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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549





FORM 10-Q





(Mark One)

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

For the quarterly period ended September 30, 2008

OR



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

Commission file number 1-12147





DELTIC TIMBER CORPORATION

(Exact name of registrant as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 71-0795870                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|210 East Elm Street, P. O. Box 7200, El Dorado, Arkansas       |  | 71731-7200                             
|(Address of principal executive offices)                       |  | (Zip Code)                             

Registrants telephone number, including area code: (870) 881-9400





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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                |  |                           |  |  
|----------------------- |  | ---------------------------------------------- |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                              |  | Accelerated filer         |  | x
|                        |  |                                                | 
|Non-accelerated filer   |  |  ̈  (Do not check if a small reporting company) |  | Smaller reporting company |  |  ̈

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

Number of shares of Common Stock, $.01 Par Value, outstanding at October 31, 2008, was 12,428,398.









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TABLE OF CONTENTS - THIRD QUARTER 2008 FORM 10-Q REPORT



|           |  |                                                                                       |  |           
|---------- |  | ------------------------------------------------------------------------------------- |  | ----------
|           |  |                                                                                       |  | PageNumber
|           |  | PART I - Financial Information                                                        |  |           
|           |  |                                                                                      
|Item 1.    |  | Financial Statements                                                                  |  | 3         
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 19        
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 31        
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 31        
|           |  |                                                                                      
|           |  | PART II - Other Information                                                           |  |           
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 33        
|           |  |                                                                                      
|Item 1A.   |  | Risk Factors                                                                          |  | 33        
|           |  |                                                                                      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 33        
|           |  |                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 33        
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 33        
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 33        
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 34        
|           |  |                                                                                      
|Signatures |  |                                                                                       |  | 35        



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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)



|                                                                                               |  |                              |         |   |                  |         |  
|---------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---------------- | ------- | -
|                                                                                               |  | (Unaudited)September 30,2008 |         |   | December 31,2007 |        
|Assets                                                                                         |  |                              |         |   |                  |         |  
|Current assets                                                                                 |  |                              |         |   |                  |         |  
|Cash and cash equivalents                                                                      |  | $                            | 16,504  |   |                  | 10,673  |  
|Trade accounts receivable, net of allowance for doubtful accounts of $57 and $52, respectively |  |                              | 5,596   |   |                  | 3,941   |  
|Other receivables                                                                              |  |                              | 190     |   |                  | 161     |  
|Inventories                                                                                    |  |                              | 4,804   |   |                  | 6,156   |  
|Prepaid expenses and other current assets                                                      |  |                              | 3,091   |   |                  | 2,302   |  
|                                                                                               |  |                              |         |   |                  |         |  
|Total current assets                                                                           |  |                              | 30,185  |   |                  | 23,233  |  
|                                                                                               |  |                             
|Investment in real estate held for development and sale                                        |  |                              | 48,245  |   |                  | 46,048  |  
|Investment in Del-Tin Fiber                                                                    |  |                              | 7,960   |   |                  | 7,017   |  
|Other investments and noncurrent receivables                                                   |  |                              | 3,755   |   |                  | 2,445   |  
|Timber and timberlands - net                                                                   |  |                              | 208,922 |   |                  | 208,428 |  
|Property, plant, and equipment - net                                                           |  |                              | 40,001  |   |                  | 39,214  |  
|Deferred charges and other assets                                                              |  |                              | 1,081   |   |                  | 2,359   |  
|                                                                                               |  |                              |         |   |                  |         |  
|Total assets                                                                                   |  | $                            | 340,149 |   |                  | 328,744 |  
|                                                                                               |  |                              |         |   |                  |         |  
|Liabilities and Stockholders Equity                                                           |  |                              |         |   |                  |         |  
|Current liabilities                                                                            |  |                              |         |   |                  |         |  
|Trade accounts payable                                                                         |  | $                            | 4,367   |   |                  | 2,660   |  
|Current maturities of long-term debt                                                           |  |                              | 6,667   |   |                  | 3,333   |  
|Accrued taxes other than income taxes                                                          |  |                              | 1,800   |   |                  | 1,650   |  
|Income taxes payable                                                                           |  |                              | 41      |   |                  | 1,371   |  
|Deferred revenues and other accrued liabilities                                                |  |                              | 9,685   |   |                  | 6,934   |  
|                                                                                               |  |                              |         |   |                  |         |  
|Total current liabilities                                                                      |  |                              | 22,560  |   |                  | 15,948  |  
|                                                                                               |  |                             
|Long-term debt, excluding current maturities                                                   |  |                              | 65,833  |   |                  | 66,667  |  
|Deferred tax liabilities - net                                                                 |  |                              | 5,798   |   |                  | 6,800   |  
|Guarantee of indebtedness of Del-Tin Fiber                                                     |  |                              | 690     |   |                  | 1,207   |  
|Other noncurrent liabilities                                                                   |  |                              | 21,330  |   |                  | 20,036  |  
|Commitments and contingencies                                                                  |  |                              |        |   |                  |        |  
|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                                                                 |  |                              | 77,690  |   |                  | 76,637  |  
|Retained earnings                                                                              |  |                              | 155,968 |   |                  | 155,299 |  
|Treasury stock                                                                                 |  |                              | (8,225  | ) |                  | (12,385 | )
|Accumulated other comprehensive loss                                                           |  |                              | (1,623  | ) |                  | (1,593  | )
|                                                                                               |  |                              |         |   |                  |         |  
|Total stockholders equity                                                                     |  |                              | 223,938 |   |                  | 218,086 |  
|                                                                                               |  |                              |         |   |                  |         |  
|Total liabilities and stockholders equity                                                     |  | $                            | 340,149 |   |                  | 328,744 |  
|                                                                                               |  |                              |         |   |                  |         |  

See accompanying notes to consolidated financial statements.



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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, |       
|                                                             | 2008 |                                 |        | 2007 |                                |        | 2008 |  |        | 2007 | 
|Net sales                                                    |      | $                               | 34,964 |      |                                | 25,528 |      |  | 98,337 |      |  | 103,810 |  
|                                                             |      |                                 |        |      |                                |        |      |  |        |      |  |         |  
|Costs and expenses                                           |      |                                 |        |      |                                |        |      |  |        |      |  |         |  
|Cost of sales                                                |      |                                 | 24,636 |      |                                | 18,223 |      |  | 70,714 |      |  | 64,986  |  
|Depreciation, amortization, and cost of fee timber harvested |      |                                 | 3,327  |      |                                | 3,370  |      |  | 10,488 |      |  | 10,624  |  
|General and administrative expenses                          |      |                                 | 4,641  |      |                                | 3,169  |      |  | 11,607 |      |  | 11,436  |  
|                                                             |      |                                 |        |      |                                |        |      |  |        |      |  |         |  
|Total costs and expenses                                     |      |                                 | 32,604 |      |                                | 24,762 |      |  | 92,809 |      |  | 87,046  |  
|                                                             |      |                                 |        |      |                                |        |      |  |        |      |  |         |  
|Operating income                                             |      |                                 | 2,360  |      |                                | 766    |      |  | 5,528  |      |  | 16,764  |  
|Equity in earnings of Del-Tin Fiber                          |      |                                 | 679    |      |                                | 344    |      |  | 2,071  |      |  | 1,316   |  
|Interest income                                              |      |                                 | 74     |      |                                | 301    |      |  | 249    |      |  | 690     |  
|Interest and other debt expense                              |      |                                 | (1,230 | )    |                                | (1,262 | )    |  | (3,805 | )    |  | (3,855  | )
|Interest capitalized                                         |      |                                 | 116    |      |                                | 192    |      |  | 376    |      |  | 497     |  
|Other income/(expense)                                       |      |                                 | 32     |      |                                | 85     |      |  | 79     |      |  | 290     |  
|                                                             |      |                                 |        |      |                                |        |      |  |        |      |  |         |  
|Income before income taxes                                   |      |                                 | 2,031  |      |                                | 426    |      |  | 4,498  |      |  | 15,702  |  
|Income taxes                                                 |      |                                 | 552    |      |                                | (181   | )    |  | 141    |      |  | (6,270  | )
|                                                             |      |                                 |        |      |                                |        |      |  |        |      |  |         |  
|Net income                                                   |      | $                               | 2,583  |      |                                | 245    |      |  | 4,639  |      |  | 9,432   |  
|                                                             |      |                                 |        |      |                                |        |      |  |        |      |  |         |  
|Earnings per common share                                    |      |                                 |        |      |                                |        |      |  |        |      |  |         |  
|Basic                                                        |      | $                               | .21    |      |                                | .02    |      |  | .37    |      |  | .76     |  
|Diluted                                                      |      | $                               | .21    |      |                                | .02    |      |  | .37    |      |  | .74     |  
|                                                             |      |                                 |        |     
|Dividends per common share                                   |      |                                 |        |      |                                |        |      |  |        |      |  |         |  
|Paid                                                         |      | $                               | .075   |      |                                | .075   |      |  | .225   |      |  | .225    |  
|Declared                                                     |      | $                               | .075   |      |                                |       |      |  | .300   |      |  | .225    |  
|                                                             |      |                                 |        |     
|Weighted average common shares outstanding (thousands)       |      |                                 |        |      |                                |        |      |  |        |      |  |         |  
|Basic                                                        |      |                                 | 12,482 |      |                                | 12,488 |      |  | 12,449 |      |  | 12,477  |  
|Diluted                                                      |      |                                 | 12,553 |      |                                | 12,543 |      |  | 12,525 |      |  | 12,535  |  

See accompanying notes to consolidated financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Thousands of dollars)



|                                                                                 |      |                                |         |      |  |         |  
|-------------------------------------------------------------------------------- | ---- | ------------------------------ | ------- | ---- |  | ------- | -
|                                                                                 |      | Nine Months EndedSeptember 30, |        
|                                                                                 | 2008 |                                |         | 2007 | 
|Operating activities                                                             |      |                                |         |      |  |         |  
|Net income                                                                       |      | $                              | 4,639   |      |  | 9,432   |  
|Adjustments to reconcile net income to net cash provided by operating activities |      |                                |         |      |  |         |  
|Depreciation, amortization, and cost of fee timber harvested                     |      |                                | 10,488  |      |  | 10,624  |  
|Deferred income taxes                                                            |      |                                | (862    | )    |  | 1,071   |  
|Real estate costs recovered upon sale                                            |      |                                | 1,064   |      |  | 4,785   |  
|Timberland costs recovered upon sale                                             |      |                                | 707     |      |  | 151     |  
|Equity in earnings of Del-Tin Fiber                                              |      |                                | (2,071  | )    |  | (1,316  | )
|Stock-based compensation expense                                                 |      |                                | 1,233   |      |  | 1,825   |  
|Net increase in liabilities for pension and other postretirement benefits        |      |                                | 119     |      |  | 173     |  
|Net decrease in deferred compensation for stock-based liabilities                |      |                                | (65     | )    |  | (223    | )
|Decrease in operating working capital other than cash and cash equivalents       |      |                                | 1,757   |      |  | 3,507   |  
|Other - net                                                                      |      |                                | 1,830   |      |  | (5,349  | )
|                                                                                 |      |                                |         |      |  |         |  
|Net cash provided by operating activities                                        |      |                                | 18,839  |      |  | 24,680  |  
|                                                                                 |      |                                |         |      |  |         |  
|Investing activities                                                             |      |                                |         |      |  |         |  
|Capital expenditures                                                             |      |                                | (16,408 | )    |  | (15,643 | )
|Net change in purchased stumpage inventory                                       |      |                                | 83      |      |  | (1,628  | )
|Advances to Del-Tin Fiber                                                        |      |                                | (4,406  | )    |  | (2,580  | )
|Distributions from Del-Tin Fiber                                                 |      |                                | 5,017   |      |  | 2,470   |  
|Net change in funds held by trustee                                              |      |                                | (1,426  | )    |  | (591    | )
|Other - net                                                                      |      |                                | 955     |      |  | 1,472   |  
|                                                                                 |      |                                |         |      |  |         |  
|Net cash required by investing activities                                        |      |                                | (16,185 | )    |  | (16,500 | )
|                                                                                 |      |                                |         |      |  |         |  
|Financing activities                                                             |      |                                |         |      |  |         |  
|Treasury stock purchases                                                         |      |                                | (11     | )    |  |        |  
|Proceeds from borrowings                                                         |      |                                | 2,500   |      |  | 1,000   |  
|Common stock dividends paid                                                      |      |                                | (2,803  | )    |  | (2,808  | )
|Proceeds from stock option exercises                                             |      |                                | 3,388   |      |  | 997     |  
|Tax effect of stock based compensation expense                                   |      |                                | 521     |      |  | 305     |  
|Other - net                                                                      |      |                                | (418    | )    |  |        |  
|                                                                                 |      |                                |         |      |  |         |  
|Net cash provided/(required) by financing activities                             |      |                                | 3,177   |      |  | (506    | )
|                                                                                 |      |                                |         |      |  |         |  
|Net increase in cash and cash equivalents                                        |      |                                | 5,831   |      |  | 7,674   |  
|Cash and cash equivalents at January 1                                           |      |                                | 10,673  |      |  | 11,359  |  
|                                                                                 |      |                                |         |      |  |         |  
|Cash and cash equivalents at September 30                                        |      | $                              | 16,504  |      |  | 19,033  |  
|                                                                                 |      |                                |         |      |  |         |  

