<PAGE>

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               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                   FORM 10-K

  (Mark One)
      [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 2000

                                      OR

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

                        Commission file number 1-12147

                           DELTIC TIMBER CORPORATION
            (Exact name of registrant as specified in its charter)


<TABLE>
                              Delaware                                                     71-0795870
<S>                                                                            <C>
      (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)
</TABLE>

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

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


          Title of each class          Name of each exchange on which registered

      Common Stock, $.01 Par Value            New York Stock Exchange, Inc.

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

      Securities registered pursuant to Section 12(g) of the Act:  None

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based on the average of the high and low prices of the Common Stock
on the New York Stock Exchange on February 28, 2001, was $143,265,889. For
purposes of this computation, all officers, directors, and 5% beneficial owners
of the registrant (as indicated in Item 12) are deemed to be affiliates. Such
determination should not be deemed an admission that such directors, officers,
or 5% beneficial owners are, in fact, affiliates of the registrant.

Number of shares of Common Stock, $.01 Par Value, outstanding at February 28,
2001, was 11,935,323.

                     Documents incorporated by reference:

The Registrant's definitive Proxy Statement relating to the Annual Meeting of
Stockholders on April 26, 2001.


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<PAGE>

                   TABLE OF CONTENTS - 2000 FORM 10-K REPORT


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                                                                                                   Page
                                                                                                 Numbers
H                                                                                                 -------
<S>                                                                                              <C>
                                                  PART I

Item 1.     Business                                                                                  3

Item 2.     Properties                                                                               13

Item 3.     Legal Proceedings                                                                        13

Item 4.     Submission of Matters to a Vote of Security Holders                                      13

                                                  PART II

Item 5.     Market for Registrant's Common Equity and Related Stockholder Matters                    15

Item 6.     Selected Financial Data                                                                  16

Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations    17

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk                               29

Item 8.     Financial Statements and Supplementary Data                                              30

Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     57

                                                  PART III

Item 10.    Directors and Executive Officers of the Registrant                                       58

Item 11.    Executive Compensation                                                                   58

Item 12.    Security Ownership of Certain Beneficial Owners and Management                           58

Item 13.    Certain Relationships and Related Transactions                                           58

                                                  PART IV

Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K                         59

Signatures                                                                                           61
</TABLE>

                                       2
<PAGE>

                                     PART I

Item 1.  Business

Introduction

     Deltic Timber Corporation ("Deltic" or the "Company") is a natural
resources company engaged primarily in the growing and harvesting of timber.
The Company owns approximately 433,000 acres, primarily in Arkansas and north
Louisiana, including 408,000 acres of timberland (the "timberlands").

     In addition to its timber operations, Deltic is engaged in the manufacture
and marketing of lumber and in real estate development projects in central
Arkansas.  Sawmill operations consist of two mills, one at Ola in central
Arkansas and another at Waldo in south Arkansas. The Company also holds a 50
percent interest in Del-Tin Fiber L.L.C. ("Del-Tin Fiber"), a joint venture to
manufacture and market medium density fiberboard ("MDF").

     The timberlands consist primarily of Southern Pine and include 115,000
acres of pine plantations.  Estimated pine sawtimber inventory as of December
31, 2000, was 10,373,000 tons.  Management considers the timberlands to be the
Company's most valuable asset and the harvest of stumpage to be its most
significant source of income.  Deltic actively manages its timberlands in order
to increase productivity and maximize the long-term value of its timber assets.
The Company harvests timber from the timberlands in accordance with its harvest
plans and sells timber in the domestic market or converts timber to lumber in
its sawmills.  In 2000, Deltic harvested 566,557 tons of pine sawtimber from its
timberlands.

     The Company implemented a timberland acquisition program in late 1996.
This ongoing program will enable the Company to continue to increase harvest
levels, while expanding its timber inventory.  The Company intends to focus its
acquisition program on timberland in the southern U.S.  Unlike other timber-
producing areas of North America, most of the timberland in the southern U.S. is
privately held, making it potentially available for acquisition.

     The Company's two sawmills employ modern technology in order to improve
efficiency, reduce labor costs, maximize utilization of the timber resource, and
maintain high quality standards of production.  In addition, each mill is
strategically located near significant portions of the timberlands.  The Ola
Mill is equipped for maximum utilization of smaller diameter logs, while the
Waldo Mill can process both smaller and larger diameter logs.  The mills produce
a variety of products, including dimension lumber, boards, timbers, decking, and
secondary products such as finger-jointed studs.  The lumber is sold primarily
to wholesalers and treaters in the South and Midwest and is used in residential
construction, roof trusses, laminated beams, and remanufactured items.  Combined
annual capacity of the two mills at December 31, 2000, was 246 million board
feet ("MMBF"). The Company's total finished lumber production in 2000 was 169
MMBF. This reduction in production from 186 MMBF in 1999 was in response to poor
market conditions as Deltic and much of the industry curtailed production in
2000.

     The Company's real estate operations were started in 1985 to add value to
former timberland strategically located in the growth corridor of west Little
Rock, Arkansas.  Since that time, the Company has been developing Chenal Valley,
a 4,800-acre upscale planned community, centered around a Robert Trent Jones,
Jr. designed golf course at Chenal Country Club.  The property is being
developed in stages, and real estate sales to date have consisted primarily of
residential lots sold to builders or individuals and commercial tracts.  In
addition to Chenal Valley, Deltic is developing Chenal Downs, a 400-acre
equestrian development located just outside of Chenal Valley, and Red Oak Ridge,
an 800-acre development near Hot Springs, Arkansas.

                                       3

<PAGE>

     The Del-Tin Fiber plant is located near El Dorado, Arkansas.  Construction
of the plant commenced in mid-1996 and initial production began in April 1998.
Construction cost of the facility was $104 million.  The plant is designed to
have an annual capacity of 150 million square feet ("MMSF"), on a 3/4-inch
basis, making it one of the largest plants of its type in the world.  MDF, which
is used primarily in the furniture, flooring, and molding industries, is
manufactured from sawmill residuals such as chips, shavings, and sawdust, held
together by an adhesive bond.

     On August 17, 2000, the Company's Board of Directors approved the disposal
of Deltic's former Agriculture segment assets, subject to using the sales
proceeds to purchase additional Southern Pine timberland, via a tax-deferred
exchange.  As a result, activities of this segment have been accounted for as
discontinued operations.  Deltic engaged an agricultural land consulting and
brokerage firm to act as advisors in evaluating and marketing about 50,000 acres
(approximately 38,800 acres net to Deltic) of farmland located in northeast
Louisiana.  As of December 31, 2000, sales contracts on approximately 20,400 net
acres of farmland have been closed.  This initiative has provided the Company a
significant and unique opportunity to advance its strategy of growing its core
forest products business.

Forest Products Industry

     The demand for, and prices of, timber and manufactured wood products,
including lumber, are affected primarily by the cyclical supply and demand
factors of the forest products industry.  Among these factors are general
economic conditions, interest rates, residential construction and remodeling
activity, the availability of raw materials, North American lumber production,
lumber imports and exports, and weather conditions.  The major factors affecting
the industry in 2000 were a modest decrease in construction activity and an
industry-wide continuation of high production levels, particularly in the first
half of the year, which caused lumber prices to decline significantly.  Timber
prices in the Company's operating area were essentially unchanged.

     The supply of timber, and therefore lumber, is significantly affected by
the availability of timber from public lands, particularly in the Pacific
Northwest.  In recent years, the U.S. government has dramatically reduced the
amount of timber offered for sale in response to environmental concerns.  This
has resulted in increased demand for timber in the southern U.S., as well as
increased lumber imports from Canada.

     The southern U.S., in which all of the Company's operations are located, is
a major timber and lumber producing region.  There are an estimated 209 million
acres of timberland in the region, of which approximately 91 million acres
contain softwood, predominately Southern Pine.  Unlike other major timber-
producing areas in North America, most of this acreage is privately held.  The
estimated breakdown of ownership of softwood timberland in the southern U.S. is
89 percent private, seven percent national forest, and four percent other
public.  Although there can be no assurance, management anticipates that the
southern U.S. timber resource will be subject to strong demand for the
foreseeable future and also believes that the South will have a strategic
advantage over other U.S. timber-producing regions due to regulatory,
geographic, and other factors.

Woodlands

     The Company owns approximately 408,000 acres of timberland, primarily in
Arkansas and north Louisiana, stocked principally with Southern Pine.  In
addition, acquisitions for approximately 24,200 net acres of timberland, with
title held by an accommodator, are scheduled to close during the first quarter
of 2001.  Management considers the timberlands to be Deltic's most valuable
asset and the harvest of this stumpage to be the Company's most significant
source of income.

                                       4
<PAGE>

     The breakdown of the Company's timberland acreage at year-end 2000
consisted of the following:


                                                      Acres
                                                     -------


               Pine forest......................     243,000
               Pine plantation..................     115,000
               Hardwood forest..................      20,000
               Other............................      30,000
                                                     -------
               Total                                 408,000
                                                     =======

     The Company's timberlands are well diversified by age class.  The
timberland classified as pine forest is managed on an all-aged basis and
contains mature timber that is ready to be harvested over the next several
years.  Pine plantations are generally less than 25 years old, with the majority
ranging in age from 10 to 20 years.  Because pine timber does not reach
sawtimber size until it is at least 20 to 25 years of age, most of the
plantations are not yet included in the Company's pine sawtimber inventory.

     Timber Inventory.  The Company's estimated standing timber inventory is
calculated for each tract by utilizing growth formulas based on representative
sample tracts and tree counts for various diameter classifications.  The
calculation of pine inventory is subject to periodic adjustments based on sample
cruises and actual volumes harvested.  The hardwood inventory shown in the
following table is only an approximation, so the physical quantity of such
timber may vary significantly from this approximation.  Estimated inventory of
standing timber as of December 31, 2000, consisted of the following:

                                                      Estimated
                                                       Volume
                                                       (Tons)
                                                     -----------

                  Pine timber
                      Sawtimber..................    10,373,100
                      Pulpwood...................     5,616,100

                  Hardwood timber
                      Sawtimber..................     1,015,000
                      Pulpwood...................     1,241,000

     The Company's pine sawtimber is either used in its sawmills or sold to
third parties.  Products manufactured from this resource include dimension
lumber, boards, timbers, decking, and secondary products, used primarily in
residential construction.  Deltic's hardwood sawtimber is sold to third parties
and is primarily used in the production of railroad ties, flooring, and pallets.
Pulpwood consists of logs with a diameter of less than nine inches.  Both pine
and hardwood pulpwood are sold to third parties for use primarily in the
manufacture of paper.

     Timber Growth.  Timber growth rate is an important variable for forest
products companies since it ultimately determines how much timber can be
harvested.  A higher growth rate permits larger annual harvests as replacement
timber regenerates.  Growth rates vary depending on species, location, age, and
forestry management practices.  The growth rate, net of mortality, for Deltic's
Southern Pine averages five to six percent of standing inventory per annum.  The
Company considers a 30 to 35 year rotation optimal for most of the timberlands.

     Timberland Management.  Forestry practices vary by geographic region and
depend on factors such as soil productivity, weather, terrain, and timber
species, size, age, and stocking.  The Company actively manages its timberlands
based on these factors and other relevant information to increase productivity
and maximize the long-term value of its timber assets.  In general, the
Company's timberland management involves harvesting and thinning operations,
reforestation, cull timber release programs, and the introduction of genetically
improved seedlings.

                                       5
<PAGE>

     Deltic has developed and operates its own seed orchard.  Seeds from the
orchard are grown by third parties to produce genetically improved seedlings for
planting.  These seedlings are developed through selective cross-pollination to
produce trees with preferred characteristics, including higher growth rates,
fewer limbs, straighter trunks, and greater resistance to disease.  The
seedlings are planted in all-aged stands or a site is completely replanted in
the case of a regeneration harvest.  During 2000, about 10,000 acres were
planted, primarily using seedlings grown from seeds produced at the orchard
facility.  This level is expected to increase significantly with approximately
15,000 acres scheduled to be planted in 2001, as the Company continues to
reforest recently acquired, understocked tracts.  The Company meets or exceeds,
in all material respects, the reforestation recommendations of the Arkansas
Forestry Commission's Best Management Practices.

     The Company actively utilizes commercial thinning practices.  Thinning
operations consist of the selective removal of trees within a stand, usually a
plantation, and improve overall productivity by enhancing the growth of the
remaining trees while generating revenues.  Deltic has increased its pine
pulpwood harvests over the past several years as its plantations have matured
and required thinning.

     The Company's cull timber release program is designed to control
undesirable, competitive vegetation in its forests and increase pine growth
rates and reproduction.  The program was 17,700 acres in 2000 compared to 19,800
acres in 1999.

     Harvest Plans.  Management views the timberlands as assets with substantial
inherent value apart from the sawmills and intends to manage the timberlands on
a basis that permits regeneration of the timberlands over time.  The Company
intends to continue to manage the timberlands on a sustainable-yield basis and
has no plans to harvest timber at levels that exceed growth.  In 2000, the
Company harvested 566,557 tons of pine sawtimber from its timberlands.  Under
the current plan, Deltic intends to harvest 615,000 tons of pine sawtimber in
2001.

     The Company's harvest plans are generally designed to project multi-year
harvest schedules.  In addition, harvest plans are updated at least annually and
reviewed on a monthly basis to monitor performance and to make any necessary
modifications to the plans in response to changing forestry conditions, market
conditions, contractual obligations, regulatory limitations, and other relevant
factors.

     Since harvest plans are based on projections of demand, price, availability
of timber from other sources, and other factors that may be outside of the
Company's control, actual harvesting levels may vary. Management believes that
the Company's harvest plans are sufficiently flexible to permit modification in
response to fluctuations in the markets for logs and lumber.

     Access.  Substantially all of the timberlands are accessible by a system of
low impact and low maintenance roads. Deltic generally uses third-party road
crews to conduct construction and maintenance of these roads, and the Company
regularly exchanges access easements and cooperates with other area forest
products companies and the U.S. Forest Service.

     Wildlife Management.  The Company has an active wildlife management
program.  Deltic leased 380,000 acres and 386,000 acres for hunting purposes in
2000 and 1999, respectively.  The Company's wildlife biologist has conducted
white-tailed deer management clinics throughout Arkansas.  In addition, Deltic
cooperates with federal, state, and private agencies in various wildlife
studies.

     Client-Land Management.  In addition to managing its own timberlands,
Deltic also manages timberlands owned by others under management contracts with
one-year renewable terms.  This program provides harvest

planning, silvicultural improvements, and maintenance work for approximately
52,300 acres.

     Timberland Acquisitions.  The Company implemented a timberland acquisition
program in late 1996.  This ongoing program is designed to enable the Company to
continue to increase harvest levels, while expanding its timber inventory.  In
addition, it will allow the Company to maintain or increase the volume of logs
supplied to its sawmills from its own timberlands, when economically feasible.

                                       6
<PAGE>

     The Company intends to continue to focus its acquisition program on
timberlands in the southern U.S. that range from fully-stocked to cutover
tracts.  Unlike other timber-producing areas of North America, most of the
timberland in the southern U.S. is privately held, making it potentially
available for acquisition.  There can be no assurance that timber properties
suitable for acquisition will be identified by the Company, or that once
identified, such properties will ultimately be acquired by the Company.

     Deltic formed an acquisition team to implement its timberland acquisition
program.  Lands considered for purchase are evaluated based on location, site
index, timber stocking, and growth potential.  Approximately 80,500 acres of
strategically located pine timberland have been added since the inception of the
program, excluding the 24,200 net acres held by an accommodator.  Individual
land purchases have ranged from 20 acres to 16,300 acres.

     Land Sales.  The Company expanded its land sales program in 1999.  Land
sales consist of both
non-strategic timberland and higher and better use lands.  Sales totaled 7,336
acres in 1999 and 5,254 acres in 2000.

Mills

     The Company's two sawmills are located at Ola in central Arkansas and at
Waldo in south Arkansas, near significant portions of the timberlands.  The
mills employ modern technology in order to improve efficiency, reduce labor
costs, maximize utilization of the timber resource, and maintain high quality
standards of production.  Logs processed into lumber are obtained from the
timberlands and from public and private landowners.  The Company selects logs
for processing in its mills based on size, grade, and the prevailing market
price.  The Ola Mill is equipped for maximum utilization of smaller diameter
logs, while the Waldo Mill can process both smaller and larger diameter logs.
The mills produce a variety of products, including dimension lumber, boards,
timbers, decking, and secondary products such as finger-jointed studs.  The
lumber is sold primarily to wholesalers and treaters in the South and Midwest
and is used in residential construction, roof trusses, laminated beams, and
remanufactured items.

     Combined annual production capacity of the two mills increased from 226
MMBF at year-end 1999 to 246 MMBF at year-end 2000 following the installation of
a curve sawing gang and double length infeed at the Ola Mill.  The Company's
total lumber output, however, declined from 186 MMBF in 1999 to 169 MMBF in
2000.  The reduction was in response to poor market conditions, as Deltic and
much of the industry curtailed production in 2000.  Lumber markets have
continued to be depressed in early 2001, and the Company projects production of
180 MMBF for the year.

     Capital Projects.  Deltic has invested significant capital in its sawmills
in recent years to increase production capacity, decrease costs, and expand the
product mix.  Major capital projects completed at the Ola Mill over the past
several years include:  installation of a curve sawing gang and double length
infeed to improve log recovery, increase hourly output, and expand product mix;
the installation of an optimized edger system to increase lumber recovery;
replacement of the existing planermill with a high-speed planermill and
automated sorting system to increase mill output; the construction of a small
log processing system which extracts small diameter logs from pulpwood, thus
reducing log costs; and the addition of a boiler system and steam dry kilns to
increase mill capacity and provide the capability to produce higher value
lumber.

     At the Waldo Mill, major capital projects completed over the past several
years include: installation of a new edger and optimizer to improve recovery
from edge boards, the installation of a log optimization system to improve
lumber recovery, extension of the green lumber sorter to increase planermill
throughput, the addition of finger-jointing and remanufacturing facilities which
add value to existing production, and the construction of a new high speed
planermill and automated sorting system that provide the finishing capacity
necessary to operate two shifts at the sawmill.

     Raw Materials.  In 2000, the Company's two sawmills processed 803,827 tons
of logs, obtained from either the timberlands or purchased from public and
private landowners.  The timberlands supplied 45 percent, or 364,020 tons, of
the mills' raw material requirements, while the mills processed 60 percent of
the 566,557 tons of pine sawtimber harvested from the timberlands.

                                       7
<PAGE>

     Various factors, including environmental and endangered species concerns,
have limited, and will likely continue to limit, the amount of timber offered
for sale by U.S. government agencies.  Because of this reduced availability of
federal timber for harvesting, the Company believes that its supply of timber
from the timberlands is a significant competitive advantage.  Deltic has
historically supplied a significant portion of the timber processed in the
sawmills from its timberlands.

     In order to operate its sawmills economically, the Company relies on
purchases of timber from third parties to supplement its own timber harvests
from the timberlands.  The Company has an active timber procurement department
for each of its sawmills.  As of December 31, 2000, the Company had under
contract 319,558 tons of timber on land owned by other parties, including the
U.S. Forest Service, which is expected to be harvested over the next four years.
During 2000, the Company harvested third-party stumpage and purchased logs from
third parties totaling 439,807 tons .  Of this volume, purchases from the U.S.
Forest Service during this period represented 19 percent.  The balance of such
volume was acquired from private lands.

     As a result of the reduced availability of federal timber, demand for
privately owned timber has increased, along with prices; and the Company has
increased and foresees further increases in its harvesting and purchasing
activities from private timberlands.  Due to this increased demand and higher
timber prices, private timber sources have been prompted to sell their timber
commercially.  As a result, Deltic's sources of private timber are many and
diverse.  The key factors in a landowner's determination of whether to sell
timber to the Company are price, the Company's relationships with logging
contractors, and the ability of the Company to demonstrate the quality of its
logging practices to landowners.  As a result, a landowner will be more likely
to sell timber to a forest products company whose own land has been responsibly
managed and harvested.  There is a substantial amount of other private timber
acreage in proximity to each of Deltic's sawmills.

     Residual Wood Products.  The Company pursues waste minimization practices
at both of its sawmills.  Wood chips are usually sold to paper mills or Del-Tin
Fiber, and bark is frequently sold for use as fuel.  Bark, sawdust, shavings,
and wood chips that cannot be sold are used as "hog fuel" to fire the boilers
that heat the drying kilns.  In the future, the Company expects to continue to
sell a significant portion of its Waldo Mill's residual wood chip production to
Del-Tin Fiber pursuant to a fiber supply agreement.  However, during the period
in 2001 that Del-Tin Fiber is shut down, Waldo Mill's chip production is being
sold to a third party.

     Transportation.  Each mill facility has the capability to ship its lumber
by truck or rail.

     Cyclical Market.  While the cyclicality of the lumber market may
occasionally require the interruption of operations at one or both of the
Company's sawmills, suspension of milling activities is unusual.  Management is
not currently anticipating any interruption of operations at either of Deltic's
sawmills, but no assurance can be given that market conditions or other factors
will not render such an action economically advisable in the future.

Real Estate

     The Company's real estate operations were started in 1985 to add value to
former timberland strategically located in the growth corridor of west Little
Rock, Arkansas.  Since that time the Company has been developing Chenal Valley,
a 4,800-acre upscale planned community, centered around a Robert Trent Jones,
Jr. designed golf course.  The golf course was completed in 1990.  The property
has been developed in stages, and real estate sales to date have consisted
primarily of residential lots sold to builders or individuals and commercial
tracts.

     Residential Development.  Residential sales in Chenal Valley began in 1987.
To date, 1,280 lots have been developed in 15 neighborhoods and 1,215 lots have
been sold, with about 1,150 residences constructed or under construction.  When
fully developed, Chenal Valley will include approximately 4,600 homesites.  The
Company has developed lots in a wide variety of market segments.  Lot size has
ranged from 0.2 acre to 1 acre and lot price has ranged from $25,000 per lot to
over $150,000 per lot.

                                       8
<PAGE>

     Commercial Development.  Commercial development began in 1996 with the
construction of a Company-owned, 50,000-square-foot office building, which was
sold during 2000.  Commercial activity consisted of the sale of 26 acres for
multi-family development in 1997, eight acres in 1998, and 74 acres in 1999,
including a 72-acre site which will be developed as a retirement village by the
Arkansas Teacher Retirement System.  During 2000, commercial sales decreased to
10 acres, including nine acres sold with its former office building.  When fully
developed, Chenal Valley will include 710 acres of commercial development.

     The completion of construction of Rahling Road, a major connector street,
in 1998 provides greater access to Chenal Valley's commercial acreage.  Located
at the center of this commercial property is a Company-owned 35,000-square-foot
retail center.  The retail center was completed in early 2000 and offers retail
space for lease.  The center is surrounded by outparcels, ranging in size from
0.9 to 1.8 acres, which are currently for sale.

     Infrastructure.  Infrastructure and other improvements to support the
development and sale of residential and commercial property are funded directly
by the Company and/or through real property improvement districts.  Such
properties are developed only when sufficient demand exists and substantially
all infrastructure is completed.  Future infrastructure investments are
necessary only for the development and sale of additional property.

     Chenal Country Club.  In connection with its Chenal Valley development, the
Company developed Chenal Country Club, consisting of the above-described golf
course, a clubhouse, and related facilities for use by club members.  The club
membership originally agreed to purchase Chenal Country Club with payments to be
made on specified terms through 1999. During 1997, the agreement was
restructured in order to return ownership of Chenal Country Club to the Company
with the club members making ongoing membership fee payments.  In connection
with the restructuring, Deltic agreed to undertake substantial remodeling and
expansion of the clubhouse, which was completed during 1999.  Construction of a
second 18-hole golf course began in early 2001 and is expected to be completed
by the summer of 2002.

     Annexation.  After ten years of growth, Chenal Valley remains the premier
upscale residential and commercial development in the Little Rock real estate
market.  The Little Rock City Board of Directors voted in November 1999 to
approve Deltic's request for the annexation of almost 1,200 acres located west
of the existing Chenal Valley neighborhoods. This annexation, which represents
the fourth and final phase of Deltic's long-term development plan in west Little
Rock, includes land for additional residential neighborhoods and the second golf
course at Chenal Country Club.  Also included is a 100-acre tract owned by
Wildwood Park for the Performing Arts and a 14-acre school site to be donated by
Deltic to either Little Rock or Pulaski County.

