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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



FORM 10-K/A-1



(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, 2004



OR



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



Commission file number 1-12147



DELTIC TIMBER CORPORATION

(Exact
name of registrant as specified in its charter)



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



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



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



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



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



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



The aggregate market value of the Common Stock held by non-affiliates of the registrant,
based on the closing price of the Common Stock on the New York Stock Exchange as of June 30, 2004, was $314,657,920. 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 January 31, 2005, was 12,208,478.



Documents incorporated by reference:



The Registrants definitive Proxy Statement relating to the Annual Meeting of
Stockholders on April 28, 2005.



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##### Table of Contents

TABLE OF CONTENTS - 2004 FORM 10-K/A-1 REPORT



|                 |  |                                                                                                               |  |            
|---------------- |  | ------------------------------------------------------------------------------------------------------------- |  | -----------
|                 |  |                                                                                                               |  | PageNumbers
|2005 Restatement |  | 3                                                                                                            
|                 | 
|PART I           |  |                                                                                                              
|                 |  |                                                                                                              
|Item 1.          |  | Business                                                                                                      |  | 7          
|                 |  |                                                                                                              
|Item 2.          |  | Properties                                                                                                    |  | 19         
|                 |  |                                                                                                              
|Item 3.          |  | Legal Proceedings                                                                                             |  | 19         
|                 |  |                                                                                                              
|Item 4.          |  | Submission of Matters to a Vote of Security Holders                                                           |  | 19         
|                 | 
|PART II          |  |                                                                                                              
|                 |  |                                                                                                              
|Item 5.          |  | Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |  | 21         
|                 |  |                                                                                                              
|Item 6.          |  | Selected Financial Data                                                                                       |  | 22         
|                 |  |                                                                                                              
|Item 7.          |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 24         
|                 |  |                                                                                                              
|Item 7A.         |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 47         
|                 |  |                                                                                                              
|Item 8.          |  | Financial Statements and Supplementary Data                                                                   |  | 48         
|                 |  |                                                                                                              
|Item 9.          |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          |  | 89         
|                 |  |                                                                                                              
|Item 9A.         |  | Controls and Procedures                                                                                       |  | 89         
|                 |  |                                                                                                              
|Item 9B.         |  | Other Information                                                                                             |  | 93         
|                 | 
|PART III         |  |                                                                                                              
|                 |  |                                                                                                              
|Item 10.         |  | Directors and Executive Officers of the Registrant                                                            |  | 94         
|                 |  |                                                                                                              
|Item 11.         |  | Executive Compensation                                                                                        |  | 94         
|                 |  |                                                                                                              
|Item 12.         |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                |  | 95         
|                 |  |                                                                                                              
|Item 13.         |  | Certain Relationships and Related Transactions                                                                |  | 95         
|                 |  |                                                                                                              
|Item 14.         |  | Principal Accountant Fees and Services                                                                        |  | 95         
|                 | 
|PART IV          |  |                                                                                                              
|                 |  |                                                                                                              
|Item 15.         |  | Exhibits and Financial Statement Schedules                                                                    |  | 96         
|                 | 
|Signatures       |  | 99                                                                                                           



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##### Table of Contents

2005 Restatement



Overview



Deltic Timber Corporation (Deltic or the Company) is
filing this amendment to its Annual Report on Form 10-K for the year ended December 31, 2004, to amend and restate its financial statements for the years 2002 through 2004, for the third quarter of 2002, and for each quarter in 2003 and 2004 in
order to correct an overstatement of the carrying value of the Companys inventory of third-party purchases of standing timber inventory used to supply its Ola sawmill. These corrections relate to the Companys Mills segment of its
operations. The effect of the restatement on Deltics Consolidated Balance Sheet at the end of the reported periods is immaterial, and the restatement has no effect on the Companys net cash flows.



Cumulatively, and by year, through December 31, 2004, this non-cash
restatement had the following impact on net income/(loss):



|                            |  |                       |        |   |                         |      |   |      |      |   |  |      |  
|--------------------------- |  | --------------------- | ------ | - | ----------------------- | ---- | - | ---- | ---- | - |  | ---- | -
|                            |  | Effects of Correction |       
|(Thousands of dollars)      |  | Total                 |        |   | Year Ended December 31, |     
|                            |  | 2004                  |        |   | 2003                    |      |   | 2002 |     
|Impact on net income/(loss) |  | $                     | (1,315 | ) |                         | (564 | ) |      | (509 | ) |  | (242 | )



We have also
determined that control deficiencies related to the Companys inventory of third-party purchases of standing timber used to supply its sawmills which gave rise to the restatement constituted material weaknesses in our internal control over
financial reporting. Deltic plans to design and implement additional controls to remediate this weakness. For additional information, refer to Item 9A  Controls and Procedures.



Discovery of Errors



In order to operate its two sawmills economically, the Company relies on purchases of timber (raw material) from third parties to supplement its own
timber harvests from Company-owned timberlands. Deltic has an active timber procurement function for each of its sawmills. Sawmill inventory of third-party purchases of standing timber is comprised of timber purchased by the sawmill from third
parties that has not yet been harvested and delivered to the mill. When these types of purchases are made by the Companys procurement function, ownership of the timber located on the designated tract of land transfers to the Company, however,
ownership of the land itself does not transfer. The carrying value of this purchased stumpage inventory is grouped with the Companys wholly-owned timberlands and reported as the line item Timber and Timberlands on Deltics Consolidated
Balance Sheet. Over the past five years, such purchased stumpage inventory has represented 2.3 percent to 5.5 percent of the total Timber and Timberlands line-item balance.



At the time that a tract of procurement timber is purchased, an inventory amount based on the cash payment and an estimated
volume derived from estimates made by the procurement foresters are established. An estimated average cost per ton is obtained by dividing the original cost of the purchased timber on the tract by the original estimated volume of that timber. As the
timber is harvested and brought into the mill, reductions in the purchased timber carrying balance are recorded using the calculated average cost per ton. Once all harvestable timber is removed from a tract, the procurement personnel communicate the
closing of the tract to the accounting function. Upon this notification, a final adjustment is made to mill log cost based on any amount remaining in inventory (increase in the case of undercut or decrease in the case of overcut).



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##### Table of Contents

In mid-July 2005, the Companys procurement manager for its Ola sawmill disclosed to senior
management that the volume of certain tracts of third-party purchased standing timber inventory for the Ola Mill was overstated. The Ola Mill procurement manager largely controlled the information being received by Deltics accounting
personnel. The overstatement arose from his failure to report to accounting personnel and his having concealed from accounting personnel the differences between actual harvest volumes and the original estimates of timber volume, determined when the
tracts were acquired. As a result, the correct dollar amount of log cost was not reflected in the mills manufacturing expense. Upon learning of this information, the Company immediately terminated the employment of the procurement manager, ordered
that his office and business records be secured and notified, among others, the Chairman of the Audit Committee of the Board of Directors and the engagement partner of the Companys independent registered public accounting firm (KPMG LLP).



Restatement



Beginning the next business day following the date the Companys senior
management was made aware of the overstatement and culminating with the reports and recommendations made to the Audit Committee at its August 3, 2005 meeting, the Company undertook an internal review of the matter and concluded: (a) the actual
overstatement of purchased standing timber inventory for the Ola Mill is approximately 51 thousand tons; (b) no employee other than the procurement manager was aware of the overstatement on the Companys books and records; and (c) the purchased
standing inventory for the Companys other, larger sawmill (Waldo Mill) is correct and properly reflected on the Companys books and records. In addition, analyses of the overstated inventory were conducted to make corrections to the
respective periods impacted. From these analyses and due to the impact on the reported financial results for the Companys Mills segment in certain of the periods, the Company determined it was appropriate to amend and restate its previously
filed reports.



Effects of Restatement



The following tables set forth the effects of the restatement relating to
the Companys inventory of third-party purchases of standing timber used to supply its sawmills on affected line items within our previously reported Consolidated Statements of Income for the years 2002 through 2004, for the third quarter of
2002, and for each quarter in 2003 and 2004. The restatement has an immaterial effect on the Companys Consolidated Balance Sheet at the end of each of the restated periods and has no effect on the timing or amount of net cash flows.



|                                                                  |  |       |        |   |      |   |       |      |  |       |      |  |       |  
|----------------------------------------------------------------- |  | ----- | ------ | - | ---- | - | ----- | ---- |  | ----- | ---- |  | ----- | -
|Income/(Expense) (Thousands of dollars, except per share amounts) |  | Total |        |   | 2004 |   |       | 2003 |  |       | 2002 | 
|Cost of sales                                                     |  | $     | (2,024 | ) |      |   | (868  | )    |  | (783  | )    |  | (373  | )
|Income taxes                                                      |  |       | 709    |   |      |   | 304   |      |  | 274   |      |  | 131   |  
|                                                                  |  |       |        |   |      |   |       |      |  |       |      |  |       |  
|Net income/(loss)                                                 |  |       | (1,315 | ) |      |   | (564  | )    |  | (509  | )    |  | (242  | )
|                                                                  |  |       |        |   |      |   |       |      |  |       |      |  |       |  
|Earnings per common share                                         |  |       |        |   |      |   |       |      |  |       |      |  |       |  
|Basic                                                             |  |       |        |   |      | $ | (0.04 | )    |  | (0.04 | )    |  | (0.02 | )
|Assuming dilution                                                 |  |       |        |   |      |   | (0.05 | )    |  | (0.04 | )    |  | (0.02 | )



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|                                                                 |  |       |      |   |              |   |       |               |  |     |              |  |       |               |  |       |  
|---------------------------------------------------------------- |  | ----- | ---- | - | ------------ | - | ----- | ------------- |  | --- | ------------ |  | ----- | ------------- |  | ----- | -
|                                                                 |  | 2004  |     
|Income/(Expense) (Thousand of dollars, except per share amounts) |  | Total |      |   | FirstQuarter |   |       | SecondQuarter |  |     | ThirdQuarter |  |       | FourthQuarter | 
|Cost of sales                                                    |  | $     | (868 | ) |              |   | 66    |               |  | (1  | )            |  | (731  | )             |  | (202  | )
|Income taxes                                                     |  |       | 304  |   |              |   | (23   | )             |  |    |              |  | 256   |               |  | 71    |  
|                                                                 |  |       |      |   |              |   |       |               |  |     |              |  |       |               |  |       |  
|Net income/(loss)                                                |  |       | (564 | ) |              |   | 43    |               |  | (1  | )            |  | (475  | )             |  | (131  | )
|                                                                 |  |       |      |   |              |   |       |               |  |     |              |  |       |               |  |       |  
|Earnings per common share                                        |  |       |      |   |              |   |       |               |  |     |              |  |       |               |  |       |  
|Basic                                                            |  |       |      |   |              | $ |      |               |  |    |              |  | (0.03 | )             |  | (0.01 | )
|Assuming dilution                                                |  |       |      |   |              |   |      |               |  |    |              |  | (0.04 | )             |  | (0.01 | )
|                                                                 | 
|                                                                 |  | 2003  |     
|Income/(Expense) (Thousand of dollars, except per share amounts) |  | Total |      |   | FirstQuarter |   |       | SecondQuarter |  |     | ThirdQuarter |  |       | FourthQuarter | 
|Cost of sales                                                    |  | $     | (783 | ) |              |   | (165  | )             |  | (17 | )            |  | (234  | )             |  | (367  | )
|Income taxes                                                     |  |       | 274  |   |              |   | 58    |               |  | 6   |              |  | 82    |               |  | 128   |  
|                                                                 |  |       |      |   |              |   |       |               |  |     |              |  |       |               |  |       |  
|Net income/(loss)                                                |  |       | (509 | ) |              |   | (107  | )             |  | (11 | )            |  | (152  | )             |  | (239  | )
|                                                                 |  |       |      |   |              |   |       |               |  |     |              |  |       |               |  |       |  
|Earnings per common share                                        |  |       |      |   |              |   |       |               |  |     |              |  |       |               |  |       |  
|Basic                                                            |  |       |      |   |              | $ | (0.01 | )             |  |    |              |  | (0.01 | )             |  | (0.02 | )
|Assuming dilution                                                |  |       |      |   |              |   | (0.01 | )             |  |    |              |  | (0.01 | )             |  | (0.02 | )
|                                                                 | 
|                                                                 |  | 2002  |     
|Income/(Expense) (Thousand of dollars, except per share amounts) |  | Total |      |   | FirstQuarter |   |       | SecondQuarter |  |     | ThirdQuarter |  |       | FourthQuarter | 
|Cost of sales                                                    |  | $     | (373 | ) |              |   |      |               |  |    |              |  | (373  | )             |  |      |  
|Income taxes                                                     |  |       | 131  |   |              |   |      |               |  |    |              |  | 131   |               |  |      |  
|                                                                 |  |       |      |   |              |   |       |               |  |     |              |  |       |               |  |       |  
|Net income/(loss)                                                |  |       | (242 | ) |              |   |      |               |  |    |              |  | (242  | )             |  |      |  
|                                                                 |  |       |      |   |              |   |       |               |  |     |              |  |       |               |  |       |  
|Earnings per common share                                        |  |       |      |   |              |   |       |               |  |     |              |  |       |               |  |       |  
|Basic                                                            |  |       |      |   |              | $ |      |               |  |    |              |  | (0.02 | )             |  |      |  
|Assuming dilution                                                |  |       |      |   |              |   |      |               |  |    |              |  | (0.02 | )             |  |      |  



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For additional information relating to the effect of the restatement, see the following items:



Part II



|          |  |                                                                                      
|--------- |  | -------------------------------------------------------------------------------------
|Item 6   |  | Selected Financial Data                                                              
|          | 
|Item 7   |  | Managements Discussion and Analysis of Results of Operations and Financial Condition
|          | 
|Item 8   |  | Financial Statements and Supplementary Data                                          
|          | 
|Item 9A  |  | Controls and Procedures                                                              



In light of the restatement, readers
should no longer rely on Deltics previously filed financial statements and other financial information for the years 2002 through 2004, for the third quarter of 2002, and for each quarter in 2003 and 2004.



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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 and the manufacture and marketing of lumber. Deltic owns approximately 436,300 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 (MDF). Deltic is a calendar-year company for both financial and income tax reporting.



The Company is organized into four segments: (1) Woodlands, which manages the Companys timberlands; (2) Mills, which consists of Deltics two
sawmills that manufacture a variety of lumber products; (3) Real Estate, which includes the Companys four real estate developments and a related country club operation; and (4) Corporate, which consists of executive management, planning,
accounting, information systems, human resources, purchasing, 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.)



The Companys
timberlands consist primarily of Southern Pine, known in the industry as a type of softwood. Deltic considers its timberlands to be the Companys most valuable asset and the harvest of stumpage to be its most significant source of
income; accordingly, Deltic actively manages its timberlands in order to increase productivity and maximize the long-term value of these timber assets. The Company harvests timber from the timberlands in accordance with its harvest plans and sells
such timber in the domestic market or converts it to lumber in its sawmills. Stumpage supplied to the Companys sawmills is transferred at prices that approximate market. The Company implemented a timberland acquisition program in late 1996,
and this ongoing program has enabled the Company to increase harvest levels over time, while expanding its timber inventory. Thus far, the Company has focused its acquisition program on timberland in its current operating area. The Company also
initiated a program in 1999 to identify for possible sale non-strategic timberland and higher and better use lands.



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 standards for production quality. In addition, each mill is strategically located near significant portions of the timberlands. The mills produce a variety of lumber products, including dimension lumber, boards, timbers, decking,
and secondary manufacturing products, such as finger-jointed studs. These lumber products are sold primarily to wholesale distributors, lumber treaters, and truss manufacturers in the South and Midwest and are used mainly in residential
construction, roof trusses, and laminated beams. Combined annual capacity of the two mills at December 31, 2004 was 300 million board feet (MMBF). The Companys total finished lumber production was 224 MMBF in 2004 compared to 215
MMBF in 2003 and 203 MMBF in 2002. The current year increase was due to increased operating efficiencies achieved in 2004.



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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. The property is being developed in stages, and real estate sales
to-date have consisted primarily of residential lots, which are sold to builders or individuals, and commercial sites. In addition to Chenal Valley, Deltic has developed Chenal Downs, a 400-acre development located just outside Chenal Valley, and
Red Oak Ridge, an 800-acre development in Hot Springs, Arkansas. Also, the Company disclosed in 2004 plans for The Ridges at Nowlin Creek, an upscale, 1,170-acre, low-impact residential development located just west of Chenal Valley, that will
feature state-of-the-art best-management practices to protect water quality in response to its site adjacent to Lake Maumelle.



The Del-Tin Fiber plant is located near El Dorado, Arkansas. Construction of the plant was completed, and initial production began, in 1998. 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 moulding industries, is
manufactured from sawmill residuals such as chips, shavings, and sawdust, held together by an adhesive bond.



From the time production began at Del-Tin Fiber in 1998 until the fourth quarter of 2003, both operating and financial performance were below the
expectations established at the time that the decision to construct the plant was made. As a result, on April 25, 2002, Deltic announced that Banc One Capital Markets, Inc. had been retained as financial advisor to assist in the evaluation of
strategic alternatives for the Companys investment in Del-Tin Fiber. Subsequently, Deltics management and Board of Directors completed its review of these strategic alternatives and announced the Company intended to exit the MDF business
upon the earliest, reasonable opportunity provided by the market. As a result of this decision, the Companys evaluation of possible impairment of the carrying value of its investment in the joint-venture was based primarily upon the estimated
cash flows from a sale of the Companys interest during 2003 and resulted in a determination that the Companys investment was impaired as of December 31, 2002. The investment was written off, to zero, and the write-off amounted to $18.7
million before income taxes.



Due to the Companys
commitment to fund its share of any of the facilitys operating working capital needs until the facility was able to consistently generate sufficient funds to meet its cash requirements or Deltics ownership was sold, the Company
recognized losses in Del-Tin Fiber equal to the extent of these advances during 2003. For the year of 2003, such advances approximated the Companys equity share of losses for the plant; accordingly, the investment in Del-Tin Fiber at December
31, 2003, was zero. The Company also continued to utilize its management resources to work with Del-Tins management and the joint-venture partner to improve operating performance at the plant. As a result of these improvements, on December 11,
2003, Deltics Board of Directors revised its intent regarding the Companys investment in Del-Tin Fiber and ceased efforts to sell the Companys interest in the joint venture, while continuing to focus on improving operating and
financial results of the plant. Due to this decision, the 2003 evaluation of fair value for the investment was based primarily upon the future net cash flows from Del-Tin Fibers operations over the remaining life of the plant. The estimated
fair value from this evaluation indicated that no impairment existed as of December 31, 2003. In 2004, the Company recorded its equity share of the operating results of the joint venture.



Forest Products Industry



With the exception of its diversification in real estate development, Deltic is primarily a wood products producer operating in a commodity-based business
environment. This environment is affected by a number of factors, including general economic conditions, interest rates, foreign exchange rates, housing starts, residential repair and remodeling, commercial construction, industry capacity and
production levels, the availability of raw material, and weather conditions. Robust housing starts in the U.S. and Canada, fueled by historically low mortgage interest rates, increased demand for softwood lumber products during 2004. This demand
resulted in significant improvements in average lumber prices when compared to 2003. Given its relative size and the nature of most commodity markets, the Company has little or no control over pricing levels for its wood products.



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##### Table of Contents

Although lumber prices improved significantly in 2004, Deltics average pine sawtimber price was
unchanged. Over the past three years, pine sawtimber prices have remained relatively stable while lumber prices have been volatile.



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 436,000 acres of timberland, primarily in Arkansas and north Louisiana, stocked principally
with Southern Pine. 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.



The approximate breakdown of the Companys timberland acreage at
year-end 2004 consisted of the following:



|                |  |        
|--------------- |  | -------
|                |  | Acres  
|Pine forest     |  | 236,300
|Pine plantation |  | 150,000
|Hardwood forest |  | 30,000 
|Other           |  | 20,000 
|                |  |        
|Total           |  | 436,300
|                |  |        



The Companys
timberlands are well diversified by age class. The timberland classified as pine forest is primarily managed on an all-aged basis and contains mature timber that is ready to be harvested over the next several years and includes stream-management
zones. Pine plantations are primarily less than 25 years old, with the majority ranging in age from 10 to 20 years. Because pine timber generally does not reach sawtimber size until it is 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, 2004, consisted of the following:



|                |  |                      
|--------------- |  | ---------------------
|                |  | EstimatedVolume(Tons)
|Pine timber     |  |                      
|Sawtimber       |  | 11,355,500           
|Pulpwood        |  | 5,622,000            
|Hardwood timber |  |                      
|Sawtimber       |  | 996,300              
|Pulpwood        |  | 1,217,700            



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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 pine plantations.



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 removal programs, and the introduction of genetically improved seedlings.



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. However, this process does not involve genetic engineering. The seedlings are planted in all-aged stands or a site is completely replanted in the case of a regeneration harvest.
During 2004, about 8,500 acres were planted, primarily using seedlings grown from seeds produced at the orchard facility, with another approximately 6,500 acres scheduled to be planted in 2005, as the Company continues to reforest 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.



The Companys cull timber removal program is designed to control undesirable, competitive vegetation in its forests and to increase pine growth rates
and reproduction. Deltic treated about 13,000 acres in 2004 and 15,000 acres in 2003 under this program.



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 on an ongoing basis at levels that would
diminish its timber inventory. In 2004, the Company harvested 578,224 tons of pine sawtimber from its timberlands. Under the current plan, Deltic intends to harvest between 550,000 and 575,000 tons of pine sawtimber in 2005.



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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 for its properties. Deltic leased approximately 397,000 acres and 389,000 acres to hunting clubs in 2004 and 2003, 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. The Company also works with the Arkansas Game and Fish Commission to re-establish the black bear population in South Arkansas.



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 provided harvest planning, silvicultural improvements, and maintenance work for approximately 60,000 acres in 2004.



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.



The Company intends to continue to focus its acquisition program on timberlands 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 121,900 acres of strategically located pine timberland have been added
since the inception of the program. Individual land purchases have ranged from 20 acres to 21,700 acres.



Land Sales. In 1999, the Company initiated a program to identify for possible sale non-strategic timberland and higher and better use lands. Sales
totaled 5,254 acres in 2000, 3,315 acres in 2001, 3,418 acres in 2002, 4,130 acres in 2003, and 1,150 acres in 2004.



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



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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 wholesale distributors, lumber treaters, and truss manufacturers in the South and Midwest and is used in residential construction, roof trusses, and laminated beams.



Combined annual production capacity of the two mills increased from 226 MMBF
at year-end 1999 to 300 MMBF at year-end 2003 following the completion of planned upgrades at both mills and remained at 300 MMBF at year-end 2004. The Companys lumber output increased during 2004, with production totaling 224 MMBF in 2004
compared to 215 MMBF in 2003 and 203 MMBF in 2002. These increases were due to increased operating efficiencies achieved in 2004 and 2003.



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: (1) installation of a curve sawing gang and double length infeed to improve log recovery, increase hourly output, and expand product mix
(2) the installation of an optimized edger system to increase lumber recovery (3) replacement of the existing planermill with a high-speed planermill and automated sorting system to increase mill output (4) construction of a small log processing
system which extracts small diameter logs from pulpwood, thus reducing average log costs (5) addition of a boiler system and steam dry kilns to increase mill capacity and provide the capability to produce higher value lumber and (6) expansion of log
storage capacity to enable increased production as market conditions improve.



At the Waldo Mill, major capital projects completed over the past several years include: (1) installation of a curve sawing gang to improve log recovery, increase hourly output, and expand product mix (2) installation
of a new edger and optimizer to improve recovery (3) installation of a log optimization system to improve lumber recovery (4) extension of the green lumber sorter to increase planermill throughput (5) addition of finger-jointing and remanufacturing
facilities which add value to existing production (6) construction of a new high speed planermill and automated sorting system that provide the finishing capacity necessary to operate two shifts at the sawmill and (7) installation of a second log
debarker in order to further improve hourly throughput capability.



Raw Materials. In 2004, the Companys two sawmills processed 1,026,851 tons of logs, obtained from either the timberlands or purchased from public and private landowners. The timberlands supplied 47 percent, or 482,512 tons, of
the mills raw material receipt requirements, while the mills obtained 83 percent of the 578,224 tons of pine sawtimber harvested from the timberlands.



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
function for each of its sawmills. As of December 31, 2004, the Company had under contract 146,026 tons (Restated) of timber on land owned by other parties, including the U.S. Forest Service, which is expected to be harvested over the next
three years. During 2004, the Company harvested third-party stumpage and purchased logs from third parties totaling 519,410 tons . Of this volume, purchases from the U.S. Forest Service represented six percent. The balance of such volume was
acquired from private lands.



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As a result of the reduced availability of federal timber in recent years, demand, along with prices, for
privately owned timber has increased, 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. 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 that expires in 2008.



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. Development activities began with the construction of Chenal Ridge, an 85-lot neighborhood on the western edge of the Little Rock city limits as of 1985. Since that time the Company has been developing Chenal Valley, a
4,800-acre upscale planned community, centered around two Robert Trent Jones, Jr. designed golf courses. The first golf course was completed in 1990. Construction of the second course began in 2001, and was opened for play in the summer of 2003. 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. In addition to Chenal Valley, Deltic is developing Chenal Downs, located just
outside of Chenal Valley, and Red Oak Ridge, in Hot Springs, Arkansas. Chenal Downs is a 400-acre equestrian development with controlled access, featuring secluded, five-acre lots. 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. Also, the Company disclosed in 2004 plans for The Ridges at Nowlin Creek, an upscale, 1,170-acre, low-impact residential development located just
west of Chenal Valley, that will feature state-of-the-art best-management practices to protect water quality in response to its site adjacent to Lake Maumelle.



Chenal Valley is one of the premier upscale residential and commercial developments in the Little Rock real estate market. All acreage in Chenal Valley
has been annexed by the City of Little Rock. Red Oak Ridge has been similarly annexed by the City of Hot Springs. Both Chenal Downs and The Ridges at Nowlin Creek are located just outside the Little Rock city limits.



Residential Development. Lots were offered for sale in Chenal Ridge
during the second half of 1986 with closings beginning in 1987, and all 85 lots have been sold. Residential sales in Chenal Valley began in 1989. To date, 2,049 lots have been developed in 24 neighborhoods and 1,999 lots have been sold, with about
1,789 residences constructed or under construction. When fully developed, Chenal Valley will include approximately 4,600 residences. The Company has developed lots in a wide variety of market segments. Lot



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size has ranged from 0.2 acres to 1 acre, and lot price has ranged from $25,000 per lot to over $250,000 per lot.



The first phase of Chenal Downs was opened in December 1997, followed by a
second phase in November 2000, with 47 of the 76 lots developed in the two phases sold by the end of 2004. Lot prices in Chenal Downs range from $89,000 to approximately $170,000. In Red Oak Ridge, the first two neighborhoods were offered for sale
in late 1998. These neighborhoods offer a choice of either estate-sized homesites, with many overlooking one of two Deltic-constructed lakes, or garden-home lots. As of the end of 2004, 32 of the 81 lots offered have been sold, and prices for lots
currently offered range from about $30,000 to almost $83,000. Construction activity at The Ridges at Nowlin Creek is scheduled to begin in 2005. The development will be comprised of estate-sized lots, with expected lot prices to range from $300,000
to $500,000.



Commercial Development. Commercial
development in Chenal Valley began with the construction of a Company-owned, 50,000-square-foot office building, which was sold during 2000. Commercial activity to-date has consisted of the sale of approximately 239 acres, including .53 acres in
2002, 72 acres in 2003, and 4 acres in 2004 . Commercial property sales to-date have consisted of retail store locations, an office building constructed by the Company on a nine-acre site, multi-family residence sites, convenience store locations,
and outparcels surrounding a retail center constructed and owned by the Company. When fully developed, Chenal Valley is planned to include 710 acres of commercial property.



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 16
outparcels, ranging in size from 0.2 to 1.8 acres. To-date, ten of these outparcels have been sold.



No commercial acreage is included in the Chenal Downs or The Ridges at Nowlin Creek developments. Red Oak Ridge is planned to include approximately 80
acres of commercial property. The Company will begin to develop and offer commercial sites as population density increases.



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 primarily necessary
for the development and sale of additional property.



Development Amenities. In connection with its Chenal Valley development, the Company developed Chenal Country Club, consisting of the above-described golf courses, a clubhouse, and related facilities for use by club members. Since
its original construction, Deltic has undertaken substantial remodeling and expansion of the clubhouse as the club membership level has increased. In addition, the Company has built three community parks within the Chenal Valley development for the
benefit of the residents of the currently developed residential areas.



Chenal Downs has been developed around an equestrian center, consisting of stables and a training facility, and also includes bridle trails throughout the development. Red Oak Ridges primary amenities currently consist of two lakes,
constructed by the Company, and a community park, which is currently under construction.



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.



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Chenal Downs has been fully developed. Development of Red Oak Ridge is in the early stages, consisting of
the construction of two lakes as the core amenity, initial infrastructure placement, and the first two of several planned neighborhoods.



The Company owns approximately 58,000 mostly contiguous acres, the eastern border of which begins about two miles west of Chenal Valley. Continued
development in the growth corridor of west Little Rock has significantly affected land values in the area, and is expected to create real estate development opportunities for much of this land. As mentioned, in 2004, the Company initiated the
governmental approval process by filing a preliminary plat with the City of Little Rock Planning Commission for its first real estate development in this acreage. This 1,170 acre upscale development, called The Ridges at Nowlin Creek, is slated to
be comprised of estate-sized lots and is planned for development in four stages.



Undeveloped Acreage. The success of Chenal Valley has increased the value of the Companys undeveloped real estate surrounding the development. Sales of undeveloped real estate amounted to 22 acres in
2002, zero acres in 2003, and 94 acres in 2004.



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 was completed, and initial production began, in 1998. 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.



From the time production began at Del-Tin Fiber in 1998 until the fourth quarter of 2003, both operating and financial performance were below the
expectations established at the time that the decision to construct the plant was made. As a result, on April 25, 2002, Deltic announced that Banc One Capital Markets, Inc. had been retained as financial advisor to assist in the evaluation of
strategic alternatives for the Companys investment in Del-Tin Fiber. Subsequently, Deltics management and Board of Directors completed its review of these strategic alternatives and announced the Company intended to exit the MDF business
upon the earliest, reasonable opportunity provided by the market. As a result of this decision, the Companys evaluation of possible impairment of the carrying value of its investment in the joint-venture was based primarily upon the estimated
cash flows from a sale of the Companys interest during 2003 and resulted in a determination that the Companys investment was impaired as of December 31, 2002. The investment was written off, to zero, and the write-off amounted to $18.7
million before income taxes.



Due to the Companys
commitment to fund its share of any of the facilitys operating working capital needs until the facility was able to consistently generate sufficient funds to meet its cash requirements or Deltics ownership was sold, the Company
recognized losses in Del-Tin Fiber equal to the extent of these advances during 2003. For the year of 2003, such advances approximated the Companys equity share of losses for the plant; accordingly, the investment in Del-Tin Fiber at December
31, 2003, was zero. The Company also continued to utilize its management resources to work with Del-Tins management and the joint-venture partner to improve operating performance at the plant. As a result of these improvements, on December 11,
2003, Deltics Board of Directors revised its intent regarding the Companys investment in Del-Tin Fiber and ceased efforts to sell the Companys interest in the joint venture, while continuing to focus on improving operating and
financial results of the plant. Due to this decision, the 2003 evaluation of fair value for the investment was based primarily upon the future net cash flows from Del-Tin Fibers operations over the remaining life of the plant. The estimated
fair value from this evaluation indicated that no impairment existed as of December 31, 2003. In 2004, the Company resumed equity method accounting and recorded its equity share of the operating results of the joint venture.



