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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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FORM 10-Q



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(Mark One)

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



For the quarterly period ended June 30, 2004



OR



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



Commission file number 1-12147



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DELTIC TIMBER CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 71-0795870                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



|                                                         |  |           
|-------------------------------------------------------- |  | ----------
|210 East Elm Street, P. O. Box 7200, El Dorado, Arkansas |  | 71731-7200
|(Address of principal executive offices)                 |  | (Zip Code)



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



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



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



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



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



Number of shares of Common Stock, $.01 Par Value, outstanding at June 30, 2004, was
12,133,582.



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##### Table of Contents

TABLE OF CONTENTS - SECOND QUARTER 2004 FORM 10-Q REPORT



|           |  |                                                                                       |  |           
|---------- |  | ------------------------------------------------------------------------------------- |  | ----------
|           |  |                                                                                       |  | PageNumber
|           |  | PART I - Financial Information                                                        |  |           
|           |  |                                                                                      
|Item 1.    |  | Financial Statements                                                                  |  | 3         
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 16        
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 28        
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 28        
|           |  |                                                                                      
|           |  | PART II - Other Information                                                           |  |           
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 29        
|           |  |                                                                                      
|Item 2.    |  | Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities     |  | 29        
|           |  |                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 29        
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 30        
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 30        
|           |  |                                                                                      
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                      |  | 30        
|           | 
|Signatures |  | 31                                                                                   



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##### Table of Contents

PART I - FINANCIAL INFORMATION



Item 1. Financial Statements



DELTIC
TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of dollars)



|                                                                                 |  |              |         |   |               |         |  
|-------------------------------------------------------------------------------- |  | ------------ | ------- | - | ------------- | ------- | -
|                                                                                 |  | June 30,2004 |         |   | Dec. 31, 2003 |        
|                                                                                 |  | (unaudited)  |         |   |               |        
|Assets                                                                           |  |              |         |   |               |         |  
|Current assets                                                                   |  |              |         |   |               |         |  
|Cash and cash equivalents                                                        |  | $            | 1,899   |   |               | 1,687   |  
|Trade accounts receivable                                                        |  |              | 5,624   |   |               | 4,350   |  
|Allowance for doubtful accounts                                                  |  |              | (126    | ) |               | (107    | )
|Other receivables                                                                |  |              | 883     |   |               | 1,041   |  
|Inventories                                                                      |  |              | 4,311   |   |               | 5,778   |  
|Prepaid expenses and other current assets                                        |  |              | 1,619   |   |               | 1,461   |  
|                                                                                 |  |              |         |   |               |         |  
|Total current assets                                                             |  |              | 14,210  |   |               | 14,210  |  
|                                                                                 |  |             
|Investment in real estate held for development and sale                          |  |              | 38,915  |   |               | 40,539  |  
|Investment in Del-Tin Fiber                                                      |  |              | 541     |   |               |        |  
|Investments and noncurrent receivables                                           |  |              | 2,042   |   |               | 6,660   |  
|Timber and timberlands - net                                                     |  |              | 217,947 |   |               | 215,040 |  
|Property, plant, and equipment - net                                             |  |              | 35,588  |   |               | 36,882  |  
|Deferred charges and other assets                                                |  |              | 933     |   |               | 979     |  
|                                                                                 |  |              |         |   |               |         |  
|Total assets                                                                     |  | $            | 310,176 |   |               | 314,310 |  
|                                                                                 |  |              |         |   |               |         |  
|Liabilities and Stockholders Equity                                             |  |              |         |   |               |         |  
|Current liabilities                                                              |  |              |         |   |               |         |  
|Current maturities of long-term debt                                             |  | $            | 64      |   |               | 64      |  
|Trade accounts payable                                                           |  |              | 1,895   |   |               | 2,772   |  
|Accrued taxes other than income taxes                                            |  |              | 1,846   |   |               | 1,246   |  
|Income taxes payable                                                             |  |              | 1,075   |   |               | 151     |  
|Deferred revenues and other accrued liabilities                                  |  |              | 3,230   |   |               | 2,843   |  
|                                                                                 |  |              |         |   |               |         |  
|Total current liabilities                                                        |  |              | 8,110   |   |               | 7,076   |  
|                                                                                 |  |             
|Long-term debt                                                                   |  |              | 102,024 |   |               | 115,056 |  
|Deferred tax liabilities - net                                                   |  |              | 12,922  |   |               | 12,559  |  
|Other noncurrent liabilities                                                     |  |              | 10,438  |   |               | 9,385   |  
|Stockholders equity                                                             |  |              |         |   |               |         |  
|Cumulative preferred stock - $.01 par, authorized 20,000,000 shares, none issued |  |              |        |   |               |        |  
|Common stock - $.01 par, authorized 50,000,000 shares, 12,813,879 shares issued  |  |              | 128     |   |               | 128     |  
|Capital in excess of par value                                                   |  |              | 70,794  |   |               | 69,459  |  
|Retained earnings                                                                |  |              | 122,405 |   |               | 119,888 |  
|Unamortized restricted stock awards                                              |  |              | (1,059  | ) |               | (14     | )
|Treasury stock                                                                   |  |              | (15,462 | ) |               | (19,103 | )
|Accumulated other comprehensive income                                           |  |              | (124    | ) |               | (124    | )
|                                                                                 |  |              |         |   |               |         |  
|Total stockholders equity                                                       |  |              | 176,682 |   |               | 170,234 |  
|                                                                                 |  |              |         |   |               |         |  
|Total liabilities and stockholders equity                                       |  | $            | 310,176 |   |               | 314,310 |  
|                                                                                 |  |              |         |   |               |         |  



See accompanying notes to consolidated
financial statements.



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##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(Thousands of dollars, except per share amounts)



|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|------------------------------------------------------------ |  | -------------------------- | ------ | - | ------------------------ | ------ | - | ---- | ------ | - | ---- | ------ | -
|                                                             |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |       
|                                                             |  | 2004                       |        |   | 2003                     |        |   | 2004 |        |   | 2003 |       
|Net sales                                                    |  | $                          | 33,997 |   |                          | 34,960 |   |      | 61,808 |   |      | 67,389 |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Costs and expenses                                           |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Cost of sales                                                |  |                            | 22,565 |   |                          | 23,455 |   |      | 40,762 |   |      | 45,013 |  
|Depreciation, amortization, and cost of fee timber harvested |  |                            | 2,690  |   |                          | 3,467  |   |      | 5,603  |   |      | 6,999  |  
|General and administrative expenses                          |  |                            | 2,961  |   |                          | 1,924  |   |      | 5,770  |   |      | 3,824  |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Total costs and expenses                                     |  |                            | 28,216 |   |                          | 28,846 |   |      | 52,135 |   |      | 55,836 |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Operating income                                             |  |                            | 5,781  |   |                          | 6,114  |   |      | 9,673  |   |      | 11,553 |  
|                                                             |  |                            |        |  
|Equity in Del-Tin Fiber                                      |  |                            | 260    |   |                          | (547   | ) |      | 26     |   |      | (2,392 | )
|Interest income                                              |  |                            | 60     |   |                          | 16     |   |      | 118    |   |      | 44     |  
|Interest and other debt expense                              |  |                            | (1,517 | ) |                          | (1,923 | ) |      | (3,100 | ) |      | (3,546 | )
|Other income/(expense)                                       |  |                            | (1     | ) |                          | 56     |   |      | (5     | ) |      | 101    |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Income/(loss) before income taxes                            |  |                            | 4,583  |   |                          | 3,716  |   |      | 6,712  |   |      | 5,760  |  
|                                                             |  |                            |        |  
|Income taxes                                                 |  |                            | (1,833 | ) |                          | (1,299 | ) |      | (2,687 | ) |      | (2,129 | )
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Net income/(loss)                                            |  | $                          | 2,750  |   |                          | 2,417  |   |      | 4,025  |   |      | 3,631  |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Earnings per common share                                    |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Basic                                                        |  | $                          | .23    |   |                          | .20    |   |      | .33    |   |      | .31    |  
|Assuming dilution                                            |  | $                          | .23    |   |                          | .20    |   |      | .33    |   |      | .30    |  
|                                                             |  |                            |        |  
|Dividends declared per common share                          |  | $                          | .0625  |   |                          | .0625  |   |      | .1250  |   |      | .1250  |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Average common shares outstanding (thousands)                |  |                            | 12,120 |   |                          | 11,900 |   |      | 12,071 |   |      | 11,903 |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  



See accompanying notes to consolidated
financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30,

