<PAGE>
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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 September 30, 2000
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
of incorporation or organization) Number)
210 East Elm Street, P. O. Box 7200, 71731-7200
El Dorado, Arkansas
(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 October 31,
2000, was 11,975,029.
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<PAGE>
TABLE OF CONTENTS - THIRD QUARTER 2000 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 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II - Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
-------------------------------
(Thousands of dollars)
Sept. 30, Dec. 31,
2000 1999
---------- --------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 1,896 4,782
U.S. government securities - 936
Trade accounts receivable - net 3,864 4,648
Other receivables 1,084 1,341
Inventories 7,996 9,411
Prepaid expenses and other current assets 6,807 4,396
-------- -------
Total current assets 21,647 25,514
Investment in real estate held for development and sale 36,708 35,210
Investment in Del-Tin Fiber 2,505 3,727
Other investments and noncurrent receivables 22,283 61
Timber and timberlands - net 172,403 164,740
Property, plant, and equipment - net 43,864 44,312
Deferred charges and other assets 2,951 4,334
-------- -------
Total assets $302,361 277,898
======== =======
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 160 203
Notes payable 2,300 13
Trade accounts payable 5,256 2,928
Accrued taxes other than income taxes 1,083 1,162
Bank overdraft 1,007 6
Other accrued liabilities 1,186 511
-------- -------
Total current liabilities 10,992 4,823
Long-term debt 66,418 55,570
Deferred credits and other noncurrent liabilities 17,468 9,097
Redeemable preferred stock 30,000 30,000
Stockholders' equity
Preferred stock - -
Common stock 128 128
Capital in excess of par value 68,757 68,808
Retained earnings 127,813 120,033
Unamortized restricted stock awards (537) (205)
Treasury stock (18,678) (10,356)
-------- -------
Total stockholders' equity 177,483 178,408
-------- -------
Total liabilities and stockholders' equity $302,361 277,898
======== =======
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 Nine Months Ended
September 30, September 30,
-------------------- -------------------
2000 1999 2000 1999
------- ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $25,078 32,414 85,077 97,138
------- ------ ------ ------
Costs and expenses
Cost of sales 17,548 22,735 53,733 61,731
Depreciation, amortization, and
cost of fee timber harvested 2,200 2,337 9,288 7,865
General and administrative expenses 1,303 1,226 5,185 4,721
------- ------ ------ ------
Total costs and expenses 21,051 26,298 68,206 74,317
------- ------ ------ ------
Operating income 4,027 6,116 16,871 22,821
Equity in loss of Del-Tin Fiber (3,101) (2,138) (7,952) (5,764)
Interest income 43 69 137 189
Interest and other debt expense (1,141) (910) (3,224) (2,653)
Other income/(expense) 92 92 276 264
------- ------ ------ ------
Income/(loss) from continuing operations
before income taxes (80) 3,229 6,108 14,857
Income taxes 73 (816) (1,971) (5,520)
------- ------ ------ ------
Income/(loss) from continuing operations (7) 2,413 4,137 9,337
------- ------ ------ ------
Discontinued operations
Income/(loss) from discontinued agriculture
operations, net of income taxes 160 (59) 440 14
Gain on disposal of agriculture segment,
net of income taxes 7,199 - 7,199 -
------- ------ ------ ------
Income/(loss) from discontinued operations 7,359 (59) 7,639 14
------- ------ ------ ------
Net income $ 7,352 2,354 11,776 9,351
======= ====== ====== ======
Earnings per common share
Basic
Continuing operations $ (.05) .15 .20 .61
Discontinued operations .61 (.01) .62 -
------- ------ ------ ------
Net income $ .56 .14 .82 .61
======= ====== ====== ======
Assuming dilution
Continuing operations $ (.05) .15 .20 .61
Discontinued operations .61 (.01) .62 -
------- ------ ------ ------
Net income $ .56 .14 .82 .61
======= ====== ====== ======
Dividends declared per common share $ .0625 .0625 .1875 .1875
