##### Table of Contents

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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION


Washington, D. C. 20549





---




FORM 10-Q





(Mark One)


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





For the quarterly period ended June 30, 2002





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)





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 registeredCommon Stock, $.01 Par Value

New York Stock Exchange, Inc.Series A Participating CumulativePreferred Stock Purchase Rights

New York Stock Exchange, Inc.





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





Number of shares of Common Stock, $.01 Par Value, outstanding at July 31, 2002, was 11,947,504.





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##### Table of Contents

TABLE OF CONTENTSSECOND QUARTER 2002 FORM 10-Q REPORT





Page NumberPART IFinancial InformationItem 1.

Financial Statements

3Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

13Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18PART IIOther InformationItem 1.

Legal Proceedings

19Item 2.

Changes in Securities and Use of Proceeds

19Item 3.

Defaults Upon Senior Securities

19Item 4.

Submission of Matters to a Vote of Security Holders

19Item 5.

Other Information

19Item 6.

Exhibits and Reports on Form 8-K

20Signatures

21




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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)





June 30, 2002


Dec. 31, 2001(unaudited)AssetsCurrent assetsCash and cash equivalents

$
1,375


6,122Trade accounts receivablenet


5,840


4,319Other receivables


3,011


2,938Inventories


5,155


5,565Prepaid expenses and other current assets


1,850


1,428Total current assets


17,231


20,372Investment in real estate held for development and sale


39,621


36,698Investment in Del-Tin Fiber


12,628


11,600Other investments and noncurrent receivables


763


2,907Timber and timberlandsnet


207,857


211,754Property, plant, and equipmentnet


40,389


41,774Deferred charges and other assets


2,411


3,275Total assets

$
320,900


328,380Liabilities and Stockholders EquityCurrent liabilitiesCurrent maturities of long-term debt

$
70


74Notes payable


500


Trade accounts payable


3,051


3,524Accrued taxes other than income taxes


1,698


1,190Deferred revenues and other accrued liabilities


3,024


2,569Total current liabilities


8,343


7,357Long-term debt


75,152


84,190Deferred tax liabilitiesnet


20,234


19,669Other noncurrent liabilities


6,545


6,365Redeemable preferred stock


30,000


30,000Stockholders equityPreferred stock





Common stock


128


128Capital in excess of par value


69,038


68,766Retained earnings


131,224


133,034Unamortized restricted stock awards


(191
)

(264
)Treasury stock


(19,573
)

(20,865
)Total stockholders equity


180,626


180,799Total liabilities and stockholders equity

$
320,900


328,380





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 Ended June
30,


Six Months Ended June
30,2002


2001


2002


2001Net sales

$
28,106


27,800


55,201


50,294Costs and expensesCost of sales


17,726


17,090


32,773


28,865Depreciation, amortization, and cost of fee timber harvested


4,238


4,414


9,502


8,879General and administrative expenses


2,118


2,917


4,165


4,565Total costs and expenses


24,082


24,421


46,440


42,309Operating income


4,024


3,379


8,761


7,985Equity in loss of Del-Tin Fiber


(2,933
)

(2,518
)

(5,326
)

(5,007
)Interest income


27


289


63


907Interest and other debt expense


(1,098
)

(1,472
)

(2,246
)

(3,067
)Other income/(expense)


97


151


241


224Income/(loss) from continuing operations before income taxes


117


(171
)

1,493


1,042Income taxes


(127
)

53


(682
)

(185
)Income/(loss) from continuing operations


(10
)

(118
)

811


857Discontinued operations, net





119





8,331Net income/(loss)

$
(10
)

1


811


9,188Earnings per common shareBasicContinuing operations

$
(.05
)

(.06
)

(.03
)

(.02
)Discontinued operations





.01





.70Net income/(loss)

$
(.05
)

(.05
)

(.03
)

.68Assuming dilutionContinuing operations

$
(.05
)

(.06
)

(.03
)

(.02
)Discontinued operations





.01





.70Net income/(loss)

$
(.05
)

(.05
)

(.03
)

.68Dividends declared per common share

$
.0625


.0625


.1250


.1250Average common shares outstanding (thousands)


11,923


11,887


11,910


11,905





See accompanying notes to consolidated financial statements.