See accompanying notes to consolidated financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Stockholders Equity

(Unaudited)

(Thousands of dollars)



|                                                                                                 |      |                                |         |      |  |         |  
|------------------------------------------------------------------------------------------------ | ---- | ------------------------------ | ------- | ---- |  | ------- | -
|                                                                                                 |      | Nine Months EndedSeptember 30, |        
|                                                                                                 | 2008 |                                |         | 2007 | 
|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 in 2008 and 2007 |      |                                | 128     |      |  | 128     |  
|                                                                                                 |      |                                |         |      |  |         |  
|Capital in excess of par value                                                                   |      |                                |         |      |  |         |  
|Balance at beginning of period                                                                   |      |                                | 76,637  |      |  | 73,999  |  
|Exercise of stock options                                                                        |      |                                | 409     |      |  | 142     |  
|Tax benefits on stock options                                                                    |      |                                | 464     |      |  | 414     |  
|Stock based compensation expense                                                                 |      |                                | 1,233   |      |  | 1,825   |  
|Restricted stock forfeitures                                                                     |      |                                | 22      |      |  | 81      |  
|Restricted stock awards                                                                          |      |                                | (1,214  | )    |  | (681    | )
|Tax benefits on restricted stock                                                                 |      |                                | 139     |      |  |        |  
|                                                                                                 |      |                                |         |      |  |         |  
|Balance at end of period                                                                         |      |                                | 77,690  |      |  | 75,780  |  
|                                                                                                 |      |                                |         |      |  |         |  
|Retained earnings                                                                                |      |                                |         |      |  |         |  
|Balance at beginning of period                                                                   |      |                                | 155,299 |      |  | 147,406 |  
|Net income                                                                                       |      |                                | 4,639   |      |  | 9,432   |  
|Common stock dividends                                                                           |      |                                | (3,742  | )    |  | (2,808  | )
|Transition to FIN 48                                                                             |      |                                |        |      |  | 523     |  
|FAS 158 measurement date transition, net of tax                                                  |      |                                | (228    | )    |  |        |  
|                                                                                                 |      |                                |         |      |  |         |  
|Balance at end of period                                                                         |      |                                | 155,968 |      |  | 154,553 |  
|                                                                                                 |      |                                |         |      |  |         |  
|Treasury stock                                                                                   |      |                                |         |      |  |         |  
|Balance at beginning of period  425,622 and 388,682 shares, respectively                        |      |                                | (12,385 | )    |  | (8,932  | )
|Shares purchased  219 in 2008 and 0 in 2007                                                     |      |                                | (11     | )    |  |        |  
|Forfeited restricted stock  417 in 2008 and 1,660 in 2007                                       |      |                                | (22     | )    |  | (81     | )
|Shares issued for incentive plans  143,981 and 63,667 shares, respectively                      |      |                                | 4,193   |      |  | 1,535   |  
|                                                                                                 |      |                                |         |      |  |         |  
|Balance at end of period  282,317 and 323,633 shares, respectively                              |      |                                | (8,225  | )    |  | (7,478  | )
|                                                                                                 |      |                                |         |      |  |         |  
|Accumulated other comprehensive loss                                                             |      |                                |         |      |  |         |  
|Balance at beginning of period                                                                   |      |                                | (1,593  | )    |  | (5,120  | )
|Change in other comprehensive loss net of tax                                                    |      |                                | (30     | )    |  |        |  
|                                                                                                 |      |                                |         |      |  |         |  
|Balance at end of period                                                                         |      |                                | (1,623  | )    |  | (5,120  | )
|                                                                                                 |      |                                |         |      |  |         |  
|Total stockholders equity                                                                       |      | $                              | 223,938 |      |  | 217,863 |  
|                                                                                                 |      |                                |         |      |  |         |  

See accompanying notes to consolidated financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(Thousands of dollars)



|                                                                      |      |                                |       |      |  |      
|--------------------------------------------------------------------- | ---- | ------------------------------ | ----- | ---- |  | -----
|                                                                      |      | Nine Months EndedSeptember 30,
|                                                                      | 2008 |                                |       | 2007
|Net income                                                            |      | $                              | 4,639 |      |  | 9,432
|                                                                      |      |                                |       |      |  |      
|Other comprehensive loss                                              |      |                                |       |      |  |      
|Items related to employee benefit plans:                              |      |                                |       |      |  |      
|Transition change in measurement date                                 |      |                                | 18    |      |  |     
|Reclassification adjustment for gains/(losses) included in net income |      |                                |       |      |  |      
|Amortization of prior service cost                                    |      |                                | 38    |      |  |     
|Amortization of actuarial loss                                        |      |                                | 43    |      |  |     
|Amortization of plan amendment                                        |      |                                | (149  | )    |  |     
|Income taxes expense related to items of other comprehensive income   |      |                                | 20    |      |  |     
|                                                                      |      |                                |       |      |  |      
|Net other comprehensive loss                                          |      |                                | (30   | )    |  |     
|                                                                      |      |                                |       |      |  |      
|Comprehensive income                                                  |      | $                              | 4,609 |      |  | 9,432
|                                                                      |      |                                |       |      |  |      

See accompanying notes to consolidated financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1  Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared by Deltic Timber
Corporation (the Company or Deltic). Certain information and accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Although management of the Company believes the disclosures contained herein are adequate to make the information presented
not misleading, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys annual report on Form 10-K for the fiscal year ended December 31,
2007. Preparation of consolidated financial statements requires management to make estimates and assumptions. These estimates and assumptions affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Management believes the accompanying consolidated financial statements contain all adjustments, consisting of only normal recurring accruals and
adjustments which, in the opinion of management, are necessary to present fairly its financial position as of September 30, 2008, and the results of its operations and cash flows for the three months and nine months ended September 30,
2008 and 2007. These consolidated financial statements are not necessarily indicative of results to be expected for the full year.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities and requires additional disclosure about the use of fair value measures, the information used to measure fair value,
and the effect fair value measurements have on earnings. SFAS 157 does not require any new fair value measurements. SFAS 157 for financial assets and financial liabilities is effective for the Company beginning January 1, 2008. On
January 1, 2009, the beginning of the next fiscal year, the standard will also apply to non-financial assets and non-financial liabilities of the Company. The adoption of SFAS 157 for financial assets and financial liabilities did not have a
material impact on the Companys consolidated financial statements. FASB Staff Position SFAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2) delays the effective date of SFAS 157 for non-financial
assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Management is evaluating the impact that SFAS 157 will have on its
non-financial assets and non-financial liabilities. The Company believes that the impact of these items upon adoption will not be material to its consolidated financial statements.

In February 2006, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of
SFAS No. 115 (SFAS 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value
measurement, which is consistent with the FASBs long-term measurement objectives for accounting for financial instruments. SFAS 159 is effective for the Company beginning January 1, 2008. The adoption of SFAS 159 did not have a material
effect on the Companys consolidated financial statements as management did not elect the fair value measurement option under the provisions of SFAS 159 for any of the Companys financial assets or liabilities.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 2  Inventories

Inventories at the balance sheet dates consisted of the following:



|                       |  |                   |       |                  |      
|---------------------- |  | ----------------- | ----- | ---------------- | -----
|(Thousands of dollars) |  | September 30,2008 |       | December 31,2007
|Logs                   |  | $                 | 912   |                  | 1,800
|Lumber                 |  |                   | 3,338 |                  | 3,994
|Materials and supplies |  |                   | 554   |                  | 362  
|                       |  |                   |       |                  |      
|                       |  | $                 | 4,804 |                  | 6,156
|                       |  |                   |       |                  |      

Note 3  Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets at the balance sheet dates consisted of the following:



|                               |  |                   |       |                  |      
|------------------------------ |  | ----------------- | ----- | ---------------- | -----
|(Thousands of dollars)         |  | September 30,2008 |       | December 31,2007
|Short-term deferred tax assets |  | $                 | 1,572 |                  | 1,545
|Prepaid expenses               |  |                   | 1,085 |                  | 278  
|Other current assets           |  |                   | 434   |                  | 479  
|                               |  |                   |       |                  |      
|                               |  | $                 | 3,091 |                  | 2,302
|                               |  |                   |       |                  |      

Note 4  Investment in Del-Tin Fiber

The Company owns 50 percent of the membership of Del-Tin Fiber L.L.C. (Del-Tin), which completed construction and commenced production
operations of a medium density fiberboard (MDF) plant near

El Dorado, Arkansas, during 1998. The Companys membership in
Del-Tin Fiber is discussed in more detail in Note 4  Investment in Del-Tin Fiber, in the Companys 2007 annual report on Form 10-K.

On August 26, 2004, the Company executed a guarantee agreement in connection with the refinancing of the debt of Del-Tin Fiber. Under Deltics guarantee agreement, the Company unconditionally guarantees the payment of 50 percent
($18,250,000 at September 30, 2008) of Del-Tins obligations under its credit agreement. The Company estimated the fair value of its guarantee of Del-Tin Fibers credit agreement to be $3,450,000. The Company is reducing this
liability systematically over the life of the credit agreement, as the Company is released from risk under the guarantee. At September 30, 2008, the Companys unamortized balance related to the value of the guarantee was $690,000.

