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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, 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 of incorporation or organization) (I.R.S. Employer Identification Number)
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 October 31,
1999, was 12,394,335.
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TABLE OF CONTENTS - THIRD 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 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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
-----------------------------
(Thousands of dollars)
Sept. 30, Dec. 31,
1999 1998
---------- ---------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 5,438 8,160
U.S. government securities 936 -
Trade accounts receivable - net 6,386 3,995
Other receivables 1,945 1,328
Inventories 7,574 5,851
Prepaid expenses and other current assets 7,480 3,882
-------- -------
Total current assets 29,759 23,216
Investment in real estate held for development and sale 34,079 27,295
Investment in Del-Tin Fiber 4,357 6,699
Timber and timberlands - net 163,660 166,588
Property, plant, and equipment - net 43,828 44,104
Deferred charges and other assets 4,107 4,642
-------- -------
Total assets $279,790 272,544
======== =======
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 924 990
Notes payable 13 387
Trade accounts payable 3,210 2,164
Accrued taxes other than income taxes 1,182 1,025
Bank overdraft 1,263 817
Other accrued liabilities 1,322 1,294
-------- -------
Total current liabilities 7,914 6,677
Long-term debt 53,024 45,198
Deferred credits and other noncurrent liabilities 10,696 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 119,804 114,498
Unamortized restricted stock awards (228) (300)
Treasury stock (10,356) -
-------- -------
Total stockholders' equity 178,156 183,134
-------- -------
Total liabilities and stockholders' equity $279,790 272,544
======== =======
See accompanying notes to consolidated financial statements.
3
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
------------------------------------------------
(Thousands of dollars, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ---------------------
1999 1998 1999 1998
-------- ------- ------ -------
Net sales $33,086 29,088 95,472 82,307
------- ------ ------ ------
Costs and expenses
Cost of sales 23,270 23,016 60,464 59,613
Depreciation, amortization, and
cost of fee timber harvested 2,478 1,817 8,299 5,281
General and administrative expenses 1,303 1,268 4,961 4,118
------- ------ ------ ------
Total costs and expenses 27,051 26,101 73,724 69,012
------- ------ ------ ------
Operating income 6,035 2,987 21,748 13,295
Equity in loss of Del-Tin Fiber (2,138) (1,491) (5,764) (2,956)
Interest income 69 238 189 859
Interest expense (910) (397) (2,653) (515)
Other income/(expense) 93 285 1,375 372
------- ------ ------ ------
Income before income taxes 3,149 1,622 14,895 11,055
Income taxes (795) (686) (5,544) (4,236)
------- ------ ------ ------
Net income $ 2,354 936 9,351 6,819
======= ====== ====== ======
Earnings per Common share
Basic $ .14 .03 .61 .40
======= ====== ====== ======
Assuming dilution $ .14 .03 .61 .40
======= ====== ====== ======
Dividends declared per Common share $ .0625 .0625 .1875 .1875
======= ====== ====== ======
Average Common shares outstanding
(thousands) 12,394 12,814 12,539 12,811
======= ====== ====== ======
See accompanying notes to consolidated financial statements.
