<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-12147
DELTIC TIMBER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 71-0795870
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
210 East Elm 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) 881-9400
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
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 .
--- ---
Number of shares of Common Stock, $.01 Par Value, outstanding at July 31, 1999,
was 12,394,337.
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<PAGE>
TABLE OF CONTENTS - SECOND QUARTER 1999 FORM 10-Q REPORT
Page
Number
------
PART I - Financial Information
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II - Other Information
Item 1. Legal Proceedings 18
Item 2. Change in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
-------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 5,352 8,160
Trade accounts receivable - net 7,112 3,995
Other receivables 2,850 1,328
Inventories 6,171 5,851
Prepaid expenses and other current assets 6,878 3,882
--------- ---------
Total current assets 28,363 23,216
Investment in real estate held for development and sale 27,329 27,295
Investment in Del-Tin Fiber 5,392 6,699
Timber and timberlands - net 165,961 166,588
Property, plant, and equipment - net 48,883 44,104
Deferred charges and other assets 4,143 4,642
--------- ---------
Total assets $ 280,071 272,544
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 924 990
Notes payable - 387
Trade accounts payable 1,300 2,164
Accrued taxes other than income taxes 1,583 1,025
Bank overdraft 1,534 817
Other accrued liabilities 1,795 1,294
--------- ---------
Total current liabilities 7,136 6,677
Long-term debt 57,036 45,198
Deferred credits and other noncurrent liabilities 9,578 7,535
Redeemable preferred stock 30,000 30,000
Stockholders' equity
Preferred stock - -
Common stock 128 128
Capital in excess of par value 68,808 68,808
Retained earnings 117,993 114,498
Unamortized restricted stock awards (252) (300)
Treasury stock (10,356) -
--------- ---------
Total stockholders' equity 176,321 183,134
--------- ---------
Total liabilities and stockholders' equity $ 280,071 272,544
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
------------------------------------------------
(Thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1999 1998 1999 1998
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 31,061 26,211 62,386 53,219
---------- -------- -------- --------
Costs and expenses
Cost of sales 19,542 19,459 37,194 36,597
Depreciation, amortization, and
cost of fee timber harvested 2,750 1,735 5,821 3,464
General and administrative expenses 1,825 1,098 3,658 2,850
---------- -------- -------- --------
Total costs and expenses 24,117 22,292 46,673 42,911
---------- -------- -------- --------
Operating income 6,944 3,919 15,713 10,308
Equity in loss of Del-Tin Fiber (1,997) (1,061) (3,626) (1,465)
Interest income 53 294 120 621
Interest expense (964) (70) (1,743) (118)
Other income/(expense) 1,203 52 1,282 87
---------- -------- -------- --------
Income before income taxes 5,239 3,134 11,746 9,433
Income taxes (2,137) (1,057) (4,749) (3,550)
---------- -------- -------- --------
Net income $ 3,102 2,077 6,997 5,883
========== ======== ======== ========
Earnings per Common share
Basic $ .20 .12 .47 .37
========== ======== ======== ========
Assuming dilution $ .20 .12 .46 .37
========== ======== ======== ========
Dividends declared per Common share $ .0625 .0625 .125 .125
========== ======== ======== ========
Average Common shares outstanding
(thousands) 12,453 12,814 12,613 12,810
========== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
-------------------------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Operating activities
Net income $ 6,997 5,883
Adjustments to reconcile above income to
net cash provided/(required) by operating activities
Depreciation, amortization, and cost of fee timber harvested 5,821 3,464
Deferred income taxes 1,869 (179)
(Gains)/losses from sales of assets (1,149) (32)
Real estate costs recovered upon sale 3,457 2,234
Equity in loss of Del-Tin Fiber 3,626 1,465
(Increase)/decrease in operating working capital,
other than cash and cash equivalents (8,547) (2,836)
Other 650 104
-------- -------
Net cash provided/(required) by operating activities 12,724 10,103
-------- -------
Investing activities
Capital expenditures requiring cash (15,569) (17,148)
Net change in purchased stumpage inventory (189) (5,196)
Proceeds from sales of assets 3,150 51
Investment in and advances to Del-Tin Fiber - net (2,235) (870)
Other - net 279 242
-------- -------
Net cash provided/(required) by investing activities (14,564) (22,921)
-------- -------
Financing activities
Proceeds from long-term borrowings 14,000 2,000