======= ====== ====== ======
Average common shares outstanding
(thousands) 12,113 12,394 12,248 12,539
======= ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
----------------------------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
2000 1999
-------- -------
<S> <C> <C>
Operating activities
Net income $ 11,776 9,351
Adjustments to reconcile above income to
net cash provided/(required) by operating activities
Depreciation, amortization, and cost of fee timber harvested 9,654 8,299
Deferred income taxes 7,996 2,377
Gain from disposal of agriculture segment assets (12,030) -
Real estate costs recovered upon sale 3,574 4,814
Timberland costs recovered upon sale 628 1,976
Equity in loss of Del-Tin Fiber 7,952 5,764
(Increase)/decrease in operating working capital
other than cash and cash equivalents 2,818 (7,098)
Other 1,320 1,224
-------- -------
Net cash provided/(required) by operating activities,
including discontinued operations 33,688 26,707
-------- -------
Investing activities
Capital expenditures requiring cash (25,407) (21,719)
Net change in purchased stumpage inventory (118) 2,633
Advances to Del-Tin Fiber (6,603) (3,295)
Purchases of U.S. government securities (12) (936)
Maturities of U.S. government securities 948 -
Proceeds from disposal of agriculture segment assets 14,413 -
(Increase)/decrease in farmland/timberland sales proceeds
held by trustee (15,647) -
Receipts of/(additions to) notes receivable (6,574) 8
Other - net 1,173 461
-------- -------
Net cash provided/(required) by investing activities,
including discontinued operations (37,827) (22,848)
-------- -------
Financing activities
Proceeds from borrowings 13,300 14,000
Repayments of notes payable and long-term debt (208) (6,628)
Treasury stock purchases (8,845) (10,356)
Increase/(decrease) in bank overdraft 1,001 448
Preferred stock dividends paid (1,697) (1,697)
Common stock dividends paid (2,298) (2,348)
-------- -------
Net cash provided/(required) by financing activities,
including discontinued operations 1,253 (6,581)
-------- -------
Net increase/(decrease) in cash and cash equivalents (2,886) (2,722)
Cash and cash equivalents at January 1 4,782 8,160
-------- -------
Cash and cash equivalents at September 30 $ 1,896 5,438
======== =======
Supplemental disclosures
Income taxes paid, net of refunds $ 1,214 4,586
======== =======
Interest paid, net of amounts capitalized $ 2,344 1,970
======== =======
Additions to debt - owner financing $ - 13
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Unaudited)
Nine Months Ended September 30,
-----------------------------------------------------------
(Thousands of dollars)
2000 1999
-------- -------
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 2000 and 1999 128 128
-------- -------
Capital in excess of par value
Balance at beginning of year 68,808 68,808
Restricted stock awards (51) -
-------- -------
Balance at end of period 68,757 68,808
-------- -------
Retained earnings
Balance at beginning of year 120,033 114,498
Net income 11,776 9,351
Preferred stock dividends accrued (1,697) (1,697)
Common stock dividends declared (2,299) (2,348)
-------- -------
Balance at end of period 127,813 119,804
-------- -------
Unamortized restricted stock awards
Balance at beginning of year (205) (300)
Stock awards (472) -
Amortization to expense 140 72
-------- -------
Balance at end of period (537) (228)
-------- -------
Treasury stock
Balance at beginning of year - 419,544 and zero shares,
respectively (10,356) -
Shares purchased - 418,706 shares in 2000 and 419,544
shares in 1999 (8,845) (10,356)
Shares issued for incentive plans - 21,400 shares in 2000 523 -
-------- -------
Balance at end of period - 816,850 and 419,544 shares,
respectively (18,678) (10,356)
-------- -------
Total stockholders' equity $177,483 178,156
======== =======
See accompanying notes to consolidated financial statements.
6
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
-------------------------------------------
(Unaudited, except for December 31, 1999)
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 1999 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 2000 presentation format.
