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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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FORM 10-Q



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(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, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



Commission file number 1-12147



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DELTIC TIMBER CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|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



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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 Preferred Stock Purchase Rights |  | New York Stock Exchange, Inc.            



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈.



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Securities Exchange Act of 1934).    Yes  x    No ̈.



Number of shares of Common
Stock, $.01 Par Value, outstanding at September 30, 2004, was 12,181,307.



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##### Table of Contents

TABLE OF CONTENTS - THIRD QUARTER 2004 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 |  | 17         
|                               |  |                                                                                      
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 29         
|                               |  |                                                                                      
|Item 4.                        |  | Controls and Procedures                                                               |  | 29         
|                               | 
|PART II - Other Information    |  |                                                                                      
|                               |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 30         
|                               |  |                                                                                      
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 30         
|                               |  |                                                                                      
|Item 3.                        |  | Defaults Upon Senior Securities                                                       |  | 30         
|                               |  |                                                                                      
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                   |  | 30         
|                               |  |                                                                                      
|Item 5.                        |  | Other Information                                                                     |  | 30         
|                               |  |                                                                                      
|Item 6.                        |  | Exhibits                                                                              |  | 31         
|                               | 
|Signatures                     |  | 32                                                                                   



2



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##### Table of Contents

PART I - FINANCIAL INFORMATION



Item 1. Financial Statements



DELTIC
TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of dollars)



|                                                                                 |  |                |         |   |              |         |  
|-------------------------------------------------------------------------------- |  | -------------- | ------- | - | ------------ | ------- | -
|                                                                                 |  | Sept. 30, 2004 |         |   | Dec. 31,2003 |        
|                                                                                 |  | (unaudited)    |         |   |              |        
|Assets                                                                           |  |                |         |   |              |         |  
|Current assets                                                                   |  |                |         |   |              |         |  
|Cash and cash equivalents                                                        |  | $              | 6,018   |   |              | 1,687   |  
|Trade accounts receivable                                                        |  |                | 6,382   |   |              | 4,350   |  
|Allowance for doubtful accounts                                                  |  |                | (26     | ) |              | (107    | )
|Other receivables                                                                |  |                | 12      |   |              | 1,041   |  
|Inventories                                                                      |  |                | 5,473   |   |              | 5,778   |  
|Prepaid expenses and other current assets                                        |  |                | 1,961   |   |              | 1,461   |  
|                                                                                 |  |                |         |   |              |         |  
|Total current assets                                                             |  |                | 19,820  |   |              | 14,210  |  
|                                                                                 |  |               
|Investment in real estate held for development and sale                          |  |                | 36,713  |   |              | 40,539  |  
|Investment in Del-Tin Fiber                                                      |  |                | 4,665   |   |              |        |  
|Investments and noncurrent receivables                                           |  |                | 2,091   |   |              | 6,660   |  
|Timber and timberlands - net                                                     |  |                | 215,145 |   |              | 215,040 |  
|Property, plant, and equipment - net                                             |  |                | 35,541  |   |              | 36,882  |  
|Deferred charges and other assets                                                |  |                | 828     |   |              | 979     |  
|                                                                                 |  |                |         |   |              |         |  
|Total assets                                                                     |  | $              | 314,803 |   |              | 314,310 |  
|                                                                                 |  |                |         |   |              |         |  
|Liabilities and Stockholders Equity                                             |  |                |         |   |              |         |  
|Current liabilities                                                              |  |                |         |   |              |         |  
|Current maturities of long-term debt                                             |  | $              | 40      |   |              | 64      |  
|Trade accounts payable                                                           |  |                | 3,906   |   |              | 2,772   |  
|Accrued taxes other than income taxes                                            |  |                | 1,275   |   |              | 1,246   |  
|Income taxes payable                                                             |  |                | 1,577   |   |              | 151     |  
|Deferred revenues and other accrued liabilities                                  |  |                | 5,508   |   |              | 2,843   |  
|                                                                                 |  |                |         |   |              |         |  
|Total current liabilities                                                        |  |                | 12,306  |   |              | 7,076   |  
|                                                                                 |  |               
|Long-term debt                                                                   |  |                | 92,032  |   |              | 115,056 |  
|Guarantee of indebtedness of Del-Tin Fiber                                       |  |                | 3,450   |   |              |        |  
|Deferred tax liabilities - net                                                   |  |                | 14,185  |   |              | 12,559  |  
|Other noncurrent liabilities                                                     |  |                | 11,175  |   |              | 9,385   |  
|Stockholders equity                                                             |  |                |         |   |              |         |  
|Cumulative preferred stock - $.01 par, authorized 20,000,000 shares, none issued |  |                |        |   |              |        |  
|Common stock - $.01 par, authorized 50,000,000 shares, 12,813,879 shares issued  |  |                | 128     |   |              | 128     |  
|Capital in excess of par value                                                   |  |                | 71,199  |   |              | 69,459  |  
|Retained earnings                                                                |  |                | 125,829 |   |              | 119,888 |  
|Unamortized restricted stock awards                                              |  |                | (1,000  | ) |              | (14     | )
|Treasury stock                                                                   |  |                | (14,377 | ) |              | (19,103 | )
|Accumulated other comprehensive income                                           |  |                | (124    | ) |              | (124    | )
|                                                                                 |  |                |         |   |              |         |  
|Total stockholders equity                                                       |  |                | 181,655 |   |              | 170,234 |  
|                                                                                 |  |                |         |   |              |         |  
|Total liabilities and stockholders equity                                       |  | $              | 314,803 |   |              | 314,310 |  
|                                                                                 |  |                |         |   |              |         |  



See accompanying notes to consolidated
financial statements.



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##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(Thousands of dollars, except per share amounts)



|                                                             |  |                                 |        |   |                                |        |   |      |         |   |      |        |  
|------------------------------------------------------------ |  | ------------------------------- | ------ | - | ------------------------------ | ------ | - | ---- | ------- | - | ---- | ------ | -
|                                                             |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |       
|                                                             |  | 2004                            |        |   | 2003                           |        |   | 2004 |         |   | 2003 |       
|Net sales                                                    |  | $                               | 43,255 |   |                                | 30,730 |   |      | 105,063 |   |      | 98,119 |  
|                                                             |  |                                 |        |   |                                |        |   |      |         |   |      |        |  
|Costs and expenses                                           |  |                                 |        |   |                                |        |   |      |         |   |      |        |  
|Cost of sales                                                |  |                                 | 28,762 |   |                                | 22,324 |   |      | 69,524  |   |      | 67,337 |  
|Depreciation, amortization, and cost of fee timber harvested |  |                                 | 2,784  |   |                                | 3,126  |   |      | 8,387   |   |      | 10,125 |  
|General and administrative expenses                          |  |                                 | 4,083  |   |                                | 1,862  |   |      | 9,853   |   |      | 5,686  |  
|                                                             |  |                                 |        |   |                                |        |   |      |         |   |      |        |  
|Total costs and expenses                                     |  |                                 | 35,629 |   |                                | 27,312 |   |      | 87,764  |   |      | 83,148 |  
|                                                             |  |                                 |        |   |                                |        |   |      |         |   |      |        |  
|Operating income                                             |  |                                 | 7,626  |   |                                | 3,418  |   |      | 17,299  |   |      | 14,971 |  
|                                                             |  |                                 |        |  
|Equity in Del-Tin Fiber                                      |  |                                 | 424    |   |                                | (1,598 | ) |      | 450     |   |      | (3,990 | )
|Interest income                                              |  |                                 | 203    |   |                                | 306    |   |      | 321     |   |      | 350    |  
|Interest and other debt expense                              |  |                                 | (1,486 | ) |                                | (1,599 | ) |      | (4,586  | ) |      | (5,145 | )
|Other income/(expense)                                       |  |                                 | (3     | ) |                                | 61     |   |      | (8      | ) |      | 162    |  
|                                                             |  |                                 |        |   |                                |        |   |      |         |   |      |        |  
|Income/(loss) before income taxes                            |  |                                 | 6,764  |   |                                | 588    |   |      | 13,476  |   |      | 6,348  |  
|                                                             |  |                                 |        |  
|Income taxes                                                 |  |                                 | (2,582 | ) |                                | (254   | ) |      | (5,269  | ) |      | (2,383 | )
|                                                             |  |                                 |        |   |                                |        |   |      |         |   |      |        |  
|Net income/(loss)                                            |  | $                               | 4,182  |   |                                | 334    |   |      | 8,207   |   |      | 3,965  |  
|                                                             |  |                                 |        |   |                                |        |   |      |         |   |      |        |  
|Earnings per common share                                    |  |                                 |        |   |                                |        |   |      |         |   |      |        |  
|Basic                                                        |  | $                               | .34    |   |                                | .03    |   |      | .68     |   |      | .33    |  
|Assuming dilution                                            |  |                                 | .34    |   |                                | .03    |   |      | .67     |   |      | .33    |  
|                                                             |  |                                 |        |  
|Dividends declared per common share                          |  | $                               | .0625  |   |                                | .0625  |   |      | .1875   |   |      | .1875  |  
|                                                             |  |                                 |        |   |                                |        |   |      |         |   |      |        |  
|Average common shares outstanding (thousands)                |  |                                 | 12,146 |   |                                | 11,919 |   |      | 12,096  |   |      | 11,909 |  
|                                                             |  |                                 |        |   |                                |        |   |      |         |   |      |        |  



See accompanying notes to consolidated
financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30,