Repayments of long-term debt (2,616) (1,993)
Increase/(decrease) in bank overdraft 718 (761)
Treasury stock purchases (10,356) -
Preferred stock dividends paid (1,131) (1,131)
Common stock dividends paid (1,583) (1,602)
-------- -------
Net cash provided/(required) by financing activities (968) (3,487)
-------- -------
Net increase/(decrease) in cash and cash equivalents (2,808) (16,305)
Cash and cash equivalents at January 1 8,160 31,045
-------- -------
Cash and cash equivalents at June 30 $ 5,352 14,740
======== =======
Supplemental disclosures
Income taxes paid, net of refunds $ 3,229 4,354
======== =======
Interest paid, net of amounts capitalized $ 1,682 220
======== =======
Additions to debt - owner financing $ - 347
======== =======
Dividends declared, not paid $ 788 -
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
-----------------------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1999 1998
----------- ---------
(unaudited)
<S> <C> <C>
Cumulative Preferred Stock - $.01 par, authorized
20,000,000 shares, 600,000 shares issued as
Redeemable Preferred Stock $ - -
-------- -------
Common Stock - $.01 par, authorized 50,000,000 shares;
12,813,879 shares issued in 1999 and 1998 128 128
-------- -------
Capital in excess of par value
Balance at beginning of year 68,808 68,372
Exercise of stock options - 58
Restricted stock awards - 378
-------- -------
Balance at end of period 68,808 68,808
-------- -------
Retained earnings
Balance at beginning of year 114,498 111,496
Net income 6,997 8,474
Preferred stock dividends accrued (1,131) (2,269)
Common stock dividends declared (2,371) (3,203)
-------- -------
Balance at end of period 117,993 114,498
-------- -------
Unamortized restricted stock awards
Balance at beginning of year - -
Stock awards (378) (378)
Amortization to expense 126 78
-------- -------
Balance at end of period (252) (300)
-------- -------
Treasury stock
Balance at beginning of year - -
Shares purchased (10,356) -
-------- -------
Balance at end of period - 419,542 shares of
Common Stock in 1999, at cost (10,356) -
-------- -------
Total stockholders' equity $176,321 183,134
======== =======
</TABLE>
6
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999
-------------------------------------------
(Unaudited, except for December 31, 1998)
Note 1 - Interim Financial Statements
The interim financial information included herein is unaudited; however, such
information reflects all adjustments which are, in the opinion of management,
necessary for a fair presentation of the Company's financial position, results
of operations, and cash flows for the interim periods. All such adjustments
are of a normal, recurring nature. The financial statements in Deltic's 1998
annual report on Form 10-K include a summary of significant accounting policies
of the Company and should be read in conjunction with this Form 10-Q. Certain
prior period amounts have been reclassified to conform with 1999 presentation
format.
Note 2 - Earnings per Common Share
The amounts used in computing earnings per share consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ------------------
(Thousands, except per share 1999 1998 1999 1998
amounts) ---------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 3,102 2,077 6,997 5,883
Less Preferred dividends (565) (572) (1,131) (1,139)
------- ------ ------ ------
Income available to Common
shareholders $ 2,537 1,505 5,866 4,744
======= ====== ====== ======
Weighted average number of
Common shares used in basic EPS 12,453 12,814 12,613 12,810
Effect of dilutive stock options 21 24 18 26
------- ------ ------ ------
Weighted average number of
Common shares and dilutive
potential Common Stock used
in EPS assuming dilution 12,474 12,838 12,631 12,836
======= ====== ====== ======
Earnings per Common share
Basic $ .20 .12 .47 .37
======= ====== ====== ======
Assuming dilution $ .20 .12 .46 .37
======= ====== ====== ======
</TABLE>
7
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999
------------------------------------------
(Unaudited, except for December 31, 1998)
Note 3 - Inventories
Inventories at the balance sheet dates consisted of the following:
<TABLE>
<CAPTION>
June 30, Dec. 31,
(Thousands of dollars) 1999 1998
-------- --------
<S> <C> <C>
Logs $1,757 1,942
Finished products 4,072 3,616
Materials and supplies 342 293
------ -----
$6,171 5,851
====== =====
</TABLE>
Note 4 - Investment in Del-Tin Fiber
The Company owns 50 percent of the membership interest of Del-Tin Fiber, which
completed construction of a medium density fiberboard plant in April 1998. The
Company's investment in Del-Tin Fiber is carried at cost, adjusted for the
Company's proportionate share of undistributed earnings or losses recorded on a
one-month lag basis.