Note 2 - Discontinued Agriculture Segment
On August 17, 2000, the Company's Board of Directors approved the disposal of
Deltic's agriculture segment assets, subject to using the sales proceeds to
purchase additional pine timberland in a tax-deferred exchange. As of September
30, 2000, approximately 12,600 net acres have been sold, with an additional
31,300 gross acres under contract, leaving approximately 6,000 gross acres
available for sale. The anticipated disposal date for the majority of these
remaining acres is prior to the end of the year. As a result of the sales
transactions completed as of the end of the third quarter, a pretax gain on
disposal of agriculture segment assets of $12,030,000 was reported as
discontinued operations by the Company in its 2000 Consolidated Income
Statement. Operating results for the agriculture segment are also reported as
discontinued operations, net of income taxes, with prior years restated to
conform to the current year presentation.
The third quarter sales transactions are deemed by the Company to be related-
party transactions since the sales were to Epps Plantation, LLC which is owned
by the Charles H. Murphy Family Investments Limited Partnership. Charles Murphy
holds a significant ownership of the Company's common stock and is related to
four of the Company's directors. The sales price for these tracts was derived
from an approved market index formula which produced prices in excess of the
average of the appraised value of the tracts.
The net assets of the agriculture segment as of September 30, 2000, consist of
accounts receivable; inventories; property, plant, and equipment; and related
liabilities, and amounted to $4,747,000. Total net sales of the discontinued
agriculture segment for the first nine months of 2000 and 1999 were $5,573,000
and $1,421,000, respectively. Operating income of the agriculture segment
during 2000, prior to the measurement date for determining discontinued
operations, was $715,000, $440,000 net of related taxes of $275,000. Gain on
the disposal of the agriculture segment was $12,075,000 before income taxes,
consisting of the $12,030,000 gain on sales of assets and $45,000 income from
operations since the measurement date, $7,199,000 after related taxes amounting
to $4,876,000.
Since the Company is disposing of the agriculture segment in a tax-deferred
exchange, the proceeds from the farmland sales were deposited with a qualified
intermediary to be used to acquire pine timberland as replacement property. In
addition, Deltic also sold approximately 4,000 acres of non-strategic hardwood
timberland during the third quarter, which will also be replaced with pine
timberland in a tax-deferred exchange. These combined proceeds, in the amount
of $15,647,000 after deducting amounts expended to purchase replacement pine
timberland, are currently held by the intermediary, as trustee, and are
included in Other Investments and Noncurrent Receivables on the Consolidated
Balance Sheet.
7
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
-------------------------------------------
(Unaudited, except for December 31, 1999)
Note 2 - Discontinued Agriculture Segment (cont.)
Also during the third quarter, Deltic and the other owners of an undivided-
interest farmland operation of which Deltic owns 64.8 percent, conducting
operations as Ashly Plantation (a partnership for income tax purposes), acted
to acquire replacement property prior to the completion of the disposal of its
farmland, utilizing the form of a "reverse exchange" as established by a recent
IRS revenue procedure. As part of this transaction, Ashly Plantation secured a
note from the Company, in the amount of $4,000,000, with the proceeds to be
used as a portion of an advance, in the form of an interest-bearing note, to
the intermediate "accommodating title owner" as required for the reverse
exchange. The accommodator used the funds provided by this advance as a deposit
to secure the desired replacement pine timberland. This advance is reported in
the Consolidated Balance Sheet in Other Investments and Noncurrent Receivables
in the amount of $6,574,000, net to Deltic.
Note 3 - Earnings per Common Share
The amounts used in computing earnings per share consisted of the following:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
(Thousands, except per share 2000 1999 2000 1999
------- ------ ------ ------
amounts)
Income/(loss) from continuing
operations $ (7) 2,413 4,137 9,337
Discontinued operations, net 7,359 (59) 7,639 14
Less preferred dividends (566) (566) (1,697) (1,697)
------- ------ ------ ------
Income available to common
shareholders $ 6,786 1,788 10,079 7,654
======= ====== ====== ======
Weighted average number of
common shares used in basic EPS 12,113 12,394 12,248 12,539
Effect of dilutive stock options 10 16 10 17
------- ------ ------ ------
Weighted average number of
common shares and dilutive
potential common stock used
in EPS assuming dilution 12,123 12,410 12,258 12,556
======= ====== ====== ======
Earnings per common share
Basic
Continuing operations $ (.05) .15 .20 .61
Discontinued operations .61 (.01) .62 -
------- ------ ------ ------
Net income $ .56 .14 .82 .61
======= ====== ====== ======
Assuming dilution
Continuing operations $ (.05) .15 .20 .61
Discontinued operations .61 (.01) .62 -
------- ------ ------ ------
Net income $ .56 .14 .82 .61
======= ====== ====== ======
8
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
--------------------------------------------
(Unaudited, except for December 31, 1999)
Note 4 - Inventories
Inventories at the balance sheet dates consisted of the following:
Sept. 30, Dec. 31,
(Thousands of dollars) 2000 1999
------ -----
Logs $2,308 2,170
Finished products 5,206 6,966
Materials and supplies 482 275
------ -----
$7,996 9,411
====== =====
Note 5 - Investment in Del-Tin Fiber
The Company owns 50 percent of the membership interest of Del-Tin Fiber. The
Company's investment in Del-Tin Fiber is carried at cost, adjusted for the
Company's proportionate share of undistributed earnings or losses. Prior to
December 1999, Deltic recorded its equity in the operating results of Del-Tin
Fiber on a one-month lag basis.