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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 148 MMSF of MDF in 2004 versus 133 MMSF
of MDF in 2003 and 97 MMSF during 2002. Prior to 2003, 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. 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 capital
project to modify this system, the plant resumed operations in June 2001. Rectification of the heat energy system has enabled the plants operations to increase production levels closer to the plants capacity of 150 MMSF per year, as
market conditions improved. In addition, manufacturing cost per thousand square feet has decreased, as certain variable costs of manufacturing have been lowered and fixed costs for the facility are being allocated to the increased production.



Raw Materials. The Del-Tin plant provides an additional
outlet for wood chip production from the Waldo Mill. Pursuant to a fiber supply agreement that expires in 2008, the Company has agreed to sell, and Del-Tin Fiber to buy, substantially all residual wood chips from the Waldo Mill. 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 2004, 2003, and 2002, Deltic sold approximately $3,890,000, $4,099,000, and $3,018,000, respectively, of
these lumber manufacturing by-products to Del-Tin Fiber.



Discontinued
Agriculture Operations



In August 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 tax-deferred exchanges. 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. The sale of all farmland and related agriculture operational assets, as well as the acquisition of replacement property in the form of timberland, was successfully concluded during 2001. This initiative 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; timberland; 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 13 percent, nine percent, and six percent of consolidated net sales in 2002, 2003, and 2004, 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 manufacturing facilities, and accessibility.



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 three percent, six percent, and one percent of consolidated net sales in 2002, 2003, and 2004, respectively.



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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 wholesaler distributor, lumber treaters, and truss manufacturers in the South and Midwest and is used in residential
construction, roof trusses, and laminated beams. During 2002, 2003, and 2004, lumber sales as a percentage of consolidated net sales were approximately 57 percent, 45 percent, and 59 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 the U.S., many of which
have significantly greater financial resources than the Company, as well as privately held lumber producers. The Company also competes with producers in Canada and overseas, regions that have increased their share of the U.S. lumber market in recent
years. 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 2002, 2003, and 2004, sales of these residual products accounted for nine percent, seven 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 2004, Deltics sawmills produced 326,315 tons of wood chips. 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 markets 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 2002, 2003, and 2004, the sales of residential lots, commercial sites, and undeveloped acreage as a percentage of consolidated net sales were
10 percent, 21 percent, and 17 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 18 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of Part II of this report.



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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 2004, the Company acquired approximately nine 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 is not involved with any such sites as of this time. The Company
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.



Access to SEC Filings



The Company maintains an internet website at www.deltic.com. The Company makes available free of charge under the Investor Relations section of its
website its annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and all amendments to any of those reports, as soon as reasonably practicable after providing such reports to the Securities and Exchange
Commission.



Employees



As of January 31, 2005, the Company had 519 employees.



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|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, 2004, 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)                    |  | (Restated)
|Timberlands                               |  | $          | 79,650 
|Fee timber and logging facilities         |  |            | 198,184
|Purchased stumpage inventory              |  |            | 4,949  
|Real estate held for development and sale |  |            | 37,418 
|Land and land improvements                |  |            | 4,393  
|Buildings and structures                  |  |            | 5,402  
|Machinery and equipment                   |  |            | 74,572 
|                                          |  |            |        
|                                          |  | $          | 404,568
|                                          |  |            |        



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 third-party timber, net of amounts harvested. 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 improvements at the Companys two sawmill locations. Buildings and structures and Machinery and
equipment primarily consist of the sawmill buildings and equipment and the Companys two real estate sales offices.



The Company owns all of the properties discussed above. Other than approximately $.1 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.



Executive Officers of the Registrant



The age (at January 1, 2005), 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.



19



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Ray C. Dillon - Age 49; President and Chief Executive Officer and a director of the Company effective
July 1, 2003. Prior to joining the Company, Mr. Dillon was employed at Gaylord Container Corporation, where from April, 2000 through December, 2002, he was Executive Vice President, and preceding his election as Executive Vice President, he was Vice
President, Primary Product Operations from April 1997.



Clefton
D. Vaughan - Age 63; Vice President, Treasurer, and Chief Financial Officer 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 52; 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.



Kent L. Streeter - Age 44; Vice President of Operations effective November 16, 2003. Prior to joining the Company, Mr. Streeter was Operations Manager of
a large paper mill located in the Southeastern United States from January 1997, which has been owned since April 2002, by Temple-Inland, Inc. and prior to that by Gaylord Container Corporation.



David V. Meghreblian - Age 46; Vice President of Real Estate effective
November 16, 2003. From May 2000 to November 2003, Mr. Meghreblian was Vice President of Operations for the Company. From November 1996 to April 2000, Mr. Meghreblian was General Manager of Planning and Investor Relations for Deltic. Prior to such
time, Mr. Meghreblian was General Manager of Project Development, a position he held beginning in November 1995.



Kenneth D. Mann - Age 45; Controller effective September 1, 2004. From September 1, 2002 to September 2004, Mr. Mann was Manager of Corporate Governance
and Investor Relations for the Company. From July 2000 to September 2002, Mr. Mann was Assistant Controller and Manager of Investor Relations. Prior to such time, Mr. Mann was Assistant Controller, a position he held beginning January 1997.



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##### Table of Contents

PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
|------- | -------------------------------------------------------------------------------------------------------------



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 Prices1 |       | Dividend perCommon Share
|               |  | High          |       | Low                      |       | Close2 |      
|2004           |  |               |       |                          |       |        |       |  |      
|First Quarter  |  | $             | 36.04 |                          | 30.70 |        | 35.48 |  | .0625
|Second Quarter |  | $             | 38.50 |                          | 33.26 |        | 38.40 |  | .0625
|Third Quarter  |  | $             | 40.14 |                          | 33.34 |        | 39.79 |  | .0625
|Fourth Quarter |  | $             | 45.99 |                          | 38.70 |        | 42.45 |  | .0625
|               |  |               |       |                         
|2003           |  |               |       |                          |       |        |       |  |      
|First Quarter  |  | $             | 28.86 |                          | 23.35 |        | 23.90 |  | .0625
|Second Quarter |  | $             | 28.65 |                          | 23.85 |        | 28.45 |  | .0625
|Third Quarter  |  | $             | 33.70 |                          | 27.70 |        | 28.92 |  | .0625
|Fourth Quarter |  | $             | 31.34 |                          | 27.96 |        | 30.40 |  | .0625



|1 | Daily closing price.
|- | --------------------



|2 | At period end.
|- | --------------



Common stock dividends were declared for each quarter during 2004 and 2003. As of January 31, 2005, there were approximately 1,528 stockholders of record
of Deltics common stock.



In December 2000, the
Companys Board of Directors authorized a stock repurchase plan of up to $10 million of Deltic common stock. There is no stated expiration dated regarding this authorization. During the first nine months of 2004, no shares were repurchased
under this program. Information pertaining to this plan for the fourth quarter of 2004 is presented in the table below.



|                                     |  |                                |  |                            |  |                                                                               |  |                                                                                               |          
|------------------------------------ |  | ------------------------------ |  | -------------------------- |  | ----------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------- | ---------
|Period                               |  | Total Numberof SharesPurchased |  | AveragePrice PaidPer Share |  | Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs |  | Maximum ApproximateDollar Value of Sharesthat May Yet BePurchased Under thePlans or Programs2
|October 1 through October 31, 2004   |  |                               |  |                           |  |                                                                              |  | $                                                                                             | 7,851,000
|                                     |  |                                |  |                           
|November 1 through November 30, 2004 |  |                               |  |                           |  |                                                                              |  | $                                                                                             | 7,851,000
|                                     |  |                                |  |                           
|December 1 through December 31, 2004 |  |                               |  |                           |  |                                                                              |  | $                                                                                             | 7,851,000



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##### Table of Contents

|Item 6. | Selected Financial Data
|------- | -----------------------



The selected financial data set forth in this Item 6 have been restated to reflect adjustments to the Companys Consolidated Financial Statements and
other financial information contained in its Annual Report on Form 10-K for the year ended December 31, 2004, originally filed with the U.S. Securities and Exchange Commission on March 11, 2005 (refer to 2005 Restatement beginning on
page 3). The following selected financial data should be read in conjunction with Deltics restated financial statements and the related Notes to Consolidated Financial Statements.



The following table presents certain selected consolidated financial data for each of the years in the five-year period
ended December 31, 2004:



|                                                 |  |            |         |   |            |         |   |            |         |   |      |         |   |      |         |  
|------------------------------------------------ |  | ---------- | ------- | - | ---------- | ------- | - | ---------- | ------- | - | ---- | ------- | - | ---- | ------- | -
|(Thousands of dollars, except per share amounts) |  | 2004       |         |   | 2003       |         |   | 2002*      |         |   | 2001 |         |   | 2000 |        
|                                                 |  | (Restated) |         |   | (Restated) |         |   | (Restated) |         |   |      |         |   |      |        
|Results of Operations for the Year               |  |            |         |   |            |         |   |            |         |   |      |         |   |      |         |  
|Net sales                                        |  | $          | 142,017 |   |            | 134,915 |   |            | 104,512 |   |      | 106,011 |   |      | 109,531 |  
|Operating income/(loss)                          |  | $          | 23,155  |   |            | 23,857  |   |            | 10,324  |   |      | 15,824  |   |      | 18,114  |  
|Income/(loss) from continuing operations         |  | $          | 11,093  |   |            | 8,194   |   |            | (13,881 | ) |      | 1,623   |   |      | 2,701   |  
|Net income/(loss)                                |  | $          | 11,093  |   |            | 8,194   |   |            | (13,881 | ) |      | 9,980   |   |      | 13,557  |  
|Comprehensive income/(loss)                      |  | $          | 11,205  |   |            | 8,070   |   |            | (13,881 | ) |      | 9,980   |   |      | 13,557  |  
|Earnings per common share                        |  |            |         |   |            |         |   |            |         |   |      |         |   |      |         |  
|Basic                                            |  |            |         |   |            |         |   |            |         |   |      |         |   |      |         |  
|Continuing operations                            |  | $          | .92     |   |            | .69     |   |            | (1.35   | ) |      | (.05    | ) |      | .04     |  
|Net income/(loss)                                |  | $          | .92     |   |            | .69     |   |            | (1.35   | ) |      | .65     |   |      | .93     |  
|Assuming dilution                                |  |            |         |   |            |         |   |            |         |   |      |         |   |      |         |  
|Continuing operations                            |  | $          | .91     |   |            | .69     |   |            | (1.35   | ) |      | (.05    | ) |      | .04     |  
|Net income/(loss)                                |  | $          | .91     |   |            | .69     |   |            | (1.35   | ) |      | .65     |   |      | .93     |  
|Cash dividends declared per common share         |  | $          | .25     |   |            | .25     |   |            | .25     |   |      | .25     |   |      | .25     |  
|Net cash provided/(required) by                  |  |            |         |   |            |         |   |            |         |   |      |         |   |      |         |  
|Operating activities                             |  | $          | 42,147  |   |            | 44,209  |   |            | 32,079  |   |      | 41,238  |   |      | 42,919  |  
|Investing activities                             |  | $          | (15,723 | ) |            | (39,302 | ) |            | (34,905 | ) |      | (25,390 | ) |      | (63,634 | )
|Financing activities                             |  | $          | (27,252 | ) |            | (4,277  | ) |            | (2,239  | ) |      | (12,438 | ) |      | 18,645  |  
|Percentage return on                             |  |            |         |   |            |         |   |            |         |   |      |         |   |      |         |  
|Average stockholders equity                     |  |            | 6.3     |   |            | 5.0     |   |            | (7.7    | ) |      | 5.5     |   |      | 7.7     |  
|Average borrowed and invested capital            |  |            | 6.2     |   |            | 5.3     |   |            | (3.2    | ) |      | 5.3     |   |      | 6.9     |  
|Average total assets                             |  |            | 3.6     |   |            | 2.6     |   |            | (4.3    | ) |      | 3.0     |   |      | 4.8     |  
|                                                 |  |            |         |   |           
|Capital Expenditures for the Year                |  |            |         |   |            |         |   |            |         |   |      |         |   |      |         |  
|Woodlands                                        |  | $          | 6,686   |   |            | 12,408  |   |            | 5,175   |   |      | 44,432  |   |      | 24,975  |  
|Mills                                            |  |            | 4,797   |   |            | 3,405   |   |            | 3,571   |   |      | 5,861   |   |      | 8,386   |  
|Real Estate                                      |  |            | 12,519  |   |            | 11,198  |   |            | 15,378  |   |      | 13,514  |   |      | 9,667   |  
|Corporate                                        |  |            | 165     |   |            | 211     |   |            | 113     |   |      | 150     |   |      | 320     |  
|Discontinued agriculture operations              |  |            |        |   |            |        |   |            |        |   |      |        |   |      | 53      |  
|                                                 |  |            |         |   |            |         |   |            |         |   |      |         |   |      |         |  
|                                                 |  | $          | 24,167  |   |            | 27,222  |   |            | 24,237  |   |      | 63,957  |   |      | 43,401  |  
|                                                 |  |            |         |   |            |         |   |            |         |   |      |         |   |      |         |  



|* | Includes the write-off of the Companys investment in Del-Tin Fiber of $18,723,000, $11,440,000 net of related deferred income taxes of $7,283,000.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|                                             |  |            |           |            |           |            |           |      |           |      |          
|-------------------------------------------- |  | ---------- | --------- | ---------- | --------- | ---------- | --------- | ---- | --------- | ---- | ---------
|(Thousands of dollars)                       |  | 2004       |           | 2003       |           | 2002       |           | 2001 |           | 2000
|                                             |  | (Restated) |           | (Restated) |           | (Restated) |           |      |           |     
|Financial Condition at Year-End              |  |            |           |            |           |            |           |      |           |      |          
|Working capital                              |  | $          | 6,481     |            | 7,501     |            | 2,248     |      | 13,015    |      | 10,086   
|Current ratio                                |  |            | 1.73 to 1 |            | 2.08 to 1 |            | 1.2 to 1  |      | 2.8 to 1  |      | 2.4 to 1 
|Total assets                                 |  | $          | 307,580   |            | 313,350   |            | 310,276   |      | 328,380   |      | 322,633  
|Long-term debt                               |  | $          | 85,724    |            | 115,056   |            | 116,120   |      | 84,190    |      | 87,410   
|Redeemable preferred stock                   |  | $          |          |            |          |            |          |      | 30,000    |      | 30,000   
|Stockholders equity                         |  | $          | 184,091   |            | 169,470   |            | 162,707   |      | 180,799   |      | 176,834  
|Long-term debt to stockholders equity ratio |  |            | .466 to 1 |            | .679 to 1 |            | .714 to 1 |      | .466 to 1 |      | .494 to 1



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##### Table of Contents

|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



2005 Restatement



As discussed in Note 1 to the consolidated financial statements, Deltic Timber Corporation (Deltic or the Company) is restating
its financial statements and other financial information for the years 2002 through 2004, for the third quarter of 2002, and for each quarter in 2003 and 2004 in order to correct an overstatement of the carrying value of the Companys inventory
of third-party purchases of standing timber used to supply its Ola sawmill. These corrections relate to the Companys Mills segment of its operations.



The errors identified by the Company relate to the overstatement in the carrying value of Deltics inventory of third-party purchases of standing
timber. In order to operate its sawmills economically, the Company relies on purchases of timber (raw material) from third parties to supplement its own timber harvests from Company owned timberlands. Deltic has an active timber procurement function
for each of its sawmills. Sawmill inventory of third-party purchases of standing timber is comprised of timber purchased by the sawmill from third parties that has not yet been harvested and delivered to the mill. When these types of purchases are
made by the Companys procurement function, ownership of the timber located on the designated tract of land transfers to the Company, however, ownership of the land itself does not transfer. The carrying value of this purchased stumpage
inventory is grouped with the Companys wholly-owned timberlands and reported as the line item Timber and Timberlands on Deltics Consolidated Balance Sheet. Over the past five years, such purchased stumpage inventory has represented 2.3
percent to 5.5 percent of the total Timber and Timberlands line-item balance.



The following tables set forth the effects of the errors, as more fully described in the explanatory statement beginning on page 3, on Deltics previously reported net income/(loss) for the years 2002 through
2004. The effect of the restatement on The Companys Consolidated Balance Sheet at the end of each of the reported periods is immaterial and the restatement had no effect on Deltics net cash flows.



|                                                                              |  |                         |        |    |      |       |    |      |         |   
|----------------------------------------------------------------------------- |  | ----------------------- | ------ | -- | ---- | ----- | -- | ---- | ------- | --
|                                                                              |  | Year ended December 31, |       
|(Thousands of dollars)                                                        |  | 2004                    |        |    | 2003 |       |    | 2002 |        
|Impact on net income/(loss):                                                  |  |                         |        |    |      |       |    |      |         |   
|Cost of sales                                                                 |  | $                       | (868   | )  |      | (783  | )  |      | (373    | ) 
|Income taxes                                                                  |  |                         | 304    |    |      | 274   |    |      | 131     |   
|                                                                              |  |                         |        |    |      |       |    |      |         |   
|Net income/(loss)                                                             |  |                         | (564   | )  |      | (509  | )  |      | (242    | ) 
|                                                                              |  |                         |        |    |      |       |    |      |         |   
|Previously reported net income/(loss) before adjustment                       |  | $                       | 11,657 |    |      | 8,703 |    |      | (13,639 | ) 
|                                                                              |  |                         |        |    |      |       |    |      |         |   
|Percent variation for previously reported net income/(loss) before adjustment |  |                         | (4.8   | )% |      | (5.8  | )% |      | (1.8    | )%
|                                                                              |  |                         |        |    |      |       |    |      |         |   



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|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|---------------------------------------------------------------------- |  | ------------ | ----- | -- | ------------- | ----- | -- | ------------ | ----- | -- | ------------- | ------- | --
|                                                                       |  | 2004         |      
|(Thousand of dollars)                                                  |  | FirstQuarter |       |    | SecondQuarter |       |    | ThirdQuarter |       |    | FourthQuarter |        
|Impact on net income/(loss):                                           |  |              |       |    |               |       |    |              |       |    |               |         |   
|Cost of sales                                                          |  |              | 66    |    |               | (1    | )  |              | (731  | )  |               | (202    | ) 
|Income taxes                                                           |  |              | (23   | )  |               |      |    |              | 256   |    |               | 71      |   
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|Net income/(loss)                                                      |  |              | 43    |    |               | (1    | )  |              | (475  | )  |               | (131    | ) 
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|Previously reported net income/(loss) before adjustment                |  | $            | 1,275 |    |               | 2,750 |    |              | 4,182 |    |               | 3,450   |   
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|Percent variation for previously reported net income before adjustment |  |              | 3.4   | %  |               | 0     | %  |              | (11.4 | )% |               | (3.8    | )%
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|                                                                       | 
|                                                                       |  | 2003         |      
|(Thousand of dollars)                                                  |  | FirstQuarter |       |    | SecondQuarter |       |    | ThirdQuarter |       |    | FourthQuarter |        
|Impact on net income/(loss):                                           |  |              |       |    |               |       |    |              |       |    |               |         |   
|Cost of sales                                                          |  | $            | (165  | )  |               | (17   | )  |              | (234  | )  |               | (367    | ) 
|Income taxes                                                           |  |              | 58    |    |               | 6     |    |              | 82    |    |               | 128     |   
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|Net income/(loss)                                                      |  |              | (107  | )  |               | (11   | )  |              | (152  | )  |               | (239    | ) 
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|Previously reported net income/(loss) before adjustment                |  | $            | 1,214 |    |               | 2,417 |    |              | 334   |    |               | 4,738   |   
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|Percent variation for previously reported net income before adjustment |  |              | (8.8  | )% |               | (0.5  | )% |              | (45.5 | )% |               | (5.0    | )%
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|                                                                       | 
|                                                                       |  | 2002         |      
|(Thousand of dollars)                                                  |  | FirstQuarter |       |    | SecondQuarter |       |    | ThirdQuarter |       |    | FourthQuarter |        
|Impact on net income/(loss):                                           |  |              |       |    |               |       |    |              |       |    |               |         |   
|Cost of sales                                                          |  | $            |      |    |               |      |    |              | (373  | )  |               |        |   
|Income taxes                                                           |  |              |      |    |               |      |    |              | 131   |    |               |        |   
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|Net income/(loss)                                                      |  |              |      |    |               |      |    |              | (242  | )  |               |        |   
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|Previously reported net income/(loss) before adjustment                |  | $            | 821   |    |               | (10   | )  |              | (992  | )  |               | (13,458 | ) 
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   
|Percent variation for previously reported net income before adjustment |  |              | 0     | %  |               | 0     | %  |              | 24.4  | %  |               | 0       | % 
|                                                                       |  |              |       |    |               |       |    |              |       |    |               |         |   



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Introduction



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. Deltic owns approximately 436,000 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 (MDF). Deltic is a calendar-year company for both financial and income tax reporting.



The Company is organized into four segments: (1) Woodlands, which manages the
Companys timberlands; (2) Mills, which consists of Deltics two sawmills that manufacture a variety of lumber products; (3) Real Estate, which includes the Companys real estate developments and a related country club operation; and
(4) Corporate, which consists of executive management, planning, accounting, information systems, human resources, purchasing, 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.)



The Companys timberlands consist primarily of Southern Pine, known in the industry as a type of softwood. Deltic considers its
timberlands to be the Companys most valuable asset and the harvest of stumpage to be its most significant source of income; accordingly, Deltic actively manages its timberlands in order to increase productivity and maximize the long-term value
of these timber assets. The Company harvests timber from the timberlands in accordance with its harvest plans and sells such timber in the domestic market or converts it to lumber in its sawmills. Stumpage supplied to the Companys sawmills is
transferred at prices that approximate market. The Company implemented a timberland acquisition program in late 1996, and this ongoing program has enabled the Company, when desired, to increase harvest levels, while expanding its timber inventory.
Thus far, the Company has focused its acquisition program on timberland in its current operating area. The Company also initiated a program in 1999 to identify for possible sale non-strategic timberland and higher and better use lands. Whenever
possible, the Company structures such sales to qualify as tax-deferred like-kind exchanges.



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 standards for production quality with safety
being one of its highest priorities. In addition, each mill is strategically located near significant portions of the timberlands. The mills produce a variety of lumber products, including dimension lumber, boards, timbers, decking, and secondary
manufacturing products, such as finger-jointed studs. These lumber products are sold primarily to wholesale distributors, lumber treaters, and truss manufacturers in the South and Midwest and are used mainly in residential construction, roof
trusses, and laminated beams.



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. The
property is being developed in stages, and real estate sales to-date have consisted primarily of residential lots, which are sold to builders or individuals, and commercial sites. In addition to Chenal Valley, Deltic has developed Chenal Downs, a
400-acre development located just outside Chenal Valley, and Red Oak Ridge, an 800-acre development in Hot Springs, Arkansas. Also, the Company disclosed in 2004 plans for The Ridges at Nowlin Creek, an upscale, 1,170-acre, low-impact
residential development located just west of Chenal Valley, that will feature state-of-the-art best-management practices to protect water quality in response to its site adjacent to Lake Maumelle.



The Del-Tin Fiber plant is located near El Dorado, Arkansas. Construction of
the plant was completed, and initial production began in 1998. The plant is designed to have a rated 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,



26



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##### Table of Contents

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.



Executive Overview



With the exception of its diversification in real estate development, Deltic
is primarily a wood products producer operating in a commodity-based business environment. This environment is affected by a number of factors, including general economic conditions, interest rates, imports, foreign exchange rates, housing starts,
residential repair and remodeling, commercial construction, industry capacity and production levels, the availability of raw material, and weather conditions. Robust housing starts in the U.S. and Canada, fueled by historically low mortgage interest
rates, increased demand for softwood lumber products during 2004. This demand resulted in significant improvements in average lumber prices when compared to 2003. Given its relative size and the nature of most commodity markets, the Company has
little or no control over pricing levels for its wood products. Therefore, the Company will continually seek to wring controllable costs and expenses from its manufacturing process. Sales of real estate are affected by general economic conditions
and interest rates, specifically as such factors are manifested in the Companys operating area of central Arkansas. A strong housing market, helped by low interest rates and an improving economy, benefited the Companys residential real
estate sales activity during 2004.



Four significant
accomplishments for the year of 2004 were: (1) Deltics Mills segment achieved a dramatic recovery in its financial results through the substantial improvement in average lumber prices combined with record finished lumber production levels; (2)
the Companys Real Estate operations had a record level of residential sales activity, closing 290 lots during the year; (3) Del-Tin Fiber significantly improved its operating and financial results culminating in the joint venture reporting its
first profitable year of operation; and (4) Deltic lowered outstanding long-term debt by just under $30 million during 2004.



The Woodlands segment continued its trend of steady contributions to earnings during the current year. For 2004, pine sawtimber harvest prices were
unchanged compared to 2003, and the harvest volume decreased slightly from 614,000 tons to 578,000 tons. However, the segments 2004 operating profit was 21 percent lower than 2003, which benefited from higher sales of timberland including a
choice, 275-acre, higher and better use tract from Deltics 58,000-acre timberland holdings just west of the Chenal Valley real estate development. Deltics average pine sawtimber prices have remained fairly stable over the past three
years, despite a 22 percent increase in the Companys average finished lumber prices since 2002. The Companys average pine sawtimber prices for 2004, 2003 and 2002 were $40 per ton, $40 per ton and $41 per ton, respectively, and Deltic
expects this trend in pricing levels to continue into 2005. Over the long-term, there is a fundamental correlation between the level of lumber prices and pine sawtimber prices. However, in the short-term, the geographical size differential between
the lumber and pine sawtimber markets results in the two acting somewhat independently of each other. Pine sawtimber markets operate primarily within local or regional areas with sales being mainly to sawmills. These mills are subject to a
relatively fixed level of demand for raw materials that is driven by the facilities required production levels. Increases in pricing levels within the lumber market typically do not have a significant effect on the existing demand for raw
materials in the short-term, resulting in little impact to pine sawtimber prices. This trend would typically also be true in the short-term, during times of a suppressed lumber market. Ultimately, the Companys ability to sell pine sawtimber at
acceptable prices in the future will be dependent upon the size or existence of markets for manufactured lumber and other wood products. The 2004 harvest level allows the Company to manage its forests on a sustainable-yield basis.



During 2004, Deltic increased the return requirements previously established
for the sale of higher and better use and non-strategic timberland, and accordingly, expects further reduction in timberland sales activity in 2005. Timberland designated as higher and better use consists of tracts with market values that exceed the
lands worth as a timber growing platform. Deltics 58,000-acre timberland holdings in the expanding westward growth corridor of Little Rock, Arkansas is an example of such land. Non-strategic timberland is composed primarily of tracts too
small to allow efficient timber management, those geographically isolated from other



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Company fee lands, and acreage otherwise not deemed strategic to Deltics operations or growth. Prior to the current year, the Company had identified
several tracts of such acreage in the southwest portion of Arkansas to sell; however, the active marketing of this land grouping was concluded during 2004.



For the Mills segment, the status of the lumber market and the resulting impact on the Companys commodity softwood lumber products will continuously
impact operating strategies and financial results. The trade dispute between the U.S. and Canada remained unresolved throughout 2004. Increases in Canadian lumber imports were encountered in 2004, as many Canadian producers continued their increased
production levels in efforts to reduce their per-unit manufacturing costs. However, this increasing supply of lumber was outpaced by consumer demand in 2004, as U.S. housing starts reached their highest level since 1978. This strong housing market,
as well as, the growth in repair and remodeling activity continued to be driven by historically low mortgage interest rates and an overall strong U.S. economy. In addition, further upward pressure on U.S. lumber prices arose from an inadequate
supply of product transportation systems, which failed to meet the strong demand for wood products. The resulting effect for Deltics sawmill operations in 2004 was an increase in average prices for lumber products to levels not realized since
1999. As with any commodity market, the Company expects the historical volatility of lumber prices to continue in the future. The Company, along with other members of our industry, awaits the resolution of the U.S./Canadian softwood lumber trade
dispute and knows that future pricing levels within the U.S. lumber market are likely to be impacted by the outcome. Industry analysts are projecting the U.S. housing market to continue its strong pace into 2005, although a slowdown has been
predicted for the second half of the year, predominately from a projected slight increase in mortgage interest rates.



Since commodity-based markets rarely benefit from real price growth, after inflation, Deltic has concentrated managements attention, in regard to
its manufacturing operations, on improving sales realizations through product and customer mix enhancements and improving production efficiencies and the cost structure at its lumber mills. These production efficiency improvements are largely
dependent upon increases in hourly production rates and mill uptime percentage. For 2004, the average sawmill production per hour at the Companys two mills increased 11 percent, while planermill production improved 20 percent. In an additional
effort to further increase production levels at its Ola Mill, modifications were made in April 2004 which increased the operating-hours structure at the facility.



Sales activity levels for the Companys real estate developments are affected by economic conditions that influence the
level of housing starts in the central Arkansas region, including general economic conditions and interest rates. Low mortgage interest rates in 2004 aided demand for residential lots in Chenal Valley, as evidenced by the Companys 271 lots
sold in 2004, which reduced available uncommitted inventory in this development to 35 lots at the end of 2004. Weather-related construction delays prevented the Company from offering for sale the 138 lots planned for completion in Chenal Valley
during the fourth quarter of 2004. However, construction of these lots was completed in January and offered for sale on January 20, 2005, with purchase commitments on 118 of the 138 lots offered, representing $11.5 million in future revenue. This
indicates that demand for real estate within Chenal Valley remains strong. The Company expects this trend of strong demand to continue as Deltic plans to develop another 392 lots within Chenal Valley later in 2005. In Deltics other two active
developments, Red Oak Ridge and Chenal Downs, a total of 19 lots were sold, leaving 49 developed lots in Red Oak Ridge and 27 in Chenal Downs uncommitted as of year-end 2004. While Chenal Downs is fully developed, Deltic plans to develop an
additional 40 lots within Red Oak Ridge in 2005. Future annual lot development levels will be dependent upon the demand for the Companys residential lots, which is expected to remain strong as long as interest rates remain at or near current
levels.



During 2004, the Company disclosed plans for a
1,170-acre upscale residential development, The Ridges at Nowlin Creek, on a portion of its large land holdings located west of Chenal Valley. Construction activity at this site is scheduled to begin in 2005. A portion of the development is located
within the watershed of Lake Maumelle, a principal source of drinking water for Little Rock. Due to this environmentally sensitive locale, the Company has determined to implement the most modern and proven best management practices to create a low
impact development in order to protect water quality in the lake. Current activities include finalizing environmental and civil engineering features of the development and attempting to reach an accord



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with local utilities and government agencies that the development will be fully protective of water quality. The local water utility continues to express its
intention to acquire this watershed acreage, including by condemnation.



The average sales price for residential lots sold in 2004 of $72,900 decreased 6 percent when compared to 2003. Average price for a reporting period is largely dependent on the mix of lots sold in that period. Deltics lot development
plans provide for a mix of lot offerings that represent all real estate market segments for a planned community. For example, neighborhoods adjoining Chenal Country Clubs new 18-hole, championship golf course designed by Robert Trent Jones,
Jr. represent the highest market segment in the Chenal Valley development. Despite 53 of the 290 residential lots sold in 2004 being located in the first three neighborhoods adjoining the new golf course, compared to 49 in 2003, the average sales
price for residential lots decreased due to increased sales of non-golf course lots. The mix of lot offerings for any given year will be driven by remaining lot availability and expected demand.