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Consolidated Statements of Cash Flows (Unaudited)


Six Months Ended June 30,


(Thousands of dollars)





2002


2001Operating activitiesNet income

$
811


9,188Adjustments to reconcile net income to net cash provided/(required) by operating activitiesDepreciation, amortization, and cost of fee timber harvested


9,502


8,879Deferred income taxes


565


6,739Gain from disposal of agriculture segment assets





(14,454
)Real estate costs recovered upon sale


2,122


1,922Timberland costs recovered upon sale


217


465Equity in loss of Del-Tin Fiber


5,326


5,007Net increase/(decrease) in provisions for pension and other postretirement benefits


689


485(Increase)/decrease in operating working capital other than cash and cash equivalents


(1,113
)

(2,581
)Othernet


686


922Net cash provided/(required) by operating activities, including discontinued operations


18,805


16,572Investing activitiesCapital expenditures requiring cash


(9,344
)

(48,222
)Net change in purchased stumpage inventory


(570
)

871Advances to Del-Tin Fiber


(6,269
)

(7,781
)Proceeds from disposal of agriculture segment assets





18,079Increase/(decrease) in farmland sale contract deposits





(1,455
)(Increase)/decrease in funds held by trustee


2,139


16,317Receipts of/(additions to) noncurrent receivables





17,691Othernet


431


366Net cash provided/(required) by investing activities, including discontinued operations


(13,613
)

(4,134
)Financing activitiesProceeds from borrowings


500


10,533Repayments of notes payable and long-term debt


(9,042
)

(18,791
)Treasury stock purchases





(1,026
)Increase/(decrease) in bank overdraft





(1,384
)Preferred stock dividends paid


(1,131
)

(1,131
)Common stock dividends paid


(1,490
)

(1,489
)Proceeds from stock option exercises


1,111


Othernet


113


(520
)Net cash provided/(required) by financing activities, including discontinued operations


(9,939
)

(13,808
)Net increase/(decrease) in cash and cash equivalents


(4,747
)

(1,370
)Cash and cash equivalents at January 1


6,122


2,712Cash and cash equivalents at June 30

$
1,375


1,342





See accompanying notes to consolidated financial statements.




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Consolidated Statements of Stockholders Equity (Unaudited)


Six Months Ended June 30,


(Thousands of dollars)





2002


2001Cumulative preferred stock$.01 par, authorized 20,000,000 shares, 600,000 shares issuedas redeemable preferred
stock

$



Common stock$.01 par, authorized 50,000,000 shares, 12,813,879 shares issued in 2002 and 2001


128


128Capital in excess of par valueBalance at beginning of year


68,766


68,757Exercise of stock options


159


Tax benefits on stock options


113


Balance at end of period


69,038


68,757Retained earningsBalance at beginning of year


133,034


128,290Net income


811


9,188Preferred stock dividends accrued


(1,131
)

(1,131
)Common stock dividends declared


(1,490
)

(1,489
)Balance at end of period


131,224


134,858Unamortized restricted stock awardsBalance at beginning of year


(264
)

(472
)Stock awards





Amortization to expense


73


105Balance at end of period


(191
)

(367
)Treasury stockBalance at beginning of year925,725 and 878,556 shares, respectively


(20,865
)

(19,869
)Shares purchased48,500 shares in 2001





(1,026
)Shares issued for incentive plans57,325 shares in 2002


1,292


Balance at end of period868,400 and 927,056 shares, respectively


(19,573
)

(20,895
)Total stockholders equity

$
180,626


182,481





See accompanying notes to consolidated financial statements.




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Notes to Consolidated Financial Statements


June 30, 2002


(Unaudited, except for December 31, 2001)





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 six 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 2001 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 2002 presentation format.