Del-Tin Fiber's financial position as of the balance sheet dates and results of
operations for the periods ended June 30 consisted of the following:
<TABLE>
<CAPTION>
June 30, Dec. 31,
(Thousands of Dollars) 1999 1998
---------- --------
<S> <C> <C>
Condensed Balance Sheet Information
Current assets $ 7,111 6,243
Property, plant, and equipment - net 99,767 98,147
Other noncurrent assets 7,558 9,146
-------- -------
Total assets $114,436 113,536
======== =======
Current liabilities $ 14,992 10,805
Long-term debt 89,000 89,000
Members' capital/(deficit) 10,444 13,731
-------- -------
Total liabilities and members' capital/(deficit) $114,436 113,536
======== =======
</TABLE>
8
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999
------------------------------------------
(Unaudited, except for December 31, 1998)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
Condensed Income Statement
Information
Net sales $ 7,306 370 13,742 370
------- ------ -------- --------
Costs and expenses
Cost of sales 9,052 2,517 16,853 3,490
Depreciation 963 1,046 1,890 1,049
------- ------ -------- --------
Total costs and expenses 10,015 3,563 18,743 4,539
------- ------ -------- --------
Operating income/(loss) (2,709) (3,193) (5,001) (4,169)
Interest income 101 - 139 -
Interest expense (2,027) - (3,237) -
------- ------ -------- --------
Net income/(loss) $(4,635) (3,193) (8,099) (4,169)
======= ======== ========
</TABLE>
Note 5 - Timber and Timberlands
Timber and timberlands at the balance sheet dates consisted of the following:
<TABLE>
<CAPTION>
June 30, Dec. 31,
(Thousands of dollars) 1999 1998
-------- --------
<S> <C> <C>
Purchased stumpage inventory $ 13,399 13,210
Timberlands 55,240 54,710
Fee timber 129,254 128,242
Logging facilities 1,626 1,610
-------- --------
199,519 197,772
Less accumulated costs of fee timber harvested
and facilities depreciation (33,558) (31,184)
-------- --------
$165,961 166,588
======== ========
</TABLE>
9
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999
------------------------------------------
(Unaudited, except for December 31, 1998)
Note 6 - Property, Plant, and Equipment
Property, plant, and equipment at the balance sheet dates consisted of the
following:
<TABLE>
<CAPTION>
June 30, Dec. 31,
(Thousands of dollars) 1999 1998
--------- ---------
<S> <C> <C>
Land $ 4,425 4,425
Land improvements 4,174 4,046
Buildings and structures 8,994 8,573
Machinery and equipment 69,835 62,949
-------- -------
87,428 79,993
Less accumulated depreciation (38,545) (35,889)
-------- -------
$ 48,883 44,104
======== =======
</TABLE>
10
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999
------------------------------------------
(Unaudited, except for December 31, 1998)
Note 7 - Business Segments
Information about the Company's business segments consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
(Thousands of dollars) 1999 1998 1999 1998
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales
Woodlands $ 7,222 6,037 15,466 15,063
Mills 22,569 17,829 40,857 34,836
Real Estate 3,967 3,537 11,712 5,950
Agriculture 300 196 748 659
Eliminations* (2,997) (1,388) (6,397) (3,289)
------- ------ ------ ------
$31,061 26,211 62,386 53,219
======= ====== ====== ======
Income before income taxes
Operating income
Woodlands $ 5,159 4,853 10,944 12,639
Mills 2,536 (624) 2,993 (788)
Real Estate 879 719 4,950 948
Agriculture 28 (40) 118 15
Corporate (1,643) (920) (3,286) (2,501)
Eliminations (15) (69) (6) (5)
------- ------ ------ ------
Operating income 6,944 3,919 15,713 10,308
Equity in loss of Del-Tin Fiber (1,997) (1,061) (3,626) (1,465)
Interest income 53 294 120 621
Interest expense (964) (70) (1,743) (118)
Other income/(expense) 1,203 52 1,282 87
------- ------ ------ ------
$ 5,239 3,134 11,746 9,433
======= ====== ====== ======
Depreciation, amortization, and
cost of fee timber harvested
Woodlands $ 1,307 492 3,082 1,121