Commercial real estate sales activity is by nature less predictable than
residential activity. With the number of residents in Chenal Valley, and other west Little Rock areas, growing steadily and momentum created from previous sales of commercial acreage in the development, interest in the Companys remaining
commercial acreage is increasing. Commercial sales only totaled 4.2 acres in 2004 versus 71.8 acres in 2003, which consisted primarily of 29 acres to Wal-Mart Stores, Inc., 22 acres to a group of private investors for retail development, and 17
acres for the construction of a multi-family housing complex. As of December 31, 2004, about 471 acres, or 66 percent of the 710 acres of property currently zoned as commercial in Chenal Valley was available for sale in future periods. No commercial
acreage is included in the Chenal Downs or The Ridges at Nowlin Creek developments. Red Oak Ridge is planned to include approximately 80 acres of commercial property. The Company will begin to develop and offer commercial sites as this
developments population density increases. On April 6, 2004, RED Development LLC announced plans for The Promenade at Chenal, a 48-acre, open-air, lifestyle shopping center. (The sales contract regarding this site remains in its
feasibility period, and originally was scheduled to close before the end of 2004. However, as is the inherent unpredictable nature of commercial real estate sales, the initial contract has been extended and is now scheduled to close in 2005. Some
extensions of similar contracts in the past have been followed by the termination of the commercial sale.) In addition, the Real Estate segment completed the sale of 94 acres of undeveloped real estate property within Chenal Valley in 2004,
resulting in a pretax gain of $1.7 million. Unlike residential lots and commercial acres, undeveloped real estate property is not directly marketed by the Company, and sales of such property have been historically sporadic in nature and are usually
initiated by inquiry from a potential purchaser.



Operating
results for Del-Tin Fiber are affected primarily by the overall MDF market and plant operating performance. Chinas MDF industry continues to grow rapidly as the country ended 2004 representing almost one-third of global capacity. In addition,
segments of the U.S. furniture manufacturing industry have relocated to the Far East; furniture manufacturers being a primary purchaser of MDF. These trends, combined with continued North American MDF production, resulted in the U.S. MDF market
being oversupplied until the latter portion of 2003. However, with the continued strong levels of housing starts and repair and remodeling activity in the U.S., MDF consumption grew three and a half percent in 2004, and industry analysts project a
continued upward trend in growth rates over the next five years. The level of imports has continued to grow steadily, but the weakening U.S. dollar might prove to be the most effective means of slowing down further increases in 2005. Most producers
in the industry need sustained high pricing levels, in addition to manufacturing cost reductions, to remain profitable. The predicted increases in consumption should strengthen the market unless import levels surge.



Operationally, Del-Tin Fiber continued to make significant advances during
2004. The plants management remained focused on raising the plants uptime percentage to be in line with the industry average and improving the plants cost structure. In addition, the facility continued its improvements in the
percentage of production of premium-grade product, which increased sales realizations. Change in the product mix at the plant also positively impacted average sales prices, as the percentage of thin board was further increased due to
improvements in the plants operating performance. In addition, improvements to the plants raw



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material mix were implemented and the plant improved productivity levels. These improved operating activities, combined with the favorable MDF market,
allowed the joint venture to report its first-ever profitable year of operations in 2004. Future efforts are being concentrated on further improving productivity levels and plant efficiencies and making additional reductions in the plants
manufacturing cost per thousand square feet (MSF).



Unfortunately, continued advancements at the joint venture were slowed as Deltic announced on January 19, 2005, that production activities at Del-Tin Fiber would be temporarily curtailed due to damage sustained at the facility from a fire
within the plant. The fire damaged the facilitys fiber storage and handling systems. Neither the refiner systems nor continuous press were involved or damaged and no injuries were experienced. Repair of the damaged units was commenced
immediately, and the plant resumed production on February 10, 2005.



Significant Events



From the time
production began at Del-Tin Fiber in 1998 until the fourth quarter of 2003, both operating and financial performance were below the expectations established at the time that the decision to construct the plant was made. As a result, on April 25,
2002, Deltic announced that Banc One Capital Markets, Inc. had been retained as financial advisor to assist in the evaluation of strategic alternatives for the Companys investment in Del-Tin Fiber. Subsequently, Deltics management and
Board of Directors completed its review of these strategic alternatives and announced the Company intended to exit the MDF business upon the earliest, reasonable opportunity provided by the market. As a result of this decision, the Companys
evaluation of possible impairment of the carrying value of its investment in the joint-venture was based primarily upon the estimated cash flows from a sale of the Companys interest during 2003 and resulted in a determination that the
Companys investment was impaired as of December 31, 2002. The investment was written off, to zero, and the write-off amounted to $18.7 million before income taxes.



Due to the Companys commitment to fund its share of any of the facilitys operating working capital needs until
the facility was able to consistently generate sufficient funds to meet its cash requirements or Deltics ownership was sold, the Company recognized equity in Del-Tin Fiber equal to the extent of these advances during 2003. For the year of
2003, such advances approximated the Companys equity share of losses for the plant; accordingly, the investment in Del-Tin Fiber at December 31, 2003, was zero. The Company also continued to utilize its management resources to work with
Del-Tins management and the joint-venture partner to improve operating performance at the plant. As a result of these improvements, on December 11, 2003, Deltics Board of Directors revised its intent regarding the Companys
investment in Del-Tin Fiber and ceased efforts to sell the Companys interest in the joint venture, while continuing to focus on improving operating and financial results of the plant. Due to this decision, the 2003 evaluation of fair value for
the investment was based primarily upon the future net cash flows from Del-Tin Fibers operations over the remaining life of the plant. The estimated fair value from this evaluation indicated that no impairment existed as of December 31, 2003.
In 2004, the Company recorded its equity share of the operating results of the joint venture.



On August 26, 2004, Del-Tin Fiber successfully refinanced its existing long-term debt by entering into a credit agreement consisting of a letter of credit and term loan with multiple lending institutions pursuant to
which, $60 million of its $89 million industrial revenue bonds were redeemed. Under the new credit agreement, the lenders, on September 1, 2004, loaned Del-Tin Fiber $30 million, which will be repayable over five years in equal quarterly
installments, beginning December 31, 2004, and issued on Del-Tin Fibers behalf, a letter of credit in the amount of $29.7 million to support the remaining industrial revenue bonds originally issued in 1998 by Union County, Arkansas. This
refinancing resulted in more favorable credit terms for the joint venture, the most notable of which was the removal of the remaining required bond sinking fund payments of $55.9 million due in 2005 under the prior debt facility. (For additional
information about the Companys investment in Del-Tin Fiber, refer to Note 3 to the consolidated financial statements.)



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On December 31, 2002, Deltic redeemed the 600,000 outstanding shares of its 7.54 percent redeemable
preferred stock. This was primarily effected by utilizing proceeds from the Companys issuance of $30 million of privately placed, long-term senior notes on December 20, 2002. These notes bear interest at a fixed stated rate of 6.01 percent.
This redemption has produced an after-tax savings and reduced net cash outflows for the Company when comparing the non-deductible carrying cost of the preferred stock.



Results of Operations



In the following tables, Deltics net sales and results of operations are presented for the three years ended December 31, 2004. Explanations of
significant variances and additional analyses for the Companys consolidated and segmental operations follow the tables.



|                                                |  |                          |       |   |            |       |   |            |       |  
|----------------------------------------------- |  | ------------------------ | ----- | - | ---------- | ----- | - | ---------- | ----- | -
|                                                |  | Years Ended December 31, |      
|(Millions of dollars, except per share amounts) |  | 2004                     |       |   | 2003       |       |   | 2002       |      
|                                                |  | (Restated)               |       |   | (Restated) |       |   | (Restated) |      
|Net sales                                       |  |                          |       |   |            |       |   |            |       |  
|Woodlands                                       |  | $                        | 31.0  |   |            | 38.2  |   |            | 37.0  |  
|Mills                                           |  |                          | 98.0  |   |            | 79.1  |   |            | 70.4  |  
|Real Estate                                     |  |                          | 31.1  |   |            | 33.8  |   |            | 15.3  |  
|Eliminations                                    |  |                          | (18.1 | ) |            | (16.2 | ) |            | (18.2 | )
|                                                |  |                          |       |   |            |       |   |            |       |  
|Net sales                                       |  | $                        | 142.0 |   |            | 134.9 |   |            | 104.5 |  
|                                                |  |                          |       |   |            |       |   |            |       |  
|Operating income/(loss) and net income/(loss)   |  |                          |       |   |            |       |   |            |       |  
|Woodlands                                       |  | $                        | 19.6  |   |            | 24.8  |   |            | 22.5  |  
|Mills                                           |  |                          | 6.6   |   |            | (5.6  | ) |            | (6.8  | )
|Real Estate                                     |  |                          | 8.0   |   |            | 13.1  |   |            | 2.0   |  
|Corporate                                       |  |                          | (11.6 | ) |            | (8.4  | ) |            | (6.8  | )
|Eliminations                                    |  |                          | .5    |   |            |      |   |            | (.6   | )
|                                                |  |                          |       |   |            |       |   |            |       |  
|Operating income                                |  |                          | 23.1  |   |            | 23.9  |   |            | 10.3  |  
|Equity in Del-Tin Fiber                         |  |                          | .4    |   |            | (4.7  | ) |            | (28.2 | )
|Interest income                                 |  |                          | .4    |   |            | .5    |   |            | .3    |  
|Interest and other debt expense                 |  |                          | (6.0  | ) |            | (6.9  | ) |            | (4.5  | )
|Other income/(expense)                          |  |                          | .1    |   |            | .2    |   |            | .4    |  
|Income taxes                                    |  |                          | (6.9  | ) |            | (4.8  | ) |            | 7.8   |  
|                                                |  |                          |       |   |            |       |   |            |       |  
|Net income/(loss)                               |  | $                        | 11.1  |   |            | 8.2   |   |            | (13.9 | )
|                                                |  |                          |       |   |            |       |   |            |       |  
|Earnings per common share*                      |  | $                        | .92   |   |            | .69   |   |            | (1.35 | )



|* | Amount for 2002 was after dividends for preferred stock that was redeemed in December 2002.
|- | -------------------------------------------------------------------------------------------



Consolidated



The $2.9 million increase in net income during 2004 was the result of improved operating results for the Companys Mills segment combined with
improved financial results from Del-Tin Fiber, partially off-set by the absence of significant sales of both commercial real estate property and timberland, which were present in 2003. General and administrative expenses also increased in 2004.
Included in the 2002 consolidated results of operations was a non-cash write-off of the Companys investment in Del-Tin Fiber totaling $18.7 million and a related tax benefit of $7.3 million. Deltic realized $142 million in total net sales in
2004, a record level for the Company.



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Operating income for 2004 remained relatively flat, decreasing $.8 million compared to 2003. The
Woodlands segment decreased $5.2 million due primarily to a decrease in sales of both timberland for higher and better use and non-strategic timberland combined with the planned slight reduction in the pine sawtimber harvest level. Mills segment
operating results improved $12.2 million as a result of a $55 per thousand board feet (MBF) rise in average lumber sales price and a four percent increase in lumber sales volume. Real Estate operating income decreased $5.1 million
resulting from 2003 benefiting from increased sales of commercial acreage, partially offset by a record level of residential real estate lot closings during 2004.



Operating income for 2003 increased $13.6 million compared to 2002. The Woodlands segment increased $2.3 million due
primarily to an increase in sales of both timberland for higher and better use and non-strategic timberland, partially offset by a planned reduction in the pine sawtimber harvest level combined with a slightly lower average pine sawtimber price.
Deltics Mills segment operating results improved $1.2 million as a result of a $12 per MBF rise in average lumber sales price. Real Estate operating income increased $11.1 million and benefited from increases in sales of commercial acreage and
the number and average sales price of residential real estate lots sold.



Woodlands



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



|                                 |  |      |       |      |       |      |      
|-------------------------------- |  | ---- | ----- | ---- | ----- | ---- | -----
|                                 |  | 2004 |       | 2003 |       | 2002
|Net sales (millions of dollars)  |  |      |       |      |       |      |      
|Pine sawtimber                   |  | $    | 23.3  |      | 24.8  |      | 29.6 
|Pine pulpwood                    |  |      | 1.6   |      | 1.9   |      | 1.5  
|Hardwood sawtimber               |  |      | .8    |      | 1.3   |      | .5   
|Hardwood pulpwood                |  |      | .4    |      | .6    |      | .4   
|                                 |  |      |      
|Sales volume (thousands of tons) |  |      |       |      |       |      |      
|Pine sawtimber                   |  |      | 578   |      | 614   |      | 714  
|Pine pulpwood                    |  |      | 235   |      | 306   |      | 250  
|Hardwood sawtimber               |  |      | 15    |      | 25    |      | 12   
|Hardwood pulpwood                |  |      | 71    |      | 114   |      | 86   
|                                 |  |      |      
|Sales price (per ton)            |  |      |       |      |       |      |      
|Pine sawtimber                   |  | $    | 40    |      | 40    |      | 41   
|Pine pulpwood                    |  |      | 7     |      | 6     |      | 6    
|Hardwood sawtimber               |  |      | 58    |      | 51    |      | 41   
|Hardwood pulpwood                |  |      | 6     |      | 6     |      | 5    
|                                 |  |      |      
|Timberland                       |  |      |       |      |       |      |      
|Net sales (millions of dollars)  |  | $    | 1.4   |      | 8.1   |      | 3.4  
|Sales volume (acres)             |  |      | 1,150 |      | 4,130 |      | 3,418
|Sales price (per acre)           |  | $    | 1,200 |      | 2,000 |      | 1,000



Net sales in 2004
decreased $7.2 million when compared to 2003. Sales of pine sawtimber decreased $1.5 million, or 6 percent, from 2003, attributable entirely to the decrease in sales volume which was in accordance with the Companys planned slight reduction in
harvest. Sales of hardwood sawtimber decreased $.5 million due to a reduction in harvest level, partially offset by a $7 per ton higher average sales price. During 2004, sales of timberland decreased by $6.7 million from 2003, due to a general
reduction in the number of acres sold and to 2003 benefiting from the sale of a choice, 275-acre, higher and better use tract from Deltics 58,000-acre timberland holdings just west of the Chenal Valley real estate development.



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Net sales in 2003 increased $1.2 million when compared to 2002. Sales of pine sawtimber decreased $4.8
million, or 16 percent, from 2002, which reflects a $4 million decrease from lower sales volume combined with a $.8 million decrease attributable to lower average price. The pine sawtimber harvest level decreased 14 percent in 2003, in accordance
with the Companys planned reduction in harvest. Sales of hardwood sawtimber increased $.8 million due to the Company selling a higher-than-planned volume to take advantage of a strong hardwood market in 2003, as evidenced by a 24 percent
increase in average sale price. During 2003, sales of timberland increased $4.7 million from 2002 due to selling more acres of timberland at a higher average price in 2003 compared to 2002.



Operating income for 2004 was $5.2 million less than 2003 due to the
reduction in net sales, partially offset by the corresponding reductions in the cost of timberland sales of $1.1 million and the cost of fee timber harvested of $2.1 million. Woodlands operating income increased $2.3 million in 2003. In addition to
the increase in net sales, the cost of fee timber harvested decreased $1.8 million due mainly to the lower pine sawtimber harvest level and to harvest mix.



Mills



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



|                                |  |      |      |      |      |      |     
|------------------------------- |  | ---- | ---- | ---- | ---- | ---- | ----
|                                |  | 2004 |      | 2003 |      | 2002
|Net sales (millions of dollars) |  |      |      |      |      |      |     
|Lumber                          |  | $    | 83.8 |      | 68.2 |      | 59.5
|Residual products               |  |      | 11.0 |      | 9.7  |      | 9.4 
|                                |  |      |     
|Lumber                          |  |      |      |      |      |      |     
|Finished production (MMBF)      |  |      | 224  |      | 215  |      | 203 
|Sales volume (MMBF)             |  |      | 229  |      | 220  |      | 199 
|Sales price (per MBF)           |  | $    | 365  |      | 310  |      | 298 



In 2004, net sales
increased 24 percent when compared to 2003. Lumber sales increased $15.6 million due to a $12.8 million increase from a higher average sales price and a $2.8 million increase from a higher sales volume. The Companys sawmills experienced a 4
percent increase in lumber sales volume due to continued increased operating efficiencies achieved from completed capital projects and managements increased focus on production per man-hour. Sales of residual by-products were up $1.3 million
due to increased lumber production volume.



When compared to
2002, net sales for 2003 increased $8.7 million, or 12 percent, of which $2.2 million was due to the price change, and $6.5 million was due to the greater sales volume. Average sales price in 2003 was $12 per MBF more than in 2002, and sales volume
increased ten percent.



The $12.2 million improvement in
operating income between 2004 and 2003 was the result of the increase in net sales. The improvement in operating results for 2003 was also due to the increase in net sales.



Real Estate



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



|                                |  |      |      |      |      |      |    
|------------------------------- |  | ---- | ---- | ---- | ---- | ---- | ---
|                                |  | 2004 |      | 2003 |      | 2002
|Net sales (millions of dollars) |  |      |      |      |      |      |    
|Residential lots                |  | $    | 21.1 |      | 15.2 |      | 9.6
|Commercial sites                |  |      | 1.0  |      | 12.6 |      | .1 
|Undeveloped acreage             |  |      | 2.6  |      |     |      | .2 



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|                                           |  |      |     |      |     |      |    
|------------------------------------------ |  | ---- | --- | ---- | --- | ---- | ---
|                                           |  | 2004 |     | 2003 |     | 2002
|Sales volume                               |  |      |     |      |     |      |    
|Residential lots                           |  |      | 290 |      | 196 |      | 141
|Commercial acres                           |  |      | 4   |      | 72  |      | 1  
|Undeveloped acres                          |  |      | 94  |      |    |      | 22 
|Average sales price (thousands of dollars) |  |      |     |      |     |      |    
|Residential lots                           |  | $    | 73  |      | 78  |      | 68 
|Commercial acres                           |  |      | 226 |      | 175 |      | 218
|Undeveloped acres                          |  |      | 28  |      |    |      | 10 



Net sales decreased
$2.7 million in 2004, or 8 percent. The number of residential lots sold increased by 94 lots due primarily to closings resulting from the 160 lots offered for sale at the end of January and the 125 lots offered in June. However, due to the sales mix
of the lots sold, the segment incurred an 6 percent decrease in average sales price per lot. There were limited commercial real estate sales of only 4 acres during 2004, resulting in a decrease of $11.6 million in net commercial sales revenue.
However, the sale of 94 acres of undeveloped real estate property was completed, which resulted in net sales of $2.6 million, compared to no undeveloped real estate sales in 2003. Chenal Country Club, Inc. produced net sales of $5.9 million for
2004, an increase of $.7 million.



During 2003, net sales were
$18.5 million more than in 2002, an increase of 121 percent. The number of residential lots sold increased by 39 percent, with an increase in average sales price per lot due to sales mix. During 2003, 118 lots were developed and offered for sale in
three new neighborhoods in the Companys Chenal Valley development, including 50 lots in the second neighborhood on the developments new golf course. In addition, commercial real estate sales in 2003 increased by 71 acres, producing $12.5
million additional net sales. Net sales for Chenal Country Club, Inc. in 2003 totaled $5.2 million, an increase of $.3 million.



The changes in the Real Estate segments operating income were due primarily to the same factors impacting net sales.



Corporate



The increase in operating expense for Corporate functions of $3.2 million in
2004 was due primarily to higher retirement plan expenses related to separated employees, increased incentive plan expenses due to improved financial results, and increased professional fees relating to the Companys compliance with Section 404
of the Sarbanes-Oxley Act of 2002.



Eliminations



Intersegment sales of timber from Deltics Woodlands
segment to the Mills segment were $18.1 million in 2004, $15.9 million in 2003, and $18.2 million in 2002. The $2.1 million increase during 2004 was due primarily to increased volume as the Companys mills increased the percentage of log
receipts coming into their log yards from intersegment sales and to a higher average transfer price. There were no intersegment timberland sales commissions in 2004, compared to $.3 million in 2003 and zero in 2002.



Equity in Del-Tin Fiber



For the year ended December 31, 2004, equity in Del-Tin Fiber recorded by
the Company was $.4 million compared to 2003s equity loss of $4.7 million, an improvement of $5.1 million.



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##### Table of Contents

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



|                                |  |      |       |      |       |      |     
|------------------------------- |  | ---- | ----- | ---- | ----- | ---- | ----
|                                |  | 2004 |       | 2003 |       | 2002
|Net sales (millions of dollars) |  | $    | 65.4  |      | 48.7  |      | 34.1
|Finished production (MMSF)      |  |      | 148.3 |      | 132.7 |      | 96.7
|Board sales (MMSF)              |  |      | 150.4 |      | 131.2 |      | 97.7
|Sales price (per MSF)           |  | $    | 398   |      | 339   |      | 320 



Average sales price
for 2004 increased $59 per MSF when compared to 2003 due to favorable market conditions, in addition to a continued change in product mix to include a greater percentage of thin board and the increase in premium grade production. Manufacturing cost
per MSF sold for 2004 was down 3 percent due primarily to the lowering of certain variable costs of manufacturing and the spreading of the plants fixed cost to the increased production volume.



Average sales price for 2003 increased $19 per MSF when compared to 2002 due
to a change in product mix to include a greater percentage of thin board and the increase in premium grade production. Manufacturing cost per thousand square feet (MSF) sold for 2003 was down 19 percent due primarily to the lowering of
certain variable costs of manufacturing and the spreading of the plants fixed cost to the increased production volume.



Interest Income/Expense



For 2004, interest expense decreased $.9 million from 2003 due primarily to reduction of long-term debt. Interest expense increased $2.4 million in 2003
compared to 2002 due primarily to additional long-term debt issued to redeem the Companys $30 million of preferred stock in December 2002.



Income Taxes



The effective income tax rate was 38 percent, 37 percent, and 36 percent in 2004, 2003, and 2002, respectively. The effective rate increases were due
primarily to higher effective rates for state income taxes in 2004.



Liquidity and Capital Resources



Cash Flows and Capital Expenditures



Net cash
provided by operating activities totaled $42.1 million for the year ended December 31, 2004, which compares to $44.2 million for 2003 and $32.1 million for 2002. Changes in operating working capital, other than cash and cash equivalents, provided
cash of $.9 million in 2004, $.7 million in 2003, and $1.4 million in 2002. The Companys accompanying Consolidated Statements of Cash Flows identify other differences between income/(loss) and cash provided by operating activities for each
reported year.



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Capital expenditures required cash of $24.2 million in 2004, $27.2 million in 2003, and $24.2 million in
2002. Total capital expenditures, by segment, for the years ended December 31, 2004, 2003, and 2002 are presented in the following table.



|                                          |  |      |      |      |      |      |     
|----------------------------------------- |  | ---- | ---- | ---- | ---- | ---- | ----
|(Millions of dollars)                     |  | 2004 |      | 2003 |      | 2002
|Woodlands                                 |  | $    | 6.7  |      | 12.4 |      | 5.2 
|Mills                                     |  |      | 4.8  |      | 3.4  |      | 3.5 
|Real Estate                               |  |      | 12.5 |      | 11.2 |      | 15.4
|Corporate                                 |  |      | .2   |      | .2   |      | .1  
|                                          |  |      |      |      |      |      |     
|Total capital expenditures requiring cash |  | $    | 24.2 |      | 27.2 |      | 24.2
|                                          |  |      |      |      |      |      |     



Woodlands capital
expenditures included timberland acquisitions of approximately 4,200 acres at a cost of $5.1 million in 2004, approximately 7,300 acres at a cost of $10.9 million in 2003, and approximately 1,900 acres at a cost of $3.2 million in 2002.
Reforestation site preparation and planting required expenditures of $1.4 million in 2004, $1.3 million in 2003, and $1.5 million in 2002, and were the result of expansion of the Companys planting program due to recent acquisitions of
timberland and to final harvests of mature stands, necessitating regeneration.



During 2004, significant capital expenditures for the Mills segment included $1 million for an automated lumber grading system and $.7 million for the initial phase of a $5.5 million project to add an additional
boiler and upgrade the drying kilns at the Waldo Mill to improve sales realizations, while reducing costs, and to increase the mills lumber drying capacity. At the Ola Mill, $.6 million was expended toward the installation of an automated
lumber grading system there. During 2003, $1.3 million was expended to install a second log debarker at the Waldo Mill in order to increase production capacity. At the Ola Mill, $.6 million was expended to install a J-hook sorter system. In 2002,
$1.8 million was expended to complete a project to replace the Waldo Mills vertical saw assembly with a curve sawing gang. The project improved log recovery, increased hourly throughput capacity, and enabled further diversity of product mix.
There were no significant capital projects during 2002 at the Companys Ola Mill.



Capital expenditures for Real Estate operations related to the cost of residential lot development totaled $7.6 million in 2004, compared to $5.4 million in 2003 and $4.5 million in 2002. Land acquisitions required
$.7 million in 2004, with no such expenditures in 2003 or 2002. Infrastructure construction required $.1 million in 2004 and $.5 million in 2002, with no such expenditures in 2003. Expenditures related to golf operations at the two courses at Chenal
Country Club totaled $.5 million in 2004 for course maintenance equipment and golf carts, compared to $.3 million in 2003 and $.6 million in 2002 for course maintenance equipment. Other expenditures were primarily for various amenity and
infrastructure improvements.



Deltic had commitments of $9.6
million for capital projects in progress at December 31, 2004, including $.4 million for reforestation site preparation, $.4 million for completion of the installation of an automated lumber grading system at the Ola Mill, and $8.3 million related
to residential lot and commercial site development and amenity improvements at the Companys real estate developments.



The net change in purchased stumpage inventory provided cash of $2.6 million in 2004, but required cash of $.4 million in 2003 and $1.5 million in 2002.
Advances to Del-Tin Fiber by the Company amounted to $1.6 million, $9 million, and $12.2 million in 2004, 2003, and 2002, respectively. In 2004, the Company received its first cash distributions from Del-Tin Fiber of $1.4 million. During 2001, $2.2
million of proceeds from sales of appreciated timberland parcels were deposited and held by a trustee to be used to acquire timberland designated as replacement property for income tax purposes, as required for tax-deferred exchanges. In
2002, these proceeds were received from the trustee, and $2.1 million was utilized to acquire timberlands as required, while the remaining $.1 million was deposited into the Companys operating fund account and subject to applicable income
taxes. An additional $.4 million of similar proceeds were held by a trustee at the end of 2002; these funds were received from the trustee in the first quarter of 2003 and utilized to finance a portion of the $10.2 million of timberlands that were
acquired during the period for which the Company had a significant portion committed at the end of 2002. The $4.6 million received for timberland sold during 2003 was held by a trustee at December 31, 2003, while the Company identified potential
timberlands to acquire in order to qualify these sales as a tax-deferred exchange. In 2004, these proceeds were received



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from the trustee and utilized to acquire timberlands as required. Initiation fees received from members joining Chenal Country Club, which are accounted for
as a reduction in the cost basis of the Club rather than net sales, amounted to $1.2 million in 2004, $1.3 million in 2003, and $1.1 million in 2002.



During 2004, Deltic borrowed $29.7 million and repaid $59 million under its revolving credit facility in addition to making repayments of owner-financed
debt of $.1 million. In 2003, borrowings under available credit facilities provided $37 million, with repayments amounting to $38.1 million. During 2002, the Company borrowed $66.5 million under its revolving credit facility, with repayments
amounting to $64.5 million. In addition, the Company issued $30 million of privately placed, fixed-interest rate, long-term senior notes on December 20, 2002. (Upon this issuance, Deltic applied the proceeds toward its revolving credit facility and
then borrowed $30 million under this facility on December 30, 2002, to redeem its outstanding preferred stock.)



Purchases of treasury stock required cash of $.4 million in 2003 and $.7 million in 2002. (Purchases of treasury shares in 2004 were conducted through
non-cash transactions.) The decrease in bank overdraft was $.9 million in 2003, bringing the overdraft to zero at December 31, 2003, but it had increased $.9 million in 2002 from a balance of zero at December 31, 2001. For the three years ended
December 31, 2004, cash required to pay common stock dividends totaled $3 million in each year. The Company paid dividends on its preferred stock of $2.3 million in 2002; there were no such dividends in 2003 or 2004 as the Company redeemed its
preferred stock at the end of 2002. Proceeds from stock option exercises amounted to $5.2 million, $1.6 million, and $1.2 million in 2004, 2003, and 2002, respectively. Costs related to extension of Deltics revolving credit facility of $.5
million was paid in 2003. Similar costs related to placement of the $30 million of senior notes payable during 2002 was $.2 million.



Financial Condition



Working capital at year-end totaled $6.5 million in 2004 and $7.5 million in 2003. Deltics working capital ratio at December 31, 2004, was 1.73 to
1, compared to 2.08 to 1 at the end of 2003. Cash and cash equivalents at the end of 2004 were $.9 million compared to $1.7 million at the end of 2003. During 2004, total indebtedness of the Company decreased $29.3 million to $85.8 million at
year-end. Deltics long-term debt to stockholders equity ratio was .466 to 1 at December 31, 2004, compared to .679 to 1 at year-end 2003.



Liquidity



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



To facilitate these growth plans,
the Company has an agreement with a group of banks which provides an unsecured, committed revolving credit facility totaling $125 million, inclusive of a $50 million letter of credit feature. The agreement will expire on July 15, 2007. As of
December 31, 2004, $109.3 million was available in excess of all borrowings outstanding under or supported by the facility. The credit agreement contains restrictive covenants, including limitations on the incurrence of debt and requirements to
maintain certain financial ratios. (For additional information about the Companys current financing arrangements, refer to Note 6 to the consolidated financial statements.)



In December 2000, the Companys Board of Directors authorized a stock repurchase program of up to $10 million of Deltic
common stock. As of December 31, 2004, the Company had expended $2.1 million under this program, with the purchase of 96,206 shares at an average cost of $22.34 per share; no shares were purchased under this program during 2004. In its two
previously completed repurchase programs, Deltic purchased 479,601 shares at an average cost of $20.89 and 419,542 shares at a $24.68 per share average cost, respectively.



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Off-Balance Sheet Arrangements, Contractual Obligations, and Commitments



Prior to August 26, 2004, the Company had agreed to a contingent equity
contribution agreement with Del-Tin Fiber and the group of banks from whom Del-Tin Fiber had obtained its $89 million credit facility. Under this agreement, Deltic and the other 50 percent owner of the joint venture had agreed to fund any deficiency
in contributions to either Del-Tin Fibers required sinking fund or debt service reserve, up to a cumulative total of $17.5 million for each owner. In addition, each owner had committed to a production support agreement, under which each owner
had agreed to make support obligation payments to Del-Tin Fiber to provide, on the occurrence of certain events, additional funds for payment of debt service until the plant was able to successfully complete a minimum production test. Both owners
had also agreed, in a series of one-year term commitments, to fund any operating working capital needs until the facility was able to consistently generate sufficient funds to meet its cash requirements.



On August 26, 2004, Del-Tin Fiber refinanced its existing long-term debt by
entering into a credit agreement consisting of a letter of credit and term loan with multiple lending institutions pursuant of which, $60 million of its $89 million industrial revenue bonds were redeemed. Under the new credit agreement, the lenders,
on September 1, 2004, loaned Del-Tin Fiber $30 million which will be repayable over five years in equal quarterly installments, beginning December 31, 2004, and issued on Del-Tin Fibers behalf, a letter of credit in the amount of $29.7 million
to support the remaining industrial revenue bonds originally issued in 1998 by Union County, Arkansas. Concurrent with this event, on August 26, 2004, Deltic executed a guarantee agreement in connection with the refinancing of the debt of Del-Tin
Fiber. Under Deltics guarantee agreement, Deltic unconditionally guarantees the due and punctual payment of 50 percent ($29.1 million at December 31, 2004) of Del-Tins obligations under its credit agreement. This new credit agreement of
Del-Tin Fiber fully replaces Del-Tin Fibers prior credit facility, resulting in Deltics previous contingent equity contribution agreement of $17.5 million, the production support agreement and the one-year commitment being fully
extinguished.



