##### Table of Contents




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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D. C. 20549





---




FORM 10-Q


(Mark One)


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





For the quarterly period ended September 30, 2002





OR





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





Commission file number 1-12147





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DELTIC TIMBER CORPORATION


(Exact name of registrant as specified in its charter)





Delaware

71-0795870(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)210 East Elm Street, P. O. Box 7200, El Dorado, Arkansas

71731-7200(Address of principal executive offices)

(Zip Code)





(870) 881-9400


Registrants telephone number, including area code:





Securities registered pursuant to Section 12(b) of the Act:





Title of each class

Name of each exchange on which registeredCommon Stock, $.01 Par Value

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

New York Stock Exchange, Inc.





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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YesxNo  ̈ .





Number of shares of Common Stock, $.01 Par Value, outstanding at October 31, 2002, was 11,915,704.





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##### Table of Contents




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





Page NumberPART IFinancial InformationItem 1.

Financial Statements

3Item 2.

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

13Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19Item 4.

Controls and Procedures

19PART IIOther InformationItem 1.

Legal Proceedings

20Item 2.

Changes in Securities and Use of Proceeds

20Item 3.

Defaults Upon Senior Securities

20Item 4.

Submission of Matters to a Vote of Security Holders

20Item 5.

Other Information

20Item 6.

Exhibits and Reports on Form 8-K

20Signatures

21Certifications

22




2




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##### Table of Contents

PART IFINANCIAL INFORMATION





Item 1.    Financial Statements





DELTIC TIMBER CORPORATION


AND SUBSIDIARIES


Consolidated Balance Sheets


(Thousands of dollars)





Sept. 30,2002


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

$
2,012


6,122Trade accounts receivablenet


6,014


4,319Other receivables


2,267


2,938Inventories


5,692


5,565Prepaid expenses and other current assets


1,967


1,428Total current assets


17,952


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


42,047


36,698Investment in Del-Tin Fiber


14,527


11,600Other investments and noncurrent receivables


568


2,907Timber and timberlandsnet


206,350


211,754Property, plant, and equipmentnet


39,965


41,774Deferred charges and other assets


2,677


3,275Total assets

$
324,086


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

$
70


74Trade accounts payable


3,938


3,524Accrued taxes other than income taxes


1,076


1,190Bank overdraft


952


Deferred revenues and other accrued liabilities


4,113


2,569Total current liabilities


10,149


7,357Long-term debt


80,136


84,190Deferred tax liabilitiesnet


19,280


19,669Other noncurrent liabilities


6,831


6,365Redeemable preferred stock


30,000


30,000Stockholders equityPreferred stock





Common stock


128


128Capital in excess of par value


69,075


68,766Retained earnings


128,922


133,034Unamortized restricted stock awards


(162
)

(264
)Treasury stock


(20,273
)

(20,865
)Total stockholders equity


177,690


180,799Total liabilities and stockholders equity

$
324,086


328,380





See accompanying notes to consolidated financial statements.




3




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Consolidated Statements of Income (Unaudited)


(Thousands of dollars, except per share amounts)





Three Months Ended September 30,


Nine Months Ended September 30,2002


2001


2002


2001Net sales

$
25,565


25,440


80,766


75,734Costs and expensesCost of sales


19,154


18,742


51,927


47,607Depreciation, amortization, and cost of fee timber harvested


2,910


3,308


12,412


12,187General and administrative expenses


1,832


802


5,997


5,367Total costs and expenses


23,896


22,852


70,336


65,161Operating income


1,669


2,588


10,430


10,573Equity in loss of Del-Tin Fiber


(1,827
)

(1,647
)

(7,153
)

(6,654
)Interest income


117


11


180


918Interest and other debt expense


(1,110
)

(1,372
)

(3,356
)

(4,439
)Other income/(expense)


101


104


342


328Income/(loss) from continuing operations before income taxes


(1,050
)

(316
)

443


726Income taxes


58


202


(624
)

17Income/(loss) from continuing operations


(992
)

(114
)

(181
)

743Discontinued operations, net





51





8,382Net income/(loss)

$
(992
)

(63
)

(181
)

9,125Earnings per common shareBasicContinuing operations

$
(.13
)

(.06
)

(.16
)

(.08
)Discontinued operations





.01





.70Net income/(loss)

$
(.13
)

(.05
)

(.16
)

.62Assuming dilutionContinuing operations

$
(.13
)

(.06
)

(.16
)

(.08
)Discontinued operations





.01





.70Net income/(loss)

$
(.13
)

(.05
)

(.16
)

.62Dividends declared per common share

$
.0625


.0625


.1875


.1875Average common shares outstanding (thousands)


11,941


11,887


11,921


11,899





See accompanying notes to consolidated financial statements.