Mills 1,107 952 2,077 1,773
Real Estate 125 104 241 201
Agriculture 147 125 293 250
Corporate 64 62 128 119
------- ------ ------ ------
$ 2,750 1,735 5,821 3,464
======= ====== ====== ======
Capital expenditures
Woodlands $ 3,190 2,923 4,512 9,738
Mills 1,727 1,310 4,489 3,274
Real Estate 2,875 2,673 6,088 3,942
Agriculture 321 417 370 482
Corporate 64 36 110 59
------- ------ ------ ------
$ 8,177 7,359 15,569 17,495
======= ====== ====== ======
</TABLE>
*Intersegment sales of timber from Woodlands to Mills.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended June 30, 1999 Compared with Three Months Ended
June 30, 1998
Net income for the second quarter of 1999 was $3.1 million, $.20 a share, a
49 percent increase when compared to second quarter 1998 earnings of $2.1
million, $.12 a share. Operating income for the current quarter totaled $6.9
million, an increase of $3 million when compared to $3.9 million in the same
quarter of 1998. Net cash provided by operating activities was $5.1 million
compared to $1.2 million in the second quarter of 1998.
In the current quarter, operating income increased $3 million. The
Woodlands segment increased $.3 million due primarily to a 43 percent increase
in the pine sawtimber harvest level, partially offset by a 12 percent decrease
in the average price for pine sawtimber sold. The Company's Mills segment
increased $3.1 million as the result of a ten percent increase in average lumber
sales price, an eight percent decrease in the average manufacturing cost per
thousand board feet ("MBF") of finished lumber sold, and a 16 percent increase
in the volume of lumber sold. Real Estate and Agriculture operations' results
were virtually the same for both periods and the cost of corporate functions
increased $.7 million.
Woodlands operations reported net sales of $7.3 million in the current
quarter compared to $6.1 million a year ago. Sales of pine sawtimber increased
$1.2 million as a result of a 36,700 ton increase in the harvest level to
122,600 tons, partially offset by a $6 per ton decrease in the average sales
price of pine sawtimber sold to $45 per ton. Operating income was $5.1 million
in 1999 compared to $4.8 million in 1998 mainly due to the increase in net
sales, partially offset by an $.8 million increase in the cost of fee timber
harvested resulting from the increase in harvest levels and a higher cost per
ton of timber harvested due primarily to recent acquisitions of timberland.
The Mills segment produced net sales of $22.6 million in the second quarter
of 1999 compared to $17.8 million in the second quarter of 1998. Finished lumber
sales increased $4.3 million due to a $37 rise in the average sales price per
MBF sold to $398, combined with a 6.9 million board feet increase in sales
volume to 49.2 million board feet. Operating income was $2.5 million in 1999,
which compares to an operating loss of $.6 million in 1998. The increase was due
primarily to the increase in net sales and a $29 per MBF decrease in lumber
manufacturing cost, mainly as a result of a $32 reduction in the log cost per
MBF of lumber produced.
The Real Estate segment recorded net sales of $4 million in the current
year quarter compared to $3.5 million in the prior year period. Residential lot
sales decreased by four lots to 50; however, the average sales price increased
$7,300 per lot to $50,200 due to sales mix, resulting in an increase in net
sales from residential lot sales. Operating income was $.9 million in the
second quarter of 1999 compared to $.8 million during the second quarter of 1998
as the result of the increase in net sales, partially offset by increased
advertising costs for the Company's developments.
Agriculture operation's net sales totaled $.2 million with virtually break-
even results in each of the periods due primarily to the seasonality of the
Company's farming activities.