Note 2Earnings per Common Share





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





Three Months Ended June
30,


Six Months Ended June
30,2002


2001


2002


2001(Thousands, except per share amounts)Income from continuing operations

$
(10
)

(118
)

811


857Discontinued operations, net





119





8,331Less preferred dividends


(566
)

(565
)

(1,131
)

(1,131
)Income available to common shareholders


(576
)

(564
)

(320
)

8,057Weighted average number of common shares used in basic EPS


11,923


11,887


11,910


11,905Effect of dilutive stock options*











Weighted average number of common sharesand dilutive potential common stock usedin EPS assuming
dilution


11,923


11,887


11,910


11,905




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Notes to Consolidated Financial Statements


June 30, 2002


(Unaudited, except for December 31, 2001)





Note 2Earnings per Common Share (cont.)





Three Months Ended June 30,


Six Months Ended June 30,2002


2001


2002


2001(Thousands, except per share amounts)Earnings per common shareBasicContinuing operations

$
(.05
)

(.06
)

(.03
)

(.02
)Discontinued operations





.01





.70Net income/(loss)

$
(.05
)

(.05
)

(.03
)

.68Assuming dilutionContinuing operations

$
(.05
)

(.06
)

(.03
)

(.02
)Discontinued operations





.01





.70Net income/(loss)

$
(.05
)

(.05
)

(.03
)

.68





|* |  | Additional potential common shares from stock options outstanding for the second quarter and first six months of 2002 and 2001 amounting to 58,000 and 53,000
shares and 18,000 and 14,000 shares, respectively, are excluded from the calculation of diluted earnings per share since they would result in antidilution due to the loss from continuing operations.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Note 3Inventories





Inventories at
the balance sheet dates consisted of the following:





June 30, 2002

Dec. 31, 2001(Thousands of dollars)Logs

$
1,431

1,246Lumber


3,400

3,859Materials and supplies


324

460$
5,155

5,565





Note 4Investment in Del-Tin Fiber





The Company owns 50 percent of the membership interest of Del-Tin Fiber. The Companys investment in Del-Tin Fiber is carried at cost, adjusted for the
Companys proportionate share of undistributed earnings or losses.




8




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND SUBSIDIARIES


Notes to Consolidated Financial Statements


June 30, 2002


(Unaudited,
except for December 31, 2001)





Note 4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 June 30 consisted
of the following:





June 30, 2002

Dec. 31, 2001(Thousands of dollars)Condensed Balance Sheet InformationCurrent assets

$
5,777

5,218Debt service reserve funds


3,573

3,543Bond sinking funds


9,775

6,072Property, plant, and equipmentnet


99,564

100,907Other noncurrent assets


859

982Total assets

$
119,548

116,722Current liabilities

$
5,004

4,419Long-term debt


89,000

89,000Other noncurrent liabilities


1

6Members capital/(deficit)


25,543

23,657Accumulated other comprehensive income




(360
)Total liabilities and members capital/(deficit)

$
119,548

116,722








Three Months Ended June 30,


Six Months EndedJune 30,2002


2001


2002


2001(Thousands of dollars)Condensed Income Statement InformationNet sales

$
6,346


591


14,171


2,605Costs and expensesCost of sales


9,568


3,237


19,537


8,086Depreciation


839


322


1,814


842General and administrative expenses


364


177


800


394Total costs and expenses


10,771


3,736


22,151


9,322Operating income/(loss)


(4,425
)

(3,145
)

(7,980
)

(6,717
)Interest income


32


54


62


98Interest and other debt expense


(1,022
)

(1,478
)

(2,282
)

(2,927
)Gain/(loss) on disposal of assets


(451
)

(468
)

(451
)

(468
)Net income/(loss)


(5,866
)

(5,037
)

(10,651
)

(10,014
)Other comprehensive income








360


Comprehensive income/(loss)

$
(5,866
)

(5,037
)

(10,291
)

(10,014
)




9




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND SUBSIDIARIES


Notes to Consolidated Financial Statements


June 30, 2002


(Unaudited,
except for December 31, 2001)





Note 4Investment in Del-Tin Fiber (cont.)