(Thousands of
dollars)



|                                                                                            |  |      |         |   |      |         |  
|------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | ------- | -
|                                                                                            |  | 2004 |         |   | 2003 |        
|Operating activities                                                                        |  |      |         |   |      |         |  
|Net income                                                                                  |  | $    | 4,025   |   |      | 3,631   |  
|Adjustments to reconcile net income to net cash provided/(required) by operating activities |  |      |         |   |      |         |  
|Depreciation, amortization, and cost of fee timber harvested                                |  |      | 5,603   |   |      | 6,999   |  
|Deferred income taxes                                                                       |  |      | 265     |   |      | (982    | )
|Real estate costs recovered upon sale                                                       |  |      | 3,799   |   |      | 4,804   |  
|Timberland costs recovered upon sale                                                        |  |      | 192     |   |      | 600     |  
|Equity in Del-Tin Fiber                                                                     |  |      | (26     | ) |      | 2,392   |  
|Net increase/(decrease) in provisions for pension and other postretirement benefits         |  |      | 1,415   |   |      | 1,037   |  
|(Increase)/decrease in operating working capital other than cash and cash equivalents       |  |      | 1,636   |   |      | 731     |  
|Other  net                                                                                 |  |      | 20      |   |      | 287     |  
|                                                                                            |  |      |         |   |      |         |  
|Net cash provided/(required) by operating activities                                        |  |      | 16,929  |   |      | 19,499  |  
|                                                                                            |  |      |         |   |      |         |  
|Investing activities                                                                        |  |      |         |   |      |         |  
|Capital expenditures requiring cash                                                         |  |      | (10,419 | ) |      | (16,186 | )
|Net change in purchased stumpage inventory                                                  |  |      | 167     |   |      | (1,787  | )
|Advances to Del-Tin Fiber                                                                   |  |      | (516    | ) |      | (4,561  | )
|(Increase)/decrease in funds held by trustee                                                |  |      | 4,396   |   |      | 372     |  
|Other  net                                                                                 |  |      | 901     |   |      | 645     |  
|                                                                                            |  |      |         |   |      |         |  
|Net cash provided/(required) by investing activities                                        |  |      | (5,471  | ) |      | (21,517 | )
|                                                                                            |  |      |         |   |      |         |  
|Financing activities                                                                        |  |      |         |   |      |         |  
|Proceeds from borrowings                                                                    |  |      |        |   |      | 11,539  |  
|Repayments of notes payable and long-term debt                                              |  |      | (13,032 | ) |      | (6,362  | )
|Treasury stock purchases                                                                    |  |      |        |   |      | (377    | )
|Increase/(decrease) in bank overdraft                                                       |  |      |        |   |      | (913    | )
|Common stock dividends paid                                                                 |  |      | (1,508  | ) |      | (1,488  | )
|Proceeds from stock option exercises                                                        |  |      | 3,294   |   |      |        |  
|                                                                                            |  |      |         |   |      |         |  
|Net cash provided/(required) by financing activities                                        |  |      | (11,246 | ) |      | 2,399   |  
|                                                                                            |  |      |         |   |      |         |  
|Net increase/(decrease) in cash and cash equivalents                                        |  |      | 212     |   |      | 381     |  
|Cash and cash equivalents at January 1                                                      |  |      | 1,687   |   |      | 1,057   |  
|                                                                                            |  |      |         |   |      |         |  
|Cash and cash equivalents at June 30                                                        |  | $    | 1,899   |   |      | 1,438   |  
|                                                                                            |  |      |         |   |      |         |  



See accompanying notes to consolidated
financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Stockholders Equity (Unaudited)

Six Months Ended June 30,

(Thousands of
dollars)



|                                                                                                                  |  |      |         |   |      |         |  
|----------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | ------- | -
|                                                                                                                  |  | 2004 |         |   | 2003 |        
|Cumulative preferred stock - $.01 par, authorized 20,000,000 shares, none issued                                  |  | $    |        |   |      |        |  
|                                                                                                                  |  |      |         |   |      |         |  
|Common stock - $.01 par, authorized 50,000,000 shares, 12,813,879 shares issued at end of period in 2004 and 2003 |  |      | 128     |   |      | 128     |  
|                                                                                                                  |  |      |         |   |      |         |  
|Capital in excess of par value                                                                                    |  |      |         |   |      |         |  
|Balance at beginning of year                                                                                      |  |      | 69,459  |   |      | 69,075  |  
|Exercise of stock options                                                                                         |  |      | 629     |   |      |        |  
|Tax benefits on stock options                                                                                     |  |      | 292     |   |      |        |  
|Restricted stock awards                                                                                           |  |      | 414     |   |      |        |  
|                                                                                                                  |  |      |         |   |      |         |  
|Balance at end of period                                                                                          |  |      | 70,794  |   |      | 69,075  |  
|                                                                                                                  |  |      |         |   |      |         |  
|Retained earnings                                                                                                 |  |      |         |   |      |         |  
|Balance at beginning of year                                                                                      |  |      | 119,888 |   |      | 114,165 |  
|Net income                                                                                                        |  |      | 4,025   |   |      | 3,631   |  
|Common stock dividends declared                                                                                   |  |      | (1,508  | ) |      | (1,487  | )
|                                                                                                                  |  |      |         |   |      |         |  
|Balance at end of period                                                                                          |  |      | 122,405 |   |      | 116,309 |  
|                                                                                                                  |  |      |         |   |      |         |  
|Unamortized restricted stock awards                                                                               |  |      |         |   |      |         |  
|Balance at beginning of year                                                                                      |  |      | (14     | ) |      | (133    | )
|Stock awards                                                                                                      |  |      | (1,182  | ) |      |        |  
|Amortization to expense                                                                                           |  |      | 137     |   |      | 71      |  
|                                                                                                                  |  |      |         |   |      |         |  
|Balance at end of period                                                                                          |  |      | (1,059  | ) |      | (62     | )
|                                                                                                                  |  |      |         |   |      |         |  
|Treasury stock                                                                                                    |  |      |         |   |      |         |  
|Balance at beginning of year - 845,600 and 898,175 shares, respectively                                           |  |      | (19,103 | ) |      | (20,273 | )
|Shares purchased - 7,052 and 15,907, respectively                                                                 |  |      | (254    | ) |      | (377    | )
|Shares issued for incentive plans - 172,355 shares in 2004                                                        |  |      | 3,895   |   |      |        |  
|                                                                                                                  |  |      |         |   |      |         |  
|Balance at end of period - 680,297 and 914,082 shares, respectively                                               |  |      | (15,462 | ) |      | (20,650 | )
|                                                                                                                  |  |      |         |   |      |         |  
|Accumulated other comprehensive income                                                                            |  |      | (124    | ) |      |        |  
|                                                                                                                  |  |      |         |   |      |         |  
|Total stockholders equity                                                                                        |  | $    | 176,682 |   |      | 164,800 |  
|                                                                                                                  |  |      |         |   |      |         |  



See accompanying notes to consolidated
financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2004

(Unaudited, except for December
31, 2003)



Note 1  Interim Financial Statements



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



The financial statements in Deltics 2003 annual report on Form 10-K
include a summary of significant accounting policies of the Company and should be read in conjunction with this Form 10-Q. Certain prior period amounts have been reclassified to conform with the 2004 presentation format.



Note 2  Impact of Recently Effective Accounting Pronouncements



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



In May
2004, the FASB issued FSP FAS 106-2 which bears the same title as FSB FAS 106-1 and supersedes the previous guidance therein. FSB FAS 106-2 provides guidance on accounting for postretirement health care plans with prescription drug benefits that
have been determined to be at least actuarially equivalent to those provided within the Act and thus qualify plans for future federal subsidies. Deltic is currently in the process of determining if the prescription drug benefits under its plan are
actuarially equivalent to those provided within the Act. Accordingly, no adjustments resulting from the Act have been included in the amount of postretirement benefit expense or the corresponding benefit obligation liability as of June 30, 2004, and
the periods then ended. The resulting effects of the Act are not expected to have a material impact on the Companys financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2004

(Unaudited, except for December
31, 2003)



Note 3  Earnings per Common Share



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



|                                                                                                           |  |                            |        |                          |        |      |        |      |       
|---------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | ------ | ---- | ------ | ---- | ------
|                                                                                                           |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|(Thousands, except per share amounts)                                                                      |  | 2004                       |        | 2003                     |        | 2004 |        | 2003
|Net income                                                                                                 |  | $                          | 2,750  |                          | 2,417  |      | 4,025  |      | 3,631 
|                                                                                                           |  |                            |        |                          |        |      |        |      |       
|Weighted average number of common shares used in basic EPS                                                 |  |                            | 12,120 |                          | 11,900 |      | 12,071 |      | 11,903
|Effect of dilutive stock options                                                                           |  |                            | 64     |                          | 22     |      | 69     |      | 21    
|                                                                                                           |  |                            |        |                          |        |      |        |      |       
|Weighted average number of common shares and dilutive potential common stock used in EPS assuming dilution |  |                            | 12,184 |                          | 11,922 |      | 12,140 |      | 11,924
|                                                                                                           |  |                            |        |                          |        |      |        |      |       
|Earnings per common share                                                                                  |  |                            |        |                          |        |      |        |      |       
|Basic                                                                                                      |  | $                          | .23    |                          | .20    |      | .33    |      | .31   
|Assuming dilution                                                                                          |  | .$                         | .23    |                          | .20    |      | .33    |      | .30   