At September 30, 2008, and December 31, 2007, the Companys share of the underlying net assets of Del-Tin Fiber exceeded its
investment by $16,061,000 and $15,820,000, respectively. The difference relates primarily to the Companys write-off of its carrying amount for its investment in Del-Tin Fiber as of December 31, 2002, which was not recorded by Del-Tin. The
equity in earnings of Del-Tin recognized by the Company exceeds its ownership percentage of Del-Tins earnings because the difference in basis between the Company and Del-Tin is being adjusted to account for Del-Tins operating results as
if it were a consolidated subsidiary.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements



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 consisted of the following:

Condensed Balance Sheet Information



|                                       |  |                   |        |                  |       
|-------------------------------------- |  | ----------------- | ------ | ---------------- | ------
|(Thousands of dollars)                 |  | September 30,2008 |        | December 31,2007
|Current assets                         |  | $                 | 10,147 |                  | 8,891 
|Property, plant, and equipment - net   |  |                   | 79,379 |                  | 82,852
|Other noncurrent assets                |  |                   | 153    |                  | 94    
|                                       |  |                   |        |                  |       
|Total assets                           |  | $                 | 89,679 |                  | 91,837
|                                       |  |                   |        |                  |       
|Current liabilities                    |  | $                 | 11,139 |                  | 11,163
|Long-term debt                         |  |                   | 30,500 |                  | 35,000
|Members capital                       |  |                   | 48,040 |                  | 45,674
|                                       |  |                   |        |                  |       
|Total liabilities and members capital |  | $                 | 89,679 |                  | 91,837
|                                       |  |                   |        |                  |       

Condensed Income Statement Information



|                                    |      |                                 |        |      |                                |        |      |  |        |      |  |        |  
|----------------------------------- | ---- | ------------------------------- | ------ | ---- | ------------------------------ | ------ | ---- |  | ------ | ---- |  | ------ | -
|(Thousands of dollars)              |      | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |       
|                                    | 2008 |                                 |        | 2007 |                                |        | 2008 |  |        | 2007 | 
|Net sales                           |      | $                               | 16,563 |      |                                | 13,006 |      |  | 48,011 |      |  | 43,788 |  
|                                    |      |                                 |        |      |                                |        |      |  |        |      |  |        |  
|Cost and expenses                   |      |                                 |        |      |                                |        |      |  |        |      |  |        |  
|Cost of sales                       |      |                                 | 13,246 |      |                                | 10,194 |      |  | 37,826 |      |  | 33,931 |  
|Depreciation                        |      |                                 | 1,339  |      |                                | 1,262  |      |  | 4,035  |      |  | 4,241  |  
|General and administrative expenses |      |                                 | 579    |      |                                | 535    |      |  | 1,786  |      |  | 1,799  |  
|                                    |      |                                 |        |      |                                |        |      |  |        |      |  |        |  
|Total costs and expenses            |      |                                 | 15,164 |      |                                | 11,991 |      |  | 43,647 |      |  | 39,971 |  
|                                    |      |                                 |        |      |                                |        |      |  |        |      |  |        |  
|Operating income                    |      |                                 | 1,399  |      |                                | 1,015  |      |  | 4,364  |      |  | 3,817  |  
|Interest income                     |      |                                 | 9      |      |                                | 11     |      |  | 27     |      |  | 42     |  
|Interest and other debt expense     |      |                                 | (461   | )    |                                | (792   | )    |  | (1,431 | )    |  | (2,418 | )
|Other income/(loss)                 |      |                                 |       |      |                                | 93     |      |  | (28    | )    |  | 20     |  
|                                    |      |                                 |        |      |                                |        |      |  |        |      |  |        |  
|Net income                          |      | $                               | 947    |      |                                | 327    |      |  | 2,932  |      |  | 1,461  |  
|                                    |      |                                 |        |      |                                |        |      |  |        |      |  |        |  



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 5  Timber and Timberlands

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



|                                                                          |  |                   |         |   |                  |         |  
|------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | ------- | -
|(Thousands of dollars)                                                    |  | September 30,2008 |         |   | December 31,2007 |        
|Purchased stumpage inventory                                              |  | $                 | 3,374   |   |                  | 3,457   |  
|Timberlands                                                               |  |                   | 82,311  |   |                  | 81,514  |  
|Fee timber                                                                |  |                   | 211,816 |   |                  | 207,992 |  
|Logging facilities                                                        |  |                   | 2,085   |   |                  | 1,979   |  
|                                                                          |  |                   |         |   |                  |         |  
|                                                                          |  |                   | 299,586 |   |                  | 294,942 |  
|                                                                          |  |                  
|Less accumulated cost of fee timber harvested and facilities depreciation |  |                   | (90,664 | ) |                  | (86,514 | )
|                                                                          |  |                   |         |   |                  |         |  
|                                                                          |  | $                 | 208,922 |   |                  | 208,428 |  
|                                                                          |  |                   |         |   |                  |         |  

Note 6  Property, Plant, and Equipment

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



|                              |  |                   |         |   |                  |         |  
|----------------------------- |  | ----------------- | ------- | - | ---------------- | ------- | -
|(Thousands of dollars)        |  | September 30,2008 |         |   | December 31,2007 |        
|Land                          |  | $                 | 125     |   |                  | 125     |  
|Land improvements             |  |                   | 5,116   |   |                  | 4,828   |  
|Buildings and structures      |  |                   | 10,117  |   |                  | 9,932   |  
|Machinery and equipment       |  |                   | 96,284  |   |                  | 90,180  |  
|                              |  |                   |         |   |                  |         |  
|                              |  |                   | 111,642 |   |                  | 105,065 |  
|Less accumulated depreciation |  |                   | (71,641 | ) |                  | (65,851 | )
|                              |  |                   |         |   |                  |         |  
|                              |  | $                 | 40,001  |   |                  | 39,214  |  
|                              |  |                   |         |   |                  |         |  

Note 7  Indebtedness

On June 30, 2008, the Company entered into an agreement with Metropolitan Life and a group of other domestic insurance companies to amend the existing note agreement of the $30,000,000 private placement senior
notes. The amendment changes the minimum fixed charge coverage and other ratios applicable to the Companys business to be the same as those contained in the Companys Series A Senior Notes placed with American AgCredit PCA. The Company
incurred $150,000 of costs which will be deferred and amortized as additional interest expense over the remaining term of the underlying debt.

Note 8
 Income Taxes

Deltic recorded an income tax benefit of $552,000 in the third quarter of 2008 compared to income tax expense of
$181,000 in the third quarter of last year. Deltics effective income tax rate from continuing operations was a benefit of 27.2 percent and 3.1 percent for the three and nine months ended September 30, 2008 compared to expense of 42.5
percent and 39.9 percent for the prior periods of 2007. The decrease in effective rate for the third quarter 2008 was partly due to a tax benefit from the Food, Conservation and Energy Act of 2008, enacted May 22, 2008, which included
provisions reducing the tax rate on qualified timber sales from 35 percent to 15 percent. The provision is effective for one year, with annual renewals possible. Other discrete adjustments are related to the true-up of estimates used in the
computation of tax expense recorded for 2007 versus finalized tax expense based on the 2007 federal and state tax returns, which were prepared in the third quarter of 2008.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 8  Income Taxes (cont.)

A discrete item related to expiration of the statute of limitations on a state return for the 2004 tax year that is available to offset future FIN 48
liabilities resulted in a benefit of $1,293,000, which was recognized in the third quarter of 2008. If the Company were to prevail on all unrecognized tax benefits recorded on the balance sheet, approximately $1,398,000 would benefit the effective
rate. The Companys policy is to recognize interest expense related to unrecognized tax benefits in interest expense and penalties in other expense. At September 30, 2008, $26,000 was accrued in other accrued liabilities.

The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2005.

The following table provides a reconciliation of the Companys income tax expense (benefit) at the statutory U.S. federal rate to the actual income
tax expense (benefit) for the three and nine months ended September 30:



|                                                                              |      |                                 |        |      |                                |      |      |  |        |      |  |       |  
|----------------------------------------------------------------------------- | ---- | ------------------------------- | ------ | ---- | ------------------------------ | ---- | ---- |  | ------ | ---- |  | ----- | -
|(Thousands of dollars)                                                        |      | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |     
|                                                                              | 2008 |                                 |        | 2007 |                                |      | 2008 |  |        | 2007 | 
|U.S. Federal income tax using statutory tax rate                              |      | $                               | 711    |      |                                | 656  |      |  | 1,574  |      |  | 5,585 |  
|State tax, net of federal tax benefit                                         |      |                                 | 56     |      |                                | 100  |      |  | 343    |      |  | 1,252 |  
|Tax effects resulting from:                                                   |      |                                 |        |      |                                |      |      |  |        |      |  |       |  
|Tax rate reduction on timber gains                                            |      |                                 | (268   | )    |                                |     |      |  | (911   | )    |  |      |  
|Recognition of state NOL carry forward available to offset FIN 48 liabilities |      |                                 | (1,293 | )    |                                |     |      |  | (1,293 | )    |  |      |  
|Tax return true-up                                                            |      |                                 | 230    |      |                                | (575 | )    |  | 230    |      |  | (567  | )
|Other                                                                         |      |                                 | 12     |      |                                |     |      |  | (84    | )    |  |      |  
|                                                                              |      |                                 |        |      |                                |      |      |  |        |      |  |       |  
|Income tax provision/(benefit) as reported                                    |      | $                               | (552   | )    |                                | 181  |      |  | (141   | )    |  | 6,270 |  
|                                                                              |      |                                 |        |      |                                |      |      |  |        |      |  |       |  

Note 9  Deferred Revenues and Other Accrued Liabilities

Deferred revenues and other accrued liabilities at the balance sheet dates consisted of the following:



|                              |  |                   |       |                  |      
|----------------------------- |  | ----------------- | ----- | ---------------- | -----
|(Thousands of dollars)        |  | September 30,2008 |       | December 31,2007
|Deferred revenues  current   |  | $                 | 4,342 |                  | 3,366
|Vacation accrual              |  |                   | 943   |                  | 885  
|Deferred compensation         |  |                   | 1,536 |                  | 1,932
|All other current liabilities |  |                   | 2,864 |                  | 751  
|                              |  |                   |       |                  |      
|                              |  | $                 | 9,685 |                  | 6,934
|                              |  |                   |       |                  |      



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 10  Other Noncurrent Liabilities

Other noncurrent liabilities at the balance sheet dates consisted of the following:



|                                              |  |                   |        |                  |       
|--------------------------------------------- |  | ----------------- | ------ | ---------------- | ------
|(Thousands of dollars)                        |  | September 30,2008 |        | December 31,2007
|Accumulated postretirement benefit obligation |  | $                 | 8,751  |                  | 8,163 
|Excess retirement plan                        |  |                   | 3,140  |                  | 3,049 
|Accrued pension liability                     |  |                   | 2,777  |                  | 2,842 
|Deferred revenue  long term portion          |  |                   | 3,465  |                  | 4,116 
|All other noncurrent payables                 |  |                   | 3,197  |                  | 1,866 
|                                              |  |                   |        |                  |       
|                                              |  | $                 | 21,330 |                  | 20,036
|                                              |  |                   |        |                  |       