The Company has adopted the provisions of FASB
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation
No. 34 (FIN 45). In accordance with FIN 45, Deltic estimated the fair value of its guarantee of Del-Tin Fibers credit agreement to be $3.5 million and has included this non-cash amount in the Companys December 31, 2004
Consolidated Balance Sheet as a long-term liability with an offsetting increase in the Companys investment in Del-Tin Fiber. Deltic is reducing this liability systematically over the life of the credit agreement, as the Company is released
from risk under the guarantee. At December 31, 2004, Deltics remaining liability regarding the guarantee was $3.3 million.



The Company has both funded and unfunded noncontributory defined benefit retirement plans that cover the majority of its employees. The plans provide
defined benefits based on years of service and final average salary. Deltic also has other postretirement benefit plans covering substantially all of its employees. The health care plan is contributory with participants contributions adjusted
as needed; the life insurance plan is noncontributory. (For information about material assumptions underlying the accounting for these plans and other components of the plans, refer to Note 13 to the consolidated financial statements.)



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



|                                           |  |       |       |            |     |             |      |             |      |           |     
|------------------------------------------ |  | ----- | ----- | ---------- | --- | ----------- | ---- | ----------- | ---- | --------- | ----
|(Millions of dollars)                      |  | Total |       | During2005 |     | 2006to 2007 |      | 2008to 2009 |      | After2009
|Contractual cash payment obligations       |  |       |       |            |     |             |      |             |      |           |     
|Real estate development infrastructure     |  | $     | 2.3   |            | 1.7 |             | .6   |             |     |           |    
|Long-term debt                             |  |       | 85.8  |            |    |             | 15.8 |             | 50.0 |           | 20.0
|Interest on debt1                          |  |       | 22.8  |            | 5.0 |             | 9.8  |             | 5.9  |           | 2.1 
|Retirement plans                           |  |       | 3.5   |            | .6  |             | 1.4  |             | 1.5  |           |    
|Other postretirement benefits              |  |       | 6.6   |            | .3  |             | .8   |             | 1.1  |           | 4.4 
|Other long-term liabilities                |  |       | 1.2   |            |    |             |     |             |     |           | 1.2 
|                                           |  |       |       |            |     |             |      |             |      |           |     
|                                           |  | $     | 122.1 |            | 7.6 |             | 28.3 |             | 58.5 |           | 27.7
|                                           |  |       |       |            |     |             |      |             |      |           |     
|Other commercial commitment expirations    |  |       |       |            |     |             |      |             |      |           |     
|Guarantee of indebtedness of Del-Tin Fiber |  | $     | 29.1  |            | 3.0 |             | 20.9 |             | 5.2  |           |    
|Timber cutting agreements                  |  |       | .3    |            | .3  |             |     |             |     |           |    
|Operating leases                           |  |       | .2    |            |    |             | .1   |             | .1   |           |    
|Letters of credit                          |  |       | 1.2   |            | .6  |             | .4   |             | .2   |           |    
|                                           |  |       |       |            |     |             |      |             |      |           |     
|                                           |  | $     | 30.8  |            | 3.9 |             | 21.4 |             | 5.5  |           |    
|                                           |  |       |       |            |     |             |      |             |      |           |     



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



Outlook



Deltics
management believes that cash provided from its operations, the remaining amount available under its credit facility, and its ability to access the credit markets, 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, and capital expenditures, 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 Litigation 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.



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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, 2004. 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, specifically as such may manifest themselves
in the central Arkansas region.



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, consider the need to enter into financial instruments to manage and reduce the
impact of changes in interest rates; however, the Company entered into no such instruments during the three-year period ended December 31, 2004. Deltic held various financial instruments at December 31, 2004 and 2003, consisting of financial assets
and liabilities reported in the Companys Consolidated Balance Sheets and off-balance sheet exposures resulting from contractual debt guarantees and letters of credit issued for the benefit of Deltic, primarily in connection with its purchased
stumpage procurement and real estate operations. (For additional information regarding these financial instruments, refer to the previous tabular summary of the Companys other commercial commitment expirations and to Note 11 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; long-term debt, including current maturities; contractual guarantees of debt; and letters of credit at December
31, 2004, were zero, $97.8 million, $3.3 million, and $1.2 million, respectively.



A one percentage-point increase in prevailing interest rates would result in decreases in the estimated fair value of long-term debt of $5 million and contractual guarantees of debt of $.1 million, while the fair
value of the Companys funds held by trustee and letters of credit would be unchanged. Fair values were determined using the current rates at which the Company could enter into comparable financial instruments with similar remaining maturities.
The estimated pretax earnings and cash flows impact for 2004 resulting from a one percentage-point increase in interest rates would be approximately $.3 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.



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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.



Critical Accounting Policies and Estimates



The Company has identified six of its current accounting policies as being, in managements view, critical to the portrayal of the Companys
financial condition and results of operations. Additionally, five of these policies require significant assumptions and/or estimates on the part of management as it pertains to certain factors inherent in the policies. The Companys senior
management has discussed the development and selection of its critical accounting policies and estimates with the Companys Audit Committee, and Deltic has not made any material changes to its critical accounting estimates in the last three
years. These policies, along with explanations of the key assumptions and/or estimates considered by management, are described below. (For a listing of all significant accounting policies of the Company, refer to Note 1 to the consolidated financial
statements.)



| | 1) | 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. Indirect and amenity 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 four development areas  Chenal Valley, Chenal Downs, Red Oak Ridge, and The Ridges at Nowlin Creek  are allocated to neighborhoods over the entire respective development area based on
relative retail values.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The key factors
involved in determining the Investment in Real Estate Held for Development and Sale are: (1) the treatment of the clubhouse and golf course at Chenal Country Club, the amenity around which the Chenal Valley development is centered, as an amenity
rather than an operating fixed asset and (2) the management estimates required to estimate the future indirect development costs and sales values of the areas of Chenal Valley yet to be developed. Due to accounting for Chenal Country Club as an
amenity, the cost of the clubhouse and golf course, including the estimated cost of planned future improvements, are charged against income as real estate is sold rather than depreciating this cost. This amenity treatment also records the initiation
fees received from members joining the club as a reduction in the cost basis of the club rather than as net sales. In addition, the Companys model for allocating the indirect cost to be expensed against each piece of real estate sold requires
management to estimate the future indirect costs to be incurred for the entire development, primarily infrastructure costs and future improvements at Chenal Country Club (net of estimated future initiation fees to be received), as well as the
potential market value of each tract of undeveloped property within the Chenal Valley development. In determining future indirect development costs, management relies on cost projections for its development plans provided by independent,
professional engineering consultants. Independent appraisers are utilized to provide the potential market value for unsold acreage.



| | 2) | 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 adjusted for the Companys proportionate share of Del-Tin Fibers undistributed earnings or losses. The Companys equity-method-basis carrying value for its investment in Del-Tin Fiber is evaluated for possible impairment,
as applicable under the requirements of Accounting Principles Board Opinion (APB) 18, The Equity Method of Accounting for Investments in Common Stock. This evaluation as of December 31, 2002, based on the intent of the Companys
Board of Directors to exit the business, resulted in a determination
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | that the Companys investment was impaired as of December 31, 2002, and the carrying amount of the investment was written off, to zero, for the 2002
Consolidated Balance Sheet. On December 11, 2003, the Companys Board of Directors revised its intent in regard to selling Deltics interest in the joint venture. The resulting evaluation of fair value for the related investment indicated
that fair value exceeded carrying value, which was zero as of December 31, 2003, and the Company resumed recording its equity share of the operating results of Del-Tin Fiber. Likewise, cash advances to the joint venture are recorded as increases in
the Companys investment in the facility, while cash distributions received from the joint venture are reflected as reductions in its investment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For Deltics investment in Del-Tin Fiber, the key determinations by management are (1) the accounting treatment for
this investment under the equity method of accounting rather than as a consolidated subsidiary since the joint venture is 50 percent owned by both owners, (2) the factors used in evaluating the impairment of the investments carrying value, and
(3) the estimate of the fair value of the Companys guarantee of Del-Tin Fibers credit agreement. Deltic management has determined that there is no control by either company due to having a Board of Managers with equal representation. As
such, the assets and liabilities of Del-Tin Fiber are not included in the amounts reported on the Companys balance sheet for any period. In evaluating the possibility of the existence of an impairment for the Companys carrying value for
its investment in Del-Tin Fiber under APB 18, management must estimate future net cash flows from the possible courses of action available for its investment, such as continuing to maintain or sell its investment, to determine both recoverability of
the carrying amount and fair value of the investment. More specifically, management must determine the possible courses of action and estimate the probability of each potential action, as well as the related future net cash flows. Then, if estimated
fair value is less than the carrying amount, management must determine if this impairment is other than temporary. If so, then an impairment write-down is required. In estimating the fair value of the guarantee of Del-Tin Fibers credit
agreement, Deltics management must first assess how the same debt instrument would have been structured without the guarantees of the joint venture partners, in order to estimate the premium resulting from Deltics guarantee. A range of
probabilities of estimated future cash outflows under the premium previously determined are then assembled. A probability-weighted present value of the estimated future cash outflows is then calculated. The resulting balance represents the fair
value of the obligation, which is the estimate of the value of assets required currently to settle the liability in the future. (For additional information about the Companys investment in Del-Tin Fiber, refer to Note 3 to the consolidated
financial statements.)



| | 3) | 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 ten-year estimated life. The Companys professional foresters estimate 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.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The key components of the Timber and Timberlands policy are: (1)
managements decision to maintain separate timber cost pools for each legal entity within the Deltic consolidated group and (2) the required estimation of timber inventory volume, by species, for each of these companies in order to calculate
the cost of fee timber harvested per ton. Management has elected to maintain a separate cost pool for the timber owned by each company, thus resulting in a different cost per ton for fee timber harvested for each. The mix of harvest by company for
any period can significantly affect the amount of cost of fee timber harvested expense reported. Per-ton costs for 2004 ranged from $3.45 to $44.60 per ton for pine sawtimber. Had the Company opted to use a composite



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depletion rate, cost of pine sawtimber harvested would have been $.7 million more in 2004, $2.3 million more in 2003, and $1.3 million less in 2002 ($.5
million, $1.5 million, $.8 million, respectively, net of applicable income taxes) than as reported due to the mix of harvest by company during the year. In determining these rates, management must estimate the volume of timber existing on its
timberlands. To estimate these fee timber inventories, the Company relies on its experienced forestry personnel and their use of statistical information and data obtained by actual physical measurements and other information gathering techniques.
The cost of fee timber harvested recognized is impacted by the accuracy of this volume estimation. (For additional information about the Companys timber and timberlands, refer to Note 4 to the consolidated financial statements.)



| | 4) | 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. 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.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Property, plant, and equipment assets are evaluated for possible impairment on a specific asset basis or in groups of similar assets, as applicable,
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future net cash flows to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases.



Management has also evaluated any asset or group of assets for which potential impairment might exist and has determined that there are none requiring an
impairment write-down. This process requires managements estimate of future cash flows generated by each asset or group of assets. For any instance where this evaluation process might indicate an impairment exists, the appropriate assets
carrying values would be written down to fair value and the amount of the write-down would be charged against the results of continuing operations. (For additional information about the Companys property, plant, and equipment, refer to Note 5
to the consolidated financial statements.)



| | 5) | Stock-Based Compensation  At December 31, 2004, Deltic had two stock-based compensation plans for which the Company applies the recognition and measurement principles
of APB 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for those plans. Stock-based employee compensation expense is accrued for the intrinsic value, if any, of stock options or restricted stock granted over
the applicable vesting periods using the straight-line method. Options granted by the Company have an exercise price equal to the market value of the underlying common stock on the date of grant. As of November 2001, the Company eliminated certain
option exercise procedures, resulting in a change to fixed-plan accounting treatment for all options. Prior to that date, the Company was required to apply variable plan accounting standards which required adjustment of the cost of options granted
for changes in the market value per share of the Companys common stock. In addition, the Company has awarded restricted stock awards to selected employees. The vesting of these awards are subject to either time restrictions, applying fixed
plan accounting standards, or performance restrictions, applying variable plan accounting standards. (For additional information, see Note 14  Incentive Plans.)
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The effect on net income/(loss) and earnings per share if the Company had applied the fair value
recognition provisions of the Financial Accounting Standards Boards Statement of Financial Accounting Standards (SFAS) 123, Accounting for Stock-Based Compensation, for the years ended December 31 consisted of the following:



|                                                                                                                                                                            |            |      |        |            |      |       |            |      |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ---- | ------ | ---------- | ---- | ----- | ---------- | ---- | ------- | -
|(Thousands of dollars, except per share amounts)                                                                                                                            |            | 2004 |        |            | 2003 |       |            | 2002 |        
|                                                                                                                                                                            | (Restated) |      |        | (Restated) |      |       | (Restated) |     
|Net income/(loss), as reported                                                                                                                                              |            | $    | 11,093 |            |      | 8,194 |            |      | (13,881 | )
|Plus total stock-based compensation expense determined under the intrinsic value method for awards, net of related tax effects, included in
the determination of net income |            |      | 468    |            |      | 220   |            |      | 431     |  
|Less pro forma total stock-based compensation expense determined under the fair value method for all awards, net of related tax
effects                                     |            |      | (811   | )          |      | (769  | )          |      | (937    | )
|                                                                                                                                                                            |            |      |        |            |      |       |            |      |         |  
|Pro forma net income/(loss)                                                                                                                                                 |            | $    | 10,750 |            |      | 7,645 |            |      | (14,387 | )
|                                                                                                                                                                            |            |      |        |            |      |       |            |      |         |  
|Basic earnings per share                                                                                                                                                    |            |      |        |            |      |       |            |      |         |  
|As reported                                                                                                                                                                 |            | $    | .92    |            |      | .69   |            |      | (1.35   | )
|Pro forma                                                                                                                                                                   |            |      | .89    |            |      | .64   |            |      | (1.40   | )
|Dilutive earnings per share                                                                                                                                                 |            |      |        |            |      |       |            |      |         |  
|As reported                                                                                                                                                                 |            | $    | .91    |            |      | .69   |            |      | (1.35   | )
|Pro forma                                                                                                                                                                   |            |      | .88    |            |      | .64   |            |      | (1.40   | )



For the pro forma net
income calculation in the preceding table, the fair value of each option on the date of grant was estimated using the Black-Scholes option-pricing model and the following assumptions for awards in 2004, 2003, and 2002, respectively: dividend yields
of .9 percent, 1.01 percent, and 1.06 percent; expected volatility of 30 percent, 32.79 percent, and 31.19 percent; risk-free interest rates of 4.1 percent, 4.86 percent, and 4.37 percent; and expected lives of five years. Using these assumptions,
the weighted average grant-date fair value per share of options granted in 2004, 2003, and 2002 was $9.50, $7.96, and $9.26, respectively.



The key management decision factors for Stock-Based Compensation are: (1) the decision, prior to 2005, to account for stock-based compensation using the
intrinsic value recognition and measurement principles of APB 25, Accounting for Stock Issued to Employees, or the fair value recognition and measurement principles of SFAS 123, Accounting for Stock-Based Compensation, as amended by SFAS 148,
Accounting for Stocked-Based Compensation  Transition and Disclosure, and (2) the determination of the exercise price for options granted. As of December 31, 2004, a companys management could elect to adopt SFAS 123 or continue to use
APB 25 for recognizing stock option expense in its financial statements. If continued use of APB 25 was elected, the income statement generally reflected a lesser amount for stock-based compensation expense, and the potential impact of adopting SFAS
123 and SFAS 148 would only be disclosed on a pro forma basis in the financial statement footnotes. Under the Companys stock incentive plan, option exercise price for options granted was equal to the fair market per share stock price on the
date of the grant, which resulted in no stock-based compensation expense for future options granted under the Companys stock incentive plan. However, options granted in February 2002 were subject to shareholder approval at the Companys
annual stockholders meeting on April 25, 2002, the accounting measurement date for these options. As a result, these options had an intrinsic value of $3.46 per share due to an increase in the market price of the Companys common



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##### Table of Contents

stock between February and April, and the resulting stock-based compensation expense is being recognized over the vesting periods of these options. In 2005,
the Company will adopt the provisions of SFAS 123 (Revised), Share-Based Payment. This standard requires the Company to expense the fair market value of all stock-based compensation, eliminating the first key management decision factor discussed
above. (For additional information about the Companys stock-based compensation, refer to Notes 1 and 14 to the consolidated financial statements.)



| | 6) | Revenue Recognition  The Company recognizes revenue when the following criteria are met: (1) persuasive evidence of an agreement exists, (2) delivery has occurred or
services have been rendered, (3) the price to the buyer is fixed and determinable, and (4) collectibility is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of
ownership. Revenue from the sale of lumber and wood by-products is recorded at the time of shipment due to terms of such sale being designated free on board (f.o.b.) shipping point. Revenue from the sale of timber-cutting rights to third
parties is recorded when legal title passes to the purchaser, which is generally upon delivery of a legally executed timber deed and receipt of payment for the timber. Revenue from intersegment timber sales is recorded when the timber is harvested;
such intersegment sales, which are made at prices which generally approximate market, are eliminated in the consolidated financial statements. Revenue from timberland and real estate sales is recorded under the criteria of the Financial Accounting
Standards Boards Statement of Financial Accounting Standards (SFAS) 66, Accounting for Sales of Real Estate. Such revenue is recorded at the time the purchaser executes the real estate closing documents and makes payment to the
title company handling the closing.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Related-Party Transactions



The Company has
committed to provide to Del-Tin Fiber a portion of the plants fiber and wood supply at market prices. This arrangement benefits Del-Tin Fiber by ensuring a portion of its raw material needs while providing the Company with a purchaser of
residual by-products produced by its lumber mills, if needed. The market price that Deltic receives for these transactions is determined by the average price paid during the immediate preceding year by Del-Tin Fiber to other suppliers of the
products purchased from the Company. During 2004, 2003, and 2002, Deltic sold Del-Tin Fiber approximately $3.9 million, $4.1 million, and $3 million, respectively, of these residual by-products. (The increase for 2004 and 2003 was due to Del-Tin
Fiber increasing finished MDF production.)



Impact of Recent
Accounting Pronouncements



(For information regarding the
impact of recent accounting pronouncements, refer to the related section in Note 1 to the consolidated financial statements.)



Environmental Matters



Deltic is committed to protecting the environment and has certain standards with which it must comply based on federal, state, and local laws for the
protection of the environment. Costs of compliance through 2004 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.



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##### Table of Contents

Outlook



Pine sawtimber harvested from Deltics fee lands in 2005 is projected to remain comparable to 2004s level at 550,000 to 575,000 tons. The
program to consider sales of timberland which have been identified as non-strategic or having a higher and better use will continue, but with increased return criteria, with sales of 300 to 500 acres anticipated for 2005. Finished lumber production
and resulting sales volumes are projected at 250 to 275 million feet for 2005; however, these volumes are dependent upon market conditions. With continued growth in west Little Rock, Arkansas, and the existing strong demand for residential lots in
the Companys Chenal Valley development, Deltic expects to offer approximately 570 lots for sale in 2005 and anticipates that closings for residential lots will be 300 to 330 lots for the year of 2005, barring declines in economic growth or
residential construction activity. The Company expects increased commercial acreage sales activity in 2005 compared to 2004. The Company will continue to recognize equity in the financial results of Del-Tin Fiber.



The Companys capital expenditures budget for the year of 2005 was
prepared in the fall of 2004 and provides for expenditures totaling $43.5 million. The Woodlands capital budget of $7.5 million includes $5 million for timberland acquisitions, which will be dependent on the availability of acreage at prices that
meet the Companys criteria for timber stocking, growth potential, site index, and location, and $2 million for reforestation site preparation and planting. During 2005, various sawmill projects are expected to require $10.4 million, including
$5 million for completion of a boiler addition/kiln upgrade project at the Waldo Mill and $1 million for replacement of the trimmer optimizer at the Ola Mill. The capital budget for Real Estate operations of $25.2 million includes expenditures for
residential real estate lot development totaling $14.1 million, depending on continuation of strong demand for residential lots and other marketing conditions. The remainder of budgeted Real Estate segment expenditures are primarily for various
infrastructure and amenity improvements. 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 or repayments
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.



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|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.



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##### Table of Contents

|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2004 and 2003

(Thousands of dollars)



|                                                                                 |  |            |         |   |            |         |  
|-------------------------------------------------------------------------------- |  | ---------- | ------- | - | ---------- | ------- | -
|                                                                                 |  | 2004       |         |   | 2003       |        
|                                                                                 |  | (Restated) |         |   | (Restated) |        
|Assets                                                                           |  |            |         |   |            |         |  
|Current assets                                                                   |  |            |         |   |            |         |  
|Cash and cash equivalents                                                        |  | $          | 859     |   |            | 1,687   |  
|Trade accounts receivable  net                                                  |  |            | 6,482   |   |            | 4,243   |  
|Other receivables                                                                |  |            | 660     |   |            | 1,257   |  
|Inventories                                                                      |  |            | 5,566   |   |            | 5,778   |  
|Prepaid expenses and other current assets                                        |  |            | 1,786   |   |            | 1,461   |  
|                                                                                 |  |            |         |   |            |         |  
|Total current assets                                                             |  |            | 15,353  |   |            | 14,426  |  
|Investment in real estate held for development and sale                          |  |            | 37,418  |   |            | 40,539  |  
|Investment in Del-Tin Fiber                                                      |  |            | 3,858   |   |            |        |  
|Other investments and noncurrent receivables                                     |  |            | 1,829   |   |            | 6,660   |  
|Timber and timberlands  net                                                     |  |            | 212,666 |   |            | 213,864 |  
|Property, plant, and equipment  net                                             |  |            | 35,767  |   |            | 36,882  |  
|Deferred charges and other assets                                                |  |            | 689     |   |            | 979     |  
|                                                                                 |  |            |         |   |            |         |  
|Total assets                                                                     |  | $          | 307,580 |   |            | 313,350 |  
|                                                                                 |  |            |         |   |            |         |  
|Liabilities and Stockholders Equity                                             |  |            |         |   |            |         |  
|Current liabilities                                                              |  |            |         |   |            |         |  
|Current maturities of long-term debt                                             |  | $          | 32      |   |            | 64      |  
|Trade accounts payable                                                           |  |            | 4,080   |   |            | 2,772   |  
|Accrued taxes other than income taxes                                            |  |            | 1,293   |   |            | 1,246   |  
|Deferred revenues and other accrued liabilities                                  |  |            | 3,467   |   |            | 2,843   |  
|                                                                                 |  |            |         |   |            |         |  
|Total current liabilities                                                        |  |            | 8,872   |   |            | 6,925   |  
|Long-term debt                                                                   |  |            | 85,724  |   |            | 115,056 |  
|Deferred tax liabilities  net                                                   |  |            | 14,272  |   |            | 12,514  |  
|Guarantee of indebtedness of Del-Tin Fiber                                       |  |            | 3,278   |   |            |        |  
|Other noncurrent liabilities                                                     |  |            | 11,343  |   |            | 9,385   |  
|Stockholders equity                                                             |  |            |         |   |            |         |  
|Cumulative preferred stock - $.01 par, authorized 20,000,000 shares, none issued |  |            |        |   |            |        |  
|Common stock - $.01 par, authorized 50,000,000 shares, 12,813,879 shares issued  |  |            | 128     |   |            | 128     |  
|Capital in excess of par value                                                   |  |            | 71,483  |   |            | 69,459  |  
|Retained earnings                                                                |  |            | 127,188 |   |            | 119,124 |  
|Unamortized restricted stock awards                                              |  |            | (924    | ) |            | (14     | )
|Treasury stock                                                                   |  |            | (13,772 | ) |            | (19,103 | )
|Accumulated other comprehensive income                                           |  |            | (12     | ) |            | (124    | )
|                                                                                 |  |            |         |   |            |         |  
|Total stockholders equity                                                       |  |            | 184,091 |   |            | 169,470 |  
|                                                                                 |  |            |         |   |            |         |  
|Total liabilities and stockholders equity                                       |  | $          | 307,580 |   |            | 313,350 |  
|                                                                                 |  |            |         |   |            |         |  



See accompanying notes
to consolidated financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Income

For the Years Ended December 31, 2004, 2003, and 2002

(Thousands of dollars,
except per share amounts)



|                                                             |  |            |         |   |            |         |   |            |         |  
|------------------------------------------------------------ |  | ---------- | ------- | - | ---------- | ------- | - | ---------- | ------- | -
|                                                             |  | 2004       |         |   | 2003       |         |   | 2002       |        
|                                                             |  | (Restated) |         |   | (Restated) |         |   | (Restated) |        
|Net sales                                                    |  | $          | 142,017 |   |            | 134,915 |   |            | 104,512 |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|Costs and expenses                                           |  |            |         |   |            |         |   |            |         |  
|Cost of sales                                                |  |            | 95,199  |   |            | 88,379  |   |            | 71,352  |  
|Depreciation, amortization, and cost of fee timber harvested |  |            | 11,188  |   |            | 13,345  |   |            | 15,224  |  
|General and administrative expenses                          |  |            | 12,475  |   |            | 9,334   |   |            | 7,612   |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|Total costs and expenses                                     |  |            | 118,862 |   |            | 111,058 |   |            | 94,188  |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|Operating income                                             |  |            | 23,155  |   |            | 23,857  |   |            | 10,324  |  
|Equity in Del-Tin Fiber                                      |  |            | 366     |   |            | (4,729  | ) |            | (28,217 | )
|Interest income                                              |  |            | 438     |   |            | 476     |   |            | 284     |  
|Interest and other debt expense                              |  |            | (5,982  | ) |            | (6,861  | ) |            | (4,558  | )
|Other income/(expense)                                       |  |            | 44      |   |            | 161     |   |            | 433     |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|Income/(loss) before income taxes                            |  |            | 18,021  |   |            | 12,904  |   |            | (21,734 | )
|Income taxes                                                 |  |            | (6,928  | ) |            | (4,710  | ) |            | 7,853   |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|Net income/(loss)                                            |  | $          | 11,093  |   |            | 8,194   |   |            | (13,881 | )
|                                                             |  |            |         |   |            |         |   |            |         |  
|Earnings per common share                                    |  |            |         |   |            |         |   |            |         |  
|Basic                                                        |  | $          | .92     |   |            | .69     |   |            | (1.35   | )
|Assuming dilution                                            |  | $          | .91     |   |            | .69     |   |            | (1.35   | )
|Dividends declared per common share                          |  | $          | .25     |   |            | .25     |   |            | .25     |  
|Average common shares outstanding (thousands)                |  |            | 12,122  |   |            | 11,924  |   |            | 11,919  |  



See accompanying notes
to consolidated financial statements.



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##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2004, 2003, and 2002

(Thousands of dollars)



|                                                                                                   |  |            |         |   |            |         |   |            |         |  
|-------------------------------------------------------------------------------------------------- |  | ---------- | ------- | - | ---------- | ------- | - | ---------- | ------- | -
|                                                                                                   |  | 2004       |         |   | 2003       |         |   | 2002       |        
|                                                                                                   |  | (Restated) |         |   | (Restated) |         |   | (Restated) |        
|Operating activities                                                                               |  |            |         |   |            |         |   |            |         |  
|Net income/(loss)                                                                                  |  | $          | 11,093  |   |            | 8,194   |   |            | (13,881 | )
|Adjustments to reconcile net income/(loss) to net cash provided/(required) by operating activities |  |            |         |   |            |         |   |            |         |  
|Depreciation, amortization, and cost of fee timber harvested                                       |  |            | 11,188  |   |            | 13,345  |   |            | 15,224  |  
|Deferred income taxes                                                                              |  |            | 1,643   |   |            | 644     |   |            | (7,729  | )
|Real estate costs recovered upon sale                                                              |  |            | 14,230  |   |            | 11,385  |   |            | 5,456   |  
|Timberland costs recovered upon sale                                                               |  |            | 310     |   |            | 1,084   |   |            | 921     |  
|Equity in Del-Tin Fiber                                                                            |  |            | (366    | ) |            | 4,729   |   |            | 28,217  |  
|Net increase/(decrease) in provisions for pension and other postretirement benefits                |  |            | 2,484   |   |            | 3,146   |   |            | 1,387   |  
|(Increase)/decrease in operating working capital other than cash and cash equivalents              |  |            | 937     |   |            | 698     |   |            | 1,416   |  
|Other - net                                                                                        |  |            | 628     |   |            | 984     |   |            | 1,068   |  
|                                                                                                   |  |            |         |   |            |         |   |            |         |  
|Net cash provided/(required) by operating activities                                               |  |            | 42,147  |   |            | 44,209  |   |            | 32,079  |  
|                                                                                                   |  |            |         |   |            |         |   |            |         |  
|Investing activities                                                                               |  |            |         |   |            |         |   |            |         |  
|Capital expenditures requiring cash                                                                |  |            | (24,167 | ) |            | (27,222 | ) |            | (24,237 | )
|Net change in purchased stumpage inventory                                                         |  |            | 2,563   |   |            | (417    | ) |            | (1,450  | )
|Advances to Del-Tin Fiber                                                                          |  |            | (1,615  | ) |            | (8,957  | ) |            | (12,219 | )
|Distributions from Del-Tin Fiber                                                                   |  |            | 1,400   |   |            |        |   |            |        |  
|(Increase)/decrease in funds held by trustee                                                       |  |            | 4,583   |   |            | (4,136  | ) |            | 1,789   |  
|Other - net                                                                                        |  |            | 1,513   |   |            | 1,430   |   |            | 1,212   |  
|                                                                                                   |  |            |         |   |            |         |   |            |         |  
|Net cash provided/(required) by investing activities                                               |  |            | (15,723 | ) |            | (39,302 | ) |            | (34,905 | )
|                                                                                                   |  |            |         |   |            |         |   |            |         |  
|Financing activities                                                                               |  |            |         |   |            |         |   |            |         |  
|Proceeds from borrowings                                                                           |  |            | 29,700  |   |            | 37,039  |   |            | 96,450  |  
|Repayments of notes payable and long-term debt                                                     |  |            | (59,064 | ) |            | (38,109 | ) |            | (64,524 | )
|Redemption of preferred stock                                                                      |  |            |        |   |            |        |   |            | (30,000 | )
|Treasury stock purchases                                                                           |  |            |        |   |            | (377    | ) |            | (746    | )
|Increase/(decrease) in bank overdraft                                                              |  |            |        |   |            | (913    | ) |            | 913     |  
|Preferred stock dividends paid                                                                     |  |            |        |   |            |        |   |            | (2,344  | )
|Common stock dividends paid                                                                        |  |            | (3,029  | ) |            | (2,980  | ) |            | (2,981  | )
|Proceeds from stock option exercises                                                               |  |            | 5,151   |   |            | 1,572   |   |            | 1,161   |  
|Other - net                                                                                        |  |            | (10     | ) |            | (509    | ) |            | (168    | )
|                                                                                                   |  |            |         |   |            |         |   |            |         |  
|Net cash provided/(required) by financing activities                                               |  |            | (27,252 | ) |            | (4,277  | ) |            | (2,239  | )
|                                                                                                   |  |            |         |   |            |         |   |            |         |  
|Net increase/(decrease) in cash and cash equivalents                                               |  |            | (828    | ) |            | 630     |   |            | (5,065  | )
|Cash and cash equivalents at beginning of year                                                     |  |            | 1,687   |   |            | 1,057   |   |            | 6,122   |  
|                                                                                                   |  |            |         |   |            |         |   |            |         |  
|Cash and cash equivalents at end of year                                                           |  | $          | 859     |   |            | 1,687   |   |            | 1,057   |  
|                                                                                                   |  |            |         |   |            |         |   |            |         |  



See accompanying notes
to consolidated financial statements.