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2004

(Unaudited, except for December
31, 2003)



Note 4  Stock-Based Compensation



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



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



|                                                                                                                                                                            |  |                            |       |   |                          |       |   |      |       |   |      |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----- | - | ------------------------ | ----- | - | ---- | ----- | - | ---- | ----- | -
|                                                                                                                                                                            |  | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |      
|(Thousands, except per share amounts)                                                                                                                                       |  | 2004                       |       |   | 2003                     |       |   | 2004 |       |   | 2003 |      
|Net income, as reported                                                                                                                                                     |  | $                          | 2,750 |   |                          | 2,417 |   |      | 4,025 |   |      | 3,631 |  
|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 |  |                            | 95    |   |                          | 75    |   |      | 258   |   |      | 145   |  
|Less pro forma total stock-based compensation expense determined under the fair value method for all awards, net of related tax
effects                                     |  |                            | (172  | ) |                          | (180  | ) |      | (452  | ) |      | (398  | )
|                                                                                                                                                                            |  |                            |       |   |                          |       |   |      |       |   |      |       |  
|Pro forma net income                                                                                                                                                        |  | $                          | 2,673 |   |                          | 2,312 |   |      | 3,831 |   |      | 3,378 |  
|                                                                                                                                                                            |  |                            |       |   |                          |       |   |      |       |   |      |       |  
|Basic earnings per share                                                                                                                                                    |  |                            |       |   |                          |       |   |      |       |   |      |       |  
|As reported                                                                                                                                                                 |  | $                          | .23   |   |                          | .20   |   |      | .33   |   |      | .31   |  
|Pro forma                                                                                                                                                                   |  | $                          | .22   |   |                          | .19   |   |      | .32   |   |      | .28   |  
|                                                                                                                                                                            |  |                            |       |  
|Dilutive earnings per share                                                                                                                                                 |  |                            |       |   |                          |       |   |      |       |   |      |       |  
|As reported                                                                                                                                                                 |  | $                          | .23   |   |                          | .20   |   |      | .33   |   |      | .30   |  
|Pro forma                                                                                                                                                                   |  | $                          | .22   |   |                          | .19   |   |      | .32   |   |      | .28   |  



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



9



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##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2004

(Unaudited, except for December
31, 2003)



Note 5  Inventories



Inventories at the balance sheet dates consisted of the following:



|                       |  |              |       |              |      
|---------------------- |  | ------------ | ----- | ------------ | -----
|(Thousands of dollars) |  | June 30,2004 |       | Dec. 31,2003
|Logs                   |  | $            | 584   |              | 1,741
|Lumber                 |  |              | 3,415 |              | 3,604
|Materials and supplies |  |              | 312   |              | 433  
|                       |  |              |       |              |      
|                       |  | $            | 4,311 |              | 5,778
|                       |  |              |       |              |      



Note 6  Investment in Del-Tin
Fiber



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



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



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



10



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2004

(Unaudited, except for December
31, 2003)



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



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



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 $89,000,000 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 $17,500,000 for each owner. In addition, each owner has committed to a production support agreement, under which each owner has agreed to make support
obligation payments to Del-Tin Fiber to provide, on the occurrence of certain events, additional funds for payment of debt service until the plant is able to successfully complete a minimum production test. Both owners have also agreed, in a series
of one-year term commitments, to fund any operating working capital needs until the facility is able to consistently generate sufficient funds to meet its cash requirements. 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 $28,697,000 if the Company is not able to refinance the facilitys long-term debt by its scheduled maturity date. These payments consist of
the Companys share of remaining sinking fund payments currently required of Del-Tin Fiber, including the $17,500,000 contingent equity, but exclude any future operating working capital needs of Del-Tin Fiber for which an amount, if any, cannot
be reasonably estimated due to recent improvements in the plants financial performance.



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



|                                                 |  |              |         |              |        
|------------------------------------------------ |  | ------------ | ------- | ------------ | -------
|(Thousands of dollars)                           |  | June 30,2004 |         | Dec. 31,2003
|Condensed Balance Sheet Information              |  |              |         |              |        
|Current assets                                   |  | $            | 6,990   |              | 7,330  
|Debt service reserve funds                       |  |              | 3,537   |              | 3,521  
|Bond sinking funds                               |  |              | 28,069  |              | 23,059 
|Property, plant, and equipment - net             |  |              | 93,907  |              | 95,325 
|Other noncurrent assets                          |  |              | 368     |              | 491    
|                                                 |  |              |         |              |        
|Total assets                                     |  | $            | 132,871 |              | 129,726
|                                                 |  |              |         |              |        
|Current liabilities                              |  | $            | 5,229   |              | 3,462  
|Long-term debt                                   |  |              | 89,000  |              | 89,000 
|Members capital/(deficit)                       |  |              | 38,642  |              | 37,264 
|                                                 |  |              |         |              |        
|Total liabilities and members capital/(deficit) |  | $            | 132,871 |              | 129,726
|                                                 |  |              |         |              |        



11



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##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2004

(Unaudited, except for December
31, 2003)



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



|                                       |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|-------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | ------ | - | ---- | ------ | - | ---- | ------ | -
|                                       |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |       
|(Thousands of dollars)                 |  | 2004                       |        |   | 2003                     |        |   | 2004 |        |   | 2003 |       
|Condensed Income Statement Information |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Net sales                              |  | $                          | 15,746 |   |                          | 12,153 |   |      | 30,616 |   |      | 22,408 |  
|                                       |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Costs and expenses                     |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Cost of sales                          |  |                            | 12,293 |   |                          | 10,978 |   |      | 24,397 |   |      | 21,829 |  
|Depreciation                           |  |                            | 1,554  |   |                          | 1,378  |   |      | 3,090  |   |      | 2,615  |  
|General and administrative expenses    |  |                            | 638    |   |                          | 528    |   |      | 1,256  |   |      | 1,034  |  
|                                       |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Total costs and expenses               |  |                            | 14,485 |   |                          | 12,884 |   |      | 28,743 |   |      | 25,478 |  
|                                       |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Operating income/(loss)                |  |                            | 1,261  |   |                          | (731   | ) |      | 1,873  |   |      | (3,070 | )
|Interest income                        |  |                            | 72     |   |                          | 40     |   |      | 134    |   |      | 71     |  
|Interest and other debt expense        |  |                            | (783   | ) |                          | (820   | ) |      | (1,565 | ) |      | (1,652 | )
|Other income/(loss)                    |  |                            | (31    | ) |                          |       |   |      | (96    | ) |      |       |  
|                                       |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Net income/(loss)                      |  | $                          | 519    |   |                          | (1,511 | ) |      | 346    |   |      | (4,651 | )
|                                       |  |                            |        |   |                          |        |   |      |        |   |      |        |  



Note 7  Timber and
Timberlands



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



|                                                                           |  |              |         |   |              |         |  
|-------------------------------------------------------------------------- |  | ------------ | ------- | - | ------------ | ------- | -
|(Thousands of dollars)                                                     |  | June 30,2004 |         |   | Dec. 31,2003 |        
|Purchased stumpage inventory                                               |  | $            | 8,520   |   |              | 8,688   |  
|Timberlands                                                                |  |              | 79,645  |   |              | 78,438  |  
|Fee timber                                                                 |  |              | 195,979 |   |              | 192,007 |  
|Logging facilities                                                         |  |              | 1,773   |   |              | 1,773   |  
|                                                                           |  |              |         |   |              |         |  
|                                                                           |  |              | 285,917 |   |              | 280,906 |  
|Less accumulated costs of fee timber harvested and facilities depreciation |  |              | (67,970 | ) |              | (65,866 | )
|                                                                           |  |              |         |   |              |         |  
|                                                                           |  | $            | 217,947 |   |              | 215,040 |  
|                                                                           |  |              |         |   |              |         |  



12



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2004

(Unaudited, except for December
31, 2003)



Note 8  Property, Plant, and Equipment



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



|                              |  |              |         |   |              |         |  
|----------------------------- |  | ------------ | ------- | - | ------------ | ------- | -
|(Thousands of dollars)        |  | June 30,2004 |         |   | Dec. 31,2003 |        
|Land                          |  | $            | 125     |   |              | 125     |  
|Land improvements             |  |              | 4,554   |   |              | 4,006   |  
|Buildings and structures      |  |              | 5,329   |   |              | 5,273   |  
|Machinery and equipment       |  |              | 71,719  |   |              | 70,520  |  
|                              |  |              |         |   |              |         |  
|                              |  |              | 81,727  |   |              | 79,924  |  
|Less accumulated depreciation |  |              | (46,139 | ) |              | (43,042 | )
|                              |  |              |         |   |              |         |  
|                              |  | $            | 35,588  |   |              | 36,882  |  
|                              |  |              |         |   |              |         |  