4
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
-------------------------------------------------
(Thousands of dollars)
1999 1998
--------- --------
Operating activities
Net income $ 9,351 6,819
Adjustments to reconcile above income to
net cash provided/(required) by operating activities
Depreciation, amortization, and cost of fee timber harvested 8,299 5,281
Deferred income taxes 2,377 (492)
(Gains)/losses from sales of assets (1,157) (82)
Real estate costs recovered upon sale 4,814 3,205
Equity in loss of Del-Tin Fiber 5,764 2,956
(Increase)/decrease in operating working capital,
other than cash and cash equivalents (7,098) 479
Other 1,270 473
-------- -------
Net cash provided/(required) by operating activities 23,620 18,639
-------- -------
Investing activities
Capital expenditures requiring cash (21,719) (69,926)
Net change in purchased stumpage inventory 2,633 (5,914)
Proceeds from sales of assets 3,167 357
Purchases of U. S. government securities (936) -
Investment in and advances to Del-Tin Fiber - net (3,295) (6,870)
Other - net 389 500
-------- -------
Net cash provided/(required) by investing activities (19,761) (81,853)
-------- -------
Financing activities
Proceeds from long-term borrowings 14,000 45,000
Repayments of long-term debt (6,628) (1,993)
Increase/(decrease) in bank overdraft 448 (42)
Treasury stock purchases (10,356) -
Preferred stock dividends paid (1,697) (1,697)
Common stock dividends paid (2,348) (2,403)
-------- -------
Net cash provided/(required) by financing activities (6,581) 38,865
-------- -------
Net increase/(decrease) in cash and cash equivalents (2,722) (24,349)
Cash and cash equivalents at January 1 8,160 31,045
-------- -------
Cash and cash equivalents at September 30 $ 5,438 6,696
======== =======
Supplemental disclosures
Income taxes paid, net of refunds $ 4,586 5,392
======== =======
Interest paid, net of amounts capitalized $ 1,970 562
======== =======
Additions to debt - owner financing $ 13 347
======== =======
See accompanying notes to consolidated financial statements.
5
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
-----------------------------------------------
(Thousands of dollars)
Sept. 30, Dec. 31,
1999 1998
----------- ---------
(unaudited)
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 9,351 8,474
Preferred stock dividends accrued (1,697) (2,269)
Common stock dividends declared (2,348) (3,203)
-------- -------
Balance at end of period 119,804 114,498
-------- -------
Unamortized restricted stock awards
Balance at beginning of year (300) -
Stock awards - (378)
Amortization to expense 72 78
-------- -------
Balance at end of period (228) (300)
-------- -------
Treasury stock
Balance at beginning of year - -
Shares purchased (10,356) -
-------- -------
Balance at end of period - 419,544 shares of
Common Stock in 1999, at cost (10,356) -
-------- -------
Total stockholders' equity $178,156 183,134
======== =======
6
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 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:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
(Thousands, except per share 1999 1998 1999 1998
-------- -------- -------- -------
amounts)
Net income $ 2,354 936 9,351 6,819
Less Preferred dividends (566) (566) (1,697) (1,704)
------- ------ ------ ------
Income available to Common
shareholders $ 1,788 370 7,654 5,115
======= ====== ====== ======
Weighted average number of
Common shares used in basic EPS 12,394 12,814 12,539 12,811
Effect of dilutive stock options 16 11 17 21
------- ------ ------ ------
Weighted average number of
Common shares and dilutive
potential Common Stock used
in EPS assuming dilution 12,410 12,825 12,556 12,832
======= ====== ====== ======
Earnings per Common share
Basic $ .14 .03 .61 .40
======= ====== ====== ======
Assuming dilution $ .14 .03 .61 .40
======= ====== ====== ======
7
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
------------------------------------------
(Unaudited, except for December 31, 1998)
Note 3 - Inventories
Inventories at the balance sheet dates consisted of the following:
Sept. 30, Dec. 31,
(Thousands of dollars) 1999 1998
-------- -------
Logs $2,358 1,942
Finished products 4,890 3,616
Materials and supplies 326 293
-------- -------
$7,574 5,851
======== =======
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 September 30 consisted of the following:
Sept. 30, Dec. 31,
(Thousands of Dollars) 1999 1998
--------- --------
