##### Table of Contents

---

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, 2003



OR



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



Commission file number 1-12147



---



DELTIC TIMBER CORPORATION

(Exact name of registrant as specified in its charter)



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



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



---



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



|Title of each class                                               |  | Name of each exchange on which registered
|----------------------------------------------------------------- |  | -----------------------------------------
|Common Stock, $.01 Par Value                                      |  | New York Stock Exchange, Inc.            
|Series A Participating Cumulative Preferred Stock Purchase Rights |  | New York Stock Exchange, Inc.            



---



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



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



Number of shares of Common Stock, $.01 Par Value, outstanding at September 30, 2003, was 11,968,279.



---



---

##### Table of Contents

TABLE OF CONTENTS - THIRD QUARTER 2003 FORM 10-Q REPORT



|           |  |                                                                                       |  | Page Number
|---------- |  | ------------------------------------------------------------------------------------- |  | -----------
|           |  | PART I - Financial Information                                                        |  |            
|           |  |                                                                                      
|Item 1.    |  | Financial Statements                                                                  |  | 3          
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 17         
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 24         
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 24         
|           |  |                                                                                      
|           |  | PART II - Other Information                                                           |  |            
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 25         
|           |  |                                                                                      
|Item 2.    |  | Changes in Securities and Use of Proceeds                                             |  | 25         
|           |  |                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 25         
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 25         
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 25         
|           |  |                                                                                      
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                      |  | 25         
|           | 
|Signatures |  | 26                                                                                   



2



---

##### Table of Contents

PART I - FINANCIAL INFORMATION



|Item 1. |  | Financial Statements
|------- |  | --------------------



DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of
dollars)



|                                                                                        |  | Sept. 30, 2003 |         |   | Dec. 31, 2002 |        
|--------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ------------- | -------
|                                                                                        |  | (unaudited)    |         |   |               |        
|Assets                                                                                  |  |                |         |   |               |        
|Current assets                                                                          |  |                |         |   |               |        
|Cash and cash equivalents                                                               |  | $              | 2,207   |   |               | 1,057  
|Trade accounts receivable - net                                                         |  |                | 6,269   |   |               | 3,230  
|Other receivables                                                                       |  |                | 2,983   |   |               | 2,321  
|Inventories                                                                             |  |                | 5,275   |   |               | 6,257  
|Prepaid expenses and other current assets                                               |  |                | 1,983   |   |               | 1,607  
|                                                                                        |  |                |         |   |               |        
|Total current assets                                                                    |  |                | 18,717  |   |               | 14,472 
|                                                                                        |  |               
|Investment in real estate held for development and sale                                 |  |                | 39,469  |   |               | 42,551 
|Other investments and noncurrent receivables                                            |  |                | 2,628   |   |               | 2,558  
|Timber and timberlands - net                                                            |  |                | 216,799 |   |               | 209,317
|Property, plant, and equipment - net                                                    |  |                | 37,412  |   |               | 39,572 
|Deferred charges and other assets                                                       |  |                | 1,884   |   |               | 2,076  
|                                                                                        |  |                |         |   |               |        
|Total assets                                                                            |  | $              | 316,909 |   |               | 310,546
|                                                                                        |  |                |         |   |               |        
|Liabilities and Stockholders Equity                                                    |  |                |         |   |               |        
|Current liabilities                                                                     |  |                |         |   |               |        
|Current maturities of long-term debt                                                    |  | $              | 64      |   |               | 70     
|Trade accounts payable                                                                  |  |                | 3,905   |   |               | 3,316  
|Accrued taxes other than income taxes                                                   |  |                | 1,142   |   |               | 1,194  
|Bank overdraft                                                                          |  |                |        |   |               | 913    
|Income taxes payable                                                                    |  |                | 49      |   |               |       
|Deferred revenues and other accrued liabilities                                         |  |                | 4,816   |   |               | 6,854  
|                                                                                        |  |                |         |   |               |        
|Total current liabilities                                                               |  |                | 9,976   |   |               | 12,347 
|                                                                                        |  |               
|Long-term debt                                                                          |  |                | 121,072 |   |               | 116,120
|Deferred tax liabilities - net                                                          |  |                | 11,660  |   |               | 11,955 
|Other noncurrent liabilities                                                            |  |                | 7,853   |   |               | 7,162  
|Stockholders equity                                                                    |  |                |         |   |               |        
|Cumulative preferred stock - $.01 par, authorized 20,000,000 shares, zero shares issued |  |                |        |   |               |       
|Common stock - $.01 par, authorized 50,000,000 shares, 12,813,879 shares issued         |  |                | 128     |   |               | 128    
|Capital in excess of par value                                                          |  |                | 69,459  |   |               | 69,075 
|Retained earnings                                                                       |  |                | 115,898 |   |               | 114,165
|Unamortized restricted stock awards                                                     |  |                | (34     | ) |               | (133   
|Treasury stock                                                                          |  |                | (19,103 | ) |               | (20,273
|                                                                                        |  |                |         |   |               |        
|Total stockholders equity                                                              |  |                | 166,348 |   |               | 162,962
|                                                                                        |  |                |         |   |               |        
|Total liabilities and stockholders equity                                              |  | $              | 316,909 |   |               | 310,546
|                                                                                        |  |                |         |   |               |        



See
accompanying notes to consolidated financial statements.



3



---

##### 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, |       
|------------------------------------------------------------ |  | -------------------------------- | ------ | - | ------------------------------- | ------
|                                                             |  | 2003                             |        |   | 2002                            |       
|Net sales                                                    |  | $                                | 30,730 |   |                                 | 25,565
|                                                             |  |                                  |        |   |                                 |       
|Costs and expenses                                           |  |                                  |        |   |                                 |       
|Cost of sales                                                |  |                                  | 22,324 |   |                                 | 19,154
|Depreciation, amortization, and cost of fee timber harvested |  |                                  | 3,126  |   |                                 | 2,910 
|General and administrative expenses                          |  |                                  | 1,862  |   |                                 | 1,832 
|                                                             |  |                                  |        |   |                                 |       
|Total costs and expenses                                     |  |                                  | 27,312 |   |                                 | 23,896
|                                                             |  |                                  |        |   |                                 |       
|Operating income                                             |  |                                  | 3,418  |   |                                 | 1,669 
|                                                             |  |                                  |        |  
|Equity in Del-Tin Fiber                                      |  |                                  | (1,598 | ) |                                 | (1,827
|Interest income                                              |  |                                  | 306    |   |                                 | 117   
|Interest and other debt expense                              |  |                                  | (1,599 | ) |                                 | (1,110
|Other income/(expense)                                       |  |                                  | 61     |   |                                 | 101   
|                                                             |  |                                  |        |   |                                 |       
|Income/(loss) before income taxes                            |  |                                  | 588    |   |                                 | (1,050
|                                                             |  |                                  |        |  
|Income taxes                                                 |  |                                  | (254   | ) |                                 | 58    
|                                                             |  |                                  |        |   |                                 |       
|Net income/(loss)                                            |  | $                                | 334    |   |                                 | (992  
|                                                             |  |                                  |        |   |                                 |       
|Earnings per common share                                    |  |                                  |        |   |                                 |       
|Basic                                                        |  | $                                | .03    |   |                                 | (.13  
|Assuming dilution                                            |  |                                  | .03    |   |                                 | (.13  
|                                                             |  |                                  |        |  
|Dividends declared per common share                          |  | $                                | .0625  |   |                                 | .0625 
|                                                             |  |                                  |        |   |                                 |       
|Average common shares outstanding (thousands)                |  |                                  | 11,919 |   |                                 | 11,941
|                                                             |  |                                  |        |   |                                 |       



See
accompanying notes to consolidated financial statements.