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##### Table of Contents

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Stockholders Equity

For the Years Ended December 31, 2004, 2003, and 2002

(Thousands of dollars)



|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | ------- | - | ---------- | ------- | - | ---------- | ------- | -
|                                                                                                                                                               |  | 2004       |         |   | 2003       |         |   | 2002       |        
|                                                                                                                                                               |  | (Restated) |         |   | (Restated) |         |   | (Restated) |        
|Cumulative preferred stock  $.01 par, authorized 20,000,000 shares; no shares issued at end of 2004, 2003, or 2002, (See Note 8 
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                                                                                                                                   |  |            | 69,459  |   |            | 69,075  |   |            | 68,766  |  
|Exercise of stock options                                                                                                                                      |  |            | 867     |   |            | 182     |   |            | 165     |  
|Tax benefits on stock options                                                                                                                                  |  |            | 676     |   |            | 202     |   |            | 144     |  
|Restricted stock awards                                                                                                                                        |  |            | 481     |   |            |        |   |            |        |  
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|Balance at end of year                                                                                                                                         |  |            | 71,483  |   |            | 69,459  |   |            | 69,075  |  
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|Retained earnings                                                                                                                                              |  |            |         |   |            |         |   |            |         |  
|Balance at beginning of year for 2002                                                                                                                          |  |            |         |   |            |         |   |            | 133,034 |  
|Restatement adjustment  2002                                                                                                                                  |  |            |         |   |            |         |   |            | (13     | )
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|Balance at beginning of year                                                                                                                                   |  |            | 119,124 |   |            | 113,910 |   |            | 133,021 |  
|Net income/(loss)                                                                                                                                              |  |            | 11,093  |   |            | 8,194   |   |            | (13,881 | )
|Preferred stock dividends accrued                                                                                                                              |  |            |        |   |            |        |   |            | (2,249  | )
|Common stock dividends declared, $.25 per share                                                                                                                |  |            | (3,029  | ) |            | (2,980  | ) |            | (2,981  | )
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|Balance at end of year                                                                                                                                         |  |            | 127,188 |   |            | 119,124 |   |            | 113,910 |  
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|Unamortized restricted stock awards                                                                                                                            |  |            |         |   |            |         |   |            |         |  
|Balance at beginning of year                                                                                                                                   |  |            | (14     | ) |            | (133    | ) |            | (264    | )
|Stock awards                                                                                                                                                   |  |            | (1,249  | ) |            |        |   |            |        |  
|Shares forfeited                                                                                                                                               |  |            | 35      |   |            |        |   |            |        |  
|Amortization to expense                                                                                                                                        |  |            | 304     |   |            | 119     |   |            | 131     |  
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|Balance at end of year                                                                                                                                         |  |            | (924    | ) |            | (14     | ) |            | (133    | )
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|Treasury stock                                                                                                                                                 |  |            |         |   |            |         |   |            |         |  
|Balance at beginning of year  845,600, 898,175, and 925,725 shares, respectively                                                                              |  |            | (19,103 | ) |            | (20,273 | ) |            | (20,865 | )
|Shares purchased  7,052 shares in 2004, 15,909 shares in 2003, and 31,800 shares in 2002                                                                      |  |            | (254    | ) |            | (377    | ) |            | (746    | )
|Forfeited restricted stock  954 shares in 2004                                                                                                                |  |            | (35     | ) |            |        |   |            |        |  
|Shares issued for incentive plans  248,205 shares in 2004, 68,484 shares in 2003, and 59,350 shares in 2002                                                   |  |            | 5,620   |   |            | 1,547   |   |            | 1,338   |  
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|Balance at end of year  605,401, 845,600, and 898,175 shares, respectively, at cost                                                                           |  |            | (13,772 | ) |            | (19,103 | ) |            | (20,273 | )
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|Accumulated other comprehensive income                                                                                                                         |  |            |         |   |            |         |   |            |         |  
|Balance at beginning of year                                                                                                                                   |  |            | (124    | ) |            |        |   |            |        |  
|Minimum pension liability adjustment, net of income taxes                                                                                                      |  |            | 112     |   |            | (124    | ) |            |        |  
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|Balance at end of year                                                                                                                                         |  |            | (12     | ) |            | (124    | ) |            |        |  
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  
|Total stockholders equity                                                                                                                                     |  | $          | 184,091 |   |            | 169,470 |   |            | 162,707 |  
|                                                                                                                                                               |  |            |         |   |            |         |   |            |         |  



See accompanying notes
to consolidated financial statements.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the Years Ended December 31, 2004, 2003, and 2002

(Thousands of dollars)



|                                     |  |            |        |   |            |       |   |            |         |  
|------------------------------------ |  | ---------- | ------ | - | ---------- | ----- | - | ---------- | ------- | -
|                                     |  | 2004       |        |   | 2003       |       |   | 2002       |        
|                                     |  | (Restated) |        |   | (Restated) |       |   | (Restated) |        
|Net income/(loss)                    |  | $          | 11,093 |   |            | 8,194 |   |            | (13,881 | )
|                                     |  |            |        |   |            |       |   |            |         |  
|Other comprehensive income/(loss)    |  |            |        |   |            |       |   |            |         |  
|Minimum pension liability adjustment |  |            | 172    |   |            | (190  | ) |            |        |  
|Income taxes                         |  |            | (60    | ) |            | 66    |   |            |        |  
|                                     |  |            |        |   |            |       |   |            |         |  
|Total other comprehensive income     |  |            | 112    |   |            | (124  | ) |            |        |  
|                                     |  |            |        |   |            |       |   |            |         |  
|Comprehensive income/(loss)          |  | $          | 11,205 |   |            | 8,070 |   |            | (13,881 | )
|                                     |  |            |        |   |            |       |   |            |         |  



See accompanying notes
to consolidated financial statements.



52



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 1  Significant Accounting Policies



2005 Restatement



On August 12, 2005, Deltic Timber Corporation (Deltic or the Company) amended its Annual Report on Form 10-K for the year ended
December 31, 2004, to amend and restate its financial statements for the years 2002 through 2004, for the third quarter of 2002, and for each quarter in 2003 and 2004 to correct an overstatement of the carrying value of the Companys inventory
of third-party purchases of standing timber inventory used to supply its Ola sawmill. The effect of the restatement on Deltics Consolidated Balance Sheet at the end of the reported periods is immaterial and the restatement has no effect on the
Companys net cash flows. The effect of the restatement on retained earnings at January 1, 2002 was a reduction of $13,000. This restatement adjustment also affected the following notes to the consolidated financial statements: Note 4 
Timber and Timberlands, Note 9  Income Taxes, Note 15  Supplemental Cash Flows Disclosures, Note 16  Earnings per Share, Note 18  Business Segments, Note 20  Financial Results by Quarter (Unaudited).



In order to operate its two sawmills economically, the Company relies on
purchases of timber (raw material) from third parties to supplement its own timber harvests from Company owned timberlands. Deltic has an active timber procurement function for each of its sawmills. Sawmill inventory of third-party purchases of
standing timber is comprised of timber purchased by the sawmill from third parties that has not yet been harvested and delivered to the mill. When these types of purchases are made by the Companys procurement function, ownership of the timber
located on the designated tract of land transfers to the Company, however, ownership of the land itself does not transfer. The carrying value of this purchased stumpage inventory is grouped with the Companys wholly-owned timberlands and
reported as the line item Timber and Timberlands on Deltics Consolidated Balance Sheet. Over the past five years, such purchased stumpage inventory has represented 2.3 percent to 5.5 percent of the total Timber and Timberlands line- item
balance.



At the time that a tract of procurement timber is
purchased, an inventory amount based on the cash payment and an estimated volume derived from estimates made by the procurement foresters are established. An estimated average cost per ton is obtained by dividing the original cost of the purchased
timber on the tract by the original estimated volume of that timber. As the timber is harvested and brought into the mill, reductions in the purchased timber carrying balance are recorded using the calculated average cost per ton. Once all
harvestable timber is removed from a tract the procurement personnel communicate the closing of the tract to the accounting function. Upon this notification, a final adjustment is made to mill log cost based on any amount remaining in inventory
(increase in the case of undercut or decrease in the case of overcut).



In mid-July 2005, the Companys procurement manager for its Ola sawmill disclosed to senior management that the volume of certain tracts of third-party purchased standing timber inventory for the Ola mill was overstated. The Ola Mill
procurement manager largely controlled the information being received by Deltics accounting personnel. The overstatement arose from his failure to timely report to Deltics accounting personnel and his having concealed from accounting
personnel the differences between actual harvest volumes and the original estimates of timber volume, determined when the tracts were acquired.



53



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 1  Significant Accounting Policies (cont.)



Effects of the restatement by line item are as follows:



|                                           |  |                      |         |            |         |                      |         |            |        
|------------------------------------------ |  | -------------------- | ------- | ---------- | ------- | -------------------- | ------- | ---------- | -------
|                                           |  | 2004                 |         | 2003      
|(Thousands of dollars)                     |  | Aspreviouslyreported |         | Asrestated |         | Aspreviouslyreported |         | Asrestated
|Consolidated Balance Sheet1                |  |                      |         |            |         |                      |         |            |        
|Other receivables                          |  | $                    | 23      |            | 660     |                      | 1,041   |            | 1,257  
|Total current assets                       |  |                      | 14,716  |            | 15,353  |                      | 14,210  |            | 14,426 
|Timber and timberlands  net               |  |                      | 214,710 |            | 212,666 |                      | 215,040 |            | 213,864
|Total assets                               |  |                      | 308,987 |            | 307,580 |                      | 314,310 |            | 313,350
|                                           |  |                      |         |           
|Income taxes payable                       |  |                      |        |            |        |                      | 151     |            |       
|Total current liabilities                  |  |                      | 8,872   |            | 8,872   |                      | 7,076   |            | 6,925  
|Deferred tax liabilities  net             |  |                      | 14,351  |            | 14,272  |                      | 12,559  |            | 12,514 
|Retained earnings                          |  |                      | 128,516 |            | 127,188 |                      | 119,888 |            | 119,124
|Total stockholders equity                 |  |                      | 185,419 |            | 184,091 |                      | 170,234 |            | 169,470
|Total liabilities and stockholders equity |  |                      | 308,987 |            | 307,580 |                      | 314,310 |            | 313,350



|                                                 |  |                      |         |   |            |         |   |                      |         |   |            |         |   |                      |         |   |            |         |  
|------------------------------------------------ |  | -------------------- | ------- | - | ---------- | ------- | - | -------------------- | ------- | - | ---------- | ------- | - | -------------------- | ------- | - | ---------- | ------- | -
|                                                 |  | 2004                 |         |   | 2003       |         |   | 2002                 |        
|(Thousands of dollars, except per share amounts) |  | Aspreviouslyreported |         |   | Asrestated |         |   | Aspreviouslyreported |         |   | Asrestated |         |   | Aspreviouslyreported |         |   | Asrestated |        
|Consolidated Statement of Income2                |  |                      |         |   |            |         |   |                      |         |   |            |         |   |                      |         |   |            |         |  
|                                                 |  |                      |         |   |            |        
|Cost of sales                                    |  | $                    | 94,331  |   |            | 95,199  |   |                      | 87,596  |   |            | 88,379  |   |                      | 70,979  |   |            | 71,352  |  
|Total costs and expenses                         |  |                      | 117,994 |   |            | 118,862 |   |                      | 110,275 |   |            | 111,058 |   |                      | 93,815  |   |            | 94,188  |  
|Operating income                                 |  |                      | 24,023  |   |            | 23,155  |   |                      | 24,640  |   |            | 23,857  |   |                      | 10,697  |   |            | 10,324  |  
|Income/(loss) before income taxes                |  |                      | 18,889  |   |            | 18,021  |   |                      | 13,687  |   |            | 12,904  |   |                      | (21,361 | ) |            | (21,734 | )
|Income taxes                                     |  |                      | (7,232  | ) |            | (6,928  | ) |                      | (4,984  | ) |            | (4,710  | ) |                      | 7,722   |   |            | 7,853   |  
|Net income/(loss)                                |  |                      | 11,657  |   |            | 11,093  |   |                      | 8,703   |   |            | 8,194   |   |                      | (13,639 | ) |            | (13,881 | )
|                                                 |  |                      |         |   |            |        
|Earnings per common share                        |  |                      |         |   |            |         |   |                      |         |   |            |         |   |                      |         |   |            |         |  
|Basic                                            |  | $                    | .96     |   |            | .92     |   |                      | .73     |   |            | .69     |   |                      | (1.33   | ) |            | (1.35   | )
|Assuming dilution                                |  |                      | .96     |   |            | .91     |   |                      | .73     |   |            | .69     |   |                      | (1.33   | ) |            | (1.35   | )



|1 | At December 31
|- | --------------



|2 | For year ended December 31
|- | --------------------------



54



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 1  Significant Accounting Policies (cont.)



|                                                                                      |  |                      |         |   |            |         |   |                      |         |   |            |         |   |                      |         |   |            |         |  
|------------------------------------------------------------------------------------- |  | -------------------- | ------- | - | ---------- | ------- | - | -------------------- | ------- | - | ---------- | ------- | - | -------------------- | ------- | - | ---------- | ------- | -
|                                                                                      |  | 2004                 |         |   | 2003       |         |   | 2002                 |        
|(Thousands of dollars)                                                                |  | Aspreviouslyreported |         |   | Asrestated |         |   | Aspreviouslyreported |         |   | Asrestated |         |   | Aspreviouslyreported |         |   | Asrestated |        
|Consolidated Statement of Cash Flows1                                                 |  |                      |         |   |            |         |   |                      |         |   |            |         |   |                      |         |   |            |         |  
|Net income/(loss)                                                                     |  | $                    | 11,657  |   |            | 11,093  |   |                      | 8,703   |   |            | 8,194   |   |                      | (13,639 | ) |            | (13,881 | )
|Operating activities                                                                  |  |                      |         |   |            |         |   |                      |         |   |            |         |   |                      |         |   |            |         |  
|Deferred income taxes                                                                 |  |                      | 1,677   |   |            | 1,643   |   |                      | 674     |   |            | 644     |   |                      | (7,714  | ) |            | (7,729  | )
|(Increase)/decrease in operating working capital other than cash and cash equivalents |  |                      | 1,207   |   |            | 937     |   |                      | 942     |   |            | 698     |   |                      | 1,532   |   |            | 1,416   |  
|Net cash provided/(required) by operating activities                                  |  |                      | 43,015  |   |            | 42,147  |   |                      | 44,992  |   |            | 44,209  |   |                      | 32,452  |   |            | 32,079  |  
|                                                                                      |  |                      |         |   |            |        
|Investing activities                                                                  |  |                      |         |   |            |         |   |                      |         |   |            |         |   |                      |         |   |            |         |  
|Net change in purchased stumpage inventory                                            |  |                      | 1,695   |   |            | 2,563   |   |                      | (1,200  | ) |            | (417    | ) |                      | (1,823  | ) |            | (1,450  | )
|Net cash provided/(required) by investing activities                                  |  |                      | (16,591 | ) |            | (15,723 | ) |                      | (40,085 | ) |            | (39,302 | ) |                      | (35,278 | ) |            | (34,905 | )
|                                                                                      |  |                      |        
|                                                                                      |  | 2004                 |         |   | 2003       |         |   | 2002                 |        
|(Thousands of dollars)                                                                |  | Aspreviouslyreported |         |   | Asrestated |         |   | Aspreviouslyreported |         |   | Asrestated |         |   | Aspreviouslyreported |         |   | Asrestated |        
|Consolidated Statement of Stockholders Equity1                                       |  |                      |         |   |            |         |   |                      |         |   |            |         |   |                      |         |   |            |         |  
|Retained earnings                                                                     |  |                      |         |   |            |         |   |                      |         |   |            |         |   |                      |         |   |            |         |  
|Balance at beginning of year                                                          |  | $                    | 119,888 |   |            | 119,124 |   |                      | 114,165 |   |            | 113,910 |   |                      | 133,034 |   |            | 133,021 |  
|Net income/(loss)                                                                     |  |                      | 11,657  |   |            | 11,093  |   |                      | 8,703   |   |            | 8,194   |   |                      | (13,639 | ) |            | (13,881 | )
|Balance at end of year                                                                |  |                      | 128,516 |   |            | 127,188 |   |                      | 119,888 |   |            | 119,124 |   |                      | 114,165 |   |            | 113,910 |  
|Total stockholders equity                                                            |  |                      | 185,419 |   |            | 184,091 |   |                      | 170,234 |   |            | 169,470 |   |                      | 162,962 |   |            | 162,707 |  
|                                                                                      |  |                      |        
|                                                                                      |  | 2004                 |         |   | 2003       |         |   | 2002                 |        
|(Thousands of dollars)                                                                |  | Aspreviouslyreported |         |   | Asrestated |         |   | Aspreviouslyreported |         |   | Asrestated |         |   | Aspreviouslyreported |         |   | Asrestated |        
|Consolidated Statement of Comprehensive Income1                                       |  |                      |         |   |            |         |   |                      |         |   |            |         |   |                      |         |   |            |         |  
|Net income/(loss)                                                                     |  | $                    | 11,657  |   |            | 11,093  |   |                      | 8,703   |   |            | 8,194   |   |                      | (13,639 | ) |            | (13,881 | )
|Comprehensive income/(loss)                                                           |  |                      | 11,769  |   |            | 11,205  |   |                      | 8,579   |   |            | 8,070   |   |                      | (13,639 | ) |            | (13,881 | )



|1 | For year ended December 31
|- | --------------------------



55



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 1  Significant Accounting Policies (cont.)



Quarterly Information (unaudited)



|                                           |  |                      |         |                |         |                      |         |                |         |                      |         |            |         |                      |         |            |        
|------------------------------------------ |  | -------------------- | ------- | -------------- | ------- | -------------------- | ------- | -------------- | ------- | -------------------- | ------- | ---------- | ------- | -------------------- | ------- | ---------- | -------
|                                           |  | 2004                
|                                           |  | First Quarter        |         | Second Quarter |         | Third Quarter        |         | Fourth Quarter
|(Thousands of dollars)                     |  | Aspreviouslyreported |         | Asrestated     |         | Aspreviouslyreported |         | Asrestated     |         | Aspreviouslyreported |         | Asrestated |         | Aspreviouslyreported |         | Asrestated
|Consolidated Balance Sheet                 |  |                      |         |                |         |                      |         |                |         |                      |         |            |         |                      |         |            |        
|Other receivables                          |  | $                    | 857     |                | 857     |                      | 883     |                | 883     |                      | 12      |            | 12      |                      | 23      |            | 660    
|Total current assets                       |  |                      | 14,627  |                | 14,627  |                      | 14,210  |                | 14,210  |                      | 19,820  |            | 19,820  |                      | 14,716  |            | 15,353 
|Timber and timberlands  net               |  |                      | 216,198 |                | 215,088 |                      | 217,947 |                | 216,836 |                      | 215,145 |            | 213,303 |                      | 214,710 |            | 212,666
|Total assets                               |  |                      | 312,018 |                | 310,908 |                      | 310,176 |                | 309,065 |                      | 314,803 |            | 312,961 |                      | 308,987 |            | 307,580
|                                           |  |                      |         |                |         |                      |         |               
|Income taxes payable                       |  |                      | 408     |                | 62      |                      | 1,075   |                | 729     |                      | 1,577   |            | 1,003   |                      |        |            |       
|Total current liabilities                  |  |                      | 7,395   |                | 7,049   |                      | 8,110   |                | 7,764   |                      | 12,306  |            | 11,732  |                      | 8,872   |            | 8,872  
|Deferred tax liabilities  net             |  |                      | 12,786  |                | 12,743  |                      | 12,922  |                | 12,879  |                      | 14,185  |            | 14,114  |                      | 14,351  |            | 14,272 
|Retained earnings                          |  |                      | 120,413 |                | 119,692 |                      | 122,405 |                | 121,683 |                      | 125,829 |            | 124,632 |                      | 128,516 |            | 127,188
|Total stockholders equity                 |  |                      | 174,107 |                | 173,386 |                      | 176,682 |                | 175,960 |                      | 181,655 |            | 180,458 |                      | 185,419 |            | 184,091
|Total liabilities and stockholders equity |  |                      | 312,018 |                | 310,908 |                      | 310,176 |                | 309,065 |                      | 314,803 |            | 312,961 |                      | 308,987 |            | 307,580
|                                          
|Quarterly Information (unaudited)         
|                                           | 
|                                           |  | 2003                
|                                           |  | First Quarter        |         | Second Quarter |         | Third Quarter        |         | Fourth Quarter
|(Thousands of dollars)                     |  | Aspreviouslyreported |         | Asrestated     |         | Aspreviouslyreported |         | Asrestated     |         | Aspreviouslyreported |         | Asrestated |         | Aspreviouslyreported |         | Asrestated
|Consolidated Balance Sheet                 |  |                      |         |                |         |                      |         |                |         |                      |         |            |         |                      |         |            |        
|Other receivables                          |  | $                    | 2,279   |                | 2,279   |                      | 2,360   |                | 2,360   |                      | 2,983   |            | 3,187   |                      | 1,041   |            | 1,257  
|Total current assets                       |  |                      | 15,398  |                | 15,398  |                      | 15,277  |                | 15,277  |                      | 18,717  |            | 18,921  |                      | 14,210  |            | 14,426 
|Timber and timberlands  net               |  |                      | 218,751 |                | 218,193 |                      | 218,106 |                | 217,531 |                      | 216,799 |            | 215,990 |                      | 215,040 |            | 213,864
|Total assets                               |  |                      | 317,929 |                | 317,371 |                      | 315,027 |                | 314,452 |                      | 316,909 |            | 316,304 |                      | 314,310 |            | 313,350
|                                           |  |                      |         |                |         |                      |         |               
|Income taxes payable                       |  |                      | 771     |                | 596     |                      | 1,453   |                | 1,273   |                      | 49      |            |        |                      | 151     |            |       
|Total current liabilities                  |  |                      | 11,336  |                | 11,161  |                      | 10,261  |                | 10,081  |                      | 9,976   |            | 9,927   |                      | 7,076   |            | 6,925  
|Deferred tax liabilities  net             |  |                      | 11,857  |                | 11,836  |                      | 10,973  |                | 10,951  |                      | 11,660  |            | 11,629  |                      | 12,559  |            | 12,514 
|Retained earnings                          |  |                      | 114,635 |                | 114,273 |                      | 116,309 |                | 115,936 |                      | 115,898 |            | 115,373 |                      | 119,888 |            | 119,124
|Total stockholders equity                 |  |                      | 163,084 |                | 162,722 |                      | 164,800 |                | 164,427 |                      | 166,348 |            | 165,823 |                      | 170,234 |            | 169,470
|Total liabilities and stockholders equity |  |                      | 317,929 |                | 317,371 |                      | 315,027 |                | 314,452 |                      | 316,909 |            | 316,304 |                      | 314,310 |            | 313,350



56



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 1  Significant Accounting Policies (cont.)



Quarterly Information (unaudited)



|                                                |  |                      |        |   |                |        |   |                      |        |   |                |        |   |                      |        |   |            |        |   |                      |        |   |            |        |  
|----------------------------------------------- |  | -------------------- | ------ | - | -------------- | ------ | - | -------------------- | ------ | - | -------------- | ------ | - | -------------------- | ------ | - | ---------- | ------ | - | -------------------- | ------ | - | ---------- | ------ | -
|                                                |  | 2004                 |       
|                                                |  | First Quarter        |        |   | Second Quarter |        |   | Third Quarter        |        |   | Fourth Quarter |       
|(Thousands of dollars, except pershare amounts) |  | Aspreviouslyreported |        |   | Asrestated     |        |   | Aspreviouslyreported |        |   | Asrestated     |        |   | Aspreviouslyreported |        |   | Asrestated |        |   | Aspreviouslyreported |        |   | Asrestated |       
|Consolidated Statement of Income                |  |                      |        |   |                |        |   |                      |        |   |                |        |   |                      |        |   |            |        |   |                      |        |   |            |        |  
|Cost of sales                                   |  | $                    | 18,197 |   |                | 18,131 |   |                      | 22,565 |   |                | 22,566 |   |                      | 28,762 |   |            | 29,493 |   |                      | 24,807 |   |            | 25,009 |  
|Total cost and expenses                         |  |                      | 23,919 |   |                | 23,853 |   |                      | 28,216 |   |                | 28,217 |   |                      | 35,629 |   |            | 36,360 |   |                      | 30,230 |   |            | 30,432 |  
|Operating income                                |  |                      | 3,892  |   |                | 3,958  |   |                      | 5,781  |   |                | 5,780  |   |                      | 7,626  |   |            | 6,895  |   |                      | 6,724  |   |            | 6,522  |  
|Income/(loss) before income taxes               |  |                      | 2,129  |   |                | 2,195  |   |                      | 4,583  |   |                | 4,582  |   |                      | 6,764  |   |            | 6,033  |   |                      | 5,413  |   |            | 5,211  |  
|Income taxes                                    |  |                      | (854   | ) |                | (877   | ) |                      | (1,833 | ) |                | (1,833 | ) |                      | (2,582 | ) |            | (2,326 | ) |                      | (1,963 | ) |            | (1,892 | )
|Net income/(loss)                               |  |                      | 1,275  |   |                | 1,318  |   |                      | 2,750  |   |                | 2,749  |   |                      | 4,182  |   |            | 3,707  |   |                      | 3,450  |   |            | 3,319  |  
|Earnings per common share                       |  |                      |        |   |                |        |   |                      |        |   |                |        |   |                      |        |   |            |        |   |                      |        |   |            |        |  
|Basic                                           |  | $                    | .11    |   |                | .11    |   |                      | .23    |   |                | .23    |   |                      | .34    |   |            | .31    |   |                      | .28    |   |            | .27    |  
|Assuming dilution                               |  |                      | .11    |   |                | .11    |   |                      | .23    |   |                | .23    |   |                      | .34    |   |            | .30    |   |                      | .28    |   |            | .27    |  
|                                                |  |                      |        |   |                |        |   |                     
|Quarterly Information (unaudited)               |  |                      |        |   |                |        |   |                      |        |   |                |        |   |                      |        |   |            |        |   |                      |        |   |            |        |  
|                                                | 
|                                                |  | 2003                 |       
|                                                |  | First Quarter        |        |   | Second Quarter |        |   | Third Quarter        |        |   | Fourth Quarter |       
|(Thousands of dollars, except pershare amounts) |  | Aspreviouslyreported |        |   | Asrestated     |        |   | Aspreviouslyreported |        |   | Asrestated     |        |   | Aspreviouslyreported |        |   | Asrestated |        |   | Aspreviouslyreported |        |   | Asrestated |       
|Consolidated Statement of Income                |  |                      |        |   |                |        |   |                      |        |   |                |        |   |                      |        |   |            |        |   |                      |        |   |            |        |  
|Cost of sales                                   |  | $                    | 21,558 |   |                | 21,723 |   |                      | 23,455 |   |                | 23,472 |   |                      | 22,324 |   |            | 22,558 |   |                      | 20,259 |   |            | 20,626 |  
|Total cost and expenses                         |  |                      | 26,990 |   |                | 27,155 |   |                      | 28,846 |   |                | 28,863 |   |                      | 27,312 |   |            | 27,546 |   |                      | 27,127 |   |            | 27,494 |  
|Operating income                                |  |                      | 5,439  |   |                | 5,274  |   |                      | 6,114  |   |                | 6,097  |   |                      | 3,418  |   |            | 3,184  |   |                      | 9,669  |   |            | 9,302  |  
|Income/(loss) before income taxes               |  |                      | 2,044  |   |                | 1,879  |   |                      | 3,716  |   |                | 3,699  |   |                      | 588    |   |            | 354    |   |                      | 7,339  |   |            | 6,972  |  
|Income taxes                                    |  |                      | (830   | ) |                | (772   | ) |                      | (1,299 | ) |                | (1,293 | ) |                      | (254   | ) |            | (172   | ) |                      | (2,601 | ) |            | (2,473 | )
|Net income/(loss)                               |  |                      | 1,214  |   |                | 1,107  |   |                      | 2,417  |   |                | 2,406  |   |                      | 334    |   |            | 182    |   |                      | 4,738  |   |            | 4,499  |  
|Earnings per common share                       |  |                      |        |   |                |        |   |                      |        |   |                |        |   |                      |        |   |            |        |   |                      |        |   |            |        |  
|Basic                                           |  | $                    | .10    |   |                | .09    |   |                      | .20    |   |                | .20    |   |                      | .03    |   |            | .02    |   |                      | .40    |   |            | .38    |  
|Assuming dilution                               |  |                      | .10    |   |                | .09    |   |                      | .20    |   |                | .20    |   |                      | .03    |   |            | .02    |   |                      | .39    |   |            | .37    |  



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 1  Significant Accounting Policies (cont.)



Quarterly Information (unaudited)



|                                                 |  |                      |   |  |            |  
|------------------------------------------------ |  | -------------------- | - |  | ---------- | -
|                                                 |  | 2002 Third Quarter   |  
|(Thousands of dollars, except per share amounts) |  | Aspreviouslyreported |   |  | Asrestated |  
|Consolidated Statement of Income                 |  |                      |   |  |            |  
|Cost of sales                                    |  | 19,154               |   |  | 19,527     |  
|Total cost and expenses                          |  | 23,896               |   |  | 24,269     |  
|Operating income                                 |  | 1,669                |   |  | 1,296      |  
|Income/(loss) before income taxes                |  | (1,050               | ) |  | (1,423     | )
|Income taxes                                     |  | 58                   |   |  | 189        |  
|Net income/(loss)                                |  | (992                 | ) |  | (1,234     | )
|                                                 |  |                     
|Earnings per common share                        |  |                      |   |  |            |  
|Basic                                            |  | (0.13                | ) |  | (0.15      | )
|Assuming dilution                                |  | (0.13                | ) |  | (0.15      | )



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



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 accounting principles generally accepted in the United States of America, 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, 2004 and 2003, the balance in the allowance account was $26,000 and $107,000, 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. (For additional information, see Note 2  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. Indirect and amenity 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 four development areas  Chenal Valley, Chenal Downs, Red Oak Ridge, and The Ridges at
Nowlin Creek  are allocated to neighborhoods over the entire respective development area based on relative retail values.



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 adjusted for the Companys proportionate share of Del-Tin Fibers undistributed earnings or losses. The Companys equity-method-basis carrying value for its investment in Del-Tin Fiber is evaluated for possible
impairment, as applicable under the requirements of Accounting Principles Board Opinion (APB) 18, The Equity Method of Accounting for Investments in Common Stock. This evaluation as of December 31, 2002, based on the intent of the
Companys Board of Directors to exit the business, resulted in a determination that the Companys investment was impaired as of December 31, 2002, and the carrying amount of the investment was written off, to zero, for the 2002
Consolidated Balance Sheet. On December 11, 2003, the Companys Board of Directors revised its intent in regard to selling Deltics interest in the joint venture, and the resulting evaluation of fair value for the related investment
indicated that fair value exceeded carrying value, which was zero as of December 31, 2003, and the Company resumed recording its equity share of the operating results of Del-Tin Fiber. Accordingly, cash advances to the joint venture during 2004 were
recorded as increases in the Companys investment carrying value, while cash distributions received from the joint venture resulted in reductions in investment carrying value. (For additional information, see Note 3  Investment in Del-Tin
Fiber.)



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 1  Significant Accounting Policies (cont.)



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 and includes no estimated future reforestation cost. 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 ten-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.



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. 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.



Property, plant, and equipment assets are
evaluated for possible impairment on a specific asset basis or in groups of similar assets, as applicable, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future net cash flows to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment
loss is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases.