(Thousands of
dollars)



|                                                                                            |  |      |         |   |      |         |  
|------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | ------- | -
|                                                                                            |  | 2004 |         |   | 2003 |        
|Operating activities                                                                        |  |      |         |   |      |         |  
|Net income                                                                                  |  | $    | 8,207   |   |      | 3,965   |  
|Adjustments to reconcile net income to net cash provided/(required) by operating activities |  |      |         |   |      |         |  
|Depreciation, amortization, and cost of fee timber harvested                                |  |      | 8,387   |   |      | 10,125  |  
|Deferred income taxes                                                                       |  |      | 1,403   |   |      | (345    | )
|Real estate costs recovered upon sale                                                       |  |      | 9,358   |   |      | 7,660   |  
|Timberland costs recovered upon sale                                                        |  |      | 206     |   |      | 826     |  
|Equity in Del-Tin Fiber                                                                     |  |      | (450    | ) |      | 3,990   |  
|Net increase/(decrease) in provisions for pension and other postretirement benefits         |  |      | 2,138   |   |      | 1,512   |  
|(Increase)/decrease in operating working capital other than cash and cash equivalents       |  |      | 4,711   |   |      | (1,287  | )
|Other - net                                                                                 |  |      | 277     |   |      | 94      |  
|                                                                                            |  |      |         |   |      |         |  
|Net cash provided/(required) by operating activities                                        |  |      | 34,237  |   |      | 26,540  |  
|                                                                                            |  |      |         |   |      |         |  
|Investing activities                                                                        |  |      |         |   |      |         |  
|Capital expenditures requiring cash                                                         |  |      | (16,520 | ) |      | (20,827 | )
|Net change in purchased stumpage inventory                                                  |  |      | 2,383   |   |      | (1,594  | )
|Advances to Del-Tin Fiber                                                                   |  |      | (1,515  | ) |      | (7,244  | )
|Distributions from Del-Tin Fiber                                                            |  |      | 750     |   |      |        |  
|(Increase)/decrease in funds held by trustee                                                |  |      | 4,413   |   |      | (14     | )
|Other - net                                                                                 |  |      | 1,419   |   |      | 1,293   |  
|                                                                                            |  |      |         |   |      |         |  
|Net cash provided/(required) by investing activities                                        |  |      | (9,070  | ) |      | (28,386 | )
|                                                                                            |  |      |         |   |      |         |  
|Financing activities                                                                        |  |      |         |   |      |         |  
|Proceeds from borrowings                                                                    |  |      |        |   |      | 11,539  |  
|Repayments of notes payable and long-term debt                                              |  |      | (23,048 | ) |      | (6,593  | )
|Treasury stock purchases                                                                    |  |      |        |   |      | (377    | )
|Increase/(decrease) in bank overdraft                                                       |  |      |        |   |      | (913    | )
|Common stock dividends paid                                                                 |  |      | (2,266  | ) |      | (2,232  | )
|Proceeds from stock option exercises                                                        |  |      | 4,478   |   |      | 1,572   |  
|                                                                                            |  |      |         |   |      |         |  
|Net cash provided/(required) by financing activities                                        |  |      | (20,836 | ) |      | 2,996   |  
|                                                                                            |  |      |         |   |      |         |  
|Net increase/(decrease) in cash and cash equivalents                                        |  |      | 4,331   |   |      | 1,150   |  
|Cash and cash equivalents at January 1                                                      |  |      | 1,687   |   |      | 1,057   |  
|                                                                                            |  |      |         |   |      |         |  
|Cash and cash equivalents at September 30                                                   |  | $    | 6,018   |   |      | 2,207   |  
|                                                                                            |  |      |         |   |      |         |  



See accompanying notes to consolidated
financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Stockholders Equity (Unaudited)

Nine Months Ended September 30,

(Thousands of
dollars)



|                                                                                                                  |  |      |         |   |      |         |  
|----------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | ------- | -
|                                                                                                                  |  | 2004 |         |   | 2003 |        
|Cumulative preferred stock - $.01 par, authorized 20,000,000 shares, none issued                                  |  | $    |        |   |      |        |  
|                                                                                                                  |  |      |         |   |      |         |  
|Common stock - $.01 par, authorized 50,000,000 shares, 12,813,879 shares issued at end of period in 2004 and 2003 |  |      | 128     |   |      | 128     |  
|                                                                                                                  |  |      |         |   |      |         |  
|Capital in excess of par value                                                                                    |  |      |         |   |      |         |  
|Balance at beginning of year                                                                                      |  |      | 69,459  |   |      | 69,075  |  
|Exercise of stock options                                                                                         |  |      | 784     |   |      | 182     |  
|Tax benefits on stock options                                                                                     |  |      | 508     |   |      | 202     |  
|Restricted stock awards                                                                                           |  |      | 448     |   |      |        |  
|                                                                                                                  |  |      |         |   |      |         |  
|Balance at end of period                                                                                          |  |      | 71,199  |   |      | 69,459  |  
|                                                                                                                  |  |      |         |   |      |         |  
|Retained earnings                                                                                                 |  |      |         |   |      |         |  
|Balance at beginning of year                                                                                      |  |      | 119,888 |   |      | 114,165 |  
|Net income                                                                                                        |  |      | 8,207   |   |      | 3,965   |  
|Common stock dividends declared                                                                                   |  |      | (2,266  | ) |      | (2,232  | )
|                                                                                                                  |  |      |         |   |      |         |  
|Balance at end of period                                                                                          |  |      | 125,829 |   |      | 115,898 |  
|                                                                                                                  |  |      |         |   |      |         |  
|Unamortized restricted stock awards                                                                               |  |      |         |   |      |         |  
|Balance at beginning of year                                                                                      |  |      | (14     | ) |      | (133    | )
|Stock awards                                                                                                      |  |      | (1,215  | ) |      |        |  
|Amortization to expense                                                                                           |  |      | 229     |   |      | 99      |  
|                                                                                                                  |  |      |         |   |      |         |  
|Balance at end of period                                                                                          |  |      | (1,000  | ) |      | (34     | )
|                                                                                                                  |  |      |         |   |      |         |  
|Treasury stock                                                                                                    |  |      |         |   |      |         |  
|Balance at beginning of year  845,600 and 898,175 shares, respectively                                           |  |      | (19,103 | ) |      | (20,273 | )
|Shares purchased  7,052 and 15,907 shares, respectively                                                          |  |      | (254    | ) |      | (377    | )
|Shares issued for incentive plans  220,080 and 68,482, respectively                                              |  |      | 4,980   |   |      | 1,547   |  
|                                                                                                                  |  |      |         |   |      |         |  
|Balance at end of period  632,572 and 845,600 shares, respectively                                               |  |      | (14,377 | ) |      | (19,103 | )
|                                                                                                                  |  |      |         |   |      |         |  
|Accumulated other comprehensive income                                                                            |  |      | (124    | ) |      |        |  
|                                                                                                                  |  |      |         |   |      |         |  
|Total stockholders equity                                                                                        |  | $    | 181,655 |   |      | 166,348 |  
|                                                                                                                  |  |      |         |   |      |         |  



See accompanying notes to consolidated
financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2004

(Unaudited, except for
December 31, 2003)



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 results of operations for the first nine months of the year are not necessarily indicative of the results of operations which might be expected for the entire year.



The financial statements in Deltics 2003 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 the 2004 presentation format.



Note 2  Impact of Recently Effective Accounting Pronouncements



In January 2004, the FASB issued a FASB Staff Position regarding SFAS 106,
Employers Accounting for Postretirement Benefits Other than Pensions, (FSP FAS 106-1), Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
Act), which allowed companies to recognize or defer recognizing the effects of the prescription-drug provisions of the new Medicare Act in their 2003 financial statements. Deltic had a September 30, 2003, measurement date for its benefit plans
and during the first quarter of 2004 elected to defer recognition of the effects of the Act until the Financial Accounting Standards Board issued final guidance on accounting for the provisions of the Act. Such election did not have a material
impact on the Companys financial statements.



In May
2004, the FASB issued FSP FAS 106-2 which bears the same title as FSB FAS 106-1 and supersedes the previous guidance therein. FSP FAS 106-2 provides guidance on accounting for postretirement health care plans with prescription drug benefits that
have been determined to be at least actuarially equivalent to those provided within the Act and thus qualify plans for future federal subsidies. Deltic has determined the prescription drug benefits under its plan are actuarially equivalent to those
provided within the Act. Accordingly, an adjustment resulting from the Act has been included in the amount of postretirement benefit expense or the corresponding benefit obligation liability as of September 30, 2004, and the periods then ended. (For
additional information, see Note 9  Employee and Retiree Benefit Plans.)



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2004

(Unaudited, except for
December 31, 2003)



Note 3  Earnings per Common Share



The amounts used in computing earnings per share consisted of the
following:



|                                                                                                           |  |                                  |        |                                 |        |      |        |      |       
|---------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | ------ | ---- | ------ | ---- | ------
|                                                                                                           |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|(Thousands, except per share amounts)                                                                      |  | 2004                             |        | 2003                            |        | 2004 |        | 2003
|Net income                                                                                                 |  | $                                | 4,182  |                                 | 334    |      | 8,207  |      | 3,965 
|                                                                                                           |  |                                  |        |                                 |        |      |        |      |       
|Weighted average number of common shares used in basic EPS                                                 |  |                                  | 12,146 |                                 | 11,919 |      | 12,096 |      | 11,909
|Effect of dilutive stock options                                                                           |  |                                  | 63     |                                 | 49     |      | 69     |      | 24    
|                                                                                                           |  |                                  |        |                                 |        |      |        |      |       
|Weighted average number of common shares and dilutive potential common stock used in EPS assuming dilution |  |                                  | 12,209 |                                 | 11,968 |      | 12,165 |      | 11,933
|                                                                                                           |  |                                  |        |                                 |        |      |        |      |       
|Earnings per common share                                                                                  |  |                                  |        |                                 |        |      |        |      |       
|Basic                                                                                                      |  | $                                | .34    |                                 | .03    |      | .68    |      | .33   
|Assuming dilution                                                                                          |  | $                                | .34    |                                 | .03    |      | .67    |      | .33   



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2004

(Unaudited, except for
December 31, 2003)



Note 4  Stock-Based Compensation



Deltic has a stock-based compensation plan for which the Company applies
the recognition and measurement principles of APB 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for those plans. Stock-based employee compensation expense is accrued for the intrinsic value, if any, of stock
options or time-based restricted stock granted over the applicable vesting periods using the straight-line method. Grants of restricted stock subject to predefined performance criteria are accounted for in accordance with variable-plan accounting.
Options granted by the Company have an exercise price equal to the market value of the underlying common stock on the date of grant.



The effect on net income/(loss) and earnings per share if the Company had applied the fair value recognition provisions of the Financial Accounting
Standards Boards Statement of Financial Accounting Standards (SFAS) 123, Accounting for Stock-Based Compensation, consisted of the following:



|                                                                                                                                                                            |  |                                  |       |   |                                 |      |   |      |       |   |      |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ----- | - | ------------------------------- | ---- | - | ---- | ----- | - | ---- | ----- | -
|                                                                                                                                                                            |  | Three Months Ended September 30, |       |   | Nine Months Ended September 30, |     
|(Thousands, except per share amounts)                                                                                                                                       |  | 2004                             |       |   | 2003                            |      |   | 2004 |       |   | 2003 |      
|Net income, as reported                                                                                                                                                     |  | $                                | 4,182 |   |                                 | 334  |   |      | 8,207 |   |      | 3,965 |  
|Plus total stock-based compensation expense determined under the intrinsic value method for awards, net of related tax effects, included in
the determination of net income |  |                                  | 115   |   |                                 | 46   |   |      | 373   |   |      | 191   |  
|Less pro forma total stock-based compensation expense determined under the fair value method for all awards, net of related tax
effects                                     |  |                                  | (189  | ) |                                 | (165 | ) |      | (641  | ) |      | (563  | )
|                                                                                                                                                                            |  |                                  |       |   |                                 |      |   |      |       |   |      |       |  
|Pro forma net income                                                                                                                                                        |  | $                                | 4,108 |   |                                 | 215  |   |      | 7,939 |   |      | 3,593 |  
|                                                                                                                                                                            |  |                                  |       |   |                                 |      |   |      |       |   |      |       |  
|Basic earnings per share                                                                                                                                                    |  |                                  |       |   |                                 |      |   |      |       |   |      |       |  
|As reported                                                                                                                                                                 |  | $                                | .34   |   |                                 | .03  |   |      | .68   |   |      | .33   |  
|Pro forma                                                                                                                                                                   |  | $                                | .34   |   |                                 | .02  |   |      | .66   |   |      | .30   |  
|                                                                                                                                                                            |  |                                  |       |  
|Dilutive earnings per share                                                                                                                                                 |  |                                  |       |   |                                 |      |   |      |       |   |      |       |  
|As reported                                                                                                                                                                 |  | $                                | .34   |   |                                 | .03  |   |      | .67   |   |      | .33   |  
|Pro forma                                                                                                                                                                   |  | $                                | .34   |   |                                 | .02  |   |      | .65   |   |      | .30   |  



