 1994. The effective income tax rate was 40
percent, 37 percent, and 41 percent in 1996, 1995, and 1994, respectively.
Income tax expense increased $2.9 million in 1996 due to a similar increase in
pretax earnings. The Company's income tax expense declined $6.6 million, from
$12.5 million in 1994, primarily due to lower pretax earnings. In addition,
prior period tax adjustments included a $.3 million credit in 1995 versus a $.5
million charge in 1994.
SEASONALITY
The Company's Forest Products and Agriculture segments are subject to
variances in financial results due to several seasonal factors. The majority of
timber sales are generated in the first half of the year due primarily to
weather conditions and stronger timber prices. Increased housing starts during
the
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spring usually push lumber prices up and, in turn, can result in higher timber
prices. Forestry operations generally incur expenses related to silvicultural
treatments which are applied during the fall season to achieve maximum
effectiveness. Farming operations generally do not generate significant sales
and operating income until crops are harvested and sold in the second half of
the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Capital Expenditures
During the year ended December 31, 1996, the Company's net cash provided by
operating activities totaled $21.7 million, compared with $16.9 million in 1995
and $23.9 million in 1994. The Company's accompanying Consolidated Statements
of Cash Flows identify major differences between net income and cash provided by
operating activities for each of those years.
Capital expenditures required cash of $11.4 million in 1996, $7.4 million
in 1995, and $10.2 million in 1994. Other seller-financed capital expenditures
not requiring cash included a land acquisition of $.7 million in 1995, and
standing timber purchases in 1995 and 1994 amounting to $5.5 million and $.1
million, respectively. Total capital expenditures, including those not
requiring cash, are presented by segment in the following table for the years
ended December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1996 1995 1994
-------- -------- --------
(millions of dollars)
<S> <C> <C> <C>
Forest Products $ 2.9 7.2 6.1
Real Estate 6.7 4.7 3.8
Agriculture 0.3 0.2 0.3
Corporate 1.5 1.5 0.1
----- ----- -----
Capital expenditures $11.4 13.6 10.3
===== ===== =====
</TABLE>
Forest Products expenditures in 1996 included land acquisitions of 3,136
acres for $2.5 million. In 1996, mill expenditures included $1.4 million for the
initial stages of a planer upgrade at the Waldo Mill and $.7 million for the Ola
Mill's sorter system. Capital expenditures for expansion of the Waldo Mill were
$1.8 million in 1995 and $6.5 million in 1994. Also included in capital
expenditures for 1995 were net cash and noncash costs of $4.5 million for
purchase of the Company's timber requirements. Capital expenditures as shown
are net of the consumption of stumpage purchased in prior periods, totaling $2.8
million in 1996 and $1.1 million in 1994.
Capital expenditures for Real Estate operations which related to costs of
lot development were $.4 million in 1996, $1.2 million in 1995, and $1.9 million
in 1994. Expenditures of $4.5 million in 1996 were for construction of a 50,000
square-foot office building which the Company is offering for lease in Chenal
Valley. Infrastructure construction totaled $.4 million in 1996, compared to
$.7 million in 1995 and $.9 million in 1994. In 1995, land adjoining Chenal
Valley was acquired for $1 million. Other expenditures were primarily for
various amenity improvements.
Agriculture expenditures are mainly replacements of various machinery and
equipment.
Capital expenditures for Corporate operations included $.9 million in 1996
for purchase of additional investment in a consolidated entity, and $1.4 million
in 1995 for mineral lease acquisitions in Union and Columbia Counties in
Arkansas.
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At December 31, 1996, the Company had commitments of $10 million for
capital projects in progress, including $3.9 million for a planer upgrade at the
Waldo Mill and $3 million related to residential lot and commercial development,
infrastructure construction, and amenity improvements at Chenal.
Dispositions of assets provided $2.9 million in 1996, primarily from the
sale of approximately 3,200 acres of Arkansas farmland. During 1994, proceeds
from various land transactions totaled $1.1 million. As a part of the spin-off
of the Company by Murphy, the Company received a $17.2 million cash payment from
Murphy in partial settlement of its receivable due from Murphy. Prior to the
spin-off, the Company remitted to Murphy cash funds generated in excess of its
daily requirements. As a result, the receivable from Murphy had increased by
$7.9 million in 1996, $8.7 million in 1995, and $14.7 million in 1994. Also, in
connection with the spin-off, the Company recorded an $18.8 million noncash
dividend to Murphy which reduced the outstanding balance of the receivable.
(Refer to Note A to consolidated financial statements.) Advances to Del-Tin,
which was formed to construct and operate a medium density fiberboard plant near
El Dorado, Arkansas, required cash of $6.8 million during 1996.
Cash required to repay long-term debt amounted to $.4 million in 1996 and
$1.6 million in 1995 arising from installment payments on notes used to finance
a portion of the Company's timber requirements. During 1994, $.1 million of
cash was required to repay long-term debt.
Financial Condition
Year-end working capital totaled $25.8 million in 1996 and $6.8 million in
1995. Cash and cash equivalents at the end of 1996 were $16.6 million compared
to $1.4 million at the end of 1995. The improvement for 1996 was primarily
caused by the $17.2 million cash payment received from Murphy. In addition,
cash flow from operations exceeded the Company's investing and financing cash
needs for 1996. In 1995, to the extent that cash flow from operations exceeded
the Company's investing and financing needs, such amounts were remitted to
Murphy, increasing its noncurrent receivable from Murphy. The Company's current
ratio at the end of 1996 was 5.3 to 1, compared to 1.9 to 1 at the end of 1995.