     Future Development.  A number of factors have added significant value to
the undeveloped portion of Chenal Valley.  Such factors include:  the overall
success of Chenal Valley as a residential development and its image as one of
the premier developments in central Arkansas, the continued westward growth of
Little Rock, the Company's investment in infrastructure in the area, and the
established residential base which is now large enough to support commercial
development.  Management expects the undeveloped portion of Chenal Valley to
provide growth and development opportunities in the future.

     Undeveloped Acreage.  The success of the Chenal Valley development has also
increased the value of Deltic-owned lands in the areas near Chenal Valley.
Sales of these undeveloped acres amounted to five acres in 2000, compared to 213
acres in 1999.

     Other Developments.  In addition to Chenal Valley, Deltic is developing
Chenal Downs, located just outside of Chenal Valley, and Red Oak Ridge, near Hot
Springs, Arkansas.  Chenal Downs is a 400-acre equestrian development with
controlled access, featuring secluded, five-acre lots.  The first phase of the
development was opened in December 1997, followed by a second phase in November
2000 with 31 of the 75 total available lots sold by the end of 2000.  Red Oak
Ridge, Deltic's first development outside the Little Rock area, is an 800-acre
upscale community designed for residential, resort, or retirement living.  The
first two neighborhoods in this development, offering a choice of either estate-
sized homesites, with many overlooking one of two lakes, or garden-home lots,
were offered for sale in late 1998.

                                       9
<PAGE>

Del Tin Fiber

     Deltic owns 50 percent of the membership interest of Del-Tin Fiber, a joint
venture to manufacture and market MDF.  The Del-Tin Fiber plant is located near
El Dorado, Arkansas.  Construction of the plant commenced in mid-1996 and
initial production began in April 1998.  Construction cost of the facility was
$104 million.  The plant is designed to have an annual capacity of 150 MMSF, on
a 3/4-inch basis, making it one of the largest plants of its type in the world.

     Medium Density Fiberboard.  MDF, which is used primarily in the furniture,
flooring, and molding industries, is manufactured from sawmill residuals such as
chips, shavings, and sawdust, held together by an adhesive bond.  Although the
technology has existed for decades, recent improvements in the manufacture of
MDF have increased both the quality and consistency of the product.  MDF, with
its "real wood" appearance and the ability to be finely milled and accept a
variety of finishes, competes primarily with lumber.

     Production.  The plant produced 94 MMSF of MDF in 2000 versus 98 MMSF
during 1999.  Typical start-up difficulties and operational problems with the
plant's press and heat energy system limited production to levels significantly
below capacity.  The problems with the press were corrected in mid-1999;
however, efforts to permanently solve the problems with the heat energy system
are ongoing.  As natural gas prices escalated during the last half of 2000, the
decision was made in late January 2001, to temporarily suspend operations until
the heat energy system could be modified.  Following completion of a $2.8
million capital project to modify this system, the plant is expected to resume
operations in June 2001. Rectification of the heat energy system should enable
the plant's operations to increase production levels closer to the plant's
capacity of 150 MMSF per year.

     Raw Materials.  The Del-Tin plant adds value to Deltic's operations by
providing an additional outlet for wood chip production from the Waldo Mill.
Pursuant to a fiber supply agreement, the Company has agreed to sell, and Del-
Tin Fiber to buy, substantially all residual wood chips from the Waldo Mill.
However, during the period in 2001 that Del-Tin Fiber is shut down, these chips
are being sold to a third party.  In addition, Del-Tin Fiber has an option to
purchase residual wood chips from the Ola Mill and pulpwood chips, shavings, and
sawdust from the Waldo Mill.  During 2000, Deltic sold approximately $3,649,000
of these lumber manufacturing by-products to Del-Tin Fiber.

Discontinued Agriculture Operations

     On August 17, 2000, the Company's Board of Directors approved the disposal
of Deltic's former Agriculture segment assets, subject to using the sales
proceeds to purchase additional Southern Pine timberland, via a tax-deferred
exchange.  As a result, activities of this segment have been accounted for as
discontinued operations.  Deltic engaged an agricultural land consulting and
brokerage firm to act as advisors in evaluating and marketing about 50,000 acres
(approximately 38,800 acres net to Deltic) of farmland located in northeast
Louisiana.  As of December 31, 2000, sales contracts on approximately 20,400 net
acres of farmland have been closed.  This initiative has provided the Company a
significant and unique opportunity to advance its strategy of growing its core
forest products business.

Products and Competition

     The Company's principal forest products are timber; lumber products,
primarily finished lumber; residual wood products; and real estate.

     Timber.  Timber harvested from the timberlands is utilized by the Company's
sawmills or sold to third parties. The Company's timber sales to third parties
accounted for approximately 17 percent, 12 percent, and 16 percent of
consolidated net sales in 1998, 1999, and 2000, respectively.

     The Company competes in the domestic timber market with numerous private
industrial and non-industrial land and timber owners. Competitive factors with
respect to the domestic timber market generally include price, species and
grade, proximity to wood consuming facilities, and accessibility.

                                      10
<PAGE>

     Land Sales. Timberland sold by the Company to third parties consists of
both non-strategic timberland and lands with potential for higher and better use
and amounted to less than one percent of consolidated net sales in 1998,
increasing to three percent in 1999 and 10 percent in 2000.

     Lumber Products.  The Company's sawmills produce a wide variety of
products, including dimension lumber, boards, timbers, decking, and secondary
products such as finger-jointed studs.  Lumber is sold primarily to wholesalers
and treaters in the South and Midwest and is used in residential construction,
roof trusses, laminated beams, and remanufactured items.  During 1998, 1999, and
2000, lumber sales as a percentage of consolidated net sales were approximately
55 percent, 58 percent, and 51 percent, respectively.

     The forest products market is highly competitive with respect to price and
quality of products.  In particular, competition in the commodity-grade lumber
market in which the Company competes is primarily based on price.  Deltic
competes with other publicly held forest products companies operating in
Arkansas, many of which have significantly greater financial resources than the
Company, as well as privately held lumber producers. In addition, Deltic's
management expects the Company's products to experience additional increased
competition from engineered wood products and other substitute products. Due to
the geographic location of Deltic's timberlands and its high-quality timber, in
addition to the Company's active timber management program, strategically
located and efficient sawmill operations, and highly motivated workforce; Deltic
has been able to compete effectively.

     Residual Wood Products.  The Company's sawmills produce wood chips,
shavings, sawdust, and bark as by-products of the conversion process.  During
1998, 1999, and 2000, sales of these residual products accounted for 10 percent,
nine percent, and eight percent, respectively, of Deltic's consolidated net
sales.  Wood chips are the primary source of residual sales and are typically
sold to Del-Tin Fiber or to paper mills.  In 2000, Deltic's sawmills produced
287,643 tons of wood chips.  In the future, the Company expects to continue to
sell a significant portion of its wood chip production to Del-Tin Fiber for use
in the production of MDF.

     Real Estate.  The Company develops and sells residential lots and
commercial sites.  Deltic generally provides the supporting infrastructure.
Residential lots are sold to homebuilders and individuals, while commercial
sites are sold to developers and businesses.  The Company also sells undeveloped
acreage.  During 1998, 1999, and 2000, the sales of residential lots, commercial
sites, and undeveloped acreage as a percentage of consolidated net sales were 12
percent, 14 percent, and 12 percent, respectively.  The sale of commercial
property can have a significant impact on the Company's sales, but is
unpredictable and irregular.

Seasonality

     The Company's operating segments are subject to variances in financial
results due to several seasonal factors.  The majority of timber sales are
typically generated in the first half of the year due primarily to weather
conditions and historically stronger timber prices.  Increased housing starts
during the spring usually push lumber prices up and, in turn, can result in
higher timber prices.  Forestry operations generally incur expenses related to
silvicultural treatments which are applied during the fall season to achieve
maximum effectiveness.

Business Segment Data

     Information concerning net sales, operating income, and identifiable assets
attributable to each of the Company's business segments is set forth in Item 7,
"Management's Discussion and Analysis"; and Note 19 to the consolidated
financial statements in Item 8, "Financial Statements and Supplementary Data",
of Part II of this report.

                                      11
<PAGE>

Decline in Availability of Federal Timber

     Various factors, including environmental and endangered species concerns,
have limited, and will likely continue to limit, the amount of timber offered
for sale by certain U.S. government agencies, which historically have been major
suppliers of timber to the U.S. forest products industry.  During 2000, the
Company acquired approximately 25 percent of its timber supply for its Ola Mill
from federal sources, primarily the Ouachita and Ozark National Forests.  Any
future decline in the availability of timber from federally owned lands will
require that the Company, in order to supply the Ola Mill, rely more heavily on
harvests from the Company's timberlands, including harvests from timberlands
acquired in the future to the extent that suitable opportunities arise, and on
the acquisition of timber from other sources, such as private timber owners. The
Company's Waldo Mill does not currently process any timber acquired from federal
sources.

Environmental Matters

     The Company is subject to extensive and changing federal, state, and local
environmental laws and regulations relating to the protection of human health
and the environment, including laws relating to air and water emissions, the use
of herbicides on timberlands, regulation of "wetlands", and the protection of
endangered species.  Environmental legislation and regulations, and the
interpretation and enforcement thereof, are expected to become increasingly
stringent.  The Company has made, and will continue to make, expenditures to
comply with such requirements in the ordinary course of its operations.
Historically, these expenditures have not been material and the Company expects
that this will continue to be the case. Liability under certain environmental
regulations may be imposed without regard to fault or the legality of the
original actions, and may be joint and several with other responsible parties.
As a result, in addition to ongoing compliance costs, the Company may be subject
to liability for activities undertaken on its properties prior to its ownership
or operation and by third parties, including tenants.  The Company currently
leases the rights to drill for oil and gas on some of its lands to third
parties.  Pursuant to these leases, the lessee indemnifies the Company from
environmental liability relating to the lessee's operations.  Based on its
present knowledge, including the fact that the Company is not currently aware of
any facts that indicate that the Company will be required to incur any material
costs relating to environmental matters, and currently applicable laws and
regulations, the Company believes that environmental matters are not likely to
have a material adverse effect on the Company's financial condition, results of
operations, or liquidity.

     In addition, the federal "Endangered Species Act" protects species
threatened with possible extinction and restricts timber harvesting activities
on private and federal lands.  Certain of the Company's timberlands are subject
to such restrictions due to the presence on the lands of the red cockaded
woodpecker, a species protected under the Act.  There can be no assurance that
the presence of this species or the discovery of other protected species will
not subject the Company to future harvesting restrictions.  However, based on
the Company's knowledge of its timberlands, the Company does not believe that
its ability to harvest its timberlands will be materially adversely effected by
the protection of endangered species.

Employees

     As of February 28, 2001, the Company had 476 employees.

                                      12
<PAGE>

Item 2.  Properties

     The Company's properties, primarily located in Arkansas and north
Louisiana, consist principally of fee timber and timberlands, purchased stumpage
inventory, two sawmills, and land held for residential and commercial
development and sale.  As of December 31, 2000, the Company's gross investment
in timber and timberlands; gross property, plant, and equipment; and investment
in real estate held for development and sale consisted of the following:

           (Thousands of dollars)
           Timberlands                                    $ 66,788
           Fee timber and logging facilities               147,653
           Purchased stumpage inventory                      9,987
           Real estate held for development and sale        34,100
           Land and land improvements                        6,705
           Buildings and structures                          4,790
           Machinery and equipment                          74,568
                                                          --------
                                                          $344,591
                                                          ========

     "Timberlands" consist of the historical cost of land on which fee timber is
grown and related land acquisitions stated at acquisition cost.  "Fee timber"
consists of the historical cost of company standing timber inventory, including
capitalized reforestation costs, and related timber acquisitions stated at
acquisition cost.  "Logging facilities" consist primarily of the costs of roads
constructed and other land improvements.  "Purchased stumpage inventory"
consists of the purchase price paid for unharvested third party timber.  "Real
estate held for development and sale" consist primarily of the unamortized
costs, including amenities, incurred to develop the real estate for sale and a
retail center held for sale.  "Land and land improvements" consist primarily of
the unsold farmland and improvements at the Company's two sawmill locations.
"Buildings and structures" and "Machinery and equipment" primarily consist of
the sawmill buildings and equipment and unsold farming structures and equipment.

     The Company owns all of the properties discussed above.  Other than
approximately $24 thousand of timber notes payable for certain investments in
timber and $.5 million of owner-financed acquisitions of timberland, the
Company's properties are not subject to mortgages or other forms of debt
financing.  (For further information on the location and type of the Company's
properties, see the descriptions of the Company's operations in Item 1.)

Item 3.   Legal Proceedings

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

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

     None.

                                      13
<PAGE>

Executive Officers of the Registrant

     The age (at January 1, 2001), present corporate office, and length of
service in office of each of the Company's executive officers and persons chosen
to become officers are reported in the following listing.  Executive officers
are elected annually but may be removed from office at any time by the Board of
Directors.

     Robert C. Nolan - Age 59; Chairman of the Board effective December 17,
1996.  For the past 29 years, Mr. Nolan has been Managing Partner of Munoco
Company L.C., an Arkansas partnership principally engaged in the exploration for
and production of oil and gas.  In addition, Mr. Nolan has over 28 years
experience in timberland management.

     Ron L. Pearce  -  Age 59; President and Chief Executive Officer and a
director of the Company effective December 17, 1996.  From June 1993 to December
1996, Mr. Pearce was President of Deltic Farm & Timber Co., Inc. ("Deltic Farm &
Timber"), the predecessor corporation of the Company.  Prior to such time, Mr.
Pearce was Manager of Operations and Planning for Deltic Farm & Timber, a
position he held beginning in February, 1991.

     Clefton D. Vaughan  -  Age 59; Vice President and Treasurer effective
January 1, 1997.  From October 1994 to December 1996, Mr. Vaughan was Vice
President of Murphy Oil Corporation, a position he also held from 1989 through
October 1992.  From October 1992 to October 1994, Mr. Vaughan was Vice President
of Murphy Exploration & Production Company.

   W. Bayless Rowe  -  Age 48; Vice President, General Counsel, and Secretary
effective May 1, 2000.  From January 1, 1997 to April 2000, Mr. Rowe was General
Counsel and Secretary for the Company.  From 1988 to December 1996, Mr. Rowe was
Secretary and General Attorney of Murphy Oil Corporation.

      David V. Meghreblian - Age 42; Vice President of Operations effective May
1, 2000.  From November 1996 to April 2000, Mr. Meghreblian was General Manager
of Planning and Investor Relations for the Company.  Prior to such time, Mr.
Meghreblian was General Manager of Project Development, a position he held
beginning in November 1995.

   Emily R. Evers  -  Age 50; Controller from 1989 for the Company and its
predecessor.

                                      14
<PAGE>

                                    PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters.

   Common stock of Deltic Timber Corporation is traded on the New York Stock
Exchange under the symbol DEL.  The following table sets forth the high, low,
and ending prices, along with the quarterly dividends declared, for each of the
quarters indicated:

                                  Sales Prices/1/             Dividend per
                             ---------------------------
                              High      Low     Close/2/      Common Share
                             ------    -----    --------      ------------
         2000
           First Quarter     $24.00    19.56       23.69         .0625
           Second Quarter    $23.00    20.25       21.38         .0625
           Third Quarter     $21.63    16.94       16.94         .0625
           Fourth Quarter    $24.19    16.56       23.88         .0625

         1999
           First Quarter     $25.63    21.19       23.75         .0625
           Second Quarter    $28.50    22.81       26.94         .0625
           Third Quarter     $26.81    22.38       22.75         .0625
           Fourth Quarter    $27.06    19.88       21.88         .0625

         /1/ Daily closing price.
         /2/ At period end.

     Common stock dividends were declared for each quarter during 2000 and 1999.
As of March 28, 2001, there were approximately 1,987 stockholders of record
of Deltic's common stock.

                                      15
<PAGE>

Item 6.   Selected Financial Data

     The following table presents certain selected consolidated financial data
for each of the years in the five-year period ended December 31, 2000:

<TABLE>
<CAPTION>
(Thousands of dollars, except per share amounts)          2000        1999        1998        1997        1996
                                                        --------     -------     -------     -------     -------
<S>                                                    <C>         <C>         <C>         <C>         <C>
Results of Operations for the Year

Net sales.........................................    $  109,531     125,010     100,684      94,756      75,974
Operating income..................................    $   18,114      29,244      17,620      22,873      15,231
Income from continuing operations.................    $    2,701      10,771       8,013      14,886      11,483
Net income........................................    $   13,557      10,920       8,474      16,574      13,161
Earnings per common share*
    Basic
      Continuing operations.......................    $      .04         .68         .45        1.16         .90
      Net income..................................    $      .93         .69         .48        1.29        1.03
    Assuming dilution
      Continuing operations.......................    $      .04         .68         .45        1.16         .90
      Net income..................................    $      .93         .69         .48        1.29        1.03
Cash dividends declared per common share..........    $      .25         .25         .25         .25   N/A
Net cash provided/(required) by
    Operating activities..........................    $   42,919      36,842      28,908      24,572      21,792
    Investing activities..........................    $  (63,634)    (32,183)    (87,438)    (37,779)     (4,642)
    Financing activities..........................    $   18,645      (8,037)     35,645      26,090        (419)
Percentage return on
    Average stockholders' equity..................           7.7         5.8         4.7         9.6         7.8
    Average borrowed and invested capital.........           6.9         6.1         4.3         9.5         7.9
    Average total assets..........................           4.8         3.9         3.5         8.7         7.2

Capital Expenditures for the Year

    Woodlands.....................................    $   24,975       8,541      59,839      16,380       2,754
    Mills.........................................         8,386       7,949       7,918      11,506       2,927
    Real Estate...................................         9,667      11,475      11,531       6,378       6,669
    Corporate.....................................           320         124         524         574       1,512
    Discontinued agriculture operations...........            53         527         721       1,000         272
                                                        --------------------------------------------------------
                                                      $   43,401      28,616      80,533      35,838      14,134
                                                        ========================================================

Financial Condition at Year-End

    Working capital...............................    $   10,086      17,569      14,231      37,373      25,758
    Current ratio.................................      2.4 to 1    4.6 to 1    3.1 to 1    5.8 to 1    5.3 to 1
    Total assets..................................    $  322,633     277,898     272,544     225,375     180,078
    Long-term debt................................    $   87,410      55,570      45,198       1,093       2,685
    Redeemable preferred stock....................    $   30,000      30,000      30,000      30,000           -
    Stockholders' equity..........................    $  176,834     178,408     183,134     179,996     166,708
    Long-term debt to stockholders' equity ratio..     .494 to 1   .311 to 1   .247 to 1   .006 to 1   .016 to 1
</TABLE>

* 1996 amounts are presented on a pro forma basis. The distribution of the
  Company's Common Stock did not occur until December 31, 1996.

                                      16
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations


Overview

     Deltic Timber Corporation ("Deltic" or the "Company") is a natural
resources company engaged primarily in the growing and harvesting of timber and
the manufacture and marketing of lumber. The Company owns approximately 408,000
acres of timberland, primarily in Arkansas and north Louisiana. The Company's
sawmill operations are located at Ola in central Arkansas (the "Ola Mill") and
at Waldo in south Arkansas (the "Waldo Mill"). In addition to its timber and
lumber operations, the Company is engaged in real estate development in central
Arkansas. The Company also holds a 50 percent interest in Del-Tin Fiber L.L.C.
("Del-Tin Fiber"), a joint venture to manufacture and market medium density
fiberboard, which began production in April 1998.

     On August 17, 2000, the Company's Board of Directors approved the disposal
of Deltic's agriculture segment assets, subject to using the sales proceeds to
purchase additional Southern Pine timberland, via a tax-deferred exchange.  As a
result, activities of this segment have been accounted for as discontinued
operations.  Deltic engaged an agricultural land consulting and brokerage firm
to act as advisors in evaluating and marketing about 50,000 acres (approximately
38,800 acres net to Deltic) of farmland located in northeast Louisiana. As of
December 31, 2000, sales contracts on approximately 20,400 net acres of farmland
have been closed. (Refer to Note 2 to the consolidated financial statements.)

     The Company's results of operations are affected primarily by the cyclical
supply and demand factors of the forest products industry and their impact on
timber and lumber prices.  Among these factors are general economic conditions,
interest rates, residential construction and remodeling activity, the
availability of raw materials, North American lumber production, and weather
conditions.  In 2000, a modest decrease in construction activity and an
industry-wide continuation of high production levels, particularly in the first
half of the year, caused lumber prices to decline significantly from the
previous year.  However, timber prices in the Company's operating area were
essentially unchanged.  The decline in product prices combined with relatively
high raw material costs caused the Company's Mills segment to operate at a loss
for much of the year and reduce production during the last half of 2000.  The
Woodlands segment continued to benefit from profitable timber prices.


Results of Operations

     Deltic's consolidated net income for 2000 was $13.6 million, $.93 a share,
an increase of 24 percent when compared to 1999 net income of $10.9 million,
$.69 a share. The Company earned $8.5 million, $.48 a share, in 1998. On August
17, 2000, the Company's Board of Directors approved the disposal of Deltic's
agriculture segment assets which resulted in income from discontinued
operations, net of income taxes, of $10.9 million, $.89 a share, for 2000.
Discontinued operations earned $.1 million, $.01 a share, in 1999 and $.5
million, $.03 a share, in 1998. Income from continuing operations was $2.7
million, $.04 a share, in 2000 and $10.8 million, $.68 a share, in 1999. The
decrease was due primarily to lower operating income of Deltic's Mills and Real
Estate segments, combined with increased losses from Del-Tin Fiber. In 1998,
income from continuing operations totaled $8 million, $.45 a share.

     During 2000, operating income decreased $11.1 million to $18.1 million. The
Company's Woodlands operations increased $8.4 million due primarily to sales of
non-strategic timberland and timberland for higher and better use, coupled with
a 13 percent increase in pine sawtimber harvest levels, partially offset by an
increase in the cost of fee timber harvested. The Mills segment's operating
results decreased $12.9 million due mainly to a $59 per thousand board feet
("MBF") decline in the average lumber sales price and a four percent higher
production cost per MBF sold. Operating income for Deltic's Real Estate segment
decreased $6 million, primarily the result of lower margins from commercial and
undeveloped acreage sales.

                                       17
<PAGE>

     Operating income increased $11.6 million during 1999 to $29.2 million.
Deltic's Woodlands segment decreased $.3 million as the result of an increase in
the cost of fee timber harvested, partially offset by increased pine sawtimber
harvest levels and sales of non-strategic timberland and timberland for higher
and better use. The Mills segment's operating results increased $9.3 million due
primarily to a $40 per MBF increase in the average sales price of lumber, a 17
percent increase in sales volume, and a four percent reduction in the production
cost per MBF sold. The Company's Real Estate operations increased $3.4 million
because of significantly higher commercial development and undeveloped acreage
sales.

     In the following tables, Deltic's net sales and results of operations for
the three years ended December 31, 2000, are presented by segment. A detailed
review of the information presented follows the tables.

                                                    Years Ended December 31,
                                                    ------------------------
          (Millions of dollars)                        2000     1999    1998
                                                       ----     ----    ----

          Net sales
             Woodlands                                $ 41.5    31.8    26.8
             Mills                                      64.9    83.5    65.8
           Real Estate                                  18.0    21.6    15.9
           Eliminations                                (14.9)  (11.9)   (7.8)
                                                      ------   -----   -----
               Net sales                              $109.5   125.0   100.7
                                                      ======   =====   =====


          Operating income and net income
           Woodlands                                  $ 28.7    20.3    20.6
             Mills                                      (6.4)    6.5    (2.8)
           Real Estate                                   2.4     8.4     5.0
           Corporate                                    (6.5)   (5.8)   (5.0)
           Eliminations                                  (.1)    (.2)    (.2)
                                                      ------   -----   -----
               Operating income                         18.1    29.2    17.6
          Equity in loss of Del-Tin Fiber              (10.9)   (8.9)   (4.6)
          Interest income                                 .5      .2     1.1
          Interest and other debt expense               (4.9)   (4.1)   (1.4)
          Other income/(expense)                          .3      .4      .3
          Income taxes                                   (.4)   (6.0)   (5.0)
                                                      ------   -----   -----
          Income from continuing operations              2.7    10.8     8.0
          Income from discontinued operations, net      10.9      .1      .5
                                                      ------   -----   -----
               Net income                             $ 13.6    10.9     8.5
                                                      ======   =====   =====

  Woodlands

     The Company's Woodlands operations generated net sales of $41.5 million in
2000, $31.8 million in 1999, and $26.8 million in 1998.  Operating income for
this segment was $28.7 million in 2000, $20.3 million in 1999, and $20.6 million
in 1998.