Note 11  Employee and Retiree Benefit Plans

Components of net periodic retirement expense and other postretirement benefits expense consisted of the following:



|                                      |      |                                 |      |      |                                |      |      |  |        |      |  |       |  
|------------------------------------- | ---- | ------------------------------- | ---- | ---- | ------------------------------ | ---- | ---- |  | ------ | ---- |  | ----- | -
|(Thousands of dollars)                |      | Three Months EndedSeptember 30, |      |      | Nine Months EndedSeptember 30, |     
|                                      | 2008 |                                 |      | 2007 |                                |      | 2008 |  |        | 2007 | 
|Funded qualified retirement plan      |      |                                 |      |      |                                |      |      |  |        |      |  |       |  
|Service cost                          |      | $                               | 232  |      |                                | 261  |      |  | 696    |      |  | 782   |  
|Interest cost                         |      |                                 | 351  |      |                                | 322  |      |  | 1,053  |      |  | 966   |  
|Expected return on plan assets        |      |                                 | (374 | )    |                                | (312 | )    |  | (1,122 | )    |  | (935  | )
|Amortization of prior service cost    |      |                                 | 15   |      |                                | 15   |      |  | 45     |      |  | 46    |  
|Recognized actuarial loss             |      |                                 |     |      |                                | 51   |      |  |       |      |  | 151   |  
|                                      |      |                                 |      |      |                                |      |      |  |        |      |  |       |  
|Net retirement expense                |      | $                               | 224  |      |                                | 337  |      |  | 672    |      |  | 1,010 |  
|                                      |      |                                 |      |      |                                |      |      |  |        |      |  |       |  
|Unfunded nonqualified retirement plan |      |                                 |      |      |                                |      |      |  |        |      |  |       |  
|Service cost                          |      | $                               | 26   |      |                                | 34   |      |  | 78     |      |  | 103   |  
|Interest cost                         |      |                                 | 46   |      |                                | 43   |      |  | 138    |      |  | 131   |  
|Amortization of prior service cost    |      |                                 | (3   | )    |                                | (2   | )    |  | (9     | )    |  | (8    | )
|Recognized actuarial loss             |      |                                 | 6    |      |                                | 11   |      |  | 18     |      |  | 31    |  
|                                      |      |                                 |      |      |                                |      |      |  |        |      |  |       |  
|Net retirement expense                |      | $                               | 75   |      |                                | 86   |      |  | 225    |      |  | 257   |  
|                                      |      |                                 |      |      |                                |      |      |  |        |      |  |       |  
|Other postretirement benefits         |      |                                 |      |      |                                |      |      |  |        |      |  |       |  
|Service cost                          |      | $                               | 69   |      |                                | 114  |      |  | 207    |      |  | 342   |  
|Interest cost                         |      |                                 | 122  |      |                                | 112  |      |  | 366    |      |  | 336   |  
|Amortization of plan amendment        |      |                                 | (50  | )    |                                | (44  | )    |  | (150   | )    |  | (132  | )
|Recognized actuarial loss             |      |                                 | 9    |      |                                | 23   |      |  | 27     |      |  | 69    |  
|                                      |      |                                 |      |      |                                |      |      |  |        |      |  |       |  
|Other postretirement benefits expense |      | $                               | 150  |      |                                | 205  |      |  | 450    |      |  | 615   |  
|                                      |      |                                 |      |      |                                |      |      |  |        |      |  |       |  



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 11  Employee and Retiree Benefit Plans (cont.)



The Company made contributions to its qualified plan of $900,000 during the first nine months of
2008.

The measurement date provisions of FASB Statement of Financial Accounting Standard No. 158, Employers Accounting for
Defined Benefits Pension and Other Postretirement Plans, (SFAS No. 158) have been adopted effective January 1, 2008. This provision requires that the plan assets and benefit obligations be measured as of the date of the
Companys year-end balance sheet date. There are two methods of implementing the measurement date change. Deltic is using option two, which is to continue to use the measurements determined for the prior fiscal year-end reporting to estimate
the effects of the change. Accordingly, the Company changed the measurement date for pension and post retirement benefit assets and obligations from September 30 to December 31. Due to the change in measurement date, the Company reduced
retained earnings by $228,000 net of income tax effect of $147,000, and decreased accumulated other comprehensive income by $3,000 net of income tax effect of $2,000.

Effective January 1, 2007, the Company no longer offers prescription drug coverage under its other postretirement benefits plan to post-65 retirees.

Note 12  Stock-Based Compensation

The Consolidated Statements of Income for the three months
and nine months ended September 30, 2008, included $406,000 and $1,233,000, respectively, of stock-based compensation expense reflected in general and administrative expenses. For the three month and nine month periods ended September 30,
2007, the amounts were $378,000 and $1,825,000.

Stock Options  A summary of stock options as of September 30, 2008, and
changes during the nine-month period then ended are presented below:



|                                  |  |          |   |  |                                |       |                                                  |     |                               |   |      
|--------------------------------- |  | -------- | - |  | ------------------------------ | ----- | ------------------------------------------------ | --- | ----------------------------- | - | -----
|Options                           |  | Shares   |   |  | Weighted AverageExercise Price |       | Weighted AverageRemainingContractualTerm (Years) |     | AggregateIntrinsicValue($000)
|Outstanding at January 1, 2008    |  | 249,812  |   |  | $                              | 37.06 |                                                  |     |                               |   |      
|                                  |  |          |   |  |                                |       |                                                  |     |                               |   |      
|Granted                           |  | 28,481   |   |  |                                |       |                                                  |     |                               |   |      
|Exercised                         |  | (102,276 | ) |  |                                |       |                                                  |     |                               |   |      
|Forfeited/expired                 |  | (10,037  | ) |  |                                |       |                                                  |     |                               |   |      
|                                  |  |          |   |  |                                |       |                                                  |     |                               |   |      
|Outstanding at September 30, 2008 |  | 165,980  |   |  | $                              | 42.56 |                                                  | 5.9 |                               | $ | 3,498
|                                  |  |          |   |  |                                |       |                                                  |     |                               |   |      
|Exercisable at September 30, 2008 |  | 100,732  |   |  | $                              | 36.03 |                                                  | 4.1 |                               | $ | 2,781
|                                  |  |          |   |  |                                |       |                                                  |     |                               |   |      



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 12  Stock-Based Compensation (cont.)

Restricted Stock and Restricted Stock Units  A summary of nonvested restricted stock as of September 30, 2008, and changes during the
nine-month period then ended are presented below:



|                                |  |         |   |  |                                      |      
|------------------------------- |  | ------- | - |  | ------------------------------------ | -----
|Nonvested Restricted Stock      |  | Shares  |   |  | Weighted AverageGrant-DateFair
Value
|Nonvested at January 1, 2008    |  | 66,700  |   |  | $                                    | 44.91
|                                |  |        
|Granted                         |  | 18,341  |   |  |                                      |      
|Vested                          |  | (19,611 | ) |  |                                      |      
|Forfeited                       |  | (194    | ) |  |                                      |      
|                                |  |         |   |  |                                      |      
|Nonvested at September 30, 2008 |  | 65,236  |   |  | $                                    | 50.43
|                                |  |         |   |  |                                      |      

As of September 30, 2008, there was $1,529,000 of unrecognized compensation cost related to
nonvested restricted stock. That cost is expected to be recognized over a weighted-average period of 1.9 years.

Performance Units
 A summary of nonvested restricted stock performance units as of September 30, 2008, and changes during the nine months then ended are presented below:



|                                             |  |         |   |  |                                      |      
|-------------------------------------------- |  | ------- | - |  | ------------------------------------ | -----
|Nonvested Restricted Stock Performance Units |  | Shares  |   |  | Weighted AverageGrant-DateFair
Value
|Nonvested at January 1, 2008                 |  | 46,622  |   |  | $                                    | 46.29
|                                             |  |        
|Granted                                      |  | 23,364  |   |  |                                      |      
|Vested                                       |  | (23,222 | ) |  |                                      |      
|Forfeited                                    |  | (223    | ) |  |                                      |      
|                                             |  |         |   |  |                                      |      
|Nonvested at September 30, 2008              |  | 46,541  |   |  | $                                    | 51.50
|                                             |  |         |   |  |                                      |      

As of September 30, 2008, there was $1,021,000 of unrecognized compensation cost related to
nonvested restricted stock performance units. That cost is expected to be recognized over a weighted-average period of 1.7 years.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 13  Business Interruption

On August 9, 2007, the Company experienced a fire in the planer section of its operating facility located in Waldo, Arkansas. Damage was extensive to
this portion of the facility and operations at the facility were temporarily suspended while repairs were made to the damaged area. Costs of repair or replacement of property, equipment, and business interruption were covered under the terms of
applicable insurance policies, subject to deductibles. As of September 30, 2007, the Company had not received any cash proceeds from its insurance carrier and recorded $1,736,000 in other receivables related to repair of property and equipment,
clean-up costs, continuing manufacturing expenses, and the basis of equipment destroyed at the facility. Insurance recoveries of $1,381,000 were recorded as a reduction of continuing manufacturing expenses normally included in cost of sales. The
Waldo facility was fully operational in late October 2007. Business interruption and property claims were settled in December 2007, and all property insurance proceeds were reinvested in the Waldo facility.

Note 14  Contingencies

On March 28, 2007,
the Company and Central Arkansas Water (CAW), a consolidated waterworks, entered into a full and complete settlement of a pending condemnation litigation involving approximately 680 acres of real property located within the watershed of
Lake Maumelle in western Pulaski County, Arkansas. Under the terms of the settlement, CAW paid the Company $8,175,000 (approximately $12,000 per acre) for the land, and granted the Company a 90-year option to repurchase the land for the same amount
should CAW determine the land is not needed for watershed protection or if it ceases to use the land for such purpose. The Company recorded sales revenues of $8,175,000 and related costs of $675,000 for a net operating gain of $7,500,000 on this
transaction during the three months ended March 31, 2007.

At various times, the Company may be involved in litigation incidental to
its operations. Currently, there are no material legal proceedings outstanding.

Note 15  Subsequent Event

On October 29, 2008, the Company delivered a notice of voluntary prepayment (Notice Letter) to Metropolitan Life Insurance Company,
MetLife Investors USA Insurance Company, New England Life Insurance Company, General American Life Insurance Company, MetLife Insurance Company of Connecticut, and Modern Woodmen of America (collectively, the Note Purchases) to prepay in
full all of its outstanding obligations as of November 4, 2008, relating to the $30,000,000 6.01% Senior Notes that were issued pursuant to a Note Purchase Agreement dated December 20, 2002, as amended. As part of the notice, the Company
requested that the Note Purchasers waive any prepayment penalty or other requirement to pay any make whole fees. On October 30, 2008, all Note Purchasers, except for Modern Woodmen of America, accepted the Companys proposal,
counter-signed the Notice Letter, and are waiving any prepayment penalties or make whole fees. On November 4, 2008, using funds from the Companys revolving credit facility, $25,000,000 of the $30,000,000 notes were paid in
full and cancelled.



16



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##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 16  Earnings per Common Share

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



|                                                                                                           |      |                                 |        |                                |        |  |        |  |       
|---------------------------------------------------------------------------------------------------------- | ---- | ------------------------------- | ------ | ------------------------------ | ------ |  | ------ |  | ------
|(Thousands, except per share amounts)                                                                      |      | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                                                                                           | 2008 |                                 | 2007   |                                | 2008   |  | 2007  
|Net income                                                                                                 |      | $                               | 2,583  |                                | 245    |  | 4,639  |  | 9,432 
|                                                                                                           |      |                                 |        |                                |        |  |        |  |       
|Weighted average number of common shares used in basic EPS                                                 |      |                                 | 12,482 |                                | 12,488 |  | 12,449 |  | 12,477
|Effect of dilutive shares                                                                                  |      |                                 | 71     |                                | 55     |  | 76     |  | 58    
|                                                                                                           |      |                                 |        |                                |        |  |        |  |       
|Weighted average number of common shares and dilutive potential common stock used in EPS assuming dilution |      |                                 | 12,553 |                                | 12,543 |  | 12,525 |  | 12,535
|                                                                                                           |      |                                 |        |                                |        |  |        |  |       
|Earnings per common share                                                                                  |      |                                 |        |                                |        |  |        |  |       
|Basic                                                                                                      |      | $                               | .21    |                                | .02    |  | .37    |  | .76   
|Diluted                                                                                                    |      | $                               | .21    |                                | .02    |  | .37    |  | .74   

Options to purchase 10,000 shares were outstanding for the nine months ending September 30,
2008, but were not included in the computation of diluted earnings per share because the options exercise price was greater than the average market price of the common shares.

Note 17  Supplemental Cash Flow Disclosures

Income tax payments of $203,000, and $4,874,000
were made in the nine months ended September 30, 2008 and 2007, respectively. Interest paid was $2,502,000 and $2,619,000 during the nine months of 2008 and 2007, respectively. Non-cash activity includes a land exchange of $249,000 in the
quarter ended March 31, 2008.