Liquidity
The primary sources of the Company's liquidity are internally generated
funds, access to outside financing, and working capital. Deltic's current
strategy for growth emphasizes a significant timberland acquisitions program,
which will facilitate an increase in harvest levels through greater utilization
of even-aged timber management. This will enable the Company to maintain or
increase its level of self-sufficiency as it is expanding lumber production and
entering the engineered wood products market through its interest in Del-Tin.
The Company's growth plans will require additional capital financing. The
Company currently intends to make an equity offering of approximately $30
million before year-end 1997, consistent with representations made to the
Internal Revenue Service for purposes of receiving a ruling that the
distribution of its stock by Murphy will qualify as tax-free to Murphy and its
stockholders. The equity may be in the form of Company common stock,
convertible preferred stock, or straight preferred stock, which may be sold to
the public or in a private placement to financial institutions depending on the
existing market conditions.
At December 31, 1996, the Company had a committed credit facility with a
group of major banks totaling $100 million. Of the total credit facility, up to
$40 million may be designated as borrowings of Del-Tin, a joint venture.
Borrowings bear interest based upon prime or various cost of funds options.
Facility fees are accrued at .15 percent per annum for the unused commitment
balance and are payable quarterly. This facility expires December 31, 2001. At
December 31, 1996, no amounts were outstanding under this credit facility.
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OTHER MATTERS
General inflation has not had a significant effect on the Company's
operating results during the three years ended December 31, 1996. The Company's
timber operations are more significantly impacted by the forces of supply and
demand in the southern United States than by changes in inflation. Sales of real
estate are affected by changes in the general economy and long-term interest
rates.
The Company expects that operating expenses will increase as Deltic
operates as an autonomous, public entity, rather than as a wholly-owned
subsidiary of Murphy.
The Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation" recommends use of a fair value method
of accounting for stock-based employee compensation plans. The Company plans,
as allowed by SFAS 123, to measure compensation cost for employee stock
compensation plans using the method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and will provide pro
forma disclosures in the Notes to the consolidated financial statements as
required by SFAS 123. At December 31, 1996, the Company had a Stock Incentive
Plan that permits annual awards of shares of the Company's Common Stock to
executives and other key employees. However, no options were outstanding at
December 31, 1996. (Refer to Note J to the consolidated financial statements.)
OUTLOOK
The Company's budgeted capital expenditures for 1997 total $46.7 million
for Forest Products operations, $10 million for Real Estate operations, $1.1
million for Agriculture operations, and $.1 million for miscellaneous items. A
major portion of the amount for Forest Products, $23.1 million, is allocated for
timberland acquisitions, while $9.8 million is designated for sawmill projects.
Planned real estate expenditures include $8 million related to lot development,
commercial development, infrastructure construction, and amenity improvements at
Chenal Valley. Agriculture expenditures are budgeted for replacements of
machinery and equipment and for construction of grain-drying facilities.
Capital and other expenditures are under constant review, and these budgeted
amounts may be adjusted to reflect changes in the Company's estimated cash flows
from operations, borrowings under credit facilities, or equity financing as
described above.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DELTIC TIMBER CORPORATION
Consolidated Balance Sheets
December 31, 1996 and 1995
---------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 16,635 1,431
U. S. government securities 1,527 -
Trade accounts receivable, less allowance for doubtful
accounts of $154 in 1996 and $98 in 1995 3,186 3,564
Other receivables 2,532 -
Inventories 5,436 7,538
Prepaid expenses and other current assets 2,386 2,089
-------- -------
Total current assets 31,702 14,622
Investment in real estate held for development and sale 19,558 19,778
Investment in Del-Tin Fiber, L.L.C. 6,811 -
Noncurrent receivable from Murphy - 29,951
Timber and timberlands - net 90,320 91,356
Property, plant, and equipment - net 28,902 27,012
Deferred charges and other assets 2,785 2,528
-------- -------
Total assets $180,078 185,247
======== =======
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 1,698 1,985
Trade accounts payable 2,031 3,899
Accrued insurance obligations 250 705
Accrued taxes other than income taxes 780 730
Other accrued liabilities 692 422
State income taxes 493 59
-------- -------
Total current liabilities 5,944 7,800
Long-term debt 2,685 2,817
Accrued postretirement benefits 2,187 3,352
Deferred credits and other liabilities 2,554 989
Stockholders' equity
Preferred stock - -
Common stock 128 128
Capital in excess of par value 68,372 66,301
Retained earnings 98,208 103,860
-------- -------
Total stockholders' equity 166,708 170,289
-------- -------
Total liabilities and stockholders' equity $180,078 185,247
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
DELTIC TIMBER CORPORATION
Consolidated Statements of Income
Three Years Ended December 31, 1996
-----------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------- --------
<S> <C> <C> <C>
Net sales $ 86,498 80,662 92,457
----------- ------ -------
Costs and expenses
Cost of sales 61,076 59,597 57,364
Depreciation, amortization, and
cost of fee timber harvested 4,109 4,053 3,886
General and administrative expenses 3,373 3,669 2,832
----------- ------ -------
Total costs and expenses 68,558 67,319 64,082
----------- ------ -------
Operating income 17,940 13,343 28,375
Interest income 3,070 2,668 1,634
Interest expense (284) (309) (5)
Other income 1,207 192 572
----------- ------ -------
Income before income taxes 21,933 15,894 30,576
Income taxes (8,772) (5,878) (12,434)
----------- ------ -------
Net income $ 13,161 10,016 18,142
=========== ====== =======
Net income per Common share* $1.03 N/A N/A
=========== ====== =======
Average Common shares outstanding* 12,798,323 N/A N/A
=========== ====== =======
</TABLE>
*1996 amounts are presented on a pro forma basis. The spin-off distribution of
the Company's Common Stock did not occur until December 31, 1996.