For the pro forma net
income calculation in the preceding table, the fair value of each option on the date of grant was estimated using the Black-Scholes option-pricing model and the following assumptions for awards in 2004 and 2003, respectively: dividend yields of .90
percent and 1.02 percent; expected volatilty of 30.00 percent and 32.69 percent; risk-free interest rates of 4.10 percent and 2.86 percent; and expected lives of five years. Using these assumptions, the weighted average grant-date fair value per
share of options granted in 2004 and 2003 was $9.50 and $7.35, respectively.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2004

(Unaudited, except for
December 31, 2003)



Note 5  Inventories



Inventories at the balance sheet dates consisted of the following:



|                       |  |                |       |              |      
|---------------------- |  | -------------- | ----- | ------------ | -----
|(Thousands of dollars) |  | Sept. 30, 2004 |       | Dec. 31,2003
|Logs                   |  | $              | 1,666 |              | 1,741
|Lumber                 |  |                | 3,381 |              | 3,604
|Materials and supplies |  |                | 426   |              | 433  
|                       |  |                |       |              |      
|                       |  | $              | 5,473 |              | 5,778
|                       |  |                |       |              |      



Note 6  Investment in Del-Tin
Fiber



Deltic owns 50 percent of the membership of Del-Tin
Fiber, which completed construction and commenced production operations of a medium density fiberboard (MDF) plant near El Dorado, Arkansas, during 1998.



On April 25, 2002, Deltic announced that Banc One Capital Markets, Inc. had been retained as financial advisor to assist in
the evaluation of strategic alternatives for the Companys investment in Del-Tin Fiber. Subsequently, Deltic announced that following a review of these strategic alternatives, it was determined that the MDF business did not represent a growth
area for the Company and that it intended to exit the MDF business upon the earliest, reasonable opportunity provided by the market. As a result of this decision, the Companys evaluation of possible impairment of the carrying value of its
investment in the equity method investee, as required by APB 18, was based primarily upon the estimated cash flows from a sale of the Companys interest during 2003 and resulted in a determination that the Companys investment was impaired
as of December 31, 2002, and the carrying amount of such investment was written off, to zero, for the Companys 2002 Consolidated Balance Sheet. The write-off, amounting to $18,723,000, $11,440,000 net of related deferred income taxes of
$7,283,000, was included in the 2002 fourth quarter operating results of the Company.



Due to the Companys commitment to fund its share of the facilitys operating working capital needs until the facility was able to consistently generate sufficient funds to meet its cash requirements or
Deltics ownership was sold, the Company continued to recognize its share of Del-Tin Fibers operating losses to the extent of these advances during 2003. For the year, Deltics operating advances to the facility approximated its
equity share of losses of the plant and amounted to $4,729,000. Deltic made additional advances of $4,228,000, during 2003, representing its half of the facilitys 2003 quarterly sinking fund obligation, which the Company had recorded as a
current contingent liability in 2002, in accordance with SFAS 5, Accounting for Contingencies. The Company also continued to utilize its management resources to work with Del-Tins management and the joint-venture partner to improve operating
performance at the plant. As a result of these improvements, on December 11, 2003, Deltics Board of Directors revised its intent regarding the Companys investment in Del-Tin Fiber and ceased efforts to sell the Companys interest in
the joint venture while continuing to improve operating and financial results of the plant. Due to this decision, Deltics evaluation of impairment as of December 31, 2003, was primarily based upon the estimated future net cash flows from
Del-Tin Fibers operations over the remaining life of the plant. Considering the Companys revised intent, the resulting estimated fair value of the Companys investment exceeded the investments carrying value, which was zero as
of December 31, 2003, and the Company resumed recording its equity share of the operating results of Del-Tin Fiber and record cash advances as increases in its investment in the facility.



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##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2004

(Unaudited, except for
December 31, 2003)



Note 6  Investment in Del-Tin Fiber (cont.)



In performing the respective impairment evaluations, the
Companys management made a number of estimates and assumptions related to future operating results for Del-Tin Fiber, the sale of its ownership interest, the expected selling price for its investment if sold, and the ability to refinance the
joint-ventures long-term debt. It is reasonably possible that a change in these estimates and assumptions might occur, which could have a material impact on the Companys future financial statements. The management of Del-Tin Fiber has
performed evaluations of possible impairment of the long-lived assets of the plant in accordance with SFAS 121 and/or SFAS 144, as applicable. To-date, these analyses have indicated that no impairment exists at the Del-Tin Fiber level.



Prior to August 26, 2004, the Company had agreed to a contingent equity
contribution agreement with Del-Tin Fiber and the group of banks from whom Del-Tin Fiber had obtained its $89,000,000 credit facility. Under this agreement, Deltic and the other 50 percent owner of the joint venture had agreed to fund any deficiency
in contributions to either Del-Tin Fibers required sinking fund or debt service reserve, up to a cumulative total of $17,500,000 for each owner. In addition, each owner had committed to a production support agreement, under which each owner
had agreed to make support obligation payments to Del-Tin Fiber to provide, on the occurrence of certain events, additional funds for payment of debt service until the plant was able to successfully complete a minimum production test. Both owners
had also agreed, in a series of one-year term commitments, to fund any operating working capital needs until the facility was able to consistently generate sufficient funds to meet its cash requirements.



On August 26, 2004, Del-Tin Fiber refinanced its existing long-term debt by
entering into a credit agreement consisting of a letter of credit and term loan with multiple lending institutions pursuant to which, $60,000,000 of its $89,000,000 industrial revenue bonds were redeemed. Under the new credit agreement, the lenders,
on September 1, 2004, loaned Del-Tin Fiber $30,000,000 which will be repayable over five years in equal quarterly installments, beginning December 31, 2004, and issued on Del-Tin Fibers behalf, a letter of credit in the amount of $29,689,000
to support the remaining industrial revenue bonds originally issued in 1998 by Union County, Arkansas. Concurrent with this event, on August 26, 2004, Deltic executed a guarantee agreement in connection with the refinancing of the debt of Del-Tin
Fiber. Under Deltics guarantee agreement, Deltic unconditionally guarantees the due and punctual payment of 50 percent ($29,844,000) of Del-Tins obligations under its credit agreement. This new credit agreement of Del-Tin Fiber fully
replaces Del-Tin Fibers prior credit facility, resulting in Deltics previous contingent equity contribution agreement of $17,500,000, the production support agreement and the one-year commitment being fully extinguished.



The Company has adopted the provisions of FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34 (FIN
45). In accordance with FIN 45, Deltic estimated the fair value of its guarantee of Del-Tin Fibers credit agreement to be $3,450,000 and has included this non-cash amount in the Companys September 30, 2004 balance sheet as a
long-term liability with an offsetting increase in the Companys investment in Del-Tin Fiber.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2004

(Unaudited, except for
December 31, 2003)



Note 6  Investment in Del-Tin Fiber (cont.)



The financial position for Del-Tin Fiber as of the
balance sheet dates and results of operations for the periods ended September 30 consisted of the following:



|                                                 |  |               |         |              |        
|------------------------------------------------ |  | ------------- | ------- | ------------ | -------
|(Thousands of dollars)                           |  | Sept. 30,2004 |         | Dec. 31,2003
|Condensed Balance Sheet Information              |  |               |         |              |        
|Current assets                                   |  | $             | 8,714   |              | 7,330  
|Debt service reserve funds                       |  |               |        |              | 3,521  
|Bond sinking funds                               |  |               |        |              | 23,059 
|Property, plant, and equipment - net             |  |               | 93,547  |              | 95,325 
|Other noncurrent assets                          |  |               | 557     |              | 491    
|                                                 |  |               |         |              |        
|Total assets                                     |  | $             | 102,818 |              | 129,726
|                                                 |  |               |         |              |        
|Current liabilities                              |  | $             | 3,828   |              | 3,462  
|Long-term debt                                   |  |               | 59,000  |              | 89,000 
|Members capital/(deficit)                       |  |               | 39,990  |              | 37,264 
|                                                 |  |               |         |              |        
|Total liabilities and members capital/(deficit) |  | $             | 102,818 |              | 129,726
|                                                 |  |               |         |              |        



|                                       |  |                                 |        |   |                                 |        |   |      |        |   |      |        |  
|-------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------- | ------ | - | ---- | ------ | - | ---- | ------ | -
|                                       |  | Three Months EndedSeptember 30, |        |   | Nine Months Ended September 30, |       
|(Thousands of dollars)                 |  | 2004                            |        |   | 2003                            |        |   | 2004 |        |   | 2003 |       
|Condensed Income Statement Information |  |                                 |        |   |                                 |        |   |      |        |   |      |        |  
|Net sales                              |  | $                               | 14,939 |   |                                 | 9,554  |   |      | 45,555 |   |      | 31,962 |  
|                                       |  |                                 |        |   |                                 |        |   |      |        |   |      |        |  
|Costs and expenses                     |  |                                 |        |   |                                 |        |   |      |        |   |      |        |  
|Cost of sales                          |  |                                 | 11,234 |   |                                 | 10,265 |   |      | 35,631 |   |      | 32,094 |  
|Depreciation                           |  |                                 | 1,486  |   |                                 | 1,095  |   |      | 4,576  |   |      | 3,710  |  
|General and administrative expenses    |  |                                 | 425    |   |                                 | 442    |   |      | 1,681  |   |      | 1,476  |  
|                                       |  |                                 |        |   |                                 |        |   |      |        |   |      |        |  
|Total costs and expenses               |  |                                 | 13,145 |   |                                 | 11,802 |   |      | 41,888 |   |      | 37,280 |  
|                                       |  |                                 |        |   |                                 |        |   |      |        |   |      |        |  
|Operating income/(loss)                |  |                                 | 1,794  |   |                                 | (2,248 | ) |      | 3,667  |   |      | (5,318 | )
|Interest income                        |  |                                 | 50     |   |                                 | 50     |   |      | 184    |   |      | 121    |  
|Interest and other debt expense        |  |                                 | (970   | ) |                                 | (1,216 | ) |      | (2,535 | ) |      | (2,868 | )
|Gain/(loss) on disposal of assets      |  |                                 | (25    | ) |                                 | (529   | ) |      | (121   | ) |      | (529   | )
|                                       |  |                                 |        |   |                                 |        |   |      |        |   |      |        |  
|Net income/(loss)                      |  | $                               | 849    |   |                                 | (3,943 | ) |      | 1,195  |   |      | (8,594 | )
|                                       |  |                                 |        |   |                                 |        |   |      |        |   |      |        |  



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2004

(Unaudited, except for
December 31, 2003)