4



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30,

(Thousands of
dollars)



|                                                                                                   |  | 2003 |         |   | 2002 |        
|-------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -------
|Operating activities                                                                               |  |      |         |   |      |        
|Net income/(loss)                                                                                  |  | $    | 3,965   |   |      | (181   
|Adjustments to reconcile net income/(loss) to net cash provided/(required) by operating activities |  |      |         |   |      |        
|Depreciation, amortization, and cost of fee timber harvested                                       |  |      | 10,125  |   |      | 12,412 
|Deferred income taxes                                                                              |  |      | (345    | ) |      | (390   
|Real estate costs recovered upon sale                                                              |  |      | 7,660   |   |      | 3,119  
|Timberland costs recovered upon sale                                                               |  |      | 826     |   |      | 534    
|Equity in Del-Tin Fiber                                                                            |  |      | 3,990   |   |      | 7,154  
|Net increase/(decrease) in provisions for pension and other postretirement benefits                |  |      | 1,512   |   |      | 1,020  
|(Increase)/decrease in operating working capital other than cash and cash equivalents              |  |      | (1,287  | ) |      | 716    
|Other - net                                                                                        |  |      | 94      |   |      | 538    
|                                                                                                   |  |      |         |   |      |        
|Net cash provided/(required) by operating activities                                               |  |      | 26,540  |   |      | 24,922 
|                                                                                                   |  |      |         |   |      |        
|Investing activities                                                                               |  |      |         |   |      |        
|Capital expenditures requiring cash                                                                |  |      | (20,827 | ) |      | (15,816
|Net change in purchased stumpage inventory                                                         |  |      | (1,594  | ) |      | 969    
|Advances to Del-Tin Fiber                                                                          |  |      | (7,244  | ) |      | (9,953 
|(Increase)/decrease in funds held by trustee                                                       |  |      | (14     | ) |      | 1,730  
|Other - net                                                                                        |  |      | 1,293   |   |      | 662    
|                                                                                                   |  |      |         |   |      |        
|Net cash provided/(required) by investing activities                                               |  |      | (28,386 | ) |      | (22,408
|                                                                                                   |  |      |         |   |      |        
|Financing activities                                                                               |  |      |         |   |      |        
|Proceeds from borrowings                                                                           |  |      | 11,539  |   |      | 7,500  
|Repayments of notes payable and long-term debt                                                     |  |      | (6,593  | ) |      | (11,558
|Treasury stock purchases                                                                           |  |      | (377    | ) |      | (746   
|Increase/(decrease) in bank overdraft                                                              |  |      | (913    | ) |      | 953    
|Preferred stock dividends paid                                                                     |  |      |        |   |      | (1,697 
|Common stock dividends paid                                                                        |  |      | (2,232  | ) |      | (2,237 
|Proceeds from stock option exercises                                                               |  |      | 1,572   |   |      | 1,161  
|                                                                                                   |  |      |         |   |      |        
|Net cash provided/(required) by financing activities                                               |  |      | 2,996   |   |      | (6,624 
|                                                                                                   |  |      |         |   |      |        
|Net increase/(decrease) in cash and cash equivalents                                               |  |      | 1,150   |   |      | (4,110 
|Cash and cash equivalents at January 1                                                             |  |      | 1,057   |   |      | 6,122  
|                                                                                                   |  |      |         |   |      |        
|Cash and cash equivalents at September 30                                                          |  | $    | 2,207   |   |      | 2,012  
|                                                                                                   |  |      |         |   |      |        



See
accompanying notes to consolidated financial statements.



5



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Stockholders Equity (Unaudited)

Nine Months Ended September 30,

(Thousands of
dollars)



|                                                                                                                                                  |  | 2003 |         |   | 2002 |        
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -------
|Cumulative preferred stock - $.01 par, authorized 20,000,000 shares, 600,000 shares issued as redeemable preferred stock at end of
period in 2002 |  | $    |        |   |      |       
|                                                                                                                                                  |  |      |         |   |      |        
|Common stock - $.01 par, authorized 50,000,000 shares, 12,813,879 shares issued at end of period in 2003 and 2002                                 |  |      | 128     |   |      | 128    
|                                                                                                                                                  |  |      |         |   |      |        
|Capital in excess of par value                                                                                                                    |  |      |         |   |      |        
|Balance at beginning of year                                                                                                                      |  |      | 69,075  |   |      | 68,766 
|Exercise of stock options                                                                                                                         |  |      | 182     |   |      | 165    
|Tax benefits on stock options                                                                                                                     |  |      | 202     |   |      | 144    
|                                                                                                                                                  |  |      |         |   |      |        
|Balance at end of period                                                                                                                          |  |      | 69,459  |   |      | 69,075 
|                                                                                                                                                  |  |      |         |   |      |        
|Retained earnings                                                                                                                                 |  |      |         |   |      |        
|Balance at beginning of year                                                                                                                      |  |      | 114,165 |   |      | 133,034
|Net income/(loss)                                                                                                                                 |  |      | 3,965   |   |      | (181   
|Preferred stock dividends accrued                                                                                                                 |  |      |        |   |      | (1,697 
|Common stock dividends declared                                                                                                                   |  |      | (2,232  | ) |      | (2,234 
|                                                                                                                                                  |  |      |         |   |      |        
|Balance at end of period                                                                                                                          |  |      | 115,898 |   |      | 128,922
|                                                                                                                                                  |  |      |         |   |      |        
|Unamortized restricted stock awards                                                                                                               |  |      |         |   |      |        
|Balance at beginning of year                                                                                                                      |  |      | (133    | ) |      | (264   
|Stock awards                                                                                                                                      |  |      |        |   |      |       
|Amortization to expense                                                                                                                           |  |      | 99      |   |      | 102    
|                                                                                                                                                  |  |      |         |   |      |        
|Balance at end of period                                                                                                                          |  |      | (34     | ) |      | (162   
|                                                                                                                                                  |  |      |         |   |      |        
|Treasury stock                                                                                                                                    |  |      |         |   |      |        
|Balance at beginning of year  898,175 and 925,725 shares, respectively                                                                           |  |      | (20,273 | ) |      | (20,865
|Shares purchased  15,907 shares in 2003 and 31,800 shares in 2002                                                                                |  |      | (377    | ) |      | (746   
|Shares issued for incentive plans  68,482 shares in 2003 and 59,350 shares in 2002                                                               |  |      | 1,547   |   |      | 1,338  
|                                                                                                                                                  |  |      |         |   |      |        
|Balance at end of period  845,600 and 898,175 shares, respectively                                                                               |  |      | (19,103 | ) |      | (20,273
|                                                                                                                                                  |  |      |         |   |      |        
|Total stockholders equity                                                                                                                        |  | $    | 166,348 |   |      | 177,690
|                                                                                                                                                  |  |      |         |   |      |        



See
accompanying notes to consolidated financial statements.