See accompanying notes to consolidated financial statements.
23
<PAGE>
DELTIC TIMBER CORPORATION
Consolidated Statements of Cash Flows
Three Years Ended December 31, 1996
-----------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income $ 13,161 10,016 18,142
Adjustments to reconcile above income to
net cash provided by operating activities
Depreciation, amortization, and cost of
fee timber harvested 4,109 4,053 3,886
Deferred income taxes 52 (624) (540)
Gains from dispositions of assets (844) (4) (659)
Real estate costs recovered upon sale 2,942 1,984 4,719
(Increases)/decreases in operating working
capital other than cash and cash equivalents
Trade accounts receivable 378 1,042 385
Other receivables (676) - -
Inventories 2,102 (450) (2,286)
Prepaid expenses and other current assets (297) (56) 583
Trade accounts payable (1,868) 1,407 970
Accrued liabilities 971 (342) 509
Other 1,701 (161) (1,815)
-------- ------- -------
Net cash provided by operating activities 21,731 16,865 23,894
-------- ------- -------
Investing activities
Capital expenditures requiring cash (11,353) (7,361) (10,176)
Purchases of U. S. government securities (1,527) - -
Proceeds from dispositions of property, plant, and
equipment 2,850 126 1,129
Net (additions)/reductions to noncurrent receivable
from Murphy 10,938 (8,680) (14,697)
Advances to Del-Tin Fiber, L.L.C. (6,811) - -
Other - net (207) (219) (131)
-------- ------- -------
Net cash required by investing activities (6,110) (16,134) (23,875)
-------- ------- -------
Financing activities
Cash required for reductions of long-term debt (419) (1,644) (101)
Other - net 2 - -
-------- ------- -------
Net cash required by financing activities (417) (1,644) (101)
-------- ------- -------
Net increase/(decrease) in cash and cash equivalents 15,204 (913) (82)
Cash and cash equivalents at beginning of year 1,431 2,344 2,426
-------- ------- -------
Cash and cash equivalents at end of year $ 16,635 1,431 2,344
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
DELTIC TIMBER CORPORATION
Consolidated Statements of Stockholders' Equity
Three Years Ended December 31, 1996
------------------------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
1996 1995 1994
--------- ------- -------
<S> <C> <C> <C>
Cumulative Preferred Stock - $.01 par, authorized
20,000,000 shares, none issued $ - - -
--------- ------- -------
Common Stock - $.01 par, authorized 50,000,000
shares, 12,798,323 shares issued at beginning
and end of year* 128 128 128
--------- ------- -------
Capital in excess of par value*
Balance at beginning of year 66,301 66,301 66,301
Capital contributions by Murphy for administrative
and financial services, net of tax 384 - -
Transfer of prepaid retirement and accrued
postretirement benefit obligation from Murphy
at spin-off, net of tax 1,687 - -
--------- ------- -------
Balance at end of year 68,372 66,301 66,301
--------- ------- -------
Retained earnings
Balance at beginning of year 103,860 93,844 75,702
Net income for year 13,161 10,016 18,142
Noncash dividends to Murphy (18,813) - -
--------- ------- -------
Balance at end of year 98,208 103,860 93,844
--------- ------- -------
Total stockholders' equity $ 166,708 170,289 160,273
========= ======= =======
</TABLE>
*1995 and 1994 amounts have been reclassified to reflect the Company's capital
structure at December 31, 1996.
See accompanying notes to consolidated financial statements.
25
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
NOTE A - SPIN-OFF FROM MURPHY OIL CORPORATION
On August 28, 1996, the Board of Directors of Murphy Oil Corporation ("Murphy")
approved a plan to complete the tax-free spin-off of the common stock of the
Company through a special dividend to Murphy shareholders. The dividend was
declared on November 11, 1996, to the holders of record of Murphy Common Stock
at the close of business on December 2, 1996 (the "Record Date"). As a result
of the Distribution, 100 percent of the outstanding shares of Deltic Timber
Corporation ("Deltic" or the "Company") were distributed to Murphy shareholders
on December 31, 1996. Effective with the spin-off, the Company has a separate
Board of Directors, with only one Director in common between Deltic and Murphy.
All assets and liabilities of the Company prior to the Distribution remain
recorded in its financial statements at December 31, 1996, with the exception
of the noncurrent, interest-bearing receivable resulting from the advances to
Murphy of cash funds generated in excess of capital and daily operating
requirements. (See Note L - Related Party Transactions.) Settlement of this
receivable was accomplished by recording noncash dividends from Deltic to
Murphy, in the amount of $18,813,000, and a cash repayment by Murphy to the
Company of $17,200,000, leaving a balance due at December 31, 1996 of
$1,858,000, which is included in the Consolidated Balance Sheet in Other
Receivables. Payment of this final balance is expected during 1997. As a
result of this settlement, Deltic will no longer realize interest income from
Murphy.
To accomplish the spin-off, Murphy surrendered 100 percent of the outstanding
shares of the Company's Common Stock, which were redistributed to its
shareholders as a dividend at the ratio of one share of Deltic Common Stock for
every 3.5 shares of Murphy Common Stock owned by Murphy shareholders on the
Record Date. As a result, 12,798,323 shares of Common Stock, $.01 par value,
were issued and outstanding at December 31, 1996. To enhance comparability,
stockholders' equity has been restated to reflect the capital structure at the
end of 1996 for all periods presented.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements include
the accounts of Deltic and all majority-owned subsidiaries after elimination
of significant intercompany transactions and accounts. The Company's
investment in Del-Tin Fiber, L.L.C. ("Del-Tin Fiber"), the 50-percent owned
limited liability company, is accounted for using the equity method.