Condensed Balance Sheet Information
Current assets $ 9,637 6,243
Property, plant, and equipment - net 98,939 98,147
Other noncurrent assets 4,756 9,146
-------- -------
Total assets $113,332 113,536
======== =======
Current liabilities $ 15,578 10,805
Long-term debt 89,000 89,000
Members' capital/(deficit) 8,754 13,731
-------- -------
Total liabilities and members' capital/(deficit) $113,332 113,536
======== =======
8
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
------------------------------------------
(Unaudited, except for December 31, 1998)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
--------- ------- -------- -------
Condensed Income Statement
Information
Net sales $ 9,161 2,852 22,903 3,222
------- ------ -------- --------
Costs and expenses
Cost of sales 9,707 4,522 26,560 8,291
Depreciation 1,264 (511) 3,154 538
------- ------ -------- --------
Total costs and expenses 10,971 4,011 29,714 8,829
------- ------ -------- --------
Operating income/(loss) (1,810) (1,159) (6,811) (5,607)
Interest income 74 - 213 -
Interest expense (1,733) - (4,970) -
------- ------ -------- --------
Net income/(loss) $(3,469) (1,159) (11,568) (5,607)
======= ====== ======== ========
Note 5 - Timber and Timberlands
Timber and timberlands at the balance sheet dates consisted of the following:
Sept. 30, Dec. 31,
(Thousands of dollars) 1999 1998
-------- --------
Purchased stumpage inventory $ 10,577 13,210
Timberlands 61,797 54,710
Fee timber 124,308 128,242
Logging facilities 1,633 1,610
-------- --------
198,315 197,772
Less accumulated costs of fee timber harvested
and facilities depreciation (34,655) (31,184)
-------- --------
$163,660 166,588
======== ========
9
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 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:
Sept. 30, Dec. 31,
(Thousands of dollars) 1999 1998
---------- ---------
Land $ 4,425 4,425
Land improvements 4,174 4,046
Buildings and structures 4,418 8,573
Machinery and equipment 70,021 62,949
-------- --------
83,038 79,993
Less accumulated depreciation (39,210) (35,889)
-------- --------
$ 43,828 44,104
======== ========
10
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
------------------------------------------
(Unaudited, except for December 31, 1998)
Note 7 - Business Segments
Information about the Company's business segments consisted of the following:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ---------------------
(Thousands of dollars) 1999 1998 1999 1998
---------- -------- -------- --------
Net sales
Woodlands $ 6,626 6,002 22,092 21,065
Mills 22,891 16,663 63,748 51,499
Real Estate 4,253 3,621 15,965 9,571
Agriculture 673 4,879 1,421 5,538
Eliminations* (1,357) (2,077) (7,754) (5,366)
------- ------ ------ ------
$33,086 29,088 95,472 82,307
======= ====== ====== ======
Income before income taxes
Operating income
Woodlands $ 3,451 3,824 14,395 16,463
Mills 2,938 (1,050) 5,931 (1,838)
Real Estate 1,101 996 6,051 1,944
Agriculture (80) 457 38 472
Corporate (1,147) (1,101) (4,433) (3,602)
Eliminations (228) (139) (234) (144)
------- ------ ------ ------
Operating income 6,035 2,987 21,748 13,295
Equity in loss of Del-Tin Fiber (2,138) (1,491) (5,764) (2,956)
Interest income 69 238 189 859
Interest expense (910) (397) (2,653) (515)
Other income/(expense) 93 285 1,375 372
------- ------ ------ ------
$ 3,149 1,622 14,895 11,055
======= ====== ====== ======
Depreciation, amortization, and
cost of fee timber harvested
Woodlands $ 1,144 574 4,226 1,695
Mills 1,025 945 3,102 2,718
Real Estate 97 107 338 308
Agriculture 141 129 434 379
Corporate 71 62 199 181
------- ------ ------ ------
$ 2,478 1,817 8,299 5,281
======= ====== ====== ======
Capital expenditures
Woodlands $ 1,733 48,844 6,245 58,582
Mills 1,893 1,318 6,382 4,592
Real Estate 2,392 2,280 8,480 6,222
Agriculture 135 79 505 561
Corporate 10 257 120 316
------- ------ ------ ------
$ 6,163 52,778 21,732 70,273
======= ====== ====== ======
*Intersegment sales of timber from Woodlands to Mills.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended September 30, 1999 Compared with Three Months Ended
September 30, 1998
Net income for the third quarter of 1999 was $2.4 million, $.14 a share, an
increase of $1.5 million when compared to third quarter 1998 earnings of $.9
million, $.03 a share. Operating income for the current quarter totaled $6
million, an increase of $3 million when compared to the same quarter in 1998.