Revenue Recognition  The Company recognizes
revenue when the following criteria are met: (1) persuasive evidence of an agreement exists, (2) delivery has occurred or services have been rendered, (3) the price to the buyer is fixed and determinable, and (4) collectibility is reasonably
assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. Revenue from the sale of lumber and wood by-products is recorded at the time of shipment due to terms of such sale
being designated free on board (f.o.b.) shipping point. Revenue from the sale of timber-cutting rights to third parties is recorded when legal title passes to the purchaser, which is generally upon delivery of a legally executed timber
deed and receipt of payment for the timber. Revenue from intersegment timber sales is recorded when the timber is harvested; such intersegment sales, which are made at prices which generally approximate market, are eliminated in the consolidated
financial statements. Revenue from timberland and real estate is recorded under the criteria of the Financial Accounting Standards Boards Statement of Financial Accounting Standards (SFAS) 66, Accounting for Sales of Real Estate.
Such revenue is recorded when the sale is closed and legal title is transferred, which is generally at the time the purchaser executes the real estate closing documents and makes payment to the title company handling the closing.



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. Deferred tax assets are reduced by a valuation allowance which is established when it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 1  Significant Accounting Policies (cont.)



Stock-Based Compensation  At December 31, 2004, Deltic had two stock-based compensation
plans for which the Company applies the recognition and measurement principles of APB 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for those plans. Stock-based employee compensation expense is accrued for
the intrinsic value, if any, of stock options or restricted stock granted over the applicable vesting periods using the straight-line method. Options granted by the Company have an exercise price equal to the market value of the underlying common
stock on the date of grant. The Company has awarded restricted stock awards to employees, with vesting requirements based on either fulfilling future service periods, which results in applying fixed-plan accounting standards, or specified
performance requirements, which results in applying variable-plan accounting standards. (For additional information, see Note 14  Incentive Plans.)



The effect on net income/(loss) and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123, Accounting for
Stock-Based Compensation, for the years ended December 31 consisted of the following:



|                                                                                                                                                                            |  |            |        |   |            |       |   |            |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | ------ | - | ---------- | ----- | - | ---------- | ------- | -
|(Thousands of dollars, except per share amounts)                                                                                                                            |  | 2004       |        |   | 2003       |       |   | 2002       |        
|                                                                                                                                                                            |  | (Restated) |        |   | (Restated) |       |   | (Restated) |        
|Net income/(loss), as reported                                                                                                                                              |  | $          | 11,093 |   |            | 8,194 |   |            | (13,881 | )
|Plus total stock-based compensation expense determined under the intrinsic value method for awards, net of related tax effects, included in
the determination of net income |  |            | 468    |   |            | 220   |   |            | 431     |  
|Less pro forma total stock-based compensation expense determined under the fair value method for all awards, net of related tax
effects                                     |  |            | (811   | ) |            | (769  | ) |            | (937    | )
|                                                                                                                                                                            |  |            |        |   |            |       |   |            |         |  
|Pro forma net income/(loss)                                                                                                                                                 |  | $          | 10,750 |   |            | 7,645 |   |            | (14,387 | )
|                                                                                                                                                                            |  |            |        |   |            |       |   |            |         |  
|Basic earnings per share                                                                                                                                                    |  |            |        |   |            |       |   |            |         |  
|As reported                                                                                                                                                                 |  | $          | .92    |   |            | .69   |   |            | (1.35   | )
|Pro forma                                                                                                                                                                   |  |            | .89    |   |            | .64   |   |            | (1.40   | )
|Dilutive earnings per share                                                                                                                                                 |  |            |        |   |            |       |   |            |         |  
|As reported                                                                                                                                                                 |  | $          | .91    |   |            | .69   |   |            | (1.35   | )
|Pro forma                                                                                                                                                                   |  |            | .88    |   |            | .64   |   |            | (1.40   | )



For the pro forma net
income calculation in the preceding table, the fair value of each option on the date of grant was estimated using the Black-Scholes option-pricing model and the following assumptions for awards in 2004, 2003, and 2002, respectively: dividend yields
of .9 percent, 1.01 percent, and 1.06 percent; expected volatility of 30 percent, 32.79 percent, and 31.19 percent; risk-free interest rates of 4.10 percent, 4.86 percent, and 4.37 percent; and expected lives of five years. Using these assumptions,
the weighted average grant-date fair value per share of options granted in 2004, 2003, and 2002 was $9.50, $7.96, and $9.26, respectively.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 1  Significant Accounting Policies (cont.)



Pensions and Other Postretirement Benefits  The Company sponsors both a qualified and a
nonqualified, noncontributory, defined benefit retirement plan that covers substantially all employees. Benefits are based on years of service and final career-average-pay formulas as defined by the plans. The qualified plan is funded to accumulate
sufficient assets to provide for accrued benefits. The nonqualified plan, a supplemental executive plan, is not funded; the Company pays any benefits due under this plan on a monthly basis.



The Company also sponsors a defined benefit health care plan and a life
insurance benefit plan for substantially all retired employees. The Company measures the costs of its obligations for these plans based on its best estimate. The net periodic costs are recognized as employees render the services necessary to earn
these postretirement benefits. (For additional information, see Note 13  Employee and Retiree Benefit Plans.)



Advertising Costs  Advertising costs, primarily related to marketing efforts for the Companys real estate developments, are expensed as
incurred. These costs amounted to $692,000 in 2004, $638,000 in 2003, and $792,000 in 2002 and are reflected in Cost of Sales on the Consolidated Statements of Income.



Capitalized Interest  The Company capitalizes interest for qualifying assets constructed or otherwise produced
for which interest on directly associated debt was incurred. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of those assets.



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 this 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 are calculated under the
provisions of the SFAS 128, Earnings per Share. Basic earnings per share is computed based on earnings available to common shareholders [net income/(loss) less accrued preferred dividends, if any] 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 plans. (For a reconciliation of amounts used in per share computations, see Note 16  Earnings per Share.)



Shipping and Handling Costs  Shipping and handling costs, such as freight to our customers destinations, are accounted for in
accordance with the Emerging Issues Task Force (EITF) Issue 00-10. As such, shipping and handling costs are included in Cost of Sales in the Companys Consolidated Statements of Income. These costs, when included in the amount
invoiced to customers, are also recognized in Net Sales.



Impact of Recent Accounting Pronouncements  In January 2003, the FASB issued Financial Accounting Standards Board Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities, as updated by FIN 46R. This
interpretation addresses consolidation of certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 1  Significant Accounting Policies (cont.)



entity to finance its activities without additional subordinated financial support for other parties. The consolidation provisions of FIN 46 apply
immediately to variable interest entities created after January 31, 2003, and in the first quarter of the fiscal year beginning after June 15, 2003, for variable interest entities acquired before February 1, 2003. The Company has not created or
obtained an interest in any such entities since January 31, 2003, and the statement did not have an impact in fiscal year 2004 as a result of the Companys evaluation of its investment in Del-Tin Fiber under the provisions of FIN 46.



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



In May 2004, the FASB issued FSP FAS 106-2 which bears the same title as FSB FAS 106-1 and supersedes the previous guidance therein. FSP FAS 106-2 provides guidance on accounting for postretirement health care plans with prescription drug
benefits that have been determined to be at least actuarially equivalent to those provided within the Act and thus qualify plans for future federal subsidies. Deltic has determined the prescription drug benefits under its plan are actuarially
equivalent to those provided within the Act. Accordingly, an adjustment resulting from the Act has been included in the postretirement benefit obligation liability as of December 31, 2004, and the amount of related benefit expense for the period
then ended. (For additional information, see Note 13  Employee and Retiree Benefit Plans.)



In November 2004, the FASB released SFAS 151, Inventory Costs, which requires abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage) to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2004. The Company does not expect adoption of SFAS 151 to have a material effect on its consolidated financial statements.



In December 2004, the FASB issued a revision to SFAS 123, Accounting for
Stock-Based Compensation. This revision will require the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the
period during which an employee is required to provide service in exchange for the award. This revised Statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005, with early adoption
for interim periods for which financial statements have not been issued encouraged. It applies to all awards granted after the required effective date and to awards modified, repurchased, or canceled after that date. The Company has elected to adopt
the revised statement effective for its third quarter 2005 financial statements. As required, cost of stock-based compensation will be recognized for the portion of outstanding awards for which the requisite service has not been rendered as of June
30, 2005, based on the grant-date fair value of those awards. The granting of stock-based compensation is at the discretion of the Companys Executive Compensation Committee (the Committee). The effect of adoption of SFAS 123
(Revised) will be dependent upon the amount of awards granted by the Company in future periods, but, on an annual basis, is expected to be comparable to the amounts reflected in the pro forma disclosures as presented in the Stock-Based Compensation
policy included within this footnote.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 1  Significant Accounting Policies (cont.)



In December 2004, the FASB issued SFAS 152, Accounting for Real Estate Time-Sharing Transactions, an
amendment of FASB Statements No. 66 and 67. This statement requires real estate time-sharing transactions to be accounted for as nonretail land sales and is effective for fiscal years beginning after June 15, 2005. The Company is not engaged in
time-sharing transactions, accordingly, adoption of SFAS 152 is not expected to have a material impact on the Companys financial statements.



In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. This statement amends APB 29 concerning
the accounting for exchanges of similar productive assets. These transactions will now be accounted for at fair value, the basic principle for nonmonetary transactions, unless the exchange lacks commercial substance. This statement is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of SFAS 153 to have a material effect on its consolidated financial statements.



|Note | 2  Inventories
|---- | ---------------



Inventories at December 31 consisted of the following:



|                       |  |      |       |      |      
|---------------------- |  | ---- | ----- | ---- | -----
|(Thousands of dollars) |  | 2004 |       | 2003
|Logs                   |  | $    | 1,005 |      | 1,741
|Lumber                 |  |      | 4,253 |      | 3,604
|Materials and supplies |  |      | 308   |      | 433  
|                       |  |      |       |      |      
|                       |  | $    | 5,566 |      | 5,778
|                       |  |      |       |      |      



For both financial and
income tax purposes the Company utilizes the lower of cost or market basis for determining inventory carrying values. Lumber inventory amounts at December 31, 2004 and 2003, are stated at lower of cost or net realizable value.



Note 3  Investment in Del-Tin Fiber



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



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



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 3  Investment in Del-Tin Fiber (cont.)



Due to the Companys commitment to fund its share of the facilitys operating working
capital needs until the facility was able to consistently generate sufficient funds to meet its cash requirements or Deltics ownership was sold, the Company continued to recognize its share of Del-Tin Fibers operating losses to the
extent of these advances during 2003. For the year, Deltics operating advances to the facility approximated its equity share of losses of the plant and amounted to $4,729,000. Deltic made additional advances of $4,228,000, during 2003,
representing its half of the facilitys 2003 quarterly sinking fund obligation, which the Company had recorded as a current contingent liability in 2002, in accordance with SFAS 5, Accounting for Contingencies. The Company also continued to
utilize its management resources to work with Del-Tins management and the joint venture partner to improve operating performance at the plant. As a result of these improvements, on December 11, 2003, Deltics Board of Directors revised
its intent regarding the Companys investment in Del-Tin Fiber and ceased efforts to sell the Companys interest in the joint venture while continuing to improve operating and financial results of the plant. Due to this decision,
Deltics evaluation of impairment as of December 31, 2003, was primarily based upon the estimated future net cash flows from Del-Tin Fibers operations over the remaining life of the plant. Considering the Companys revised intent,
the resulting estimated fair value of the Companys investment exceeded the investments carrying value, which was zero as of December 31, 2003, and the Company resumed recording its equity share of the operating results of Del-Tin Fiber
and recording cash advances as increases in its investment in the facility, while cash distributions received from the joint venture decrease its investment.



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



Prior to August 26, 2004, the Company had agreed to a contingent equity
contribution agreement with Del-Tin Fiber and the group of banks from whom Del-Tin Fiber had obtained its $89,000,000 credit facility. Under this agreement, Deltic and the other 50 percent owner of the joint venture had agreed to fund any deficiency
in contributions to either Del-Tin Fibers required sinking fund or debt service reserve, up to a cumulative total of $17,500,000 for each owner. In addition, each owner had committed to a production support agreement, under which each owner
had agreed to make support obligation payments to Del-Tin



Fiber to provide, on the occurrence of certain events, additional funds for payment of debt service until the plant was able to successfully complete a minimum production test. Both owners had also agreed, in a series of one-year term
commitments, to fund any operating working capital needs until the facility was able to consistently generate sufficient funds to meet its cash requirements.



On August 26, 2004, Del-Tin Fiber refinanced its existing long-term debt by entering into a credit agreement consisting of a letter of credit and term
loan with multiple lending institutions pursuant to which, $60,000,000 of its $89,000,000 industrial revenue bonds were redeemed. Under the new credit agreement, the lenders, on September 1, 2004, loaned Del-Tin Fiber $30,000,000 which will be
repayable over five years in equal quarterly installments, beginning December 31, 2004, and issued on Del-Tin Fibers behalf, a letter of credit in the amount of $29,689,000 to support the remaining industrial revenue bonds originally issued in
1998 by Union County, Arkansas. Concurrent with this event, on August 26, 2004, Deltic executed a guarantee agreement in connection with the refinancing of the debt of Del-Tin Fiber. Under Deltics guarantee agreement, Deltic unconditionally
guarantees the due and punctual



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 3  Investment in Del-Tin Fiber (cont.)



payment of 50 percent ($29,095,000 at December 31, 2004) of Del-Tins obligations under its credit agreement. This new credit agreement of Del-Tin Fiber
fully replaces Del-Tin Fibers prior credit facility, resulting in Deltics previous contingent equity contribution agreement of $17,500,000, the production support agreement, and the need for the series of one-year operating working
capital commitments being fully extinguished.



The Company has
adopted the provisions of FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and a
rescission of FASB Interpretation No. 34 (FIN 45). In accordance with FIN 45, Deltic estimated the fair value of its guarantee of Del-Tin Fibers credit agreement to be $3,450,000 and included this non-cash amount in the
Companys Consolidated Balance Sheet as a long-term liability with an offsetting increase in the Companys investment in Del-Tin Fiber. Deltic is reducing this liability systematically over the life of the credit agreement, as the Company
is released from risk under the guarantee. Simultaneously, the offsetting amount which represents the difference between the Companys recorded investment in Del-Tin Fiber and its underlying equity in the net assets of the joint venture is
being amortized over the same period as the guarantee. The amortization of the guarantee and the basis difference are netted for purposes of financial reporting and result in no net income statement effect. At December 31, 2004, Deltics
remaining liability regarding the guarantee was $3,278,000.



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 2004, 2003, and 2002, Deltic sold Del-Tin
Fiber approximately $3,890,000, $4,099,000, and $3,018,000, respectively, of these lumber manufacturing by-products. As of December 31, 2004 and 2003, the Company had a receivable from Del-Tin Fiber of $54,000 and $78,000, respectively.



Del-Tin Fibers financial position at year-end 2004 and 2003 and
results of operations for years of 2004 and 2003 consisted of the following:



|                                                 |  |      |         |      |        
|------------------------------------------------ |  | ---- | ------- | ---- | -------
|(Thousands of dollars)                           |  | 2004 |         | 2003
|Condensed Balance Sheet Information              |  |      |         |      |        
|Current assets                                   |  | $    | 7,107   |      | 7,330  
|Debt service reserve funds                       |  |      |        |      | 3,521  
|Bond sinking funds                               |  |      |        |      | 23,059 
|Property, plant, and equipment  net             |  |      | 93,201  |      | 95,325 
|Other noncurrent assets                          |  |      | 528     |      | 491    
|                                                 |  |      |         |      |        
|Total assets                                     |  | $    | 100,836 |      | 129,726
|                                                 |  |      |         |      |        
|Current liabilities                              |  | $    | 10,616  |      | 3,462  
|Long-term debt                                   |  |      | 51,500  |      | 89,000 
|Members capital/(deficit)                       |  |      | 38,720  |      | 37,264 
|                                                 |  |      |         |      |        
|Total liabilities and members capital/(deficit) |  | $    | 100,836 |      | 129,726
|                                                 |  |      |         |      |        



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 3  Investment in Del-Tin Fiber (cont.)



|                                       |  |      |        |   |      |        |  
|-------------------------------------- |  | ---- | ------ | - | ---- | ------ | -
|(Thousands of dollars)                 |  | 2004 |        |   | 2003 |       
|Condensed Income Statement Information |  |      |        |   |      |        |  
|Net sales                              |  | $    | 65,407 |   |      | 48,743 |  
|                                       |  |      |        |   |      |        |  
|Costs and expenses                     |  |      |        |   |      |        |  
|Cost of sales                          |  |      | 52,964 |   |      | 47,114 |  
|Depreciation                           |  |      | 5,971  |   |      | 5,260  |  
|General and administrative expenses    |  |      | 2,278  |   |      | 2,045  |  
|Other expenses                         |  |      | 220    |   |      | 530    |  
|                                       |  |      |        |   |      |        |  
|Total costs and expenses               |  |      | 61,433 |   |      | 54,949 |  
|                                       |  |      |        |   |      |        |  
|Operating income/(loss)                |  |      | 3,974  |   |      | (6,206 | )
|Interest income                        |  |      | 186    |   |      | 184    |  
|Gain/(loss) on extinguishment of debt  |  |      | (217   | ) |      |       |  
|Interest and other debt expense        |  |      | (2,917 | ) |      | (3,733 | )
|                                       |  |      |        |   |      |        |  
|Net income/(loss)                      |  | $    | 1,026  |   |      | (9,755 | )
|                                       |  |      |        |   |      |        |  



At December 31, 2004
and 2003, the Companys share of the underlying net assets of Del-Tin Fiber exceeded its investment by $15,502,000 and $18,632,000, respectively. The excess relates primarily to: (1) the Companys write-off of its carrying amount for its
investment in Del-Tin Fiber as of December 31, 2002; (2) 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 was being amortized into income using the
straight-line method over a 60-month period (Del-Tin capitalized the interest paid to the Company into its property, plant, and equipment accounts, and it is being depreciated into the facilitys results of operations.); and (3) the estimated
fair value of the guarantee of Del-Tin Fibers credit agreement recorded by the Company in its 2004 Consolidated Balance Sheet.



Prior to the 2002 write-off of its investment in Del-Tin Fiber, the Company accounted for its investment in Del-Tin Fiber under the equity method. During
2003, the Company expensed amounts related to the funding of operating deficits. Effective December 11, 2003, as a result of the Companys intent to not sell its investment in Del-Tin Fiber, Deltic resumed accounting for the investment using
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 $95,042,000, $47,521,000 net to the Company. During 2004, the Company received
$1,400,000 in distributions from Del-Tin Fiber. Prior to 2004, no earnings have been available for distribution to the owners. Contributions to Del-Tin Fiber by the Company as of December 31, 2004, have amounted to $68,547,000.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 4  Timber and Timberlands



Timber and timberlands at December 31 consisted of the following:



|                                                                          |  |            |         |   |            |         |  
|------------------------------------------------------------------------- |  | ---------- | ------- | - | ---------- | ------- | -
|(Thousands of dollars)                                                    |  | 2004       |         |   | 2003       |        
|                                                                          |  | (restated) |         |   | (restated) |        
|Purchased stumpage inventory                                              |  | $          | 4,949   |   |            | 7,512   |  
|Timberlands                                                               |  |            | 79,650  |   |            | 78,438  |  
|Fee timber                                                                |  |            | 196,406 |   |            | 192,007 |  
|Logging facilities                                                        |  |            | 1,778   |   |            | 1,773   |  
|                                                                          |  |            |         |   |            |         |  
|                                                                          |  |            | 282,783 |   |            | 279,730 |  
|Less accumulated cost of fee timber harvested and facilities depreciation |  |            | (70,117 | ) |            | (65,866 | )
|                                                                          |  |            |         |   |            |         |  
|                                                                          |  | $          | 212,666 |   |            | 213,864 |  
|                                                                          |  |            |         |   |            |         |  



Cost of fee timber
harvested amounted to $4,480,000 in 2004, $6,608,000 in 2003, and $8,426,000 in 2002. Depreciation of logging facilities was $24,000, $25,000, and $30,000 for the years 2004, 2003, and 2002, respectively.



Note 5  Property, Plant, and Equipment



Property, plant, and equipment at December 31 consisted of the following:



|                              |  |                      |  |      |         |   |      |         |  
|----------------------------- |  | -------------------- |  | ---- | ------- | - | ---- | ------- | -
|(Thousands of dollars)        |  | Range ofUseful Lives |  | 2004 |         |   | 2003 |        
|Land                          |  | N/A                  |  | $    | 125     |   |      | 125     |  
|Land improvements             |  | 10-20 years          |  |      | 4,268   |   |      | 4,006   |  
|Buildings and structures      |  | 10-20 years          |  |      | 5,402   |   |      | 5,273   |  
|Machinery and equipment       |  | 3-15 years           |  |      | 74,572  |   |      | 70,520  |  
|                              |  |                      |  |      |         |   |      |         |  
|                              |  |                      |  |      | 84,367  |   |      | 79,924  |  
|Less accumulated depreciation |  |                      |  |      | (48,600 | ) |      | (43,042 | )
|                              |  |                      |  |      |         |   |      |         |  
|                              |  |                      |  | $    | 35,767  |   |      | 36,882  |  
|                              |  |                      |  |      |         |   |      |         |  



Depreciation of
property, plant, and equipment charged to operations was $6,684,000, $6,712,000, and $6,768,000 in 2004, 2003, and 2002, respectively.



Gains/(losses) on disposals or retirements of assets included in income were losses of $59,000 in 2004 and $284,000 in 2003 and a gain of $15,000 in 2002.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 6  Credit Facilities



On September 30, 2003, the Company entered into an agreement with SunTrust Bank and other domestic banks which provides an unsecured, committed revolving
credit facility totaling $125,000,000, inclusive of a $50,000,000 letter of credit feature. The agreement will expire July 15, 2007, and replaced the Companys former facility, which totaled $105,000,000, that was scheduled to expire July 15,
2004. As of December 31, 2004 and 2003, $109,300,000 and $80,000,000 was available in excess of all borrowings outstanding under or supported by the respective facilities. Borrowings under the current agreement bear interest at a base rate or an
adjusted Eurodollar rate plus an applicable margin, depending upon the type of loan the Company executes. The applicable margin component of the interest rate varies with the type of loan and the Companys total debt to EBITDA ratio. Borrowings
outstanding at December 31, 2004 and 2003, amounted to $15,700,000 and $45,000,000, respectively. Fees associated with the current revolving credit facility include a commitment fee of .25 to .4 percent per annum on the unused portion of the
committed amount. The agreement contains restrictive covenants, including a minimum consolidated net worth of the sum of $155,000,000, plus 50% of cumulative consolidated net income from July 1, 2003, and a maximum leverage ratio of .6 to 1.



The Company may also borrow up to $1,000,000 under a
short-term credit facility with BancorpSouth. The agreement expires December 15, 2005, with renewal annually. The amount available to the Company under this facility is reduced by any borrowings by Deltic. As of December 31, 2004 and 2003, Deltic
had no borrowings outstanding under this line of credit, resulting in $1,000,000 available to the Company. Borrowings bear interest based upon the New York Prime. Deltic also has an agreement with BancorpSouth which provides a $2,000,000 letter of
credit facility. This agreement expires December 15, 2005, with renewal annually. Amounts available to the Company under the facility are reduced by any letters of credit issued on behalf of the Company. Outstanding letters of credit as of December
31, 2004 and 2003, were $706,000 and $344,000, respectively, resulting in $1,294,000 and $1,656,000, respectively, available to Deltic.



In addition, Deltic has an agreement with Regions Bank which provides a $1,000,000 letter of credit facility. The agreement is renewable annually. Amounts
available to Deltic under the facility are reduced by any letters of credit issued on behalf of the Company. Outstanding letters of credit totaled $480,000 as of December 31, 2004 and December 31, 2003, leaving $520,000 available to the Company at
the end of both years. (For additional information regarding these financial instruments, see Note 11  Fair Value of Financial Instruments.)



Note 7  Indebtedness



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



|                                           |  |      |        |   |      |         |  
|------------------------------------------ |  | ---- | ------ | - | ---- | ------- | -
|(Thousands of dollars)                     |  | 2004 |        |   | 2003 |        
|Notes payable, 3.53%*, due 2007            |  | $    | 15,700 |   |      | 45,000  |  
|Senior notes payable, 6.7%, due 2008       |  |      | 40,000 |   |      | 40,000  |  
|Senior notes payable, 6.01%, due 2008-2012 |  |      | 30,000 |   |      | 30,000  |  
|Other notes payable, 5%*, due 2005-2006    |  |      | 56     |   |      | 120     |  
|                                           |  |      |        |   |      |         |  
|                                           |  |      | 85,756 |   |      | 115,120 |  
|Less: Current maturities of long-term debt |  |      | (32    | ) |      | (64     | )
|                                           |  |      |        |   |      |         |  
|Long-term debt at December 31              |  | $    | 85,724 |   |      | 115,056 |  
|                                           |  |      |        |   |      |         |  



|* | Weighted average interest rate at December 31, 2004.
|- | ----------------------------------------------------



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 7  Indebtedness (cont.)



The $15,700,000 of notes payable designated as due in 2007 represents the outstanding balance under
the Companys revolving credit facility agreement with SunTrust Bank and a group of other domestic banks. The agreement will expire on July 15, 2007. The Company incurred costs of $476,000 related to the securing of this facility, which was
deferred and is being amortized as additional interest expense over the term of the agreement.



During 1998, the Company successfully completed negotiation of the private placement of $40,000,000 of senior notes with Pacific Coast Farm Credit, a
division of American AgCredit. 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.



On December 20, 2002, Deltic successfully completed the private placement of $30,000,000 of senior notes with Metropolitan Life and a group of other
domestic insurance companies. These unsecured notes have a fixed stated interest rate of 6.01 percent and mature on December 20, 2012. Semiannual installments of $3,333,000, or such lesser amount as shall be outstanding, are required beginning on
December 20, 2008. The note terms allow for prepayment at the option of the Company in an amount of not less than five percent of the principal amount outstanding at the time of any prepayment. The agreement contains certain restrictive financial
covenants, including a minimum consolidated tangible net worth of the sum of $148,299,000, plus 25 percent of cumulative consolidated adjusted net income from October 1, 2002, and a maximum consolidated debt to consolidated net capitalization ratio
of .6 to 1. The Company incurred $179,000 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.



The scheduled maturities of long-term debt for the next five years are
$32,000 in 2005, $24,000 in 2006, $15,700,000 in 2007, $43,333,000 in 2008, and $6,667,000 in 2009. (For additional information regarding financial instruments, see Note 6  Credit Facilities and Note 11  Fair Value of Financial
Instruments.)



Note 8  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, was mandatory on December 31, 2002, and the Company redeemed these shares as required
utilizing proceeds from privately placed long term notes. These redeemable preferred shares had no voting rights, at any time, during the period for which they were outstanding.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 9  Income Taxes (Restated)



The components of income tax expense/(benefit) related to income/(loss) from operations for the years ended December 31, 2004, 2003, and 2002, consisted
of the following:



|                       |  |      |       |      |       |      |        |  
|---------------------- |  | ---- | ----- | ---- | ----- | ---- | ------ | -
|(Thousands of dollars) |  | 2004 |       | 2003 |       | 2002 |       
|Federal                |  |      |       |      |       |      |        |  
|Current                |  | $    | 5,264 |      | 4,026 |      | (536   | )
|Deferred               |  |      | 405   |      | 482   |      | (6,681 | )
|                       |  |      |       |      |       |      |        |  
|                       |  |      | 5,669 |      | 4,508 |      | (7,217 | )
|State                  |  |      |       |      |       |      |        |  
|Current                |  |      | 21    |      | 40    |      | 412    |  
|Deferred               |  |      | 1,238 |      | 162   |      | (1,048 | )
|                       |  |      |       |      |       |      |        |  
|Total                  |  | $    | 6,928 |      | 4,710 |      | (7,853 | )
|                       |  |      |       |      |       |      |        |  



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



|                                                      |  |      |   |  |      |   |  |      |   
|----------------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | --
|                                                      |  | 2004 |   |  | 2003 |   |  | 2002 |   
|Statutory income tax rate                             |  | 35   | % |  | 35   | % |  | (35  | )%
|State income taxes, net of federal income tax benefit |  | 4    |   |  | 2    |   |  | (1   | ) 
|Other                                                 |  | (1   | ) |  |     |   |  |     |   
|                                                      |  |      |   |  |      |   |  |      |   
|Effective income tax rate                             |  | 38   | % |  | 37   | % |  | (36  | )%
|                                                      |  |      |   |  |      |   |  |      |   



An analysis of the
Companys deferred tax assets and deferred tax liabilities at December 31, 2004 and 2003, showing the tax effects of significant temporary differences, consisted of the following:



|                                                        |  |      |         |   |      |         |  
|------------------------------------------------------- |  | ---- | ------- | - | ---- | ------- | -
|(Thousands of dollars)                                  |  | 2004 |         |   | 2003 |        
|Deferred tax assets                                     |  |      |         |   |      |         |  
|Investment in real estate held for development and sale |  | $    | 12,866  |   |      | 12,665  |  
|State NOL carryforward                                  |  |      | 3,890   |   |      | 5,307   |  
|Postretirement and other employee benefits              |  |      | 4,340   |   |      | 3,144   |  
|AMT credit carryforward                                 |  |      |        |   |      | 384     |  
|Other deferred tax assets                               |  |      | 928     |   |      | 616     |  
|                                                        |  |      |         |   |      |         |  
|Total deferred tax assets                               |  |      | 22,024  |   |      | 22,116  |  
|Less valuation allowance                                |  |      | (2,612  | ) |      | (2,911  | )
|                                                        |  |      |         |   |      |         |  
|Total deferred tax assets  net                         |  |      | 19,412  |   |      | 19,205  |  
|                                                        |  |      |         |   |      |         |  
|Deferred tax liabilities                                |  |      |         |   |      |         |  
|Investment in Del-Tin Fiber                             |  |      | (5,168  | ) |      | (3,634  | )
|Timber and timberlands                                  |  |      | (19,827 | ) |      | (19,801 | )
|Property, plant, and equipment                          |  |      | (7,303  | ) |      | (7,328  | )
|Other deferred tax liabilities                          |  |      | (650    | ) |      | (275    | )
|                                                        |  |      |         |   |      |         |  
|Total deferred tax liabilities                          |  |      | (32,948 | ) |      | (31,038 | )
|                                                        |  |      |         |   |      |         |  
|Net deferred tax assets/(liabilities)                   |  | $    | (13,536 | ) |      | (11,833 | )
|                                                        |  |      |         |   |      |         |  



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 9  Income Taxes (cont.)



Net long-term deferred tax liabilities were $14,272,000 at December 31, 2004, and $12,514,000 at
December 31, 2003. In addition, short-term deferred tax assets of $736,000 at December 31, 2004, and $681,000 at December 31, 2003, are included in the Consolidated Balance Sheets in Prepaid Expenses and Other Current Assets for the respective
years.



As of December 31, 2004 and 2003, the Company had
valuation allowances of $2,612,000 and $2,911,000, respectively, to reduce its deferred tax assets to estimated realizable value. The valuation allowances relate to the deferred tax assets arising from state tax loss carryforwards. The net changes
in the valuation allowances were a decrease of $299,000 in 2004 and increases of $769,000 and $1,185,000 in 2003 and 2002, respectively, and were principally due to changes in potential use or expiration of net operating losses for state tax
purposes.



In assessing the realizability of deferred tax
assets, Deltics management considers whether it is more likely than not that some portion or all of the Companys total deferred tax assets will not be realized. The ultimate realization of these deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences are anticipated to reverse, management believes it is more likely than not that the
Company will realize the benefits of its deferred tax assets, net of the valuation allowance, at December 31, 2004, as reductions of future taxable income or by utilizing available tax planning strategies. However, the amount of the net deferred tax
assets considered realizable could be adjusted in the future if estimates of taxable income are revised.