4




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Consolidated Statements of Cash Flows (Unaudited)


Nine Months Ended September 30,


(Thousands of dollars)





2002


2001Operating activitiesNet income/(loss)

$
(181
)

9,125Adjustments to reconcile net income/(loss) to net cash provided/(required) by operating activitiesDepreciation, amortization, and cost of fee timber harvested


12,412


12,187Deferred income taxes


(390
)

5,997Gain from disposal of agriculture segment assets





(14,454
)Real estate costs recovered upon sale


3,119


3,622Timberland costs recovered upon sale


534


566Equity in loss of Del-Tin Fiber


7,154


6,654Net increase/(decrease) in provisions for pension and other postretirement benefits


1,020


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


716


(18
)Othernet


538


979Net cash provided/(required) by operating activities, including discontinued operations


24,922


25,311Investing activitiesCapital expenditures requiring cash


(15,816
)

(55,286
)Net change in purchased stumpage inventory


969


2,786Advances to Del-Tin Fiber


(9,953
)

(11,846
)Proceeds from disposal of agriculture segment assets





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





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


1,730


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





17,699Othernet


662


822Net cash provided/(required) by investing activities, including discontinued operations


(22,408
)

(12,884
)Financing activitiesProceeds from borrowings


7,500


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


(11,558
)

(18,799
)Treasury stock purchases


(746
)

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


953


(575
)Preferred stock dividends paid


(1,697
)

(1,697
)Common stock dividends paid


(2,237
)

(2,233
)Proceeds from stock option exercises


1,161


Othernet





(509
)Net cash provided/(required) by financing activities, including discontinued operations


(6,624
)

(14,306
)Net increase/(decrease) in cash and cash equivalents


(4,110
)

(1,879
)Cash and cash equivalents at January 1


6,122


2,712Cash and cash equivalents at September 30

$
2,012


833





See accompanying notes to consolidated financial statements.




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Consolidated Statements of Stockholders Equity (Unaudited)


Nine Months Ended September 30,


(Thousands of dollars)





2002


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

$



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


128


128Capital in excess of par valueBalance at beginning of year


68,766


68,757Exercise of stock options


165


9Tax benefits on stock options


144


Balance at end of period


69,075


68,766Retained earningsBalance at beginning of year


133,034


128,290Net income/(loss)


(181
)

9,125Preferred stock dividends accrued


(1,697
)

(1,697
)Common stock dividends declared


(2,234
)

(2,232
)Balance at end of period


128,922


133,486Unamortized restricted stock awardsBalance at beginning of year


(264
)

(472
)Stock awards





Amortization to expense


102


156Balance at end of period


(162
)

(316
)Treasury stockBalance at beginning of year925,725 and 878,556 shares, respectively


(20,865
)

(19,869
)Shares purchased31,800 shares in 2002 and 48,500 shares in 2001


(746
)

(1,026
)Shares issued for incentive plans59,350 shares in 2002 and 1,331 shares in 2001


1,338


30Balance at end of period898,175 and 925,725 shares, respectively


(20,273
)

(20,865
)Total stockholders equity

$
177,690


181,199





See accompanying notes to consolidated financial statements.




6




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Notes to Consolidated Financial Statements


September 30, 2002


(Unaudited, except for December 31, 2001)





Note 1Interim Financial Statements





The interim
financial information included herein is unaudited; however, such information reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the Companys financial position, results of operations, and
cash flows for the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for the first nine months of the year are not necessarily indicative of the results of operations which might be expected for the
entire year.





The financial statements in Deltics 2001 annual report on Form 10-K include a summary of
significant accounting policies of the Company and should be read in conjunction with this Form 10-Q. Certain prior period amounts have been reclassified to conform with 2002 presentation format.





Note 2Earnings per Common Share





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





Three Months Ended September 30,


Nine Months Ended September 30,2002


2001


2002


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

$
(992
)

(114
)

(181
)

743Discontinued operations, net





51





8,382Less preferred dividends


(566
)

(566
)

(1,697
)

(1,697
)Income/(loss) available to common shareholders

$
(1,558
)

(629
)

(1,878
)

7,428Weighted average number of common shares used in basic EPS


11,941


11,887


11,921


11,899Effect of dilutive stock options*











Weighted average number of common shares and dilutive potential common stock used in EPS assuming dilution


11,941


11,887


11,921


11,899




7




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##### Table of Contents




DELTIC TIMBER CORPORATION


AND SUBSIDIARIES


Notes to Consolidated Financial Statements


September 30, 2002


(Unaudited, except for December 31, 2001)





Note 2Earnings per Common Share (cont.)