Note 7  Timber and Timberlands



Timber and timberlands at the balance sheet dates consisted of the
following:



|                                                                           |  |               |         |   |              |         |  
|-------------------------------------------------------------------------- |  | ------------- | ------- | - | ------------ | ------- | -
|(Thousands of dollars)                                                     |  | Sept. 30,2004 |         |   | Dec. 31,2003 |        
|Purchased stumpage inventory                                               |  | $             | 6,304   |   |              | 8,688   |  
|Timberlands                                                                |  |               | 79,695  |   |              | 78,438  |  
|Fee timber                                                                 |  |               | 196,439 |   |              | 192,007 |  
|Logging facilities                                                         |  |               | 1,773   |   |              | 1,773   |  
|                                                                           |  |               |         |   |              |         |  
|                                                                           |  |               | 284,211 |   |              | 280,906 |  
|Less accumulated costs of fee timber harvested and facilities depreciation |  |               | (69,066 | ) |              | (65,866 | )
|                                                                           |  |               |         |   |              |         |  
|                                                                           |  | $             | 215,145 |   |              | 215,040 |  
|                                                                           |  |               |         |   |              |         |  



Note 8  Property, Plant, and
Equipment



Property, plant, and equipment at the balance
sheet dates consisted of the following:



|                              |  |               |         |   |              |         |  
|----------------------------- |  | ------------- | ------- | - | ------------ | ------- | -
|(Thousands of dollars)        |  | Sept. 30,2004 |         |   | Dec. 31,2003 |        
|Land                          |  | $             | 125     |   |              | 125     |  
|Land improvements             |  |               | 4,246   |   |              | 4,006   |  
|Buildings and structures      |  |               | 5,287   |   |              | 5,273   |  
|Machinery and equipment       |  |               | 73,071  |   |              | 70,520  |  
|                              |  |               |         |   |              |         |  
|                              |  |               | 82,729  |   |              | 79,924  |  
|Less accumulated depreciation |  |               | (47,188 | ) |              | (43,042 | )
|                              |  |               |         |   |              |         |  
|                              |  | $             | 35,541  |   |              | 36,882  |  
|                              |  |               |         |   |              |         |  



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2004

(Unaudited, except for
December 31, 2003)



Note 9  Employee and Retiree Benefit Plans



The components of net periodic retirement expense and
other postretirement benefits expense for the periods ended September 30 consisted of the following:



|                                     |  |                                  |       |   |                              |      |   |      |     |   |      |    
|------------------------------------ |  | -------------------------------- | ----- | - | ---------------------------- | ---- | - | ---- | --- | - | ---- | ---
|                                     |  | Three Months Ended September 30,
|                                     |  | Retirement Plans                 |       |   | Other PostretirementBenefits
|(Thousands of dollars)               |  | 2004                             |       |   | 2003                         |      |   | 2004 |     |   | 2003
|Service cost                         |  | $                                | 154   |   |                              | 200  |   |      | 36  |   |      | 90 
|Interest cost                        |  |                                  | 239   |   |                              | 259  |   |      | 54  |   |      | 129
|Expected return on plan assets       |  |                                  | (235  | ) |                              | (224 | ) |      |    |   |      |   
|Amortization of transition amount    |  |                                  |      |   |                              | (9   | ) |      |    |   |      |   
|Amortization of prior service cost   |  |                                  | 9     |   |                              | 13   |   |      | 10  |   |      |   
|Amortization of net (gain)/loss      |  |                                  | 17    |   |                              | 43   |   |      | (51 | ) |      | 42 
|                                     |  |                                  |       |   |                              |      |   |      |     |   |      |    
|Net periodic benefit cost            |  |                                  | 184   |   |                              | 282  |   |      | 49  |   |      | 261
|Cost of special termination benefits |  |                                  | 587   |   |                              |     |   |      |    |   |      |   
|                                     |  |                                  |       |   |                              |      |   |      |     |   |      |    
|Total expense                        |  | $                                | 771   |   |                              | 282  |   |      | 49  |   |      | 261
|                                     |  |                                  |       |   |                              |      |   |      |     |   |      |    
|                                     | 
|                                     |  | Nine Months Ended September 30, 
|                                     |  | Retirement Plans                 |       |   | Other PostretirementBenefits
|(Thousands of dollars)               |  | 2004                             |       |   | 2003                         |      |   | 2004 |     |   | 2003
|Service cost                         |  | $                                | 557   |   |                              | 599  |   |      | 234 |   |      | 269
|Interest cost                        |  |                                  | 805   |   |                              | 777  |   |      | 330 |   |      | 387
|Expected return on plan assets       |  |                                  | (692  | ) |                              | (671 | ) |      |    |   |      |   
|Amortization of transition amount    |  |                                  |      |   |                              | (27  | ) |      |    |   |      |   
|Amortization of prior service cost   |  |                                  | 34    |   |                              | 38   |   |      | 10  |   |      |   
|Amortization of net (gain)/loss      |  |                                  | 108   |   |                              | 130  |   |      | 37  |   |      | 127
|                                     |  |                                  |       |   |                              |      |   |      |     |   |      |    
|Net periodic benefit cost            |  |                                  | 812   |   |                              | 846  |   |      | 611 |   |      | 783
|Cost of special termination benefits |  |                                  | 1,062 |   |                              |     |   |      |    |   |      |   
|                                     |  |                                  |       |   |                              |      |   |      |     |   |      |    
|Total expense                        |  | $                                | 1,874 |   |                              | 846  |   |      | 611 |   |      | 783
|                                     |  |                                  |       |   |                              |      |   |      |     |   |      |    



Cost of special
termination benefits reflects the impact of enhanced retirement benefits granted to certain employees upon retirement.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2004

(Unaudited, except for
December 31, 2003)



Note 9  Employee and Retiree Benefit Plans (cont.)



During the third quarter of 2004, Deltic applied the
effect of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 to its obligation under the Companys other postretirement benefits plan. The prescription drug benefits offered by the Companys plan were determined to
be at least actuarially equivalent to those provided with the Act, which qualifies the plan to receive federal subsidy payments under Medicare Part D. The amount of the reduction in the Companys obligation under the plan relating to benefits
received from the Act attributable to past service was $590,000. The reduction, as a result of the application of the federal subsidy, in the postretirement benefit expense for the quarter and nine months ended September 30, 2004 was $44,000.



Note 10  Supplemental Cash Flow Disclosures



Income taxes paid, net of refunds, were $1,933,000 and $3,001,000 in the
2004 and 2003 periods, respectively. Interest paid, net of amounts capitalized, was $3,246,000 and $3,818,000 in the first nine months of 2004 and 2003, respectively.



(Increases)/decreases in operating working capital, other than cash and cash equivalents, for the nine months ended
September 30 consisted of the following:



|                                                |  |      |        |   |      |        |  
|----------------------------------------------- |  | ---- | ------ | - | ---- | ------ | -
|(Thousands of dollars)                          |  | 2004 |        |   | 2003 |       
|Trade accounts receivable                       |  | $    | (2,112 | ) |      | (3,015 | )
|Other receivables                               |  |      | 1,032  |   |      | (662   | )
|Inventories                                     |  |      | 305    |   |      | 982    |  
|Prepaid expenses and other current assets       |  |      | (277   | ) |      | (326   | )
|Trade accounts payable                          |  |      | 1,135  |   |      | 589    |  
|Accrued taxes other than income taxes           |  |      | 23     |   |      | (52    | )
|Income taxes payable                            |  |      | 1,928  |   |      | 251    |  
|Deferred revenues and other accrued liabilities |  |      | 2,677  |   |      | 946    |  
|                                                |  |      |        |   |      |        |  
|                                                |  | $    | 4,711  |   |      | (1,287 | )
|                                                |  |      |        |   |      |        |  



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2004

(Unaudited, except for
December 31, 2003)



Note 11  Business Segments



Information about the Companys business segments consisted of the
following:



|                                                             |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|------------------------------------------------------------ |  | -------------------------------- | ------ | - | ------------------------------- | ------ | - | ---- | ------- | - | ---- | ------- | -
|                                                             |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |       
|(Thousands of dollars)                                       |  | 2004                             |        |   | 2003                            |        |   | 2004 |         |   | 2003 |        
|Net sales                                                    |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|Woodlands                                                    |  | $                                | 8,396  |   |                                 | 9,012  |   |      | 23,820  |   |      | 25,469  |  
|Mills                                                        |  |                                  | 28,872 |   |                                 | 19,561 |   |      | 74,994  |   |      | 59,305  |  
|Real Estate                                                  |  |                                  | 11,222 |   |                                 | 6,423  |   |      | 20,213  |   |      | 23,904  |  
|Eliminations*                                                |  |                                  | (5,235 | ) |                                 | (4,266 | ) |      | (13,964 | ) |      | (10,559 | )
|                                                             |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|                                                             |  | $                                | 43,255 |   |                                 | 30,730 |   |      | 105,063 |   |      | 98,119  |  
|                                                             |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|Income/(loss) before income taxes                            |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|Operating income                                             |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|Woodlands                                                    |  | $                                | 4,964  |   |                                 | 5,163  |   |      | 14,894  |   |      | 15,211  |  
|Mills                                                        |  |                                  | 3,845  |   |                                 | (1,049 | ) |      | 6,991   |   |      | (4,962  | )
|Real Estate                                                  |  |                                  | 3,146  |   |                                 | 1,008  |   |      | 4,401   |   |      | 9,471   |  
|Corporate                                                    |  |                                  | (3,857 | ) |                                 | (1,626 | ) |      | (9,147  | ) |      | (4,971  | )
|Eliminations                                                 |  |                                  | (472   | ) |                                 | (78    | ) |      | 160     |   |      | 222     |  
|                                                             |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|Operating income                                             |  |                                  | 7,626  |   |                                 | 3,418  |   |      | 17,299  |   |      | 14,971  |  
|Equity in Del-Tin Fiber                                      |  |                                  | 424    |   |                                 | (1,598 | ) |      | 450     |   |      | (3,990  | )
|Interest income                                              |  |                                  | 203    |   |                                 | 306    |   |      | 321     |   |      | 350     |  
|Interest and other debt expense                              |  |                                  | (1,486 | ) |                                 | (1,599 | ) |      | (4,586  | ) |      | (5,145  | )
|Other income/(expense)                                       |  |                                  | (3     | ) |                                 | 61     |   |      | (8      | ) |      | 162     |  
|                                                             |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|                                                             |  | $                                | 6,764  |   |                                 | 588    |   |      | 13,476  |   |      | 6,348   |  
|                                                             |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|Depreciation, amortization, and cost of fee timber harvested |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|Woodlands                                                    |  | $                                | 1,183  |   |                                 | 1,488  |   |      | 3,665   |   |      | 5,213   |  
|Mills                                                        |  |                                  | 1,420  |   |                                 | 1,478  |   |      | 4,170   |   |      | 4,449   |  
|Real Estate                                                  |  |                                  | 136    |   |                                 | 135    |   |      | 428     |   |      | 396     |  
|Corporate                                                    |  |                                  | 45     |   |                                 | 25     |   |      | 124     |   |      | 67      |  
|                                                             |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|                                                             |  | $                                | 2,784  |   |                                 | 3,126  |   |      | 8,387   |   |      | 10,125  |  
|                                                             |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|Capital expenditures                                         |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|Woodlands                                                    |  | $                                | 576    |   |                                 | 585    |   |      | 6,595   |   |      | 11,813  |  
|Mills                                                        |  |                                  | 1,514  |   |                                 | 1,344  |   |      | 2,888   |   |      | 2,499   |  
|Real Estate                                                  |  |                                  | 4,001  |   |                                 | 2,669  |   |      | 6,879   |   |      | 6,326   |  
|Corporate                                                    |  |                                  | 10     |   |                                 | 33     |   |      | 158     |   |      | 189     |  
|                                                             |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  
|                                                             |  | $                                | 6,101  |   |                                 | 4,631  |   |      | 16,520  |   |      | 20,827  |  
|                                                             |  |                                  |        |   |                                 |        |   |      |         |   |      |         |  