Net cash provided by operating activities was $10.9 million, a 28 percent
increase when compared to $8.5 million for the third quarter of 1998.
In the current quarter, operating income increased $3 million. The
Woodlands segment decreased $.4 million due to a $.6 million increase in the
cost of fee timber harvested and a 41 percent increase in silviculture expenses,
partially offset by a three percent increase in the pine sawtimber harvest level
and a two percent increase in the average price for pine sawtimber sold. The
Company's Mill segment increased $3.9 million as the result of a 22 percent
increase in average lumber sales price, a three percent decrease in the average
manufacturing cost per thousand board feet ("MBF") of finished lumber sold, and
an 18 percent increase in the volume of lumber sold. The Real Estate segment
increased $.3 million due primarily to a $.4 million increase in margin from
commercial development sales and a $.2 million increase in residential lots
sales margin, partially offset by a $.4 million decrease in the margin from
undeveloped real estate acreage sales. Agriculture operations decreased $.6
million resulting from the timing of sales for products harvested.
Woodlands operations reported net sales of $6.6 million in the current
quarter compared to $6 million a year ago. Sales of pine sawtimber increased $.2
million as a result of a 2,700 ton increase in the harvest level to 104,300 tons
and a $1 per ton increase in the average sales price of pine sawtimber sold to
$50 per ton. Hardwood sawtimber sales increased $.3 million due to the timing of
sales. Operating income was $3.5 million in 1999 compared to $3.9 million in
1998 with the reduction due mainly to two items related to the Company's
timberland acquisition program. First, the cost of fee timber harvested
increased by $.6 million, which reflects a higher basis of timber on acquired
lands compared to historical levels. Second, seasonal silvicultural expense was
$.4 million higher as some acquired lands were deemed to require more extensive
management than they had received prior to the Company's ownership.
The Mills segment produced net sales of $22.8 million in the third quarter
of 1999 compared to $16.7 million in the third quarter of 1998. Finished lumber
sales increased $6.1 million due to a $72 rise in the average sales price per
MBF sold to $403, combined with a 7.5 million board feet increase in sales
volume to 50.2 million board feet. Operating income was $2.9 million in 1999,
which compares to an operating loss of $1 million in 1998. The increase was due
primarily to the increase in net sales and an $11 per MBF decrease in lumber
manufacturing cost, mainly as the result of a $13 reduction in the log cost per
MBF of lumber produced.
12
The Company's Real Estate segment recorded net sales of $4.3 million in the
current-year quarter compared to $3.7 million in the prior-year period. A two-
acre commercial site was sold in the 1999 period for $309,400 per acre, while an
.86-acre site was sold for $350,000 per acre in the 1998 period. Residential lot
sales increased by 19 lots to 47, while average sales price decreased $8,600 per
lot to $47,500 due to sales mix. A sale of 30.5 acres of undeveloped acreage for
$.2 million was recorded in 1999; however, sales of 85 acres for $.6 million
were reported in 1998. Operating income was $1.1 million in the third quarter of
1999 compared to $.8 million during the third quarter of 1998 as the result of
the increase in net sales.
Agriculture operations' net sales totaled $.7 million for the current
three-month period compared to $4.8 million a year ago, due mainly to the timing
of sales for crops harvested and decreased commodity prices. Because of
depressed commodity prices during the third quarter for the crops grown by the
Company in 1999, Deltic's management decided to take advantage of its available
storage facilities and hold a significant portion of its corn production in
inventory while monitoring price levels. A loss from operations of $.1 million
for the 1999 period compared to operating income of $.5 million in the 1998
period due mainly to the decrease in sales activity.