(Increases)/decreases in working capital, other than cash and cash equivalents, consisted of the
following:



|                                                              |      |                                |        |      |  |        |  
|------------------------------------------------------------- | ---- | ------------------------------ | ------ | ---- |  | ------ | -
|(Thousands of dollars)                                        |      | Nine Months EndedSeptember 30, |       
|                                                              | 2008 |                                |        | 2007 | 
|Trade accounts receivable                                     |      | $                              | (1,655 | )    |  | 1,636  |  
|Other receivables                                             |      |                                | (29    | )    |  | (968   | )
|Inventories                                                   |      |                                | 1,352  |      |  | (897   | )
|Prepaid expenses and other current assets                     |      |                                | (845   | )    |  | (2,179 | )
|Trade accounts payable                                        |      |                                | 1,707  |      |  | 2,879  |  
|Accrued taxes other than income taxes                         |      |                                | 150    |      |  | (249   | )
|Income taxes, deferred revenues and other accrued liabilities |      |                                | 1,077  |      |  | 3,285  |  
|                                                              |      |                                |        |      |  |        |  
|                                                              |      | $                              | 1,757  |      |  | 3,507  |  
|                                                              |      |                                |        |      |  |        |  



17



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##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements



Note 18  Business Segments

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



|                                                             |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|------------------------------------------------------------ | ---- | ------------------------------- | ------ | ---- | ------------------------------ | ------ | ---- |  | ------- | ---- |  | ------- | -
|(Thousands of dollars)                                       |      | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |       
|                                                             | 2008 |                                 |        | 2007 |                                |        | 2008 |  |         | 2007 | 
|Net sales                                                    |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|Woodlands                                                    |      | $                               | 8,887  |      |                                | 8,564  |      |  | 33,015  |      |  | 29,880  |  
|Mills1                                                       |      |                                 | 27,344 |      |                                | 16,787 |      |  | 73,189  |      |  | 63,227  |  
|Real Estate2                                                 |      |                                 | 2,999  |      |                                | 4,134  |      |  | 8,209   |      |  | 26,094  |  
|Eliminations3                                                |      |                                 | (4,266 | )    |                                | (3,957 | )    |  | (16,076 | )    |  | (15,391 | )
|                                                             |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|                                                             |      | $                               | 34,964 |      |                                | 25,528 |      |  | 98,337  |      |  | 103,810 |  
|                                                             |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|Income before income taxes                                   |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|Operating income                                             |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|Woodlands                                                    |      | $                               | 5,138  |      |                                | 4,874  |      |  | 20,915  |      |  | 18,910  |  
|Mills                                                        |      |                                 | 1,815  |      |                                | (878   | )    |  | (3,165  | )    |  | (3,544  | )
|Real Estate                                                  |      |                                 | (519   | )    |                                | 82     |      |  | (1,429  | )    |  | 12,656  |  
|Corporate4                                                   |      |                                 | (4,443 | )    |                                | (2,902 | )    |  | (10,905 | )    |  | (10,617 | )
|Eliminations                                                 |      |                                 | 369    |      |                                | (410   | )    |  | 112     |      |  | (641    | )
|                                                             |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|Operating income                                             |      |                                 | 2,360  |      |                                | 766    |      |  | 5,528   |      |  | 16,764  |  
|                                                             |      |                                 |        |     
|Equity in earnings of Del-Tin Fiber                          |      |                                 | 679    |      |                                | 344    |      |  | 2,071   |      |  | 1,316   |  
|Interest income                                              |      |                                 | 74     |      |                                | 301    |      |  | 249     |      |  | 690     |  
|Interest and other debt expense                              |      |                                 | (1,230 | )    |                                | (1,262 | )    |  | (3,805  | )    |  | (3,855  | )
|Interest capitalized                                         |      |                                 | 116    |      |                                | 192    |      |  | 376     |      |  | 497     |  
|Other income/(expense)                                       |      |                                 | 32     |      |                                | 85     |      |  | 79      |      |  | 290     |  
|                                                             |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|                                                             |      | $                               | 2,031  |      |                                | 426    |      |  | 4,498   |      |  | 15,702  |  
|                                                             |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|Depreciation, amortization, and cost of fee timber harvested |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|Woodlands                                                    |      | $                               | 1,385  |      |                                | 1,328  |      |  | 4,691   |      |  | 4,544   |  
|Mills                                                        |      |                                 | 1,780  |      |                                | 1,877  |      |  | 5,297   |      |  | 5,558   |  
|Real Estate                                                  |      |                                 | 142    |      |                                | 145    |      |  | 437     |      |  | 437     |  
|Corporate                                                    |      |                                 | 20     |      |                                | 20     |      |  | 63      |      |  | 85      |  
|                                                             |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|                                                             |      | $                               | 3,327  |      |                                | 3,370  |      |  | 10,488  |      |  | 10,624  |  
|                                                             |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|Capital expenditures                                         |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|Woodlands                                                    |      | $                               | 1,258  |      |                                | 841    |      |  | 5,956   |      |  | 4,013   |  
|Mills                                                        |      |                                 | 2,029  |      |                                | 1,405  |      |  | 6,149   |      |  | 2,882   |  
|Real Estate                                                  |      |                                 | 2,634  |      |                                | 4,053  |      |  | 4,450   |      |  | 8,682   |  
|Corporate                                                    |      |                                 | 8      |      |                                | 25     |      |  | 102     |      |  | 66      |  
|                                                             |      |                                 |        |      |                                |        |      |  |         |      |  |         |  
|                                                             |      | $                               | 5,929  |      |                                | 6,324  |      |  | 16,657  |      |  | 15,643  |  
|                                                             |      |                                 |        |      |                                |        |      |  |         |      |  |         |  



|1 | The three months and nine months ended September 30, 2007, reflect the impact of the Planer Mill fire at Waldo.
(For additional information, see Note 13  Business Interruption.)
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | The nine months ended September 30, 2007 results reflect the settlement of the litigation with the Central Arkansas
Water. (For additional information, see Note 14  Contingencies.)
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3 | Primarily intersegment sales of timber from Woodlands to Mills
|- | --------------------------------------------------------------

|4 | Includes acquisition-related cost of $951,000 in the three months and nine months ended September 30, 2008.
|- | -----------------------------------------------------------------------------------------------------------



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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 $2.5 million for the third quarter of
2008 compared to income of $.2 million for the same period of 2007. The Woodlands segment continued its role as the established core operation of the Company during the third quarter, providing $5.1 million in operating income despite downward
pressure on pine sawtimber stumpage prices compared to $4.9 million in the third quarter of 2007. The Companys Mills segment recorded operating income of $1.8 million in 2008s third quarter compared to a loss of $.8 million for the third
quarter of 2007. The Real Estate segment recorded an operating loss for the 2008 third quarter of $.5 million, which compares to breakeven results for the same period of 2007. Deltic owns a 50 percent interest in Del-Tin Fiber L.L.C. and recorded
equity in earnings of $.7 million for the third quarter of 2008, an increase from $.3 million for the same quarter of 2007. The Company had an income tax benefit of $.5 million for the third quarter of 2008 compared to expense of $.2 million for the
same period of 2007 due primarily to the benefit of a lower effective income tax rate related to statutory changes with the enactment of the TREE Act that was part of the Food, Conservation, and Energy Act of 2008 that reduced the federal tax rate
on qualified timber sale gains in 2008 and 2009 and benefits from other discrete tax items.

Deltic is primarily a wood products producer
operating in a commodity-based business environment, with a major diversification in real estate development. This environment is affected by a number of factors including general economic conditions, interest rates, credit availability, imports,
foreign exchange rates, housing starts, residential repair and remodeling, commercial construction, industry capacity and production levels, the availability of raw material, and weather conditions. The difficult conditions affecting the U.S.
economy, banking system, and housing markets continues to influence the Companys operating environment. Tightened credit markets, economic uncertainties, and the large inventories of homes continued through the third quarter. Housing starts in
the U.S. have declined 31 percent from September 2007 to September 2008, to the lowest level in 17 years, and have impacted the Companys operating environment. There was some lumber price improvement in the third quarter of 2008 due to reduced
supply, but the continued economic weakness exacerbated by the crisis in the financial markets is causing prices to soften. Given Deltics size and the nature of the commodity market that it operates within, the Company has little or no control
over pricing levels for its forest products. Deltic continues to benefit from increased sawmill efficiencies and timely management actions to take advantage of supply and demand situations.

For the third quarter of 2008, pine sawtimber harvest levels increased 43,371 tons, to 147,436 when compared to the third quarter of 2007. During the
third quarter of 2007, the Companys fee timber harvest was curtailed because the Waldo Mill was shut down for approximately two months during that period for fire related repairs. The Company plans to consume the 2008 annual harvest in its
sawmills and to keep the harvest level volume approximately the same as in 2007, and will continue to manage Company timberlands on a sustainable-yield basis. The average pine sawtimber price per ton decreased ten dollars, or 26 percent, to $29 per
ton during the third quarter due to downward pressure from the higher-than-normal availability of privately owned pine sawtimber and reduced demand caused by the closure or curtailment of several sawmills in the Companys operating area. The
Company harvested 84,138 tons of pine pulpwood during the third quarter of 2008, a decrease of 21,861 tons from the same period in 2007. The average sales price was $13 per ton, no change from the third quarter of 2007. The Company sold
approximately 185 acres of non-strategic hardwood bottomland at an average sales price of $1,469 per acre during the third quarter of 2008 compared to sales of 360 acres at $1,964 for the same period of 2007. Recreational users of hardwood
bottomland continue to provide a market for the non-strategic land sales. The Woodlands segment reported hunting lease income of $.4 million for the third quarters of 2008 and 2007.

Recent advances in technology and increased pricing levels for natural gas have resulted in the viability of expanded natural gas exploration within the
state of Arkansas. One current area of activity known as the Fayetteville Shale Play is an unconventional natural gas reservoir ranging in depth from 1,300 feet to 6,500 feet, and is spread across multiple Arkansas counties. Deltic has
leased



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##### Table of Contents

approximately 32,000 net mineral acres in this area to various exploration enterprises and received applicable lease bonus payments and the possibility of
future royalty income should production be established. The Company continues to evaluate additional leasing requests within the currently defined boundary of the Fayetteville Shale Play, although future leasing will probably not be significant
within the boundary currently defined by the Arkansas Oil and Gas Commission. The ultimate benefit to Deltic from these mineral leases remains speculative and unknown to the Company and is contingent on the successful extraction and sale of natural
gas from this area. Deltics gas royalties from the defined Fayetteville Shale Play area have averaged about $132,000 per month during the third quarter of 2008. Deltic has reported total oil and gas royalty income of $.5 million and $.1
million for the third quarter of 2008 and 2007, respectively. Oil and gas lease income was $.5 million for the third quarter of 2008 compared to $.3 million for the same period of 2007.

The Mills segment benefited from reduced lumber inventories and curtailed capacities, which have led to a slight increase in average sales price in the
third quarter of 2008 of three dollars per MBF, to $307 per MBF compared to the third quarter of 2007s average of $304 per MBF. Lumber sales were 69.5 million board feet in the current period of 2008, an increase when compared to
45.6 million board feet for the same period of 2007 due to the fire related Waldo Mill shutdown in 2007. The Mills segment reported positive margins each month of the quarter due to increased productivity and lower log cost. As with any
commodity market, the Company expects the historical volatility of lumber prices and demand to continue in the future. The Company continues to expect about half of the logs supplied to its sawmills will come from its strategically located fee
timberlands.