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


                                               2000  1999  1998
                                              -----  ----  ----
          Net sales (millions of dollars)
           Pine sawtimber                     $25.7  23.2  22.1
           Pine pulpwood                      $ 1.3   1.6   1.4
           Hardwood sawtimber                 $ 1.1   1.3   1.1
           Hardwood pulpwood                  $  .6    .8    .6


                                       18
<PAGE>

                                               2000  1999  1998
                                              -----  ----  ----
          Sales volume (thousands of tons)
           Pine sawtimber                       567   500   432
           Pine pulpwood                        235   286   201
           Hardwood sawtimber                    31    34    24
           Hardwood pulpwood                    161   165   106

          Sales price (per ton)
           Pine sawtimber                     $  45    46    51
           Pine pulpwood                      $   5     6     7
           Hardwood sawtimber                 $  35    40    47
           Hardwood pulpwood                  $   4     5     5


     During 2000, net sales increased $9.7 million, 31 percent, to $41.5
million. Pine sawtimber sales increased $2.5 million in 2000 which reflects a $3
million increase attributable to higher sales volume, partially offset by a $.5
million decrease due to lower average sales price. The Company harvested 566,557
tons of pine sawtimber in 2000, an increase of 13 percent when compared to
500,442 tons in 1999. Since late 1996, Deltic has acquired 80,500 acres of
timberland which, along with biological growth of the Company's existing timber,
has facilitated the increase in harvest levels. In addition, closing on an
additional 24,200 net acres of timberland, with title currently held by an
accommodator, is scheduled to occur during the first quarter of 2001. Average
sales price for Deltic's pine sawtimber was $45 per ton in 2000 versus $46 per
ton in 1999, a decrease of two percent. Pine pulpwood and hardwood sales
decreased $.7 million in 2000 due to lower harvest levels and sales prices. Net
sales included the sale of 5,254 net acres of timberland at an average price of
$2,100 per acre in 2000 compared to similar sales of 7,336 net acres for $500
per acre in 1999. Other net sales for Woodlands increased slightly.

     Net sales were $31.8 million in 1999, an increase of $5 million, or 19
percent, when compared to 1998. Sales of pine sawtimber increased $1.1 million
over 1998, which reflects a $3.2 million increase from higher sales volume,
partially offset by a $2.1 million decrease attributable to lower average sales
price. Pine sawtimber harvest level increased 16 percent in 1999 to 500,442 tons
which compares to 431,556 tons in 1998. Average sales price for Deltic's pine
sawtimber was $46 per ton in 1999 versus $51 per ton in 1998, a ten percent
decline. Pine pulpwood and hardwood sales increased $.6 million in 1999 due to
increased harvest levels, but at lower sales prices. During 1999, sales of
timberland increased $3.2 million as 7,336 net acres were sold versus 427 acres
in 1998. Other net sales for this segment were slightly higher.

     Operating income of $28.7 million for 2000 was $8.4 million more than in
1999 due primarily to the increase in net sales discussed above. The cost of fee
timber harvested increased $2.2 million due mainly to higher harvest levels. The
cost of timberland sales decreased $1.2 million from 1999 because fewer acres
were sold.

     Woodlands' operating income decreased $.3 million to $20.3 million in 1999.
A $2.8 million increase in the cost of fee timber harvested was the result of
higher harvest levels and an increase in the cost per ton harvested. The cost of
timberland sold in 1999 was $1.9 million more than in 1998 due to an increase in
acreage sold. Expense for the Company's cull timber release programs was $.4
million greater than in 1998, resulting from increased acreage owned. Partially
offsetting these decreases was the previously mentioned increase in net sales.

  Mills

     Net sales for Deltic's Mills segment were $64.9 million in 2000, compared
to $83.5 million in 1999 and $65.8 million in 1998. An operating loss of $6.4
million was recorded in 2000, while operating income was $6.5 million in 1999.
During 1998, this segment's operating loss was $2.8 million.

                                       19
<PAGE>

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


                                              2000  1999  1998
                                             -----  ----  ----
          Net sales (millions of dollars)
           Lumber                            $55.7  72.4  55.7
           Residual products                 $ 9.1  11.1   9.6

          Lumber
           Finished production (MMBF)          169   186   160
           Sales volume (MMBF)                 172   189   162
           Sales price (per MBF)             $ 324   383   343


     In 2000, net sales decreased $18.6 million, or 22 percent, when compared to
$83.5 million in 1999. Lumber sales decreased $16.7 million due to an $11.2
million decrease which resulted from a lower average sales price and a $5.5
million reduction from lower sales volume. Both lumber production and sales were
negatively impacted by the depressed lumber market, with sales realizations
being at or near 10 year lows, which resulted in temporary production
curtailments during the last half of 2000. In addition, both mills took downtime
late in the year due to construction projects and two winter ice storms. During
2000, average sales price for lumber was $324 per MBF, a 15 percent decrease
when compared to $383 per MBF in 1999. Deltic's sawmills experienced a nine
percent reduction in lumber sales volume, to 172.1 million board feet ("MMBF")
from 189 MMBF in 1999. Sales of sawmill residual products declined $2 million in
2000.

     Compared to 1998, net sales for 1999 increased by $17.7 million to $83.5
million. Increases in both sales price and volume combined to produce a $16.7
million increase in lumber sales, $6.4 million due to price and $10.3 million
due to sales volume. Average sales price of $383 per MBF was $40 per MBF more
than in 1998, and sales volume increased 17 percent from 162.2 MMBF in 1998 to
189 MMBF in 1999. Residual product sales rose $1.5 million.

     A loss from operations of $6.4 million during 2000 compared to operating
income of $6.5 million in 1999. The decrease was primarily the result of the
drop in net sales, partially offset by a $5.6 million reduction in the cost of
lumber sold due to decreased sales volume resulting from the production
curtailments discussed previously. As a result of low lumber prices, charges of
$1.9 million were recorded during 2000 to write down the Company's lumber
inventories and reflect its net realizable value.

     Operating income of $6.5 million for 1999 was $9.3 million more than for
1998, primarily attributable to a 12 percent increase in sales price for lumber
coupled with a 26.8 MMBF increase in sales volume. A decrease in the unit cost
of logs used in the Company's sawmills more than offset increased depreciation
expense.

  Real Estate

     Deltic's Real Estate operations produced net sales totaling $18 million in
2000, $21.6 million in 1999, and $15.9 million in 1998. This segment's operating
income was $2.4 million in 2000, which compares to $8.4 million in 1999 and $5
million in 1998.

     Net sales in 2000 decreased $3.6 million, 17 percent, from $21.6 million in
1999. Residential lot sales decreased by 48 lots to 148 with the average sales
price up six percent over 1999 due to sales mix, from $50,800 per lot to
$54,000. During 2000, 57 lots were developed and offered for sale in Chenal
Valley and Chenal Downs, Deltic's real estate developments located in west
Little Rock, Arkansas. The sale of a 50,000-square-foot office complex located
in Chenal Valley, known as the GMAC Building, at a sales price of $5.1 million
occurred in 2000 and included nine acres of land. In comparison, commercial
sales revenue in 1999 totaled $5 million for almost 74 acres. Sales of five
acres of undeveloped acreage for $1,900 per acre in 2000 compared to the sale of
approximately 213 acres for $10,400 per acre in 1999. Chenal Country Club, the
amenity around which Chenal Valley is centered, produced net sales of $4.4
million for 2000 versus $3.8 million for 1999, an increase of $.6 million.

                                       20
<PAGE>

     In 1999, net sales of $21.6 million were $5.7 million more than in
1998, an increase of 36 percent.  Commercial sales revenue increased $3.7
million due to the sale of about 74 acres at an average price per acre of
$67,000, compared to 1998 sales of about eight acres averaging $158,100 per
acre.  Sales of residential lots increased by 12 percent, from 175 lots in 1998
to 196 lots in 1999, with a decrease in average sales price from $55,600 to
$50,800 per lot due to sales mix.  During 1999, 115 lots were developed and
offered for sale in three neighborhoods in the Chenal Valley development.  Sales
totaling $2.2 million for approximately 213 acres of undeveloped real estate
were recorded in 1999, compared to sales of about 96 acres for $.7 million in
1998.  Net sales from Chenal Country Club were $3.8 million in 1999 versus $3.3
million in 1998, an increase of $.5 million.

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


                                                         2000  1999  1998
                                                        -----  ----  ----
          Net sales (millions of dollars)
           Residential lots                             $ 8.0  10.0   9.7
           Commercial sites                             $ 5.1   5.0   1.3
           Undeveloped acreage                          $   -   2.2    .7

          Sales volume
           Residential lots                               148   196   175
           Commercial acres                                10    74     8
           Undeveloped acres                                5   213    96

          Average sales price (thousands of dollars)
           Residential lots                             $  54    51    56
           Commercial acres                             $ 496    67   158
           Undeveloped acres                            $   2    10     7


     The Real Estate segment's operating income of $2.4 million for 2000
decreased $6 million when compared to 1999, due primarily to the same factors
impacting net sales. In 1999, operating income was $8.4 million, $3.4 million
more than in 1998, the result of a $4 million increase in the margin realized on
sales of real estate.

   Corporate

     Operating expense for Corporate functions was $6.5 million for 2000,
compared to $5.8 million for 1999 and $5 million for 1998. These increases were
due mainly to higher general and administrative expenses, which included
increased costs of awards under the Company's incentive plans.

   Eliminations

     Intersegment sales of timber from Deltic's Woodlands segment to the Mills'
segment were $14.9 million in 2000, $11.9 million in 1999, and $7.8 million in
1998. The increase of $3 million in 2000 and $4.1 million in 1999 was due to a
greater percentage of the Mills' log requirements being furnished from the
Company's timberlands.

   Equity in Del-Tin Fiber

     For the year ended December 31, 2000, the Company recorded equity in the
loss of Del-Tin Fiber, a 50 percent owned joint venture, totaling $10.9 million,
an increase of $2 million when compared to 1999's equity loss of $8.9 million.
In late April 1998, production of medium density fiberboard ("MDF") began at
Del-Tin Fiber, with initial board sales beginning in June 1998. For 1998,
Deltic's share of operating losses totaled $4.6 million. Results of Del-Tin
Fiber's operations were recorded on a one-month lag basis during 1998; however,
this method was changed in 1999. Consequently, Deltic's equity in Del-Tin Fiber
for the year of 1999 includes 13 months of operating results.

                                       21
<PAGE>

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


                                              2000   1999  1998
                                             -----  -----  ----

          Net sales (millions of dollars)    $31.1   30.5   7.4
          Finished production (MMSF)          94.3   98.0  24.7
          Board sales (MMSF)                  91.1  100.0  19.6
          Sales price (per MSF)              $ 330    324   298


     For 2000, MDF production volume was 94.3 million square feet ("MMSF") and
sales volume totaled 91.1 MMSF, versus production and sales volumes of 98 MMSF
and 100 MMSF, respectively, for 1999. Average sales price for 2000 was $330 per
thousand square feet ("MSF"), an increase of $6 when compared to $324 per MSF
for 1999. Del-Tin Fiber's adverse financial and operating results were impacted
throughout the year of 2000 by its heat energy system operating inefficiently,
which caused considerable downtime and higher-than-anticipated manufacturing
costs. Inefficient operation of this system caused it to burn natural gas
instead of wood waste as designed, resulting in higher energy costs. With the
system not operating according to specifications, portions of the facility's
production had to be downgraded and sold at lower prices than would have
otherwise been achieved.

     Del-Tin Fiber's MDF production and sales volume for 1999 increased by 73.3
MMSF and 80.4 MMSF, respectively, due to start-up of the plant in the second
quarter of 1998. For 1999, the average sales price increased nine percent, from
$298 to $324 per MSF. During a plant shutdown in June 1999, modifications were
made to critical equipment, including the press and heat energy system. As a
result, production cost was higher and production volume was lower than
necessary to operate the plant efficiently. In addition, sales price for MDF was
lower than budgeted.

     Financial results for Del-Tin Fiber's operations have continued to be
unsatisfactory. As natural gas prices escalated during the last half of the
year, the decision was made in late January 2001, to temporarily suspend
operations until the heat energy system could be modified. Following completion
of a $2.8 million capital project to modify the heat energy system, the plant is
expected to resume operations in June 2001. Rectification of this system should
enable Del-Tin Fiber's operations to increase production levels closer to the
plant's capacity of 150 MMSF per year and lower manufacturing cost per MSF, as
fixed costs for the facility are allocated to increased production. (Refer to
Note 4 to the consolidated financial statements.)

     The preceding "forward-looking statements" were made in reliance upon the
safe harbor provisions of the Private Securities Reform Act of 1995. Such
statements reflect the Company's current expectations and involve risks and
uncertainties. Actual results could differ materially from those included in
such forward-looking statements.

   Interest Income/Expense

     During 2000, interest income was $.5 million, compared to $.2 million in
1999 and $1.1 million in 1998. Interest and other debt expense was $4.9 million
in 2000, $4.1 million in 1999, and $1.4 million in 1998. The $.3 million
increase in interest income during 2000 was due to interest earned on farmland
sales proceeds held by a trustee and to interest received upon settlement of
amended state income tax returns. The Company's timberland acquisition program,
stock repurchase programs, and other capital projects required use of available
cash and additional borrowings, which resulted in decreased interest income in
1999 and increased interest expense during both 2000 and 1999. The previously
mentioned state income tax settlement in 2000 also resulted in interest expense
of $.2 million. In addition, settlement of an IRS audit for years prior to being
spun off from Murphy Oil Corporation resulted in payment of interest of $.5
million during 1999.

                                       22
<PAGE>

  Income Tax Expense

     Deltic's income tax expense for continuing operations was $.4 million for
2000, $6 million for 1999, and $5 million for 1998. The effective income tax
rate for continuing operations was 13 percent, 36 percent, and 38 percent in
2000, 1999, and 1998, respectively. The decrease of $5.6 million during 2000 was
due to lower pretax income from continuing operations and recording state income
tax benefits. The Company's income tax expense related to continuing operations
increased $1 million in 1999 due primarily to higher pretax income, partially
offset by lower state income taxes.

  Income from Discontinued Operations

     Discontinued agriculture operations reported income, net of income taxes,
of $10.9 million for 2000, which compares to $.1 million for 1999 and $.5
million for 1998. Income tax expense totaled $7 million, $.1 million, and $.3
million for each year, respectively. The sale of approximately 20,400 net acres
of farmland was completed during 2000 for a $17.4 million pretax gain. Disposal
of the remaining agriculture segment assets is anticipated during the first half
of 2001. For 2000, income for agriculture operations (exclusive of gains on
sales) was $.5 million, compared to $.3 million in 1999 and $.8 million in 1998.
(Refer to Note 2 to the consolidated financial statements.)

Liquidity and Capital Resources

  Cash Flows and Capital Expenditures

     Net cash provided by operating activities totaled $42.9 million for the
year ended December 31, 2000, which compares to $36.8 million for 1999 and $28.9
million for 1998. Changes in operating working capital, other than cash and cash
equivalents, provided cash of $2.1 million in 2000 and $1.5 million in 1998, but
required cash of $3.8 million in 1999. The Company's accompanying Consolidated
Statements of Cash Flows identify other differences between net income and cash
provided by operating activities for each of those years.

     Capital expenditures required cash of $43.4 million in 2000, $27.9 million
in 1999, and $80.1 million in 1998. Other owner-financed capital expenditures,
not requiring cash, included acquisitions of timberland and timber-cutting
rights amounting to $.7 million in 1999 and $.4 million in 1998.  In the
following table, total capital expenditures are presented by segment for the
years ended December 31, 2000, 1999, and 1998.


      (Millions of dollars)                                 2000  1999   1998
                                                           -----  ----   ----

      Woodlands                                            $25.0   8.5   59.9
      Mills                                                  8.4   8.0    7.9
      Real Estate                                            9.7  11.5   11.5
      Corporate                                               .3    .1     .5
                                                           -----  ----   ----
          Capital expenditures for continuing operations    43.4  28.1   79.8
      Discontinued agriculture operations                      -    .5     .7
                                                           -----  ----   ----
          Total capital expenditures                        43.4  28.6   80.5
      Owner-financed expenditures                              -   (.7)   (.4)
                                                           -----  ----   ----

          Expenditures requiring cash                      $43.4  27.9   80.1
                                                           =====  ====   ====


     Woodlands capital expenditures included timberland acquisitions of
approximately 15,500 acres at a cost of $22.7 million in 2000, approximately
6,400 acres at a cost of $6.8 million in 1999, and approximately 30,400 acres at
a cost of $59.1 million in 1998. Purchases of timberland designated as
"replacement property", as required by the tax-deferred exchange of Deltic's
agriculture segment assets, utilized $17.6 million for about 10,800 net acres
and are included in 2000 capital expenditures for this segment. Reforestation
site preparation

                                       23
<PAGE>

and planting required expenditures of $1.5 million in 2000, compared to $1.1
million in 1999 and $.4 million in 1998. These increased expenditures were the
result of expanding the Company's planting program due to acquisitions of
timberland.

     During 2000, $4.6 million was expended to replace the existing vertical saw
assembly and debarker with a curve sawing gang and faster debarker at the
Company's Ola Mill. The project, which was completed and placed in service in
December 2000 at a total cost of $5.4 million, is expected to improve log
recovery, increase hourly throughput capability by as much as 30 percent, enable
further diversity of product mix, and allow debarking of larger logs. At
Deltic's Waldo Mill, $1 million was spent during 2000 to complete an optimized
log bucking system which was started in 1999. The new system has met
expectations on recovery from processed logs. Replacement of the Waldo Mill's
edger and edger optimizer required expenditures of $1 million during 2000. When
completed in early 2001, it is anticipated that this upgrade will increase
output at the sawmill by 1,000 board feet per hour, increase recovery of edge
boards, and achieve grade improvements at the planermill.

     Capital expenditures for Real Estate operations related to the cost of lot
development totaled $5.4 million in 2000, compared to $3.6 million in 1999 and
$5.1 million in 1998. Construction of The Village at Rahling Road, Deltic's
35,000-square-foot retail center in Chenal Valley, was completed during 2000 and
required expenditures of $1.2 million in 2000 and $2.9 million in 1999. Site
work for the adjacent commercial outparcel sites totaled $.2 million in 2000,
$.3 million in 1999, and $.4 million in 1998. During 1999, infrastructure
construction required $.2 million compared to $.8 million in 1998. Chenal
Country Club's clubhouse expansion project was completed during 1999 at a total
cost of $5.3 million and required expenditures of $1.7 million and $3 million in
1999 and 1998, respectively. Other expenditures were primarily for various
amenity improvements.

     Corporate operations had capital expenditures for purchases of additional
investment in a consolidated entity of $.2 million in 2000 and $.4 million in
1998.

     Expenditures for discontinued agriculture operations included purchases of
harvesting combines totaling $.1 million in 1999 and $.4 million in 1998. Other
capital requirements were mainly for replacement of various machinery and
equipment.

     Deltic had commitments of $52.7 million for capital projects in progress at
December 31, 2000, including $35.7 million for the acquisition of approximately
24,600 net acres of Southern Pine timberland. Other commitments include $.7
million for reforestation site preparation and planting, $1 million for
completion of the curve sawing gang at the Ola Mill, $.6 million for projects at
the Waldo Mill, and $14.2 million related to residential and commercial site
development and amenity improvements at the Company's Chenal Valley real estate
development. Commitments at Chenal Valley include construction of Chenal Country
Club's second golf course at a total cost of $7.7 million, development of a
residential neighborhood adjacent to the golf course for $3.1 million, and
related infrastructure construction costing $1.1 million.

     The net change in purchased stumpage inventory provided cash of $.6 million
in 2000 and $2.6 million in 1999, but required cash of $2.7 million in 1998.
Additional net cash investment in Del-Tin Fiber by the Company amounted to $12.9
million, $5.8 million, and $3.9 million in 2000, 1999, and 1998, respectively.
During 1999, Deltic purchased $.9 million of U.S. government securities which
matured during the 2000 period. Proceeds from the disposal of agriculture
segment assets provided cash of $20.9 million, primarily from the sale of
approximately 20,400 net acres of farmland in 2000. In 2000, $14.9 million in
proceeds from sales of both farm and timber land were held by a trustee, as
required for the tax-deferred exchange, to be used to acquire timberland,
designated as "replacement property" for income tax purposes. Additions to notes
receivable from accommodators totaled $16.4 million in 2000.

     During 2000, Deltic borrowed $59 million under its revolving credit
facility and $5.7 million under a short-term credit facility, with repayments
totaling $27 million and $4.9 million, respectively. In 1999, borrowing under
the Company's revolving credit facility provided $26 million, with repayments
amounting to $16 million. In addition, repayment of owner-financed debt incurred
for land purchases required cash of $.2 million in 2000, $1.2 million in 1999,
and $.1 million in 1998. During 1998, the Company borrowed $48 million under its

                                       24
<PAGE>

revolving credit facility, primarily to finance timberland acquisitions. Upon
issuance of $40 million of privately placed, fixed-interest rate, long-term
senior notes with a financial institution in December 1998, the Company used the
proceeds, net of $1.3 million in prepaid interest and debt issuance costs, to
make repayment against its revolving credit facility. In addition, upon securing
financing for its facility, Del-Tin Fiber repaid $3 million to Deltic which was
applied to the Company's revolving credit facility commitment. Cash required to
repay long-term debt arising from installment payments on notes used to finance
a portion of the Company's timber requirements amounted to $.3 million in 1999
and $1.8 million in 1998. Purchases of treasury stock required cash of $10
million in 2000 and $10.4 million in 1999. The increase in bank overdraft for
the year of 2000 was $1.4 million, but for the 1999 and 1998 periods it
decreased by $.8 million and $.7 million, respectively. For the three years
ended December 31, 2000, cash required to pay preferred stock dividends totaled
$2.3 million in each year. The Company paid dividends on common stock of $3
million in 2000, $3.1 million in 1999, and $3.2 million in 1998.

  Financial Condition

     Working capital at year-end totaled $10.1 million in 2000 and $17.6 million
in 1999. Cash and cash equivalents at the end of 2000 were $2.7 million,
compared to $4.8 million at the end of 1999. During 2000, total indebtedness of
the Company increased $32.6 million. Deltic's working capital ratio at December
31, 2000, was 2.4 to 1, compared to 4.6 to 1 at the end of 1999.

  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 a significant timberland acquisition
program, which has facilitated an increase in harvest levels, in addition to
expanding lumber production and developing both residential and commercial
properties at Chenal Valley and Red Oak Ridge.

     To facilitate these growth plans, the Company has an agreement with a group
of banks which provides a revolving credit facility totaling $100 million. The
agreement will expire on April 15, 2002. As of December 31, 2000, $53 million
was available under this facility. Current financing arrangements are set forth
in Note 7 to the consolidated financial statements.

     The divestiture of the Company's agriculture segment assets is anticipated
to be completed during the first half of 2001. All the unsold acreage at year-
end 2000, about 18,400 net acres, is under contract at a combined sales price of
approximately $16.3 million, with a carrying value of $1.6 million, and is
scheduled to close prior to the end of the first half of 2001. All proceeds from
these transactions will be used to acquire pine timberland as replacement
property, in accordance with IRS provisions for a tax-deferred exchange.

     During the year of 2000, the Company's Board of Directors authorized two
stock repurchase programs of up to $10 million each of Deltic common stock. As
of December 31, 2000, the Company had expended $10 million and completed the
first of these programs, with the purchase of 479,601 shares at an average cost
of $20.89 per share. Deltic's initial share repurchase program, which was
authorized during 1999, resulted in the purchase of 419,542 shares of common
stock at a $24.68 per share average cost.

     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, for
the foreseeable future.

     The preceding discussion of the Company's liquidity and capital resources
contains "forward-looking statements" which were made in reliance upon the safe
harbor provisions of the Private Securities Reform Act of 1995. Such statements
reflect the Company's current expectations and involve risks and uncertainties.
Actual results could differ materially from those included in such forward-
looking statements.

                                       25
<PAGE>

Other Matters

  Impact of Inflation

     General inflation has not had a significant effect on the Company's
operating results during the three years ended December 31, 2000. The Company's
timber operations are more significantly impacted by the forces of supply and
demand in the southern United States than by changes in inflation. Lumber
manufacturing operations are affected by the supply of lumber available in the
North American market and by the demand for lumber by both the North American
and foreign export markets. Sales of real estate are affected by changes in the
general economy and long-term interest rates.