Three Months Ended September 30,


Nine Months Ended September 30,2002


2001


2002


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

$
(.13
)

(.06
)

(.16
)

(.08
)Discontinued operations





.01





.70Net income/(loss)

$
(.13
)

(.05
)

(.16
)

.62Assuming dilutionContinuing operations

$
(.13
)

(.06
)

(.16
)

(.08
)Discontinued operations





.01





.70Net income/(loss)

$
(.13
)

(.05
)

(.16
)

.62





| | * |  | Additional potential common shares from stock options outstanding for the third quarter and first nine months of 2002 and 2001 amounting to 30,000 and 45,000
shares and 54,000 and 28,000 shares, respectively, are excluded from the calculation of diluted earnings per share since they would result in antidilution due to the loss from continuing operations.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Note 3Inventories





Inventories at the balance sheet dates consisted of the following:





Sept. 30,2002

Dec. 31,2001(Thousands of dollars)Logs

$
1,492

1,246Lumber


3,737

3,859Materials and supplies


463

460$
5,692

5,565





Note 4Investment in Del-Tin Fiber





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




8




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##### Table of Contents




DELTIC TIMBER CORPORATION


AND SUBSIDIARIES


Notes to Consolidated Financial Statements


September 30, 2002


(Unaudited, except for December 31, 2001)





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





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





Sept. 30, 2002

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

$
7,296

5,218Debt service reserve funds


3,472

3,543Bond sinking funds


11,751

6,072Property, plant, and equipmentnet


98,505

100,907Other noncurrent assets


798

982Total assets

$
121,822

116,722Current liabilities

$
3,562

4,419Long-term debt


89,000

89,000Other noncurrent liabilities


5

6Members capital/(deficit)


29,255

23,657Accumulated other comprehensive income




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

$
121,822

116,722





Three Months Ended September 30,


Nine Months Ended September 30,2002


2001


2002


2001(Thousands of dollars)Condensed Income Statement InformationNet sales

$
9,221


8,092


23,392


10,697Costs and expensesCost of sales


10,251


8,846


29,788


16,932Depreciation


1,102


790


2,916


1,632General and administrative expenses


410


415


1,210


809Total costs and expenses


11,763


10,051


33,914


19,373Operating income/(loss)


(2,542
)

(1,959
)

(10,522
)

(8,676
)Interest income


43


47


105


145Interest and other debt expense


(928
)

(1,382
)

(3,210
)

(4,309
)Gain/(loss) on disposal of assets


(228
)




(679
)

(468
)Net income/(loss)


(3,655
)

(3,294
)

(14,306
)

(13,308
)Other comprehensive income








360


Comprehensive income/(loss)

$
(3,655
)

(3,294
)

(13,946
)

(13,308
)




9




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Notes to Consolidated Financial Statements


September 30, 2002


(Unaudited, except for December 31, 2001)





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





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





Note 5Timber and Timberlands





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





Sept. 30, 2002


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

$
4,696


5,665Timberlands


76,637


76,468Fee timber


182,004


179,424Logging facilities


1,714


1,692265,051


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


(58,701
)

(51,495
)$
206,350


211,754





Note 6Property, Plant, and Equipment





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





Sept. 30, 2002


Dec. 31, 2001(Thousands of dollars)Land

$
125


125Land improvements


4,029


3,265Buildings and structures


4,626


4,469Machinery and equipment


75,749


74,16884,529


82,027Less accumulated depreciation


(44,564
)

(40,253
)$
39,965


41,774




10




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Notes to Consolidated Financial Statements


September 30, 2002


(Unaudited, except for December 31, 2001)





Note 7Supplemental Cash Flow Disclosures





Income
taxes paid, net of refunds, were $47,000 in the 2002 period, while a net income tax refund of $2,043,000 was received in the 2001 period. Interest paid, net of amounts capitalized, was $2,452,000 and $3,620,000 in the first nine months of 2002 and
2001, respectively.