6



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for
December 31, 2002)



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 2002 annual report on Form 10-K include a summary
of significant accounting policies of the Company and should be read in conjunction with this Form 10-Q. Certain prior period amounts have been reclassified to conform with the 2003 presentation format.



Note 2  Impact of Recently Effective Accounting Pronouncements



In August 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 143, Accounting for Asset Retirement Obligations. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated
retirement costs and is effective for financial statements issued for fiscal years beginning after June 15, 2002. Adoption of SFAS 143 did not have an effect on the Companys financial position, results of operations, or cash flows.



In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred, and is effective for exit or disposal activities
that are initiated after December 31, 2002. The Company has not initiated any such exit or disposal activities in 2003; therefore, adoption of SFAS 146 has had no impact on the Companys financial statements.



In November 2002, the FASB issued Financial Accounting Standards Board Interpretation No.
(FIN) 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. It clarified that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the guarantee. The recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has
issued no such guarantees in 2003.



In December 2002, the FASB issued SFAS 148,
Accounting for Stock-Based Compensation  Transition and Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting
for stock-based compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more prominent disclosures about the effect of the method used on reported results in both annual and interim financial statements. The
Company currently applies Accounting Principles Board Opinion (APB) 25, Accounting for Stock Issued to Employees, to account for stock-based compensation and has not adopted the measurement provisions of SFAS 123, as amended by SFAS 148;
however, it has adopted the disclosure requirements of both SFAS 123 and SFAS 148.



7



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for
December 31, 2002)



Note 2  Impact of Recently Effective Accounting
Pronouncements (cont.)



In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities. This interpretation addresses consolidation of certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial support from other parties. The consolidation provisions of FIN 46 apply to variable interest entities created, and to variable interest entities in which an enterprise
obtains an interest, after January 31, 2003. The Company has not created or obtained an interest in any such entities.



In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies financial accounting
and reporting for derivative instruments and for hedging activities under SFAS 133, Accounting for Derivatives and Hedging Activities. This statement (1) clarifies under what circumstances a contract with an initial net investment meets the
characteristic of a derivative, (2) clarifies when a derivative contains a financing component, and (3) amends the definition of an underlying to conform to FIN 45. SFAS 149 is effective for contracts entered into or modified after June 30, 2003,
with all provisions applied prospectively. The Company has no derivative instruments and is not currently engaged in hedging activities, accordingly, adoption of this statement is not expected to have a material impact on the Companys
financial statements.



In May 2003, the FASB issued SFAS 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify an instrument that is within its scope as a liability. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. As of September 30, 2003, the Company had no financial instruments within the scope of SFAS 150.



8



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for
December 31, 2002)



Note 3  Earnings per Common Share



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



|                                                                                                           |  | Three Months Ended September 30, |        |      | Nine Months Ended September 30, |  
|---------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | ---- | ------------------------------- | -
|(Thousands, except per share amounts)                                                                      |  | 2003                             |        | 2002 |                                 |  
|Net income/(loss)                                                                                          |  | $                                | 334    |      | (992                            | )
|Less preferred dividends                                                                                   |  |                                  |       |      | (566                            | )
|                                                                                                           |  |                                  |        |      |                                 |  
|Income available to common shareholders                                                                    |  | $                                | 334    |      | (1,558                          | )
|                                                                                                           |  |                                  |        |      |                                 |  
|Weighted average number of common shares used in basic EPS                                                 |  |                                  | 11,919 |      | 11,941                          |  
|Effect of dilutive stock options*                                                                          |  |                                  | 49     |      |                                |  
|                                                                                                           |  |                                  |        |      |                                 |  
|Weighted average number of common shares and dilutive potential common stock used in EPS assuming dilution |  |                                  | 11,968 |      | 11,941                          |  
|                                                                                                           |  |                                  |        |      |                                 |  
|Earnings per common share                                                                                  |  |                                  |        |      |                                 |  
|Basic                                                                                                      |  | $                                | .03    |      | (.13                            | )
|Assuming dilution                                                                                          |  |                                  | .03    |      | (.13                            | )

---

|* | Additional potential common shares from stock options outstanding for the third quarter and first nine months of 2002, amounting to 30,000 and 45,000 shares, respectively, are
excluded from the calculation of diluted earnings per share since they would result in antidilution due to the negative amount of income available to common shareholders (after deducting preferred dividends).
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for
December 31, 2002)



Note 4  Stock-Based Compensation



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



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



|                                                                                                                                                                            |  | Three Months EndedSeptember 30, |      |   | Nine MonthsEndedSeptember 30, |       
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---- | - | ----------------------------- | ------
|(Thousands, except per share amounts)                                                                                                                                       |  | 2003                            |      |   | 2002                          |       
|Net income/(loss), as reported                                                                                                                                              |  | $                               | 334  |   |                               | (992  
|Plus total stock-based compensation expense determined under the intrinsic value method for awards, net of related tax effects,
included in the determination of net income |  |                                 | 46   |   |                               | 82    
|Less pro forma total stock-based compensation expense determined under the fair value method for all awards, net of related tax
effects                                     |  |                                 | (165 | ) |                               | (195  
|                                                                                                                                                                            |  |                                 |      |   |                               |       
|Pro forma net income/(loss)                                                                                                                                                 |  | $                               | 215  |   |                               | (1,105
|                                                                                                                                                                            |  |                                 |      |   |                               |       
|Basic earnings per share                                                                                                                                                    |  |                                 |      |   |                               |       
|As reported                                                                                                                                                                 |  |                                 | .03  |   |                               | (.13  
|Pro forma                                                                                                                                                                   |  |                                 | .02  |   |                               | (.14  
|                                                                                                                                                                            |  |                                 |      |  
|Dilutive earnings per share                                                                                                                                                 |  |                                 |      |   |                               |       
|As reported                                                                                                                                                                 |  |                                 | .03  |   |                               | (.13  
|Pro forma                                                                                                                                                                   |  |                                 | .02  |   |                               | (.14  



For the pro forma net income
calculation in the preceding table, the fair value of each option on the date of grant was estimated using the Black-Scholes option-pricing model and the following assumptions for awards in 2003 and 2002, respectively: dividend yields of 1.02
percent and 1.06 percent; expected volatilty of 32.69 percent and 31.19 percent; risk-free interest rates of 2.86 percent and 4.37 percent; and expected lives of five years. Using these assumptions, the weighted average grant-date fair value per
share of options granted in 2003 and 2002 was $7.35 and $9.26, respectively.