Corporate operating expense was $1.1 million for both periods. Equity in
the loss of Del-Tin Fiber recorded by the Company was $2.2 million in 1999
compared to 1998's equity loss of $1.5 million. While Del-Tin Fiber's production
of medium density fiberboard ("MDF") and the resulting shipments have increased
each month following modifications to critical equipment completed during a
plant shutdown in June 1999, financial results have continued to be
unsatisfactory due to lower average sales prices than expected for MDF and
higher production costs. Corporate interest expense increased $.5 million to $.9
million due to increased borrowings primarily as a result of the Company's
timberland acquisition program and other capital projects. Income tax expense
was $.7 million for both quarters due primarily to higher pretax income, offset
by recording income tax accrual adjustments relating to prior periods during the
current quarter and from lower state income taxes.
Nine Months Ended September 30, 1999 Compared with Nine Months Ended
September 30, 1998
For the first nine months of 1999, net income totaled $9.4 million, $.61 a
share, compared to net income for the nine months ended September 30, 1998, of
$6.8 million, $.40 a share. The increase was primarily the result of higher
operating income from the Company's Mills and Real Estate segments and a pretax
gain on the sale of non-strategic timberland, partially offset by a decrease in
operating income from the Woodlands and Agriculture segments, increased
corporate operating expenses, an increase in the equity loss from Del-Tin Fiber,
and increased interest and income tax expense.
Operating income for the 1999 period was $21.7 million, an increase of $8.4
million from 1998. Woodlands operations decreased $2.1 million as the result of
a 13 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 $7.7
million due to a $41 per MBF higher average lumber sales price, a $20 lower cost
per MBF sold, and a 16 million board feet increase in finished lumber sales
volume. The Real Estate segment increased $4.3 million, primarily the result of
increased commercial development sales. Agriculture operations decreased $.5
million due mainly to timing of sales. Corporate operating expenses increased
$.8 million.
13
The Woodlands segment generated net sales of $22.1 million during the nine
months ended September 30, 1999, a five percent increase when compared to $21.1
million during 1998. Pine sawtimber sales increased $.3 million as the result of
a 15 percent increase in sales volume to 378,800 tons, offset by a $7 per ton
decrease in the average pine sawtimber sales price to $47 per ton. Sales of pine
and hardwood pulpwood, amounting to $1.7 million, rose $.4 million as the result
of increased harvest levels. Operating income was $14.4 million for the first
nine months of 1999, compared to $16.5 million in 1998. The decrease was mainly
due to a $2.5 million increase in the cost of fee timber harvested resulting
from two primary reasons. First, the harvest level was increased and, second, a
higher cost per ton of timber harvested due primarily to recent timberland
acquisitions. In addition, a $.4 million increase in silviculture expenses was
incurred compared to last year. These unfavorable changes were partially offset
by the increase in net sales.
Mills operations recorded net sales of $63.7 million during 1999 compared
to $51.5 million during the same period in 1998. Finished lumber sales increased
$11.4 million due to a 12 percent increase in the average sales price per MBF
sold to $391, combined with a 13 percent increase in sales volume to 141 million
board feet. Operating income for 1999 was $5.9 million compared to an operating
loss of $1.8 million for the 1998 period. The increase was due primarily to the
increase in net sales, combined with a five percent decrease in the cost per MBF
sold to $349. The decrease in cost of lumber sold resulted mainly from a $20
reduction in the log cost per MBF of lumber produced.
The Company's Real Estate segment reported net sales of $16 million during
the 1999 period compared to $9.6 million during 1998. The first nine months of
1999 included commercial development sales of approximately 74 acres for $5
million, while an .86-acre commercial site was sold in 1998 for $.3 million.
Residential lot sales totaled 145 lots compared to 122 in 1998 and the average
sales price rose $5,500 per lot to $50,600. Sales of approximately 47 acres of
undeveloped real estate acreage for $5,000 per acre were recorded in 1999, but
1998 included sales of 85 acres for $.6 million. Operating income of $6.1
million in 1999 increased $4.3 million from 1998, primarily the result of the
increased margins from commercial development and residential lot sales,
partially offset by the decreased margin from undeveloped acreage sales and
increased sales commission expense.