The Real Estate segment closed the sale of 11 residential lots during the third quarter of 2008, versus 24 residential lots
for the same quarter in 2007. The average sales price per lot declined $10,000 per lot when compared to the same quarter last year due to the mix of lots sold. Deltics lot development plans provide for lot offerings that represent most real
estate market segments for planned communities. The Company opened one new neighborhood, Accadia Court, within Chenal Valley in late September, consisting of 32 lots in the middle-tier of its three price levels, to maintain the planned lot inventory
mix. The Company sold six lots within the Chenal Valley development in the third quarter of 2008 versus 22 during the same period of 2007. In Deltics other two developments, Red Oak Ridge and Chenal Downs, five lots were sold during the third
quarter of 2008 versus two during the same period of 2007. Chenal Downs is fully developed. Deltic does not plan to develop any additional residential lots in 2008 or 2009. Future annual development activity will be dependent upon the demand for the
Companys residential lots. Commercial real estate sales activity is by nature less predictable than residential sales. The Company continues to see interest in commercially zoned acreage in and around the area of The Promenade at
Chenal, an upscale shopping center within Chenal Valley, but tightened credit caused by uncertainties in the credit markets have impacted the timing of potential sales transactions.

Operating results for Del-Tin Fiber are affected by the overall medium density fiberboard (MDF) market and the plants operating
performance. Del-Tin has been able to operate at a profitable level during 2008 by passing through the higher raw materials costs, in the form of price increases, and improving production efficiencies. The demand for thin board, used in store
fixtures and laminate flooring, remained strong through the third quarter, but is starting to soften due to the reduction in housing starts. Del-Tin produced 28 percent of its product mix as thin board in the third quarter. With regard to the
Companys equity position in Del-Tin, Deltic continues to reduce depreciation expense related to the add-back per thousand square feet manufactured, which relates to the impairment taken by the Company in 2002, which was not recorded at the
Del-Tin level. The difference in basis between the Company and Del-Tin is being adjusted to account for Del-Tins operating results as if it were a consolidated subsidiary. (For further discussion, refer to Note 4 to the consolidated financial
statements.)

On May 22, 2008, the Food, Conservation, and Energy Act of 2008 was enacted. Within this Act was the TREE Act which
included a provision for a reduced federal tax rate on qualified timber gains for one year. Gains on qualified timber sales beginning May 23, 2008, through May 22, 2009, will be taxed at a 15 percent alternate tax rate for corporations.
The effects of this act have been reported in the current period of 2008 and reduced the effective tax rate for the current period and year. Deltic has also benefited from various discrete items which when combined with a lower effective tax rate
resulted in a $.5 million benefit in the third quarter.



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##### Table of Contents

Results of Operations

Three Months Ended September 30, 2008 Compared with Three Months Ended September 30, 2007

In the following
tables, Deltics net sales and results of operations are presented for the quarters ended September 30, 2008 and 2007. Explanations of significant variances and additional analyses for the Companys consolidated and segment operations
follow the tables.



|                                                |      |                             |      |      |  |      |  
|----------------------------------------------- | ---- | --------------------------- | ---- | ---- |  | ---- | -
|(Millions of dollars, except per share amounts) |      | Quarter Ended September 30, |     
|                                                | 2008 |                             |      | 2007 | 
|Net sales                                       |      |                             |      |      |  |      |  
|Woodlands                                       |      | $                           | 8.9  |      |  | 8.6  |  
|Mills                                           |      |                             | 27.3 |      |  | 16.8 |  
|Real Estate                                     |      |                             | 3.0  |      |  | 4.1  |  
|Eliminations                                    |      |                             | (4.3 | )    |  | (4.0 | )
|                                                |      |                             |      |      |  |      |  
|Net sales                                       |      | $                           | 34.9 |      |  | 25.5 |  
|                                                |      |                             |      |      |  |      |  
|Operating income/(loss) and net income/(loss)   |      |                             |      |      |  |      |  
|Woodlands                                       |      | $                           | 5.1  |      |  | 4.9  |  
|Mills                                           |      |                             | 1.8  |      |  | (.8  | )
|Real Estate                                     |      |                             | (.5  | )    |  |     |  
|Corporate                                       |      |                             | (4.4 | )    |  | (2.9 | )
|Eliminations                                    |      |                             | .3   |      |  | (.4  | )
|                                                |      |                             |      |      |  |      |  
|Operating income/(loss)                         |      |                             | 2.3  |      |  | .8   |  
|                                                |      |                            
|Equity in earnings of Del-Tin Fiber             |      |                             | .7   |      |  | .3   |  
|Interest income                                 |      |                             |     |      |  | .3   |  
|Interest and other debt expense                 |      |                             | (1.2 | )    |  | (1.3 | )
|Interest capitalized                            |      |                             | .1   |      |  | .2   |  
|Other income                                    |      |                             | .1   |      |  | .1   |  
|Income taxes                                    |      |                             | .5   |      |  | (.2  | )
|                                                |      |                             |      |      |  |      |  
|Net income/(loss)                               |      | $                           | 2.5  |      |  | .2   |  
|                                                |      |                             |      |      |  |      |  
|Earnings/(loss) per common share                |      |                             |      |      |  |      |  
|Basic                                           |      | $                           | .21  |      |  | .02  |  
|Diluted                                         |      | $                           | .21  |      |  | .02  |  

Consolidated

The $2.3 million increase in net income is primarily due to the improved financial results in the Mills segment, benefits from reduced eliminations of
intercompany profits in mill inventory caused by lower stumpage prices, and income tax benefits from a lower effective tax rate and discrete tax items, which were partially offset by increased Corporate operating expenses mainly associated with
acquisition-related general and administrative expenses deferred from prior periods.

Operating income increased $1.5 million. The Mills
segment increased $2.6 million due to improved sales price per MBF, lower manufacturing cost per MBF, and increased sales volume. The third quarter 2007 lumber sales volume was lower because the Waldo Mill was shut down for approximately two months
during the period for fire related repairs. The eliminations benefit of $.7 million period-over- period and the increased Corporate operating expense of $1.5 million are due to same reasons affecting net income.



21



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##### Table of Contents

Woodlands

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



|                                 |      |                             |       |  |   |      
|-------------------------------- | ---- | --------------------------- | ----- |  | - | -----
|                                 |      | Quarter Ended September 30,
|                                 | 2008 |                             | 2007 
|Net sales (millions of dollars)  |      |                             |       |  |   |      
|Pine sawtimber                   |      | $                           | 4.2   |  |   | 4.0  
|Pine pulpwood                    |      |                             | 1.1   |  |   | 1.4  
|Hardwood sawtimber               |      |                             | .1    |  |   | .2   
|Hardwood pulpwood                |      |                             | .3    |  |   | .3   
|Oil and gas lease income         |      |                             | .5    |  |   | .3   
|Oil and gas royalties (net)      |      |                             | .5    |  |   | .1   
|Hunting leases                   |      |                             | .4    |  |   | .4   
|                                 |      |                            
|Sales volume (thousands of tons) |      |                             |       |  |   |      
|Pine sawtimber                   |      |                             | 147.4 |  |   | 104.1
|Pine pulpwood                    |      |                             | 84.1  |  |   | 106.0
|Hardwood sawtimber               |      |                             | 2.7   |  |   | 6.6  
|Hardwood pulpwood                |      |                             | 26.6  |  |   | 27.6 
|                                 |      |                            
|Sales price (per ton)            |      |                             |       |  |   |      
|Pine sawtimber                   |      | $                           | 29    |  |   | 39   
|Pine pulpwood                    |      |                             | 13    |  |   | 13   
|Hardwood sawtimber               |      |                             | 35    |  |   | 32   
|Hardwood pulpwood                |      |                             | 10    |  |   | 10   
|                                 |      |                            
|Timberland                       |      |                             |       |  |   |      
|Net sales (in millions)          |      | $                           | .3    |  |   | .7   
|Sales volume (acres)             |      |                             | 185   |  |   | 360  
|Sales price (per acre)           |      | $                           | 1,469 |  | $ | 1,964

Net sales increased $.3 million. Sales of pine sawtimber increased $.2 million due to a 42 percent
higher sales volume, offset by a $10 per ton, or 26 percent, lower average sales price. Sales of pine pulpwood decreased $.3 million due to a 21 percent lower harvest volume. The Company sold 185 acres of non-strategic hardwood bottomland at $1,469
per acre versus sales of 360 acres at $1,964 per acre in the third quarter of 2007. There was a $.2 million increase in lease income and $.4 million increase in royalty income in the current period of 2008 versus the third quarter of 2007. The
increase in operating results was due primarily to the increase in net sales.

Mills

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



|                                |      |                             |      |  |     
|------------------------------- | ---- | --------------------------- | ---- |  | ----
|                                |      | Quarter Ended September 30,
|                                | 2008 |                             | 2007
|Net sales (millions of dollars) |      |                             |      |  |     
|Lumber                          |      | $                           | 21.3 |  | 13.8
|Residual by-products            |      |                             | 4.6  |  | 2.2 
|Lumber                          |      |                             |      |  |     
|Finished production (MMBF)      |      |                             | 67.9 |  | 41.3
|Sales volume (MMBF)             |      |                             | 69.4 |  | 45.6
|Sales price (per MBF)           |      | $                           | 307  |  | 304 

Net sales increased $10.5 million, or 62 percent, due to higher sales volume, and a slightly
higher average sales price per MBF. The sales volume in 2007 was reduced due to the Waldo Mill being shutdown for two months due to fire related repairs. The Mills had reduced manufacturing costs per MBF primarily due to lower stumpage prices and
improved operating efficiencies.



22



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##### Table of Contents

Real Estate

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



|                                           |      |                             |      |  |    
|------------------------------------------ | ---- | --------------------------- | ---- |  | ---
|                                           |      | Quarter Ended September 30,
|                                           | 2008 |                             | 2007
|Net sales (millions of dollars)            |      |                             |      |  |    
|Residential lots                           |      | $                           | .8   |  | 2.0
|Commercial acreage                         |      |                             |     |  |   
|Undeveloped acreage                        |      |                             |     |  |   
|Chenal Country Club                        |      |                             | 2.0  |  | 2.0
|                                           |      |                            
|Sales volume                               |      |                             |      |  |    
|Residential lots                           |      |                             | 11   |  | 24 
|Commercial acres                           |      |                             |     |  |   
|Undeveloped acres                          |      |                             |     |  |   
|                                           |      |                            
|Average sales price (thousands of dollars) |      |                             |      |  |    
|Residential lots                           |      | $                           | 74   |  | 84 
|Commercial acres                           |      |                             |     |  |   
|Undeveloped acres                          |      |                             |     |  |   

Net sales decreased $1.1 million due to decreases in sales of residential lots combined with a
lower average sales price per lot due to sales mix. The decrease in the segments operating income was due primarily to the same factors impacting net sales.

Corporate

The increase in operating expense for Corporate functions was mainly due to
previously deferred acquisition-related professional fees of $1 million, and increased incentive plan expenses.

Eliminations

Intersegment sales of timber from Deltics Woodlands to the Mills segment increased $.3
million to $4.3 million. The increase reflects an increase in the volume of logs coming into Deltic sawmills from its fee timberlands but at a lower transfer price from the Woodlands segment. Transfer prices are approximately that of market which
were higher in the same quarter last year.

Equity in Del-Tin Fiber

For the third quarter of 2008, Deltics equity in Del-Tin Fiber was $.7 million, an increase of $.4 million from the same period of 2007 due to
higher sales volume and a higher average sales price. The higher average sales price was due to passing along increases in wood fiber, resin glue, and wax cost to customers.