The Del-Tin facility was shut down from late January to early June 2001 to modify its heat energy system. Direct operating costs during the shutdown period were
expensed as incurred and are included in Cost of Sales. Deltic Timber Corporation has retained a financial advisor to assist in the evaluation of strategic alternatives for the Companys investment in Del-Tin Fiber with all options being
considered.





Note 5Timber and Timberlands





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





June 30, 2002


Dec. 31, 2001(Thousands of dollars)Purchased stumpage inventory

$
6,236


5,665Timberlands


76,565


76,468Fee timber


181,003


179,424Logging facilities


1,701


1,692265,505


263,249Less accumulated costs of fee timber harvested and facilities depreciation


(57,648
)

(51,495
)$
207,857


211,754





Note 6Property, Plant, and Equipment





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





June 30, 2002


Dec. 31, 2001(Thousands of dollars)Land

$
125


125Land improvements


3,970


3,265Buildings and structures


4,611


4,469Machinery and equipment


74,595


74,16883,301


82,027Less accumulated depreciation


(42,912
)

(40,253
)$
40,389


41,774




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Notes to Consolidated Financial Statements


June 30, 2002


(Unaudited, except for December 31, 2001)





Note 7Supplemental Cash Flow Disclosures





Income taxes paid, net of refunds,
were $30,000 in the 2002 period, while a net income tax refund of $2,007,000 was received in the 2001 period. Interest paid, net of amounts capitalized, was $2,081,000 and $3,072,000 in the first six months of 2002 and 2001, respectively.





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





2002


2001(Thousands of dollars)Trade accounts receivable

$
(1,521
)

(2,302
)Other receivables


(70
)

(473
)Inventories


409


336Prepaid expenses and other current assets


(421
)

(545
)Trade accounts payable


(473
)

(621
)Deferred revenues and other accrued liabilities


963


1,024$
(1,113
)

(2,581
)




11




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Notes to Consolidated Financial Statements


June 30, 2002


(Unaudited, except for December 31, 2001)





Note 8Business Segments





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





Three Months Ended June 30,


Six Months Ended June 30,2002


2001


2002


2001(Thousands of dollars)Net salesWoodlands

$
9,479


9,663


21,612


22,472Mills


18,862


18,143


36,736


28,693Real Estate


4,188


3,261


6,755


6,404Eliminations*


(4,423
)

(3,267
)

(9,902
)

(7,275
)$
28,106


27,800


55,201


50,294Income/(loss) from continuing operations before income taxOperating incomeWoodlands

$
5,839


5,692


13,091


13,592Mills


(251
)

72


(1,455
)

(2,304
)Real Estate


850


361


1,053


952Corporate


(1,938
)

(2,727
)

(3,767
)

(4,214
)Eliminations


(476
)

(19
)

(161
)

(41
)Operating income


4,024


3,379


8,761


7,985Equity in loss of Del-Tin Fiber


(2,933
)

(2,518
)

(5,326
)

(5,007
)Interest income


27


289


63


907Interest and other debt expense


(1,098
)

(1,472
)

(2,246
)

(3,067
)Other income/(expense)


97


151


241


224$
117


(171
)