10



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for
December 31, 2002)



Note 5  Inventories



Inventories at the balance sheet dates consisted of the following:



|(Thousands of dollars) |  | Sept. 30, 2003 |       | Dec. 31, 2002
|---------------------- |  | -------------- | ----- | -------------
|Logs                   |  | $              | 1,251 |              
|Lumber                 |  |                | 3,772 |              
|Materials and supplies |  |                | 252   |              
|                       |  |                |       |              
|                       |  | $              | 5,275 |              
|                       |  |                |       |              



Note 6  Investment in Del-Tin
Fiber



Deltic owns 50 percent of the membership interest of Del-Tin Fiber,
which completed construction and commenced production operations of a medium density fiberboard (MDF) plant near El Dorado, Arkansas, during 1998. On April 25, 2002, Deltic announced that Banc One Capital Markets, Inc. had been retained
as financial advisor to assist in the evaluation of strategic alternatives for the Companys investment in Del-Tin Fiber. In January 2003, Deltic announced in its fourth quarter 2002 earnings news release that following a review of these
strategic alternatives, it was determined that the MDF business did not represent a growth area for the Company. Consequently, the Company intends to exit this business upon the earliest, reasonable opportunity provided by the market. As a result of
this decision, the Companys evaluation of possible impairment of the carrying value of its investment in the equity method investee, as required by APB 18, resulted in a determination that the Companys investment was impaired as of
December 31, 2002, and the carrying amount of such investment was written off, to zero, in the fourth quarter of 2002. The write-off amounted to $18,723,000. In performing this impairment evaluation, the Companys management made a number of
estimates and assumptions related to the timing of the sale of its ownership interest, the expected selling price for its interest, future operating results for Del-Tin Fiber, and the possibility that the joint-ventures long-term debt would be
refinanced. It is reasonably possible that a change in these estimates and assumptions might occur, which could have a material impact on the Companys future financial statements, as well as its intentions regarding the disposition of its
investment in the facility. Due to the Companys commitment to fund its share of any of the facilitys operating working capital needs until the facility is able to consistently generate sufficient funds to meet its cash requirements or
Deltics ownership interest in the facility is sold, the Company will continue to recognize losses related to Del-Tin Fiber to the extent of these advances in excess of the sinking fund requirement for 2003, made to the facility since December
31, 2002. A liability representing the Companys share of this sinking fund requirement, in the amount of $4,478,000, was accrued as of December 31, 2002. (The balance in this accrued liability at September 30, 2003, was $974,000.) Therefore,
the amount of equity in Del-Tin Fiber reported on the Companys Consolidated Statements of Income is not equal to 50 percent of the facilitys reported operating results for the period. Based on the operating results of Del-Tin Fiber, the
amount of the Companys equity loss would have been $4,297,000 for the first nine months of 2003 versus the $3,990,000 actually reported. The management of Del-Tin Fiber has performed evaluations of possible impairment of the long-lived assets
of the plant in accordance with SFAS 121 and/or 144, as applicable. To-date, these analyses have indicated that no impairment exists at the Del-Tin Fiber level.



11



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for
December 31, 2002)



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



The maximum potential amount of future payments that could be required of
the Company under current contractual guarantees is limited to $17,500,000 committed under the contingent equity agreement. However, with the Company currently funding its share of Del-Tin Fibers sinking fund contribution on a voluntary basis,
potential future payments are estimated at approximately $32,571,000 should the facilitys long-term debt not be refinanced, its financial results not become sufficient to fund its obligations, or if the Company has not sold its ownership
interest by the end of 2005.



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



|(Thousands of dollars)                           |  | Sept. 30, 2003 |         | Dec. 31, 2002
|------------------------------------------------ |  | -------------- | ------- | -------------
|Condensed Balance Sheet Information              |  |                |         |              
|Current assets                                   |  | $              | 6,658   |              
|Debt service reserve funds                       |  |                | 3,510   |              
|Bond sinking funds                               |  |                | 20,549  |              
|Property, plant, and equipment - net             |  |                | 96,397  |              
|Other noncurrent assets                          |  |                | 552     |              
|                                                 |  |                |         |              
|Total assets                                     |  | $              | 127,666 |              
|                                                 |  |                |         |              
|Current liabilities                              |  | $              | 4,532   |              
|Long-term debt                                   |  |                | 89,000  |              
|Other noncurrent liabilities                     |  |                | 15      |              
|Members capital/(deficit)                       |  |                | 34,119  |              
|                                                 |  |                |         |              
|Total liabilities and members capital/(deficit) |  | $              | 127,666 |              
|                                                 |  |                |         |              



12



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for
December 31, 2002)



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



|(Thousands of dollars)                 |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |       
|-------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | ------
|                                       |  | 2003                            |        |   | 2002                           |       
|Condensed Income Statement Information |  |                                 |        |   |                                |       
|Net sales                              |  | $                               | 9,554  |   |                                | 9,221 
|                                       |  |                                 |        |   |                                |       
|Costs and expenses                     |  |                                 |        |   |                                |       
|Cost of sales                          |  |                                 | 10,265 |   |                                | 10,251
|Depreciation                           |  |                                 | 1,095  |   |                                | 1,102 
|General and administrative expenses    |  |                                 | 442    |   |                                | 410   
|                                       |  |                                 |        |   |                                |       
|Total costs and expenses               |  |                                 | 11,802 |   |                                | 11,763
|                                       |  |                                 |        |   |                                |       
|Operating income/(loss)                |  |                                 | (2,248 | ) |                                | (2,542
|Interest income                        |  |                                 | 50     |   |                                | 43    
|Interest and other debt expense        |  |                                 | (1,216 | ) |                                | (928  
|Gain/(loss) on disposal of assets      |  |                                 | (529   | ) |                                | (228  
|                                       |  |                                 |        |   |                                |       
|Net income/(loss)                      |  |                                 | (3,943 | ) |                                | (3,655
|Other comprehensive income             |  |                                 |       |   |                                |      
|                                       |  |                                 |        |   |                                |       
|Comprehensive income/(loss)            |  | $                               | (3,943 | ) |                                | (3,655
|                                       |  |                                 |        |   |                                |       