Note 9  Employee and Retiree
Benefit Plans



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



|                                     |  |                             |      |   |                             |      |   |      |     |      |    
|------------------------------------ |  | --------------------------- | ---- | - | --------------------------- | ---- | - | ---- | --- | ---- | ---
|                                     |  | Three Months Ended June 30,
|                                     |  | RetirementPlans             |      |   | OtherPostretirementBenefits
|(Thousands of dollars)               |  | 2004                        |      |   | 2003                        |      |   | 2004 |     | 2003
|Service cost                         |  | $                           | 207  |   |                             | 200  |   |      | 98  |      | 90 
|Interest cost                        |  |                             | 291  |   |                             | 259  |   |      | 136 |      | 129
|Expected return on plan assets       |  |                             | (234 | ) |                             | (224 | ) |      |    |      |   
|Amortization of transition amount    |  |                             |     |   |                             | (9   | ) |      |    |      |   
|Amortization of prior service cost   |  |                             | 13   |   |                             | 13   |   |      |    |      |   
|Amortization of net (gain)/loss      |  |                             | 47   |   |                             | 43   |   |      | 44  |      | 42 
|                                     |  |                             |      |   |                             |      |   |      |     |      |    
|Net periodic benefit cost            |  |                             | 324  |   |                             | 282  |   |      | 278 |      | 261
|Cost of special termination benefits |  |                             | 325  |   |                             |     |   |      |    |      |   
|                                     |  |                             |      |   |                             |      |   |      |     |      |    
|Total expense                        |  | $                           | 649  |   |                             | 282  |   |      | 278 |      | 261
|                                     |  |                             |      |   |                             |      |   |      |     |      |    



13



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2004

(Unaudited, except for December
31, 2003)



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



|                                     |  |                           |       |   |                             |      |   |      |     |      |    
|------------------------------------ |  | ------------------------- | ----- | - | --------------------------- | ---- | - | ---- | --- | ---- | ---
|                                     |  | Six Months Ended June 30,
|                                     |  | Retirement Plans          |       |   | OtherPostretirementBenefits
|(Thousands of dollars)               |  | 2004                      |       |   | 2003                        |      |   | 2004 |     | 2003
|Service cost                         |  | $                         | 403   |   |                             | 400  |   |      | 198 |      | 180
|Interest cost                        |  |                           | 567   |   |                             | 518  |   |      | 275 |      | 258
|Expected return on plan assets       |  |                           | (458  | ) |                             | (447 | ) |      |    |      |   
|Amortization of transition amount    |  |                           |      |   |                             | (18  | ) |      |    |      |   
|Amortization of prior service cost   |  |                           | 25    |   |                             | 25   |   |      |    |      |   
|Amortization of net (gain)/loss      |  |                           | 91    |   |                             | 86   |   |      | 89  |      | 84 
|                                     |  |                           |       |   |                             |      |   |      |     |      |    
|Net periodic benefit cost            |  |                           | 628   |   |                             | 564  |   |      | 562 |      | 522
|Cost of special termination benefits |  |                           | 475   |   |                             |     |   |      |    |      |   
|                                     |  |                           |       |   |                             |      |   |      |     |      |    
|Total expense                        |  | $                         | 1,103 |   |                             | 564  |   |      | 562 |      | 522
|                                     |  |                           |       |   |                             |      |   |      |     |      |    



Note 10  Supplemental Cash
Flow Disclosures



Income taxes paid, net of refunds, were
$1,207,000 and $1,329,000 in the 2004 and 2003 periods, respectively. Interest paid, net of amounts capitalized, was $2,979,000 and $3,414,000 in the first six months of 2004 and 2003, respectively.



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



|                                                |  |      |        |   |      |        |  
|----------------------------------------------- |  | ---- | ------ | - | ---- | ------ | -
|(Thousands of dollars)                          |  | 2004 |        |   | 2003 |       
|Trade accounts receivable                       |  | $    | (1,255 | ) |      | (1,611 | )
|Other receivables                               |  |      | 165    |   |      | (43    | )
|Inventories                                     |  |      | 1,468  |   |      | 1,140  |  
|Prepaid expenses and other current assets       |  |      | (61    | ) |      | 60     |  
|Trade accounts payable                          |  |      | (877   | ) |      | (799   | )
|Deferred revenues and other accrued liabilities |  |      | 2,196  |   |      | 1,984  |  
|                                                |  |      |        |   |      |        |  
|                                                |  | $    | 1,636  |   |      | 731    |  
|                                                |  |      |        |   |      |        |  



14



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2004

(Unaudited, except for December
31, 2003)



Note 11  Business Segments



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



|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|------------------------------------------------------------ |  | -------------------------- | ------ | - | ------------------------ | ------ | - | ---- | ------ | - | ---- | ------ | -
|                                                             |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |       
|(Thousands of dollars)                                       |  | 2004                       |        |   | 2003                     |        |   | 2004 |        |   | 2003 |       
|Net sales                                                    |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Woodlands                                                    |  | $                          | 7,230  |   |                          | 7,362  |   |      | 15,424 |   |      | 16,457 |  
|Mills                                                        |  |                            | 25,610 |   |                          | 20,475 |   |      | 46,122 |   |      | 39,744 |  
|Real Estate                                                  |  |                            | 5,161  |   |                          | 9,629  |   |      | 8,991  |   |      | 17,481 |  
|Eliminations*                                                |  |                            | (4,004 | ) |                          | (2,506 | ) |      | (8,729 | ) |      | (6,293 | )
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|                                                             |  | $                          | 33,997 |   |                          | 34,960 |   |      | 61,808 |   |      | 67,389 |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Income/(loss) before income taxes                            |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Operating income                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Woodlands                                                    |  | $                          | 4,481  |   |                          | 4,189  |   |      | 9,930  |   |      | 10,048 |  
|Mills                                                        |  |                            | 2,855  |   |                          | (1,627 | ) |      | 3,146  |   |      | (3,913 | )
|Real Estate                                                  |  |                            | 663    |   |                          | 5,041  |   |      | 1,255  |   |      | 8,463  |  
|Corporate                                                    |  |                            | (2,720 | ) |                          | (1,710 | ) |      | (5,290 | ) |      | (3,345 | )
|Eliminations                                                 |  |                            | 502    |   |                          | 221    |   |      | 632    |   |      | 300    |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Operating income                                             |  |                            | 5,781  |   |                          | 6,114  |   |      | 9,673  |   |      | 11,553 |  
|Equity in Del-Tin Fiber                                      |  |                            | 260    |   |                          | (547   | ) |      | 26     |   |      | (2,392 | )
|Interest income                                              |  |                            | 60     |   |                          | 16     |   |      | 118    |   |      | 44     |  
|Interest and other debt expense                              |  |                            | (1,517 | ) |                          | (1,923 | ) |      | (3,100 | ) |      | (3,546 | )
|Other income/(expense)                                       |  |                            | (1     | ) |                          | 56     |   |      | (5     | ) |      | 101    |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|                                                             |  | $                          | 4,583  |   |                          | 3,716  |   |      | 6,712  |   |      | 5,760  |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Depreciation, amortization, and cost of fee timber harvested |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Woodlands                                                    |  | $                          | 1,109  |   |                          | 1,824  |   |      | 2,482  |   |      | 3,725  |  
|Mills                                                        |  |                            | 1,401  |   |                          | 1,488  |   |      | 2,750  |   |      | 2,971  |  
|Real Estate                                                  |  |                            | 138    |   |                          | 133    |   |      | 292    |   |      | 261    |  
|Corporate                                                    |  |                            | 42     |   |                          | 22     |   |      | 79     |   |      | 42     |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|                                                             |  | $                          | 2,690  |   |                          | 3,467  |   |      | 5,603  |   |      | 6,999  |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Capital expenditures                                         |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|Woodlands                                                    |  | $                          | 3,433  |   |                          | 446    |   |      | 6,019  |   |      | 11,228 |  
|Mills                                                        |  |                            | 1,210  |   |                          | 809    |   |      | 1,374  |   |      | 1,155  |  
|Real Estate                                                  |  |                            | 1,867  |   |                          | 2,118  |   |      | 2,878  |   |      | 3,657  |  
|Corporate                                                    |  |                            | 80     |   |                          | 98     |   |      | 148    |   |      | 156    |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  
|                                                             |  | $                          | 6,590  |   |                          | 3,471  |   |      | 10,419 |   |      | 16,196 |  
|                                                             |  |                            |        |   |                          |        |   |      |        |   |      |        |  

---

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



15



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##### Table of Contents

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



Executive Overview



The Company recorded net income of $2.7 million for the second quarter of 2004 compared to $2.4 million for the same period of 2003. This years
earnings came primarily from the Woodlands and Mills segments of Deltics core forest products operations, whereas results in last years period were heavily influenced by the sale of a large tract of commercial real estate in the
Companys Chenal Valley development. Average lumber prices during the quarter were at their highest levels in over three years resulting in a $4.5 million turnaround in operating income in the Mills segment  from a loss of $1.6 million in
the second quarter of 2003 to earnings of $2.9 million this year. However, given the likelihood of future price fluctuations, the Company continues to focus a large measure of its efforts toward improving the mills efficiency and lowering
their cost structure in order to be competitive in any lumber environment.