1,493


1,042Depreciation, amortization, and cost of fee timber harvestedWoodlands

$
2,653


2,942


6,375


5,958Mills


1,433


1,348


2,834


2,681Real Estate


106


87


205


167Corporate


46


37


88


73$
4,238


4,414


9,502


8,879Capital expendituresWoodlands

$
896


12,505


1,827


42,168Mills


811


866


1,552


2,139Real Estate


3,534


2,124


5,917


3,878Corporate


32


28


48


37$
5,273


15,523


9,344


48,222


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



12




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##### Table of Contents

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





Results of Operations





Three Months Ended June 30, 2002 Compared with Three Months
Ended June 30, 2001





Results of operations for the second quarter of both 2002 and 2001 were break-even, a
loss of $.05 a share after preferred dividends of $.6 million. Prior-year results included income from discontinued agricultural operations, net of income taxes, of $.1 million, $.01 a share. For the second quarter of 2002, income from continuing
operations was break-even, a loss of $.05 a share, which compares to a loss of $.1 million, $.06 a share, a year ago. Net sales for the current quarter totaled $28.1 million, an increase of $.3 million when compared to the prior-year quarter.
Operating income for the current reporting period was $4 million compared to $3.4 million for the corresponding quarter of 2001. Net cash provided by operating activities increased $.7 million, from $7.5 million in 2001 to $8.2 million for the 2002
period.





Operating income for the second quarter of 2002 increased $.6 million when compared to the second quarter
of 2001. The Woodlands segment increased $.2 million due primarily to a reduction in the cost of fee timber harvested and an increase in sales of non-strategic and higher and better use timberland, partially offset by decreases in revenues from pine
sawtimber, pine pulpwood, and hardwood sales. Mills segment operating results decreased $.4 million from the same period of 2001 as the average lumber sales price dropped six percent while the Company increased its sales volume by nine percent and
lowered its lumber production cost per thousand board feet (MBF) by four percent. Operating income for the Real Estate segment operations improved $.6 million from a year ago because the average sales price of residential lots increased
$33,900 per lot due to sales mix.





The Woodlands segment reported net sales of $9.5 million for the current
quarter compared to $9.7 million a year ago. Sales of pine sawtimber decreased $.1 million due to a decrease in average sales price of $1 per ton to $41 while the harvest volume increased 881 tons to 200,324 tons. Sales of pine pulpwood and hardwood
decreased $.1 million and $.2 million, respectively, due primarily to reduced harvest levels. Sales of 431 acres of timberland produced revenues of $.4 million in the current period, while sales of 54 acres generated $.2 million in the prior-year
period. Current-period timberland sales acreage consisted primarily of non-strategic acreage, resulting in an average sales price of $852 per acre, while 2001 benefited from sales of acreage for higher and better use and averaged $3,855 per acre.
Operating income was $5.9 million in 2002, an increase of $.2 million when compared to $5.7 million for the three months ended June 30, 2001, resulting primarily from a $.3 million reduction in the cost of fee timber harvested, partially offset by
the decrease in net sales.





Mills operations net sales for the three months ended June 30, 2002, were $18.8
million compared to $18.1 million for the same period of 2001. Finished lumber sales increased $.5 million due to a nine percent increase in sales volume to 50.4 million board feet (MMBF), the result of improved mill efficiencies during
2002. Average lumber sales price for the current quarter was $319 per MBF, six percent lower than a year ago. As a result of the rise in production levels, sales of residual by-products of the manufacturing process increased by $.2 million. An
operating loss of $.3 million was reported for the second quarter of 2002, which compares to an operating income of $.1 million for the 2001 period. The $.4 million decline in results was primarily due to a $19 reduction in sales realization per
MBF, partially offset by a $12 per MBF decrease in manufacturing cost per MBF.





The Real Estate segment recorded
net sales of $4.2 million in 2002 compared to $3.3 million in 2001. Residential lot sales decreased by one lot to 26 in the current quarter; however, the average sales




13




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##### Table of Contents

price per lot increased $33,900 to $95,600 due to the mix of lot closings. Operating income increased $.6 million, to $.9 million, due primarily
to the change in sales mix.