Agriculture operations produced net sales of $1.4 million in 1999, a
decrease of $4.1 million from $5.5 million in 1998 due to the Company's decision
to sell very little of its 1999 production as of September 30, 1999, as the
result of depressed prices for soybeans and corn. Break-even operating results
for 1999 compared to 1998 operating income of $.5 million, resulting from the
decrease in sales activity.
Corporate operating expense was $4.4 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 $5.8 million in 1999 compared to 1998's equity loss
of $3 million due primarily to previously discussed factors impacting operating
results for the MDF plant and the timing of plant start-up in 1998. Corporate
interest income decreased $.7 million, while interest expense increased by $2.1
million to $2.6 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 year. Income tax expense
increased $1.2 million to $5.5 million for 1999 due primarily to increased
pretax income.
14
Financial Condition
For the first nine months of 1999, net cash provided by operating
activities totaled $23.6 million compared to $18.6 million for the same period
in 1998. Changes in operating working capital, other than cash and cash
equivalents, required cash of $7.1 million for the nine months ended September
30, 1999, but provided cash of $.5 million in 1998.
Capital expenditures required cash of $21.7 million in the current
year-to-date period and $69.9 million a year ago. Capital expenditures by
segment consisted of the following:
---------------------------------------------------
Nine Months
Ended Sept. 30,
---------------------------------------------------
(Thousands of dollars) 1999 1998
---------------------------------------------------
Woodlands $ 6,245 58,582
Mills 6,382 4,592
Real Estate 8,480 6,222
Agriculture 505 561
Corporate 120 316
--------------------------------------------------
Total capital expenditures 21,732 70,273
Owner-financed expenditures (13) (347)
--------------------------------------------------
Expenditures requiring cash $21,719 69,926
==================================================
The decrease in capital expenditures was due primarily to $58 million
utilized to acquire timberland in the 1998 period compared to $4.8 million for
the same period in 1999. The net change in purchased stumpage inventory to be
utilized in the Company's sawmill operations provided cash of $2.6 million
during the first nine months of 1999, while requiring cash of $5.9 million in
the 1998 period. Proceeds from the sale of assets (non-strategic timberland)
provided cash of $3.2 million in 1999 and $.4 million in 1998. During the nine
months ended September 30, 1999, Deltic advanced $3.3 million to Del-Tin Fiber,
invested $.9 million in government securities, and paid dividends of $4 million,
consisting of $2.3 million for Common Stock and $1.7 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 $6.6 million. Purchases of treasury stock during 1999 required cash of
$10.4 million. These net uses of funds resulted in a $2.7 million reduction in
the Company's cash and cash equivalents since December 31, 1998.
During the second quarter, 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.
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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
June 30, 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 and
second quarter 1999 reports on Form 10-Q, which detail changes in the Company's
Year 2000 compliance efforts during the first half of 1999, 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 were assessed as affected by
the Year 2000 problem has progressed as planned. For critical internal
computerized systems, the Company completed this process earlier in the year.
For major systems and equipment, including those at operational facilities, the
Company completed modifications or upgrades required during the third quarter.
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 cost related to the Year 2000 issue, incurred by
the Company, is still not expected to be material.
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 has developed 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.
16
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.
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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.
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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
None.
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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 4, 1999
------------------------------------- -----------------------
Ron L. Pearce, President
(Principal Executive Officer)
/s/ Clefton D. Vaughan Date: November 4, 1999
- ---------------------------------------- -----------------------
Clefton D. Vaughan, Vice President,
Finance and Administration
(Principal Financial Officer)
/s/ Emily R. Evers Date: November 4, 1999
- ---------------------------------------- -----------------------
Emily R. Evers, Controller
(Principal Accounting Officer)
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