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



For the recently completed quarter and for the first six months of 2004, pine sawtimber harvest levels were close to those of a year ago, and sales prices
have remained relatively stable. The Companys previously disclosed plan to reduce harvest levels for the year of 2004 when compared to the year of 2003 will result in lower harvest volumes for the second half of 2004. Woodlands segment
operating results for the first half of 2004 reflect decreased sales of timberland. Thus far in 2004, the Company has sold 717 acres of non-strategic timberland at an average price of $1,076 per acre. Non-strategic timberland is composed of tracts
too small to allow for efficient timber management, those geographically isolated from other Company fee lands, and acreage otherwise not deemed strategic to Deltics operations or growth.



For the Mills segment, the continued improvement in lumber prices, evidenced
by a 21 percent rise in sale prices from the average for the first half of 2003, significantly impacted operating strategies and financial results. As with any commodity market, the Company expects the historical volatility to continue in the
future; however, a resolution of the trade dispute with Canada regarding imports of softwood lumber could help to stabilize the markets for the Companys lumber products. Deltic also continues efforts to improve sales realizations through
product and customer mix enhancement, as well as the focus on increased efficiency and reduced cost structure. In response to improved market conditions, the Company modified the operating-hours structure at its Ola Mill, in April, to generate
increased production. The Company continues to anticipate that a significant percentage of logs supplied to both of its sawmills will come from strategically located Company fee timberlands.



Real Estate residential lot sales activity levels for the Companys real
estate developments are affected by economic conditions that influence the level of housing starts in the central Arkansas region, including general economic conditions and interest rates. Relatively low mortgage interest rates continued



16



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##### Table of Contents

into the second quarter of 2004, and demand for residential lots in the Companys Chenal Valley development remains
high. This is evidenced by the 82 lot closings thus far in 2004 and sale and/or purchase commitment on 139 of 160 lots offered in late January of this year. The Company has developed another 125 lots thus far in 2004. These additional lots were
offered for sale on June 24, with purchase commitments on 93 as of June 30, all with scheduled closing dates before the end of 2004. Deltic plans to develop additional lots during the remainder of 2004 which it anticipates to offer later in the
year. In Deltics other two developments, Red Oak Ridge and Chenal Downs, 89 developed lots were uncommitted as of June 30, 2004. The market value of offerings continue to increase over that of previous offerings consistent with the growth in
the central Arkansas real estate market.



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



The
reported average sales price for residential lots for a specific period is largely dependent upon the mix of lot sales closed in that period. As such, the average sales price for residential lots sold in the first half of 2004 decreased eight
percent, to $67,400, when compared to the same period in 2003. Deltics lot development plans provide for a mix of lot offerings that represent most real estate market segments for planned communities.



Commercial real estate sales activity is by nature less predictable than
residential activity. With the number of residents in Chenal Valley, and other west Little Rock areas, growing steadily and with momentum created from previous sales of commercial acreage in the development, interest in the Companys remaining
commercial acreage is increasing. Commercial sales only totaled two acres in the first half of 2004 versus 52 acres in the first six months of 2003, consisting primarily of 29 acres to Wal-Mart Stores, Inc. in the first quarter of 2003 and 22 acres
to a group of private investors for retail development in the second quarter of 2003. However, on April 6, 2004, RED Development LLC announced plans for The Promenade at Chenal, a 48-acre, open-air, lifestyle shopping center. The
contract is currently in its feasibility period, but is scheduled to close before the end of 2004. As of June 30, 2004, about 473 of the 710 acres of property currently zoned as commercial in Chenal Valley, or 67 percent, is available for sale. No
commercial acreage is included in the Chenal Downs development. Red Oak Ridge is planned to include approximately 80 acres of commercial property, which will be considered for sale as this developments population density increases.



Operating results for Del-Tin Fiber are affected by the overall MDF market
and the plants operating performance, and both improved dramatically during the first half of 2004, as evidenced by the fact that the plant had its first-ever profitable quarter and was profitable for the first half of 2004. The western
composite MDF price reported in Random Lengths rose from $337 per thousand square feet (MSF) for December 2003 to $430 per MSF for June 2004 as consumption of MDF continues to grow. Operationally, Del-Tin Fiber has improved plant
uptime and production of premium-grade board, while reducing wood usage per MSF produced (the largest single component of Del-Tins manufacturing cost).



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



17



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##### Table of Contents

Results of Operations



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



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



|                                                |  |                        |      |   |      |      |  
|----------------------------------------------- |  | ---------------------- | ---- | - | ---- | ---- | -
|                                                |  | Quarter Ended June 30, |     
|(Millions of dollars, except per share amounts) |  | 2004                   |      |   | 2003 |     
|Net sales                                       |  |                        |      |   |      |      |  
|Woodlands                                       |  | $                      | 7.2  |   |      | 7.4  |  
|Mills                                           |  |                        | 25.6 |   |      | 20.4 |  
|Real Estate                                     |  |                        | 5.2  |   |      | 9.7  |  
|Eliminations                                    |  |                        | (4.0 | ) |      | (2.5 | )
|                                                |  |                        |      |   |      |      |  
|Net sales                                       |  | $                      | 34.0 |   |      | 35.0 |  
|                                                |  |                        |      |   |      |      |  
|Operating income/(loss) and net income/(loss)   |  |                        |      |   |      |      |  
|Woodlands                                       |  | $                      | 4.4  |   |      | 4.2  |  
|Mills                                           |  |                        | 2.9  |   |      | (1.6 | )
|Real Estate                                     |  |                        | .7   |   |      | 5.1  |  
|Corporate                                       |  |                        | (2.7 | ) |      | (1.7 | )
|Eliminations                                    |  |                        | .5   |   |      | .2   |  
|                                                |  |                        |      |   |      |      |  
|Operating income                                |  |                        | 5.8  |   |      | 6.2  |  
|Equity in Del-Tin Fiber                         |  |                        | .2   |   |      | (.6  | )
|Interest and other debt expense                 |  |                        | (1.5 | ) |      | (1.9 | )
|Other income/(expense)                          |  |                        |     |   |      | .1   |  
|Income taxes                                    |  |                        | (1.8 | ) |      | (1.4 | )
|                                                |  |                        |      |   |      |      |  
|Net income                                      |  | $                      | 2.7  |   |      | 2.4  |  
|                                                |  |                        |      |   |      |      |  
|Earnings per common share                       |  |                        |      |   |      |      |  
|Basic                                           |  | $                      | .23  |   |      | .20  |  
|Assuming dilution                               |  | $                      | .23  |   |      | .20  |  



Consolidated



The $.3 million increase in net income was the result of
improved operating results for the Companys Mills segment and Del-Tin Fiber, partially offset by reduced operating results for the Companys Real Estate segment and increased Corporate operating expenses.



Operating income decreased $.4 million. The Woodlands segment increased $.2
million due primarily to an increased pine sawtimber harvest level and a decrease in the cost of fee timber harvested, partially offset by reduced sales of both timberland for higher and better use and non-strategic timberland and hardwood timber
and to a slightly lower average pine sawtimber price. Deltics Mills segment operations improved $4.5 million due mainly to a $78, or 26 percent, per thousand board feet (MBF) increase in the average lumber sales price. Real Estate
operating income decreased $4.4 million, primarily the result of decreased sales of commercial acreage. Corporate operating expense increased $1 million due to higher general and administrative expenses.



18



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##### Table of Contents

Woodlands



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



|                                 |  |                        |       |      |      
|-------------------------------- |  | ---------------------- | ----- | ---- | -----
|                                 |  | Quarter Ended June 30,
|                                 |  | 2004                   |       | 2003
|Net sales (millions of dollars)  |  |                        |       |      |      
|Pine sawtimber                   |  | $                      | 5.1   |      | 4.9  
|Pine pulpwood                    |  |                        | .4    |      | .5   
|Hardwood sawtimber               |  |                        |      |      | .4   
|Hardwood pulpwood                |  |                        | .1    |      | .2   
|                                 |  |                       
|Sales volume (thousands of tons) |  |                        |       |      |      
|Pine sawtimber                   |  |                        | 131.4 |      | 123.1
|Pine pulpwood                    |  |                        | 66.3  |      | 89.7 
|Hardwood sawtimber               |  |                        | 1.0   |      | 9.2  
|Hardwood pulpwood                |  |                        | 18.9  |      | 27.4 
|                                 |  |                       
|Sales price (per ton)            |  |                        |       |      |      
|Pine sawtimber                   |  | $                      | 39    |      | 40   
|Pine pulpwood                    |  |                        | 7     |      | 6    
|Hardwood sawtimber               |  |                        | 28    |      | 50   
|Hardwood pulpwood                |  |                        | 5     |      | 7    
|                                 |  |                       
|Timberland                       |  |                        |       |      |      
|Net sales (millions of dollars)  |  | $                      | .5    |      | .9   
|Sales volume (acres)             |  |                        | 479   |      | 1,097
|Sales price (per acre)           |  | $                      | 1,117 |      | 781  



Net sales decreased
$.2 million. Sales of pine sawtimber increased $.2 million due to a seven percent higher sales volume at a $1 per ton lower average sales price. Hardwood timber sales decreased $.5 million due to a delay in planned sales caused by unseasonally wet
weather conditions in the Companys operating area. Sales of timberland decreased $.4 million due to selling fewer acres but at a 43 percent higher average sales price. Other revenues increased $.5 million. Operating income increased $.2
million as a result of a $.7 million reduction in the cost of fee timber harvested due mainly to the mix of pine sawtimber harvest volume by company and the 46 percent drop in the volume of hardwood harvested, partially offset by an increase in
other expenses of $.5 million and the decrease in net sales.