Use of Estimates -- In the preparation of financial statements of the Company
in conformity with generally accepted accounting principles, management has
made a number of estimates and assumptions related to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities.
Actual results may differ from those estimates.
Cash Equivalents -- Cash equivalents include U. S. government securities that
have a maturity of three months or less from the date of purchase.
Inventories -- Inventories of logs, lumber, agricultural products, and
supplies are stated at the lower of cost or market, primarily using the
average cost method. Log costs include harvest and transportation cost as
appropriate. Lumber costs include materials, labor, and production overhead.
26
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
Investment in Real Estate Held for Development and Sale -- Real estate held
for development and sale is stated at the lower of cost or net realizable
value, and includes direct costs of land and land development and indirect
costs, including amenities, less amounts charged to cost of sales. These
costs are allocated to individual lots or acreage sold based on relative
sales value. Direct costs are allocated on a specific neighborhood basis,
while indirect costs are allocated over the entire Chenal Valley project.
Timber and Timberlands -- Timber and timberlands, which includes purchased
stumpage inventory and logging facilities, is stated at acquisition cost less
cost of fee timber harvested and accumulated depreciation of logging
facilities. The cost of fee timber harvested is based on the volume of timber
harvested in relation to the estimated volume of timber recoverable. Logging
facilities, which consist primarily of the cost of roads constructed and
other land improvements, are depreciated by using the straight-line method
over a ten-year estimated life. The Company estimates its fee timber
inventory using statistical information and data obtained from physical
measurements and other information gathering techniques. Fee timber carrying
costs are expensed as incurred.
Property, Plant, and Equipment -- Property, plant, and equipment is stated at
cost less accumulated depreciation. Depreciation of buildings, equipment, and
other depreciable assets is primarily determined by using the straight-line
method. Expenditures that substantially improve and/or increase the useful
life of facilities and equipment are capitalized. Maintenance and repair
costs are expensed as incurred. Gains and losses on disposals or retirements
are included in income as they occur.
Impairment of Long-Lived Assets -- Effective October 1, 1995, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of. Under this standard, long-lived assets are evaluated on a
specific asset basis or in groups of similar assets, as applicable.
Recognition of an impairment loss is required when the undiscounted estimated
future net cash flows are less than the carrying value of an evaluated asset.
The adoption of this statement had no effect on the Company's 1995 results of
operations.
Revenue Recognition - Revenue from the sale of lumber, wood by-products, and
agricultural goods is generally recorded at the time of shipment. Revenue
from the sale of timber-cutting rights to third parties is recorded when
legal title passes to the purchaser. Revenue from intrasegment timber sales
is recorded when the timber is harvested; such intrasegment sales, which are
made at market prices, are eliminated in the consolidated financial
statements. Revenue on real estate sales is recorded when the sale is closed
and legal title is transferred.
Income Taxes -- The Company is included in the consolidated federal income
tax return of Murphy for the three periods for which income statements are
presented; however, for financial accounting purposes, federal income tax has
been computed and recorded as if the Company filed a separate federal income
tax return. The Company will file a separate income tax return beginning in
1997.
The Company uses the asset and liability method of accounting for income
taxes. Under this method, the provision for income taxes includes amounts
currently payable and amounts deferred as tax assets and liabilities based on
differences between the financial statement carrying amounts
27
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
and the tax bases of existing assets and liabilities and measured using the
enacted tax rates that are assumed will be in effect when the differences
reverse.
Capital Expenditures -- Capital expenditures include additions to Investment
in Real Estate Held for Development and Sale; Timber and Timberlands; and
Property, Plant, and Equipment. The Company also includes in capital
expenditures the amount representing the net change for the year in the
purchased stumpage inventory component of Timber and Timberlands. Depending
on the timing of acquisition and usage of this acquired stumpage inventory,
the impact on capital expenditures can be either an increase or a decrease.
Related Party Transactions -- Murphy historically has performed certain
administrative and financial services on behalf of the Company. These
services include, among others, cash management and consultation related to
certain personnel, employee benefit, and income tax matters.
As a result of the spin-off from Murphy, Deltic personnel will assume
responsibility for these functions. However, Murphy has agreed to provide,
or cause to be provided to the Company, certain specified services for a
transitional period after the spin-off. The services are offered for a six-
month period ending June 30, 1997, unless earlier terminated by Deltic upon
notice to Murphy.
Net Income per Common Share -- This amount is computed by dividing net income
for each period by the weighted average number of Common shares outstanding
during the period. For 1996, this amount is presented on a pro forma basis
and is calculated based on the number of shares issued in connection with the
spin-off.
Reclassifications -- Certain prior year amounts have been reclassified to
conform to 1996 presentation format.
NOTE C - INVENTORIES
Inventories consisted of the following at December 31.
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
------ -----
<S> <C> <C>
Logs $1,366 3,799
Finished products 3,912 3,563
Materials and supplies 158 176
------ -----
$5,436 7,538
====== =====
</TABLE>
NOTE D - INVESTMENT IN DEL-TIN FIBER, L.L.C.
Deltic and Temple-Inland Forest Products Corporation jointly own (50 percent
each) Del-Tin Fiber, L.L.C., which has begun construction of a medium density
fiberboard plant near El Dorado, Arkansas. The cost of the plant has been
estimated at approximately $100,000,000. Each owner has committed funding of
up to $10,000,000 for the project, with the remainder to be financed by Del-Tin
Fiber with borrowings. Financing arrangements have been finalized with each
owner required to guarantee for an interim period half of Del-Tin Fiber's
borrowings, of which the Company's share could amount to $40,000,000. Under
the operating agreement, Del-Tin Fiber's employees will operate the plant.
Deltic has committed to provide a portion of the plant's fiber supply at market
prices.