Corporate operating expense was $2 million in the second quarter of 2002, which
compares to $2.7 million for the same quarter of 2001. The decrease was primarily due to lower general and administrative expenses, including a $1 million reduction in costs related to the Companys incentive plans. Equity in the loss of
Del-Tin Fiber recorded by the Company was $2.9 million in 2002 compared to $2.5 million a year ago. (For additional information about Del-Tin Fibers operating results, refer to Note 4 to the consolidated financial statements.) Interest income
decreased $.2 million as the prior-year period benefited from interest earned on agricultural asset and timberland sales proceeds deposited with trustees. Interest expense was $.4 million lower than in the 2001 period due mainly to a $9 million
reduction in long-term debt during the first six months of 2002. Income tax expense relating to continuing operations for the current quarter was $.1 million due to state income tax expense at the subsidiary level, which compares to a benefit of $.1
million for 2001s second quarter.





Six Months Ended June 30, 2002 Compared with Six Months Ended June
30, 2001





For the first six months of 2002, net income totaled $.8 million, a loss of $.03 a share,
compared to net income for the six months ended June 30, 2001, of $9.2 million, $.68 a share, including income from discontinued operations of $8.3 million, $.70 a share. For the first half of 2002, income from continuing operations was $.8 million,
a loss of $.03 a share, which compares to $.9 million, a loss of $.02 a share, in the corresponding period in 2001. Operating income for the first half of 2002 was $8.7 million, an increase of $.7 million from 2001. The Companys Woodlands
segment decreased $.5 million as a result of a drop in margin realized from the timberland sales and an increase in the cost of fee timber harvested, partially offset by a 21 percent increase in the pine sawtimber harvest level. The Mills segment
improved $.8 million due primarily to a five percent decrease in the manufacturing cost per MBF of lumber. Real Estate operations increased $.2 million, and Corporate operating expense dropped $.4 million.





The Woodlands segment produced net sales of $21.6 million during the six months ended June 30, 2002, a decrease of $.9 million when
compared to $22.5 million during 2001. Pine sawtimber sales increased $3.2 million as a result of a 21 percent increase in sales volume to 456,497 tons, partially offset by a $1 per ton drop in the average sales price received for pine sawtimber to
$41 per ton. Net sales generated from the sale of non-strategic or higher and better use timberland decreased by $4 million to $.8 million during the 2002 period. Operating income was $13.1 million for the first half of 2002, compared to $13.6
million in 2001. This decrease was due mainly to the reduction in net sales combined with a $.4 million increase in the cost of fee timber harvested resulting from the increase in harvest levels. These unfavorable variances were partially offset by
a $.5 million decrease in costs associated with the reduced timberland sales and a $.3 million reduction in timber replanting expense as a result of 2001 having higher-than-normal expense due to extreme heat and drought conditions experienced in the
Companys operating area during the summer of 2000.





Mills operations recorded net sales of $36.7 million for
the first six months of 2002 compared to $28.7 million for the corresponding period of 2001. The 28 percent increase was due primarily to a $7 million increase in sales of finished lumber resulting from a 30 percent rise in sales volume to 99.6 MMBF
since the Company improved its mill operations during 2002 and made temporary reductions in lumber production during the 2001 period due to market conditions, partially offset by a $4 decrease in average sales price per MBF sold to $314. As a result
of the increase in production levels, sales of residual by-products of the manufacturing process rose by $.8 million. A loss from operations of $1.5 million in 2002 compares to 2001s loss of $2.3 million. The improvement of $.8 million was due
primarily to a $17 per MBF reduction in lumber manufacturing expenses, including a $9 per MBF drop in raw material cost for logs used in the Companys sawmills, partially offset by the $4 reduction in average sales realization per MBF sold.




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Real Estate operations reported net sales of $6.8 million during the first half of 2002 compared to $6.4 million during
2001. Residential lot sales totaled 52 lots, an increase of one lot from the 2001 period, while the average sales price of $77,800 increased $8,300 per lot due to the mix of lots sold. The 2001 period benefited from an intercompany sales commission
received related to timberland sales near the Companys Chenal Valley development. Operating income of $1.1 million in 2002 increased $.2 million from a year ago as the result of the increase in net sales, partially offset by increased sales
commission expense.