12
<PAGE>
Corporate operating expense was $1.6 million for the second quarter of
1999, an increase of $.7 million from the same quarter in 1998 due mainly to
higher general and administrative expenses.
Equity in the loss of Del-Tin Fiber recorded by the Company was $2 million
in 1999 compared to 1998's equity loss of $1.1 million. Corporate interest
expense increased $.8 million due to increased borrowings primarily as a result
of the Company's timberland acquisition program and other capital projects. A
pretax gain on the sale of three tracts of non-strategic timberland, amounting
to $1.1 million, was recorded during the second quarter of 1999 with proceeds
from this transaction being exchanged for like-kind properties in Deltic's core
areas of operations pursuant to tax-free exchange regulations. Income tax
expense increased $1.1 million to $2.2 million for the current quarter due to
higher pretax earnings.
Six Months Ended June 30, 1999 Compared with Six Months Ended
June 30, 1998
For the first six months of 1999, net income totaled $7 million, $.47 a
share, compared to net income for the six months ended June 30, 1998, of $5.9
million, $.37 a share. The increase was primarily the result of higher
operating income from the Company's Mills and Real Estate segments; partially
offset by a decrease in operating income from the Woodlands segment, increased
corporate operating expenses, an increase in equity loss from Del-Tin Fiber, and
increased interest and income tax expense.
Operating income for the first half of 1999 was $15.7 million, an increase
of $5.4 million from 1998. Woodlands operations decreased $1.7 million as the
result of an 18 percent decrease in the average pine sawtimber sales price and
an increase in the cost of fee timber harvested. The Company's Mills segment
increased $3.8 million due to a $24 per MBF higher average lumber sales price, a
$25 lower cost per MBF sold, and an 8.7 million board feet increase in finished
lumber sales volume. Real Estate operations increased $4 million primarily as
the result of the sale of a 72-acre commercial site. Corporate operating
expenses increased $.8 million.
The Woodlands segment generated net sales of $15.5 million during the six
months ended June 30, 1999, an increase of $.4 million when compared to $15.1
million during 1998. Pine sawtimber sales increased $.1 million as the result
of a 21 percent increase in sales volume to 274,600 tons, offset by a $10 per
ton decrease in the average pine sawtimber sales price to $46 per ton. Sales of
pine and hardwood pulpwood amounting to $1.2 million rose $.3 million as the
result of increased harvest levels. Operating income was $10.9 million for the
first half of 1999, compared to $12.6 million in 1998 due to a $1.9 million
increase in the cost of fee timber harvested resulting from the increase in
harvest levels and a higher cost per ton of timber harvested due primarily to
recent acquisitions of timberland.
Mills operations recorded net sales of $40.9 million during the first six
months of 1999 compared to $34.8 million during the same period in 1998.
Finished lumber sales increased $5.3 million due to a seven percent increase in
the average sales price per MBF sold to $385, combined with an 11 percent
increase in sales volume to 90.8 million board feet. Operating income for 1999
was $3 million compared to an operating loss of $.8 million for the 1998 period.
The increase was due primarily to the increase in net sales combined with a
seven percent decrease in the cost per MBF sold to $352 per MBF. The decrease in
cost of lumber sold resulted mainly from a $24 reduction in the log cost per MBF
of lumber produced.
13
<PAGE>
The Company's Real Estate operations reported net sales of $11.7 million
during the first half of 1999 compared to $5.9 million during 1998. Residential
lot sales totaled 98 lots compared to 94 in 1998 and the average sales price of
$52,100 rose $10,200 per lot. The first six months of 1999 benefited from the
sale of a 72-acre commercial site for $60,000 per acre, while no commercial
sales were closed during the same period in 1998. Operating income of $5
million in 1999 increased $4 million from the first half of 1998, primarily the
result of the margin from the commercial sale.
The Agriculture segment produced net sales of $.7 million in the first six
months of both 1999 and 1998. Operating income of $.1 million in the current-
year period compared to break-even results for 1998 due to the seasonality of
the Company's farming operations.
Corporate operating expense was $3.3 million for the 1999 period, an
increase of $.8 million from the same period in 1998 as the result of higher
general and administrative expenses.