Mills



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



|                                |  |                        |      |      |     
|------------------------------- |  | ---------------------- | ---- | ---- | ----
|                                |  | Quarter Ended June 30,
|                                |  | 2004                   |      | 2003
|Net sales (millions of dollars) |  |                        |      |      |     
|Lumber                          |  | $                      | 22.0 |      | 17.5
|Residual by-products            |  |                        | 2.8  |      | 2.6 
|                                |  |                       
|Lumber                          |  |                        |      |      |     
|Finished production (MMBF)      |  |                        | 55.6 |      | 57.0
|Sales volume (MMBF)             |  |                        | 58.3 |      | 58.7
|Sales price (per MBF)           |  |                        | 377  |      | 299 



19



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##### Table of Contents

Net sales increased $5.2 million, or 25 percent, due to higher sales prices. Average sales price rose 26
percent, or $78 per MBF, as a result of the improved lumber market. The improvement in operating results was due primarily to the increase in net sales and the Companys efforts to improve production efficiencies and lower the manufacturing
cost structure.



Real Estate



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



|                                           |  |                        |     |      |    
|------------------------------------------ |  | ---------------------- | --- | ---- | ---
|                                           |  | Quarter Ended June 30,
|                                           |  | 2004                   |     | 2003
|Net sales (millions of dollars)            |  |                        |     |      |    
|Residential lots                           |  | $                      | 3.2 |      | 1.8
|Commercial sites                           |  |                        |    |      | 6.0
|Chenal Country Club                        |  |                        | 1.8 |      | 1.6
|                                           |  |                       
|Sales volume                               |  |                        |     |      |    
|Residential lots                           |  |                        | 51  |      | 23 
|Commercial acres                           |  |                        |    |      | 23 
|                                           |  |                       
|Average sales price (thousands of dollars) |  |                        |     |      |    
|Residential lots                           |  | $                      | 64  |      | 82 
|Commercial acres                           |  |                        |    |      | 262



Net sales decreased
$4.5 million or 46 percent. The number of residential lots sold increased by 28 lots due primarily to closings resulting from the 160 lots offered for sale at the end of January 2004, with a 23 percent decrease in average sales price per lot due to
sales mix. (Lot closings in the current-year period did not include any golf course lots.) Commercial sales decreased by 23 acres. The decrease in the Real Estate segments operating income was due primarily to the same factors impacting net
sales.



Corporate



The increase in operating expense for Corporate functions of $1 million was
due primarily to higher retirement plan expenses related to separated employees, increased professional fees, and increased incentive plan expenses.



Eliminations



Intersegment sales of timber from Deltics Woodlands to the Mills segment increased $1.5 million to $4 million. The increase was due primarily to
increased volume as the Companys sawmills increased the percentage of log receipts coming into their log yards from Company fee timberlands.



Equity in Del-Tin Fiber



For the second quarter of 2004, equity in Del-Tin Fiber improved $.8 million due to the improvements in MDF prices and plant operating performance. With
its decision to cease efforts to sell its ownership in Del-Tin Fiber, Deltic resumed recording equity equal to its share of the financial results of the facility for the 2004 period. In the 2003 period, the equity loss was equal to cash operating
advances to the plant during the quarter as the decision at that time was to exit the MDF business at the first reasonable opportunity.



20



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##### Table of Contents

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



|                                |  |                        |      |      |     
|------------------------------- |  | ---------------------- | ---- | ---- | ----
|                                |  | Quarter Ended June 30,
|                                |  | 2004                   |      | 2003
|Net sales (millions of dollars) |  | $                      | 15.7 |      | 12.2
|Finished production (MMSF)      |  |                        | 38.9 |      | 36.0
|Board sales (MMSF)              |  |                        | 39.9 |      | 35.0
|Sales price (per MSF)           |  | $                      | 394  |      | 347 



Average sales price
increased $47 per MSF due to the improvements in the MDF market and to a change in product mix to include a greater percentage of thin board and an increase in premium-grade production. Manufacturing cost per MSF sold was down two percent due to the
lowering of certain variable costs of manufacturing and the spreading of the plants fixed costs to the increased production volume.



Income Taxes



The effective income tax rate was 40 percent and 35 percent in the 2004 and 2003 periods, respectively. The increase was primarily due to higher effective
rates for state income taxes.



Six Months Ended June 30, 2004 Compared with
Six Months Ended June 30, 2003



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



|                                                |  |                           |      |   |      |      |  
|----------------------------------------------- |  | ------------------------- | ---- | - | ---- | ---- | -
|                                                |  | Six Months Ended June 30, |     
|(Millions of dollars, except per share amounts) |  | 2004                      |      |   | 2003 |     
|Net sales                                       |  |                           |      |   |      |      |  
|Woodlands                                       |  | $                         | 15.4 |   |      | 16.5 |  
|Mills                                           |  |                           | 46.1 |   |      | 39.7 |  
|Real Estate                                     |  |                           | 9.0  |   |      | 17.5 |  
|Eliminations                                    |  |                           | (8.7 | ) |      | (6.3 | )
|                                                |  |                           |      |   |      |      |  
|Net sales                                       |  | $                         | 61.8 |   |      | 67.4 |  
|                                                |  |                           |      |   |      |      |  
|                                                | 
|                                                |  | Six Months Ended June 30, |     
|(Millions of dollars, except per share amounts) |  | 2004                      |      |   | 2003 |     
|Operating income/(loss) and net income/(loss)   |  |                           |      |   |      |      |  
|Woodlands                                       |  | $                         | 9.9  |   |      | 10.0 |  
|Mills                                           |  |                           | 3.2  |   |      | (3.9 | )
|Real Estate                                     |  |                           | 1.3  |   |      | 8.5  |  
|Corporate                                       |  |                           | (5.3 | ) |      | (3.3 | )
|Eliminations                                    |  |                           | .6   |   |      | .3   |  
|                                                |  |                           |      |   |      |      |  
|Operating income                                |  |                           | 9.7  |   |      | 11.6 |  
|Equity in Del-Tin Fiber                         |  |                           |     |   |      | (2.4 | )
|Interest income                                 |  |                           | 1    |   |      |     |  
|Interest and other debt expense                 |  |                           | (3.1 | ) |      | (3.5 | )
|Other income/(expense)                          |  |                           |     |   |      | .1   |  
|Income taxes                                    |  |                           | (2.7 | ) |      | (2.2 | )
|                                                |  |                           |      |   |      |      |  
|Net income                                      |  | $                         | 4.0  |   |      | 3.6  |  
|                                                |  |                           |      |   |      |      |  
|Earnings per common share                       |  |                           |      |   |      |      |  
|Basic                                           |  | $                         | .33  |   |      | .31  |  
|Assuming dilution                               |  | $                         | .33  |   |      | .30  |  



21



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##### Table of Contents

Consolidated



The $.4 million increase in net income was the result of improved operating results for the Mills segments and Del-Tin
Fiber, partially offset by reduced operating results for the Companys Real Estate segment and increased Corporate operating expenses.



Operating income decreased $1.9 million. The Woodlands segment decreased $.1 million due mainly to reduced sales of timberland, essentially offset by a
decrease in the cost of fee timber harvested. Mills segment operations improved $7.1 million due primarily to a $63, or 21 percent, per MBF increase in average lumber sales price. Real Estate operating income dropped $7.2 million, primarily the
result of decreased commercial acreage sales. Corporate operating expense increased $2 million due to higher general and administrative expenses.