Note 7  Timber and
Timberlands



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



|(Thousands of dollars)                                                     |  | Sept. 30, 2003 |         |   | Dec. 31, 2002 |        
|-------------------------------------------------------------------------- |  | -------------- | ------- | - | ------------- | -------
|Purchased stumpage inventory                                               |  | $              | 9,082   |   |               | 7,488  
|Timberlands                                                                |  |                | 78,457  |   |               | 76,772 
|Fee timber                                                                 |  |                | 191,780 |   |               | 182,906
|Logging facilities                                                         |  |                | 1,748   |   |               | 1,782  
|                                                                           |  |                |         |   |               |        
|                                                                           |  |                | 281,067 |   |               | 268,948
|                                                                           |  |               
|Less accumulated costs of fee timber harvested and facilities depreciation |  |                | (64,268 | ) |               | (59,631
|                                                                           |  |                |         |   |               |        
|                                                                           |  | $              | 216,799 |   |               | 209,317
|                                                                           |  |                |         |   |               |        



13



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for
December 31, 2002)



Note 8  Property, Plant, and Equipment



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



|(Thousands of dollars)        |  | Sept. 30, 2003 |         |   | Dec. 31, 2002 |        
|----------------------------- |  | -------------- | ------- | - | ------------- | -------
|Land                          |  | $              | 125     |   |               | 125    
|Land improvements             |  |                | 3,856   |   |               | 4,070  
|Buildings and structures      |  |                | 5,038   |   |               | 4,801  
|Machinery and equipment       |  |                | 70,011  |   |               | 76,847 
|                              |  |                |         |   |               |        
|                              |  |                | 79,030  |   |               | 85,843 
|Less accumulated depreciation |  |                | (41,618 | ) |               | (46,271
|                              |  |                |         |   |               |        
|                              |  | $              | 37,412  |   |               | 39,572 
|                              |  |                |         |   |               |        



Note 9  Credit Facilities



On September 30, 2003, the Company entered into an agreement with
SunTrust Bank and other domestic banks which provides an unsecured, committed revolving credit facility totaling $125,000,000, which includes a $50 million letter of credit feature. The agreement, which will expire July 15, 2007, replaces the
current facility that was scheduled to expire July 15, 2004. As of September 30, 2003, $74 million was available in excess of all borrowings outstanding under or supported by the facility. Borrowings under the agreement bear interest at a base rate
or an adjusted Eurodollar rate plus an applicable margin, depending upon the type of loan the Company executes. The applicable margin component of the interest rate varies with the type of loan and the Companys total debt to EBITDA ratio.
Borrowings outstanding at September 30, 2003, amounted to $51,000,000. Fees associated with this revolving credit facility include a commitment fee of .25 to .4 percent per annum on the unused portion of the committed amount. The agreement contains
restrictive covenants, including limitations on the incurrence of debt and requirements to maintain certain financial ratios. The Company incurred cost of $476,000 related to the securing of this facility, which was deferred and is being amortized
as additional interest expense over the term of the agreement.



14



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for
December 31, 2002)



Note 10  Supplemental Cash Flow Disclosures



Income taxes paid, net of refunds, were $3,001,000 and $47,000 in the
2003 and 2002 periods, respectively. Interest paid, net of amounts capitalized, was $3,818,000 and $2,452,000 in the first nine months of 2003 and 2002, respectively.



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



|(Thousands of dollars)                          |  | 2003 |        |   | 2002 |       
|----------------------------------------------- |  | ---- | ------ | - | ---- | ------
|Trade accounts receivable                       |  | $    | (3,015 | ) |      | (1,695
|Other receivables                               |  |      | (662   | ) |      | 1,424 
|Inventories                                     |  |      | 982    |   |      | (128  
|Prepaid expenses and other current assets       |  |      | (326   | ) |      | (540  
|Trade accounts payable                          |  |      | 589    |   |      | 415   
|Deferred revenues and other accrued liabilities |  |      | 1,145  |   |      | 1,240 
|                                                |  |      |        |   |      |       
|                                                |  | $    | (1,287 | ) |      | 716   
|                                                |  |      |        |   |      |       



15



---

##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for
December 31, 2002)



Note 11  Business Segments



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



|                                                             |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |       
|------------------------------------------------------------ |  | -------------------------------- | ------ | - | ------------------------------- | ------
|(Thousands of dollars)                                       |  | 2003                             |        |   | 2002                            |       
|Net sales                                                    |  |                                  |        |   |                                 |       
|Woodlands                                                    |  | $                                | 9,012  |   |                                 | 8,624 
|Mills                                                        |  |                                  | 19,561 |   |                                 | 18,343
|Real Estate                                                  |  |                                  | 6,423  |   |                                 | 3,018 
|Eliminations*                                                |  |                                  | (4,266 | ) |                                 | (4,420
|                                                             |  |                                  |        |   |                                 |       
|                                                             |  | $                                | 30,730 |   |                                 | 25,565
|                                                             |  |                                  |        |   |                                 |       
|Income/(loss) before income tax                              |  |                                  |        |   |                                 |       
|Operating income                                             |  |                                  |        |   |                                 |       
|Woodlands                                                    |  | $                                | 5,163  |   |                                 | 5,051 
|Mills                                                        |  |                                  | (1,049 | ) |                                 | (1,600
|Real Estate                                                  |  |                                  | 1,008  |   |                                 | 25    
|Corporate                                                    |  |                                  | (1,626 | ) |                                 | (1,631
|Eliminations                                                 |  |                                  | (78    | ) |                                 | (176  
|                                                             |  |                                  |        |   |                                 |       
|Operating income                                             |  |                                  | 3,418  |   |                                 | 1,669 
|Equity in Del-Tin Fiber                                      |  |                                  | (1,598 | ) |                                 | (1,827
|Interest income                                              |  |                                  | 306    |   |                                 | 117   
|Interest and other debt expense                              |  |                                  | (1,599 | ) |                                 | (1,110
|Other income/(expense)                                       |  |                                  | 61     |   |                                 | 101   
|                                                             |  |                                  |        |   |                                 |       
|                                                             |  | $                                | 588    |   |                                 | (1,050
|                                                             |  |                                  |        |   |                                 |       
|Depreciation, amortization, and cost of fee timber harvested |  |                                  |        |   |                                 |       
|Woodlands                                                    |  | $                                | 1,488  |   |                                 | 1,249 
|Mills                                                        |  |                                  | 1,478  |   |                                 | 1,504 
|Real Estate                                                  |  |                                  | 135    |   |                                 | 121   
|Corporate                                                    |  |                                  | 25     |   |                                 | 36    
|                                                             |  |                                  |        |   |                                 |       
|                                                             |  | $                                | 3,126  |   |                                 | 2,910 
|                                                             |  |                                  |        |   |                                 |       
|Capital expenditures                                         |  |                                  |        |   |                                 |       
|Woodlands                                                    |  | $                                | 585    |   |                                 | 1,620 
|Mills                                                        |  |                                  | 1,344  |   |                                 | 859   
|Real Estate                                                  |  |                                  | 2,669  |   |                                 | 3,972 
|Corporate                                                    |  |                                  | 33     |   |                                 | 21    
|                                                             |  |                                  |        |   |                                 |       
|                                                             |  | $                                | 4,631  |   |                                 | 6,472 
|                                                             |  |                                  |        |   |                                 |       