  Market Risk

     Market risk represents the potential loss resulting from adverse changes in
the value of financial instruments, either derivative or non-derivative, caused
by fluctuations in interest rates, foreign exchange rates, commodity prices, and
equity security prices. The Company handles market risks in accordance with its
established policies; however, Deltic does not enter into derivatives or other
financial instruments for trading or speculative purposes. The Company does, on
occasion, enter into financial instruments to manage and reduce the impact of
changes in interest rates; however, no such instruments existed at December 31,
2000. Deltic held various financial instruments at December 31, 2000 and 1999,
consisting of financial assets and liabilities reported in the Company's
Consolidated Balance Sheets and off-balance sheet exposures resulting from
letters of credit issued by Deltic, primarily in connection with its purchased
stumpage procurement and real estate operations. (For additional information
regarding these financial instruments, refer to Note 12 to the consolidated
financial statements.)

     Interest Rate Risk - The Company is subject to interest rate risk from the
utilization of financial instruments, such as term debt and other borrowings.
The fair market value of long-term, fixed-interest rate debt is subject to
interest rate risk. Generally, the fair value of fixed-interest rate debt will
increase as interest rates fall and will decrease as interest rates rise.
Conversely, for floating rate debt, interest rate changes generally do not
affect the instruments' fair value, but do impact future earnings and cash
flows, assuming other factors are held constant. The estimated fair values of
the Company's funds held by trustee; notes receivable; long-term debt, including
current maturities; redeemable preferred stock; and letters of credit at
December 31, 2000, were $16.3 million, $16.4 million, $89.4 million, $31
million, and $1.1 million, respectively.

     A one percentage-point increase in prevailing interest rates would result
in decreases in the estimated fair value of notes receivable of $.1 million,
long-term debt of $3.7 million, and redeemable preferred stock of $.6 million,
while the fair value of the Company's funds held by trustee and letters of
credit would be unchanged. Initial fair values were determined using the current
rates at which the Company could enter into comparable financial instruments
with similar remaining maturities. The estimated earnings and cash flows impact
for 2000 resulting from a one percentage-point increase in interest rates would
be approximately $.2 million, holding other variables constant.

     Foreign-Exchange Rate Risk - The Company currently has no exposure to
foreign-exchange rate risk because all of its financial instruments are
denominated in U.S. dollars.

     Commodity Price Risk - The Company has no financial instruments subject to
commodity price risk.

     Equity Security Price Risk - None of the Company's financial instruments
have potential exposure to equity security price risk.

     The preceding discussion of the Company's estimated fair value of its
financial instruments and the sensitivity analyses resulting from hypothetical
changes in interest rates are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements reflect
the Company's current expectations and involve uncertainties. These forward-
looking market risk disclosures are selective in nature and only address the
potential impact from financial instruments. They do not include other potential
effects which could impact Deltic's business as a result of changes in interest
rates, foreign-exchange rates, commodity prices, or equity security prices.

                                       26
<PAGE>

  Impact of Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 133, Accounting for Derivative
Instruments and Hedging Activities. This standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS 133 is
effective for all fiscal quarters for fiscal years beginning after June 15,
2000, and will not require retroactive restatement of prior period financial
statements. This statement requires the recognition of all derivative
instruments as either assets or liabilities, measured at fair value, in the
statement of financial position. Generally, increases or decreases in the fair
value of derivative instruments will be recognized as gains or losses in the
period of change. If certain conditions are met, where the derivative instrument
has been designated as a fair value hedge, the hedged item may also be marked to
market through earnings, thus creating an offset. If the derivative is
designated and qualifies as a cash flow hedge, the changes in fair value of the
derivative instrument may be recorded in comprehensive income, as defined by
SFAS 130, Reporting Comprehensive Income. The impact of SFAS 133 on the
Company's financial statements will depend on a variety of factors, including
future interpretive guidance from the FASB, the level of utilization of
derivative instruments, the types of hedging instruments used, and the
effectiveness of any such instruments. However, the effect of adopting SFAS 133
will not be material to the Company's financial position or results of
operations, based on the Company's current level of derivative and hedging
activities.

  Disposal of Farmland

     On August 17, 2000, Deltic's Board of Directors approved the project to
dispose of the Company's agricultural land holdings for pine timberland in a
tax-efficient manner. The Company engaged Capital Agriculture Property Services,
Inc., an agricultural land consulting and brokerage firm, to act as advisors in
evaluating and marketing about 50,000 acres (approximately 38,800 acres net to
Deltic) of farmland located in northeast Louisiana. Through December 31, 2000,
the Company had closed on the sale of approximately 20,400 net acres of
agriculture lands. All the remaining acreage, about 18,400 net acres, is under
contract with closing expected by the end of the first half of 2001. All
proceeds from the farmland sales were deposited with a qualified intermediary to
be used to acquire pine timberland as replacement property, in accordance with
IRS provisions for a tax-deferred exchange. (For additional information
regarding this project, refer to Note 2 to the consolidated financial
statements.)

     Of the farmland sales which closed during 2000, some were deemed by the
Company to be with related parties. These included a transaction to sell 12,600
net acres to Epps Plantation, LLC, which is owned by the Charles H. Murphy
Family Investments Limited Partnership. Charles Murphy holds a significant
ownership of the Company's common stock and is related to four of the Company's
directors. In addition, approximately 450 net acres were sold to Munoco Company
L.C. ("Munoco"). Munoco currently owns 8.125 percent of an undivided-interest
farmland operation of which Deltic owns 64.8 percent, conducting operations as
Ashly Plantation (a partnership for income tax purposes), and the managing
partner of Munoco is Robert C. Nolan, Chairman of Deltic's Board of Directors
and a nephew of Charles Murphy. The directors who are related to Mr. Murphy,
including Robert C. Nolan, recused themselves from all discussions and actions
related to these transactions. The sales price for all tracts involved in these
transactions was derived from an approved market index formula which produced
prices in excess of the average of the appraised value of the tracts.

  Environmental Matters

     Deltic is committed to protecting the environment and has certain
obligations based on federal, state, and local laws for the protection of the
environment. Costs of compliance through 2000 have not been material and the
Company's management currently has no reason to believe that such costs will
become material for the foreseeable future.

  Contingencies

     The Company is involved in litigation incidental to its business from time
to time. Currently, there are no material legal proceedings outstanding.

                                       27
<PAGE>

Outlook

     The annual harvest level of pine sawtimber from Deltic's fee lands is
projected to increase nine percent over the 2000 level to 615,000 tons in 2001.
Depending on the Company's ability to increase timber inventory through
biological growth and timberland acquisitions, the harvest level is expected to
increase in 2002 as well. The Company's program to identify non-strategic
timberland and timberland for higher and better use is ongoing. Although lumber
production is projected to increase through 2002 as Deltic expands the capacity
of its manufacturing facilities, output is dependent upon market conditions,
which were depressed during 2000. Sales of commercial real estate and
residential lots are expected to increase, barring declines in economic growth
or residential construction activity in central Arkansas. The closing of the
previously announced contract to sell 38 acres of commercial real estate is
expected by year-end 2001, and the development of about 200 residential lots is
planned during 2001. In addition, 80 lots which were developed during 2000 will
be offered for sale in 2001 upon resolution of a dispute. The divestiture of the
Company's agriculture properties is anticipated to be completed during the first
half of 2001, with the closing of 19 remaining contracts. On January 29, 2001,
operations at Del-Tin Fiber's medium density fiberboard ("MDF") plant were
temporarily shut down as a result of weak markets for MDF and high natural gas
prices. During the shutdown period, a $2.8 million capital project to modify the
heat energy system will be implemented. The plant is expected to resume
operations in June 2001, following completion of the project.

     The Company's capital expenditure budget for the year of 2001 was prepared
during the fall of 2000 and provides for expenditures of $75.7 million. The
Woodlands capital budget provides $45.7 million for timberland acquisition,
including $35.3 million for approximately 24,200 net acres of timberland which
has been identified as "replacement property". Additional acquisitions will be
dependent on the availability of acreage at prices that meet the Company's
criterion for timber stocking, growth potential, site index, and location.
Sawmill projects are expected to require $9.6 million during 2001. At the Ola
Mill, plans to improve the wet log storage capacity by as much as 30 percent
will require expenditures of $.5 million. The Waldo Mill will complete the edger
installation in early 2001 at a total cost of $1.3 million. Plans to install a
curve sawing gang at Waldo in 2001 at a cost of $4.8 million will allow greater
product flexibility and will facilitate an increase in hourly output by at least
ten percent, as well as improve log recovery. Expenditures for residential lot
development totaling $5.8 million are projected to add over 200 lots to
available inventory, depending on market conditions. Construction of Chenal
Country Club's second golf course is scheduled to begin in 2001, with completion
the following year, at an estimated cost of $7.7 million. This project will
enable club membership to increase and will allow development of residential
neighborhoods surrounding the golf course, the first of which is expected in
2001. Capital and other expenditures are under constant review, and these
budgeted amounts may be adjusted to reflect changes in the Company's estimated
cash flows from operations, borrowings under credit facilities, or general
economic conditions.

     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.

                                       28
<PAGE>

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

     Information with respect to quantitative and qualitative disclosures about
market risk of the Company is set forth under the caption "Other Matters -Market
Risk" in Item 7 of Part II of this report.

                                       29
<PAGE>

Item 8.    Financial Statements and Supplementary Data

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                          Consolidated Balance Sheets
                           December 31, 2000 and 1999
                         ---------------------------------
                             (Thousands of dollars)

<TABLE>
<CAPTION>
                                                                 2000      1999
                                                             --------   -------
<S>                                                         <C>         <C>
Assets
 Current assets
   Cash and cash equivalents                                 $  2,712     4,782
   U.S. government securities                                       -       936
   Trade accounts receivable - net                              3,820     4,648
   Other receivables                                            4,807     1,341
   Inventories                                                  5,127     9,411
   Prepaid expenses and other current assets                      583     1,274
                                                             --------   -------
     Total current assets                                      17,049    22,392

 Investment in real estate held for development and sale       34,100    35,210
 Investment in Del-Tin Fiber                                    5,862     3,727
 Other investments and noncurrent receivables                  35,884     3,183
 Timber and timberlands - net                                 181,398   164,740
 Property, plant, and equipment - net                          45,206    44,312
 Deferred charges and other assets                              3,134     4,334
                                                             --------   -------

     Total assets                                            $322,633   277,898
                                                             ========   =======

Liabilities and Stockholders' Equity
 Current liabilities
   Current maturities of long-term debt                      $    160       203
   Notes payable                                                  800        13
   Trade accounts payable                                       2,936     2,928
   Accrued taxes other than income taxes                        1,072     1,162
   Bank overdraft                                               1,384         6
   Other accrued liabilities                                      611       511
                                                             --------   -------
     Total current liabilities                                  6,963     4,823

 Long-term debt                                                87,410    55,570
 Deferred credits and other noncurrent liabilities             21,426     9,097
 Redeemable preferred stock                                    30,000    30,000
 Stockholders' equity
   Preferred stock                                                  -         -
   Common stock                                                   128       128
   Capital in excess of par value                              68,757    68,808
   Retained earnings                                          128,290   120,033
   Unamortized restricted stock awards                           (472)     (205)
   Treasury stock                                             (19,869)  (10,356)
                                                             --------   -------
     Total stockholders' equity                               176,834   178,408
                                                             --------   -------

     Total liabilities and stockholders' equity              $322,633   277,898
                                                             ========   =======

</TABLE>

See accompanying notes to consolidated financial statements.

                                       30
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                       Consolidated Statements of Income
             For the Years Ended December 31, 2000, 1999, and 1998
             -----------------------------------------------------
                (Thousands of dollars, except per share amounts)

<TABLE>
<CAPTION>

                                                     2000      1999      1998
                                                 --------   -------   -------
<S>                                             <C>         <C>       <C>
Net sales                                        $109,531   125,010   100,684
                                                 --------   -------   -------

Costs and expenses
 Cost of sales                                     71,628    79,426    70,842
 Depreciation, amortization, and
   cost of fee timber harvested                    12,829    10,112     6,817
 General and administrative expenses                6,960     6,228     5,405
                                                 --------   -------   -------

   Total costs and expenses                        91,417    95,766    83,064
                                                 --------   -------   -------

   Operating income                                18,114    29,244    17,620

Equity in loss of Del-Tin Fiber                   (10,938)   (8,936)   (4,657)
Interest income                                       517       254     1,122
Interest and other debt expense                    (4,921)   (4,124)   (1,387)
Other income/(expense)                                340       352       321
                                                 --------   -------   -------

Income/(loss) from continuing operations
  before income taxes                               3,112    16,790    13,019

Income taxes                                         (411)   (6,019)   (5,006)
                                                 --------   -------   -------

Income/(loss) from continuing operations            2,701    10,771     8,013
                                                 --------   -------   -------

Discontinued operations
 Income/(loss) from discontinued agriculture
   operations, net of income taxes                    440       149       461
 Gain on disposal of agriculture segment,
   net of income taxes                             10,416         -         -
                                                 --------   -------   -------

Income/(loss) from discontinued operations         10,856       149       461
                                                 --------   -------   -------

 Net income                                      $ 13,557    10,920     8,474
                                                 ========   =======   =======

Earnings per common share
 Basic
   Continuing operations                         $    .04       .68       .45
   Discontinued operations                            .89       .01       .03
                                                 --------   -------   -------
   Net income                                    $    .93       .69       .48
                                                 ========   =======   =======
 Assuming dilution
   Continuing operations                         $    .04       .68       .45
   Discontinued operations                            .89       .01       .03
                                                 --------   -------   -------
   Net income                                    $    .93       .69       .48
                                                 ========   =======   =======

Dividends declared per common share              $    .25       .25       .25
                                                 ========   =======   =======

Average common shares outstanding
  (thousands)                                      12,176    12,503    12,812
                                                 ========   =======   =======
</TABLE>

See accompanying notes to consolidated financial statements.

                                       31
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
             For the Years Ended December 31, 2000, 1999, and 1998
             -----------------------------------------------------
                             (Thousands of dollars)

<TABLE>
<CAPTION>

                                                                  2000      1999      1998
                                                              --------   -------   -------
<S>                                                           <C>        <C>       <C>
Operating activities
 Net income                                                   $ 13,557    10,920     8,474
 Adjustments to reconcile net income to
   net cash provided/(required) by operating activities
   Depreciation, amortization, and cost of
     fee timber harvested                                       13,195    10,688     7,331
   Deferred income taxes                                        10,129     1,189     1,255
   Gain from disposal of agriculture segment assets            (17,381)        -         -
   Real estate costs recovered upon sale                         8,428     6,439     4,993
   Timberland costs recovered upon sale                            762     1,998       111
   Equity in loss of Del-Tin Fiber                              10,938     8,936     4,657
   Net increase/(decrease) in provisions for pension
     and other postretirement benefits                             911       944       366
   (Increase)/decrease in operating working
     capital other than cash and cash equivalents                2,083    (3,807)    1,526
   Other                                                           297      (465)      195
                                                              --------   -------   -------
     Net cash provided/(required) by operating activities,
      including discontinued operations                         42,919    36,842    28,908
                                                              --------   -------   -------

Investing activities
 Capital expenditures requiring cash                           (43,401)  (27,920)  (80,124)
 Net change in purchased stumpage inventory                        610     2,613    (2,665)
 Advances to Del-Tin Fiber                                     (12,903)   (5,795)   (3,860)
 Purchases of U.S. government securities                           (12)     (936)        -
 Maturities of U.S. government securities                          948         -         -
 Proceeds from disposal of agriculture segment assets           20,859         -         -
 Increase/(decrease) in farmland sale contract deposits          1,455         -         -
 (Increase)/decrease in funds held by trustee                  (16,318)        -         -
 Receipts of/(additions to) notes receivable                   (16,383)        -       (48)
 Other - net                                                     1,511      (145)     (741)
                                                              --------   -------   -------
     Net cash provided/(required) by investing activities,
      including discontinued operations                        (63,634)  (32,183)  (87,438)
                                                              --------   -------   -------

Financing activities
 Proceeds from borrowings                                       64,700    26,000    88,072
 Repayments of notes payable and long-term debt                (32,116)  (17,485)  (44,993)
 Treasury stock purchases                                      (10,017)  (10,356)        -
 Prepaid interest and debt issuance costs -
   long-term borrowings                                              -         -    (1,307)
 Increase/(decrease) in bank overdraft                           1,378      (811)     (662)
 Preferred stock dividends paid                                 (2,262)   (2,262)   (2,262)
 Common stock dividends paid                                    (3,038)   (3,123)   (3,203)
                                                              --------   -------   -------
     Net cash provided/(required) by financing activities,
      including discontinued operations                         18,645    (8,037)   35,645
                                                              --------   -------   -------

Net increase/(decrease) in cash and cash equivalents            (2,070)   (3,378)  (22,885)
Cash and cash equivalents at beginning of year                   4,782     8,160    31,045
                                                              --------   -------   -------

Cash and cash equivalents at end of year                      $  2,712     4,782     8,160
                                                              ========   =======   =======
</TABLE>

See accompanying notes to consolidated financial statements.

                                       32
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                Consolidated Statements of Stockholders' Equity
             For the Years Ended December 31, 2000, 1999, and 1998
             -----------------------------------------------------
                             (Thousands of dollars)

<TABLE>
<CAPTION>

                                                               2000      1999      1998
                                                           --------   -------   -------
<S>                                                       <C>         <C>       <C>
Cumulative preferred stock - $.01 par, authorized
  20,000,000 shares, 600,000 shares issued as
  redeemable preferred stock at end of year
  (See Note 9 - Redeemable Preferred Stock)                $      -         -         -
                                                           --------   -------   -------

Common stock - $.01 par, authorized 50,000,000
  shares, 12,813,879 shares issued at end of each year          128       128       128
                                                           --------   -------   -------

Capital in excess of par value
 Balance at beginning of year                                68,808    68,808    68,372
 Exercise of stock options                                        -         -        58
 Restricted stock awards                                        (51)        -       378
                                                           --------   -------   -------
 Balance at end of year                                      68,757    68,808    68,808
                                                           --------   -------   -------

Retained earnings
 Balance at beginning of year                               120,033   114,498   111,496
 Net income                                                  13,557    10,920     8,474
 Preferred stock dividends accrued                           (2,262)   (2,262)   (2,269)
 Common stock dividends declared, $.25 per share             (3,038)   (3,123)   (3,203)
                                                           --------   -------   -------
 Balance at end of year                                     128,290   120,033   114,498
                                                           --------   -------   -------

Unamortized restricted stock awards
 Balance at beginning of year                                  (205)     (300)        -
 Stock awards                                                  (472)        -      (378)
 Shares forfeited                                                19         -         -
 Amortization to expense                                        186        95        78
                                                           --------   -------   -------
 Balance at end of year                                        (472)     (205)     (300)
                                                           --------   -------   -------

Treasury stock
 Balance at beginning of year - 419,544, zero, and
   zero shares, respectively                                (10,356)        -         -
 Shares purchased - 479,606 shares in 2000 and
   419,544 shares in 1999                                   (10,017)  (10,356)        -
 Forfeited restricted stock - 806 shares in 2000                (19)        -         -
 Shares issued for incentive plans -
   21,400 shares in 2000                                        523         -         -
                                                           --------   -------   -------
 Balance at end of year - 878,556, 419,544, and
   zero shares, respectively, at cost                       (19,869)  (10,356)        -
                                                           --------   -------   -------

Total stockholders' equity                                 $176,834   178,408   183,134
                                                           ========   =======   =======
</TABLE>

See accompanying notes to consolidated financial statements.

                                       33
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 1 - Significant Accounting Policies

 Principles of Consolidation -- The consolidated financial statements of Deltic
 Timber Corporation ("Deltic" or "the Company") include the accounts of Deltic
 and all majority-owned subsidiaries after elimination of significant
 intercompany transactions and accounts.

 Use of Estimates -- In the preparation of the Company's financial statements in
   conformity with generally accepted accounting principles, management has made
   a number of estimates and assumptions related to the reporting of assets and
   liabilities and the disclosure of contingent assets and liabilities. Actual
   results may differ from those estimates.

 Cash Equivalents -- Cash equivalents include U.S. government securities that
   have a maturity of three months or less from the date of purchase.

 Allowance for Doubtful Accounts -- The Company provides an allowance for
   doubtful accounts based on a review of the specific receivables outstanding.
   At December 31, 2000 and 1999, the balance in the allowance account was
   $163,000 and $247,000, respectively.

 Inventories -- Inventories of logs, lumber, and supplies are stated at the
   lower of cost or market, primarily using the average cost method. Log costs
   include harvest and transportation cost as appropriate. Lumber costs include
   materials, labor, and production overhead. The Company no longer has
   agricultural products in inventory as a result of the discontinuance of its
   former Agriculture segment operations. (For additional information, see Note
   2 -Discontinued Agriculture Segment and Note 3 - Inventories.)

 Investment in Real Estate Held for Development and Sale -- Real estate held for
   development and sale is stated at the lower of cost or net realizable value,
   and includes direct costs of land and land development and indirect costs,
   including amenities, less amounts charged to cost of sales. These costs are
   allocated to individual lots or acreage sold based on relative sales value.
   Direct costs are allocated on a specific neighborhood basis, while indirect
   costs for the Company's three development areas -- Chenal Valley, Chenal
   Downs, and Red Oak Ridge -- are allocated to neighborhoods over the entire
   respective development area.

 Investment in Del-Tin Fiber -- Investment in Del-Tin Fiber L.L.C. ("Del-Tin
   Fiber"), a 50 percent owned limited liability company, is carried at cost and
   is being adjusted for the Company's proportionate share of its undistributed
   earnings or losses.

 Timber and Timberlands -- Timber and timberlands, which includes purchased
   stumpage inventory and logging facilities, is stated at acquisition cost less
   cost of fee timber harvested and accumulated depreciation of logging
   facilities. The cost of fee timber harvested is based on the volume of timber
   harvested in relation to the estimated volume of timber recoverable. Logging
   facilities, which consist primarily of roads constructed and other land
   improvements, are depreciated using the straight-line method over a 10-year
   estimated life. The Company estimates its fee timber inventory using
   statistical information and data obtained from physical measurements and
   other information gathering techniques. The cost of timber and timberland
   purchased and reforestation costs are capitalized. Fee timber carrying costs
   are expensed as incurred.

                                       34
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 1 - Significant Accounting Policies (cont.)

 Property, Plant, and Equipment -- Property, plant, and equipment is stated at
   cost less accumulated depreciation. Depreciation of buildings, equipment, and
   other depreciable assets is primarily determined using the straight-line
   method. Property, plant, and equipment assets are evaluated for possible
   impairment on a specific asset basis or in groups of similar assets, as
   applicable. Expenditures that substantially improve and/or increase the
   useful life of facilities or equipment are capitalized. Maintenance and
   repair costs are expensed as incurred. Gains and losses on disposals or
   retirements are included in income as they occur.

 Revenue Recognition -- Revenue from the sale of lumber, wood by-products, and
   agricultural commodities is generally recorded at the time of shipment.
   Revenue from the sale of timber-cutting rights to third parties is recorded
   when legal title passes to the purchaser. Revenue from intersegment timber
   sales is recorded when the timber is harvested; such intersegment sales,
   which are made at market prices, are eliminated in the consolidated financial
   statements. Revenue from real estate sales is recorded when the sale is
   closed and legal title is transferred.

 Income Taxes -- The Company uses the asset and liability method of accounting
   for income taxes. Under this method, the provision for income taxes includes
   amounts currently payable and amounts deferred as tax assets and liabilities,
   based on differences between the financial statement carrying amounts and the
   tax bases of existing assets and liabilities, and is measured using the
   enacted tax rates that are assumed will be in effect when the differences
   reverse.

 Stock-Based Compensation -- The Company applies the accounting measurement
   provisions of Accounting Principles Board Opinion ("APB") 25 to account for
   stock-based compensation. Cost of options granted are accrued over applicable
   vesting periods and adjusted for subsequent changes in the market value per
   share of the Company's common stock.

 Capital Expenditures -- Capital expenditures include additions to Investment in
   Real Estate Held for Development and Sale; Timber and Timberlands; and
   Property, Plant, and Equipment.