Corporate operating expense was $3.8 million for the first six months of 2002 compared to
$4.2 million for the same period in 2001. The decrease of $.4 million was due to lower general and administrative expenses related mainly to reduced costs for the Companys incentive plans. Equity in loss of Del-Tin Fiber recorded by the
Company was $5.3 million in the current year, which compares to $5 million a year ago. Interest income decreased $.8 million as 2001 benefited from interest earned from agricultural asset and timberland sales proceeds deposited with trustees, while
interest expense was $.9 million lower due to decreased average borrowings for the first half of 2002. Income tax expense related to continuing operations increased $.6 million, to $.7 million for the current year, due to slightly higher pretax
income and to 2001 benefiting from recording deferred tax assets arising from state tax loss carryforwards.





Included in the first half of 2001 was income from discontinued agriculture operations, net of income taxes, which totaled $8.3 million. The sale of approximately 18,400 acres of farmland was recorded at a pretax gain of $13.4
million. Income tax expense for discontinued operations was $5.3 million for the period.





Financial Condition





For the first six months of 2002, net cash provided by operating activities totaled $18.8 million compared to $16.6 million for
the same period in 2001. Changes in operating working capital, other than cash and cash equivalents, required cash of $1.1 million for the first half of 2002 and $2.6 million for the same period of 2001.





Capital expenditures required cash of $9.3 million in the current-year period and $48.2 million a year ago, of which $38.3 million was for
the purchase of replacement timberland properties. Capital expenditures by segment consisted of the following:





Six Months Ended June 30,2002

2001(Thousands of dollars)Woodlands

$
1,827

42,168Mills


1,552

2,139Real Estate


5,917

3,878Corporate


48

37Capital expenditures requiring cash

$
9,344

48,222





The net change in purchased stumpage inventory to be utilized in
the Companys sawmill operations required cash of $.6 million in 2002, but provided cash of $.9 million in 2001. The Company advanced Del-Tin Fiber $6.3 million during the current period and $7.8 million during the corresponding period of 2001.





During 2001, disposal of agriculture segment assets generated proceeds of $18.1 million, $1.5 million of which
had previously been received as farmland sale contract deposits, that were deposited with a trustee as required for a tax-deferred exchange. These proceeds, combined with $7.7 million




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already held by a trustee from similar transactions recorded in prior periods, were utilized to purchase designated replacement timberland
properties and are included in capital expenditures of the Woodlands segment. Upon completion of the two reverse land exchanges in which Deltic was involved, $17.7 million previously advanced to the accommodating title holders required in such
exchange was repaid to the Company.





The Company borrowed $.5 million and made debt repayments of $9 million
during the first half of 2002 compared to borrowings of $10.5 million and debt repayments, utilizing the funds received from reverse exchange accommodators, of $18.8 million during the first six months of 2001. During the prior year, purchases of
treasury stock utilized $1 million and the decrease in bank overdraft was $1.4 million. Deltic paid dividends totaling $2.6 million in both 2002 and 2001, consisting of $1.5 million for common stock and $1.1 million for redeemable preferred stock.
Proceeds from the exercise of stock options provided cash of $1.1 million during the current period, and fees paid in 2001 associated with the renewal of the Companys revolving credit facility were $.5 million.





These net uses of funds during the first half of 2002 resulted in a $4.7 million decrease in the Companys cash and cash equivalents
since December 31, 2001.





During December 2000, the Companys Board of Directors authorized a stock
repurchase program of up to $10 million of its common stock. Under this program, the Company can purchase shares through the open market and privately negotiated transactions at prices deemed appropriate by Deltics management. As of June 30,
2002, the Company had expended $1 million under this program, with the purchase of 48,500 shares at an average cost of $21.15 per share during the first quarter of 2001.