---

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



16



---

##### 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, 2003 Compared with Three Months Ended September 30, 2002



Net income for the third quarter was $.4 million, $.03 a share, compared to a loss of $1 million, $.13 a share loss after
preferred dividends, for the third quarter of 2002. Net sales for the current quarter totaled $30.7 million, an increase of $5.1 million when compared to the prior-year quarter. Operating income for the third quarter of 2003 was $3.4 million
compared to $1.7 million for the corresponding quarter of 2002. Net cash provided by operating activities increased $.9 million, from $6.1 million in 2002 to $7 million for the 2003 period.



Operating income for the third quarter of 2003 increased $1.7 million when
compared to the third quarter of 2002. The Woodlands segment increased $.2 million due primarily to increased sales of pine and hardwood sawtimber. Mills segment operating results improved $.6 million from the same period of 2002 as the average
lumber sales price increased ten percent. Operating income for Real Estate segment operations improved $1 million from a year ago due primarily to increased residential lot sales.



The Woodlands segment reported net sales of $9 million for the current quarter compared to $8.6 million a year ago. Pine
sawtimber harvest levels increased 2,111 tons to 145,703 tons. This slight increase resulted in additional pine sawtimber sales of $.1 million. Average pine sawtimber price was $42 per ton for both reporting periods. Sales of hardwood sawtimber rose
$.4 million due to a 75 percent increase in harvest volume in order to take advantage of an improved market, evidenced by a 33 percent increase in average sales price. Sales of 881 acres of timberland produced revenues of $1.4 million in the current
period, while sales of 1,198 acres generated $1.5 million in the prior-year period. Operating income was $5.2 million in the third quarter of 2003, an increase of $.2 million when compared to third quarter 2002 operating income of $5 million,
resulting primarily from the increase in net sales for the segment, partially offset by a $.2 million increase in cost of fee timber harvested.



Mills operations net sales for the third quarter of 2003 were $19.6 million compared to $18.4 million for 2002s third quarter. Finished lumber
sales increased $1.6 million due to a ten percent increase in average lumber sales price during the current quarter to $321 per thousand board feet (MBF). Finished lumber sales volume increased .5 million board feet (MMBF) to
53.4 MMBF; however, lumber production decreased 1.1 MMBF as a continued poor lumber manufacturing environment, in part due to Canadian lumber imports, led the Company to eliminate a shift at one of its mills. This operating change was effective
September 1, 2003, and was made as part of the Companys efforts to improve the cost structure of its lumber manufacturing operations. An operating loss of $1 million was reported for the third quarter of 2003, which compares to a loss of $1.6
million for the 2002 period. The loss reduction of $.6 million was due primarily to an $11 per MBF increase in margin realized on lumber sales as a result of the $27 per MBF rise in average sales price, partially offset by a $9 increase in lumber
manufacturing cost per MBF, including a $3 per MBF higher cost for raw material logs, and a $.3 million write-off of machinery replaced in mill upgrade projects.



The Real Estate segment recorded net sales of $6.4 million in the third quarter of 2003 compared to $3 million in the same
period for 2002. The 2003 period benefited from an increase in residential lot sales from 30 to 65, while the average sales price increased $16,400 per lot to $72,600 due to the sales mix. The increase in lots sold reflects the closing of sales of
lots offered in late 2002 and earlier this year at Chenal Valley. The Company has also realized an increase in interest and lot sales at its Red Oak Ridge development in Hot Springs, Arkansas, where an on-site sales office was opened late in 2002.
Operating income increased $1 million from the break-even operating results for the third quarter of 2002 due primarily to the margin on the increased residential lot sales in 2003.



17



---

##### Table of Contents

Corporate operating expense was $1.7 million in the third quarter of 2003, which compares to $1.6 million
in the third quarter of 2002. Equity in Del-Tin Fiber recorded by the Company was a loss of $1.6 million compared to a loss of $1.8 million a year ago. Following the write-off of the carrying amount of the Companys investment as of December
31, 2002, the current-year equity represents the amount of advances to the facility in excess of sinking fund payments for 2003 versus the Companys share of the plants operating losses in the prior-year period. (For additional
information about Del-Tin Fibers operations, refer to Note 6 to the consolidated financial statements.) Interest expense was $.4 million higher than 2002s third quarter due primarily to an increase in long-term debt resulting from the
redemption of the Companys preferred stock at the end of 2002.



The increase in the Companys earnings per share from a loss of $.13 a share in the third quarter of 2002 to $.03 a share for the current-year quarter is the result of the $1.4 million increase in net income combined with the increase
in earnings available to common shareholders due to the redemption of Deltics preferred stock at the end of 2002. The non-deductible carrying cost of the dividends on these preferred shares was 7.54 percent. While a portion of the
Companys increase in interest expense is directly related to the borrowings incurred to accomplish the redemption, the interest rate on this new fixed-rate obligation of 6.01 percent resulted in a net decrease in carrying cost. In addition,
this interest expense is also tax deductible, which represents an additional net benefit of debt versus the former preferred stock.



Income tax expense was $.2 million in the third quarter of 2003, an increase of $.3 million from the corresponding period in 2002 due to higher pretax
income.



Nine Months Ended September 30, 2003 Compared with Nine Months
Ended September 30, 2002



For the first nine months of
2003, net income totaled $4 million, $.33 a share, compared to a net loss for the nine months ended September 30, 2002, of $.2 million, a loss of $.16 a share after preferred dividends. Operating income for the nine months ended September 30, 2003,
was $15 million, an increase of $4.6 million from 2002. The Companys Woodlands segment decreased $2.9 million as a result of a planned reduction in pine sawtimber harvest levels. The Mills segment decreased $1.8 million due primarily to a $9
decrease in margin realized per MBF of lumber sold. Real Estate operations improved $8.4 million due to commercial acreage sold in 2003 and to increased residential lot sales activity. Corporate operating expense dropped $.4 million.