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





2002


2001(Thousands of dollars)Trade accounts receivablenet

$
(1,695
)

(917
)Other receivables


1,424


(1,111
)Inventories


(128
)

(387
)Prepaid expenses and other current assets


(540
)

(824
)Trade accounts payable


415


1,484Deferred revenues and other accrued liabilities


1,240


1,737$
716


(18
)




11




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##### Table of Contents

DELTIC TIMBER CORPORATION


AND
SUBSIDIARIES


Notes to Consolidated Financial Statements


September 30, 2002


(Unaudited, except for December 31, 2001)





Note 8Business Segments





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





Three Months Ended September 30,


Nine Months Ended September 30,2002


2001


2002


2001(Thousands of dollars)Net salesWoodlands

$
8,624


7,290


30,236


29,762Mills


18,343


15,320


55,079


44,013Real Estate


3,018


5,798


9,773


12,202Eliminations*


(4,420
)

(2,968
)

(14,322
)

(10,243
)$
25,565


25,440


80,766


75,734Income/(loss) from continuing operations before income taxOperating incomeWoodlands

$
5,051


3,101


18,142


16,693Mills


(1,600
)

(1,664
)

(3,055
)

(3,968
)Real Estate


25


2,010


1,078


2,962Corporate


(1,631
)

(629
)

(5,398
)

(4,843
)Eliminations


(176
)

(230
)

(337
)

(271
)Operating income


1,669


2,588


10,430


10,573Equity in loss of Del-Tin Fiber


(1,827
)

(1,647
)

(7,153
)

(6,654
)Interest income


117


11


180


918Interest and other debt expense


(1,110
)

(1,372
)

(3,356
)

(4,439
)Other income/(expense)


101


104


342


328$
(1,050
)

(316
)

443


726Depreciation, amortization, and cost of fee timber harvestedWoodlands

$
1,249


1,795


7,624


7,753Mills


1,504


1,378


4,338


4,059Real Estate


121


99


326


266Corporate


36


36


124


109$
2,910


3,308


12,412


12,187Capital expendituresWoodlands


1,620


1,461


3,447


43,629Mills


859


1,570


2,411


3,709Real Estate


3,972


4,190


9,889


8,068Corporate


21


19


69


56$
6,472


7,240


15,816


55,462





*Intersegment sales of timber from Woodlands to Mills




12




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##### Table of Contents

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





Results of Operations





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





The results of operations for the third quarter of 2002 was a loss of $1 million, $.13 a share after
preferred dividends, compared to a third quarter 2001 loss of $.1 million, $.05 a share. Prior-year results included income from discontinued agricultural operations, net of income taxes, of $.1 million, $.01 a share. A loss from continuing
operations for the third quarter of 2002 of $1 million compared to a loss of $.2 million a year ago, losses of $.13 and $.06 per share, respectively, after preferred dividends. Net sales for the current quarter totaled $25.6 million, an increase of
$.2 million when compared to the prior-year quarter. Operating income for the current reporting period was $1.7 million compared to $2.6 million for the corresponding quarter of 2001. Net cash provided by operating activities decreased $2.6 million,
from $8.7 million in 2001 to $6.1 million for the 2002 period.





Operating income for the third quarter of 2002
decreased $.9 million when compared to the third quarter of 2001. The Woodlands segment increased $1.9 million due primarily to increases in sales of timberland and revenues from pine sawtimber combined with a reduction in the cost of fee timber
harvested. Mills segment operating results improved $.1 million from the same period of 2001 as the Company increased its sales volume by 28 percent and lowered its lumber production cost per thousand board feet (MBF) by eight percent,
while the average lumber sales price dropped seven percent. Operating income for Real Estate segment operations decreased $2.1 million from a year ago because of decreased commercial acreage, residential lot, and undeveloped acreage sales. Corporate
operating expense was $1 million unfavorable due primarily to the prior-year period benefiting from lower-than-normal general and administrative expenses.





The Woodlands segment reported net sales of $8.6 million for the current quarter compared to $7.3 million a year ago. Sales of 1,198 acres of timberland produced revenues of $1.5 million in the current
period, while sales of 321 acres generated $.5 million in the prior-year period. Sales of pine sawtimber increased $.6 million due to an increase in average sales price of $3 per ton to $42 while the harvest volume increased 4,432 tons to 143,592
tons. Sales of hardwood pulpwood decreased $.2 million due primarily to reduced harvest levels. Operating income was $5 million in 2002, an increase of $1.9 million when compared to $3.1 million for the three months ended September 30, 2001. The
favorable variance resulted primarily from the increase in net sales combined with a $.6 million reduction in the cost of fee timber harvested due to a lower average cost per ton of timber harvested resulting from the harvest mix by company. (Refer
to the description of critical accounting policies in the Managements Discussion and Analysis section of the Companys 2001 annual report on Form 10-K.)