28
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
NOTE E - TIMBER AND TIMBERLANDS
Timber and timberlands consisted of the following at December 31.
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
--------- --------
<S> <C> <C>
Purchased stumpage inventory $ 7,235 10,015
Timberlands 37,401 37,143
Fee timber 71,919 69,288
Logging facilities 1,588 1,579
-------- -------
118,143 118,025
Less accumulated cost of fee timber harvested
and facilities depreciation (27,823) (26,669)
-------- -------
$ 90,320 91,356
======== =======
</TABLE>
Cost of fee timber harvested amounted to $1,060,000 in 1996, $1,073,000 in
1995, and $1,310,000 in 1994. Depreciation of logging facilities for the three
years ended December 31, 1996 was: 1996, $94,000; 1995, $97,000; and 1994,
$108,000.
The Company obtains a portion of its sawmill log requirements by acquiring
purchased stumpage inventory through cutting contracts with various private and
governmental landowners. These contracts have terms ranging from a few months
to several years. At December 31, 1996, the Company's total commitment under
such contracts amounted to approximately $5,679,000. Based on lumber prices at
December 31, 1996, management estimated the fair value of stumpage under such
contracts to be approximately $5,844,000. Depending on the market value of
this stumpage at time of harvest, the Company's sawmills may experience
favorable or unfavorable log supply costs.
NOTE F - PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at December 31.
<TABLE>
<CAPTION>
Range of
(Thousands of dollars) Useful Lives 1996 1995
------------ --------- --------
<S> <C> <C> <C>
Land and land improvements --- $ 7,272 9,969
Buildings and structures 10-20 years 6,836 2,794
Machinery and equipment 3-10 years 45,782 42,921
-------- -------
59,890 55,684
Less accumulated depreciation (30,988) (28,672)
-------- -------
$ 28,902 27,012
======== =======
</TABLE>
Commitments for capital expenditures at December 31, 1996, were approximately
$8,215,000 for property, plant, and equipment, and $1,798,000 for investment in
real estate held for development and sale.
29
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
NOTE G - FINANCING ARRANGEMENTS
At December 31, 1996, the Company had a committed credit facility with a group
of major banks totaling $100,000,000. Of the total credit facility, up to
$40,000,000 may be designated as borrowings of Del-Tin Fiber, L.L.C.
Borrowings bear interest based upon prime or other various cost of funds
options. Facility fees are accrued at .15 percent per annum for the unused
commitment balance and are payable quarterly. This facility expires December
31, 2001. At December 31, 1996, no amounts were outstanding under this credit
facility.
NOTE H - LONG-TERM DEBT
Long-term debt at each year-end consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
------- -------
<S> <C> <C>
Installment timber notes payable, average interest rate
of 5.8%, due 1997-2000 $ 3,595 4,006
Note payable, 8%, due 1999 750 750
Other notes payable, 9%, due 1997-2000 38 46
------- ------
4,383 4,802
Less current maturities (1,698) (1,985)
------- ------
$ 2,685 2,817
======= ======
</TABLE>
Amounts becoming due after 1997 are: 1998, $1,699,000; 1999, $868,000; and
2000, $118,000.
NOTE I - INCOME TAXES
The components of income tax expense/(benefits) for the three years ended
December 31, 1996, were as follows.
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal
Current $7,270 5,086 10,006
Deferred 52 (203) 570
------ ------- ------
7,322 4,883 10,576
State
Current 1,450 995 1,858
------ ------- ------
Total $8,772 5,878 12,434
====== ======= ======
</TABLE>
Following is a reconciliation of the U. S. statutory income tax rate to the
Company's effective rates on income before income taxes.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate 35% 35% 35%
State income taxes, net of federal income tax benefit 4 4 4
Other 1 (2) 2
---- ---- ----
Effective income tax rate 40% 37% 41%
==== ==== ====
</TABLE>
30
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
An analysis of the Company's deferred tax assets and deferred tax liabilities
at December 31, 1996 and 1995 showing the tax effects of significant temporary
differences follows.
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets
Postretirement and other employee benefits $ - 1,299
Investment in real estate held for development and sale 3,150 2,371
Other deferred tax assets 284 305
------- ------
Total deferred tax assets 3,434 3,975
------- ------
Deferred tax liabilities
Postretirement and other employee benefits (106) -
Property, plant, and equipment (2,469) (1,973)
Timber and timberlands (296) (512)
Other deferred tax liabilities (172) (462)
------- ------
Total deferred tax liabilities (3,043) (2,947)
------- ------
Net deferred tax assets $ 391 1,028
======= ======
</TABLE>
Net noncurrent deferred tax liabilities of $656,000 are included in the
Consolidated Balance Sheet in Deferred Credits and Other Liabilities at
December 31, 1996, and net noncurrent deferred tax assets of $501,000 are
included in Deferred Charges and Other Assets at December 31, 1995. In
addition, current deferred tax assets of $1,047,000 at December 31, 1996 and
$527,000 at December 31, 1995, are included in the Consolidated Balance Sheets
in Prepaid Expenses and Other Current Assets for the respective years.
In management's judgment, the Company's deferred tax assets at December 31,
1996, will more likely than not be realized as reductions of future taxable
income or by utilizing available tax planning strategies. There were no
valuation allowances for deferred tax assets at the end of the three years
ended December 31, 1996.
NOTE J - INCENTIVE PLANS
At December 31, 1996, the Company had a Stock Incentive Plan, approved by its
shareholder, Murphy Oil Corporation, that permits annual awards of shares of
the Company's Common Stock to executives and other key employees. Under the
Plan, the Executive Compensation Committee is authorized to grant: (1) stock
options (nonqualified or incentive), (2) stock appreciation rights, and (3)
restricted stock awards. No options were outstanding at December 31, 1996.