 Net Change in Purchased Stumpage Inventory -- Purchased stumpage inventory
   consists of timber-cutting rights purchased from third parties specifically
   for use in the Company's sawmills. Depending on the timing of acquisition and
   usage of this acquired stumpage inventory, the net change in inventory can
   either be a source or use of funds in the Company's Consolidated Statements
   of Cash Flows.

 Earnings per Common Share -- Earnings per share ("EPS") amounts presented were
   calculated under the provisions of the Financial Accounting Standards Board's
   Statement of Financial Accounting Standards ("SFAS") 128, Earnings per Share.
   Basic earnings per share is computed based on earnings available to common
   shareholders (net income less accrued preferred dividends) and the weighted
   average number of common shares outstanding. The earnings per share assuming
   dilution amounts presented are computed based on earnings available to common
   shareholders and the weighted average number of common shares outstanding,
   including shares assumed to be issued under the Company's stock option plan.
   (For a reconciliation of amounts used in per share computations, see Note 17-
   Earnings per Share.)

 Impact of Recent Accounting Pronouncements -- In June 1998, the Financial
   Accounting Standards Board issued SFAS 133, Accounting for Derivative
   Instruments and Hedging Activities, which is effective for the fiscal years
   beginning after June 15, 2000. The Company is required to and will adopt SFAS
   133 effective January 1, 2001; however, the effect of adopting SFAS 133 will
   not be material to the Company's financial position or results of operations,
   based on the Company's current level of derivative and hedging activities.

                                       35
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 1 - Significant Accounting Policies (cont.)

 Reclassifications -- Certain prior year amounts have been reclassified to
   conform with the 2000 presentation format.


Note 2 - Discontinued Agriculture Segment

 On August 17, 2000, the Company's Board of Directors approved the disposal of
 Deltic's agriculture segment assets, subject to using the sales proceeds to
 purchase additional pine timberland, in a tax-deferred exchange.  As of
 December 31, 2000, approximately 20,400 of the 38,800 net acres deemed to be
 agriculture lands have been sold.  All 18,400 net acres unsold as of the end of
 2000 are under contract to be sold.  The anticipated date for completion of the
 disposal of agriculture segment assets is prior to the end of the first half of
 2001.  As a result of the sales transactions completed as of December 31, 2000,
 a pretax gain on disposal of agriculture segment assets of $17,381,000 is
 reported as discontinued operations by the Company in its 2000 Consolidated
 Statement of Income.  Operating results for the agriculture segment are also
 reported as discontinued operations, net of income taxes, with prior years
 restated to conform to the current year presentation.

 The assets of the agriculture segment as of December 31, 2000, consisted
 primarily of property, plant, and equipment and amounted to $3,626,000.  Total
 net sales of the discontinued agriculture segment for 2000, 1999, and 1998,
 excluding land sales proceeds, were $8,272,000, $2,623,000, and $6,484,000,
 respectively.  Operating income of the agriculture segment during 2000, prior
 to the measurement date for determining discontinued operations was $715,000,
 $440,000 net of related taxes of $275,000.  Gain on the disposal of the
 agriculture segment was $17,150,000 before income taxes, consisting of the
 $17,381,000 gain on sales of assets and $231,000 loss from operations since the
 measurement date, $10,416,000 after related income taxes amounting to
 $6,734,000.

 Since the Company is disposing of the agriculture segment in a tax-deferred
 exchange, all proceeds from farmland sales were deposited with a qualified
 intermediary to be used to acquire pine timberland as replacement property.  In
 addition, Deltic also sold 5,200 net acres of non-strategic, hardwood
 timberland during the third and fourth quarters of 2000, which will also be
 replaced with pine timberland in a tax-deferred exchange.  These combined
 proceeds, $16,317,000 after deducting amounts expended to purchase replacement
 pine timberland, are currently held by the intermediary, as trustee, and are
 included in Other Investments and Noncurrent Receivables in the 2000
 Consolidated Balance Sheet.

 A portion of the farmland and hardwood timberland sales is deemed by the
 Company to be related-party transactions. These transactions include sales to
 Epps Plantation, LLC, which is owned by the Charles H. Murphy Family
 Investments Limited Partnership. Charles Murphy holds a significant ownership
 of the Company's common stock and is related to four of the Company's
 directors. This related-party farmland sale amounted to $14,413,000 for 12,600
 net acres. In addition, approximately 450 net acres were sold to Munoco Company
 L.C. ("Munoco") for $346,000. Munoco currently owns 8.125 percent of an
 undivided-interest farmland operation, conducting business as Ashly Plantation
 (a partnership for income tax purposes), of which Deltic owns 64.8 percent; the
 managing partner of Munoco is Robert C. Nolan, Chairman of Deltic's Board of
 Directors and a nephew of Charles Murphy. The sales price for all related-party
 farmland sale transactions was derived from an approved market index formula
 which produced prices in excess of the average of the appraised value of the
 acreage involved. Epps Plantation, LLC also purchased 2,600 net acres of the
 hardwood timberland sold for $4,864,000.

                                       36
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 2 - Discontinued Agriculture Segment (cont.)

 During the third quarter of 2000, Deltic and the other owners of Ashly
 Plantation acted to acquire replacement property prior to the completion of the
 disposal of its farmland, utilizing the form of a reverse exchange as
 established by a recent IRS revenue procedure. As part of this transaction,
 Ashly Plantation secured a note from the Company, in the amount of $4,000,000,
 with the proceeds to be used as a portion of an advance, in the form of an
 interest-bearing note, to the intermediate accommodating title owner required
 for the reverse exchange. The accommodator used the funds provided by this
 advance as a deposit to secure the desired replacement timberland. During the
 fourth quarter of 2000, Deltic also acted to acquire replacement property prior
 to the completion of the disposal of the remainder of its farmland by utilizing
 a reverse exchange. The Company advanced funds to an accommodating title holder
 which were used to acquire the designated timberland. This advance, which was
 in the form of an interest-bearing note, combined with the similar advance by
 Ashly Plantation to its accommodator, in addition to the Ashly Plantation
 minority owners' portion of the note obtained from Deltic, amounted to
 $16,364,000 at December 31, 2000, and is reported in the 2000 Consolidated
 Balance Sheet in Other Investments and Noncurrent Receivables.


Note 3 - Inventories

 Inventories at December 31 consisted of the following:

<TABLE>
<CAPTION>
<S>                                                <C>     <C>
   (Thousands of dollars)                            2000   1999
                                                   ------  -----
   Logs                                            $2,380  2,170
   Lumber                                           2,359  4,263
   Agricultural products                                -  2,703
   Materials and supplies                             388    275
                                                   ------  -----
                                                   $5,127  9,411
                                                   ======  =====
</TABLE>

 For both financial and income tax purposes the Company utilizes the lower of
 cost or market basis for determining inventory carrying values.  Lumber
 inventory at December 31, 2000, is stated at net realizable value and the 2000
 Consolidated Statement of Income includes charges of $1,890,000 ($1,114,000 of
 which were during the fourth quarter) for inventory write-downs which are
 reflected in Cost of Sales.


Note 4 - Investment in Del-Tin Fiber

 Deltic owns 50 percent of the membership interest of Del-Tin Fiber, which
 completed construction and commenced production operations of a medium density
 fiberboard ("MDF") plant near El Dorado, Arkansas, in April 1998.  The cost to
 construct the plant was approximately $104,000,000.

 Del-Tin Fiber has its own credit facility, totaling $99,000,000, under which
 each owner has agreed to a contingent equity contribution agreement with Del-
 Tin Fiber and the group of banks from whom the project financing was obtained.
 Under this agreement, both owners have agreed to fund any deficiency in
 contributions to either Del-Tin Fiber's bond sinking fund or debt service
 reserve up to a cumulative total of $17,500,000 each.  Del-Tin Fiber's project
 financing agreement does not require sinking fund contributions until 2001.
 The quarterly contributions required are $1,046,000, beginning in the first
 quarter of 2001.  In addition, each owner has committed to a production support
 agreement, under which each owner has agreed

                                       37
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


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

 to make support obligation payments to Del-Tin Fiber to provide, on the
 occurrence of certain events, additional funds for payment of debt service if
 the plant is unable to successfully complete a minimum production test, planned
 for 2001. Both owners of Del-Tin Fiber have also pledged their respective
 membership interest in the joint venture as collateral under the project
 financing agreement.

 As natural gas prices escalated during the last half of 2000, the decision was
 made in late January 2001 to temporarily suspend operations of the facility
 until its heat energy system could be modified.  Following completion of a $2.8
 million capital project to modify the heat energy system, the plant is expected
 to resume operations in June 2001.  Rectification of this system is anticipated
 to enable Del-Tin Fiber's operations to increase production levels closer to
 the plant's capacity of 150 million square feet per year and lower
 manufacturing cost per thousand square foot, as fixed costs for the facility
 are allocated to increased production.  Both owners have agreed to fund their
 respective share of the capital project, in addition to any operating working
 capital needs until the facility is able to consistently generate sufficient
 funds to meet its cash requirements.

 Under the operating agreement, Del-Tin Fiber's employees operate the plant.
 Deltic has committed to provide a portion of the plant's fiber and wood fuel
 supply at market prices.  During 2000 and 1999, Deltic sold Del-Tin Fiber
 approximately $3,649,000 and $4,343,000, respectively, of these lumber
 manufacturing by-products.  As of December 31, 2000, the Company had a
 receivable from Del-Tin Fiber of $61,000.

 Del-Tin Fiber's financial position at year-end 2000 and 1999 and results of
 operations for years of 2000 and 1999 consisted of the following:
<TABLE>
<CAPTION>
   (Thousands of dollars)                                        2000      1999
                                                               --------   -------
   <S>                                                         <C>         <C>
   Condensed Balance Sheet Information
     Current assets                                            $  5,863     7,354
     Property, plant, and equipment - net                        95,571    98,492
     Other noncurrent assets                                      4,650     4,108
                                                               --------   -------
          Total assets                                         $106,084   109,954
                                                               ========   =======

     Current liabilities                                       $  4,558    12,356
     Long-term debt                                              89,000    89,000
     Other noncurrent liabilities                                     7        10
     Members' capital/(deficit)                                  12,519     8,588
                                                               --------   -------
          Total liabilities and members' capital/(deficit)     $106,084   109,954
                                                               ========   =======

   Condensed Income Statement Information
     Net sales                                                 $ 31,071    30,472
                                                               --------   -------
     Costs and expenses
       Cost of sales                                             40,250    35,123
       Depreciation                                               4,570     4,151
       General and administrative expenses                        1,322     1,395
                                                               --------   -------
          Total costs and expenses                               46,142    40,669
                                                               --------   -------

          Operating income/(loss)                               (15,071)  (10,197)
     Interest income                                                207       271
     Interest and other debt expense                             (7,011)   (6,807)
                                                               --------   -------
          Net income/(loss)                                    $(21,875)  (16,733)
                                                               ========   =======
</TABLE>

                                       38
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


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

 At December 31, 2000 and 1999, the Company's share of the underlying net assets
 of Del-Tin Fiber exceeded its investment by $398,000 and $567,000,
 respectively.  The excess relates primarily to interest received by the Company
 from Del-Tin Fiber prior to plant start-up, which was capitalized by Deltic as
 a reduction of its investment and is being amortized into income using the
 straight-line method over a 60-month period.

 The Company accounts for its investment in Del-Tin Fiber under the equity
 method.  Accordingly, the investment in Del-Tin Fiber is carried at cost,
 adjusted for the Company's proportionate share of undistributed earnings or
 losses. Cumulative net losses for the facility have amounted to $49,048,000,
 $24,524,000 net to the Company.  As a result, no earnings have been available
 for distribution to the owners.  Contributions to Del-Tin Fiber by the Company
 as of December 31, 2000, have amounted to $30,788,000.

Note 5 - Timber and Timberlands

 Timber and timberlands at December 31 consisted of the following:


   (Thousands of dollars)                             2000      1999
                                                    --------   -------
   Purchased stumpage inventory                     $  9,987    10,597
   Timberlands                                        66,788    62,287
   Fee timber                                        145,981   125,851
   Logging facilities                                  1,672     1,642
                                                    --------   -------
                                                     224,428   200,377
   Less accumulated cost of fee timber harvested
     and facilities depreciation                     (43,030)  (35,637)
                                                    --------   -------
                                                    $181,398   164,740
                                                    ========   =======

 Cost of fee timber harvested amounted to $7,224,000 in 2000, $5,012,000 in
 1999, and $2,246,000 in 1998.  Depreciation of logging facilities was $45,000,
 $56,000, and $73,000 for the years 2000, 1999, and 1998, respectively.

 The Company obtains a portion of its sawmill log requirements by acquiring
 purchased stumpage inventory through cutting contracts with various private and
 governmental landowners.  These contracts have terms ranging from a few months
 to several years.  At December 31, 2000, the Company's total commitment under
 such contracts amounted to approximately $3,472,000.  Based on lumber prices at
 December 31, 2000, management estimated the fair value of stumpage under such
 contracts to be approximately $187,000.  Depending on the market value of this
 stumpage at time of harvest, the Company's sawmills may experience favorable or
 unfavorable log supply costs.  By February 1, 2001, the lumber market had
 improved to the point that the estimated fair value of timber under these
 contracts had increased to approximately $2,194,000.

                                       39
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 6 - Property, Plant, and Equipment

 Property, plant, and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
                                           Range of
      (Thousands of dollars)            Useful Lives          2000            1999
                                        ------------        --------         -------
   <S>                                   <C>                 <C>              <C>
   Land                                          N/A        $  2,584           4,425
   Land improvements                     10-20 years           4,121           4,061
   Buildings and structures              10-20 years           4,790           4,946
   Machinery and equipment                3-15 years          74,568          71,234
                                                            --------         -------
                                                              86,063          84,666
   Less accumulated depreciation                             (40,857)        (40,354)
                                                            --------         -------
                                                            $ 45,206          44,312
                                                            ========         =======
</TABLE>

 Depreciation of property, plant, and equipment charged to operations was
 $5,926,000, $5,620,000, and $5,012,000 in 2000, 1999, and 1998, respectively,
 including charges to discontinued agriculture operations of $366,000 in 2000,
 $576,000 in 1999, and $514,000 in 1998.

 Gains/(losses) on disposals or retirements of assets, exclusive of disposition
 of agriculture assets, included in income were $109,000 in 2000, $65,000 in
 1999, and $77,000 in 1998.


Note 7 - Credit Facilities

 In 1996, Deltic entered into an agreement with Bank of America and other
 domestic banks which provides an unsecured, committed revolving credit facility
 totaling $100,000,000. This agreement had an original expiration date of
 December 31, 2001; however, as of March 9, 2001, the agreement has been
 extended under the original terms until April 15, 2002. In addition, the
 Company is currently involved in the process of renegotiating this line of
 credit for an additional three to five years. As of December 31, 2000,
 $53,000,000 of committed credit was available in excess of all borrowings
 outstanding under or supported by the facility. Borrowings under the agreement
 bear interest based upon prime or other various cost of funds options. Fees
 associated with this revolving credit facility include a commitment fee of .15
 to .35 percent per annum on the unused portion of the commitment balance. The
 revolving credit agreement contains certain restrictive financial covenants,
 including a maximum funded debt/capitalization ratio of .5 to 1, which is to be
 maintained throughout the term of the credit agreement.

 The Company may also borrow up to $5,000,000 under a short-term credit facility
 with BancorpSouth.  The agreement expires May 8, 2001, with renewal annually.
 The amount available to the Company under this facility is reduced by any
 borrowings or outstanding letters of credit issued by Deltic.  As of December
 31, 2000, Deltic had borrowings of $800,000 outstanding under this line of
 credit and letters of credit amounting to $341,000 were committed, resulting in
 $3,859,000 available to the Company.  Borrowings bear interest based upon the
 New York Prime and the facility carries a commitment fee of .1 percent per
 annum on the unused amount of the facility.

 In addition, Deltic entered into an agreement with Regions Bank of Little Rock
 which provides a $1,750,000 credit facility used primarily to support letters
 of credit issued in connection with the Company's purchased stumpage
 procurement and real estate development operations.  The agreement, which is
 renewable annually, carries no facility fees and borrowings bear interest based
 upon prime. Amounts available to Deltic under the facility are reduced by any
 outstanding letters of credit, which amounted to $712,000 at December 31, 2000,
 leaving $1,038,000 available to the Company. (For additional information
 regarding these financial instruments, see Note 12 -Fair Value of Financial
 Instruments.)

                                       40
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 8 - Indebtedness

 The Company's indebtedness at December 31 consisted of the following:

<TABLE>
<CAPTION>
   (Thousands of dollars)                                            2000          1999
                                                                   -------        ------
<S>                                                                <C>            <C>
   Short-term notes payable, 7.65%                                 $   800            13
   Installment timber notes payable, non-interest bearing,
     due 2001                                                           24            68
   Notes payable, 7.47%*, due 2002                                  47,000        15,000
   Senior notes payable, 6.7%, due 2008                             40,000        40,000
   Other notes payable, 4.6%*, due 2001-2004                           546           705
                                                                   -------        ------
                                                                    88,370        55,786
   Less:  Short-term notes                                            (800)          (13)
        Current maturities of long-term debt                          (160)         (203)
                                                                   -------        ------
   Long-term debt at December 31                                   $87,410        55,570
                                                                   =======        ======
</TABLE>

   *Weighted average interest rate at December 31, 2000.

 The $47,000,000 of notes payable designated as due in 2002 represents the
 outstanding balance under the Company's revolving credit facility agreement
 with Bank of America and a group of other domestic banks.  This current
 agreement will expire on April 15, 2002.

 During 1998, the Company successfully completed negotiation of the private
 placement of $40,000,000 of senior notes with Pacific Coast Farm Credit
 Services, ACA.  These unsecured notes have a fixed stated interest rate of 6.7
 percent and mature on December 18, 2008.  No installment payments are required,
 but the terms allow for prepayments at the option of the Company.  The
 agreement contains certain restrictive financial covenants, including a minimum
 consolidated tangible net worth of the sum of $135,000,000, plus 25 percent of
 cumulative consolidated adjusted net income from October 1, 1998, and a maximum
 funded debt/capitalization ratio of .6 to 1.  The Company incurred $226,000 of
 costs related to the issuance of these notes, which was deferred and is being
 amortized as additional interest expense over the term of the underlying debt.

 In anticipation of issuance of these notes, the Company entered into and
 settled an interest rate hedge contract.  Upon settlement of this contract in
 December 1998, the Company paid $1,081,000, which was deferred and is being
 amortized as other debt expense over the term of the underlying debt, resulting
 in an effective interest rate for these notes of approximately 6.9 percent.

 The scheduled maturities of long-term debt for the next five years are $160,000
 in 2001, $47,136,000 in 2002, $137,000 in 2003, and $137,000 in 2004.  (For
 additional information regarding financial instruments, see Note 7 - Credit
 Facilities and Note 12 - Fair Value of Financial Instruments.)

                                       41
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 9 - Redeemable Preferred Stock

 During 1997, the Company issued 600,000 shares of its authorized preferred
 stock having a par value of $.01 per share. Redemption of these shares,
 designated by the Company as Cumulative Mandatory Redeemable Preferred Stock,
 7.54% Series, is mandatory on December 31, 2002 ("Mandatory Redemption Date").
 These redeemable preferred shares have no voting rights, except if at any time
 cumulative dividends payable for these shares become in arrears for an amount
 equal to dividends payable for six quarterly dividends or the shares are not
 redeemed in full on the Mandatory Redemption Date. If either occurs, the
 holders of the redeemable preferred shares shall have the right to elect a
 director to the Board of Directors, which would be in addition to the current
 number of directors.  This right shall continue until such time that all
 cumulative unpaid dividends have been paid or the redeemable preferred shares
 are redeemed.

Note 10 - Income Taxes

 The components of income tax expense/(benefit) related to income/(loss) from
 continuing operations for the three years ended December 31, 2000, 1999, and
 1998, consisted of the following:

   (Thousands of dollars)     2000/1/   1999/2/  1998/2/
                             --------   -------  -------
   Federal
     Current                 $ (3,441)    4,762    3,140
     Deferred                   4,717       729    1,255
                             --------   -------  -------
                                1,276     5,491    4,395
   State
     Current                      459        68      611
     Deferred                  (1,324)      460        -
                             --------   -------  -------
       Total                 $    411     6,019    5,006
                             ========   =======  =======

   /1/ Includes a deferred state benefit from a net operating loss ("NOL")
       carryforward of $2,019,000, partially offset by related deferred federal
       expense of $706,000. As of December 31, 2000, the Company had an expected
       federal refund of $4,648,000 reflected in the 2000 Consolidated Balance
       Sheet in Other Receivables.
   /2/ Restated to reflect discontinued operations.

 A reconciliation of the U.S. statutory income tax rate to the Company's
 effective rates on income/(loss) from continuing operations before income taxes
 consisted of the following:

                                                            2000   1999   1998
                                                            ----   ----   ----
   Statutory income tax rate                                  35%    35%    35%
   State income taxes, net of federal income tax benefit     (18)     2      4
   Other                                                      (4)    (1)    (1)
                                                            ----   ----   ----
     Effective income tax rate                                13%    36%    38%
                                                            ====   ====   ====

                                       42
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000

Note 10 - Income Taxes (cont.)

 An analysis of the Company's deferred tax assets and deferred tax liabilities
 at December 31, 2000 and 1999, showing the tax effects of significant temporary
 differences, consisted of the following:

<TABLE>
<CAPTION>
   (Thousands of dollars)                                         2000     1999
                                                                --------   ------
<S>                                                             <C>        <C>
   Deferred tax assets
     Investment in real estate held for development and sale    $  6,667    4,992
     State NOL carryforward                                        2,019        -
     Postretirement and other employee benefits                      991      371
     Other deferred tax assets                                       591      641
                                                                --------   ------
       Total deferred tax assets                                  10,268    6,004
                                                                --------   ------
   Deferred tax liabilities
     Investment in Del-Tin Fiber                                  (6,251)  (3,719)
     Timber and timberlands                                      (11,932)    (634)
     Property, plant, and equipment                               (4,554)  (3,927)
     Other deferred tax liabilities                                 (184)    (212)
                                                                --------   ------
       Total deferred tax liabilities                            (22,921)  (8,492)
                                                                --------   ------
       Net deferred tax assets/(liabilities)                    $(12,653)  (2,488)
                                                                ========   ======
</TABLE>

 Net long-term deferred tax liabilities of $13,013,000 at December 31, 2000, and
 $2,885,000 at December 31,

 1999, are included in the Consolidated Balance Sheets in Deferred Credits and
 Other Noncurrent Liabilities for the respective years.  In addition, short-term
 deferred tax assets of $360,000 at December 31, 2000, and $397,000 at December
 31, 1999, are included in the Consolidated Balance Sheets in Prepaid Expenses
 and Other Current Assets for the respective years.

 In management's judgment, the Company's deferred tax assets at December 31,
 2000, will more likely than not be realized as reductions of future taxable
 income or by utilizing available tax planning strategies.  There were no
 valuation allowances for deferred tax assets at the end of each year in the
 three years ended December 31, 2000.

Note 11 - Stockholders Rights Plan

 The Company has a Stockholders Rights Plan, which provides for each eligible
 common shareholder to receive a dividend of one preferred stock purchase right
 ("Right") for each outstanding share of the Company's common stock held.  The
 Rights will expire on December 31, 2006, unless earlier exchanged or redeemed.
 The Rights will detach from the common stock and become exercisable:  (1)
 following a specified period of time after the date of the first public
 announcement that a person or group of affiliated or associated persons
 ("Acquiring Person"), other than certain persons, has become the beneficial
 owner of 15 percent or more of the Company's common stock or (2) following a
 specified amount of time of the commencement of a tender or exchange offer by
 any Acquiring Person, other than certain persons, which would, if consummated,
 result in such persons becoming the beneficial owner of 15 percent or more of
 the Company's common stock.  In either case, the detachment of the Rights from
 the common stock is subject to extension by a majority of the directors of the
 Company.  The Rights have certain antitakeover effects and will cause
 substantial dilution to any Acquiring Person that attempts to acquire the
 Company without conditioning the offer on a substantial number of Rights being
 acquired.  The Rights are not intended to prevent a takeover, but rather are
 designed to enhance the ability of the Board of Directors of the Company to
 negotiate with an acquiror on behalf of all shareholders.  Other terms of the
 Rights are set forth in, and the foregoing description is qualified in its
 entirety by, the Rights Agreement between the Company and Harris Trust and
 Savings Bank, as Rights Agent.