Mills operations net sales for the three months ended September 30, 2002, were $18.4 million compared to $15.3 million for the same period of 2001. Finished lumber
sales increased $2.5 million due mainly to a 28 percent increase in sales volume to 53 million board feet (MMBF) which was facilitated by increased production volume as a result of improved mill efficiencies during 2002, while the
average lumber sales price dropped seven percent to $293 per MBF. As a result of the rise in lumber production levels, sales of residual by-products of the manufacturing process increased by $.3 million. An operating loss of $1.6 million was
reported for the third quarter of 2002, which compares to a loss of $1.7 million for the 2001 period. The $.1 million improvement in results was primarily due to a $30 per MBF decrease in the manufacturing cost per MBF of lumber sold because of the
improved mill efficiencies, partially offset by the $22 reduction in sales price per MBF.




13




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##### Table of Contents

The Real Estate segment recorded net sales of $3 million in 2002 compared to $5.7 million in 2001. The third quarter of
2001 benefited from a 12-acre commercial site sale for $144,700 per acre and from sales of 35 acres of undeveloped acreage which generated revenues of $.3 million. Residential lot sales decreased by 13 lots to 30 in the current quarter, and the
average sales price per lot decreased $800 to $56,200 due to the mix of lot closings. Operating income decreased $2.1 million, to break-even results, due primarily to the reduction in net sales.





Corporate operating expense was $1.6 million in the third quarter of 2002, which compares to $.6 million for the same quarter of 2001. The increase was primarily due
to higher general and administrative expenses. Included in the Corporate segments general and administrative expenses are the costs related to the Companys stock incentive plan. Previously, certain stock option exercise procedures
resulted in variable-plan accounting treatment for all options outstanding, which required adjustment of the cost of options granted for changes in the market value per share of the Companys common stock. (During the third quarter of 2001, a
12 percent decrease in such stock price resulted in a net benefit for incentive plan expense of $.7 million.) These exercise provisions were amended during the fourth quarter of 2001, allowing Deltic to change to fixed-plan accounting treatment for
all outstanding options, thus eliminating the previous volatility in periodic incentive plan expense.





Equity in
the loss of Del-Tin Fiber recorded by the Company was $1.8 million in 2002 compared to $1.7 million a year ago. (For additional information about Del-Tin Fibers operating results, refer to Note 4 to the consolidated financial statements.)
Interest income increased $.1 million as the current period benefited from interest earned in connection with an income tax refund resulting from the settlement by Murphy Oil Corporation, the Companys former parent, of an audit related to
years prior to Deltics 1996 spin-off. Interest expense was $.1 million lower than in the 2001 period due mainly to a $4.1 million reduction in long-term debt during the first nine months of 2002. Income tax benefit relating to the $1 million
loss from continuing operations for the third quarter of 2002 was $.1 million. The income tax benefit was the result of recording adjustments to increase state income tax expense by $.6 million to reduce estimated income tax receivables, principally
related to years prior to the Companys 1996 spin-off from Murphy Oil Corporation, that were settled during this period, partially offset by the benefit of an adjustment to record the impact of an election to file consolidated state income tax
returns for 2001 and 2002. Income taxes related to continuing operations for the 2001 period were also a benefit of $.1 million.





Nine
Months Ended September 30, 2002 Compared with Nine Months Ended September 30, 2001





For the first nine months
of 2002, operating results were a loss of $.2 million, $.16 a share after preferred dividends, compared to net income for the nine months ended September 30, 2001, of $9.1 million, $.62 a share, including income from discontinued operations of $8.4
million, $.70 a share. For the 2002 period, the loss from continuing operations was $.2 million, $.16 a share after preferred dividends, which compares to income from continuing operations of $.7 million, a loss of $.08 a share, in the corresponding
period of 2001. Operating income for the nine months ended September 30, 2002, was $10.4 million, a decrease of $.2 million from 2001. The Companys Woodlands segment increased $1.4 million as a result of a 16 percent increase in the pine
sawtimber harvest level, partially offset by a drop in margin realized from timberland sales. The Mills segment improved $.9 million due primarily to a six percent decrease in the manufacturing cost per MBF of lumber, partially offset by a three
percent drop in average lumber sales price. Real Estate segment operations decreased $1.9 million, resulting mainly from the prior year benefiting from a commercial site sale. Corporate segment operating expense rose $.6 million.