The financial position of Del-Tin Fiber as of the balance sheet dates and
results of operations for the periods ended September 30 consisted of the
following:
Sept. 30, Dec. 31,
(Thousands of dollars) 2000 1999
-------- -------
Condensed Balance Sheet Information
Current assets $ 7,885 7,354
Property, plant, and equipment - net 98,387 98,492
Other noncurrent assets 4,650 4,108
-------- -------
Total assets $110,922 109,954
======== =======
Current liabilities $ 16,007 12,356
Long-term debt 89,000 89,000
Other noncurrent liabilities 25 10
Members' capital/(deficit) 5,890 8,588
-------- -------
Total liabilities and members' capital/(deficit) $110,922 109,954
======== =======
9
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
------------------------------------------
(Unaudited, except for December 31, 1999)
Note 5 - Investment in Del-Tin Fiber (cont.)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------------
(Thousands of dollars) 2000 1999 2000 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Condensed Income Statement
Information
Net sales $ 6,935 9,161 24,273 22,903
-------- ------- -------- -------
Costs and expenses
Cost of sales 9,835 9,424 29,996 25,848
Depreciation 971 1,264 3,511 3,154
General and administrative expenses 448 283 1,238 712
-------- ------- -------- -------
Total costs and expenses 11,254 10,971 34,745 29,714
-------- ------- -------- -------
Operating income/(loss) (4,319) (1,810) (10,472) (6,811)
Interest income 51 74 152 213
Interest and other debt expense (1,862) (1,733) (5,512) (4,970)
Other income/(loss) (72) - (72) -
-------- ------- -------- -------
Net income/(loss) $ (6,202) (3,469) (15,904) (11,568)
======== ======= ======== =======
</TABLE>
Note 6 - Timber and Timberlands
Timber and timberlands at the balance sheet dates consisted of the following:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
(Thousands of dollars) 2000 1999
-------- -------
<S> <C> <C>
Purchased stumpage inventory $ 10,714 10,597
Timberlands 63,228 62,287
Fee timber 137,606 125,851
Logging facilities 1,670 1,642
-------- -------
213,218 200,377
Less accumulated costs of fee timber harvested
and facilities depreciation (40,815) (35,637)
-------- -------
$172,403 164,740
======== =======
</TABLE>
Note 7 - Property, Plant, and Equipment
Property, plant, and equipment at the balance sheet dates consisted of the
following:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
(Thousands of dollars) 2000 1999
-------- -------
<S> <C> <C>
Land $ 3,311 4,425
Land improvements 4,016 4,061
Buildings and structures 4,937 4,946
Machinery and equipment 72,855 71,234
-------- -------
85,119 84,666
Less accumulated depreciation (41,255) (40,354)
-------- -------
$ 43,864 44,312
======== =======
</TABLE>
10
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
--------------------------------------------
(Unaudited, except for December 31, 1999)
Note 8 - Business Segments
Information about the Company's business segments consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
(Thousands of dollars) 2000 1999 2000 1999
------- ------ ------- ------
<S> <C> <C> <C> <C>
Net sales
Woodlands $ 11,158 6,627 32,949 25,179
Mills 13,893 22,891 54,752 63,748
Real Estate 2,999 4,253 9,982 15,965
Eliminations* (2,972) (1,357) (12,606) (7,754)
------- ------ ------- ------
$ 25,078 32,414 85,077 97,138
======= ====== ======= ======
Income/(loss) from continuing
operations before income taxes
Operating income
Woodlands $ 8,020 3,452 23,173 15,506
Mills (2,806) 2,938 (2,600) 5,931
Real Estate 175 1,101 1,269 6,051
Corporate (1,179) (1,147) (4,840) (4,433)
Eliminations (183) (228) (131) (234)
------- ------ ------- ------
Operating income 4,027 6,116 16,871 22,821
Equity in loss of Del-Tin Fiber (3,101) (2,138) (7,952) (5,764)