---

|* | Intersegment sales of timber from Woodlands to Mills
|- | ----------------------------------------------------



16



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



Executive Overview



The Company recorded net income of $4.2 million for the third quarter of 2004, an increase of $3.8 million when compared to $.4 million for the same
period of 2003. All three operating segments of the Company  Woodlands, Mills, and Real Estate  contributed significantly to the current quarter earnings. Our Mills segment continued to benefit from escalating average lumber prices,
which grew to levels not seen since 1999, enabling the segment to report a $4.8 million improvement in its financial performance from the third quarter of 2003. Assisting the Real Estate segment in its contribution of $3.1 million to the overall
profit of the current quarter, was the segments sale of a 94-acre tract of undeveloped real estate in the Companys Chenal Valley development, which resulted in a pretax gain of $1.7 million. Equity in Del-Tin Fiber improved by $2.1
million as higher medium density fiberboard prices were captured by improved plant operations. The Company continues to focus a large measure of its efforts toward its core forest products operations, especially in the reduction of the mills
manufacturing costs and increased efficiency in their production activities.



With the exception of its diversification in real estate development, Deltic is primarily a wood products producer operating in a commodity-based business environment. This environment is affected by a number of
factors, including general economic conditions, interest rates, foreign exchange rates, imports, housing starts, residential repair and remodeling activity, commercial construction, industry production and capacity levels, the availability of raw
material, and weather conditions. Consumption levels for softwood lumber in the U.S. has continued to remain high, particularly since the third quarter of 2003. Housing starts in 2004 have continued to be robust, with forecasts predicting a record
year. These factors, despite increasing imports, have resulted in significant improvements in lumber prices. Given its relative size and the nature of commodity markets, the Company has little or no control over pricing levels for its manufactured
wood products. Therefore, the Company will continually seek to wring all controllable costs and expenses from its manufacturing process. Sales of real estate are affected by general economic conditions and interest rates, specifically as such
factors are manifested in the Companys operating area of central Arkansas. While interest rates have moved modestly upward, they remain relatively low and strong demand continues for the Companys residential real estate operations.



For the recently completed quarter and for the first nine
months of 2004, pine sawtimber harvest levels were close to those of a year ago, and sales prices have remained relatively stable. However, the Companys previously disclosed plan to reduce harvest levels for the year of 2004 when compared to
the year of 2003 will result in lower harvest volumes for the fourth quarter of 2004. Woodlands segment operating results for the nine months ended September 30, 2004, reflect decreased sales of timberland, as the Company increased the return
requirements previously established for these types of sales in 2004. Thus far in 2004, the Company has sold 757 acres of non-strategic timberland at an average price of $1,153 per acre. Non-strategic timberland is composed of tracts too small to
allow for efficient timber management, those geographically isolated from other Company fee lands, and acreage otherwise not deemed strategic to Deltics operations or growth.



For the Mills segment, the continued improvement in lumber prices, evidenced by a 22 percent rise in sale prices from the
average for the first nine months of 2003, significantly impacted operating strategies and financial results. As with any commodity market, the Company expects the historical volatility to continue in the future; however, a resolution of the trade
dispute with Canada regarding imports of softwood lumber could help to stabilize the markets for the Companys lumber products. Deltic also continues efforts to improve sales realizations through product and customer mix enhancement, as well as
the focus on increased efficiency and reduced cost structure. In response to improved market conditions, the Company has continued its efforts to generate increased production, resulting in the Mills segment reporting additional production during
the third quarter of 2004. The Company continues to anticipate that a significant percentage of logs supplied to both of its sawmills will come from strategically located Company fee timberlands.



Real Estate residential lot sales activity levels for the Companys real
estate developments are



17



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##### Table of Contents

affected by economic conditions that influence the level of housing starts in the central Arkansas region, including
general economic conditions and interest rates. Relatively low mortgage interest rates continued into the third quarter of 2004, and demand for residential lots in the Companys Chenal Valley development remains high. This is evidenced by the
181 lot closings within Chenal Valley thus far in 2004, plus purchase commitments on 102 lots inside the development as of the end of the third quarter. Of the total Chenal Valley lots under purchase commitments, 78 lots have scheduled closing dates
before the end of 2004. Deltic is developing additional lots in Chenal Valley which are planned to be offered during the fourth quarter of 2004, if weather conditions permit. In Deltics other two developments, Red Oak Ridge and Chenal Downs,
86 developed lots were uncommitted as of September 30, 2004. The market value of offerings continue to increase over that of previous offerings consistent with the growth in the central Arkansas real estate market.



The Company has previously disclosed plans to build a 1,170 acre upscale
residential development, called The Ridges at Nowlin Creek, on a portion of its large land holdings located west of Chenal Valley. Construction activity at this site has not begun and is not slated for 2004. A portion of the development is located
within the watershed of Lake Maumelle, a principal source of drinking water for Little Rock. Due to this environmentally sensitive locale, the Company has determined to implement the most modern and proven best management practices to create a low
impact development in order to protect water quality in the lake. Current activities include finalizing environmental and civil engineering features of the development and attempting to reach an accord with local utilities and government agencies
that the development will be fully protective of water quality. The local water utility continues to express its intention to acquire this watershed acreage, including by condemnation.



The reported average sales price for residential lots for a specific period is largely dependent upon the mix of lot sales
closed in that period. As such, the average sales price for residential lots sold in the first nine months of 2004, which included fewer golf course lots, decreased ten percent, to $65,800, when compared to the same period in 2003. Deltics lot
development plans provide for a mix of lot offerings that represent most real estate market segments for planned communities.



The Company has in the past and intends in the future to consider sales of tracts of undeveloped real estate acreage. Such a sale occurred in the third
quarter of 2004 when 94 acres were sold at a pretax gain of $1.7 million. This particular tract was located on the outer fringe of the Companys Chenal Valley development, and the Company realized a greater return than if it had developed it.



Commercial real estate sales activity is by nature less
predictable than residential activity. With the number of residents in Chenal Valley, and other west Little Rock areas, growing steadily and with momentum created from previous sales of commercial acreage in the development, interest in the
Companys remaining commercial acreage is increasing. Commercial sales only totaled two acres in the first nine months of 2004 versus 53 acres in the same period of 2003, consisting primarily of 29 acres to Wal-Mart Stores, Inc. in the first
quarter of 2003 and 22 acres to a group of private investors for retail development in the second quarter of 2003. On April 6, 2004, RED Development LLC announced plans for The Promenade at Chenal, a 48-acre, open-air, lifestyle shopping
center. The contract remains in its feasibility period, and originally was scheduled to close before the end of 2004. However, as is not uncommon given the unpredictable nature of commercial real estate sales, the initial contract has been extended
and is now scheduled to close in the first quarter of 2005. Some extensions of similar contracts in the past have been followed by eventual termination of the contract. As of September 30, 2004, about 473 of the 710 acres of property currently zoned
as commercial in Chenal Valley, or 67 percent, is available for sale. No commercial acreage is included in the Chenal Downs development and none is planned at The Ridges at Nowlin Creek. Red Oak Ridge is planned to include approximately 80 acres of
commercial property, which will be considered for sale as this developments population density increases.



Operating results for Del-Tin Fiber are affected by the overall MDF market and the plants operating performance, and both have continued to improve
during the current year. For the third quarter of 2004 the plant reported its second successive profitable quarter as well as making its first-ever cash distribution to Deltic. The western composite MDF price reported in Random Lengths rose
from $337 per thousand square feet (MSF) for December 2003 to $435 per MSF for September 2004 as consumption of MDF continues to grow. Operationally when compared to 2003, Del-Tin Fiber has improved plant



18



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##### Table of Contents

uptime and production of premium-grade board. As a result, daily production volume has risen and the plants
manufacturing cost per MSF has been reduced. Future efforts are being concentrated on making additional reductions in the plants cost structure by improving the raw materials mix for the operations and achieving consistent performance using
primarily wood waste fuel for its heat energy system.



Results of Operations



Three Months Ended September 30, 2004 Compared with Three Months Ended
September 30, 2003



In the following tables, Deltics
net sales and results of operations are presented for the quarters ended September 30, 2004 and 2003. Explanations of significant variances and additional analyses for the Companys consolidated and segmental operations follow the tables.



|                                                |  |                             |      |   |      |      |  
|----------------------------------------------- |  | --------------------------- | ---- | - | ---- | ---- | -
|                                                |  | Quarter Ended September 30, |     
|(Millions of dollars, except per share amounts) |  | 2004                        |      |   | 2003 |     
|Net sales                                       |  |                             |      |   |      |      |  
|Woodlands                                       |  | $                           | 8.4  |   |      | 9.0  |  
|Mills                                           |  |                             | 28.9 |   |      | 19.6 |  
|Real Estate                                     |  |                             | 11.2 |   |      | 6.4  |  
|Eliminations                                    |  |                             | (5.2 | ) |      | (4.3 | )
|                                                |  |                             |      |   |      |      |  
|Net sales                                       |  | $                           | 43.3 |   |      | 30.7 |  
|                                                |  |                             |      |   |      |      |  
|Operating income/(loss) and net income/(loss)   |  |                             |      |   |      |      |  
|Woodlands                                       |  | $                           | 5.0  |   |      | 5.2  |  
|Mills                                           |  |                             | 3.8  |   |      | (1.0 | )
|Real Estate                                     |  |                             | 3.1  |   |      | 1.0  |  
|Corporate                                       |  |                             | (3.8 | ) |      | (1.7 | )
|Eliminations                                    |  |                             | (.5  | ) |      | (.1  | )
|                                                |  |                             |      |   |      |      |  
|Operating income                                |  |                             | 7.6  |   |      | 3.4  |  
|Equity in Del-Tin Fiber                         |  |                             | .5   |   |      | (1.6 | )
|Interest income                                 |  |                             | .2   |   |      | .3   |  
|Interest and other debt expense                 |  |                             | (1.5 | ) |      | (1.6 | )
|Other income/(expense)                          |  |                             |     |   |      | .1   |  
|Income taxes                                    |  |                             | (2.6 | ) |      | (.2  | )
|                                                |  |                             |      |   |      |      |  
|Net income                                      |  | $                           | 4.2  |   |      | .4   |  
|                                                |  |                             |      |   |      |      |  
|Earnings per common share                       |  |                             |      |   |      |      |  
|Basic                                           |  | $                           | .34  |   |      | .03  |  
|Assuming dilution                               |  | $                           | .34  |   |      | .03  |  



Consolidated



The $3.8 million increase in net income was the result of
improved financial results for the Companys Mills segment and Del-Tin Fiber, combined with a 94-acre undeveloped real estate acreage sale, partially offset by increased Corporate operating expenses.