In January 1997, the Executive Compensation Committee granted replacement
options for 32,125 shares to certain executives and key employees. These
options replaced awards previously granted under the Murphy Oil Corporation
Stock Incentive Plan that expired upon the ceasing of employment of these
individuals from Murphy effective with the spin-off of Deltic Timber
Corporation.
Cost of options granted will be accrued over the vesting periods, beginning in
1997, and adjusted for subsequent changes in fair market value of the shares.
31
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
In addition to the above plan, the Company has an Incentive Compensation Plan
that provides for annual cash awards to officers and key employees based on
actual results for a year compared to measurable financial performance
objectives established at the beginning of that year. The Plan is administered
by the Executive Compensation Committee. Initial awards under the Plan will be
granted in 1998, based on 1997 results of operations. No provisions were
recorded in the periods presented through December 31, 1996.
NOTE K - EMPLOYEE AND RETIREE BENEFITS
As of December 31, 1996, Deltic employees were participants in the employee and
retiree benefit plans of Murphy Oil Corporation. Amounts presented for 1996,
1995, and 1994 reflect the Company's portion of the respective plans.
Effective January 1, 1997, separate plans were implemented for active Deltic
employees.
Retirement Plans -- Murphy had defined benefit retirement plans that covered
substantially all employees of the Company. Benefits were based on years of
service and final-pay formulas as defined by the plans. All plans were
noncontributory.
Retirement expense/(expense reduction) and its components for 1996, 1995, and
1994 are shown in the following table.
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
------ ------- -----
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 337 284 327
Interest accrued on benefits earned in prior years 686 644 618
Actual return on plan assets (956) (2,074) (243)
Net amortization and deferral (136) 1,134 (705)
----- ------ ----
Net retirement expense/(expense reduction)* $ (69) (12) (3)
===== ====== ====
</TABLE>
*Major assumptions were discount rates of 7% for 1996, 7.5% for 1995, and
6.75% for 1994; assumed long-term rate of return of plan assets was 8.5%
of 1996, 1995, and 1994.
32
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
Amounts contributed to funded plans were actuarially determined and were at
least the minimum required by the Employee Retirement Income Security Act of
1974. The following table sets forth the funded status of the plans
applicable to the Company and the amounts recognized in the Consolidated
Balance Sheets.
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
-------- -------
<S> <C> <C>
Present value of accumulated benefit based on years of
service, applicable pay formulas, and present pay levels
Vested $2,747 7,343
Nonvested 571 540
------ ------
Accumulated benefit obligation/1/ 3,318 7,883
Provision for future pay increases 2,094 1,680
------ ------
Projected benefit obligation/1/ 5,412 9,563
Plan assets - at market value/2/ 8,032 11,617
------ ------
Plan assets in excess of projected benefit obligation 2,620 2,054
Unrecognized net asset from transition to SFAS No. 87/3/ (332) (1,087)
Unrecognized net loss from unfavorable actuarial experience (8) 249
Unrecognized prior service cost 266 83
------ ------
Prepaid retirement cost/4/ $2,546 1,299
====== ======
</TABLE>
/1/ Major assumptions were discount rates of 7.5% for 1996 and 7% for 1995
and future pay rate increases of 4.6% for 1996 and 1995.
/2/ Primarily includes listed stocks and bonds, government securities, and
U. S. agency bonds.
/3/ Being amortized over a period of 15 years.
/4/ Included in the Consolidated Balance Sheets under the caption "Deferred
Charges and Other Assets".
Thrift Plans -- Employees of the Company could participate in thrift plans
sponsored by Murphy by allotting up to a specified percentage of their base
pay. The Company matched contributions at a stated percentage of each
employee's allotment based on length of participation in the plans. Company
contributions to these plans were $190,000 in 1996, $157,000 in 1995, and
$144,000 in 1994.
Postretirement Benefits -- Murphy sponsored plans that provided comprehensive
health care benefits (supplementing Medicare benefits for those eligible) and
life insurance benefits for qualified retired employees. Costs were accrued
for these plans during the service lives of covered employees. Retirees and
the Company contributed to the self-funded cost of health care benefits. The
Company paid premiums for life insurance coverage, arranged through an
insurance company. The health care plan was funded on a pay-as-you-go basis.
The Company had the right to modify the benefits and/or cost-sharing
provisions.
Based on actuarial computations, postretirement expense and its components
for 1996, 1995, and 1994 are shown below.
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
Service cost $ 136 90 146
Amortization of net actuarial loss 1 60 38
Interest cost 296 316 301
----- ---- ----
Postretirement expense $ 433 466 485
===== ==== ====
</TABLE>
33
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
A summary follows of the postretirement benefit obligations recorded in the
Consolidated Balance Sheets at December 31, 1996 and 1995. Calculation of
the amount of accumulated unfunded postretirement benefit obligations (APBO)
was based on discount rates of 7.5 percent and 7.0 percent in 1996 and 1995.
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
------- -------
<S> <C> <C>
APBO
Retirees $ - 2,718
Fully eligible active participants 578 581
Other active participants 1,545 1,266
------ ------
Total unfunded APBO 2,123 4,565
Unrecognized net actuarial gain/(loss) 64 (1,213)
------ ------
Accrued APBO obligations $2,187 3,352
====== ======
</TABLE>
In determining the APBO at December 31, 1996, health care inflation cost was
assumed to increase at an annual rate of 7.5 percent, gradually decreasing to
4.5 percent in 2002 and thereafter. An increase of one percent in the
assumed health care cost trend would increase the 1996 postretirement benefit
expense by 8.2 percent and the APBO at December 31, 1996 by 6.5 percent.