Interest income 43 69 137 189
Interest and other debt expense (1,141) (910) (3,224) (2,653)
Other income/(expense) 92 92 276 264
------- ------ ------- ------
$ (80) 3,229 6,108 14,857
======= ====== ======= ======
Depreciation, amortization, and
cost of fee timber harvested
Woodlands $ 917 1,144 5,487 4,226
Mills 1,155 1,025 3,372 3,102
Real Estate 78 97 235 338
Corporate 50 71 194 199
------- ------ ------- ------
$ 2,200 2,337 9,288 7,865
======= ====== ======= ======
Capital expenditures
Woodlands $ 9,320 1,733 13,950 6,245
Mills 2,588 1,893 4,814 6,382
Real Estate 2,493 2,392 6,277 8,480
Corporate 34 10 313 120
------- ------ ------- ------
Capital expenditures for
continuing operations 14,435 6,028 25,354 21,227
Discontinued agriculture operations - 135 53 505
------- ------ ------- ------
$ 14,435 6,163 25,407 21,732
======= ====== ======= ======
</TABLE>
*Intersegment sales of timber from Woodlands to Mills.
11
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
------------------------------------------
(Unaudited, except for December 31, 1999)
Note 9 - Subsequent Events
On October 31, 2000, Deltic completed the sale of its 50,000-square-foot office
complex known as the GMAC Building, which is located in the Company's Chenal
Valley development. The sale included, in addition to the building, nine acres
of land. The property sold for $5.1 million, which will result in a pretax
gain of $1.2 million. Proceeds from the sale were used to reduce the Company's
existing debt.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended September 30, 2000 Compared with Three Months Ended
September 30, 1999
Net income for the third quarter of 2000 was $7.4 million, $.56 a share,
compared to $2.4 million, $.14 a share, for the third quarter of 1999. On
August 17, 2000, the Board of Directors approved the disposal of Deltic's
agriculture segment assets, subject to using the sales proceeds to purchase
additional pine timberland in a tax-deferred exchange, which resulted in income
from discontinued operations, net of income taxes, of $7.4 million, $.61 a
share, for the current quarter compared to a net loss of $.1 million for the
third quarter of 1999. Income from continuing operations for the third quarter
of 2000 was break-even, a loss of $.05 a share after preferred dividends,
compared to $2.5 million, $.15 a share, a year ago. Net sales for the current
quarter totaled $25.1 million, a decrease of $7.3 million when compared to the
third quarter of 1999. Operating income for the third quarter of 2000 was
$4.1 million compared to $6.1 million during the corresponding quarter of 1999.
Net cash provided by operating activities increased $3.3 million, from $10.8
million in the third quarter of 1999 to $14.1 million in the current quarter.
Operating income for the third quarter of 2000 decreased $2 million when
compared to the third quarter of 1999. The Woodlands segment increased $4.5
million due to the sale of non-strategic hardwood timberland for a $5.9 million
gain, partially offset by a reduction in pine sawtimber sales of $1.2 million,
the result of an eight percent decrease in harvest levels and a 16 percent
decrease in the sales price. Operating income for the Mills segment decreased
$5.7 million in the current quarter. The sales price of finished lumber
decreased 25 percent to $302 per thousand board feet ("MBF"). Market conditions
led to a temporary reduction in lumber production, which contributed to a 22
percent decline in finished lumber sales volume. The Real Estate segment
decreased by $.9 million in the third quarter of 2000 due to the sales of
commercial and undeveloped sites in 1999 and a reduction in residential lot
sales in the third quarter of 2000 from 47 lots to 28 due to the timing of lot
offerings.