Operating income increased $4.2 million. The Woodlands segment decreased $.2
million due primarily to reduced sales of non-strategic timberland. Pine sawtimber harvest levels and prices remained relatively flat when compared to the third quarter of 2003; however, the segment benefited from a



19



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##### Table of Contents

decrease in the cost of fee timber harvested, due to the mix of harvests by company, and lower operating expenses during
the quarter. Deltics Mills segment operations improved $4.8 million due mainly to a $68, or 21 percent, per thousand board feet (MBF) increase in the average lumber sales price combined with a 19 percent increase in lumber sales
volume. Real Estate operating income increased $2.1 million, primarily due to the closing of a large undeveloped real estate sale and increased sales of residential lots. Corporate operating expense increased $2.1 million due to higher general and
administrative expenses.



Woodlands



Selected financial and statistical data for the Woodlands segment is shown
in the following table.



|                                 |  |                             |       |      |      
|-------------------------------- |  | --------------------------- | ----- | ---- | -----
|                                 |  | Quarter Ended September 30,
|                                 |  | 2004                        |       | 2003
|Net sales (millions of dollars)  |  |                             |       |      |      
|Pine sawtimber                   |  | $                           | 6.5   |      | 6.1  
|Pine pulpwood                    |  |                             | .3    |      | .3   
|Hardwood sawtimber               |  |                             | .5    |      | .6   
|Hardwood pulpwood                |  |                             | .1    |      | .2   
|                                 |  |                            
|Sales volume (thousands of tons) |  |                             |       |      |      
|Pine sawtimber                   |  |                             | 150.4 |      | 145.7
|Pine pulpwood                    |  |                             | 51.6  |      | 59.3 
|Hardwood sawtimber               |  |                             | 6.5   |      | 11.3 
|Hardwood pulpwood                |  |                             | 14.9  |      | 30.7 
|                                 |  |                            
|Sales price (per ton)            |  |                             |       |      |      
|Pine sawtimber                   |  | $                           | 43    |      | 42   
|Pine pulpwood                    |  |                             | 7     |      | 6    
|Hardwood sawtimber               |  |                             | 76    |      | 57   
|Hardwood pulpwood                |  |                             | 5     |      | 5    
|                                 |  |                            
|Timberland                       |  |                             |       |      |      
|Net sales (millions of dollars)  |  | $                           | .1    |      | 1.4  
|Sales volume (acres)             |  |                             | 40    |      | 881  
|Sales price (per acre)           |  | $                           | 2,500 |      | 1,537



Net sales decreased
$.6 million. Sales of pine sawtimber increased $.4 million due to a three percent higher sales volume at a $1 per ton higher average sales price. Hardwood timber sales decreased $.1 million due to a reduction in the harvest level, essentially offset
by a $19 per ton higher average sales price. Sales of timberland decreased $1.3 million due to selling fewer acres. Other revenues, which includes freight revenues, land management fees, and leasing income, increased $.4 million. Although net sales
decreased $.6 million, operating income decreased only $.2 million as a result of a $.3 million reduction in the cost of fee timber harvested due primarily to the mix of pine sawtimber harvest volume by company and the 42 percent drop in the volume
of hardwood harvested. In addition, other operating expenses of the segment decreased $.1 million during the quarter.



Mills



Selected financial and statistical data for the Mills segment is shown in the following table.



|                                |  |                             |      |      |     
|------------------------------- |  | --------------------------- | ---- | ---- | ----
|                                |  | Quarter Ended September 30,
|                                |  | 2004                        |      | 2003
|Net sales (millions of dollars) |  |                             |      |      |     
|Lumber                          |  | $                           | 24.8 |      | 17.1
|Residual by-products            |  |                             | 3.0  |      | 2.3 
|                                |  |                            
|Lumber                          |  |                             |      |      |     
|Finished production (MMBF)      |  |                             | 63.5 |      | 52.6
|Sales volume (MMBF)             |  |                             | 63.8 |      | 53.4
|Sales price (per MBF)           |  |                             | 389  |      | 321 



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##### Table of Contents

Net sales increased $9.3 million, or 48 percent, due to higher sales prices. Average sales price rose 21
percent, or $68 per MBF, as a result of the improved lumber market. The improvement in operating results was due primarily to the increase in net sales and the Companys efforts to improve production efficiencies.



Real Estate



Selected financial and statistical data for the Real Estate segment is shown
in the following table.



|                                           |  |                             |     |      |    
|------------------------------------------ |  | --------------------------- | --- | ---- | ---
|                                           |  | Quarter Ended September 30,
|                                           |  | 2004                        |     | 2003
|Net sales (millions of dollars)            |  |                             |     |      |    
|Residential lots                           |  | $                           | 7.0 |      | 4.7
|Commercial sites                           |  |                             |    |      | .2 
|Undeveloped acreage                        |  |                             | 2.6 |      |   
|Chenal Country Club                        |  |                             | 1.6 |      | 1.3
|                                           |  |                            
|Sales volume                               |  |                             |     |      |    
|Residential lots                           |  |                             | 108 |      | 65 
|Commercial acres                           |  |                             |    |      | 1  
|Undeveloped acres                          |  |                             | 94  |      |   
|                                           |  |                            
|Average sales price (thousands of dollars) |  |                             |     |      |    
|Residential lots                           |  | $                           | 65  |      | 73 
|Commercial acres                           |  |                             |    |      | 260
|Undeveloped acres                          |  |                             | 28  |      |   



Net sales increased
$4.8 million. The number of residential lots sold increased by 43 lots due primarily to closings resulting from the 160 lots offered for sale at the end of January and the 125 lots offered in late June of this year. The segment incurred an 11
percent decrease in average sales price per lot due to sales mix. There were no commercial sales during the third quarter of 2004; however the segment did complete the sale of 94 acres of undeveloped real estate property, which accounted for $1.7
million of the $2.1 million increase in the segments operating income. The remaining increase in the Real Estate segments operating income was due primarily to the same factors impacting net sales.



Corporate



The increase in operating expense for Corporate functions of $2.1 million
was due primarily to higher retirement plan expenses related to separated employees, increased professional fees, and increased incentive plan expenses.



Eliminations



Intersegment sales of timber from Deltics Woodlands to the Mills segment increased $.9 million to $5.2 million. The increase was due primarily to
increased volume as the Companys sawmills increased the percentage of log receipts coming into their log yards from Company fee timberlands.



21



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##### Table of Contents

Equity in Del-Tin Fiber



For the third quarter of 2004, equity in Del-Tin Fiber improved $2.1 million due to the improvements in MDF prices and plant
operating performance. With its decision to cease efforts to sell its ownership in Del-Tin Fiber, Deltic resumed recording equity equal to its share of the financial results of the facility for the 2004 period. In the 2003 period, the equity loss
was equal to cash operating advances to the plant during the quarter as the decision at that time was to exit the MDF business at the first reasonable opportunity.



Additional selected financial and statistical data for Del-Tin Fiber is shown in the following table.



|                                |  |                             |      |      |     
|------------------------------- |  | --------------------------- | ---- | ---- | ----
|                                |  | Quarter Ended September 30,
|                                |  | 2004                        |      | 2003
|Net sales (millions of dollars) |  | $                           | 14.9 |      | 9.6 
|Finished production (MMSF)      |  |                             | 36.5 |      | 26.4
|Board sales (MMSF)              |  |                             | 35.3 |      | 28.2
|Sales price (per MSF)           |  | $                           | 423  |      | 339 



Average sales price
increased $84 per MSF due to the improvements in the MDF market and to a change in product mix to include a greater percentage of thin board and an increase in premium-grade production. Manufacturing cost per MSF sold was down 11 percent due to the
lowering of certain variable costs of manufacturing and the spreading of the plants fixed costs to the increased production volume.



Income Taxes



The effective income tax rate was 38 percent and 43 percent in the 2004 and 2003 periods, respectively. The decrease was primarily due to lower effective
rates for state income taxes.



Nine Months Ended September 30, 2004 Compared
with Nine Months Ended September 30, 2003



In the
following tables, Deltics net sales and results of operations are presented for the nine month periods ended September 30, 2004 and 2003. Explanations of significant variances and additional analyses for the Companys consolidated and
segmental operations follow the tables.



|                                                |  |                                 |       |   |      |       |  
|----------------------------------------------- |  | ------------------------------- | ----- | - | ---- | ----- | -
|                                                |  | Nine Months Ended September 30, |      
|(Millions of dollars, except per share amounts) |  | 2004                            |       |   | 2003 |      
|Net sales                                       |  |                                 |       |   |      |       |  
|Woodlands                                       |  | $                               | 23.8  |   |      | 25.5  |  
|Mills                                           |  |                                 | 75.0  |   |      | 59.3  |  
|Real Estate                                     |  |                                 | 20.2  |   |      | 23.9  |  
|Eliminations                                    |  |                                 | (13.9 | ) |      | (10.6 | )
|                                                |  |                                 |       |   |      |       |  
|Net sales                                       |  | $                               | 105.1 |   |      | 98.1  |  
|                                                |  |                                 |       |   |      |       |  
|Operating income/(loss) and net income/(loss)   |  |                                 |       |   |      |       |  
|Woodlands                                       |  | $                               | 14.9  |   |      | 15.2  |  
|Mills                                           |  |                                 | 7.0   |   |      | (4.9  | )
|Real Estate                                     |  |                                 | 4.4   |   |      | 9.5   |  
|Corporate                                       |  |                                 | (9.1  | ) |      | (5.0  | )
|Eliminations                                    |  |                                 | .1    |   |      | .2    |  
|                                                |  |                                 |       |   |      |       |  
|Operating income                                |  |                                 | 17.3  |   |      | 15.0  |  
|Equity in Del-Tin Fiber                         |  |                                 | .5    |   |      | (4.0  | )
|Interest income                                 |  |                                 | .3    |   |      | .3    |  
|Interest and other debt expense                 |  |                                 | (4.6  | ) |      | (5.1  | )
|Other income/(expense)                          |  |                                 |      |   |      | .2    |  
|Income taxes                                    |  |                                 | (5.3  | ) |      | (2.4  | )
|                                                |  |                                 |       |   |      |       |  
|Net income                                      |  | $                               | 8.2   |   |      | 4.0   |  
|                                                |  |                                 |       |   |      |       |  
|Earnings per common share                       |  |                                 |       |   |      |       |  
|Basic                                           |  | $                               | .68   |   |      | .33   |  
|Assuming dilution                               |  | $                               | .67   |   |      | .33   |  



22



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##### Table of Contents

Consolidated



The $4.2 million increase in net income was the result of improved financial results for the Mills segment and Del-Tin
Fiber, partially offset by reduced operating results for the Companys Real Estate segment and increased Corporate operating expenses.