The Woodlands segment produced net sales of $30.2 million during the nine months ended September 30, 2002, an increase of $.4
million when compared to $29.8 million during 2001. Pine sawtimber sales increased $3.7 million as a result of a 16 percent increase in sales volume to 600,089 tons combined with a $1 per ton rise in the average sales price received for pine
sawtimber to $42 per ton.




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##### Table of Contents

Net sales generated from the sale of non-strategic or higher and better use timberland decreased by $3 million to $2.3 million during the 2002
period. Sales of hardwood pulpwood dropped $.3 million due to lower harvest volumes and a 29 percent decrease in average sales price per ton. Operating income was $18.1 million for the first nine months of 2002, compared to $16.7 million in 2001.
This increase was due mainly to the increase in net sales combined with a $.3 million decrease in commission expense related totimberland acreage sale transactions and a $.3 million decrease in timber replanting expenses. (The higher-than-normal
level of such replanting expenses incurred during the 2001 period resulted from the extreme heat and drought conditions experienced in the Companys operating area during the summer of 2000.)





Mills operations recorded net sales of $55.1 million during the first nine months of 2002 compared to $44 million for the corresponding
period of 2001. The 25 percent increase was due primarily to a $9.5 million increase in sales of finished lumber resulting from a 30 percent rise in sales volume to 152.6 MMBF since the Company improved its mill operation efficiencies during 2002
which has facilitated increased production volumes and made temporary reductions in lumber production during the early portion of the 2001 period due to market conditions, partially offset by a $10 decrease in average sales price per MBF sold to
$307. As a result of the increase in production levels, sales of residual by-products of the lumber manufacturing process rose by $1.1 million. A loss from operations of $3.1 million in 2002 compared to 2001s loss of $4 million. The
improvement of $.9 million was due primarily to a $22 per MBF reduction in lumber manufacturing expenses, including a $7 per MBF drop in raw material cost for logs used in the Companys sawmills, partially offset by the three percent reduction
in average sales price per MBF sold.





Real Estate operations reported net sales of $9.8 million in 2002 compared
to $12.1 million during 2001. Included in the first nine months of 2001 was a 12-acre commercial site sale for $144,700 per acre, while the 2002 period had no such commercial sales. There were no sales of undeveloped acreage in the current period,
while 2001 included sales of 40 acres for $.3 million. Residential lot sales in 2002 totaled 82 lots, a decrease of 12 lots from the 2001 period, while the average sales price of $69,900 increased $6,100 per lot due to the mix of lots sold. The 2001
period also benefited from an intercompany sales commission related to timberland sales near the Companys Chenal Valley development. Operating income of $1.1 million in 2002 decreased $1.9 million from a year ago as the result of the decrease
in net sales.





Corporate operating expense was $5.4 million in 2002 compared to $4.8 million in 2001. The increase
of $.6 million was due to lower general and administrative expenses related to the Companys incentive plan in 2001. Equity in loss of Del-Tin Fiber recorded by the Company was $7.1 million in the current year, which compares to $6.7 million a
year ago. Interest income decreased $.7 million as 2001 benefited from interest earned from agricultural asset and timberland sales proceeds deposited with trustees, while interest expense was $1 million lower due to decreased average borrowings for
the first nine months of 2002. Income tax expense related to continuing operations increased $.6 million, to $.6 million for the current year, due to adjusting state income tax expense during 2002 for a reduction in estimated income tax receivables
related to years prior to 1996 that were settled in the current period, partially offset by the benefit of an adjustment to reflect an election to file consolidated state tax returns for 2001 and 2002, and to 2001 benefiting from recording deferred
tax assets arising from state tax loss carryforwards.





Included in the first nine months of 2001 was income from
discontinued agriculture operations, net of income taxes, which totaled $8.4 million. The sale of approximately 18,400 acres of farmland was recorded at a pretax gain of $13.4 million. Income from agriculture operating activities during 2001 was $.2
million. Income tax expense for discontinued operations was $5.3 million for the period.




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##### Table of Contents

Financial Condition





For the nine months ended September 30, 2002, net cash provided by operating activities totaled $24.9 million compared to $25.3 million for the same period in 2001. Changes in operating working capital, other than cash and
cash equivalents, provided cash of $.7 million for the first nine months of 2002, but neither provided nor required cash for the same period of 2001.