Equity in the loss of Del-Tin Fiber recorded by the Company was $3.6
million in 1999, which compares to 1998's equity loss, primarily incurred prior
to plant start-up, amounting to $1.5 million. Corporate interest expense
increased by $1.6 million to $1.7 million in 1999 due to the previously
discussed increase in borrowings. A pretax gain of $1.1 million on the sale of
7,162 acres of non-strategic timberland benefited the current period. Income
tax expense increased $1.2 million to $4.8 million for the first half of 1999
due to increased pretax income.
Financial Condition
For the first six months of 1999, net cash provided by operating activities
totaled $12.7 million compared to $10.1 million for the same period in 1998.
Changes in operating working capital, other than cash and cash equivalents,
required cash of $8.5 million for the first half of 1999 and $2.8 million for
the six months ended June 30, 1998.
Capital expenditures required cash of $15.6 million in the current year-to-
date period and $17.1 million a year ago. Capital expenditures by segment
consisted of the following:
-------------------------------------------------------------
Six Months
Ended June 30,
-------------------------------------------------------------
(Thousands of dollars) 1999 1998
-------------------------------------------------------------
Woodlands $ 4,512 9,738
Mills 4,489 3,274
Real Estate 6,088 3,942
Agriculture 370 482
Corporate 110 59
-------------------------------------------------------------
Total capital expenditures 15,569 17,495
Owner-financed expenditures - (347)
-------------------------------------------------------------
Expenditures requiring cash $15,569 17,148
=============================================================
14
<PAGE>
The net change in purchased stumpage inventory to be utilized in the
Company's sawmill operations required cash of $.2 million during the first six
months of 1999 and $5.2 million in the first half of 1998. Proceeds from sales
of assets provided cash of $3.2 million in 1999. During the six months ended
June 30, 1999, the Company advanced $2.2 million to Del-Tin Fiber and paid
dividends of $2.7 million, consisting of $1.6 million for Common Stock and $1.1
million for Redeemable Preferred Stock. In the current year, borrowings under
the Company's revolving credit facility provided $14 million and Deltic made
repayments of debt in the amount of $2.6 million. Purchases of treasury stock in
1999 required cash of $10.4 million. These net uses of funds resulted in a $2.8
million reduction in the Company's cash and cash equivalents since December 31,
1998.
On May 25, 1999, the Company completed its previously disclosed stock
repurchase program. As of that date, Deltic had purchased 419,542 shares of its
Common Stock at an average cost of $24.68 per share.
Deltic's management believes that the cash generated by its operating
activities and the remaining amount available under its credit facility will be
sufficient to meet its expected cash needs and planned expenditures, including
those of the Company's continued timberland acquisition program, for the
foreseeable future.
Statements included herein that are not historical in nature are intended
to be, and are hereby identified as, "forward-looking statements" within the
meaning of the federal securities laws. Such statements reflect the Company's
current expectations and involve certain risks and uncertainties. Actual
results could differ materially from those included in such forward-looking
statements. Factors that could cause such differences include the cyclical
nature of the industry, changes in interest rates and general economic
conditions, adverse weather, cost and availability of materials used to
manufacture the Company's products, and the risk factors described from time to
time in the reports and disclosure documents filed by the Company with the
Securities and Exchange Commission.
Year 2000 Issue
Changes in the Company's status of obtaining Year 2000 compliance, since
March 31, 1999, are included in the following disclosures. The Company's
disclosures set forth under the caption, "Management's Discussion and Analysis",
in Item 7 of Part II of its 1998 annual report on Form 10-K, which includes a
detailed discussion of the Year 2000 issue, and in Item 2 of its first quarter
1999 report on Form 10-Q, which details changes in the Company's Year 2000
compliance efforts during the first quarter, should be read in conjunction with
this Form 10-Q.
The Company has completed the process of identifying the computers,
application software, and related equipment that must be modified, upgraded, or
replaced to minimize the possibility of a material disruption of its business.
The process of modifying or upgrading systems which have been assessed as
affected by the Year 2000 problem is progressing as planned. For critical
internal computerized systems, the Company has completed this process. For
remaining major systems and equipment, including those at operational
facilities, the Company still anticipates the completion of any modifications or
upgrades required no later than the end of the third quarter of 1999. To-date,
the Company has still not incurred significant costs for these modifications
since most have been provided by the supplier at no or minimal cost to Deltic.