Operating income increased $2.3 million. The Woodlands segment decreased $.3 million due mainly to reduced sales of timberland, partially offset by a
decrease in the cost of fee timber harvested and other operating expenses of the segment. Mills segment operations improved $11.9 million due primarily to a $66 per MBF, or 22 percent, increase in average lumber sales price. Real Estate operating
income dropped $5.1 million, primarily the result of decreased commercial acreage sales, partially offset by increased sales of residential lots and undeveloped real estate property. Corporate operating expense increased $4.1 million due to higher
general and administrative expenses.



Woodlands



Selected financial and statistical data for the Woodlands
segment is shown in the following table.



|                                 |  |                                 |       |      |      
|-------------------------------- |  | ------------------------------- | ----- | ---- | -----
|                                 |  | Nine Months Ended September 30,
|                                 |  | 2004                            |       | 2003
|Net sales (millions of dollars)  |  |                                 |       |      |      
|Pine sawtimber                   |  | $                               | 18.1  |      | 18.0 
|Pine pulpwood                    |  |                                 | 1.2   |      | 1.3  
|Hardwood sawtimber               |  |                                 | .6    |      | 1.1  
|Hardwood pulpwood                |  |                                 | .3    |      | .4   
|                                 |  |                                
|Sales volume (thousands of tons) |  |                                 |       |      |      
|Pine sawtimber                   |  |                                 | 452.6 |      | 446.8
|Pine pulpwood                    |  |                                 | 185.4 |      | 210.3
|Hardwood sawtimber               |  |                                 | 9.6   |      | 20.7 
|Hardwood pulpwood                |  |                                 | 56.7  |      | 71.3 
|                                 |  |                                
|Sales price (per ton)            |  |                                 |       |      |      
|Pine sawtimber                   |  | $                               | 40    |      | 40   
|Pine pulpwood                    |  |                                 | 7     |      | 6    
|Hardwood sawtimber               |  |                                 | 62    |      | 54   
|Hardwood pulpwood                |  |                                 | 5     |      | 5    
|                                 |  |                                
|Timberland                       |  |                                 |       |      |      
|Net sales (millions of dollars)  |  | $                               | .9    |      | 3.5  
|Sales volume (acres)             |  |                                 | 757   |      | 3,164
|Sales price (per acre)           |  | $                               | 1,153 |      | 1,128



23



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##### Table of Contents

Net sales decreased $1.7 million. Sales of timberland decreased $2.6 million due to a 2,408-acre
reduction in sales. Hardwood timber sales decreased $.5 million due to a reduction in the harvest level. Pine sawtimber harvest levels and prices remained relatively flat when compared to the first nine months of 2003. Other revenues, which includes
freight revenues, land management fees, and lease income, increased $1.6 million. Operating income decreased $.3 million due to the same factors impacting net sales, partially offset by a $1.5 million decrease in the cost of fee timber harvested and
reductions in other operating expenses of the segment. The reduction in cost of fee timber harvested was caused by the mix of pine sawtimber harvested by company and the reduction in hardwood sales volume.



Mills



Selected financial and statistical data for the Mills segment is shown in the following table.



|                                |  |                                 |       |      |      
|------------------------------- |  | ------------------------------- | ----- | ---- | -----
|                                |  | Nine Months Ended September 30,
|                                |  | 2004                            |       | 2003
|Net sales (millions of dollars) |  |                                 |       |      |      
|Lumber                          |  | $                               | 64.5  |      | 51.0 
|Residual by-products            |  |                                 | 8.2   |      | 7.5  
|                                |  |                                
|Lumber                          |  |                                 |       |      |      
|Finished production (MMBF)      |  |                                 | 170.9 |      | 165.5
|Sales volume (MMBF)             |  |                                 | 174.6 |      | 168.4
|Sales price (per MBF)           |  |                                 | 369   |      | 303  



Net sales increased
$15.7 million, or 26 percent, due to higher sales prices and a four percent increase in sales volume. Average sales price rose 22 percent, or $66 per MBF, as a result of the improved lumber market. The improvement in operating results was due
primarily to the same factors impacting net sales.



Real
Estate



Selected financial and statistical data for the
Real Estate segment is shown in the following table.



|                                           |  |                                 |      |      |    
|------------------------------------------ |  | ------------------------------- | ---- | ---- | ---
|                                           |  | Nine Months Ended September 30,
|                                           |  | 2004                            |      | 2003
|Net sales (millions of dollars)            |  |                                 |      |      |    
|Residential lots                           |  | $                               | 12.5 |      | 9.9
|Commercial sites                           |  |                                 | .3   |      | 9.7
|Undeveloped sites                          |  |                                 | 2.6  |      |   
|Chenal Country Club                        |  |                                 | 4.4  |      | 3.8
|                                           |  |                                
|Sales volume                               |  |                                 |      |      |    
|Residential lots                           |  |                                 | 190  |      | 135
|Commercial acres                           |  |                                 | 2    |      | 53 
|Undeveloped acres                          |  |                                 | 94   |      |   
|                                           |  |                                
|Average sales price (thousands of dollars) |  |                                 |      |      |    
|Residential lots                           |  | $                               | 66   |      | 73 
|Commercial acres                           |  |                                 | 152  |      | 185
|Undeveloped acres                          |  |                                 | 28   |      |   



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##### Table of Contents

Net sales decreased $3.7 million or 16 percent. The number of residential lots sold increased by 55 lots
due primarily to closings resulting from the 160 lots offered for sale at the end of January and the 125 lots offered in late June of this year. However, due to the sales mix of the lots sold, the segment incurred a ten percent decrease in average
sales price per lot. There were limited commercial real estate sales of only two acres during the nine months ended September 30, 2004, resulting in a decrease of $9.4 million in net commercial sales revenue. However the segment did complete the
sale of 94 acres of undeveloped real estate property, which resulted in an offsetting increase in net sales of $2.6 million. The decrease in the Real Estate segments operating income was due primarily to the same factors impacting net sales.



Corporate



The increase in operating expense for Corporate functions of $4.1 million
was due primarily to higher retirement plan expenses related to separated employees, increased incentive plan expenses, and increased professional fees.



Eliminations



Intersegment sales of timber from Deltics Woodlands to the Mills segment increased $3.3 million to $13.9 million. The increase was due primarily to
increased volume as the Companys sawmills increased the percentage of log receipts coming into their log yards from Company fee timberlands.



Equity in Del-Tin Fiber



For the first nine months of 2004, equity in Del-Tin Fiber improved $4.5 million due to the improvements in MDF prices and plant operating performance.
With its decision to cease efforts to sell its ownership in Del-Tin Fiber, Deltic resumed recording equity equal to its share of the financial results of the facility for the 2004 period. In the 2003 period, the equity loss was equal to cash
operating advances to the plant during the quarter as the decision at that time was to exit the MDF business at the first reasonable opportunity.



Additional selected financial and statistical data for Del-Tin Fiber is shown in the following table.



|                                |  |                                 |       |      |     
|------------------------------- |  | ------------------------------- | ----- | ---- | ----
|                                |  | Nine Months Ended September 30,
|                                |  | 2004                            |       | 2003
|Net sales (millions of dollars) |  | $                               | 45.6  |      | 32.0
|Finished production (MMSF)      |  |                                 | 113.4 |      | 94.7
|Board sales (MMSF)              |  |                                 | 115.5 |      | 95.7
|Sales price (per MSF)           |  | $                               | 395   |      | 334 



Average sales price
increased $61 per MSF due to the improvements in the MDF market and to a change in product mix to include a greater percentage of thin board and an increase in premium-grade production. Manufacturing cost per MSF sold was down seven percent due to
the lowering of certain variable costs of manufacturing and the spreading of the plants fixed costs to the increased production volume.



Income Taxes



The effective income tax rate was 39 percent and 38 percent in the 2004 and 2003 periods, respectively. The increase was primarily due to higher effective
rates for state income taxes.



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##### Table of Contents

Liquidity and Capital Resources



Cash Flows and Capital Expenditures



Net cash provided by operating activities totaled $34.2 million for the first nine months of 2004 compared to $26.5 million
for the same period in 2003. Changes in operating working capital, other than cash and cash equivalents, provided cash of $4.7 million in the 2004 period, but required cash of $1.3 million in 2003. The Companys accompanying Consolidated
Statements of Cash Flows identify other differences between net income/(loss) and cash provided by operating activities for each reporting period.



Capital expenditures required cash of $16.5 million in the current-year period and $20.8 million a year ago. Capital expenditures by segment consisted of
the following:



|                       |  |                                 |        |      |       
|---------------------- |  | ------------------------------- | ------ | ---- | ------
|                       |  | Nine Months Ended September 30,
|                       |  | 2004                            |        | 2003
|(Thousands of dollars) |  |                                 |        |     
|Woodlands*             |  | $                               | 6,595  |      | 11,813
|Mills                  |  |                                 | 2,888  |      | 2,499 
|Real Estate            |  |                                 | 6,879  |      | 6,326 
|Corporate              |  |                                 | 158    |      | 189   
|                       |  |                                 |        |      |       
|Capital expenditures   |  | $                               | 16,520 |      | 20,827
|                       |  |                                 |        |      |       

---

|* | The 2004 amount includes $5.1 million for the acquisition of 4,156 acres of timberland, while the 2003 amount includes $11.5 million for the acquisition of 7,069 acres, including
one acquisition amounting to $9.3 million for 4,979 acres in Calhoun County, Arkansas.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The net change in purchased stumpage inventory to be utilized in the Companys sawmill operations provided cash of $2.4 million in 2004, but required
cash of $1.6 million in 2003. The Company made advances to Del-Tin Fiber of $1.5 million and received cash of $.8 million for net advances of $.7 million during the current period, which decreased $6.5 million from the corresponding period of 2003
due to the improved financial results for the facility. During 2004, $4.4 million of proceeds from sales of timberland that were previously held by a trustee were used to acquire timberland designated as replacement property for income
tax purposes, as required for tax-deferred exchanges. During 2004, Deltic made repayments of previous borrowings under its revolving credit facility of $23 million. In 2003, Deltic borrowed $11.5 million and made repayments of debt of $6.6 million.
In 2003, the decrease in bank overdraft was $.9 million. Deltic paid dividends on common stock of $2.3 million during the current period, consistent with the $2.2 million dividend payments in 2003. In 2004, proceeds from stock option exercises
amounted to $4.5 million, an increase of $2.9 million when compared to 2003.



Financial Condition



Working capital totaled $7.5 million at September 30, 2004, and $7.1 million at December 31, 2003. Deltics working capital ratio at September 30, 2004, was 1.61 to 1, compared to 2.01 to 1 at the end of 2003. Cash and cash equivalents
at the end of the third quarter of 2004 were $6.0 million compared to $1.7 million at the end of 2003. During the first nine months of 2004, total indebtedness of the Company decreased $23 million to $92 million. Deltics long-term debt to
stockholders equity ratio was .517 to 1 at September 30, 2004, compared to .676 to 1 at year-end 2003.