At December 31, 2004, the Company had operating loss carryforwards for state tax purposes of approximately $64,864,000. Of this amount, $10,659,000
expires in 2005, $21,664,000 expires in 2006, $23,521,000 expires in 2007, and $9,020,000 expires in 2008. An additional $1,401,000 will expire if not utilized as expected upon the filing of Deltics 2004 Arkansas state income tax return. At
December 31, 2004, the Company had prepaid federal income taxes totaling $342,000 reflected in the 2004 Consolidated Balance Sheet in Prepaid Expenses and Other Current Assets; no such prepayment existed as of December 31, 2003. In addition, the
Company had expected net federal tax refunds of $637,000 and $216,000 at December 31, 2004 and 2003, respectively, reflected in the Consolidated Balance Sheets in Other Receivables.



The Company was part of the consolidated income tax return of its former parent, Murphy Oil Corporation (Murphy
Oil), for periods prior to its spin-off on January 1, 1997. Under the terms of a tax sharing agreement between the Company and Murphy Oil which governs tax matters for this period, Murphy Oil personnel handle the administration of any tax
disputes. During 2003, Murphy Oil closed the audit of its returns for 1992 1994, and Deltic paid Murphy Oil $325,000 in additional taxes which resulted in additional deferred tax assets related to its investment in real estate held for
development and sale. Therefore, such settlement had no material impact on total income tax expense/(benefit). With this settlement, all tax years under the tax sharing agreement are now closed, and the Company anticipates no further adjustments
relating to returns filed during those years.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 10  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 the 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.



Note 11  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, 2004 and 2003. 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 the current portion of noncurrent notes receivable and current maturities
of long-term debt, all of which have fair values approximating carrying values.



|                                             |  |                |         |   |                    |         |   |                |          |   |                    |          |  
|-------------------------------------------- |  | -------------- | ------- | - | ------------------ | ------- | - | -------------- | -------- | - | ------------------ | -------- | -
|                                             |  | 2004           |         |   | 2003               |        
|(Thousands of dollars)                       |  | CarryingAmount |         |   | EstimatedFairValue |         |   | CarryingAmount |          |   | EstimatedFairValue |         
|Financial assets                             |  |                |         |   |                    |         |   |                |          |   |                    |          |  
|Funds held by trustee                        |  | $              |        |   |                    |        |   |                | 4,583    |   |                    | 4,583    |  
|Notes receivable                             |  | $              | 100     |   |                    | 141     |   |                | 110      |   |                    | 143      |  
|Financial liabilities                        |  |                |         |   |                    |         |   |                |          |   |                    |          |  
|Long-term debt, including current maturities |  | $              | (85,756 | ) |                    | (97,652 | ) |                | (115,120 | ) |                    | (128,584 | )
|Guarantees                                   |  | $              | (3,278  | ) |                    | (3,278  | ) |                |         |   |                    |         |  
|Off-balance sheet exposures                  |  |                |         |   |                    |         |   |                |          |   |                    |          |  
|Guarantees                                   |  | $              |        |   |                    |        |   |                |         |   |                    | (16,461  | )
|Letters of credit                            |  | $              |        |   |                    | (1,186  | ) |                |         |   |                    | (824     | )



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



Notes receivable, including current portion, and 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.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 11  Fair Value of Financial Instruments (cont.)



Guarantees For 2004, the carrying amount approximates its fair value. For 2003, the
fair value is based on the estimated cost to settle these obligations by discounting the estimated future cash flows based on current rates at which the Company could borrow funds with similar remaining maturities.



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



Note 12  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 and real estate. 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 wood products or real estate in 2004, 2003, or 2002. At December 31, 2004 and 2003, there were no significant
accounts receivable from a single customer.



Note 13  Employee and
Retiree Benefit Plans



The Company has both funded and
unfunded noncontributory defined benefit retirement plans that cover the majority of its employees. The plans provide defined benefits based on years of service and final average salary. Deltic also has other postretirement benefit plans covering
substantially all of its employees. The health care plan is contributory with participants contributions adjusted as needed; the life insurance plan is noncontributory. The Company uses a September 30 measurement date for its plans.



|                                          |  |                 |        |   |                             |        |   |      |        |   |      |       |  
|----------------------------------------- |  | --------------- | ------ | - | --------------------------- | ------ | - | ---- | ------ | - | ---- | ----- | -
|                                          |  | RetirementPlans |        |   | OtherPostretirementBenefits |       
|(Thousands of dollars)                    |  | 2004            |        |   | 2003                        |        |   | 2004 |        |   | 2003 |      
|Change in projected benefit obligation    |  |                 |        |   |                             |        |   |      |        |   |      |       |  
|Benefit obligation at January 1           |  | $               | 18,562 |   |                             | 15,485 |   |      | 9,342  |   |      | 7,930 |  
|Service cost                              |  |                 | 719    |   |                             | 771    |   |      | 329    |   |      | 384   |  
|Interest cost                             |  |                 | 1,094  |   |                             | 1,001  |   |      | 465    |   |      | 552   |  
|Participant contributions                 |  |                 |        |   |                             |       |   |      | 46     |   |      | 33    |  
|Plan amendments                           |  |                 |       |   |                             |       |   |      | 219    |   |      |      |  
|Actuarial (gain)/loss                     |  |                 | (286   | ) |                             | 634    |   |      | (1,608 | ) |      | 562   |  
|Curtailments1                             |  |                 |       |   |                             | (6     | ) |      |       |   |      | (58   | )
|Special termination benefits2             |  |                 | 1,037  |   |                             | 916    |   |      |       |   |      | 156   |  
|Benefits paid                             |  |                 | (508   | ) |                             | (239   | ) |      | (368   | ) |      | (217  | )
|                                          |  |                 |        |   |                             |        |   |      |        |   |      |       |  
|Benefit obligation at December 31         |  | $               | 20,618 |   |                             | 18,562 |   |      | 8,425  |   |      | 9,342 |  
|                                          |  |                 |        |   |                             |        |   |      |        |   |      |       |  
|Change in plan assets                     |  |                 |        |   |                             |        |   |      |        |   |      |       |  
|Fair value of plan assets at January 1    |  | $               | 12,444 |   |                             | 11,594 |   |      |       |   |      |      |  
|Actual return on plan assets              |  |                 | 945    |   |                             | 1,052  |   |      |       |   |      |      |  
|Employer contributions                    |  |                 | 173    |   |                             | 37     |   |      | 322    |   |      | 184   |  
|Participant contributions                 |  |                 |       |   |                             |       |   |      | 46     |   |      | 33    |  
|Benefits paid                             |  |                 | (508   | ) |                             | (239   | ) |      | (368   | ) |      | (217  | )
|                                          |  |                 |        |   |                             |        |   |      |        |   |      |       |  
|Fair value of plan assets at December 313 |  | $               | 13,054 |   |                             | 12,444 |   |      |       |   |      |      |  
|                                          |  |                 |        |   |                             |        |   |      |        |   |      |       |  



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 13  Employee and Retiree Benefit Plans (cont.)



|                                         |  |   |        |   |  |        |   |  |        |   |  |        |  
|---------------------------------------- |  | - | ------ | - |  | ------ | - |  | ------ | - |  | ------ | -
|Reconciliation of funded status of plans |  |   |        |   |  |        |   |  |        |   |  |        |  
|Funded status of plans                   |  | $ | (7,499 | ) |  | (6,087 | ) |  | (8,360 | ) |  | (9,342 | )
|Unrecognized actuarial (gain)/loss       |  |   | 3,713  |   |  | 4,129  |   |  | 1,572  |   |  | 3,275  |  
|Unrecognized prior service cost          |  |   | 310    |   |  | 360    |   |  | 202    |   |  |       |  
|                                         |  |   |        |   |  |        |   |  |        |   |  |        |  
|Accrued benefit cost4                    |  | $ | (3,476 | ) |  | (1,598 | ) |  | (6,586 | ) |  | (6,067 | )
|                                         |  |   |        |   |  |        |   |  |        |   |  |        |  
|Assumptions                              |  |   |        |   |  |        |   |  |        |   |  |        |  
|Weighted average discount rate           |  |   | 6.00   | % |  | 6.25   | % |  | 6.00   | % |  | 6.25   | %
|Rate of compensation increase            |  |   | 4.60   | % |  | 4.60   | % |  | N/A    |   |  | N/A    |  



|1 | Reflects impact of the severance of one shift at one of the Companys two sawmills.
|- | -----------------------------------------------------------------------------------



|2 | Reflects impact of enhanced retirement benefits granted to certain employees upon retirement.
|- | ---------------------------------------------------------------------------------------------



|3 | Primarily includes listed stocks and bonds, government securities, and U.S. agency bonds.
|- | -----------------------------------------------------------------------------------------



|4 | Included in the Consolidated Balance Sheets in Other Noncurrent Liabilities.
|- | ----------------------------------------------------------------------------



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



|                                                                  |  |      |       |   |      |       |   |      |        |  
|----------------------------------------------------------------- |  | ---- | ----- | - | ---- | ----- | - | ---- | ------ | -
|(Thousands of dollars)                                            |  | 2004 |       |   | 2003 |       |   | 2002 |       
|Retirement plans                                                  |  |      |       |   |      |       |   |      |        |  
|Service cost                                                      |  | $    | 719   |   |      | 771   |   |      | 658    |  
|Interest cost                                                     |  |      | 1,094 |   |      | 1,001 |   |      | 883    |  
|Expected return on plan assets                                    |  |      | (920  | ) |      | (878  | ) |      | (1,027 | )
|Amortization of prior service cost                                |  |      | 51    |   |      | 53    |   |      | 53     |  
|Amortization of transitional asset                                |  |      |      |   |      | (35   | ) |      | (49    | )
|Recognized actuarial (gain)/loss                                  |  |      | 104   |   |      | 165   |   |      | 16     |  
|                                                                  |  |      |       |   |      |       |   |      |        |  
|Net periodic benefit cost                                         |  |      | 1,048 |   |      | 1,077 |   |      | 534    |  
|Additional expense recognized due to curtailments                 |  |      |      |   |      | 21    |   |      |       |  
|Additional expense recognized due to special termination benefits |  |      | 1,037 |   |      | 916   |   |      |       |  
|                                                                  |  |      |       |   |      |       |   |      |        |  
|Net retirement expense                                            |  | $    | 2,085 |   |      | 2,014 |   |      | 534    |  
|                                                                  |  |      |       |   |      |       |   |      |        |  
|Other postretirement benefits                                     |  |      |       |   |      |       |   |      |        |  
|Service cost                                                      |  | $    | 329   |   |      | 384   |   |      | 292    |  
|Interest cost                                                     |  |      | 465   |   |      | 552   |   |      | 413    |  
|Amortization of prior service cost                                |  |      | 18    |   |      |      |   |      |       |  
|Recognized actuarial (gain)/loss                                  |  |      | 31    |   |      | 180   |   |      | 52     |  
|Special termination benefits                                      |  |      |      |   |      | 156   |   |      |       |  
|                                                                  |  |      |       |   |      |       |   |      |        |  
|Other postretirement benefits expense                             |  | $    | 843   |   |      | 1,272 |   |      | 757    |  
|                                                                  |  |      |       |   |      |       |   |      |        |  
|Assumptions                                                       |  |      |       |   |      |       |   |      |        |  
|Weighted average discount rate                                    |  |      | 6.25  | % |      | 6.50  | % |      | 7.25   | %
|Expected long-term rate of return on plan assets                  |  |      | 7.50  | % |      | 7.50  | % |      | 8.50   | %
|Rate of compensation increase                                     |  |      | 4.60  | % |      | 4.60  | % |      | 4.60   | %



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 13  Employee and Retiree Benefit Plans (cont.)



To develop the expected long-term rate of return on asset assumption, the Company considered the
current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested, and the expectations for future returns of
each asset class. The expected return for each asset class was then weighted, based on the target asset association, to develop the expected long-term rate of return on asset assumption for the portfolio. The returns were adjusted to account for
plan expenses. This resulted in the selection of the 7.50% assumption.



Retirement Plans  The accumulated benefit obligations for the Companys retirement plans were $16,345,000 and $13,951,000 at December 31, 2004, and 2003, respectively. For the Companys qualified plan, the projected
benefit obligation (PBO) exceeded the fair value of plan assets by $4,756,000 and $4,080,000 at December 31, 2004 and 2003, respectively. The qualified plans accumulated benefit obligation (ABO) at December 31, 2004
exceeded the fair value of plan assets by $718,000 and accordingly, a liability is included in the 2004 Consolidated Balance Sheet in Other Noncurrent Liabilities. The fair value of plan assets exceeded the ABO at December 31, 2003 by $237,000 and
thus, no recognition of a minimum pension liability was required for the qualified plan. The Company does not fund its nonqualified plan; therefore, this plan has no assets. At year-end 2004 and 2003, the PBO for this nonqualified plan was
$2,808,000 and $2,038,000, respectively. The Company recorded an actuarial determined liability, related to this nonqualified plan, in the amount of $2,490,000 at December 31, 2004, and $1,524,000 at December 31, 2003, which is reflected in the
Consolidated Balance Sheets in Other Noncurrent Liabilities. As of December 31, 2004 and 2003, the ABO for the nonqualified plan exceeded the actuarial liability by $18,000 and $190,000, respectively. As a result, the Company has recorded the
appropriate additional minimum pension liability for this amount, which is reflected in the 2004 and 2003 Consolidated Balance Sheets in Other Noncurrent Liabilities. Since the Company had no previously unrecognized prior service cost to offset this
additional liability, these amounts were recorded as a component of stockholders equity, net of related income tax benefits of $6,000 and $66,000, respectively, in the 2004 and 2003 Consolidated Balance Sheets in Accumulated Other
Comprehensive Income.



The weighted average asset allocation
for the Companys qualified retirement plan at December 31, 2004 and 2003, by asset category, consisted of the following:



|                  |  |                      |   |  |      |   |  |                      |   |  |      |  
|----------------- |  | -------------------- | - |  | ---- | - |  | -------------------- | - |  | ---- | -
|                  |  | 2004TargetAllocation |   |  | 2004 |   |  | 2003TargetAllocation |   |  | 2003 |  
|Equity securities |  | 45-65                | % |  | 63   | % |  | 40-65                | % |  | 51   | %
|Debt securities   |  | 35-55                | % |  | 33   | % |  | 40-60                | % |  | 47   | %
|Cash equivalents  |  | 0-5                  | % |  | 4    | % |  | 0-15                 | % |  | 2    | %
|                  |  |                      |   |  |      |   |  |                      |   |  |      |  
|                  |  |                      |   |  | 100  | % |  |                      |   |  | 100  | %
|                  |  |                      |   |  |      |   |  |                      |   |  |      |  



Equity securities
generally consist of common stocks. Investment in debt securities are limited to U.S. government securities, high quality corporate bonds, and mortgage-backed securities. Cash equivalents are limited to U.S. government obligations.



The primary investment goals are: (1) preservation of principle, (2)
investment in a balanced portfolio, and (3) growth of assets to exceed inflation. To meet these goals, the Companys Investment Committee has adopted the above target asset allocation ranges as outlined in the investment policy for the
retirement plan. These ranges allow for flexibility to meet investment goals without exposing the plans assets to excessive risk.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 13  Employee and Retiree Benefit Plans (cont.)



The current funding status of the qualified retirement plans is expected to require the Company to
make a contribution during 2005 of $582,000. Deltic expects to contribute $226,000 in 2005 to fund benefits to be paid from its nonqualified retirement plan. Estimated benefits to be paid from the retirement plans amount to $645,000 in 2005,
$677,000 in 2006, $740,000 in 2007, $802,000 in 2008, $865,000 in 2009, and $5,949,000 in the period 2010 through 2014.



Other 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.



During the third quarter of
2004, Deltic applied the effect of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 to its obligation under the Companys other postretirement benefits plan. The prescription drug benefits offered by the Companys
plan were determined to be at least actuarially equivalent to those provided with the Act, which qualifies the plan to receive federal subsidy payments under Medicare Part D. The amount of the reduction in the Companys obligation under the
plan relating to benefits received from the Act attributable to past service was $590,000. The reduction in the postretirement benefit expense for 2004, as a result of the application of the federal subsidy, was $65,000. Estimated contributions by
the Company for other postretirement benefits, net of the expected Medicare Part D subsidy, amount to $346,000 in 2005, $376,000 in 2006, $433,000 in 2007, $508,000 in 2008, $567,000 in 2009, and $3,895,000 in the period 2010 through 2014.



In determining the benefit obligation for health care at
December 31, 2004, health care inflation cost was assumed to increase at an annual rate of nine percent in 2004, and one percent in 2005, then decreasing one percent per year to five percent in 2010 and thereafter. Assumed health care cost trend
rates have a significant effect on the amounts reported for the health care plan. A one percentage-point increase in the assumed health care cost trend would increase the aggregate service and interest cost components of periodic benefit cost for
2004 by $68,000 and the benefit obligation by $601,000, while a one percentage-point decrease in the assumed rate would decrease the 2004 cost components by $60,000 and the benefit obligation by $544,000.



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. Company contributions to this plan were $342,000 in 2004, $311,000 in 2003, and
$290,000 in 2002.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004





Note 14  Incentive Plans



Stock Incentive Plan



On April 25, 2002, the Companys shareholders approved the Deltic Timber Corporation 2002 Stock Incentive Plan (the 2002 Plan). The 2002
Plan replaced the 1996 Stock Incentive Plan (the 1996 Plan), which was terminated. At December 31, 2004, remaining outstanding options under the 1996 Plan totaled 100,847 shares, all of which were exercisable. No further awards will be
made under the 1996 Plan. Outstanding options under the 1996 Plan will expire from 2006 to 2011 if not exercised and have an average exercise price of $25.09 based on the fair market value at date of grant.



The 2002 Plan permits annual awards of shares of the Companys common
stock to executives, other key employees, and nonemployee directors. Under the plan, the Executive Compensation Committee (the Committee) is authorized to grant: (1) stock options; (2) restricted stock and restricted stock units; (3)
performance units; and (4) other stock-based awards, including stock appreciation rights and rights to dividends and dividend equivalents. The number of shares available for issuance under the 2002 Plan is 1,800,000 shares unless adjustment is
determined necessary by the Committee as the result of dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of common
stock, or other corporate transaction in order to prevent dilution or enlargement of benefits or potential benefits intended to be made available. At December 31, 2004, 1,458,362 of these 1,800,000 shares were available for award under the 2002
Plan. No participant in the 2002 Plan may receive options and stock appreciation rights in any calendar year that relates to more than 50,000 shares, and the maximum number of shares which may be awarded as restricted stock and restricted stock
units or other stock-based awards is 180,000 shares. The Company applies the intrinsic value method of APB 25 to account for stock-based compensation, accruing costs of any stock options and restricted stock over the respective vesting/performance
periods. The cost of stock-based compensation is reflected in General and Administrative Expenses on the Consolidated Statements of Income and amounted to $720,000 in 2004, $339,000 in 2003, and $664,000 in 2002. (For additional information
regarding the Companys stock-based compensation, including the effect on net income/(loss) and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123, see Note 1  Significant Accounting Policies.)



Stock Options  For each option granted under the
2002 Plan, the Committee fixes the option price at not less than fair market value on the date of the grant and the option term, not to exceed 10 years from date of grant. (Options granted in 2002 were awarded in February 2002 subject to shareholder
approval in April. As a result of an increase in the market value of the Companys common stock from the grant date to the approval date, these options have an intrinsic value of $3.46 per share. The resulting fixed stocked-based compensation
cost is being recognized over the vesting period for these options.) Replacement options granted due to the spin-off from Murphy Oil were for ten years from original grant date and nonqualified. New options granted in 1997 and 1998 were for ten
years and primarily incentive. Options granted since 1998 have been for ten years and nonqualified. All outstanding options have an option price not less than the market value on the grant date, with a range in option prices of $22.0625 to $32.565
per share. For options granted in 1997, exclusive of replacement options, one-half could be exercised or surrendered after two years and the remainder after three years. For options granted from 1998 through 2001, one-half could be exercised or
surrendered after one year and the remainder after three years. During 2002 and 2003, the Company granted options for 162,250 shares and 129,750 shares, respectively. For 122,250 shares and 121,750 shares granted in 2002 and 2003, respectively,
one-half may be exercised or surrendered after one year and the remainder after three years, and the remaining 40,000 shares and 8,000 shares, respectively, awarded to nonemployee directors at an option price of $29.295 in 2002 and $24.31 in 2003,
were vested immediately when awarded. During 2004, the



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 14  Incentive Plans (cont.)



Company granted options for 39,687 shares, at an option price of $32.565, one-fourth may be exercised or surrendered after each one-year period over the
subsequent four years from issuance.



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



|                                 |  |                  |   |  |                      |       
|-------------------------------- |  | ---------------- | - |  | -------------------- | ------
|                                 |  | Numberof Options |   |  | AverageExercisePrice
|Outstanding at December 31, 2001 |  | 393,031          |   |  | $                    | 23.58 
|Granted                          |  | 162,250          |   |  | $                    | 29.295
|Surrendered/exercised            |  | (59,350          | ) |  |                      | 19.56 
|Forfeited/expired                |  | (2,125           | ) |  |                      | 26.00 
|                                 |  |                  |   |  |                      |       
|Outstanding at December 31, 2002 |  | 493,806          |   |  | $                    | 25.94 
|Granted                          |  | 129,750          |   |  | $                    | 25.02 
|Surrendered/exercised            |  | (68,484          | ) |  |                      | 22.97 
|Forfeited/expired                |  | (2,500           | ) |  |                      | 25.45 
|                                 |  |                  |   |  |                      |       
|Outstanding at December 31, 2003 |  | 552,572          |   |  | $                    | 26.09 
|Granted                          |  | 39,687           |   |  | $                    | 32.565
|Surrendered/exercised            |  | (214,225         | ) |  |                      | 25.20 
|Forfeited/expired                |  | (20,200          | ) |  |                      | 26.82 
|                                 |  |                  |   |  |                      |       
|Outstanding at December 31, 2004 |  | 357,834          |   |  | $                    | 27.29 
|                                 |  |                  |   |  |                      |       
|Exercisable at December 31, 2002 |  | 282,955          |   |  | $                    | 25.36 
|Exercisable at December 31, 2003 |  | 316,972          |   |  | $                    | 26.25 
|Exercisable at December 31, 2004 |  | 226,847          |   |  | $                    | 26.55 



Additional
information about stock options outstanding at December 31, 2004, consisted of the following:



|                         |  |                     |  |                     |  |                      |       |                 |         |                      |   |      
|------------------------ |  | ------------------- |  | ------------------- |  | -------------------- | ----- | --------------- | ------- | -------------------- | - | -----
|                         |  | Options Outstanding |  | Options Exercisable
|Range of Exercise Prices |  | NumberofOptions     |  | AverageLife inYears |  | AverageExercisePrice |       | NumberofOptions |         | AverageExercisePrice
|$22.0625 - $25.2500      |  | 158,847             |  | 5.9                 |  | $                    | 24.29 |                 | 116,972 |                      | $ | 24.28
|$28.0300 - $32.5650      |  | 198,987             |  | 7.0                 |  |                      | 29.69 |                 | 109,875 |                      |   | 28.96
|                         |  |                     |  |                     |  |                      |       |                 |         |                      |   |      
|                         |  | 357,834             |  | 6.5                 |  |                      | 27.29 |                 | 226,847 |                      |   | 26.55
|                         |  |                     |  |                     |  |                      |       |                 |         |                      |   |      



Restricted Stock
and Restricted Stock Units  The Committee may grant restricted stock and restricted stock units 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.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 14  Incentive Plans (cont.)



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



|                             |  |         |   |  |        |  |         |  
|---------------------------- |  | ------- | - |  | ------ |  | ------- | -
|                             |  | 2004    |   |  | 2003   |  | 2002    |  
|Balance at beginning of year |  | 20,750  |   |  | 20,750 |  | 34,094  |  
|Granted                      |  | 33,980  |   |  |       |  |        |  
|Forfeited                    |  | (954    | ) |  |       |  |        |  
|Awarded                      |  | (20,750 | ) |  |       |  | (13,344 | )
|                             |  |         |   |  |        |  |         |  
|Balance at end of year       |  | 33,026  |   |  | 20,750 |  | 20,750  |  
|                             |  |         |   |  |        |  |         |  



The fair value per
share of restricted stock granted in 2004, at the date of grant, was $32.54. Unearned compensation was charged for the market value of the granted restricted shares. Unearned compensation is shown as a reduction of stockholders equity in the
Consolidated Balance Sheets as Unamortized Restricted Stock Awards. For the 20,990 shares granted with vesting requirements based on fulfilling future service periods, the unearned compensation is being amortized to expense over the four-year
restricted period. For the 12,990 shares granted with specified performance requirements, the market value of the granted restricted shares is adjusted to reflect the current market value of the Companys stock, as required by variable-plan
accounting standards, and the adjusted total unearned compensation is being amortized to expense over the four-year performance period.



Performance Units  Performance units granted under the 2002 Plan may be denominated in cash, common shares, other securities, other awards
allowed under the 2002 Plan, or other property and shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder, in whole or in part, upon achievement of such performance goals during
such performance periods as the Committee shall establish. Subject to the terms of the 2002 Plan, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any performance unit granted,
and any payment or transfer to be made pursuant to any performance unit shall be determined by the Committee. No performance units have been granted.



Other Stock-based Awards  The Committee may also grant other awards, including but not limited to, stock appreciation rights and rights to
dividends and dividend equivalents that are denominated, or payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of the Companys common stock, including securities convertible in its common stock,
as deemed by the Committee to be consistent with the purpose of the 2002 Plan. No such other stock-based awards have been granted.



Incentive Compensation Plan



Cash Awards  The Company has an incentive compensation plan that provides for annual cash awards to officers 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. Provisions for cash incentive awards of $1,205,000, $703,000, and $358,000 were recorded
in 2004, 2003, and 2002, respectively.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 15  Supplemental Cash Flows Disclosures



Income taxes paid, net of refunds, were $5,382,000 and 2,538,000 in 2004 and 2003, respectively.
During 2002, a net refund of $1,096,000 was received. Interest paid was $5,746,000, $6,425,000, and $4,171,000 in 2004, 2003, and 2002, respectively. No interest was capitalized in 2004, 2003, or 2002.



Noncash investing and financing activities excluded from the Consolidated
Statements of Cash Flows for 2004 were a non-cash accrual recorded in 2004 for the Companys estimated fair value of its guarantee of Del-Tin Fibers long-term debt in the amount of $3,450,000, non-cash purchases of treasury stock in the
amount of $254,000, and the non-cash issuance of restricted stock awards in the amount of $1,249,000. Also, a non-cash accrual was recorded as of December 31, 2002, for the contingent liability related to the 2003 sinking fund deposits of Del-Tin
Fiber that were more likely than not to be required from the Company, in the amount of $4,478,000. (For additional information regarding the contingent liability, see Note 3  Investment in Del-Tin Fiber and Note 17  Commitments and
Contingencies.)



(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:



|                                                |  |            |        |   |            |        |   |            |       |  
|----------------------------------------------- |  | ---------- | ------ | - | ---------- | ------ | - | ---------- | ----- | -
|(Thousands of dollars)                          |  | 2004       |        |   | 2003       |        |   | 2002       |      
|                                                |  | (Restated) |        |   | (Restated) |        |   | (Restated) |      
|Trade accounts receivable                       |  | $          | (2,255 | ) |            | (1,013 | ) |            | 1,090 |  
|Other receivables                               |  |            | 601    |   |            | 1,200  |   |            | 1,251 |  
|Inventories                                     |  |            | 213    |   |            | 478    |   |            | (692  | )
|Prepaid expenses and other current assets       |  |            | (271   | ) |            | 295    |   |            | (180  | )
|Trade accounts payable                          |  |            | 1,307  |   |            | (544   | ) |            | (208  | )
|Accrued taxes other than income taxes           |  |            | 41     |   |            | 52     |   |            | 4     |  
|Income taxes payable                            |  |            | 670    |   |            | 53     |   |            |      |  
|Deferred revenues and other accrued liabilities |  |            | 631    |   |            | 177    |   |            | 151   |  
|                                                |  |            |        |   |            |        |   |            |       |  
|                                                |  | $          | 937    |   |            | 698    |   |            | 1,416 |  
|                                                |  |            |        |   |            |        |   |            |       |  



Note 16  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:



|                                                                                                           |  |            |        |            |        |            |         |  
|---------------------------------------------------------------------------------------------------------- |  | ---------- | ------ | ---------- | ------ | ---------- | ------- | -
|(Thousands of dollars, except per share amounts)                                                           |  | 2004       |        | 2003       |        | 2002       |        
|                                                                                                           |  | (Restated) |        | (Restated) |        | (Restated) |        
|Income/(loss) from continuing operations                                                                   |  | $          | 11,093 |            | 8,194  |            | (13,881 | )
|Less preferred dividends declared                                                                          |  |            |       |            |       |            | (2,249  | )
|                                                                                                           |  |            |        |            |        |            |         |  
|Earnings available to common shareholders                                                                  |  | $          | 11,093 |            | 8,194  |            | (16,130 | )
|                                                                                                           |  |            |        |            |        |            |         |  
|Weighted average number of common shares used in basic EPS                                                 |  |            | 12,122 |            | 11,924 |            | 11,919  |  
|Effect of dilutive stock options*                                                                          |  |            | 67     |            | 31     |            |        |  
|                                                                                                           |  |            |        |            |        |            |         |  
|Weighted average number of common shares and dilutive potential common stock used in EPS assuming dilution |  |            | 12,189 |            | 11,955 |            | 11,919  |  
|                                                                                                           |  |            |        |            |        |            |         |  



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 16  Earnings per Share (cont.)



|                                                 |  |            |     |            |     |            |       |  
|------------------------------------------------ |  | ---------- | --- | ---------- | --- | ---------- | ----- | -
|(Thousands of dollars, except per share amounts) |  | 2004       |     | 2003       |     | 2002       |      
|                                                 |  | (Restated) |     | (Restated) |     | (Restated) |      
|Earnings per common share                        |  |            |     |            |     |            |       |  
|Basic                                            |  | $          | .92 |            | .69 |            | (1.35 | )
|Assuming dilution                                |  | $          | .91 |            | .69 |            | (1.35 | )



|* | Additional potential common shares from stock options outstanding for 2002, amounting to 39,000, were excluded from the calculation of diluted earnings per share since they would
result in antidilution due to the loss from continuing operations available to common shareholders.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note 17  Commitments and Contingencies



Commitments  Commitments for capital expenditures at December 31, 2004, were approximately $451,000 for timber and timberlands; $840,000 for
property, plant, and equipment; and $8,304,000 for investment in real estate held for development and sale.



Contingencies  The Company has various contingencies related to its investment in Del-Tin Fiber and has either recorded such contingencies
into its financial statements or disclosed the conditions of the contingency as required by SFAS 5, Accounting for Contingencies, and FIN 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. (For the details of these contingencies, see Note 3  Investment in Del-Tin Fiber.) The Company is also involved in
litigation incidental to its business from time to time. Currently, there are no material legal proceedings outstanding.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 18  Business Segments



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. In addition, this segment may, from time
to time, identify and sell a portion of its timberland holdings that is either non-strategic to future timberland management activities or has appreciated, due primarily to location, to a level that exceeds its value as a timber-growing asset. This
segment also generates revenue from the leasing of hunting, oil and gas, and other rights on its timberlands.



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 wholesale distributors, lumber
treaters, and truss manufacturers in the South and Midwest and used in residential construction, roof trusses and laminated beams.