NOTE L - RELATED PARTY TRANSACTIONS
Through December 10, 1996, the Company operated under Murphy's consolidated
cash management policy. Under this policy, Deltic remitted cash funds
generated in excess of its daily requirements to Murphy. Such remitted funds
gave rise to an interest-bearing receivable that was due on demand.
Prior to December 31, 1996, the Company classified the receivable as noncurrent
since it did not anticipate receiving payment within the next year. At
December 31, 1996, the receivable has been included as a current asset in Other
Receivables since the intercompany relationship to Murphy has been dissolved
and since payment of the net balance due Deltic is expected within the next
year. The net receivable from Murphy totaled $1,858,000 at December 31, 1996
and $29,951,000 at December 31, 1995. Deltic's interest income from this
receivable was $2,374,000 in 1996, $1,978,000 in 1995, and $1,047,000 in 1994.
For 1997, no interest income from Murphy will be realized due to the fact that
the receivable from Murphy, after December 31, 1996, will not be interest-
bearing.
The Company recorded charges of $1,250,000 in 1996, $2,015,000 in 1995, and
$1,935,000 in 1994 for administrative and financial services provided by Murphy
on Deltic's behalf. Included in the 1996 charges is $460,000 allocated by
Murphy to the Company for its share of spin-off costs incurred. Of the total
amount expensed during 1996, $630,000 ($384,000 net of tax) was a capital
contribution by Murphy (recorded as an adjustment to Capital in Excess of Par
Value in the Consolidated Balance Sheet at December 31, 1996) since payment was
not required for this amount of services. These amounts were included in
General and Administrative Expenses in the Consolidated Statements of Income
for the respective years. General and Administrative Expenses in 1994 include
a credit of $1,056,000 related to reallocation of certain retirement plan
assets among affiliates of Murphy.
34
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
In addition, capital contributions by Murphy were recorded as a result of the
transfer of $1,177,000 for prepaid retirement cost and $1,419,000 for accrued
APBO obligations from Murphy to Deltic for employees and retirees transferred
between the two companies. These capital contributions ($1,687,000 net of tax)
were recorded as adjustments to Capital in Excess of Par Value in the
Consolidated Balance Sheet at December 31, 1996.
NOTE M - SUPPLEMENTAL CASH FLOWS DISCLOSURES
Interest paid was $110,000, $273,000, and $17,000 in 1996, 1995, and 1994.
Cash paid for state income taxes, net of refunds, was $1,016,000, $1,825,000,
and $1,797,000 in 1996, 1995, and 1994. Federal income taxes for the three
years ended December 31, 1996 were included in Murphy's consolidated tax return
and were settled through intercompany accounts.
Noncash investing and financing activities excluded from the Consolidated
Statements of Cash Flows were an addition of $1,656,000 during 1996 to the
noncurrent receivable from Murphy as a result of recording the transfer of all
mineral leases acquired by Deltic in 1995, and the assumption of debt in the
amount of $6,276,000 in 1995 related to acquisition of land and timber-cutting
rights.
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amount and estimated fair values of
financial instruments held by the Company at December 31, 1996 and 1995. The
fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties. The table
excludes U. S. government securities, trade accounts receivable, trade accounts
payable, and accrued liabilities, all of which had fair values approximating
carrying values.
<TABLE>
<CAPTION>
1996 1995
---------------------- ------------------------
Carrying or Estimated Carrying or Estimated
Notional Fair Notional Fair
(Thousands of dollars) Amount Value Amount Value
----------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Financial liabilities
Long-term debt, including
current maturities $4,383 4,401 (4,802) (4,878)
Off-balance sheet exposures
Letters of credit 1,080 1,080 (682) (682)
</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.
Letter of credit -- The fair value is based on the estimated cost to settle
these obligations.
35
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
NOTE O - CONCENTRATION OF CREDIT RISKS
The Company's primary credit risk is from trade accounts receivable. These
receivables arise primarily from sales of timber and wood products to a large
number of customers. The credit history and financial condition of potential
customers are reviewed before credit is extended, security may be obtained then
or later, routine follow-up evaluations are made, and an allowance for doubtful
accounts is maintained, generally based upon a risk evaluation of specific
customers. Historically, the Company has not incurred any significant credit-
related losses, and at December 31, 1996, the Company had no significant
concentration of credit risk outside the timber and wood products industry.
NOTE P - BUSINESS SEGMENTS
Information about the Company's business segments is summarized in the
following tables.