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##### Table of Contents

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



|                                |      |                             |      |  |     
|------------------------------- | ---- | --------------------------- | ---- |  | ----
|                                |      | Quarter Ended September 30,
|                                | 2008 |                             | 2007
|Net sales (millions of dollars) |      | $                           | 16.6 |  | 13.0
|Finished production (MMSF)      |      |                             | 30.9 |  | 27.2
|Board sales (MMSF)              |      |                             | 29.7 |  | 26.6
|Sales price (per MSF)           |      | $                           | 558  |  | 489 

Income Taxes

The effective income tax rate was a 27 percent benefit for the three months ended September 30, 2008, and a 42 percent expense for the same period of
2007. The decrease was due mainly to a lower effective tax rate related to the second quarter of 2008 enactment of lower federal tax rates on qualified timber gains, a discrete tax item related to the expiration of the statute of limitations on a
state return, and other adjustments from the 2007 tax return true-up.

Nine Months Ended September 30, 2008 Compared with Nine Months Ended
September 30, 2007

In the following tables, Deltics net sales and results of operations are presented for the nine-month
periods ended September 30, 2008 and 2007. Explanations of significant variances and additional analyses for the Companys consolidated and segment operations follow the tables.



|                                                |      |                                 |       |      |  |       |  
|----------------------------------------------- | ---- | ------------------------------- | ----- | ---- |  | ----- | -
|(Millions of dollars, except per share amounts) |      | Nine Months Ended September 30, |      
|                                                | 2008 |                                 |       | 2007 | 
|Net sales                                       |      |                                 |       |      |  |       |  
|Woodlands                                       |      | $                               | 33.0  |      |  | 29.9  |  
|Mills                                           |      |                                 | 73.2  |      |  | 63.2  |  
|Real Estate                                     |      |                                 | 8.2   |      |  | 26.1  |  
|Eliminations                                    |      |                                 | (16.1 | )    |  | (15.4 | )
|                                                |      |                                 |       |      |  |       |  
|Net sales                                       |      | $                               | 98.3  |      |  | 103.8 |  
|                                                |      |                                 |       |      |  |       |  
|Operating income/(loss) and net income          |      |                                 |       |      |  |       |  
|Woodlands                                       |      | $                               | 20.9  |      |  | 18.9  |  
|Mills                                           |      |                                 | (3.2  | )    |  | (3.5  | )
|Real Estate                                     |      |                                 | (1.4  | )    |  | 12.6  |  
|Corporate                                       |      |                                 | (10.9 | )    |  | (10.6 | )
|Eliminations                                    |      | $                               | .1    |      |  | (.6   | )
|                                                |      |                                 |       |      |  |       |  
|Operating income                                |      |                                 | 5.5   |      |  | 16.8  |  
|                                                |      |                                
|Equity in earnings of Del-Tin Fiber             |      |                                 | 2.1   |      |  | 1.3   |  
|Interest income                                 |      |                                 | .2    |      |  | .7    |  
|Interest and other debt expense                 |      |                                 | (3.8  | )    |  | (3.9  | )
|Interest capitalized                            |      |                                 | .4    |      |  | .5    |  
|Other income/(expense)                          |      |                                 | .1    |      |  | .3    |  
|Income taxes                                    |      |                                 | .1    |      |  | (6.3  | )
|                                                |      |                                 |       |      |  |       |  
|Net income                                      |      | $                               | 4.6   |      |  | 9.4   |  
|                                                |      |                                 |       |      |  |       |  
|Earnings per common share                       |      |                                 |       |      |  |       |  
|Basic                                           |      | $                               | .37   |      |  | .76   |  
|Diluted                                         |      | $                               | .37   |      |  | .74   |  



24



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##### Table of Contents

Consolidated

The $4.8 million decrease in net income was the result of decreased operating income from Deltics Real Estate segment and increased Corporate
general and administrative expense, partially offset by improved financial results for the Woodlands and Mills segments combined with an increase in equity in earnings of Del Tin Fiber. The 2008 period also benefited from a lower effective income
tax rate and a discrete tax item.

Operating income decreased $11.3 million. The Woodlands segment increased $2 million due primarily to
increased sales of non-strategic hardwood timberland, lease income, and royalty income, partially offset by lower pine sawtimber and pine pulpwood revenues. The Mills segment improved $.3 million due mainly to decreased cost per MBF of lumber sold,
which was partially offset by a lower sales price per MBF of lumber sold. Real Estate operating income decreased $14 million, primarily the result of no sales of commercial real estate or undeveloped real estate acreage in 2008 and lower residential
lot sales revenue. Corporate operating expense increased $.3 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,
|                                 | 2008 |                                 | 2007 
|Net sales (millions of dollars)  |      |                                 |       |  |      
|Pine sawtimber                   |      | $                               | 15.9  |  | 17.8 
|Pine pulpwood                    |      |                                 | 4.0   |  | 4.8  
|Hardwood sawtimber               |      |                                 | .2    |  | .3   
|Hardwood pulpwood                |      |                                 | .8    |  | .5   
|Oil and gas lease income         |      |                                 | 1.5   |  | 1.0  
|Oil and gas royalties (net)      |      |                                 | 1.1   |  | .2   
|Hunting leases                   |      |                                 | 1.3   |  | 1.3  
|                                 |      |                                
|Sales volume (thousands of tons) |      |                                 |       |  |      
|Pine sawtimber                   |      |                                 | 471.0 |  | 437.3
|Pine pulpwood                    |      |                                 | 273.5 |  | 367.7
|Hardwood sawtimber               |      |                                 | 6.9   |  | 8.5  
|Hardwood pulpwood                |      |                                 | 74.6  |  | 55.1 
|                                 |      |                                
|Sales price (per ton)            |      |                                 |       |  |      
|Pine sawtimber                   |      | $                               | 34    |  | 41   
|Pine pulpwood                    |      |                                 | 15    |  | 13   
|Hardwood sawtimber               |      |                                 | 34    |  | 31   
|Hardwood pulpwood                |      |                                 | 11    |  | 9    
|                                 |      |                                
|Timberland                       |      |                                 |       |  |      
|Net sales (millions of dollars)  |      | $                               | 4.0   |  | .8   
|Sales volume (acres)             |      |                                 | 1,830 |  | 424  
|Sales price (per acre)           |      | $                               | 2,159 |  | 1,903

Total net sales increased $3.1 million. Sales of pine sawtimber decreased by $1.9 million due
primarily to a lower average sales price per ton of $34, a 17 percent decrease when compared to $41 per ton in 2007. Sales of pine pulpwood decreased $.8 million due to a 26 percent lower harvest volume, which was partially offset by a 15 percent
increase in the average per ton sales price. Revenues for hardwood sawtimber and pulpwood increased $.3 million over the prior nine-month period. The Company sold approximately 1,830 acres of non-strategic hardwood bottomland at $2,159 per acre
versus approximately 424 acres at $1,903 an acre in 2007. Lease income increased $.5 million and royalty income increased $.9 million for the nine-month period of 2008 versus the same period in 2007. The increase in operating results was due
primarily to the increase in net sales.



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##### Table of Contents

Mills

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



|                                |      |                                 |       |  |      
|------------------------------- | ---- | ------------------------------- | ----- |  | -----
|                                |      | Nine Months Ended September 30,
|                                | 2008 |                                 | 2007 
|Net sales (millions of dollars) |      |                                 |       |  |      
|Lumber                          |      | $                               | 56.6  |  | 51.4 
|Residual by-products            |      |                                 | 13.0  |  | 9.1  
|                                |      |                                
|Lumber                          |      |                                 |       |  |      
|Finished production (MMBF)      |      |                                 | 194.5 |  | 163.0
|Sales volume (MMBF)             |      |                                 | 202.1 |  | 171.0
|Sales price (per MBF)           |      | $                               | 280   |  | 300  

Total net sales increased $10 million, due to an increase in sales volume of 18 percent, partially
offset by a seven percent lower average lumber sales price. Residual sales increased 43 percent for the nine-month period of 2008 when compared to 2007. Total operating income for the Mills improved $.3 million due to lower manufacturing cost per
MBF sold, which was partially offset by a lower sales price per MBF.

Real Estate

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



|                                           |      |                                 |      |  |       
|------------------------------------------ | ---- | ------------------------------- | ---- |  | ------
|                                           |      | Nine Months Ended September 30,
|                                           | 2008 |                                 | 2007
|Net sales (millions of dollars)            |      |                                 |      |  |       
|Residential lots                           |      | $                               | 1.8  |  | 5.2   
|Commercial sites                           |      |                                 |     |  | 6.3   
|Undeveloped acreage                        |      |                                 |     |  | 8.2   
|Chenal Country Club                        |      |                                 | 5.9  |  | 5.6   
|                                           |      |                                
|Sales volume                               |      |                                 |      |  |       
|Residential lots                           |      |                                 | 25   |  | 58    
|Commercial acres                           |      |                                 |     |  | 25.99 
|Undeveloped acreage                        |      |                                 |     |  | 680.06
|                                           |      |                                
|Average sales price (thousands of dollars) |      |                                 |      |  |       
|Residential lots                           |      | $                               | 72   |  | 89    
|Commercial acres                           |      |                                 |     |  | 241   
|Undeveloped acreage                        |      |                                 |     |  | 12    

Total net sales decreased $17.9 million, or 69 percent, due to decreased sales of commercial and
undeveloped real estate acreage and reductions in sales of residential lots. The number of residential lots sold during 2008 decreased by 33 lots, or 57 percent, compared to 2007. The average sales price per lot decreased by 19 percent due to sales
mix. The decrease in the Real Estate segments operating income was due primarily to the same factors impacting net sales.



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##### Table of Contents

Corporate

The increase in operating expense for Corporate functions of $.3 million was due primarily to higher general and administrative expenses. The current
years expense included $1 million in acquisition-related professional fees that were deferred from prior periods.

Eliminations

Intersegment sales of timber from Deltics Woodlands to the Mills segment increased $.7
million to $16.1 million. The increase was due to increases in the volume of logs coming into Deltics sawmills from its fee timberlands but at a lower intersegment transfer price. Logs supplied by the Woodlands segment to the Companys
sawmills are transferred at prices that approximate market.

Equity in Del-Tin Fiber

For the first nine months of 2008, equity in earnings of Del-Tin Fiber was $2.1 million, an increase of $.8 million from the same period last year. The
$.8 million increase in the first nine months of 2008 when compared to 2007 is due to an increased production percentage of thin board and improved operating efficiencies. Del-Tin was also able to pass along increases in wood fiber, resin glue, and
wax cost in its average sales price.

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



|                                |      |                                 |      |  |     
|------------------------------- | ---- | ------------------------------- | ---- |  | ----
|                                |      | Nine Months Ended September 30,
|                                | 2008 |                                 | 2007
|Net sales (millions of dollars) |      | $                               | 48.0 |  | 43.8
|Finished production (MMSF)      |      |                                 | 91.0 |  | 88.2
|Board sales (MMSF)              |      |                                 | 89.1 |  | 90.4
|Sales price (per MSF)           |      | $                               | 539  |  | 485 

Income Taxes

The effective income tax rate was a three percent benefit for the nine months ended September 30, 2008, and a 40 percent expense for the same period
of 2007. The decrease from 2007 to 2008 was due to enactment of a lower federal tax rate on qualified timber gains and the related remeasurement of certain existing deferred tax assets and liabilities, other discrete tax items related to the lapse
of applicable statutes of limitations on a state return, and other adjustments from the 2007 tax return true-up.



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##### Table of Contents

Liquidity and Capital Resources

Cash Flows and Capital Expenditures

Net cash provided by operating activities totaled
$18.8 million for the first nine months of 2008 compared to $24.7 million for the same period in 2007. Changes in operating working capital, other than cash and cash equivalents, provided cash of $1.8 million in the 2008 period, and $3.5 million in
2007. The Companys accompanying Consolidated Statements of Cash Flows identify other differences between net income and cash provided by operating activities for each reporting period.