Real Estate operations, which include real estate developments, add value to former timberland by developing it into upscale, planned residential and
commercial developments. These developments, which are generally 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 and office 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: (1)
a real estate brokerage subsidiary which currently generates commission revenue by reselling existing homes and (2) a country club operation, Chenal Country Club, Inc., around which the Companys Chenal Valley development is centered. This club
operation derives its revenues from membership services, food and beverage sales, and membership dues.



Corporate operations consist primarily of senior management, planning, accounting, information systems, human resources, purchasing, 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.



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 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.



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 18  Business Segments (cont.)



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



|                                                             |  |            |         |   |            |         |   |            |         |  
|------------------------------------------------------------ |  | ---------- | ------- | - | ---------- | ------- | - | ---------- | ------- | -
|(Thousands of dollars)                                       |  | 2004       |         |   | 2003       |         |   | 2002       |        
|                                                             |  | (Restated) |         |   | (Restated) |         |   | (Restated) |        
|Net sales                                                    |  |            |         |   |            |         |   |            |         |  
|Woodlands                                                    |  | $          | 31,077  |   |            | 38,210  |   |            | 36,964  |  
|Mills                                                        |  |            | 97,963  |   |            | 79,141  |   |            | 70,386  |  
|Real Estate                                                  |  |            | 31,080  |   |            | 33,771  |   |            | 15,343  |  
|Eliminations1                                                |  |            | (18,103 | ) |            | (16,207 | ) |            | (18,181 | )
|                                                             |  |            |         |   |            |         |   |            |         |  
|                                                             |  | $          | 142,017 |   |            | 134,915 |   |            | 104,512 |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|Income/(loss) before income taxes Operating income           |  |            |         |   |            |         |   |            |         |  
|Woodlands                                                    |  | $          | 19,603  |   |            | 24,778  |   |            | 22,449  |  
|Mills                                                        |  |            | 6,604   |   |            | (5,630  | ) |            | (6,743  | )
|Real Estate                                                  |  |            | 8,011   |   |            | 13,103  |   |            | 2,004   |  
|Corporate                                                    |  |            | (11,576 | ) |            | (8,412  | ) |            | (6,792  | )
|Eliminations                                                 |  |            | 513     |   |            | 18      |   |            | (594    | )
|                                                             |  |            |         |   |            |         |   |            |         |  
|Operating income                                             |  |            | 23,155  |   |            | 23,857  |   |            | 10,324  |  
|Equity in Del-Tin Fiber                                      |  |            | 366     |   |            | (4,729  | ) |            | (28,217 | )
|Interest income                                              |  |            | 438     |   |            | 476     |   |            | 284     |  
|Interest and other debt expense                              |  |            | (5,982  | ) |            | (6,861  | ) |            | (4,558  | )
|Other income/(expense)                                       |  |            | 44      |   |            | 161     |   |            | 433     |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|                                                             |  | $          | 18,021  |   |            | 12,904  |   |            | (21,734 | )
|                                                             |  |            |         |   |            |         |   |            |         |  
|Total assets at year-end                                     |  |            |         |   |            |         |   |            |         |  
|Woodlands                                                    |  | $          | 208,847 |   |            | 207,899 |   |            | 202,473 |  
|Mills                                                        |  |            | 42,987  |   |            | 47,154  |   |            | 50,148  |  
|Real Estate                                                  |  |            | 41,091  |   |            | 43,931  |   |            | 46,100  |  
|Corporate2, 3                                                |  |            | 14,655  |   |            | 14,366  |   |            | 11,555  |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|                                                             |  | $          | 307,580 |   |            | 313,350 |   |            | 310,276 |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|Depreciation, amortization, and cost of fee timber harvested |  |            |         |   |            |         |   |            |         |  
|Woodlands                                                    |  | $          | 4,836   |   |            | 6,996   |   |            | 8,786   |  
|Mills                                                        |  |            | 5,615   |   |            | 5,710   |   |            | 5,840   |  
|Real Estate                                                  |  |            | 568     |   |            | 543     |   |            | 454     |  
|Corporate                                                    |  |            | 169     |   |            | 96      |   |            | 144     |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|                                                             |  | $          | 11,188  |   |            | 13,345  |   |            | 15,224  |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|Capital expenditures                                         |  |            |         |   |            |         |   |            |         |  
|Woodlands                                                    |  | $          | 6,686   |   |            | 12,408  |   |            | 5,175   |  
|Mills                                                        |  |            | 4,797   |   |            | 3,405   |   |            | 3,571   |  
|Real Estate                                                  |  |            | 12,519  |   |            | 11,198  |   |            | 15,378  |  
|Corporate                                                    |  |            | 165     |   |            | 211     |   |            | 113     |  
|                                                             |  |            |         |   |            |         |   |            |         |  
|                                                             |  | $          | 24,167  |   |            | 27,222  |   |            | 24,237  |  
|                                                             |  |            |         |   |            |         |   |            |         |  



|1 | Primarily intersegment sales of timber from Woodlands to Mills.
|- | ---------------------------------------------------------------



|2 | Includes investment in Del-Tin Fiber, an equity method investee, of $3,858,000, zero, and zero (after write-off of impaired investment carrying value) at December
31, 2004, 2003, and 2002, respectively. (For additional information regarding Del-Tin Fiber, see Note 3  Investment in Del-Tin Fiber.)
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3 | Includes balance of timberland sales proceeds held by trustee of zero as of December 31, 2004, $4,583,000 as of December 31, 2003, and $447,000 as of December 31,
2002.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 19  Subsequent Event



Deltic announced on January 19, 2005, that production activities at Del-Tin Fiber would be temporarily curtailed due to damage sustained at the facility from a fire
within the plant. The fire damaged the facilitys fiber storage and handling systems. Neither the refiner systems nor continuous press were involved or damaged and no injuries were experienced. Repair of the damaged units was commenced
immediately, and the plant resumed production on February 10, 2005.



Note 20
 Financial Results by Quarter (Unaudited)



(Thousands of dollars, except per share amounts)



|                              |  |              |        |               |        |              |        |                |        |            |        
|----------------------------- |  | ------------ | ------ | ------------- | ------ | ------------ | ------ | -------------- | ------ | ---------- | -------
|                              |  | 2004        
|                              |  | FirstQuarter |        | SecondQuarter |        | ThirdQuarter |        | FourthQuarter  |        | Year      
|                              |  | (Restated)   |        | (Restated)    |        | (Restated)   |        | (Restated)     |        | (Restated)
|Net sales                     |  | $            | 27,811 |               | 33,997 |              | 43,255 |                | 36,954 |            | 142,017
|Gross profit                  |  |              | 6,767  |               | 8,741  |              | 10,978 |                | 9,144  |            | 35,630 
|Operating income              |  |              | 3,958  |               | 5,780  |              | 6,895  |                | 6,522  |            | 23,155 
|Net income/(loss)             |  |              | 1,318  |               | 2,749  |              | 3,707  |                | 3,319  |            | 11,093 
|Earnings per common share     |  |              |        |               |        |              |        |                |        |            |        
|Basic                         |  | $            | .11    |               | .23    |              | .31    |                | .27    |            | .92    
|Assuming dilution             |  | $            | .11    |               | .23    |              | .30    |                | .27    |            | .91    
|Dividends per common share    |  | $            | .0625  |               | .0625  |              | .0625  |                | .0625  |            | .25    
|Market price per common share |  |              |        |               |        |              |        |                |        |            |        
|High                          |  | $            | 36.04  |               | 38.50  |              | 40.14  |                | 45.99  |            | 45.99  
|Low                           |  |              | 30.70  |               | 33.26  |              | 33.34  |                | 38.70  |            | 30.70  
|Close, at period-end          |  |              | 35.48  |               | 38.40  |              | 39.79  |                | 42.45  |            | 42.45  
|                              | 
|                              |  | 2003        
|                              |  | FirstQuarter |        | SecondQuarter |        | ThirdQuarter |        | FourthQuarter1 |        | Year      
|                              |  | (Restated)   |        | (Restated)    |        | (Restated)   |        | (Restated)     |        | (Restated)
|Net sales                     |  | $            | 32,429 |               | 34,960 |              | 30,730 |                | 36,796 |            | 134,915
|Gross profit                  |  |              | 7,174  |               | 8,021  |              | 5,046  |                | 12,950 |            | 33,191 
|Operating income              |  |              | 5,274  |               | 6,097  |              | 3,184  |                | 9,302  |            | 23,857 
|Net income/(loss)             |  |              | 1,107  |               | 2,406  |              | 182    |                | 4,499  |            | 8,194  
|Earnings per common share     |  |              |        |               |        |              |        |                |        |            |        
|Basic                         |  | $            | .09    |               | .20    |              | .02    |                | .38    |            | .69    
|Assuming dilution             |  | $            | .09    |               | .20    |              | .02    |                | .37    |            | .69    
|Dividends per common share    |  | $            | .0625  |               | .0625  |              | .0625  |                | .0625  |            | .25    
|Market price per common share |  |              |        |               |        |              |        |                |        |            |        
|High                          |  | $            | 28.86  |               | 28.65  |              | 33.70  |                | 31.34  |            | 33.70  
|Low                           |  |              | 23.35  |               | 23.85  |              | 27.70  |                | 27.96  |            | 23.35  
|Close, at period-end          |  |              | 23.90  |               | 28.45  |              | 28.92  |                | 30.40  |            | 30.40  



|1 | Includes the impact of enhanced retirement benefits granted to certain employees upon early retirement, amounting to $916,000, $575,000 net of related income taxes
of $341,000.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2004



Note 20  Financial Results by Quarter (Unaudited) (cont.)



(Thousands of dollars, except per share amounts)



|                              |  |              |        |               |        |   |              |        |   |                |         |   |            |         |  
|----------------------------- |  | ------------ | ------ | ------------- | ------ | - | ------------ | ------ | - | -------------- | ------- | - | ---------- | ------- | -
|                              |  | 2002         |       
|                              |  | FirstQuarter |        | SecondQuarter |        |   | ThirdQuarter |        |   | FourthQuarter2 |         |   | Year       |        
|                              |  |              |        |               |        |   | (Restated)   |        |   |                |         |   | (Restated) |        
|Net sales                     |  | $            | 27,095 |               | 28,106 |   |              | 25,565 |   |                | 23,746  |   |            | 104,512 |  
|Gross profit                  |  |              | 6,784  |               | 6,142  |   |              | 3,128  |   |                | 1,882   |   |            | 17,936  |  
|Operating income              |  |              | 4,737  |               | 4,024  |   |              | 1,296  |   |                | 267     |   |            | 10,324  |  
|Net income/(loss)             |  |              | 821    |               | (10    | ) |              | (1,234 | ) |                | (13,458 | ) |            | (13,881 | )
|Earnings per common share     |  |              |        |               |        |   |              |        |   |                |         |   |            |         |  
|Basic                         |  | $            | .02    |               | (.05   | ) |              | (.15   | ) |                | (1.18   | ) |            | (1.35   | )
|Assuming dilution             |  | $            | .02    |               | (.05   | ) |              | (.15   | ) |                | (1.18   | ) |            | (1.35   | )
|Dividends per common share    |  | $            | .0625  |               | .0625  |   |              | .0625  |   |                | .0625   |   |            | .25     |  
|Market price per common share |  |              |        |               |        |   |              |        |   |                |         |   |            |         |  
|High                          |  | $            | 30.63  |               | 34.95  |   |              | 35.20  |   |                | 29.35   |   |            | 35.20   |  
|Low                           |  |              | 28.00  |               | 29.75  |   |              | 21.98  |   |                | 22.00   |   |            | 21.98   |  
|Close, at period-end          |  |              | 30.25  |               | 34.48  |   |              | 21.98  |   |                | 26.70   |   |            | 26.70   |  



|2 | Includes the write-off of the Companys investment in Del-Tin Fiber of $18,723,000, $11,440,000 net of related deferred income taxes of $7,283,000.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------



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MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS



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s consolidated financial statements, as
restated, have been audited by KPMG LLP, an independent registered public accounting firm, who have expressed their opinion with respect to the fairness of the consolidated financial statements in conformity with generally accepted accounting
principles. Their audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States). The Audit Committee of the Board of Directors (the Audit Committee) appoints the independent
auditors; ratification of the appointment is solicited annually from the shareholders.



The Audit Committee is composed of directors who are not officers or employees of the Company and who have been determined by the Companys Board of Directors to meet applicable independence standards under the Securities Exchange Act
of 1934. The Audit Committee meets periodically with KPMG LLP, 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 Audit Committee, without managements presence, to discuss audit findings and other financial matters.



|                                                                     |  |  |  |                                                                               
|-------------------------------------------------------------------- |  |  |  | ------------------------------------------------------------------------------
|                                                                     |  | 
|/s/    RAY C. DILLON                                                 |  |  |  | /s/    CLEFTON D.
VAUGHAN                                                     
|Ray C. Dillon President and Chief Executive Officer  August 12, 2005 |  |  |  | Clefton D. Vaughan Vice President and Chief Financial Officer  August 12, 2005



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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, 2004 and 2003, and the related consolidated
statements of income, comprehensive income, stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2004. The 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period
ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.



As discussed in Note 1 to the consolidated financial statements, the consolidated financial statements as of December 31, 2004 and 2003, and for each of the years in the three-year period ended December 31, 2004, have
been restated.



We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the effectiveness of Deltic Timber Corporations internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 9, 2005, except as to the fourth paragraph of Managements Report on Internal Control Over Financial Reporting (as
restated), which is as of August 12, 2005, expressed an unqualified opinion on managements assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting as of December 31, 2004.



/s/ KPMG LLP



KPMG LLP

Shreveport, Louisiana

March 9, 2005, except as to the restatement discussed

in Note 1, which is as of August 12, 2005



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



None



|Item 9A. | Controls and Procedures
|-------- | -----------------------



(a) Restatement



In mid-July 2005, the Companys log supply procurement manager for its Ola sawmill contacted the Companys Chief Executive Officer and Chief
Financial Officer and disclosed that the volume of certain tracts of third-party purchased standing timber inventory recorded on the Companys books was overstated. Descriptions of how the overstatement occurred, its quantification, and impact
on the Companys financial statements are as follows:



| |  |  | The Company supplies logs to its sawmills for the manufacture of lumber from a combination of transfers from its fee timberlands and purchases of timber from third parties. In the
case of a third-party timber purchase, mill procurement personnel estimate the volume of timber located on the subject tract and acquire such timber for a purchase price agreed with the seller. Once acquired, the estimated volume of timber is
entered into the Companys standing timber inventory at its purchase price. As timber is thereafter harvested from the tract and brought to the Companys sawmills, standing timber inventory is reduced, and the sawmill incurs log costs
based on the volume of timber received as a proportion of the total volume of standing timber inventory recorded with respect to such tract at the time of its acquisition. The Ola mill procurement manager reported that when the harvests of timber
from certain tracts produced a shortfall in volume compared to the original volume estimates, due to overestimates made when the timber on the tracts was acquired, he failed to report the shortfall to accounting personnel and concealed from
accounting personnel that the volume remaining on the Companys books and records as standing timber inventory was incorrect. As a result, third-party purchased standing inventory amounts were not correctly reported, and the correct amount of
log costs was not reflected in the mills manufacturing expense.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Promptly upon learning of the procurement managers actions: the Company terminated his employment; notification of his disclosures was made to the Chairman of the Audit
Committee of the Board of Directors and to the audit engagement partner of the Companys independent registered public accountants; and, an internal review was commenced to determine the quantity of the overstatement and to identify the
reporting periods in which the volume and cost for the various tracts should have been entered in the Companys books and records. This review revealed that the procurement manager had failed to reconcile and report the correct timber volumes
at December 31, 2004, on some 34 tracts purchased from third parties. The overstatement of standing timber inventory as of December 31, 2004, totaled approximately 51 thousand tons.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys financial statements were impacted by the overstatement of third-party purchased standing inventory during the years 2002 through 2004, including the third
quarter of 2002 and each quarter in 2003 and 2004. The adjustments needed to correct the overstatements resulted in a reduction in purchased third-party standing inventory as of December 31, 2004, of approximately $2 million, and a cumulative
reduction in reported after-tax earnings of $1.3 million ($0.2 million in 2002, $0.5 million in 2003, and $0.6 million in 2004). Correction of the misstatements has no effect on either the Companys individual-year or cumulative net cash flows.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The disclosure of the procurement manager, and
the status of and conclusions of the internal review have been regularly reported to KPMG LLP, the Companys independent registered public accounting firm and to the Audit Committee of the Board of Directors. On August 3, 2005, management
recommended to the Audit Committee that the financial statements identified above be restated to correct the errors described above. The Audit Committee accepted this recommendation at its meeting on August 3, 2005, and, in light of the restatement,
determined that the financial statements and other information related to the periods referred to above should no longer be relied upon.



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(b) Evaluation of Disclosure Controls and Procedures and Internal Control Over Financial Reporting



With the participation of the Chief Executive Officer
and Chief Financial Officer, the Companys management conducted an evaluation of the effectiveness of its internal control over financial reporting as of December 31, 2004. In such evaluation, the then-existing controls over third-party
purchased standing timber inventory were determined to be effective. In connection with the restatement, under the direction of our Chief Executive Officer and Chief Financial Officer, the Company reevaluated its disclosure controls and procedures
and controls over financial reporting, and has identified material weaknesses in its internal control over financial reporting related to accounting for third-party purchased standing timber inventory.



As a result of these material weaknesses, the Companys management has
concluded that its disclosure controls and procedures were not effective as of December 31, 2004.



(c) Managements Report on Internal Control Over Financial Reporting (as restated)



The management of Deltic Timber Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company. With the participation of the Chief Executive Officer and the Chief Financial Officer, the Companys management conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2004, based on
the framework and criteria established in Internal Control  Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.



In the Companys Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 11, 2005, management
concluded that the Companys internal control over financial reporting was effective as of December 31, 2004. Subsequently, management identified the following material weaknesses in internal control over financial reporting with respect to
accounting for third-party purchased standing timber inventory:



| |  |  | a lack of segregation of duties related to the timber procurement function, in that the procurement manager calculated the estimated volumes on purchased tracts of third-party
standing timber, approved purchases of tracts of third-party standing timber up to the level of his approval authority, monitored logging activity on all procured tracts, reported such logging activity to accounting personnel, maintained the records
of expiration dates for logging rights for all procured tracts, obtained extensions to original expiration dates for all procured tracts, and determined the timing of reporting to accounting personnel that logging activities on procured tracts had
been completed;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a lack of frequent and comprehensive review of status updates for each respective tract of purchased third-party standing timber;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | a lack of established procedures requiring adjustment in the carrying value of procured tracts when there are no current reports of logging activity reported to accounting
personnel, unless an affirmative justification is timely presented and approved; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a lack of training and education designed to ensure that all relevant personnel involved in third-party purchased standing timber inventory transactions understand and apply the
proper accounting procedures.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These material
weaknesses resulted in material errors in accounting requiring restatement of the Companys previously issued financial statements. The Company amended its Annual Report on Form 10-K for the year ended December 31, 2004, and restated its
financial statements for the fiscal years ended 2002 through 2004, the third quarter of 2002 and each quarter of 2003 and 2004 to reflect the correction of these errors in accounting.



Additionally, the Companys management has revised its earlier assessment and now concludes that the Companys
internal control over financial reporting was not effective as of December 31, 2004.



Deltic Timber Corporations independent auditor, KPMG LLP, a registered public accounting firm, has issued an audit report on our managements revised assessment of the Companys internal control over
financial reporting as of December 31, 2004.



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(d) Remediation of Material Weaknesses in Internal Control



The Company plans and intends to implement and thoroughly test new policies
and procedures that are intended to fully remediate the material weaknesses in its internal control over financial reporting with respect to accounting for third-party purchased standing timber inventory. These remedial actions include:



| |  |  | Substantially increasing the segregation of duties related to the acquisition of and accounting for third-party purchased standing timber inventory, including a reduction in the
expenditure authority levels of mill procurement personnel to increase involvement of management in acquisitions;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | institution of new requirements in connection with third-party purchased standing timber inventory for the creation and wider distribution of records and documentation beginning
with the original estimation process prior to acquisition of tracts of third-party purchased standing timber inventory and continuing through the final harvest and volume reconciliation for each tract;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | imposition of more frequent and comprehensive status updates for each respective tract of third-party purchased standing timber inventory with active participation by both
procurement and accounting personnel;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | establishment of default procedures that require adjustments in the carrying value of respective tracts where no current reports of logging activity are being made by procurement
personnel to accounting personnel, unless an affirmative justification is timely presented and approved;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | additional training and education designed to ensure that all relevant personnel involved in the transactions understand and apply the proper accounting for third-party purchased
standing timber inventory; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | extension of the Companys sub-certification requirements relating to information supplied which may form a part of the Companys accounting books and records to include
all procurement managers and supervisors.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
connection with this amended Form 10-K, under the direction of the Companys Chief Executive Officer and Chief Financial Officer, the Company is evaluating its disclosure controls and procedures and internal control over financial reporting,
including those currently planned and being implemented, with the intent to fully remediate the material weaknesses in its internal control over financial reporting with respect to accounting for third-party standing timber inventory.



(e) Changes in Internal Control Over Financial Reporting



As previously reported, there was no change in our internal control over
financial reporting during the quarter ended December 31, 2004, that materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting. However, subsequent to discovery of the
misstatements caused by the former Ola mill procurement manager, the Company intends to take remedial actions described above.



(f) Report of Independent Registered Public Accounting Firm



The Board of Directors

Deltic Timber Corporation:



We
have audited managements restated assessment, included in the accompanying Managements Report on Internal Control over Financial Reporting (as restated) (Item 9A(c)), that Deltic Timber Corporation and Subsidiaries (Deltic)
did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of the material weaknesses identified in managements restated assessment based on criteria established in Internal Control
 Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Deltics management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements



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assessment and an opinion on the effectiveness of the Companys internal control over financial reporting based on our audit.



We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures
as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.



A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.



A material
weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual and interim financial statements will not be prevented or detected. Management has
identified and included in its restated assessment the following material weaknesses as of December 31, 2004:



| |  |  | a lack of segregation of duties related to the timber procurement function, in that the procurement manager calculated the estimated volumes on purchased tracts of third-party
standing timber, approved purchases of tracts of third-party standing timber up to the level of his approval authority, monitored logging activity on all procured tracts, reported such logging activity to accounting personnel, maintained the records
of expiration dates for logging rights for all procured tracts, obtained extensions to original expiration dates for all procured tracts, and determined the timing of reporting to accounting personnel that logging activities on procured tracts had
been completed;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a lack of frequent and comprehensive review of status updates for each respective tract of purchased third-party standing timber;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | a lack of established procedures requiring adjustment in the carrying value of procured tracts when there are no current reports of logging activity reported to accounting
personnel, unless an affirmative justification is timely presented and approved; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a lack of training and education designed to ensure that all relevant personnel involved in third-party purchased standing timber inventory transactions understand and apply the
proper accounting procedures.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These material
weaknesses resulted in restating Deltics previously issued consolidated financial statements as of December 31, 2004 and 2003, and for each of the years in the three-year period ended December 31, 2004, and the financial information for
certain quarters in 2004, 2003, and 2002. As stated in the fourth paragraph of Managements Report on Internal Control over Financial Reporting (as restated), managements assessment of the effectiveness of Deltics internal control
over financial reporting has been restated.



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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Deltic Timber Corporation as of December 31, 2004 and 2003, and the related consolidated statements of income, comprehensive income, stockholders equity and cash flows for each of the years
in the three-year period ended December 31, 2004. The aforementioned material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements (as restated),
and this report does not affect our report dated March 9, 2005, except as to the restatement discussed in Note 1 to the consolidated financial statements, which is as of August 12, 2005, which expressed an unqualified opinion on those consolidated
financial statements.



In our opinion, managements
restated assessment that Deltic did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control  Integrated
Framework issued by COSO. Also, in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, Deltic did not maintain effective internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal Control  Integrated Framework issued by COSO.



/s/ KPMG LLP



KPMG LLP

Shreveport, Louisiana

March 9, 2005, except as to the fourth paragraph of

Managements Report on Internal Control over Financial

Reporting (as restated), which is as of August 12, 2005



|Item 9B. | Other Information
|-------- | -----------------



None.



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PART III



|Item 10. | Directors and Executive Officers of the Registrant
|-------- | --------------------------------------------------



The sections entitled Nominees For Election as Directors, Directors Whose Term of Office Continue, and Committees of the
Board of Directors appearing in the Registrants proxy statement for the annual meeting of shareholders to be held on April 28, 2005, sets forth certain information with respect to the directors of the registrant, including directors who
serve on the Companys Audit Committee and who have been designated an Audit Committee financial expert, 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.



The sections entitled Procedures for Stockholder Nominations and Proposals and Corporate Governance appearing in the
Registrants proxy statement for the annual meeting of stockholders to be held April 28, 2005 sets forth certain information respectively in regards to applicable procedures for stockholders to submit director nominations and proposals and the
Companys Code of Business Conduct and Ethics and is incorporated herein by reference.



|Item 11. | Executive Compensation
|-------- | ----------------------



Information required by this Item will be contained in the Registrants proxy statement for the annual meeting of stockholders to be held on April
28, 2005, to be filed not later than 120 days following the end of the Registrants fiscal year ended December 31, 2004, which will set forth certain information with respect to executive compensation of the Registrant and is incorporated
herein by reference.



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|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------



Information required by this Item will be contained in the Registrants proxy statement for the annual meeting of
stockholders to be held on April 28, 2005, to be filed not later than 120 days following the end of the Registrants fiscal year ended December 31, 2004, which will set forth certain information with respect to security ownership of certain
beneficial owners and management of the Registrant and is incorporated herein by reference.



The following table sets forth information as of December 31, 2004, with respect to Deltic common stock issuable under the Companys compensation plans.



|                                                           |  |                                                                                            |  |                                                                                  |       |                                                                                                                                     |          
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------------------------------------------- | ---------
|Plan Category                                              |  | Number ofsecurities tobe issued uponexercise ofoutstanding options,warrants, or rights(a.) |  | Weighted averageexercise priceof all outstandingoptions,warrants, or rights,(b.) |       | Number of securitiesremaining available forfuture issuance underequity compensationplans
[excludingsecurities included in (a.)](c.)
|Equity compensation plans approved by security holders     |  | 357,834                                                                                    |  | $                                                                                | 27.29 |                                                                                                                                     | 1,458,362
|Equity compensation plans not approved by security holders |  |                                                                                           |  |                                                                                  |      |                                                                                                                                     |         
|                                                           |  |                                                                                            |  |                                                                                  |       |                                                                                                                                     |          
|                                                           |  | 357,834                                                                                    |  | $                                                                                | 27.29 |                                                                                                                                     | 1,458,362
|                                                           |  |                                                                                            |  |                                                                                  |       |                                                                                                                                     |          



|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------



Information required by this Item will be contained in the Registrants proxy statement for the annual meeting of stockholders to be held on April
28, 2005, to be filed not later than 120 days following the end of the Registrants fiscal year ended December 31, 2004, which will set forth certain information with respect to certain relationships and related transactions of the Registrant
and is incorporated herein by reference.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------



Information required by this Item will be contained in the Registrants proxy statement for the annual meeting to be held on April 28, 2005, to be
filed not later than 120 days following the end of the Registrants fiscal year ended December 31, 2004, which will set forth certain information with respect to principal account fees and services and is incorporated herein by reference.



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PART IV



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------



| | a. | Financial Statements, Schedules and Exhibits.
| | -- | ---------------------------------------------



| | 1. | Consolidated Financial Statements (Restated).
| | -- | ---------------------------------------------



Consolidated Balance Sheets - December 31, 2004 and 2003.



Consolidated Statements of Income for the Years Ended December 31, 2004, 2003, and 2002.



Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003, and 2002.



Consolidated Statements of Stockholders Equity for the Years Ended
December 31, 2004, 2003, and 2002.



Consolidated Statements
of Comprehensive Income for the Years Ended December 31, 2004, 2003, and 2002.



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



Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements.



Report of Independent Registered Public Accounting Firm on Internal Control
Over Financial Reporting.



| | 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 January 1, 2005 and January 3, 2004.



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).                                              



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##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                  
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|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 2002 Stock Incentive Plan (incorporated by reference to Appendix A to Registrants definitive Proxy Statement related to the Annual Meeting of Stockholders on
April 25, 2002).                                                        
|      | 
|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).                                       
|      | 
|10.9  |  | Revolving Credit Agreement dated June 20, 2001 (incorporated by reference to Exhibit 10.9 to Registrants Quarterly Report on Form 10-Q for the quarter ended June 30,
2001.)                                                                                    
|      | 
|10.10 |  | Note Purchase Agreement dated December 20, 2002, (incorporated by reference to Exhibit 10.10 to Registrants Annual Report on Form 10-K for the year ended December 31,
2002).                                                                                   
|      | 
|10.11 |  | First Amended and Restated Revolving Credit Agreement dated September 30, 2003 (incorporated by reference to Exhibit 10.11 to Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003).                                              
|      | 
|10.12 |  | Guarantee Agreement between Deltic Timber Corporation and SunTrust Bank related to the Del-Tin Fiber Credit Agreement dated August 26, 2004, included elsewhere herein.                                                                                          



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|      |  |                                                                                                                                                                                                                                          
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.13 |  | Annual Incentive Compensation Plan, included elsewhere herein.                                                                                                                                                                           
|      | 
|10.14 |  | Non Qualified Stock Option Form, included elsewhere herein.                                                                                                                                                                              
|      | 
|10.15 |  | Restricted Stock Award Agreement and Stock Power, included elsewhere herein.                                                                                                                                                             
|      | 
|10.16 |  | Performance Based Restricted Stock Award Agreement and Stock Power, included elsewhere herein.                                                                                                                                           
|      | 
|10.17 |  | Change-in-Control and Involuntary Severance Agreement with CEO, included elsewhere herein.                                                                                                                                               
|      | 
|10.18 |  | Change-in-Control Agreement with CEO Direct Reports, included elsewhere herein.                                                                                                                                                          
|      | 
|21    |  | Subsidiaries of the Registrant, included elsewhere herein.                                                                                                                                                                               
|      | 
|23    |  | Consent of Independent Registered Public Accounting Firm related to reports on financial statements and internal control over financial reporting of Deltic Timber Corporation, included
elsewhere herein.                               
|      | 
|31.1  |  | Chief Executive Officer Certification Required by Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                         
|      | 
|31.2  |  | Chief Financial Officer Certification Required by Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                         
|      | 
|32    |  | Certification Required by Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                 
|      | 
|99    |  | Form 11-K, Annual Report for the fiscal year ended December 31, 2004, 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, 2004.



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



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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/    RAY C. DILLON     |  |  |  | Date: August 12, 2005
|                          |  | Ray C. Dillon, President |  |  |  |                       |  | 



Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below on March 9, 2005 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/    RAY C. DILLON                                                                            |  |  |  | /s/    O. H. DARLING,
JR.                                                                              
|Ray C. Dillon, President and Chief Executive Officer and Director (Principal Executive Officer) |  |  |  | O. H. Darling, Jr., Director                                                                           
|                                                                                                |  | 
|/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, Treasurer and Chief Financial Officer (Principal Financial
Officer)
|                                                                                                |  | 
|/s/    CHRISTOPH KELLER, III                                                                    |  |  |  | /s/    KENNETH D. MANN                                                                                 
|Christoph Keller, III, Director                                                                 |  |  |  | Kenneth D. Mann, Controller (Principal Accounting Officer)                                             
|                                                                                                |  | 
|/s/    ALEX R. LIEBLONG                                                                         |  |  |  |                                                                                                        
|Alex R. Lieblong, Director                                                                      |  |  |  |                                                                                                        



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