                                       43
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 12 - Fair Value of Financial Instruments

 The following table presents the carrying amounts and estimated fair values of
 financial instruments held by the Company at December 31, 2000 and 1999.  The
 fair value of a financial instrument is the amount at which the instrument
 could be exchanged in a current transaction between willing parties.  The table
 excludes financial instruments included in current assets and liabilities,
 except current maturities of long-term debt, all of which have fair values
 approximating carrying values.

<TABLE>
<CAPTION>
                                         2000                      1999
                               -----------------------   -----------------------
                               Carrying or   Estimated   Carrying or   Estimated
                                  Notional        Fair      Notional        Fair
(Thousands of dollars)              Amount       Value        Amount       Value
                                  --------     -------       -------     -------
<S>                            <C>           <C>         <C>           <C>
Financial assets
 Funds held by trustee            $ 16,317      16,317             -           -
 Notes receivable                 $ 16,405      16,405            51          51
Financial liabilities
 Long-term debt, including
  current maturities              $(87,570)    (89,387)      (55,773)    (54,640)
Redeemable preferred stock        $(30,000)    (30,988)      (30,000)    (30,508)
Off-balance sheet exposures
 Letters of credit                $ (1,053)     (1,053)       (2,017)     (2,017)
</TABLE>

 Funds held by trustee -- The carrying amount approximates its fair value.

 Notes receivable, including current portion -- The carrying value is estimated
   to approximate fair value based on the change in interest rates spread since
   the notes' obligation dates.

 Long-term debt, including current maturities -- The fair value is estimated
   based on current rates at which the Company could borrow funds with similar
   remaining maturities.

 Redeemable preferred stock -- The fair value is based on the redemption amount
   for the stock, discounted
   using the Company's estimated borrowing rate for debt instruments with
   similar remaining maturities.

 Letters of credit -- The fair value is based on the estimated cost to settle
   these obligations.

Note 13 - Concentration of Credit Risks

 Financial instruments which potentially subject the Company to credit risk are
 trade accounts receivable.  These receivables normally arise from the sale of
 wood products, primarily lumber.  Concentration of credit with respect to these
 trade accounts receivable is limited due to the large number of customers
 comprising the Company's customer base.  No single customer accounted for a
 significant amount of the Company's sales of timber or wood products in 2000,
 1999, or 1998.  At December 31, 2000, one timber sale customer's receivable
 accounted for approximately 24 percent of the Company's consolidated trade
 accounts receivable amount; however, there were no significant accounts
 receivable from a single customer at December 31, 1999.

                                       44
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 14 - Employee and Retiree Benefits

 The Company provides retirement plans and other postretirement benefits to the
 majority of its employees. Reconciliations of benefit obligations, plan assets,
 and funded status of the plans consisted of the following:

<TABLE>
<CAPTION>
                                                                       Other
                                                  Retirement       Postretirement
                                                     Plans            Benefits
                                               -----------------  ----------------
   (Thousands of dollars)                         2000     1999     2000     1999
                                               -------   ------   ------   ------
   <S>                                         <C>       <C>      <C>      <C>
   Change in benefit obligation
     Benefit obligation at January 1           $ 9,145    9,074    3,285    3,322
       Service cost                                627      675      296      191
       Interest cost                               686      641      314      214
       Participant contributions                     -        -       20       17
       Actuarial (gain)/loss                      (126)  (1,186)     984     (412)
       Curtailments/1/                              39        -        -        -
       Settlements/1/                              (79)       -        -        -
       Special termination benefits/1/             357        -        -        -
       Benefits paid                               (52)     (59)    (170)     (47)
                                               -------   ------   ------   ------
     Benefit obligation at December 31         $10,597    9,145    4,729    3,285
                                               =======   ======   ======   ======

   Change in plan assets
     Fair value of plan assets at January 1    $11,464   10,498        -        -
       Actual return on plan assets              1,347    1,025        -        -
       Employer contributions                        -        -      150       31
       Participant contributions                     -        -       20       16
       Settlements/1/                              (79)       -        -        -
       Benefits paid                               (52)     (59)    (170)     (47)
                                               -------   ------   ------   ------
     Fair value of plan assets at
      December 31/2/                           $12,680   11,464        -        -
                                               =======   ======   ======   ======

   Reconciliation of funded status of
     plans
     Funded status of plans                    $ 2,083    2,319   (4,729)  (3,285)
     Unrecognized actuarial (gain)/loss         (1,211)    (739)   1,065      126
     Unrecognized net asset from transition
      to SFAS 87/3/                               (133)    (183)       -        -
     Unrecognized prior service cost               540      599        -        -
                                               -------   ------   ------   ------
       Prepaid/(accrued) benefit cost/4/       $ 1,279    1,996   (3,664)  (3,159)
                                               =======   ======   ======   ======

   Assumptions
     Weighted average discount rate               7.50%    7.25%    7.50%    7.25%
     Expected return on plan assets               8.50%    8.50%     N/A      N/A
     Rate of compensation increase                4.60%    4.60%     N/A      N/A

</TABLE>

   /1/ Reflects impact of early retirements of agriculture segment employees
       resulting from discontinuation of operations. (For additional information
       about the discontinuation of the agriculture segment, see Note 2 -
       Discontinued
       Agriculture Segment.)
   /2/ Primarily includes listed stocks and bonds, government securities, and
       U.S. agency bonds.
   /3/ Being amortized over a period of 15 years.
   /4/ Included in the Consolidated Balance Sheets in Deferred Charges and Other
       Assets/Deferred Credits and Other Noncurrent Liabilities.

                                       45
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 14 - Employee and Retiree Benefits (cont.)

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

<TABLE>
<CAPTION>
   (Thousands of dollars)                         2000   1999   1998
                                                 -----   ----   ----
   <S>                                           <C>      <C>    <C>
   Retirement plans
     Service cost                                $ 627    675    428
     Interest cost                                 686    641    481
     Expected return on plan assets               (972)  (891)  (839)
     Amortization of prior service cost             54     92     25
     Amortization of transitional asset            (50)   (49)   (49)
     Recognized actuarial (gain)/loss               23      9      -
                                                 -----   ----   ----
       Net retirement expense                    $ 368    477     46
                                                 =====   ====   ====

   Other postretirement benefits
     Service cost                                $ 296    191    156
     Interest cost                                 314    214    190
     Recognized actuarial (gain)/loss               44     13      1
                                                 -----   ----   ----
       Other postretirement benefits expense     $ 654    418    347
                                                 =====   ====   ====
</TABLE>

 Retirement Plans -- The Company has noncontributory, defined benefit retirement
   plans that cover substantially all employees. Benefits are based on years of
   service, including those with Murphy Oil Corporation, and final career-
   average-pay formulas as defined by the plans.

 Thrift Plan -- Employees of the Company may participate in its thrift plan by
   allotting up to a specific percentage of their base pay. The Company matches
   contributions at a stated percentage of each employee's allotment, based on
   length of participation in the plan. Company contributions to this plan were
   $281,000 in 2000, $259,000 in 1999, and $262,000 in 1998.

 Postretirement Benefits -- The Company sponsors a plan that provides
   comprehensive health care benefits (supplementing Medicare benefits for those
   eligible) and life insurance benefits for retired employees. Costs are
   accrued for this plan during the service lives of covered employees. Retirees
   contribute a portion of the self-funded cost of health care benefits; the
   Company contributes the remainder. The Company pays premiums for life
   insurance coverage, arranged through an insurance company. The health care
   plan is funded on a pay-as-you-go basis. The Company retains the right to
   modify or terminate the benefits and/or cost sharing provisions.

 In determining the accumulated benefit obligation for health care at December
 31, 2000 and 1999, health care inflation cost was assumed to increase at an
 annual rate of 8.5 percent in 2000 and 6.5 percent in 1999, decreasing .5
 percent per year to 5 percent in 2007 and thereafter.  A one percentage-point
 increase in the assumed health care cost trend rate would increase the
 aggregate service and interest cost components of periodic benefit cost for
 2000 by $68,000 and the benefit obligation by $391,000, while a one percentage-
 point decrease in the assumed rate would decrease the 2000 cost components by
 $60,000 and the benefit obligation by $359,000.

                                      46
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000

Note 15 - Incentive Plans

 Stock Incentive Plan

 The Company's 1996 Stock Incentive Plan ("the Plan") permits annual awards of
 shares of the Company's common stock to executives and other key employees.
 Under the Plan, the Executive Compensation Committee ("the Committee") is
 authorized to grant:  (1) stock options; (2) stock appreciation rights; and (3)
 restricted stock awards.  Total annual options granted prior to 1999, excluding
 any replacement options issued due to the spin-off from Murphy Oil Corporation,
 could not exceed .5 percent of common shares issued and outstanding as of the
 date of issuance of the options.  These options could be nonqualified,
 incentive, or a combination of the two.  In 1999, the Plan was amended to allow
 the Committee to award up to one percent of common shares issued and
 outstanding at the end of the preceding year; any allowed shares not granted
 may be available for grant in subsequent years.  However, all options granted
 under the amended plan are required to be nonqualified.  The Company applies
 APB 25 to account for stock-based compensation plans.  Cost of options are
 accrued over the vesting periods and adjusted for subsequent changes in market
 value of the shares.

 Stock Options -- For each option granted under the Plan, the Committee fixes
   the option price at no less than market value on the date of the grant and
   the option term, not to exceed 10 years from date of grant. Replacement
   options granted were for 10 years from original grant date and nonqualified.
   New options granted in 1997 and 1998 were for 10 years and primarily
   incentive. Options granted since 1998 have been for 10 years and
   nonqualified. All options have an option price no less than the market value
   on the grant date, with a range in option prices of $9.90 to $28.03 per
   share, and each grantee is permitted to surrender options for equivalent
   value of stock at the date of surrender. For options granted in 1997,
   exclusive of replacement options, half may be exercised or surrendered after
   two years and the remainder after three years. For options granted from 1998
   through 2000, half may be exercised or surrendered after one year and the
   remainder after three years.

   Changes in options outstanding, including replacement options, consisted of
   the following:

<TABLE>
<CAPTION>
                                          Number   Average
                                            of     Exercise
                                         Options    Price
                                         --------  --------
     <S>                                 <C>       <C>
     Outstanding at December 31, 1997    103,355     $20.38
       Granted                            50,950     $28.03
       Surrendered                        (6,250)    $13.01
                                         -------
     Outstanding at December 31, 1998    148,055     $23.33
       Granted                            69,800     $24.97
       Surrendered                             -        N/A
                                         -------
     Outstanding at December 31, 1999    217,855     $23.86
       Granted                            70,550     $22.06
       Surrendered                             -        N/A
       Forfeited/expired                  (6,700)       N/A
                                         -------
     Outstanding at December 31, 2000    281,705     $23.40
                                         -------

     Exercisable at December 31, 1998     17,875     $13.01
                                         =======
     Exercisable at December 31, 1999     86,967     $21.77
                                         =======
     Exercisable at December 31, 2000    156,981     $22.93
                                         =======

</TABLE>

                                      47
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 15 - Incentive Plans (cont.)

   Additional information about stock options outstanding at December 31, 2000,
   consisted of the following:

<TABLE>
<CAPTION>
                                      Options Outstanding              Options Exercisable
                              ----------------------------------      ---------------------
          Range of            Number          Average   Average       Number       Average
          Exercise              of              Life    Exercise        of         Exercise
          Prices              Options         in Years   Price        Options       Price
     -----------------        -------         --------  --------      -------      --------
     <S>                      <C>             <C>       <C>           <C>          <C>

     $  9.90 to $13.90         25,875           4.5       $12.82       25,875        $12.82
     $ 22.06 to $28.03        255,830           7.4       $24.47      131,106        $24.93
                              -------                                 -------
     $  9.90 to $28.03        281,705           7.2       $23.40      156,981        $22.93
                              =======                                 =======
</TABLE>

 Stock Appreciation Rights -- Stock appreciation rights may be granted in
   conjunction with, or independent of, stock options. The Committee determines
   when these rights may be exercised and the price. No stock appreciation
   rights have been granted.

 Restricted Stock -- The Committee may award restricted stock to selected
   employees, with conditions to vesting for each grant established by the
   Committee. During the vesting period, the grantee may vote and receive
   dividends on the shares, but shares are subject to transfer restrictions and
   are all, or partially, forfeited if a grantee terminates, depending on the
   reason. The grantee may be reimbursed by the Company for personal income tax
   liability on the value of stock awarded.

   Changes in shares of restricted stock outstanding consisted of the following:

<TABLE>
<CAPTION>
                                       2000     1999    1998
                                     ------   ------  ------
     <S>                             <C>      <C>     <C>
     Balance at beginning of year    13,500   13,500       -
      Granted                        21,400        -  13,500
      Forfeited                        (806)       -       -
                                     ------   ------  ------
     Balance at end of year          34,094   13,500  13,500
                                     ======   ======  ======
</TABLE>

   The fair value per share of restricted stock granted in 2000 and 1998 was
   $22.06 and $28.03, respectively.  Unearned compensation was charged for the
   market value of the restricted shares.  The unearned compensation is shown as
   a reduction of shareholders' equity in the Consolidated Balance Sheets as
   Unamortized Restricted Stock Awards, and is being amortized to expense over
   the respective four-year restricted periods.

 Stock-based compensation reflected in income was a charge of $255,000 in 2000,
 $89,000 in 1999, and a benefit of $163,000 in 1998.  Had cost of the Company's
 stock-based compensation plans been determined based on the fair value of the
 instruments at the grant dates using the provisions of SFAS 123, the Company's
 net income and earnings per share would be the following pro forma amounts.

<TABLE>
<CAPTION>

        (Thousands of dollars, except per share amounts)     2000     1999   1998
                                                            -------  ------  -----
        <S>                                                 <C>      <C>     <C>
        Net income
            As reported                                     $13,557  10,920  8,474
            Pro forma                                       $13,262  10,552  8,077
</TABLE>

                                      48
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000

Note 15 - Incentive Plans (cont.)

<TABLE>
<CAPTION>
        (Thousands of dollars, except per share amounts)     2000  1999  1998
                                                            -----  ----  ----
<S>                                                         <C>    <C>   <C>
        Basic earnings per share
            As reported                                     $ .93   .69   .48
            Pro forma                                       $ .90   .66   .45

        Dilutive earnings per share
            As reported                                     $ .93   .69   .48
            Pro forma                                       $ .90   .66   .45
</TABLE>

 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 2000, 1999,
 and 1998, respectively:  dividend yields of .97 percent, 1.01 percent, and .70
 percent; expected volatility of 38.59 percent, 37.99 percent, and 25.22
 percent; risk-free interest rates of 6.80 percent, 5.06 percent, and 5.74
 percent; and expected lives of five years.  Using these assumptions, the
 weighted average grant-date fair value per share of options granted in 2000,
 1999, and 1998 was $9.03, $9.42, and $8.62, respectively.

 Incentive Compensation Plan

 Cash Awards -- The Company has an Incentive Compensation Plan that provides for
   annual cash awards to officers, directors, and key employees based on actual
   results for a year compared to objectives established by the Executive
   Compensation Committee, which administers the Plan, at the beginning of that
   year. Initial awards under the Plan were granted in 1998, based on 1997
   results of operations. Provisions for cash incentive awards of $722,000,
   $575,000, and $270,000 were recorded in 2000, 1999, and 1998, respectively.

Note 16 - Supplemental Cash Flows Disclosures

 Income taxes paid, net of refunds, were $1,079,000, $5,770,000, and $5,753,000
 in 2000, 1999, and 1998, respectively. Interest paid, net of amounts
 capitalized, was $4,530,000, $4,074,000, and $1,285,000 in 2000, 1999, and
 1998, respectively.

 Noncash investing and financing activities excluded from the Consolidated
 Statements of Cash Flows were assumptions of owner-financed debt, in the amount
 of $696,000 in 1999 and $410,000 in 1998, related to acquisitions of land and
 timber-cutting rights.

 (Increases)/decreases in operating working capital other than cash and cash
 equivalents, for each of the three years ended December 31 consisted of the
 following:

<TABLE>
<CAPTION>
   (Thousands of dollars)                          2000     1999     1998
                                                -------   ------   ------
<S>                                             <C>       <C>      <C>
   Trade accounts receivable                    $   828     (652)    (224)
   Other receivables                             (3,467)     (13)  (1,031)
   Inventories                                    4,284   (3,560)   2,744
   Prepaid expenses and other current assets        691      300     (112)
   Trade accounts payable                          (248)     764     (377)
   Accrued liabilities                               (5)    (646)     526
                                                -------   ------   ------
                                                $ 2,083   (3,807)   1,526
                                                =======   ======   ======
</TABLE>

                                      49
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000

Note 17 - Earnings per Share

 The amounts used in computing earnings per share and the effect on income and
 weighted average number of shares outstanding of dilutive potential common
 stock consisted of the following:

<TABLE>
<CAPTION>

   (Thousands of dollars)                         2000      1999     1998
                                                 -------   ------   ------
   <S>                                           <C>       <C>      <C>
   Income/(loss) from continuing operations      $ 2,701   10,771    8,013
   Discontinued operations, net                   10,856      149      461
   Less preferred dividends                       (2,262)  (2,262)  (2,269)
                                                 -------   ------   ------

     Income available to common shareholders     $11,295    8,658    6,205
                                                 =======   ======   ======

   Weighted average number of common shares
     used in basic EPS                            12,176   12,503   12,812
   Effect of dilutive stock options                   10       16       18
                                                 -------   ------   ------
     Weighted average number of common
       shares and dilutive potential common
       stock used in EPS assuming dilution        12,186   12,519   12,830
                                                 =======   ======   ======

   Earnings per common share
     Basic
       Continuing operations                     $   .04      .68      .45
       Discontinued operations                       .89      .01      .03
                                                 -------   ------   ------
       Net income                                $   .93      .69      .48
                                                 =======   ======   ======

     Assuming dilution
       Continuing operations                     $   .04      .68      .45
       Discontinued operations                       .89      .01      .03
                                                 -------   ------   ------
       Net income                                $   .93      .69      .48
                                                 =======   ======   ======
</TABLE>

Note 18 - Commitments and Contingencies

 Commitments -- Commitments for capital expenditures at December 31, 2000, were
   approximately $36,377,000 for timber and timberlands; $2,069,000 for
   property, plant, and equipment; and $14,226,000 for investment in real estate
   held for development and sale.

 Contingencies -- The Company is involved in litigation incidental to its
   business from time to time. Currently, there are no material legal
   proceedings outstanding.

                                      50
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 19 - Business Segments

 In June 1997, the Financial Accounting Standards Board issued SFAS 131,
 Disclosures about Segments of an Enterprise and Related Information.  SFAS 131
 superseded and/or amended the business segment disclosures required under
 various preceding pronouncements, effective for fiscal years beginning after
 December 15, 1997, with earlier application encouraged.  This standard defines
 additional information to be disclosed for each reportable segment and requires
 that each operating segment for which an enterprise's chief operating decision
 maker regularly assesses performance be disclosed as a reportable segment.

 The Company's four reporting segments consist of Deltic's three operating
 business units and its corporate function.  Each reporting entity has a
 separate management team and infrastructure that offers different products
 and/or services.

 Woodlands operations manage the Company's Southern Pine timberlands located
 primarily in Arkansas and north Louisiana and derive revenue from the harvest
 of timber from the timberlands, in accordance with its harvest plans, and
 either sells timber to third parties in the domestic market or to the Company's
 Mills segment for conversion into lumber.

 The Mills segment consists of Deltic's two sawmills which convert timber,
 purchased from third parties or the Company's Woodlands segment, into lumber.
 These mills produce a variety of products, including dimension lumber, boards,
 timbers, decking, and secondary manufacturing products, such as finger-jointed
 studs.  These products are sold primarily to wholesalers and lumber treaters in
 the South and Midwest and used in residential construction, roof trusses,
 laminated beams, and remanufactured items.

 Real Estate operations, which currently include three separate real estate
 developments, add value to former timberland by developing it into upscale,
 planned residential and commercial developments.  These developments, each of
 which is centered around a core amenity, are being developed in stages.  To-
 date, real estate sales have consisted primarily of residential lots sold to
 builders or individuals, commercial site sales, and sales of undeveloped
 acreage.  In addition, this segment currently leases retail space to third
 parties in a retail center constructed by the Company, and held for sale, in
 one of its developments.  This segment also manages a real estate brokerage
 subsidiary which currently generates commission revenue by reselling existing
 homesites in one of the Company developments.

 Corporate operations consist primarily of the planning, accounting, information
 systems, human resources, treasury, income tax, and legal staff functions that
 provide support services to the operating business units.  The Company
 currently does not allocate the cost of maintaining these support functions to
 its operating units.

 In August 2000, the Company's Board of Directors approved the disposal of
 Deltic's former Agriculture segment.  As a result, operating results for the
 Agriculture segment are reported as discontinued operations, with prior years
 restated to conform to the current year presentation.  (For additional
 information about the discontinuation of the Agriculture segment, see Note 2 -
 Discontinued Agriculture Segment.)

 The accounting policies of the reportable segments are the same as those
 described in Note 1 - Significant Accounting Policies.  The Company evaluates
 the performance of its segments based on operating income before equity in the
 results of Del-Tin Fiber, an equity method investee; interest income and
 expense; other nonoperating income or expense; and income taxes.  Intersegment
 revenues consist primarily of timber sales from the Woodlands segment to the
 Mills operations.

                                      51
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000

Note 19 - Business Segments (cont.)

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

<TABLE>
<CAPTION>


 (Thousands of dollars)                                   2000           1999      1998
                                                       ----------       -------   -------
 <S>                                                   <C>              <C>       <C>
 Net sales
   Woodlands                                           $   41,483        31,776    26,780
   Mills                                                   64,870        83,490    65,857
   Real Estate                                             18,035        21,631    15,879
   Eliminations/1/                                        (14,857)      (11,887)   (7,832)
                                                       ----------       -------   -------
                                                       $  109,531       125,010   100,684
                                                       ==========       =======   =======
 Income/(loss) from continuing operations before
   income taxes
   Operating income
     Woodlands                                         $   28,675        20,305    20,547
     Mills                                                 (6,415)        6,500    (2,784)
     Real Estate                                            2,400         8,468     5,032
     Corporate                                             (6,475)       (5,836)   (5,004)
     Eliminations                                             (71)         (193)     (171)
                                                       ----------       -------   -------
       Operating income                                    18,114        29,244    17,620
   Equity in loss of Del-Tin Fiber                        (10,938)       (8,936)   (4,657)
   Interest income                                            517           254     1,122
   Interest and other debt expense                         (4,921)       (4,124)   (1,387)
   Other income/(expense)                                     340           352       321
                                                       ----------       -------   -------
                                                       $    3,112        16,790    13,019
                                                       ==========       =======   =======
 Total assets at year-end
   Woodlands                                           $  173,108       155,212   154,154
   Mills                                                   53,720        51,955    50,206
   Real Estate                                             35,593        39,450    34,223
   Corporate/2/                                            56,586/3/     17,421    21,564
                                                       ----------       -------   -------
     Total assets for continuing operations               319,007       264,038   260,147
   Discontinued agriculture operations                      3,626        13,860    12,397
                                                       ----------       -------   -------
                                                       $  322,633       277,898   272,544
                                                       ==========       =======   =======
 Depreciation, amortization, and
   cost of fee timber harvested
   Woodlands                                           $    7,513         5,258     2,481
   Mills                                                    4,518         4,162     3,673
   Real Estate                                                567           416       420
   Corporate                                                  231           276       243
                                                       ----------       -------   -------
                                                       $   12,829        10,112     6,817
                                                       ==========       =======   =======
 Capital expenditures
   Woodlands                                           $   24,975         8,541    59,839
   Mills                                                    8,386         7,949     7,918
   Real Estate                                              9,667        11,475    11,531
   Corporate                                                  320           124       524
                                                       ----------       -------   -------
     Capital expenditures for continuing operations        43,348        28,089    79,812
   Discontinued agriculture operations                         53           527       721
                                                       ----------       -------   -------
                                                       $   43,401        28,616    80,533
                                                       ==========       =======   =======
</TABLE>

 /1/ Intersegment sales of timber from Woodlands to Mills.
 /2/ Includes investment in Del-Tin Fiber, an equity method investee, of
     $5,862,000, $3,727,000, and $6,699,000 at December 31, 2000, 1999, and
     1998, respectively. (For additional information regarding the financial
     position and results of operations of Del-Tin Fiber, see Note 4- Investment
     in Del-Tin Fiber.)
 /3/ Includes balance of farmland/timberland sales proceeds held by trustee of
     $16,317,000 and advances to accommodating title holders and Ashly
     Plantation minority owners of $16,364,000. (For additional information
     regarding the transactions resulting in these amounts, see Note 2 -
     Discontinued Agriculture Segment.)