The Woodlands segment reported net sales of $11.1 million for the current
quarter compared to $6.6 million a year ago. Included in net sales for the
third quarter of 2000 was the sale of approximately 2,600 acres of non-strategic
hardwood timberland for $6.2 million. Sales of pine sawtimber decreased $1.2
million as a result of an 8,279 ton decrease in harvest levels to 95,984 tons
and a 16 percent decrease in the pine sawtimber sales price per ton from $50 to
$42. Operating income was $8 million in the third quarter of 2000, an increase
of $4.5 million when compared to third quarter 1999 operating income of $3.5
million, resulting primarily from the increase in net sales.
The Mills segment's net sales for the third quarter of 2000 was $13.9
million compared to $22.8 million for the third quarter of 1999. During the
third quarter of 2000, finished lumber sales volume decreased 11.2 million board
feet ("MMBF") to 39 MMBF and the average sales price declined from $403 per MBF
for the third quarter of 1999 to $302 per MBF for the same quarter in 2000, a
decrease of 25 percent. An operating loss of $2.8 million was reported in the
current quarter compared to operating income of $2.9 million for the third
quarter in 1999. The decrease of $5.7 million was due primarily to the reduction
in net sales.
The Real Estate segment recorded net sales of $3 million in 2000 compared
to $4.3 million in 1999. The third quarter of 1999 included the sale of a 2-acre
commercial tract for $.6 million and a 30-acre undeveloped site for $.2 million.
Residential lot sales decreased 19 lots to 28 in the current quarter of 2000 as
a result of the timing of lot offerings, while the average sales price per lot
increased from $47,500 in the third quarter of 1999 to $58,000 in the current
quarter due to the sales mix.
13
<PAGE>
Operating income was $.1 million in the third quarter of 2000 compared to $1
million in 1999 due primarily to the decreased commercial, undeveloped acreage,
and residential sales activity in 2000.
Corporate operating expense was $1.1 million for the third quarters of 2000
and 1999. Equity in the loss of Del-Tin Fiber recorded by the Company in 2000
was $3.2 million compared to $2.1 million a year ago. The increased loss was
primarily the result of a reduction in sales volume as the operation decreased
production in response to the current oversupply in the market, combined with
the impact of rising cost of natural gas used by the facility's heat energy
system. An income tax benefit related to continuing operations of $.1 million
was recorded in the third quarter of 2000, a decrease of $.9 million when
compared to the third quarter of 1999 due to lower pretax income and reduced
state income taxes.
The third quarter of 2000 included income from discontinued agriculture
operations, net of income taxes, of $7.4 million compared to a net loss of $.1
million in the third quarter of 1999. The current quarter included a net gain
of $7.2 million from the sale of approximately 12,600 net acres of agriculture
land. Income from agriculture operations, net of income taxes, was $.2 million
for the current quarter compared to a net loss of $.1 million a year ago.
Nine Months Ended September 30, 2000 Compared with Nine Months Ended
September 30, 1999
For the nine months ended September 30, 2000, net income totaled $11.8
million, $.82 a share, compared to $9.4 million, $.61 a share, a year ago.
Income from continuing operations was $4.1 million, $.20 a share, for the 2000
period, a decrease of $5.3 million from the first nine months of 1999. Income
from discontinued operations, net of income taxes, was $7.7 million, $.62 a
share, for the 2000 period compared to break-even results for the nine months
ended September 30, 1999. Operating income for the nine months ended September
30, 2000, decreased $5.9 million to $16.9 million.
The Woodlands segment recorded net sales of $32.9 million during the nine
months ended September 30, 2000, an increase of $7.7 million from the same
period in 1999. During the first nine months of 2000, sales of about 4,100
acres of non-strategic timberland accounted for net sales amounting to $8.4
million compared to similar sales in the same period of 1999 of about 7,200
acres for $3.1 million. Pine sawtimber harvest levels increased 20 percent
during 2000 to 453,343 tons, resulting in an increase in net sales of $3.1
million. Operating income totaled $23.2 million for the first nine months of
2000 compared to $15.5 million during the same period of 1999. The increase in
operating income was due primarily to the change in net sales, partially offset
by an increase in the cost of fee timber harvested due primarily to the increase
in pine sawtimber harvest levels.