Woodlands



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



|                                 |  |                           |       |      |      
|-------------------------------- |  | ------------------------- | ----- | ---- | -----
|                                 |  | Six Months Ended June 30,
|                                 |  | 2004                      |       | 2003
|Net sales (millions of dollars)  |  |                           |       |      |      
|Pine sawtimber                   |  | $                         | 11.6  |      | 11.9 
|Pine pulpwood                    |  |                           | .9    |      | .9   
|Hardwood sawtimber               |  |                           | .1    |      | .5   
|Hardwood pulpwood                |  |                           | .2    |      | .2   
|                                 |  |                          
|Sales volume (thousands of tons) |  |                           |       |      |      
|Pine sawtimber                   |  |                           | 302.2 |      | 301.1
|Pine pulpwood                    |  |                           | 133.8 |      | 151.0
|Hardwood sawtimber               |  |                           | 3.0   |      | 9.4  
|Hardwood pulpwood                |  |                           | 41.8  |      | 40.6 



|                                |  |                           |       |      |      
|------------------------------- |  | ------------------------- | ----- | ---- | -----
|                                |  | Six Months Ended June 30,
|                                |  | 2004                      |       | 2003
|Sales price (per ton)           |  |                           |       |      |      
|Pine sawtimber                  |  | $                         | 38    |      | 40   
|Pine pulpwood                   |  |                           | 6     |      | 6    
|Hardwood sawtimber              |  |                           | 30    |      | 50   
|Hardwood pulpwood               |  |                           | 5     |      | 6    
|                                |  |                          
|Timberland                      |  |                           |       |      |      
|Net sales (millions of dollars) |  | $                         | .8    |      | 2.1  
|Sales volume (acres)            |  |                           | 717   |      | 2,283
|Sales price (per acre)          |  | $                         | 1,076 |      | 970  



Net sales decreased
$1.1 million. Sales of timberland decreased $1.3 million due to selling 1,566 less acres at an eleven percent higher average sales price. Sales of pine sawtimber decreased $.3 million due to a $2 per ton, or five percent, lower average sales price.
Hardwood timber sales decreased $.4 million due to reduced sales volume caused by unseasonally wet weather conditions in the Companys operating area. Other revenues increased $.5 million. Operating income decreased $.1 million. The reduction
in net sales and a $.4 million increase in other expenses were partially offset by a $1.2 million decrease in the cost of fee timber harvested (due primarily to the mix of pine sawtimber harvested by company and the reduction in hardwood sales
volume) and to a $.4 million reduction in the cost of timberland sold.



22



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##### Table of Contents

Mills



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



|                                |  |                           |       |      |      
|------------------------------- |  | ------------------------- | ----- | ---- | -----
|                                |  | Six Months Ended June 30,
|                                |  | 2004                      |       | 2003
|Net sales (millions of dollars) |  |                           |       |      |      
|Lumber                          |  | $                         | 39.7  |      | 33.9 
|Residual by-products            |  |                           | 5.2   |      | 5.2  
|                                |  |                          
|Lumber                          |  |                           |       |      |      
|Finished production (MMBF)      |  |                           | 107.4 |      | 112.9
|Sales volume (MMBF)             |  |                           | 110.8 |      | 115.0
|Sales price (per MBF)           |  |                           | 358   |      | 295  



Net sales increased
$6.4 million, or 16 percent, due to higher sales prices. Average sales price rose 21 percent, or $63 per MBF, as a result of the improved lumber market. The improvement in operating results were due primarily to the same factors impacting net sales.



Real Estate



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



|                                |  |                           |     |      |    
|------------------------------- |  | ------------------------- | --- | ---- | ---
|                                |  | Six Months Ended June 30,
|                                |  | 2004                      |     | 2003
|Net sales (millions of dollars) |  |                           |     |      |    
|Residential lots                |  | $                         | 5.5 |      | 5.1
|Commercial sites                |  |                           | .3  |      | 9.6
|Chenal Country Club             |  |                           | 2.8 |      | 2.5



|                                           |  |                           |     |      |    
|------------------------------------------ |  | ------------------------- | --- | ---- | ---
|                                           |  | Six Months Ended June 30,
|                                           |  | 2004                      |     | 2003
|Sales volume                               |  |                           |     |      |    
|Residential lots                           |  |                           | 82  |      | 70 
|Commercial acres                           |  |                           | 2   |      | 52 
|                                           |  |                          
|Average sales price (thousands of dollars) |  |                           |     |      |    
|Residential lots                           |  | $                         | 67  |      | 74 
|Commercial acres                           |  |                           | 152 |      | 184



Net sales decreased
$8.5 million or 49 percent. The number of residential lots sold increased by 12 lots due primarily to closings resulting from the 160 lots offered for sale at the end of January 2004, with an eight percent decrease in average sales price per lot due
to sales mix. Commercial sales decreased by 50 acres. The decrease in the Real Estate segments operating income was due primarily to the same factors impacting net sales.



Corporate



The increase in operating expense for Corporate functions of $2 million was due primarily to higher retirement plan expenses related to separated
employees, increased incentive plan expenses, and increased professional fees.



23



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##### Table of Contents

Eliminations



Intersegment sales of timber from Deltics Woodlands to the Mills segment increased $2.4 million to $8.7 million. The
increase was due primarily to increased volume as the Companys sawmills increased the percentage of log receipts coming into their log yards from Company fee timberlands.



Equity in Del-Tin Fiber



For the first six months of 2004, equity in Del-Tin Fiber improved $2.4 million due to the improvements in MDF prices and plant operating performance.
With its decision to cease efforts to sell its ownership in Del-Tin Fiber, Deltic resumed recording equity equal to its share of the financial results of the facility for the 2004 period. In the 2003 period, the equity loss was equal to cash
operating advances to the plant during the quarter as the decision at that time was to exit the MDF business at the first reasonable opportunity.



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



|                                |  |                           |      |      |     
|------------------------------- |  | ------------------------- | ---- | ---- | ----
|                                |  | Six Months Ended June 30,
|                                |  | 2004                      |      | 2003
|Net sales (millions of dollars) |  | $                         | 30.6 |      | 22.4
|Finished production (MMSF)      |  |                           | 76.9 |      | 68.2
|Board sales (MMSF)              |  |                           | 80.1 |      | 67.5
|Sales price (per MSF)           |  | $                         | 382  |      | 332 



Average sales price
increased $50 per MSF due to the improvements in the MDF market and to a change in product mix to include a greater percentage of thin board and an increase in premium-grade production. Manufacturing cost per MSF sold was down five percent due to
the lowering of certain variable costs of manufacturing and the spreading of the plants fixed costs to the increased production volume.



Income Taxes



The effective income tax rate was 40 percent and 37 percent in the 2004 and 2003 periods, respectively. The increase was primarily due to higher effective
rates for state income taxes.



Liquidity and Capital Resources



Cash Flows and Capital Expenditures



Net cash provided by operating activities totaled $16.9 million for the
first half of 2004 compared to $19.5 million for the same period in 2003. Changes in operating working capital, other than cash and cash equivalents, provided cash of $1.6 million in the 2004 period and $.7 million in 2003. The Companys
accompanying Consolidated Statements of Cash Flows identify other differences between net income/(loss) and cash provided by operating activities for each reporting period.



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Capital expenditures required cash of $10.4 million in the current-year period and $16.2 million a year
ago. Capital expenditures by segment consisted of the following:



|                       |  |                           |        |      |       
|---------------------- |  | ------------------------- | ------ | ---- | ------
|                       |  | Six Months Ended June 30,
|(Thousands of dollars) |  | 2004                      |        | 2003
|Woodlands*             |  | $                         | 6,019  |      | 11,228
|Mills                  |  |                           | 1,374  |      | 1,155 
|Real Estate            |  |                           | 2,878  |      | 3,657 
|Corporate              |  |                           | 148    |      | 156   
|                       |  |                           |        |      |       
|Capital expenditures   |  | $                         | 10,419 |      | 16,196
|                       |  |                           |        |      |       

---

|* | The 2004 amount includes $5.1 million for the acquisition of 4,033 acres of timberland, while the 2003 amount includes $10.4 million for the acquisition of 6,956 acres, including
one acquisition amounting to $9.3 million for 4,979 acres in Calhoun County, Arkansas.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The net change in purchased stumpage inventory to be utilized in the Companys sawmill operations provided cash of $.2 million in 2004, but required
cash of $1.8 million in 2003. The Company made advances to Del-Tin Fiber of $.5 million during the current period, which decreased from $4.6 million from the corresponding period of 2003 due to the improved financial results for the facility. During
2004, $4.4 million of proceeds from sales of timberland that were previously held by a trustee were used to acquire timberland designated as replacement property for income tax purposes, as required for tax-deferred exchanges. During
2004, Deltic made repayments of previous borrowings under its revolving credit facility of $13 million. In 2003, Deltic borrowed $11.5 million and made repayments of debt of $6.4 million. In 2003, the decrease in bank overdraft was $.9 million.
Deltic paid dividends on common stock of $1.5 million in both periods. In 2004, proceeds from stock option exercises amounted to $3.3 million.



Financial Condition



Working capital totaled $6.1 million at June 30, 2004, and $7.1 million at December 31, 2003. Deltics working capital ratio at June 30, 2004, was
1.75 to 1, compared to 2.01 to 1 at the end of 2003. Cash and cash equivalents at the end of the second quarter of 2004 were $1.9 million compared to $1.7 million at the end of 2003. During the first half of 2004, total indebtedness of the Company
decreased $13 million to $102 million. Deltics long-term debt to stockholders equity ratio was .577 to 1 at June 30, 2004, compared to .676 to 1 at year-end 2003.