Capital expenditures required cash of $15.8 million in the current-year period and $55.3 million a year ago, of which $38.3 million was for the purchase of replacement timberland properties. Capital
expenditures by segment consisted of the following:





Nine Months Ended September 30,2002

2001(Thousands of dollars)Woodlands

$
3,447

43,629Mills


2,411

3,709Real Estate


9,889

8,068Corporate


69

56Total capital expenditures


15,816

55,462Owner-financed expenditures




(176
)Capital expenditures requiring cash

$
15,816

55,286





The net change in purchased stumpage inventory to be utilized in
the Companys sawmill operations provided cash of $1 million in 2002, and $2.8 million in 2001. The Company advanced Del-Tin Fiber $10 million during the current period and $11.8 million during the corresponding period of 2001. During 2001,
receipts of income tax refunds classified as noncurrent receivables at year-end 2000 provided $1.3 million.





During the prior-year period, disposal of agriculture segment assets generated proceeds of $18.1 million, $1.5 million of which had previously been received as farmland sale contract deposits, that were deposited with a trustee as
required for a tax-deferred exchange. These proceeds, combined with $7.7 million already held by a trustee from similar transactions recorded in prior periods, were utilized to purchase designated replacement timberland properties and are included
in capital expenditures of the Woodlands segment. Upon completion of the two reverse land exchanges in which Deltic was involved, $16.4 million previously advanced to the accommodating title holders required in such exchange was repaid to the
Company.





The Company borrowed $7.5 million and made debt repayments of $11.6 million during the first nine months
of 2002 compared to borrowings of $10.5 million and debt repayments, utilizing the funds received from reverse exchange accommodators, of $18.8 during the 2001 period. Purchase of treasury stock utilized $.7 million and $1 million in 2002 and 2001,
respectively. The increase in bank overdraft in 2002 provided $1 million, while the decrease in such overdraft during the prior-year period required $.6 million. Deltic paid dividends totaling $3.9 million in both 2002 and 2001, consisting of $2.2
million for common stock and $1.7 million for redeemable preferred stock. Proceeds from the exercise of stock options provided cash of $1.2 million during the current period, and fees paid in 2001 associated with the renewal of the Companys
revolving credit facility were $.5 million.





These net uses of funds during the first nine months of 2002 resulted
in a $4.1 million decrease in the Companys cash and cash equivalents since December 31, 2001.





During
December 2000, the Companys Board of Directors authorized a stock repurchase program of up to $10 million of its common stock. Under this program, the Company can purchase shares




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##### Table of Contents

through the open market and privately negotiated transactions at prices deemed appropriate by Deltics management. As of September 30,
2002, the Company had expended $1.8 million under this program, with the purchase of 80,300 shares at an average cost of $22.06 per share, of which 31,800 shares at an average cost of $23.44 were purchased during 2002.





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





On April 25, 2002,
Deltic announced that Banc One Capital Markets, Inc. had been retained as financial advisor to assist in the evaluation of strategic alternatives for the Companys investment in Del-Tin Fiber. This evaluation process has progressed and is
expected to continue for several more months.





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





Deltics management believes that cash provided from its operations and the
remaining amount available under its credit facility will be sufficient to meet its expected cash needs and planned expenditures, including those of the Companys continued timberland acquisition and stock repurchase programs, additional
advances to Del-Tin Fiber, preferred stock redemption, and capital expenditures, for the foreseeable future.





Statements included herein that are not historical in nature are intended to be, and are hereby identified as, forward-looking statements within the meaning of the federal securities laws. Such statements reflect the
Companys current expectations and involve risks and uncertainties. Actual results could differ materially from those included in such forward-looking statements. Factors that could cause such differences include, but are not limited to, the
cyclical nature of the industry, changes in interest rates and general economic conditions, adverse weather, cost and availability of materials used to manufacture the Companys products, and the risk factors described from time to time in the
reports and disclosure documents filed by the Company with the Securities and Exchange Commission.





Critical Accounting Policies and
Estimates





Critical accounting policies are defined as those that are reflective of significant judgements and
uncertainties and potentially result in materially different results under different assumptions and conditions. The Company has prepared its consolidated financial statements in conformity with accounting principles generally accepted in the United
States, which require management to make estimates and assumptions that affect the reported amounts in these financial statements and accompanying notes. Actual results could differ from those estimates under different assumptions or conditions. The
Company has disclosed its critical accounting policies in its 2001 annual report on Form 10-K, and this disclosure should be read in conjunction with this Form 10-Q. There have been no changes in these identified critical policies, nor have there
been any initially adopted accounting policies having a material impact on reported financial results.