The Mills operation reported net sales of $54.8 million for the nine months
ended September 30, 2000, compared to $63.7 million for the same period in 1999.
The average sales price of finished lumber for the current period was $338 per
MBF, a 14 percent reduction from the average sales price of $391 per MBF for the
nine months ended September 30, 1999. An operating loss of $2.6 million was
reported for the first nine months of 2000, a decline of $8.5 million from the
previous year, due primarily to the decrease in net sales.
The Real Estate segment's net sales for the first nine months of 2000 was
$10 million compared to $16 million for the nine months ended September 30,
1999. The 2000 period included a .7-acre commercial sale for $.1 million
compared to 74 acres sold in the 1999 period which generated sales of $5
million. Residential lot sales declined 20 percent from 145 lots in the first
nine months of 1999 to 116 in the same period of 2000. The 1999 period
benefited from lots offered for sale in the fourth quarter of 1998. Operating
income was $1.2 million for the nine months ended September 30, 2000, a decrease
of $4.8 million from the 1999 period. The reduction in operating income was
primarily due to the decrease in net sales.
14
<PAGE>
Corporate operating expense was $4.8 million for the first nine months of
2000 compared to $4.4 million for the same period of 1999. The increase of $.4
million was due to higher general and administrative expenses. Equity in the
loss of Del-Tin Fiber was $8 million compared to $5.7 million in the first nine
months of 1999 as the result of an increase in maintenance and repairs expense
as some of the previously disclosed facility production problems have been
corrected, increased fuel costs for the plant's heat energy system, and higher
interest expense due to additional working capital borrowings and rising
interest rates. Income tax expense related to continuing operations decreased
$3.5 million, to $2 million for the current year, due to lower pretax income and
reduced state income taxes.
Discontinued agriculture operations reported income, net of income taxes of
$5.1 million, of $7.7 million for the nine months ended September 30, 2000,
compared to break-even results for 1999. The sale of approximately 12,600 net
acres of agriculture land was completed during 2000 for a $12 million pretax
gain. Income from agriculture operations was $.8 million in the first nine
months of 2000.
Financial Condition
Net cash provided by operating activities totaled $33.7 million for the
nine months ended September 30, 2000, compared to $26.7 million a year ago.
Changes in operating working capital, other than cash and cash equivalents,
provided cash of $2.8 million for the first nine months of 2000 and required
cash of $7.1 million for the same period in 1999.
Capital expenditures required cash of $25.4 million in the current year-to-
date period and $21.7 million a year ago. Capital expenditures by segment
consisted of the following:
<TABLE>
<CAPTION>
Nine Months
Ended Sept. 30,
----------------
(Thousands of dollars) 2000 1999
------- ------
<S> <C> <C>
Woodlands $13,950 6,245
Mills 4,814 6,382
Real Estate 6,277 8,480
Corporate 313 120
------- ------
Capital expenditures for continuing operations 25,354 21,227
Discontinued agriculture operations 53 505
------- ------
Total capital expenditures 25,407 21,732
Owner-financed expenditures - 13
------- ------
Expenditures requiring cash $25,407 21,719
======= ======
</TABLE>
The net change in purchased stumpage inventory to be utilized in the
Company's sawmill operations required cash of $.1 million during the first nine
months of 2000 and provided cash of $2.6 million during the 1999 period. The
disposal of a portion of the agriculture segment assets generated proceeds of
$14.4 million and sales of non-strategic timberland during 2000 provided cash of
$8.4 million; however, due to the requirements of a tax-deferred exchange, all
of these proceeds were deposited with a trustee to be used to acquire pine
timberland, designated as "replacement property" for income tax purposes.