Liquidity



The primary sources of the Companys liquidity are internally generated funds, access to outside financing, and working capital. The Companys
current strategy for growth continues to emphasize its timberland acquisition program, in addition to expanding lumber production as market conditions allow and developing real estate at Chenal Valley, Red Oak Ridge, and The Ridges at Nowlin Creek.



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##### Table of Contents

To facilitate these growth plans, the Company has an agreement with a group of banks which provides an
unsecured, committed revolving credit facility totaling $125 million, inclusive of a $50 million letter of credit feature. The agreement will expire on July 15, 2007. As of September 30, 2004, $103 million was available in excess of all borrowings
outstanding under or supported by the facility. The credit agreement contains restrictive covenants, including limitations on the incurrence of debt and requirements to maintain certain financial ratios.



In December 2000, the Companys Board of Directors authorized a stock
repurchase program of up to $10 million of Deltic common stock. As of September 30, 2004, the Company had expended $2.1 million under this program, with the purchase of 96,206 shares at an average cost of $22.34 per share; no shares have been
purchased in 2004 under this program. In its two previously completed repurchase programs, Deltic purchased 479,601 shares at an average cost of $20.89 and 419,542 shares at a $24.68 per share average cost, respectively.



Off-Balance Sheet Arrangements, Contractual Obligations, and Commitments



Prior to August 26, 2004, the Company had agreed to a
contingent equity contribution agreement with Del-Tin Fiber and the group of banks from whom Del-Tin Fiber had obtained its $89 million credit facility. Under this agreement, Deltic and the other 50 percent owner of the joint venture had agreed to
fund any deficiency in contributions to either Del-Tin Fibers required sinking fund or debt service reserve, up to a cumulative total of $17.5 million for each owner. In addition, each owner had committed to a production support agreement,
under which each owner had agreed to make support obligation payments to Del-Tin Fiber to provide, on the occurrence of certain events, additional funds for payment of debt service until the plant was able to successfully complete a minimum
production test. Both owners had also agreed, in a series of one-year term commitments, to fund any operating working capital needs until the facility was able to consistently generate sufficient funds to meet its cash requirements.



On August 26, 2004, Del-Tin Fiber refinanced its existing long-term debt by
entering into a credit agreement consisting of a letter of credit and term loan with multiple lending institutions pursuant of which, $60,000,000 of its $89,000,000 industrial revenue bonds were redeemed. Under the new credit agreement, the lenders,
on September 1, 2004, loaned Del-Tin Fiber $30 million which will be repayable over five years in equal quarterly installments, beginning December 31, 2004, and issued on Del-Tin Fibers behalf, a letter of credit in the amount of $29.7 million
to support the remaining industrial revenue bonds originally issued in 1998 by Union County, Arkansas. Concurrent with this event, on August 26, 2004, Deltic executed a guarantee agreement in connection with the refinancing of the debt of Del-Tin
Fiber. Under Deltics guarantee agreement, Deltic unconditionally guarantees the due and punctual payment of 50 percent ($29.8 million) of Del-Tins obligations under its credit agreement. This new credit agreement of Del-Tin Fiber fully
replaces Del-Tin Fibers prior credit facility, resulting in Deltics previous contingent equity contribution agreement of $17.5 million, the production support agreement and the one-year commitment being fully extinguished.



The Company has adopted the provisions of FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34 (FIN
45). In accordance with FIN 45, Deltic estimated the fair value of its guarantee of Del-Tin Fibers credit agreement to be $3.5 million and has included this non-cash amount in the Companys September 30, 2004 balance sheet as a
long-term liability with an offsetting increase in the Companys investment in Del-Tin Fiber.



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##### Table of Contents

Tabular summaries of the Companys contractual cash payment obligations and other commercial
commitment expirations, by period, are presented in the following tables.



|                                                     |  |       |      |            |     |             |     |             |      |           |     
|---------------------------------------------------- |  | ----- | ---- | ---------- | --- | ----------- | --- | ----------- | ---- | --------- | ----
|(Millions of dollars)                                |  | Total |      | During2004 |     | 2005to 2006 |     | 2007to 2008 |      | After2008
|Contractual cash payment obligations                 |  |       |      |            |     |             |     |             |      |           |     
|Real estate development infrastructure               |  | $     | 1.7  |            |    |             | 1.7 |             |     |           |    
|Long-term debt                                       |  |       | 92.0 |            |    |             |    |             | 62.0 |           | 30.0
|                                                     |  |       |      |            |     |             |     |             |      |           |     
|                                                     |  | $     | 93.7 |            |    |             | 1.7 |             | 62.0 |           | 30.0
|                                                     |  |       |      |            |     |             |     |             |      |           |     
|Other commercial commitment expirations              |  |       |      |            |     |             |     |             |      |           |     
|Guarantee of indebtedness of Del-Tin Fiber agreement |  | $     | 29.8 |            | .8  |             | 6.0 |             | 20.8 |           | 2.2 
|Timber cutting agreements                            |  |       | 1.2  |            | .4  |             | .4  |             | .4   |           |    
|Operating leases                                     |  |       | .2   |            |    |             | .1  |             | .1   |           |    
|Letters of credit                                    |  |       | 1.1  |            |    |             | 1.0 |             | .1   |           |    
|                                                     |  |       |      |            |     |             |     |             |      |           |     
|                                                     |  | $     | 32.3 |            | 1.2 |             | 7.5 |             | 21.4 |           | 2.2 
|                                                     |  |       |      |            |     |             |     |             |      |           |     



Outlook



Deltics management believes that cash provided from
its operations 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 and stock repurchase
programs, additional advances to Del-Tin Fiber, and capital expenditures, for the foreseeable future.



Critical Accounting Policies and Estimates



Critical accounting policies are defined as those that are reflective of significant judgements and uncertainties and potentially result in materially different results under different assumptions and conditions. The
Company has prepared its consolidated financial statements in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the reported amounts in these
financial statements and accompanying notes. Actual results could differ from those estimates under different assumptions or conditions. The Company has disclosed its critical accounting policies in its 2003 annual report on Form 10-K, and this
disclosure should be read in conjunction with this Form 10-Q. There have been no changes in these identified critical policies, nor have there been any initially adopted accounting policies having a material impact on reported financial results.



Impact of Recently Effective Accounting Pronouncements



(For information regarding the impact of recently effective accounting
pronouncements, refer to Note 2 to the consolidated financial statements.)



Outlook



Pine sawtimber harvest levels are
expected to be 110,000 to 125,000 tons in the fourth quarter of 2004 and 560,000 to 575,000 tons for the year. The Companys program to consider sales of timberland identified to be non-strategic or have a higher and better use will continue,
with sales for the year anticipated to be approximately 1,000 acres. Finished lumber production and sales volume will continue to be subject to market conditions, and is estimated at 60 to 70 million board feet for the fourth quarter and 235 to 245
million board feet for the year. Residential lot sales are projected to be 70 to 90 lots and 260 to 280 lots for the fourth quarter and the year, respectively.



Certain statements contained in this report that are not historical in nature constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, plans, estimates, or variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements reflect the Companys current expectations and involve certain risks and uncertainties, including those disclosed elsewhere in this report. Therefore, actual results could differ
materially from those included in such forward-looking statements.



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##### Table of Contents

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 2003 annual report on Form 10-K. Those disclosures should be read in conjunction with this Form 10-Q.



Item 4. Controls and Procedures



Deltic Timber Corporation (the Company) carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities
Exchange Act of 1934. Such evaluation was under the supervision, and with the participation, of the Companys senior management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO). Based on
this evaluation, the Companys CEO and CFO have concluded that the Companys disclosure controls and procedures were effective as of September 30, 2004, in timely alerting them to material information required to be included in any reports
that the Company files or submits under the Securities Exchange Act of 1934, as amended. In addition, such controls have been deemed to be effective in ensuring that the required information is recorded, processed, summarized and reported within
time periods specified in the Securities and Exchange Commissions rules and forms.



The Company has not identified any material weakness in its internal controls over financial reporting. In the course of the Companys evaluation of its disclosure controls and procedures and in connection with
preparation for the assessment by management of the effectiveness of its internal controls for financial reporting as of December 31, 2004, under Section 404 of the Sarbanes Oxley Act of 2002, certain opportunities to improve the Companys
existing internal controls have been identified and effected.



29



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##### Table of Contents

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. Unregistered Sales of Equity Securities and Use of Proceeds



Issuer Purchase of Equity Securities



|                               |  |                                  |  |                              |  |                                                                                  |  |                                                                                                  |          
|------------------------------ |  | -------------------------------- |  | ---------------------------- |  | -------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------ | ---------
|Period                         |  | Total Number of Shares Purchased |  | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |  | Maximum Approximate DollarValue of Shares that May Yet Be Purchased Under the Plans or Programs1
|July 1 through July 31, 2004   |  |                                 |  |                             |  |                                                                                 |  | $                                                                                                | 7,851,000
|                               |  |                                  |  |                             
|Aug. 1 through Aug. 31, 2004   |  |                                 |  |                             |  |                                                                                 |  | $                                                                                                | 7,851,000
|                               |  |                                  |  |                             
|Sept. 1 through Sept. 30, 2004 |  |                                 |  |                             |  |                                                                                 |  | $                                                                                                | 7,851,000

---

|1 | In December 2000, the Companys Board of Directors authorized a stock repurchase plan of up to $10 million of Deltic common stock. There is no stated expiration
date regarding this authorization.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 3. Defaults Upon Senior Securities



None.



Item 4. Submission of Matters to a Vote of Security Holders



None



Item 5. Other Information



None.



30



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##### Table of Contents

Item 6. Exhibits



|31.1 | Chief Executive Officer Certification Required by Section 302 of the Sarbanes - Oxley Act of 2002.
|---- | --------------------------------------------------------------------------------------------------



|31.2 | Chief Financial Officer Certification Required by Section 302 of the Sarbanes - Oxley Act of 2002.
|---- | --------------------------------------------------------------------------------------------------



|32 | Certification Required by Section 906 of the Sarbanes-Oxley Act of 2002.
|-- | ------------------------------------------------------------------------



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##### Table of Contents

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/ Ray C. Dillon                   |  | Date: |  | October 27, 2004
|    |  | Ray C. Dillon, President            |  |       |  |                 
|    |  | (Principal Executive Officer)       |  |       |  |                 
|    |  |                                     | 
|    |  | /s/ Clefton D. Vaughan              |  | Date: |  | October 27, 2004
|    |  | Clefton D. Vaughan, Vice President, |  |       |  |                 
|    |  | Finance and Administration          |  |       |  |                 
|    |  | (Principal Financial Officer)       |  |       |  |                 
|    |  |                                     | 
|    |  | /s/ Kenneth D. Mann                 |  | Date: |  | October 27, 2004
|    |  | Kenneth D. Mann, Controller         |  |       |  |                 
|    |  | (Principal Accounting Officer)      |  |       |  |                 



32