The Woodlands segment produced net sales of $25.5 million during the nine
months ended September 30, 2003, a decrease of $4.7 million when compared to $30.2 million during 2002. Pine sawtimber sales decreased $6.9 million as a result of a planned decrease in harvest volume. Sales volume in 2003 decreased 153,286 tons (or
26 percent) from 2002s harvest level, and the average sales price received for pine sawtimber decreased $2 per ton to $40. Sales of hardwood sawtimber increased $.8 million as the harvest volume increased 12,924 tons to 20,651 while the
average sales price increased 35 percent to $54 per ton. Net sales generated from the sale of non-strategic or higher and better use timberland increased by $1.1 million, as the Company sold approximately 3,164 acres for $3.5 million during the 2003
period compared to about 1,957 acres for $2.4 million in 2002. Operating income was $15.2 million for the first nine months of 2003, compared to $18.1 million in 2002. This decrease was due mainly to the reduction in net sales, partially offset by a
$2.4 million decrease in the cost of fee timber harvested primarily from the reduction in harvest levels.



Mills operations recorded net sales of $59.3 million for the first nine months of 2003 compared to $55.1 million for the corresponding period of 2002. The
increase was due mainly to a $4.2 million increase in sales of finished lumber, the result of a ten percent rise in sales volume to 168.4 MMBF,



18



---

##### Table of Contents

partially offset by a $4 decrease in average sales price per MBF sold to $303. As a result of the increase in production levels, sales of residual
by-products of the manufacturing process rose $.5 million. A loss from operations of $4.9 million in 2003 compares to 2002s loss of $3.1 million due mainly to the combined effect of the drop in average sales price per MBF sold, a $.3 million
write-off of machinery replaced in mill upgrade projects, and a $2 per MBF rise in lumber manufacturing expense. The increase in expense resulted primarily from a $6 per MBF rise in the cost of logs used as raw material, partially offset by a
reduction in other manufacturing costs due to improvements in production efficiency and cost reduction efforts at the mills.



Real Estate operations reported net sales of $23.9 million during the nine months ended September 30, 2003, compared to $9.8 million during 2002. The
first nine months of 2003 benefited from sales of approximately 53 acres of commercial acreage for $9.7 million, while there were no commercial sales in the 2002 period. Residential lot sales increased by 53 lots to 135 in the current period, while
the average sales price increased $3,200 per lot to $73,100 due to sales mix. The increase in lot sales was attributable to lot offerings conducted late in 2002 and early 2003, which included the second neighborhood which adjoins the newly
constructed, second 18-hole golf course in Chenal Valley. Operating income of $9.5 million in 2003 increased $8.4 million from a year ago as the result of the increase in net sales, partially offset by increased sales commission expense.



Corporate operating expense was $5 million for the 2003 period compared to
$5.4 million for 2002. The decrease of $.4 million was due to reduced costs for the Companys incentive plans. Equity in Del-Tin Fiber recorded by the Company was a loss of $4 million in the current year, which compares to $7.1 million a year
ago. Interest expense was $1.7 million higher in 2003 due mainly to increased long-term debt resulting primarily from the redemption of the Companys preferred stock at the end of 2002. Income tax expense increased $1.8 million due to higher
pretax income.



Financial Condition



For the nine months ended September 30, 2003, net cash provided by operating
activities totaled $26.5 million compared to $24.9 million for the same period in 2002. Changes in operating working capital, other than cash and cash equivalents, required cash of $1.3 million for the first nine months of 2003 but provided $.7
million for the same period of 2002.



Capital expenditures
required cash of $20.8 million in the current-year period and $15.8 million a year ago. Capital expenditures by segment consisted of the following:



|                       |  | Nine Months Ended September 30,
|---------------------- |  | -------------------------------
|(Thousands of dollars) |  | 2003                           
|Woodlands*             |  | $                              
|Mills                  |  |                                
|Real Estate            |  |                                
|Corporate              |  |                                
|                       |  |                                
|Capital expenditures   |  | $                              
|                       |  |                                

---

|* | 2003 amount includes $10.6 million for the acquisition of 7,069 acres of timberland of which one acquisition amounted to $9.3 million for 4,979 acres in Calhoun County, Arkansas.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The net change in purchased stumpage inventory
to be utilized in the Companys sawmill operations required cash of $1.6 million in 2003, but provided cash of $1 million in 2002. The Company made operating advances to Del-Tin Fiber of $4 million during the current period, which decreased
from $7.4 million during the corresponding period of 2002 due to improved operating results at the facility.



19



---

##### Table of Contents

Advances to Del-Tin Fiber for required debt sinking fund deposits amounted to $3.2 million in 2003, for which a liability was accrued at December 31, 2002,
that was included in the 2002 write-off of the Companys investment in the facility, and $2.6 million in 2002.



The Company borrowed $11.5 million and made debt repayments of $6.6 million during the first nine months of 2003 compared to borrowings of $7.5 million
and debt repayments of $11.6 million during the 2002 period. During the current year, purchases of treasury stock utilized cash of $.4 million and the decrease in bank overdraft was $.9 million. In 2002, treasury stock purchases utilized $.7 million
of cash, while an increase in bank overdraft provided $1 million. Deltic paid dividends on common stock of $2.2 million in both 2003 and 2002. In the prior-year period, the Company paid dividends on preferred stock of $1.7 million. Proceeds from the
exercise of stock options provided cash of $1.6 million in 2003 and $1.2 million in 2002.



These net sources of funds during the first nine months of 2003 resulted in a $1.1 million increase in the Companys cash and cash equivalents since December 31, 2002.



On September 30, 2003, the Company completed negotiation with SunTrust Bank
and other domestic banks for an unsecured and committed revolving credit facility totaling $125 million. The facility also contains a $50 million letter of credit feature. The agreement, which will expire on July 15, 2007, replaces the current
facility that was scheduled to expire July 15, 2004. As of September 30, 2003, $74 million was available in excess of all borrowings outstanding under or supported by the facility. The agreement contains restrictive covenants, including limitations
on the incurrence of debt and requirements to maintain certain financial ratios.



During December 2000, the Companys Board of Directors authorized a stock repurchase program of up to $10 million of its common stock. Under this program, the Company can purchase shares through the open market
and privately negotiated transactions at prices deemed appropriate by Deltics management. As of September 30, 2003, the Company had expended $2.1 million under this program, with the purchase of 96,206 shares at an average cost of $22.34 per
share. (No shares were purchased during the third quarter of 2003.)



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. The Company is currently funding its
share of Del-Tin Fibers sinking fund obligation on a voluntary basis. As a result, potential future payments are estimated at approximately $32.6 million should the facilitys long-term debt not be refinanced, its financial results not
become sufficient to fund its obligations, or if the Company has not sold its ownership interest by the end of 2005. 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. 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. While Deltic wrote off its investment in Del-Tin Fiber as of December 31, 2002, the Companys contingent
obligations are not reduced as a result of the write-off.