Purchases of the designated replacement properties utilized $7.2 million of
these proceeds and are included in the capital expenditures of the Woodlands
segment. Advances to Del-Tin Fiber for the nine months ended September 30, 2000,
amounted to $6.6 million compared to $3.3 million for the 1999 period.
Investments in U.S. government securities during 1999 of $.9 million matured
during the 2000 period.
15
<PAGE>
The Company borrowed $13.3 million and made repayments of debt of $.2
million in 2000, compared to borrowings of $14 million and repayments of $6.6
million during the same period of 1999. Purchases of treasury stock during 2000
required cash of $8.8 million, while 1999 included purchases totaling $10.4
million. The increase in bank overdraft for the 2000 period was $1 million.
Deltic paid dividends totaling $4 million in both 2000 and 1999, consisting of
dividends on common stock of $2.3 million and dividends on redeemable preferred
stock of $1.7 million. These net uses of funds resulted in a $2.9 million
reduction in the Company's cash and cash equivalents since December 31, 1999.
On February 23, 2000, the Company's Board of Directors authorized a stock
repurchase program of up to $10 million of its common stock. Under the program,
the Company can purchase shares through the open market and privately negotiated
transactions at prices deemed appropriate by Deltic's management. As of
September 30, 2000, Deltic had expended $8.8 million of the amount committed
under this program, with the purchase of 418,706 shares at an average cost of
$21.12 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 and the
remaining amount committed under its authorized common stock repurchase program,
for the foreseeable future.
Other Matters
On August 17, 2000, Deltic's Board of Directors approved the project to
exchange the Company's agriculture land holdings for pine timberland in a tax-
efficient manner. Through the third quarter, the Company had closed on the sale
of 12,600 net acres of agriculture land in a transaction deemed by the Company
to be with a related party since the sales were to Epps Plantation, LLC which is
owned by the Charles H. Murphy Family Investments Limited Partnership. Charles
Murphy holds a significant ownership of the Company's common stock and is
related to four of the Company's directors. The four directors who are related
recused themselves from all discussions and actions related to the possible
transactions with Epps Plantation, LLC. The sales price for these tracts was
derived from an approved market index formula which produced prices in excess
of the average of the appraised value of the tracts.
Contracts were executed on an additional 31,300 gross acres of fee and
undivided-interest farmland. Five tracts, amounting to approximately 6,000
gross acres, are not under contract at this time. Approximately 7,400 acres of
pine timberland, identified as "replacement property", have been acquired from
the proceeds of the farmland sales. An additional 26,000 net acres of pine
timberland have been identified as "replacement property", with plans to close
as additional farmland sales proceeds become available. (For additional details
regarding the status of these transactions, refer to Note 2 to the consolidated
financial statements and the Company's news release issued on October 18, 2000.)
On October 23, 2000, the Company advanced $5 million to Del-Tin Fiber, to
be combined with a similar advance from the other partner in the joint venture
and used to repay the facility's $10 million working capital commitment portion
of its separate project financing as required for compliance with the credit
agreement. In addition, Deltic completed the sale of its 50,000-square-foot
office complex known as the GMAC Building, which is located in the Company's
Chenal Valley development, for $5.1 million on October 31, 2000. The pretax
gain from the sale was $1.2 million and proceeds from the sale were used to
reduce existing debt.
The Company is currently assessing the impact of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards ("SFAS") 133,
Accounting for Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments and hedging
activities. As issued, SFAS 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. However, the Company's management
does not believe the effect of adopting SFAS 133 will be material to its
financial position or results of operations, based on the Company's current
level of derivative and hedging activities.
16
<PAGE>
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, but are not
limited to, 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.
17
<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 1999 annual report on Form 10-K. Those disclosures
should be read in conjunction with this Form 10-Q.
18
<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 and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
19
<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: November 10, 2000
------------------------------------- ----------------------------
Ron L. Pearce, President
(Principal Executive Officer)
/s/Clefton D. Vaughan Date: November 10, 2000
---------------------------------------- ----------------------------
Clefton D. Vaughan, Vice President,
Finance and Administration
(Principal Financial Officer)
/s/Emily R. Evers Date: November 10, 2000
---------------------------------------- ----------------------------
Emily R. Evers, Controller
(Principal Accounting Officer)
20