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##### Table of Contents

Outlook





Pine sawtimber harvest levels are expected to be 100,000 to 150,000 tons in the fourth quarter of 2002 and 700,000 to 750,000 tons for the year. The Companys program to consider sales of timberland identified to be
non-strategic or have a higher and better use will continue, with sales for the year anticipated to be 3,000 to 3,500 acres. Finished lumber production and sales volume will continue to be subject to market conditions, and is estimated at 50 to 55
million board feet for the fourth quarter and 205 to 215 million board feet for the year. Residential lot sales are projected to be 150 to 175 lots for the year. Deltics share of equity in Del-Tin Fibers financial results is estimated to
be a pretax loss of $1.7 to $1.9 million for the fourth quarter.





Despite a strong housing market, lumber supply
continues to outpace demand due to over-production in North America and increased imports from overseas, resulting in weak prices. The recent implementation of duties on Canadian lumber imports exacerbated the imbalance, as a number of Canadian
producers initially responded by increasing production. The situation is unlikely to improve significantly until supply is reduced or the Canadian trade issue is satisfactorily resolved. However, any additional price declines are likely to be
modest, as current prices are below cash costs for many manufacturers and a number of producers have recently announced plans to curtail production. The weak lumber market may be beginning to impact timber prices. After remaining relatively stable
for most of the year, prices for Company timber sold to third parties have recently declined to levels more consistent with current lumber prices. The strong regional housing market has benefited the Companys residential lot sales. However, a
decline in regional housing starts would likely cause lot sales to fall below projected levels.





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




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##### Table of Contents




Item 3.    Quantitative and Qualitative Disclosures About Market Risk





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





Item 4.    Controls and Procedures





Within the 90-day period prior
to the filing of this report, Deltic Timber Corporation (the Company) carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. Such evaluation was under the supervision, and
with the participation, of the Companys senior management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO). Based on this evaluation, the Companys CEO and CFO have concluded that
the Companys disclosure controls and procedures are effective in timely alerting them to material information required to be included in any reports that the Company files or submits under the Securities Exchange Act of 1934, as amended. In
addition, such controls have been deemed to be effective in ensuring that the required information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.





There have been no significant changes in internal controls or in any other factors that could significantly
affect those internal controls subsequent to the date of their last evaluation.




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##### Table of Contents

PART IIOTHER INFORMATION





Item 1.    Legal Proceedings





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





Item 2.    Changes in Securities and Use of Proceeds





None.





Item 3.    Defaults Upon Senior Securities





None.





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





None.





Item 5.    Other Information





None.





Item 6.    Exhibits and Reports on Form 8-K





| | (a) |  | Exhibits
| | --- |  | --------




| | 99.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------




| | 99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------




| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------




| |  |  | None.
| |  |  | -----



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##### 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 CORPORATIONBy:

/s/    Ron L. Pearce



Date:

November 7, 2002Ron L. Pearce, President (Principal
Executive Officer)By:

/s/    Clefton D. Vaughan



Date:

November 7, 2002Clefton D. Vaughan, Vice President, Finance
and Administration (Principal Financial Officer)By:

/s/    Emily R. Evers



Date:

November 7, 2002Emily R. Evers, Controller (Principal
Accounting Officer)




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##### Table of Contents

CHIEF EXECUTIVE OFFICER CERTIFICATION





I, Ron L. Pearce, Chief Executive Officer of Deltic Timber Corporation
(the Company), certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Deltic Timber Corporation;
| | -- |  | --------------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The Companys Chief Financial Officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and we have:
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the Companys disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The Companys Chief Financial Officer and I have disclosed, based on our most recent evaluation, to the Companys auditors and the audit committee of
Companys board of directors:
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the Companys ability to record, process,
summarize and report financial data and have identified for the Companys auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal controls; and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The Companys Chief Financial Officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




/s/Ron L. Pearce





Ron L. Pearce


Chief Executive Officer


November 7, 2002




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##### Table of Contents

CHIEF FINANCIAL OFFICER CERTIFICATION





I, Clefton D. Vaughan, Chief Financial Officer of Deltic Timber Corporation (the Company), certify that:





| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Deltic Timber Corporation;
| | -- |  | --------------------------------------------------------------------------------




| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 4. |  | The Companys Chief Executive Officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and we have:
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | evaluated the effectiveness of the Companys disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 5. |  | The Companys Chief Executive Officer and I have disclosed, based on our most recent evaluation, to the Companys auditors and the audit committee of
Companys board of directors:
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the Companys ability to record, process,
summarize and report financial data and have identified for the Companys auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal controls; and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------




| | 6. |  | The Companys Chief Executive Officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




/s/Clefton D. Vaughan





Clefton D. Vaughan


Chief Financial
Officer


November 7, 2002




23