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Net sales
Forest Products $ 69,567 68,258 73,636
Real Estate 6,346 4,188 9,635
Agriculture 10,585 8,216 9,186
-------- ------- -------
$ 86,498 80,662 92,457
======== ======= =======
Income before income taxes
Forest Products $ 15,870 14,748 24,818
Real Estate 1,578 999 3,637
Agriculture 2,760 373 1,896
Corporate (2,268) (2,777) (1,976)
-------- ------- -------
Operating income 17,940 13,343 28,375
Interest income 3,070 2,668 1,634
Interest expense (284) (309) (5)
Other income 1,207 192 572
-------- ------- -------
$ 21,933 15,894 30,576
======== ======= =======
Identifiable assets at year-end
Forest Products $117,518 118,375 114,725
Real Estate 25,516 20,961 17,770
Agriculture 11,697 11,613 12,420
Corporate 25,347 34,298 24,458
-------- ------- -------
$180,078 185,247 169,373
======== ======= =======
Depreciation, amortization, and
cost of fee timber harvested
Forest Products $ 3,556 3,307 3,270
Real Estate 120 31 25
Agriculture 515 561 561
Corporate (82) 154 30
-------- ------- -------
$ 4,109 4,053 3,886
======== ======= =======
</TABLE>
36
<PAGE>
DELTIC TIMBER CORPORATION
Notes to Consolidated Financial Statements
December 31, 1996
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
------- ----- -----
<S> <C> <C> <C>
Capital expenditures
Forest Products $ 2,900 7,216 6,167
Real Estate 6,669 4,638 3,849
Agriculture 272 245 266
Corporate 1,512 1,538 66
------- ------ -----
$11,353 13,637 10,348
======= ====== ======
</TABLE>
NOTE Q - FINANCIAL RESULTS BY QUARTER (UNAUDITED)
<TABLE>
<CAPTION>
(Thousands of dollars - except per share amounts)
Three Months Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
--------------- ---------------- -------------- --------------
1996 1995 1996 1995 1996 1995 1996 1995
------- ------ ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $19,318 22,612 19,493 19,810 25,651 19,574 22,036 18,666
------- ------ ------- ------- ------ ------ ------ ------
Cost and expenses
Cost of sales 12,784 13,262 13,604 14,012 18,273 15,828 16,415 16,495
Depreciation,
amortization, and
cost of fee timber
harvested 1,285 970 804 1,003 1,015 1,037 1,005 1,043
General and
administrative
expenses 990 650 999 648 978 1,356 406 1,015
------- ------ ------- ------- ------ ------ ------ ------
Total cost of
sales 15,059 14,882 15,407 15,663 20,266 18,221 17,826 18,553
------- ------ ------- ------- ------ ------ ------ ------
Operating income $ 4,259 7,730 4,086 4,147 5,385 1,353 4,210 113
======= ====== ======= ======= ====== ====== ====== ======
Net income $ 3,151 5,069 2,850 2,966 4,280 1,204 2,880 777
======= ====== ======= ======= ====== ====== ====== ======
Net income per
common share* $ .25 N/A .22 N/A .33 N/A .23 N/A
======= ====== ======= ======= ====== ====== ====== ======
</TABLE>
*1996 amounts presented on a pro forma basis.
37
<PAGE>
REPORT OF MANAGEMENT
--------------------
The management of Deltic Timber Corporation has prepared and is responsible for
the Company's consolidated financial statements. The statements are prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances. In preparing the financial statements, management has, when
necessary, made judgments and estimates with consideration given to materiality.
The Company maintains internal control systems and related policies and
procedures designed to provide reasonable assurance that assets are safeguarded
against loss or unauthorized use, that the accounting records accurately reflect
business transactions, and that the transactions are in accordance with
management's authorization. The design, monitoring, and revision of the systems
of internal control involve, among other things, our judgment with respect to
the relative cost and expected benefits of specific control measures. Since
being spun off by Murphy Oil Corporation on December 31, 1996, the Company has
engaged an outside accounting firm to provide internal audit services in order
to monitor the effectiveness of the controls, while independently and
systematically evaluating and formally reporting on the adequacy and
effectiveness of components of the system.
The Company's consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, who have expressed their
opinion with respect to the fairness of the consolidated financial statements.
Their audit was conducted in accordance with generally accepted auditing
standards, which includes the consideration of the Company's internal controls
to the extent necessary to form an independent opinion on the consolidated
financial statements prepared by management. The Board of Directors will
appoint the independent auditors; ratification of the appointment will be
solicited annually from the shareholders.
The Audit Committee of the Board of Directors is composed of directors who are
not officers or employees of the Company. The Committee will meet periodically
with the independent certified public accountants, the firm providing internal
audit services, and management. The Committee will consider the audit scope and
discuss internal control, financial and reporting matters, and the scope and
results of audits. The independent auditors have unrestricted access to the
Committee, without management's presence, to discuss audit findings and other
financial matters.
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Deltic Timber Corporation:
We have audited the accompanying consolidated balance sheets of Deltic Timber
Corporation and Consolidated Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Deltic Timber
Corporation and Consolidated Subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Shreveport, Louisiana
February 28, 1997
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DELTIC TIMBER CORPORATION
By: /s/ Ron L. Pearce Date: May 7, 1997
--------------------------------------- ---------------------------
Ron L. Pearce, President
(Principal Executive Officer)
/s/ Clefton D. Vaughan Date: May 7, 1997
- ------------------------------------------ --------------------------
Clefton D. Vaughan, Vice President,
Finance and Administration
(Principal Financial Officer)
/s/ Emily R. Evers Date: May 7, 1997
- ------------------------------------------ --------------------------
Emily R. Evers, Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 16,635 1,431
<SECURITIES> 1,527 0
<RECEIVABLES> 5,872 3,662
<ALLOWANCES> 154 98
<INVENTORY> 5,436 7,538
<CURRENT-ASSETS> 31,702 14,622
<PP&E> 178,033 173,709
<DEPRECIATION> 58,811 55,341
<TOTAL-ASSETS> 180,078 185,247
<CURRENT-LIABILITIES> 5,944 7,800
<BONDS> 0 0
0 0
0 0
<COMMON> 128 128
<OTHER-SE> 166,580 170,161
<TOTAL-LIABILITY-AND-EQUITY> 180,078 185,247
<SALES> 86,498 80,662
<TOTAL-REVENUES> 90,775 83,522
<CGS> 61,076 59,597
<TOTAL-COSTS> 65,185 63,656
<OTHER-EXPENSES> 3,373 3,669
<LOSS-PROVISION> 56 36
<INTEREST-EXPENSE> 284 309
<INCOME-PRETAX> 21,933 15,894
<INCOME-TAX> 8,772 5,878
<INCOME-CONTINUING> 13,161 10,016
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 13,161 10,016
<EPS-PRIMARY> 1.03 0
<EPS-DILUTED> 1.03 0
</TABLE>