                                      52
<PAGE>

                           DELTIC TIMBER CORPORATION
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                               December 31, 2000


Note 20 - Financial Results by Quarter (Unaudited)

<TABLE>
<CAPTION>
(Thousands of dollars, except per share amounts)

                                                                 2000
                                              ---------------------------------------------
                                               First   Second    Third    Fourth
                                              Quarter  Quarter  Quarter   Quarter    Year
                                              -------   ------   ------    ------   -------
<S>                                           <C>      <C>      <C>       <C>       <C>
Net sales                                     $29,746   30,253   25,078    24,454   109,531
Operating income                              $ 6,138    6,706    4,027     1,243    18,114
Income/(loss) from continuing operations      $ 1,968    2,176       (7)   (1,436)    2,701
Income/(loss) from discontinued operations    $   214       66    7,359     3,217    10,856
Net income                                    $ 2,182    2,242    7,352     1,781    13,557
Earnings per common share
 Basic
  Continuing operations                       $   .11      .13     (.05)     (.17)      .04
  Discontinued operations                     $   .02      .01      .61       .27       .89
  Net income                                  $   .13      .14      .56       .10       .93
 Assuming dilution
  Continuing operations                       $   .11      .13     (.05)     (.17)      .04
  Discontinued operations                     $   .02      .01      .61       .27       .89
  Net income                                  $   .13      .14      .56       .10       .93
Dividends per common share                    $ .0625    .0625    .0625     .0625       .25
Market price per common share
 High                                         $ 24.00    23.00    21.63     24.19     24.19
 Low                                          $ 19.56    20.25    16.94     16.56     16.56
 Close, at period-end                         $ 23.69    21.38    16.94     23.88     23.88

 <CAPTION>
                                                                  1999
                                              ---------------------------------------------
                                               First    Second    Third   Fourth
                                              Quarter  Quarter  Quarter   Quarter      Year
                                              -------   ------   ------    ------   -------
<S>                                           <C>      <C>      <C>       <C>       <C>
Net sales                                     $30,877   33,847   32,414    27,872   125,010
Operating income                              $ 8,679    8,026    6,116     6,423    29,244
Income/(loss) from continuing operations      $ 3,842    3,082    2,413     1,434    10,771
Income/(loss) from discontinued operations    $    53       20      (59)      135       149
Net income                                    $ 3,895    3,102    2,354     1,569    10,920
Earnings per common share
 Basic
  Continuing operations                       $   .26      .20      .15       .07       .68
  Discontinued operations                     $     -        -     (.01)      .01       .01
  Net income                                  $   .26      .20      .14       .08       .69
 Assuming dilution
  Continuing operations                       $   .26      .20      .15       .07       .68
  Discontinued operations                     $     -        -     (.01)      .01       .01
  Net income                                  $   .26      .20      .14       .08       .69
Dividends per common share                    $ .0625    .0625    .0625     .0625       .25
Market price per common share
 High                                         $ 25.63    28.50    26.81     27.06     28.50
 Low                                          $ 21.19    22.81    22.38     19.88     19.88
 Close, at period-end                         $ 23.75    26.94    22.75     21.88     21.88
</TABLE>

                                       53
<PAGE>

                              REPORT OF MANAGEMENT
                              --------------------


The Shareholders
Deltic Timber Corporation:


The management of Deltic Timber Corporation has prepared and is responsible for
the Company's consolidated financial statements.  The statements are prepared in
conformity with accounting principles generally accepted in the United States of
America, appropriate in the circumstances.  In preparing the financial
statements, management has, when necessary, made judgments and estimates with
consideration given to materiality.

The Company maintains internal control systems and related policies and
procedures designed to provide reasonable assurance that assets are safeguarded
against loss or unauthorized use, that the accounting records accurately reflect
business transactions, and that the transactions are in accordance with
management's authorization.  The design, monitoring, and revision of the systems
of internal control involve, among other things, our judgment with respect to
the relative cost and expected benefits of specific control measures.  The
Company also maintains an internal auditing function which monitors the
effectiveness of the controls, while independently and systematically evaluating
and formally reporting on the adequacy and effectiveness of components of the
system.

The Company's consolidated financial statements have been audited by KPMG LLP,
independent certified public accountants, who have expressed their opinion with
respect to the fairness of the consolidated financial statements.  Their audit
was conducted in accordance with auditing standards generally accepted in the
United States of America, which include the consideration of the Company's
internal controls to the extent necessary to form an independent opinion on the
consolidated financial statements prepared by management.  The Board of
Directors appoints the independent auditors; ratification of the appointment is
solicited annually from the shareholders.

The Audit Committee of the Board of Directors is composed of directors who are
not officers or employees of the Company. The Committee meets periodically with
the certified public accountants, the Company's internal auditor, and
representatives of management to review the Company's internal controls, the
quality of its financial reporting, the scope and results of audits, and the
independence of the external auditors.  The Company's internal auditor and KPMG
LLP have unrestricted access to the Committee, without management's presence, to
discuss audit findings and other financial matters.


Clefton D. Vaughan
Vice President and Chief Financial Officer
February 9, 2001

                                       54
<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------


The Board of Directors
Deltic Timber Corporation:


We have audited the accompanying consolidated balance sheets of Deltic Timber
Corporation and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 2000.  These
consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Deltic Timber
Corporation and Subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.



KPMG LLP
Shreveport, Louisiana
February 9, 2001, except as to
 the first paragraph of Note 7,
 which is as of March 9, 2001

                                       55
<PAGE>

                       AUDIT COMMITTEE CHAIRMAN'S LETTER
                       ---------------------------------

The Shareholders
Deltic Timber Corporation:


The Audit Committee ("the Committee") of the Board of Directors is responsible
for providing independent oversight of the Company's accounting functions and
internal controls.  The members of the Committee are selected by the Board of
Directors.  The Committee consists of five outside directors and operates under
a written charter approved by the Board of Directors.  (A copy of this charter
is included in the Company's 2000 Proxy Statement.)  The Committee met five
times during 2000.

The Audit Committee also oversees the financial reporting process on behalf of
the Board of Directors.  As part of this responsibility, the Committee assessed
the independence of the Company's external auditors, utilizing written
disclosures received from such auditors as required by the Independence
Standards Board, and recommended to the Board of Directors, subject to
shareholder approval, the selection of the Company's external auditors.  The
Committee discussed the overall scope and specific plans for audit services with
the Company's internal auditor and with KPMG LLP, the Company's external
auditors.  The Committee reviewed and discussed the quarterly financial
statements prior to the filing of the Company's Form 10-Q's.  In addition, the
Committee also reviewed and discussed the Company's audited consolidated
financial statements and adequacy of the Company's internal controls and
discussed with KPMG LLP the matters required by Statements on Auditing Standards
61, Communication with Audit Committees.  The Committee also met with the
internal auditor and KPMG LLP, without management present, to discuss the
results of their respective audits, their consideration of the Company's
internal controls, and the overall quality of the Company's financial reporting.
The meetings were also designed to facilitate any private communication with the
Committee desired by the internal auditor or KPMG LLP.

Based upon these reviews and discussions, the Audit Committee approved the
accompanying audited financial statements for inclusion in the annual report on
Form 10-K filed with the Securities and Exchange Commission.



John C. Shealy
Chairman, Audit Committee
February 28, 2001

                                       56
<PAGE>

Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure.

     None

                                       57
<PAGE>

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant.

     The sections entitled "Nominees For Election as Directors" and "Directors
Whose Term of Office Continues" appearing in the Registrant's proxy statement
for the annual meeting of shareholders to be held on April 26, 2001, sets forth
certain information with respect to the directors of the registrant and is
incorporated herein by reference.  Certain information with respect to persons
who are or may be deemed to be executive officers of the Registrant is set forth
under the caption "Executive Officers of the Registrant" in Part I of this
report.

Item 11.   Executive Compensation

     The information required by Item 11 is incorporated by reference to the
definitive form of the Proxy Statement which was filed with the SEC on March 23,
2001.

Item 12.   Security Ownership of Certain Beneficial Owners and Management

     The information required by Item 12 is incorporated by reference to the
definitive form of the Proxy Statement which was filed with the SEC on March 23,
2001.

Item 13.   Certain Relationships and Related Transactions

     The information required by Item 13 is incorporated by reference to the
definitive form of the Proxy Statement which was filed with the SEC on March 23,
2001.

                                       58
<PAGE>

                                    PART IV


Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     a. Financial Statements, Schedules and Exhibits.

        1. Consolidated Financial Statements.

           Consolidated Balance Sheets - December 31, 2000 and 1999.

           Consolidated Statements of Income for the Years Ended December 31,
           2000, 1999, and 1998.

           Consolidated Statements of Cash Flows for the Years Ended December
           31, 2000, 1999, and 1998.

           Consolidated Statements of Stockholders' Equity for the Years Ended
           December 31, 2000, 1999, and 1998.

           Notes to Consolidated Financial Statements, including Consolidated
           Quarterly Income Information (unaudited).

           Independent Auditors' Report on Consolidated Financial Statements.

        2. Financial Statement Schedules.

           Financial Statements of Del-Tin Fiber L.L.C., an affiliate accounted
           for by the equity method, which constituted a significant subsidiary
           for the years ended December 30, 2000 and January 1, 2000.

           All other financial statement schedules are omitted because either
           they are not applicable or the required information is included in
           the consolidated financial statements or notes thereto.

        3. Exhibits.

           3    Articles of Incorporation and Bylaws.

           3.1  Amended and Restated Certificate of Incorporation of Deltic
                Timber Corporation as of December 17, 1996 (incorporated by
                reference to Exhibit 3.1 to Registrant's Annual Report on Form
                10-K for the year ended December 31, 1996).

           3.2  Amended and Restated Bylaws of Deltic Timber Corporation
                (incorporated by reference to Exhibit 3.2 to Registrant's Annual
                Report on Form 10-K for the year ended December 31, 1996).

           4    Instruments Defining the Rights of Security Holders.

           4.1  Rights Agreement dated as of December 11, 1996, between Deltic
                Timber Corporation and Harris Trust and Savings Bank, as Rights
                Agent (incorporated by reference to Exhibit 4 to Registrant's
                Annual Report on Form 10-K for the year ended December 31,
                1996).

           10   Material contracts.

           10.1 Deltic Timber Corporation 1996 Stock Incentive Plan
                (incorporated by reference to Exhibit 10.1 to Registrant's
                Annual Report on Form 10-K for the year ended December 31,
                1996).

                                       59
<PAGE>

           10.2 Distribution Agreement (incorporated by reference to Exhibit
                10.2 to Registrant's Annual Report on Form 10-K for the year
                ended December 31, 1996).

           10.3 Tax Sharing Agreement (incorporated by reference to Exhibit 10.3
                to Registrant's Annual Report on Form 10-K for the year ended
                December 31, 1996).

           10.4 Credit facility dated December 19, 1996 (incorporated by
                reference to Exhibit 10.4 to Registrant's Quarterly Report on
                Form 10-Q for the quarter ended September 30, 1997).

           10.5 Certificate of Designation of the Cumulative Redeemable
                Preferred Stock, 7.54% Series ($.01 Par Value), of Deltic Timber
                Corporation (incorporated by reference to Exhibit 10.5 to
                Registrant's Annual Report on Form 10-K for the year ended
                December 31, 1997).

           10.6 Fiber Supply Agreement dated February 21, 1995, with Del-Tin
                Fiber L.L.C. (incorporated by reference to Exhibit 10.2 to
                Registrant's Registration of Securities Report on Form 10).

           10.7 Note Purchase Agreement dated December 18, 1998 (incorporated by
                reference to Exhibit 10.7 to Registrant's Annual Report on Form
                10-K for the year ended December 31, 1998).

           10.8 Selective Sections of Del-Tin Fiber L.L.C.'s Project Credit
                Agreement dated November 23, 1998 (incorporated by reference to
                Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the
                year ended December 31, 1998).

           21   Subsidiaries of the Registrant, included elsewhere herein.

           23   Independent Auditors' Consents.

           23.1 Independent auditors' consent related to report on financial
                statements of Deltic Timber Corporation, included elsewhere
                herein.

           23.2 Independent auditors' consent related to report on financial
                statements of Del-Tin Fiber L.L.C., included elsewhere herein.

           99   Form 11-K, Annual Report for the fiscal year ended December 31,
                2000, covering Thrift Plan of Deltic Timber Corporation. To be
                filed as an amendment of this Annual Report on Form 10-K, not
                later than 180 days after December 31, 2000.

           Exhibits other than those listed above have been omitted since they
           either are not required or are not applicable.

     b. Reports on Form 8-K.

           None.

                                       60
<PAGE>

                                  SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) 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/ Ron L. Pearce                    Date:      March 28, 2001
   -------------------------------------            ---------------------------
         Ron L. Pearce, President


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 28, 2001 by the following persons on behalf of
the registrant and in the capacities indicated.



         /s/ Robert C. Nolan                         /s/ J. Thurston Roach
----------------------------------------       --------------------------------
Robert C. Nolan, Chairman and Director            J. Thurston Roach, Director



           /s/ Ron L. Pearce                         /s/ O. H. Darling, Jr.
----------------------------------------       --------------------------------
   Ron L. Pearce, President and Chief             O. H. Darling, Jr., Director
      Executive Officer and Director
       (Principal Executive Officer)



         /s/ R. Madison Murphy                        /s/ John C. Shealy
----------------------------------------       --------------------------------
      R. Madison Murphy, Director                  John C. Shealy, Director



      /s/ R. Hunter Pierson, Jr.                     /s/ Clefton D. Vaughan
----------------------------------------       --------------------------------
   R. Hunter Pierson, Jr., Director                    Clefton D. Vaughan,
                                                         Vice President,
                                                  Finance and Administration
                                                (Principal Financial Officer)



        /s/ Christoph Keller, III                      /s/ Emily R. Evers
----------------------------------------       --------------------------------
     Christoph Keller, III, Director              Emily R. Evers, Controller
                                                (Principal Accounting Officer)



         /s/ Alex R. Lieblong
----------------------------------------
      Alex R. Lieblong, Director

                                       61
<PAGE>

                                                    FINANCIAL STATEMENT SCHEDULE
                                                         PURSUANT TO ITEM 14(a)2



                             DEL-TIN FIBER L.L.C.

                             Financial Statements

                     December 30, 2000 and January 1, 2000

                  (With Independent Auditors' Report Thereon)


                                      62
<PAGE>

                         Independent Auditors' Report
                         ----------------------------



The Board of Managers
Del-Tin Fiber L.L.C.:


We have audited the accompanying balance sheets of Del-Tin Fiber L.L.C. as of
December 30, 2000 and January 1, 2000, and the related statements of operations,
cash flows, and members' capital for each of the fiscal years in the three-year
period ended December 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Del-Tin Fiber L.L.C. as of
December 30, 2000 and January 1, 2000, and the results of its operations and its
cash flows for each of the fiscal years in the three-year period ended December
30, 2000, in conformity with accounting principles generally accepted in the
United States of America.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedule 1 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has not been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, accordingly, we express no opinion on it.


KPMG LLP
Shreveport, Louisiana
January 24, 2001

                                      63
<PAGE>

                             DEL-TIN FIBER L.L.C.
                                Balance Sheets
                           At year-end 2000 and 1999


<TABLE>
<CAPTION>
                                                                                    2000                    1999
                                                                              -----------------       -----------------
<S>                                                                           <C>                     <C>
Assets
    Current assets
      Cash and cash equivalents                                              $         469,916        $        393,384
      Accounts receivable, Temple-Inland                                             1,039,162               1,742,094
      Other receivables                                                                810,877               1,207,623
      Inventories                                                                    3,412,046               3,327,767
      Prepaid expenses and other current assets                                        131,116                  83,280
                                                                              -----------------       -----------------
        Total current assets                                                         5,863,117               6,754,148

    Debt service reserve funds                                                       3,423,262               3,235,250
    Property, plant, and equipment - net                                            95,570,890              98,491,679
    Deferred debt costs - net                                                        1,227,033               1,472,440
                                                                              -----------------       -----------------
        Total assets                                                          $    106,084,302        $    109,953,517
                                                                              =================       =================

Liabilities and Members' Capital
    Current liabilities
      Bank overdraft                                                          $        978,129        $              -
      Accounts payable and accrued expenses                                          3,580,084               6,355,601
      Notes payable                                                                          -        $      6,000,000
                                                                              -----------------       -----------------
        Total current liabilities                                                    4,558,213              12,355,601

    Long-term debt                                                                  89,000,000              89,000,000
    Other noncurrent liabilities                                                         6,632                   9,577
                                                                              -----------------       -----------------
        Total liabilities                                                           93,564,845             101,365,178

    Members' capital                                                                12,519,457               8,588,339
                                                                              -----------------       ----------------
        Total liabilities and members' capital/(deficit)                      $   106,084,302         $    109,953,517
                                                                              =================       ================
</TABLE>



See accompanying notes to financial statements.

                                       64
<PAGE>

                             DEL-TIN FIBER L.L.C.
                           Statements of Operations
                      For the years 2000, 1999, and 1998


<TABLE>
<CAPTION>
                                                                   2000                 1999                1998
                                                              ---------------       --------------     ---------------
<S>                                                           <C>                   <C>                <C>
Net sales                                                     $    31,070,583       $   30,472,126     $     7,364,998
Costs and expenses
    Cost of sales                                                  40,250,005           35,123,296          13,236,147
    Depreciation                                                    4,569,767            4,150,633           1,473,448
    Selling, general, and administrative expenses                   1,321,644            1,395,167             374,653
                                                              ---------------       --------------     ---------------
        Total costs and expenses                                   46,141,416           40,669,096          15,084,248
                                                              ---------------       --------------     ---------------

        Loss from operations                                      (15,070,833)         (10,196,970)         (7,719,250)

Interest income                                                       207,109              271,279             105,221
Interest and other debt expense                                    (7,011,158)          (6,807,283)         (2,563,676)
                                                              ---------------       --------------     ---------------
        Net loss                                              $   (21,874,882)      $  (16,732,974)    $   (10,177,705)
                                                              ==============        ==============     ===============
</TABLE>

                                       65
<PAGE>

                             DEL-TIN FIBER L.L.C.
                           Statements of Cash Flows
                        For the years 2000, 1999, 1998


<TABLE>
<CAPTION>
                                                                   2000                 1999                1998
                                                             -----------------    -----------------   -----------------
<S>                                                          <C>                  <C>                 <C>
Cash flows from operating activities
    Net loss                                                 $    (21,874,882)    $    (16,732,974)   $    (10,177,705)
    Adjustments to reconcile net loss to net cash
      used in operating activities
        Depreciation expense                                        4,569,767            4,150,633           1,473,448
        Net loss on sale of assets                                     72,327                    -                   -
        Amortization of debt issuance cost                            245,407              244,601                   -
        Changes in current assets and liabilities,
           other than cash and cash equivalents
             (Increase)/decrease in trade accounts receivable         702,932             (740,174)         (1,001,920)
             (Increase)/decrease in other receivables                 396,746              314,752          (1,349,063)
             (Increase)/decrease in inventories                       (84,279)             269,721          (3,230,928)
             (Increase)/decrease in prepaid assets
                and other current assets                              (47,836)              (9,383)            (73,897)
             Increase/(decrease) in accounts payable
                and accrued expenses                               (2,503,325)             551,208           1,504,671
             Increase/(decrease) in retainage payable                       -                    -             (17,832)
             Other                                                     (2,945)               9,577              17,832
                                                             ----------------     ----------------    ----------------
                Net cash used in operating activities             (18,526,088)         (11,942,039)        (12,855,394)
                                                             ----------------     ----------------    ----------------

Cash flows from investing activities
    Capital expenditures requiring cash                            (2,174,986)          (4,495,518)        (26,043,275)
    Proceeds from sale of assets                                      181,489                    -                   -
    Net (increase)/decrease in funds held by trustee                        -            3,323,059           6,617,122
                                                             ----------------     ----------------    ----------------
                Net cash used in investing activities              (1,993,497)          (1,172,459)        (19,426,153)
                                                             ----------------     ----------------    ----------------

Cash flows from financing activities
    Proceeds from issuance of notes payable                         4,000,000            6,000,000          13,000,000
    Proceeds from issuance of bonds                                         -                    -          60,000,000
    Advances from Deltic Timber Corporation                                 -                    -           2,000,000
    Repayments of notes payable                                   (10,000,000)          (5,000,000)        (60,100,000)
    Repayments of advances from Deltic Timber
      Corporation                                                           -                    -          (5,600,000)
    Increase/(decrease) in bank overdraft                             978,129                    -                   -
    Net (increase)/decrease in debt service reserve funds            (188,012)            (151,250)         (3,084,000)
    Payment of debt issuance costs                                          -              (78,319)           (459,128)
    Capital contributions by members                               25,806,000           11,590,000          18,500,000
                                                             ----------------     ----------------    ----------------
                Net cash provided by financing activities          20,596,117           12,360,431          24,256,872
                                                             ----------------     ----------------    ----------------

                Net increase/(decrease) in cash and
                   cash equivalents                                    76,532             (754,067)         (8,024,675)
Cash and cash equivalents at beginning of period                      393,384            1,147,451           9,172,126
                                                             ----------------     ----------------    ----------------
Cash and cash equivalents at the end of period               $        469,916     $        393,384    $      1,147,451
                                                             ================     =================   =================
</TABLE>

See accompanying notes to financial statements.

                                       66
<PAGE>

                             DEL-TIN FIBER L.L.C.
                        Statements of Members' Capital
                      For the years 2000, 1999, and 1998



Balance at January 1, 1998                                $    (270,576)

    Net loss                                                (10,177,705)

    Capital contributions                                    24,179,594
                                                          -------------

Balance at December 31, 1998                                 13,731,313

    Net loss                                                (16,732,974)

    Capital contributions                                    11,590,000
                                                          -------------

Balance at January 1, 2000                                    8,588,339

    Net loss                                                (21,874,882)

    Capital contributions                                    25,806,000
                                                          -------------

Balance at December 30, 2000                              $  12,519,457
                                                          =============

See accompanying notes to financial statements.

                                       67
<PAGE>

                             DEL-TIN FIBER L.L.C.
                         Notes to Financial Statements
                               December 30, 2000


Note 1  -  Summary of Significant Accounting Policies

   Description of Business

   Del-Tin Fiber L.L.C. ("Del-Tin" or the "Company") is an Arkansas limited
   liability company organized in February 1995 and is equally owned by Temple-
   Inland Forest Products Corporation ("Temple-Inland"), a Delaware corporation,
   and Deltic Timber Corporation ("Deltic"), a Delaware corporation.  Del-Tin is
   to exist until December 31, 2024, unless the Company is earlier dissolved in
   accordance with either the provisions of the Operating Agreement or the
   Arkansas Small Business Entity Tax Pass Through Act.  The business of the
   Company is to manufacture, distribute, and sell medium density fiberboard
   ("MDF") under the trade name "Solidium".  Within the United States, MDF is
   sold primarily to manufacturers and distributors of laminated flooring,
   furniture, cabinets, fixtures, and molding.

   Under the terms of a separate Fiber Supply Agreement, Deltic will be the
   preferred supplier of wood fiber, consisting of sawdust, shavings, and chips.
   Del-Tin will purchase the majority of residual chips produced by Deltic's
   Waldo, Arkansas, sawmill, at a delivered price that approximates the weighted
   average delivered price of like-kind residual chips available to Del-Tin from
   third parties in the area.  Del-Tin will also have first call on residual
   chips from Deltic's sawmill in Ola, Arkansas.

   Under the terms of a separate MDF Marketing Agreement, Temple-Inland will
   serve as the exclusive marketing agent for all MDF produced at the facility
   for a period of five years from the first day of production of MDF.  The MDF
   Marketing Agreement shall be automatically extended for successive five year
   periods unless either party elects not to extend.

   Accounting Period

   During 1999, the Company's Board of Managers approved the change of Del-Tin's
   accounting period from a calendar year to a fiscal year.  The Company's
   fiscal year is the 52 or 53-week period ending the Saturday closest to
   December 31.  Fiscal years 2000 and 1999 ended on December 30, 2000, and
   January 1, 2000, respectively.  Reference to years in these financial
   statements relate to fiscal years rather than calendar year.