Due
to the probable requirement for Deltic to advance to Del-Tin Fiber amounts equal to its share of the facilitys remaining 2003 quarterly sinking fund obligation, based on the plants 2003 cash flow projections, the Company has a related
liability recorded in its accounts, equal to $1 million at September 30, 2003. Currently, no liability for such payments on behalf of the facility after 2003 has been accrued based on the likelihood that no such payments would be required of the
Company due to either the possible divestment of the Companys ownership interest within the timeframe considered in the current evaluation, the possible refinancing of the joint-venturess long-term debt, or to the projected further
improvement in Del-Tin Fibers cash flows. However, if none of these come to fruition during the fourth quarter 2003, the Company may be required to accrue an additional liability for the amount of future sinking fund obligations that would
likely be required of Deltic.



20



---

##### Table of Contents

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



|(Millions of dollars)                                  |  | Total |       | 2003to 2004 |    | 2005to 2006 |      | 2007to 2008 |      | After2008
|------------------------------------------------------ |  | ----- | ----- | ----------- | -- | ----------- | ---- | ----------- | ---- | ---------
|Contractual cash payment obligations                   |  |       |       |             |    |             |      |             |      |          
|Long-term debt                                         |  | $     | 121.1 |             | 1  |             |     |             | 94.3 |          
|                                                       |  |       |       |             |   
|Other commercial commitment expirations                |  |       |       |             |    |             |      |             |      |          
|Del-Tin Fiber contingent equity contribution agreement |  |       | 17.5  |             |   |             | 17.5 |             |     |          
|Letters of credit                                      |  |       | 1.3   |             | .9 |             | .3   |             | .1   |          



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.



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 2002 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.



21



---

##### Table of Contents

Impact of Recently Effective Accounting Pronouncements



In August 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) 143, Accounting for Asset Retirement Obligations. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived
assets and associated retirement costs and is effective for financial statements issued for fiscal years beginning after June 15, 2002. Adoption of SFAS 143 did not have an effect on the Companys financial position, results of operations, or
cash flows.



In June 2002, the FASB issued SFAS 146, Accounting
for Costs Associated with Exit or Disposal Activities. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred, and is
effective for exit or disposal activities that are initiated after December 31, 2002. The Company has not initiated any such exit or disposal activities in 2003; therefore, adoption of SFAS 146 has had no impact on the Companys financial
statements.



In November 2002, the FASB issued Financial
Accounting Standards Board Interpretation No. (FIN) 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. It clarified that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The Company has issued no such guarantees in 2003.



In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation  Transition and Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value method of accounting for stock-based compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more prominent disclosures about the effect of the method used
on reported results in both annual and interim financial statements. The Company currently applies Accounting Principles Board Opinion (APB) 25, Accounting for Stock Issued to Employees, to account for stock-based compensation and has
not adopted the measurement provisions of SFAS 123, as amended by SFAS 148; however, it has adopted the disclosure requirements of both SFAS 123 and SFAS 148.



In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities. This interpretation addresses consolidation of certain entities
in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The
consolidation provisions of FIN 46 apply to variable interest entities created, and to variable interest entities in which an enterprise obtains an interest, after January 31, 2003. The Company has not created or obtained an interest in any such
entities.



In April 2003, the FASB issued SFAS 149, Amendment
of Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities under SFAS 133, Accounting for Derivatives and Hedging
Activities. This statement (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, (2) clarifies when a derivative contains a financing component, and (3) amends the definition of an
underlying to conform to FIN 45. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, with all provisions applied prospectively. The Company has no derivative instruments and is not currently engaged in hedging
activities, accordingly, adoption of this statement is not expected to have a material impact on the Companys financial statements.



22



---

##### Table of Contents

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify an instrument that
is within its scope as a liability. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic companies. As of June 30, 2003, the Company had no financial instruments within the scope of SFAS 150.



Outlook



Pine sawtimber harvest levels are expected to be 150,000 to 170,000 tons in the fourth quarter of 2003 and 595,000 to 615,000 tons for the year. The
Companys program to consider sales of timberland identified to be non-strategic or to have a higher and better use will continue, with sales for the year anticipated to be 3,500 to 4,500 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 220 to 225 million board feet for the year. Residential lot sales are projected to be 55 to 65 lots and 190 to 200 lots for the
fourth quarter and the year, respectively. The Company had 90 lots under contract as of September 30, 2003. Under the current evaluation parameters, Deltics equity loss in Del-Tin Fiber will be equal to any cash advances made to the facility
in excess of sinking fund payment requirements for 2003.



While
the lumber prices improved modestly in the third quarter as the result of lumber demand due to a continued strong housing market, any additional significant improvement in prices will remain dependent on balancing supply with consumption levels.
Prices began to decline in mid-September, but are not expected to reach the low points seen in the first half of the year. The lumber trade dispute with Canada remains unresolved, and any progress toward a solution would benefit U.S. lumber markets.
The regional pine sawtimber market remains stable, and it is projected to remain so into 2004. Demand remains strong for both residential and commercial property in the areas in which the Companys real estate developments are located. The MDF
market has been slowly rebounding since June, but lower seasonal demand is expected to negatively impact markets in the fourth quarter. A slightly stronger market for MDF is anticipated in 2004 providing consumption levels grow as forecast and
import levels do not surge.



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.



23



---

##### 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 2002 annual report on Form 10-K. Those disclosures should be read in conjunction with this Form 10-Q.



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



Deltic Timber Corporation (the Company) carried out an evaluation of the effectiveness of the design and operation of its disclosure controls
and procedures as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934. Such evaluation was under the supervision, and with the participation, of the Companys senior management, including the Chief Executive
Officer (CEO) and the Chief Financial Officer (CFO). Based on this evaluation, the Companys CEO and CFO have concluded that the Companys disclosure controls and procedures were effective as of September 30, 2003,
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 were no significant changes during the quarter in internal controls over financial reporting or in any other factors
that could significantly affect those internal controls. The Company has not identified any significant deficiency or material weakness in its internal controls, and therefore, no corrective actions were taken.



24



---

##### 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
| | --- | --------



| | 10.11 | First Amended and Restated Revolving Credit Agreement dated September 30, 2003, included elsewhere herein.
| | ----- | ----------------------------------------------------------------------------------------------------------



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



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



| | Item 5. | Other Events  Press release announcing Deltics financial results for the second quarter of 2003 (filing date 7/31/03).
| | ------- | ------------------------------------------------------------------------------------------------------------------------



25



---

##### 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:
|                          |  | Ray C. Dillon, President            |  |      
|                          |  | (Principal Executive Officer)       |  |      
|                          |  |                                     | 
|                          |  | /s/Clefton D. Vaughan               |  | Date:
|                          |  | Clefton D. Vaughan, Vice President, |  |      
|                          |  | Finance and Administration          |  |      
|                          |  | (Principal Financial Officer)       |  |      
|                          |  |                                     | 
|                          |  | /s/Emily R. Evers                   |  | Date:
|                          |  | Emily R. Evers, Controller          |  |      
|                          |  | (Principal Accounting Officer)      |  |      



26