Capital expenditures required cash of $16.4 million in the current-year period and $15.6 million a year ago. Capital expenditures by segment consisted of
the following:



|                                    |      |                                 |        |      |  |       
|----------------------------------- | ---- | ------------------------------- | ------ | ---- |  | ------
|                                    |      | Nine Months Ended September 30,
|                                    | 2008 |                                 |        | 2007
|(Thousands of dollars)              |      |                                 |        |      | 
|Woodlands                           |      | $                               | 5,956  |      |  | 4,013 
|Mills                               |      |                                 | 6,149  |      |  | 2,882 
|Real Estate                         |      |                                 | 4,450  |      |  | 8,682 
|Corporate                           |      |                                 | 102    |      |  | 66    
|                                    |      |                                 |        |      |  |       
|Capital expenditures                |      |                                 | 16,657 |      |  | 15,643
|Non-cash land exchange              |      |                                 | (249   | )    |  |      
|                                    |      |                                 |        |      |  |       
|Capital expenditures requiring cash |      | $                               | 16,408 |      |  | 15,643
|                                    |      |                                 |        |      |  |       

The net change in purchased stumpage inventory to be utilized in the Companys sawmill
operations required no cash in 2008 and used cash of $1.6 million in 2007. The Company made advances to Del-Tin Fiber of $4.4 million during the current period, which was an increase of $1.8 million from the corresponding period of 2007. The company
received $5 million in cash distributions from Del-Tin Fiber in 2008, an increase of $2.5 million from the same period in 2007. Therefore, Deltics net cash receipt from Del-Tin was $.6 million in 2008 and was a net cash advance of $.1 million
in 2007. At the end of the nine-month period in 2008, the net change in funds held by trustees to be used for acquisitions of timberland designated as replacement property for income tax purposes, as required for tax-deferred exchanges
was $1.4 million, an $.8 million net change from the prior year. Deltic received proceeds from other investing activities of $1 million in 2008 and $1.5 million in 2007. Deltic had borrowings of $2.5 million and $1 million in 2008 and 2007,
respectively. Deltic paid dividends on common stock of $2.8 million during both 2008 and 2007. In 2008, proceeds from stock options exercises amounted to $3.4 million, an increase of $2.4 million when compared to 2007. The beneficial tax effect of
stock options exercised was $.5 million in 2008 and $.3 million in 2007. There were costs associated with financing activities of $.4 million in 2008 and none in 2007.

Financial Condition

Working capital totaled $7.6 million at September 30,
2008, and $7.3 million at December 31, 2007. Deltics working capital ratio at September 30, 2008, was 1.34 to 1, compared to 1.46 to 1 at the end of 2007. Cash and cash equivalents at the end of the third quarter of 2008 were $16.5
million compared to $10.7 million at the end of 2007. During the first nine months of 2008, total indebtedness of the Company increased by $2.5 million to $72.5 million compared to $70 million at the end of 2007. Deltics long-term debt to
stockholders equity ratio was .294 to 1 at September 30, 2008 compared to .306 to 1 at December 31, 2007.



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##### Table of Contents

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, expanding lumber production as market conditions allow, and developing real estate at Chenal Valley and Red Oak Ridge.

On June 30, 2008, the Company entered into an agreement with Metropolitan Life and a group of other domestic insurance companies to amend the
existing note agreement of the $30,000,000 private placement senior notes. The amendment changes the minimum fixed charge coverage and other ratios applicable to the Companys business to be the same as those contained in the Companys
Series A Senior Notes placed with the American AgCredit PCA.

On October 29, 2008, Deltic delivered a notice of voluntary prepayment
to all participants in the $30 million Note Purchase Agreement dated December 20, 2002, as amended. In the agreement, the Company requested that the Note Purchasers waive any prepayment penalty or other requirement to pay any make
whole fees. All participants except Modern Woodmen of America accepted the terms on October 30, 2008. As a result, $25 million of the $30 million notes were paid in full on November 4, 2008, and cancelled.

In December 2000, the Companys Board of Directors authorized a stock repurchase program of up to $10 million of Deltic common stock. In December
2007, the Board announced a $25 million expansion of this program. As of September 30, 2008, the Company had expended $7.3 million under this program, with the purchase of 205,182 shares at an average cost of $35.60 per share; no shares have
been purchased in 2008 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

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. The funds provided from this credit agreement were used, together with the existing balance in Del-Tin Fibers debt service reserve and bond sinking fund accounts, to redeem $60 million of its $89
million industrial revenue bonds. Under the new credit agreement, the lenders, on September 1, 2004, loaned Del-Tin Fiber $30 million which is 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 ($18 million at
September 30, 2008) of Del-Tins obligations under its credit agreement.

The Company has adopted the provisions of FASB
Interpretation (FIN) 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. In accordance with FIN 45, initially Deltic estimated the fair value of its guarantee of Del-Tin Fibers credit agreement to be $3.5 million and included this non-cash amount in the
Companys March 31, 2005 Consolidated Balance Sheet as a long-term liability with an offsetting increase in the Companys investment in Del-Tin Fiber. Deltic is reducing this liability systematically over the life of the credit
agreement, as the Company is released from risk under the guarantee. As of September 30, 2008, Deltics remaining liability regarding the guarantee was $.7 million.



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##### Table of Contents

The Company has both funded and unfunded noncontributory defined benefit retirement plans that cover the
majority of its employees. The plans provide defined benefits based on years of service and final average salary. Deltic also has other postretirement benefit plans covering substantially all of its employees. The health care plan is contributory
with participants contributions adjusted as needed; the life insurance plan is noncontributory. (For information about material assumptions underlying the accounting for these plans and other components of the plans, refer to Note 15 to the
consolidated financial statements included in the Companys 2007 annual report on Form 10-K.)

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 |       | During2008 |     | 2009to 2010 |      | 2011to 2012 |      | After2012
|Contractual cash payment obligations       |  |       |       |            |     |             |      |             |      |           |     
|Real estate development infrastructure     |  | $     | 4.1   |            |    |             | 4.1  |             |     |           |    
|Long-term debt                             |  |       | 72.5  |            | 3.3 |             | 13.3 |             | 15.8 |           | 40.1
|Interest on debt1                          |  |       | 28.0  |            | 4.5 |             | 7.7  |             | 6.1  |           | 9.7 
|Retirement plans                           |  |       | 11.7  |            | .2  |             | 1.9  |             | 2.1  |           | 7.5 
|Other postretirement benefits              |  |       | 5.5   |            | .1  |             | 1.1  |             | 1.1  |           | 3.2 
|Unrecognized tax benefits                  |  |       | 1.3   |            |    |             |     |             | 1.3  |           |    
|Other long-term liabilities                |  |       | 5.4   |            | .5  |             | 3.5  |             | 1.4  |           |    
|                                           |  |       |       |            |     |             |      |             |      |           |     
|                                           |  | $     | 128.5 |            | 8.6 |             | 31.6 |             | 27.8 |           | 60.5
|                                           |  |       |       |            |     |             |      |             |      |           |     
|Other commercial commitment expirations    |  |       |       |            |     |             |      |             |      |           |     
|Guarantee of indebtedness of Del-Tin Fiber |  | $     | 18.3  |            | .8  |             | 3.0  |             | 14.5 |           |    
|Timber cutting agreements                  |  |       | .8    |            | .1  |             | .7   |             |     |           |    
|Operating leases                           |  |       | .1    |            |    |             | .1   |             |     |           |    
|Letters of credit                          |  |       | .5    |            |    |             | .1   |             | .3   |           | .1  
|                                           |  |       |       |            |     |             |      |             |      |           |     
|                                           |  | $     | 19.7  |            | .9  |             | 3.9  |             | 14.8 |           | .1  
|                                           |  |       |       |            |     |             |      |             |      |           |     



|1 | Interest commitments are estimated using the Companys
current interest rates for the respective debt agreements over their remaining terms to expiration.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

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 judgments 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



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##### Table of Contents

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 2007 annual report on Form 10-K, and this disclosure should be read in conjunction with this Form 10-Q.

Impact of Recently Effective Accounting Pronouncements

(For information regarding the impact of recently effective accounting pronouncements, refer to Note 1 to the consolidated financial statements.)

Outlook

Pine sawtimber harvest levels are expected to be 80,000 to 100,000 tons in the fourth quarter of 2008 and 550,000
to 575,000 tons for the year. Finished lumber production and sales volume will continue to be subject to market conditions, and is estimated at 50 to 70 million board feet for the fourth quarter and 250 to 270 million board feet for the
year. Residential lot sales are projected to be 35 to 40 lots for the year of 2008.

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.



|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 2007 annual report on Form 10-K.
Those disclosures should be read in conjunction with this Form 10-Q.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls
and Procedures

Deltic has established disclosure controls and procedures to ensure that material information relating to the
Company, including its consolidated subsidiaries, is made known to the officers who certify the Companys financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation as of September 30, 2008, the Chief Executive Officer and Chief Financial Officer of the Company have concluded that the
Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.



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Changes in Internal Control Over Financial Reporting

Deltics management, with the Chief Executive Officer and Chief Financial Officer, have evaluated any changes in the Companys internal control
over financial reporting that occurred during the Companys most recent fiscal quarter, and have concluded that there was no change to Deltics internal control over financial reporting that has materially affected, or is reasonably likely
to materially affect, Deltics internal control over financial reporting.



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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 1A. | Risk Factors
|-------- | ------------

There have been no material changes
from the risk factors previously disclosed in Item 1A of Part I in the Companys 2007 annual report on Form 10-K.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Issuer Purchase of Equity Securities



|                                       |  |                                |  |                            |  |                                                                               |  |                                                                                                |           
|-------------------------------------- |  | ------------------------------ |  | -------------------------- |  | ----------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | ----------
|Period                                 |  | Total Numberof SharesPurchased |  | AveragePrice PaidPer Share |  | Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs |  | Maximum Approximate DollarValue of Shares that May YetBe Purchased Under thePlans or Programs1
|July 1 through July 31, 2008           |  |                               |  |                           |  |                                                                              |  | $                                                                                              | 27,696,122
|                                       |  |                                |  |                           
|August 1 through August 31, 2008       |  |                               |  |                           |  |                                                                              |  | $                                                                                              | 27,696,122
|                                       |  |                                |  |                           
|September 1 through September 30, 2008 |  |                               |  |                           |  |                                                                              |  | $                                                                                              | 27,696,122



|1 | In December 2000, the Companys Board of Directors authorized a stock repurchase plan of up to $10 million of
Deltic common stock. In December 2007, this plan was expanded by $25 million. 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.



33



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##### Table of Contents

|Item 6. | Exhibits
|------- | --------



| | 10.10 | Termination of a material Definitive Agreement dated November 4, 2008, (incorporated by reference to Exhibit 1.02 to Registrants Current Reports on Form 8-K dated
October 30, 2008.)
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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.
| | -- | ------------------------------------------------------------------------



34



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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: |  | November 6, 2008
|                          |  | Ray C. Dillon, President         |  |  |  |       |  |                 
|                          |  | (Principal Executive Officer)    |  |  |  |       |  |                 
|                          |  |                                  |  | 
|                          |  | /s/Kenneth D. Mann               |  |  |  | Date: |  | November 6, 2008
|                          |  | Kenneth D. Mann, Vice President, |  |  |  |       |  |                 
|                          |  | Finance and Administration       |  |  |  |       |  |                 
|                          |  | (Principal Financial Officer)    |  |  |  |       |  |                 
|                          |  |                                  |  | 
|                          |  | /s/Byrom L. Walker               |  |  |  | Date: |  | November 6, 2008
|                          |  | Byrom L. Walker, Controller      |  |  |  |       |  |                 
|                          |  | (Principal Accounting Officer)   |  |  |  |       |  |                 



35