The Company has agreed to a contingent equity contribution agreement with Del-Tin Fiber and the group of banks from whom Del-Tin Fiber has obtained its $89 million credit
facility. Under this agreement, Deltic and the other 50 percent owner of the joint venture have 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 has committed to a production support agreement, under which each owner has 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 is able to successfully complete a minimum production test. In addition, both owners have agreed to fund any operating working capital needs until the facility is able to consistently generate
sufficient funds to meet its cash requirements.





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.





Redemption of the Companys currently outstanding redeemable preferred stock is mandatory on December 31, 2002, at a price of $30 million. Deltics management currently anticipates either
utilizing amounts available under its revolving credit facility, borrowing long term, or a combination of both to fulfill this obligation.





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, preferred stock redemption, and capital expenditures, for the foreseeable future.





Statements included herein that are not historical in nature are intended to be, and are hereby identified as, forward-looking
statements within the meaning of the federal securities laws. Such statements reflect the Companys current expectations and involve risks and uncertainties. Actual results could differ materially from those included in such
forward-looking statements. Factors that could cause such differences include, but are not limited to, the cyclical nature of the industry, changes in interest rates




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and general economic conditions, adverse weather, cost and availability of materials used to manufacture the Companys products, and the
risk factors described from time to time in the reports and disclosure documents filed by the Company with the Securities and Exchange Commission.





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 2001 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.




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Item 3.    Quantitative and Qualitative Disclosures About Market Risk





The Companys market risk has not changed significantly from that set forth under the caption Quantitative and Qualitative Disclosures About Market Risk, in Item 7A of Part II of its 2001 annual report on Form 10-K.
Those disclosures should be read in conjunction with this Form 10-Q.




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PART IIOTHER INFORMATION





Item 1.    Legal Proceedings





From time to time, the Company is
involved in litigation incidental to its business. Currently, there are no material legal proceedings.





Item 2.    Changes in Securities and Use of Proceeds





None.





Item 3.    Defaults Upon Senior Securities





None.





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





The
annual meeting of the stockholders of Deltic Timber Corporation (Deltic or the Company) was held on April 25, 2002. Pursuant to the Companys Amended and Restated Certificate of Incorporation, its Board of Directors
consists of three classes who hold office for staggered terms of three years. Set forth below is a listing of the directors elected at the April 25, 2002 annual meeting, the results of such election and the names of directors whose term of office
continued after the meeting.





Director

Votes for

Votes WithheldO. H. Darling, Jr.

10,344,211

642,067Christoph Keller, III

10,258,691

727,587R. Madison Murphy

10,259,432

726,846Alex R. Lieblong

(Term expires in 2003)Robert C. Nolan

(Term expires in 2003)Ron L. Pearce

(Term expires in 2003)R. Hunter Pierson, Jr.

(Term expires in 2004)J. Thurston Roach

(Term expires in 2004)John C. Shealy

(Term expires in 2004)





In addition to the election of three Class III directors at the
April 25, 2002 annual meeting, the Companys 2002 Stock Incentive Plan (2002 SIP) was submitted for approval by the Companys stockholders, as well as a request to ratify the prior appointment of KPMG LLP by the Board of
Directors as Deltics independent auditors for 2002. The Companys stockholders voted to approve the 2002 SIP with 7,369,105 shares voted in favor and 2,794,770 shares voted against or withheld. Stockholders ratified the appointment of
KPMG LLP by a vote of 10,919,557 shares in favor and 66,720 shares against or withheld.





Item 5.    Other Information





None.




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Item 6.    Exhibits and Reports on Form 8-K





(a)  Exhibits





99.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





(b)  Reports on Form 8-K





None.




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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





DELTIC TIMBER CORPORATIONBy:

/s/    RON L.
PEARCE



Date:

August 13, 2002Ron L. Pearce, President (Principal Executive Officer)/s/    CLEFTON D.
VAUGHAN



Date:

August 13, 2002Clefton D. Vaughan, Vice President, Finance and Administration (Principal Financial Officer)/s/    EMILY R.
EVERS



Date:

August 13, 2002Emily R. Evers, Controller (Principal Accounting Officer)




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