Liquidity



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



To facilitate these growth plans, the Company has an agreement
with a group of banks which provides an unsecured, committed revolving credit facility totaling $125 million, inclusive of a $50 million letter of credit feature. The agreement will expire on July 15, 2007. As of June 30, 2004, $93 million was
available in excess of all borrowings outstanding under or supported by the facility. The credit agreement contains restrictive covenants, including limitations on the incurrence of debt and requirements to maintain certain financial ratios.



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



Off-Balance Sheet Arrangements, Contractual Obligations, and Commitments



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



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able to successfully complete a minimum production test. Both owners have also agreed, in a series of one-year term
commitments, to fund any operating working capital needs until the facility is able to consistently generate sufficient funds to meet its cash requirements.



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



|                                       |  |       |       |            |    |             |     |             |      |           |     
|-------------------------------------- |  | ----- | ----- | ---------- | -- | ----------- | --- | ----------- | ---- | --------- | ----
|(Millions of dollars)                  |  | Total |       | During2004 |    | 2005to 2006 |     | 2007to 2008 |      | After2008
|Contractual cash payment obligations   |  |       |       |            |    |             |     |             |      |           |     
|Real estate development infrastructure |  | $     | 1.7   |            | .5 |             | 1.2 |             |     |           |    
|Long-term debt                         |  |       | 102.0 |            |   |             |    |             | 72.0 |           | 30.0
|                                       |  |       |       |            |    |             |     |             |      |           |     
|                                       |  | $     | 103.7 |            | .5 |             | 1.2 |             | 72.0 |           | 30.0
|                                       |  |       |       |            |    |             |     |             |      |           |     



|                                                       |  |       |      |            |    |             |      |             |    |           |  
|------------------------------------------------------ |  | ----- | ---- | ---------- | -- | ----------- | ---- | ----------- | -- | --------- | -
|(Millions of dollars)                                  |  | Total |      | During2004 |    | 2005to 2006 |      | 2007to 2008 |    | After2008
|Other commercial commitment expirations                |  |       |      |            |    |             |      |             |    |           |  
|Del-Tin Fiber contingent equity contribution agreement |  | $     | 17.5 |            |   |             | 17.5 |             |   |           | 
|Del-Tin Fiber production                               |  |       |      |            |    |             |      |             |    |           |  
|support agreement                                      |  |       | 11.2 |            |   |             | 11.2 |             |   |           | 
|Timber cutting agreements                              |  |       | .1   |            | .1 |             |     |             |   |           | 
|Operating leases                                       |  |       | .2   |            |   |             | .1   |             | .1 |           | 
|Letters of credit                                      |  |       | 1.0  |            | .3 |             | .6   |             | .1 |           | 
|                                                       |  |       |      |            |    |             |      |             |    |           |  
|                                                       |  | $     | 30.0 |            | .4 |             | 29.4 |             | .2 |           | 
|                                                       |  |       |      |            |    |             |      |             |    |           |  



Outlook



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



Critical Accounting Policies and Estimates



Critical accounting policies are defined as those that are reflective of significant judgements and uncertainties and potentially result in materially different results under different assumptions and conditions. The
Company has prepared its consolidated financial statements in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the reported amounts in these
financial statements and accompanying notes. Actual results could differ from those estimates under different assumptions or conditions. The Company has disclosed its critical accounting policies in its 2003 annual report on Form



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10-K, and this disclosure should be read in conjunction with this Form 10-Q. There have been no changes in these
identified critical policies, nor have there been any initially adopted accounting policies having a material impact on reported financial results.



Impact of Recently Effective Accounting Pronouncements



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



Outlook



Pine sawtimber harvest levels are expected to be 150,000 to 170,000 tons in the third quarter of 2004 and 550,000 to 575,000
tons for the year. The Companys program to consider sales of timberland identified to be non-strategic or have a higher and better use will continue, with sales for the year anticipated to be 2,000 to 3,000 acres. Finished lumber production
and sales volume will continue to be subject to market conditions, and is estimated at 60 to 65 million board feet for the third quarter and 235 to 245 million board feet for the year. Residential lot sales are projected to be 60 to 80 lots and 220
to 240 lots for the third quarter and the year, respectively.



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



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Item 3. Quantitative and Qualitative Disclosures About Market Risk



The Companys market risk has not changed significantly from that set forth under the caption Quantitative and Qualitative Disclosures About
Market Risk, in Item 7A of Part II of its 2003 annual report on Form 10-K. Those disclosures should be read in conjunction with this Form 10-Q.



Item 4. Controls and Procedures



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



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



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##### Table of Contents

PART II - OTHER INFORMATION



Item 1. Legal Proceedings



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



Item 2. Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities



Issuer Purchase of Equity Securities



|                               |  |                                |   |  |                            |       |                                                                               |   |                                                                                                 |   |          
|------------------------------ |  | ------------------------------ | - |  | -------------------------- | ----- | ----------------------------------------------------------------------------- | - | ----------------------------------------------------------------------------------------------- | - | ---------
|Period                         |  | Total Numberof SharesPurchased |   |  | AveragePrice PaidPer Share |       | Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs |   | Maximum Approximate DollarValue of Shares that May YetBe Purchased Under
the Plans or Programs2
|April 1 through April 30, 2004 |  |                               |   |  |                            |      |                                                                               |  |                                                                                                 | $ | 7,851,000
|                               |  |                                |   | 
|May 1 through May 31, 2004     |  |                               |   |  |                            |      |                                                                               |  |                                                                                                 | $ | 7,851,000
|                               |  |                                |   | 
|June 1 through June 30, 2004   |  | 7,052                          | 1 |  | $                          | 36.01 |                                                                               |  |                                                                                                 | $ | 7,851,000

---

|1 | The number of shares purchased other than through the Companys publicly announced stock repurchase plan was 7,052. These shares were acquired through a private
tender offer outside of the open-market.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | In December 2000, the Companys Board of Directors authorized a stock repurchase plan of up to $10 million of Deltic common stock. There is no stated expiration
date regarding this authorization.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 3. Defaults Upon Senior Securities



None.



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



The annual meeting of the stockholders of Deltic Timber Corporation (Deltic or the Company) was held on April 22, 2004. Pursuant to the Companys Amended and Restated Certificate of
Incorporation, its Board of Directors consists of three classes who hold office for staggered terms of three years. Set forth below is a listing of the directors elected at the April 22, 2004, annual meeting, the results of such election and the
names of directors whose term of office continued after the meeting.



|                       |  |                        |  |               
|---------------------- |  | ---------------------- |  | --------------
|Director               |  | Votes for              |  | Votes Withheld
|R. Hunter Pierson, Jr. |  | 11,314,816             |  | 416,265       
|J. Thurston Roach      |  | 11,387,586             |  | 343,495       
|John C. Shealy         |  | 11,388,372             |  | 342,709       
|O. H. Darling, Jr.     |  | (Term expires in 2005) |  |               
|Christoph Keller, III  |  | (Term expires in 2005) |  |               
|R. Madison Murphy      |  | (Term expires in 2005) |  |               
|Alex R. Lieblong       |  | (Term expires in 2006) |  |               
|Robert C. Nolan        |  | (Term expires in 2006) |  |               
|Ray C. Dillon          |  | (Term expires in 2006) |  |               



In addition to the
election of three Class II directors at the April 22, 2004 annual meeting, stockholders were requested to ratify the prior appointment of KPMG LLP by the Board of Directors as Deltics independent auditors for 2004. Stockholders ratified the
appointment of KPMG LLP by a vote of 11,514,024 shares in favor and 200,618 shares against or withheld.



Item 5. Other Information



None.



Item 6. Exhibits and Reports on Form 8-K



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



|     |  |                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------
|31.1 |  | Chief Executive Officer Certification Required by Section 302 of the Sarbanes- Oxley Act of 2002.
|     | 
|31.2 |  | Chief Financial Officer Certification Required by Section 302 of the Sarbanes- Oxley Act of 2002.
|     | 
|32   |  | Certification Required by Section 906 of the Sarbanes-Oxley Act of 2002.                         



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



|         |  |                                                                                                              
|-------- |  | -------------------------------------------------------------------------------------------------------------
|Item 12. |  | Regulation FD Disclosure  Press release announcing Deltics financial results for the first quarter of 2004.



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SIGNATURES



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



|                          |  |                                                                                                                    |  |                    
|------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | -------------------
|DELTIC TIMBER CORPORATION
|                          |  |                                                                                                                   
|By:                       |  | /s/ Ray C. DillonRay C. Dillon, President (Principal Executive Officer)                                            |  | Date: July 28,
2004
|                          |  |                                                                                                                   
|                          |  | /s/ Clefton D. VaughanClefton D. Vaughan, Vice President, Finance and Administration (Principal Financial Officer) |  | Date: July 28,
2004
|                          |  |                                                                                                                   
|                          |  | /s/ Emily R. EversEmily R. Evers, Controller (Principal Accounting Officer)                                        |  | Date: July 28,
2004



31