Therefore, the Company continues to anticipate that the cost related to the Year
2000 issue, incurred by the Company, will not be material.
15
<PAGE>
The Company has communicated with third party suppliers of its major
computers, software, and other equipment used, operated, or maintained by the
Company, including those at its operational facilities, to identify and, to the
extent possible, resolve issues involving the Year 2000 problem. Since the
Company has limited or no control over the actions of these suppliers, there can
be no assurance that these suppliers will resolve all Year 2000 problems,
whether currently known or not, or that the Company will be able to obtain
replacement suppliers, before the occurrence of a material disruption to the
business of the Company.
In addition, the Company has issued written communication to all of its
suppliers and significant customers in order to attempt to obtain the status of
their Year 2000 compliance. To-date, the majority of these suppliers and
customers have responded to such communications and have continued to indicate
that they have already achieved Year 2000 compliance or expect to do so prior to
December 31, 1999. However, the Company can give no assurance that its suppliers
or customers will not be materially impacted by the Year 2000 issue. In
addition, the Company can give no assurance that failure by its suppliers or
customers to achieve Year 2000 compliance will not have a significant impact on
the Company's business. However, Deltic is continuing with follow-up
communications with critical suppliers and customers.
Deltic is continuing to develop a contingency plan which would be
implemented in the event that any of the Company's efforts to identify and
correct Year 2000 problems are not effective. Deltic expects to finalize this
contingency plan, for any system or facility for which Year 2000 compliance is
not reasonably certain, as its assessment of Year 2000 compliance is nearer to
completion.
The discussion of the Company's efforts, and its management's expectations,
relating to Year 2000 compliance are "forward-looking statements" within the
meaning of the federal securities laws. Such statements reflect the Company's
current expectations and involve risks and uncertainties. Actual results could
differ materially from those included in such forward-looking statements. The
Company's ability to achieve Year 2000 compliance and the level of incremental
costs associated therewith, could be adversely impacted by, among other things,
the availability and cost of programming and testing resources, suppliers'
ability to modify proprietary software, and unanticipated problems identified in
the ongoing compliance review.
16
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk has not changed significantly from that set forth
under the caption "Quantitative and Qualitative Disclosures About Market Risk",
in Item 7A of Part II of its 1998 annual report on Form 10-K. Those disclosures
should be read in conjunction with this Form 10-Q.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation incidental to
its business. Currently, there are no material legal proceedings.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of Deltic Timber Corporation
("Deltic" or "the Company") was held on April 29, 1999. Pursuant to the
Company's Amended and Restated Certificate of Incorporation, its Board of
Directors consist of three classes who holds office for staggered terms of three
years. Set forth below is a listing of the directors elected at the April 29,
1999 annual meeting, the results of such election and the names of directors
whose term of office continued after the meeting.
Director Votes for Votes Withheld
--------------------- ---------- --------------
O. H. Darling, Jr. 12,037,830 29,667
Christoph Keller, III 12,037,895 29,602
R. Madison Murphy 12,037,812 29,685
Alex R. Lieblong (Term expires in 2000)
Robert C. Nolan (Term expires in 2000)
Ron L. Pearce (Term expires in 2000)
Eric M. Heiner (Term expires in 2001)
William L. Rosoff (Term expires in 2001)
John C. Shealy (Term expires in 2001)
In addition to the election of three Class III directors at the April 29,
1999 annual meeting, the prior appointment of KPMG LLP by the Board of Directors
as Deltic's independent auditors for 1999 was ratified with 12,059,795 shares
voted in favor, 4,142 shares voted against and 3,560 shares withheld.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements 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: August 12, 1999
-------------------------------------- ----------------------
Ron L. Pearce, President
(Principal Executive Officer)
/s/Clefton D. Vaughan Date: August 12, 1999
-------------------------------------- ----------------------
Clefton D. Vaughan, Vice President,
Finance and Administration
(Principal Financial Officer)
/s/Emily R. Evers Date: August 12, 1999
------------------------------------- ----------------------
Emily R. Evers, Controller
(Principal Accounting Officer)
19
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