   Cash and Cash Equivalents

   The Company considers short-term investments with a remaining maturity of
   three months or less at the date of purchase to be cash equivalents.

   Inventories

   Inventories are stated at the lower of cost or market.  Cost is determined
   using the weighted average method for all inventories, other than spare
   parts.  For spare parts, which are carried at cost excluding freight and
   sales tax which are expensed as incurred, the specific identification method
   is used.

   Debt Service Reserve Funds

   Debt service reserve funds consists of cash account balances, restricted
   under the Company's permanent credit facility, to be used solely to pay debt
   service to the extent sufficient funds are not available for such scheduled
   debt service payments in the Company operating account.

                                      68
<PAGE>

                             DEL-TIN FIBER L.L.C.
                         Notes to Financial Statements
                               December 30, 2000


Note 1 - Summary of Significant Accounting Policies (continued)

   Property, Plant, and Equipment

   Property, plant, and equipment is stated at cost less accumulated
   depreciation.  Depreciation of buildings, machinery and equipment, and other
   depreciable assets is calculated over the estimated useful lives of the
   assets by using the units of production method for machinery and equipment
   and the straight-line method for all other depreciable assets.  The estimated
   useful lives for property, plant, and equipment, excluding machinery and
   equipment, are as follows:

              Buildings                           40 years
              Land improvements                   20 years
              Vehicles                            3 to 5 years

   Routine maintenance and repairs are charged to operating expense, while costs
   of equipment upgrades and replacements are capitalized.  When an asset is
   retired or sold, its cost and related accumulated depreciation are removed
   from the accounts and the difference between the net book value of the asset
   and proceeds from disposition is recognized as a gain or loss.

   Long-lived assets are accounted for under Statement of Financial Accounting
   Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived
   Assets and for Long-Lived Assets to be Disposed Of, and accordingly the
   Company will record impairment losses on long-lived assets used in operations
   when events and circumstances indicate that the assets might be impaired and
   the estimated undiscounted cash flows to be generated by those assets are
   less than the carrying amounts of those assets.  The Company recorded no such
   impairment in 2000, 1999, or 1998.

   Deferred Debt Costs

   Deferred debt costs consists of various costs related to obtaining the
   Company's permanent credit facility ("the Credit Facility"), the issuance of
   the Union County, Arkansas Taxable Industrial Development Bonds (Del-Tin
   Fiber Project) 1998 Series (the "Taxable Bonds"), and the substitution of the
   letters of credit supporting the Union County, Arkansas Solid Waste Disposal
   Revenue Bonds (Del-Tin Fiber Project) 1997 Series A & B (the "Tax Exempt
   Bonds").  (The Taxable Bonds and the Tax Exempt Bonds are collectively called
   the "Bonds".)  Such costs are stated on the Balance Sheet at original
   issuance cost, net of amortization on a straight-line basis over the life of
   the Credit Facility. (For additional information regarding the Company's
   financing arrangements, see Note 4 - Indebtedness and Financing
   Arrangements.)

   Revenue Recognition

   Revenue from the sale of products is generally recognized upon passage of
   title to the customer, which is generally at the time of shipment.

   Income Taxes

   Because the Company is a limited liability company, it has the option of
   being taxed as a partnership or a corporation.  The Company elected to be
   taxed as a partnership and as such is not subject to income taxes at the
   Company level.  All taxes are recognized by the members of the Company.

                                      69
<PAGE>

                             DEL-TIN FIBER L.L.C.
                         Notes to Financial Statements
                               December 30, 2000


Note 1 - Summary of Significant Accounting Policies (continued)

   Impact of Recent Accounting Pronouncements

   In June 2000, the Financial Accounting Standards Board (FASB) issued SFAS
   138, Accounting for Certain Derivative Instruments and certain Hedging
   Transactions, an amendment of FASB SFAS 133, Accounting for Derivative
   Instruments and Hedging Activities, which is effective for fiscal years
   beginning after June 15, 2000.  The Company is required to and will adopt
   SFAS 133 effective December 31, 2000; however, the effect of adopting SFAS
   133 will not be material to the Company's financial position or results of
   operations based on the Company's current level of derivative and hedging
   activities.

   Use of Estimates

   Management of the Company has made a number of estimates and assumptions,
   relating to the reporting of assets and liabilities and the disclosure of
   contingent assets and liabilities, to prepare these financial statements in
   conformity with generally accepted accounting principles.  Actual results
   could differ from those estimates.

   Reclassifications

   Certain prior year amounts have been reclassified to conform with the 2000
   presentation format.


Note 2  -  Inventories

   Inventories at year-end consisted of the following:

                                                       2000           1999
                                                   ------------   ------------

     Raw materials                                 $    212,919   $    477,151
     Work in progress / finished goods                  714,553        804,125
     Spare parts                                      2,462,071      1,952,964
     Operating materials and supplies                    22,503         93,527
                                                   ------------   ------------
                                                   $  3,412,046   $  3,327,767
                                                   ============   ============
Note 3  -  Property, Plant, and Equipment

   Property, plant, and equipment at year-end consisted of the following:

                                                       2000           1999
                                                   ------------   ------------

     Land                                          $    331,789   $    331,789
     Buildings                                        7,501,051      7,507,438
     Land improvements                                2,593,030      2,544,454
     Machinery and equipment                         94,111,579     90,347,402
     Vehicles                                            31,628         11,038
     Construction-in-progress                         1,172,294      3,373,638
                                                   ------------   ------------
                                                    105,741,371    104,115,759
     Less accumulated depreciation                  (10,170,481)    (5,624,080)
                                                   ------------   ------------
                                                   $ 95,570,890   $ 98,491,679
                                                   ============   ============

                                      70
<PAGE>

                             DEL-TIN FIBER L.L.C.
                         Notes to Financial Statements
                               December 30, 2000


Note 3  -  Property, Plant, and Equipment (continued)

   Depreciation expense totaled $4,569,767, $4,150,633, and $1,473,448 for 2000,
   1999, and 1998, respectively.

   During the construction period of the Company's primary plant facility,
   applicable interest expense was capitalized, net of interest income on
   invested debt proceeds.  Such amounts capitalized during 1998 were
   $4,863,715.

Note 4  -  Indebtedness and Financing Arrangements

   Long-term debt at year-end consisted of the following:

                                                       2000          1999
                                                    -----------  -----------
       Union County, Arkansas Taxable Industrial
        Development Revenue Bonds
        (Del-Tin Fiber Project) 1998 Series,
        due October 1, 2027                         $60,000,000  $60,000,000

       Union County, Arkansas Solid Waste
        Disposal Revenue Bonds
        (Del-Tin Fiber Project) 1997 Series A,
        due October 1, 2027                          14,500,000   14,500,000

       Union County, Arkansas Solid Waste
        Disposal Revenue Bonds
        (Del-Tin Fiber Project) 1997 Series B,
        due October 1, 2027                          14,500,000   14,500,000
       Notes payable                                          -    6,000,000
                                                    -----------  -----------
       89,000,000                                    95,000,000
       Less:  Notes payable                                   -   (6,000,000)
         Current maturities of long-term debt                 -            -
                                                    -----------  -----------
       Long-term debt, excluding current
        installments                                $89,000,000  $89,000,000
                                                    ===========  ===========


   Sinking fund requirements for the next five years are $4,183,000 in 2001,
   $7,342,500 in 2002, and $8,677,500 in 2003, $9,790,000 in 2004 and
   $59,007,000 in 2005.  (For additional information regarding financial
   instruments, see Note 5 - Fair Value of Financial Instruments.)

   The Permanent Credit Facility

   In 1998, the Company entered into the Credit Facility with several major
   banking institutions (the "Lenders") having a stated maturity of December 17,
   2005 (the "Stated Maturity Date").  The Credit Facility provides a working
   capital commitment of $10,000,000 (the "Working Capital Commitment Amount")
   and a letter of credit commitment of $91,225,000 (the "Letter of Credit
   Commitment Amount") for a total commitment of $101,225,000.  Both the working
   capital and the letter of credit commitments terminate on December 17, 2001
   (the "Termination Date"), but the Termination

                                      71
<PAGE>

                              DEL-TIN FIBER L.L.C.
                         Notes to Financial Statements
                               December 30, 2000


Note 4  -  Indebtedness and Financing Arrangements (continued)

        Date for either or both commitments may be annually extended if the
        Company so requests and all the Lenders agree. In any case, the
        Termination Date may not be extended beyond the Stated Maturity Date.

            The Working Capital Commitment -- The Company may from time to time
            receive working capital loans from the Lenders, and the amount so
            loaned may be borrowed, repaid, and reborrowed at the Company's
            discretion. However, the aggregate amount of working capital loans
            outstanding must not be more than (1) the Working Capital Commitment
            Amount at any time and (2) zero ($0) for 30 consecutive days in each
            year of the working capital commitment following 1999. During 1999,
            the Working Capital Commitment had to be no more than $5 million for
            30 consecutive days. Any unpaid principal and interest on working
            capital loans is due and payable at the termination of the working
            capital loan commitment. At January 1, 2000, there was one working
            capital loan outstanding in the amount of $6,000,000, bearing
            interest at a rate of 7.9 percent and no amounts outstanding at
            December 30, 2000.

            The Letter of Credit Commitment -- Three letters of credit have been
            issued pursuant to the Credit Facility in the aggregate stated
            amount of $89,824,657 as of December 30, 2000. The letters of credit
            have a stated expiration of December 17, 2001. Under the Credit
            Facility, the letters of credit may be extended to the extent that
            the Termination Date of the letter of credit commitment is extended.
            If the letters of credit expire before the Stated Maturity Date and
            are not renewed or replaced, the Lenders will make loans to the
            Company to purchase the Bonds. Any such loans would be finally due
            and payable at the Stated Maturity Date.

            The three letters of credit provide a payment mechanism for the
            Bonds and security for the Bondholders. Two of the letters of credit
            were issued to replace letters of credit supporting the Tax Exempt
            Bonds previously issued under the Interim Credit Facilities
            (described below) and the third was issued to provide initial letter
            of credit support for the Taxable Bonds. On December 30, 2000, the
            maximum amount available to be drawn was $14,639,041 under each of
            the two letters of credit supporting the Tax Exempt Bonds and
            $60,546,575 under the letter of credit supporting the Taxable Bonds.
            The maximum amount available to be drawn under the letters of credit
            cover the principal amount of the relevant Bonds, plus an additional
            amount to cover interest.

            Security for the Permanent Credit Facility -- Substantially all of
            the Company's assets are pledged to the Lenders as security for the
            Credit Facility. The Credit Facility requires the Company to
            maintain debt service reserve funds in an amount equal to six
            months' debt service. The debt service to be reserved against
            includes all required payments for principal (other than for working
            capital loans), sinking fund requirements, interest, and fees under
            both the Credit Facility and the Bonds. At December 30, 2000, the
            Company had a debt service reserve fund deficiency totaling
            $2,103,216. In accordance with the Credit Facility, the Company must
            cure the debt service reserve deficiency by March 31, 2001. The
            Company plans to cure the deficiency by March 31, 2001, with capital
            contributions from the members. The funds in the debt service
            reserve bank accounts may be withdrawn solely to pay debt service to
            the extent sufficient funds are not available in the Company's
            operating account. The total amount in the debt service reserve
            funds as of December 30, 2000, was $3,423,262 and has been
            classified as noncurrent on the Balance Sheet due to the restriction
            placed on the funds.

                                       72
<PAGE>

                              DEL-TIN FIBER L.L.C.
                         Notes to Financial Statements
                               December 30, 2000

Note 4  -  Indebtedness and Financing Arrangements (continued)

            The Credit Facility requires the Company to make quarterly deposits
            into two sinking funds beginning in the first quarter of 2001.
            Failure to make such deposits is a default under the Credit
            Facility. The amount of the required deposits increases over the
            term of the Credit Facility, from $1,045,750 per quarter in 2001, to
            $3,115,000 per quarter beginning in 2005.

            In the fourth quarter of 2005, the Company must deposit $49,662,000
            into the sinking funds. The Company may not withdraw amounts
            deposited in the sinking funds during the term of the Credit
            Facility.

            As further security for the Credit Facility, each member has agreed
            (1) to provide to the Company up to $17,500,000 (for a combined
            total of $35,000,000) in the form of additional cash equity
            contributions or subordinated loans, if and to the extent, that the
            Company is in default under the Credit Facility; or a deficiency
            exists in the Credit Facility debt service reserve funds or sinking
            funds; and (2) to pay to the Company in the form of additional cash
            equity contributions or subordinated loans, the member's prorata
            portion of the difference between the Company's projected operating
            cash flow at 90 percent of rated capacity, and the Company's
            projected operating cash flow at the production rate actually
            achieved by the Company (the "Operating Cash Flow Variance"), if,
            and to the extent that, the Company still does not have sufficient
            funds to pay debt service. The members will no longer be obligated
            to pay the Operating Cash Flow Variance once the plant successfully
            completes a minimum production test, planned during 2001.

        In connection with the Credit Facility, and with the issuance of the
        Bonds, the Company incurred approximately $1,639,000 in related costs.
        Such costs are included in the Balance Sheet in Deferred Debt Costs and
        are being amortized on a straight-line basis over the life of the Credit
        Facility.

        The Company has only limited involvement with derivative financial
        instruments and uses them only to manage well-defined interest rate
        risks.

        Interest rate swap agreements are used to reduce the potential impact of
        increases in interest rates of variable-rate long-term debt. Effective
        March 2, 1999, the Company entered into an interest rate swap agreement
        which converts $60,000,000 of its long-term debt into fixed-rate
        obligations with an effective rate of 5.655 percent. This swap agreement
        expires on March 1, 2002.

        The fair value of interest rate swap agreements was $729,834 and
        $954,200 at December 30, 2000 and January 1, 2000, respectively. Current
        market pricing models were used to estimate fair values of interest rate
        swap agreements.

     The Bonds

        The Bonds were issued by Union County, Arkansas, to finance the
        completion of the construction of the Company's MDF plant, as well as
        the acquisition, construction, and improvement of certain sewerage and
        solid waste disposal facilities related to the Company's MDF plant.
        Neither the State of Arkansas nor Union County, Arkansas have any
        liability under the Bonds. The Bonds are payable solely from the
        proceeds of the letters of credit issued to support the respective Bonds
        and from Company payments under the Loan Agreement and the Lease
        Agreement (both described below) with Union County, Arkansas. The
        Company has also unconditionally guaranteed the

                                       73
<PAGE>

                              DEL-TIN FIBER L.L.C.
                         Notes to Financial Statements
                               December 30, 2000


Note 4  -  Indebtedness and Financing Arrangements (continued)

        payment of all amounts owing under the Bonds to the bondholders. The
        Company's indebtedness has been presented in these financial statements
        as though the Company was directly liable for the Bonds.

        The Bonds currently bear interest at a variable rate determined weekly
        by the remarketing agent of the respective Bonds. Interest is due on the
        first business day of the month, and all unpaid interest and all
        principal is due on October 1, 2027. The maximum interest rate for the
        Tax Exempt Bonds is ten percent and 9.5 percent for the Taxable Bonds.
        The interest rate on the Tax Exempt Bonds at year-end 2000 and 1999 was
        5.0 percent and 5.6 percent, respectively. The interest rate on the
        Taxable Bonds at year-end 2000 and 1999 was 6.8 percent and 6.6 percent,
        respectively.

        The Company has the right to convert the interest rate payable on the
        Bonds to either a flexible daily, term, or fixed rate, as defined in the
        trust indentures for the respective Bonds.

        Union County issued the Tax Exempt Bonds in October 1997 which were
        issued in two series, Series A and Series B, each in the amount of
        $14,500,000. In conjunction with this bond issuance, the Company and
        Union County entered into a loan agreement (the "Loan Agreement") which
        obligates the Company to make loan payments in the amount required to
        pay the debt service on the Tax Exempt Bonds. As described above, two
        letters of credit were issued under the Credit Facility to support the
        Tax Exempt Bonds.

        In December 1998, Union County issued the Taxable Bonds, in the amount
        of $60,000,000. The Company and Union County contemporaneously entered
        into a lease agreement (the "Lease Agreement") that obligates the
        Company to make lease payments in an amount necessary to fund the debt
        service on the Taxable Bonds. As described above, a letter of credit was
        issued under the Credit Facility to support the Taxable Bonds.

     The Interim Credit Facilities

        Prior to the funding of the Credit Facility, the Company was a party to
        three interim credit facilities (the "Interim Credit Facilities"). The
        payment terms and fees and interest payable under each interim credit
        facility were identical. Borrowings bore interest based upon prime or
        other various cost of funds options. Facility fees accrued at .05
        percent per annum for the unused commitment balances and .20 percent per
        annum for letters of credit and were payable quarterly. After December
        17, 1998, no amounts were outstanding, and no letters of credit were
        issued, against any Interim Credit Facility.

Note 5  -  Fair Value of Financial Instruments

        The following table presents the carrying amounts and estimated fair
        values of the Company's financial instruments at year-end 2000 and 1999.
        The fair value of a financial instrument is the amount at which the
        instrument could be exchanged in a current transaction between willing
        parties.

<TABLE>
<CAPTION>
                                                 2000                    1999
                                        ----------------------  ----------------------
                                         Carrying       Fair     Carrying      Fair
                                          Amount       Value      Amount       Value
                                        ----------  ----------  ----------  ----------
         <S>                            <C>         <C>         <C>         <C>
         Financial assets
          Cash and cash equivalents     $  469,916  $  469,619  $  393,384  $  393,384
          Trade accounts receivable      1,039,162   1,039,162   1,742,094   1,742,094
          Other receivables                810,877     810,877   1,207,623   1,207,623
          Debt service reserve funds     3,423,262   3,423,262   3,235,250   3,235,250
</TABLE>

                                       74
<PAGE>

                             DEL-TIN FIBER L.L.C.
                         Notes to Financial Statements
                               December 30, 2000


Note 5  -  Fair Value of Financial Instruments (continued)

<TABLE>
<CAPTION>
                                                2000                    1999
                                      ----------------------  ----------------------
                                       Carrying      Fair      Carrying      Fair
                                        Amount       Value      Amount       Value
                                      ----------  ----------  ----------  ----------
             <S>                      <C>         <C>         <C>         <C>
             Financial liabilities
              Bank overdraft             978,129     978,129           -           -
              Accounts payable and
                accrued expenses       3,580,084   3,580,084   6,355,601   6,355,601
              Notes payable                    -           -   6,000,000   6,000,000
                Long-term debt        89,000,000  89,000,000  89,000,000  89,000,000
</TABLE>

     The carrying amounts shown in the table are included in the Balance Sheets
     under the indicated captions.

     The following methods and assumptions were used to estimate the fair value
     of each class of financial instruments:

         .  Cash and Cash Equivalents, Trade Accounts Receivable, Other
            Receivables, Bank Overdraft, Accounts Payable, Accrued Expenses, and
            Notes Payable --The carrying amounts approximate fair value because
            of the short maturity of these instruments.

         .  Debt Service Reserve Funds -- The carrying amount approximates fair
            value since the interest earned on these deposits fluctuates with
            changes in current market rates.

         .  Long-term debt, including current maturities -- The fair value at
            year-end is estimated based on current rates at which the Company
            could borrow funds with similar remaining maturities.

Note 6  -  Lease Commitments

     The Company is obligated under noncancelable operating leases for various
     equipment.

     As of December 30, 2000, future minimum lease commitments under
     noncancelable operating leases consisted of the following:

                        2001               $85,768
                        2002                22,565

     Rent expense for all operating leases was $381,024 in 2000, $244,950 in
     1999, and $195,430 in 1998.

Note 7  -  Related-Party Transactions

     The Company is assessed a fee for marketing services provided by Temple-
     Inland. This expense amounted to $550,951 in 2000, $959,160 in 1999, and
     $227,036 in 1998, and is included in Selling, General, and Administrative
     Expenses in the accompanying Statements of Operations. In addition, Del-Tin
     reimburses Temple-Inland for advertising arranged on behalf of the
     Company's Solidium brand and for a portion of expenses that Temple-Inland
     incurs for general advertising for MDF. These costs amounted to $68,491 in
     2000, $252,418 during 1999 and zero in 1998, and are included in Selling,
     General, and Administrative Expenses in the accompanying Statements of
     Operations. The Company is also assessed a fee for computer services by
     Temple-Inland. This fee amounted to $75,000 in 2000 and 1999, and $62,500
     in 1998, and is included in Selling, General, and

                                       75
<PAGE>

                              DEL-TIN FIBER L.L.C.
                         Notes to Financial Statements
                               December 30, 2000


Note 7  -  Related-Party Transactions (continued)

     Administrative Expenses in the accompanying Statements of Operations. As of
     December 30, 2000, the Company's balance due Temple-Inland totaled $46,563.

     Under the terms of the MDF Marketing Agreement, the Company's sales are
     processed by Temple-Inland. A corresponding receivable is recorded by the
     Company equal to the outstanding trade receivable balance maintained by
     Temple-Inland. Funds are transferred to the Company from Temple-Inland
     based on previous weeks sales. All credit risk relating to the Company's
     trade receivables remains with Temple-Inland. As of December 30, 2000, and
     January 1, 2000, the Company's balance due from Temple-Inland relating to
     the trade receivables was $1,039,162 and 1,742,094, respectively.

     The Company purchases raw materials from Deltic. Total purchases of bark
     and chips amounted to $3,620,168 in 2000, $4,287,411 for the year of 1999,
     and $2,126,000 during 1998. In relation to these purchases, the Company had
     no outstanding balance payable to Deltic at December 30, 2000.

     The Company had sales of MDF to Temple-Inland totaling $861,265 in 2000,
     $410,181 for 1999, and $49,567 in 1998, which are included in Net Sales in
     the accompanying Statements of Operations. In relation to these sales, Del-
     Tin had a receivable of $21,600 from Temple-Inland at December 30, 2000.

Note 8  -  Supplemental Cash Flows Disclosures

     Interest paid, net of amounts capitalized, was $7,025,305 in 2000,
     $6,270,375 in 1999, and $2,548,434 in 1998. Noncash investing and financing
     activities, excluded from the Statements of Cash Flows, were: (1)
     assumptions of accounts payable of $4,048,411 in 1998 related to capital
     expenditures for additions of property, plant, and equipment and (2) non-
     cash capital contributions by the members during 1998 for payment of debt
     amounting to $4,500,000 and for debt costs paid on behalf of the Company of
     $1,179,594.

Note 9  -  Subsequent Event

     On January 25, 2001, the members of the company announced that Del-Tin
     would temporarily cease operations effective January 29, 2001. The decision
     to temporarily shut down the plant resulted from a weak sales market for
     MDF and increased natural gas cost. A $2,800,000 capital project to modify
     the Company's heat energy system will be implemented while the plant is not
     operating. The Company's management expects to resume operations in June
     2001, following the completion of this capital project. Both members of the
     Company have committed to continue to fund Del-Tin during the shutdown
     period.

Note 10  -  Liquidity

     The Company has continued to incur significant operating losses and
     accordingly has required substantial financial support from its members.
     While management anticipates profitable operations in the future, immediate
     and continued support from the members will be required to ensure the
     Company is able to meet its obligations as they become due, including
     required deposits to the debt sinking funds. The members have committed to
     provide such support to the Company.

                                       76
<PAGE>

                                                                     Schedule 1

                             DEL-TIN FIBER L.L.C.
        Schedule 1 - Supplemental Information Concerning Cost of Sales
                     For the years of 2000, 1999, and 1998
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                      2000                 1999                1998
                                                -----------------    -----------------   -----------------
<S>                                             <C>                  <C>                 <C>
Cost of raw wood                                $      8,254,660     $      8,613,462    $      3,041,231
Cost of other raw materials                            6,454,658            5,766,912           2,180,285
Change in inventories                                     89,645              791,863          (1,595,988)
Salaries, labor, and benefits                          5,159,614            5,362,838           3,191,374
Utilities                                              5,496,526            4,749,721           2,290,790
Gas                                                    3,806,766            2,038,940           1,545,339
Fuel                                                   1,234,354              801,919             133,244
Maintenance and repairs                                4,497,590            2,908,656             781,013
Operating materials and supplies                       2,113,863            1,640,540             825,520
Other                                                  3,142,329            2,448,445             843,339
                                                -----------------    -----------------   -----------------
                                                $     40,250,005     $     35,123,296    $     13,236,147
                                                =================    =================   =================
</TABLE>

See accompanying Independent Auditors' Report

                                       77