Deltic Timber (DEL) 10-Q 2003 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2003

OR

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

Commission file number 1-12147

DELTIC TIMBER CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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

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

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(Thousands of dollars)

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

See accompanying notes to consolidated financial statements.

3

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(Thousands of dollars, except per share amounts)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003			2002		2003		2002
Net sales	$	30,730		25,565		98,119		80,766
Costs and expenses
Cost of sales		22,324		19,154		67,337		51,927
Depreciation, amortization, and cost of fee timber harvested		3,126		2,910		10,125		12,412
General and administrative expenses		1,862		1,832		5,686		5,997
Total costs and expenses		27,312		23,896		83,148		70,336
Operating income		3,418		1,669		14,971		10,430
Equity in Del-Tin Fiber		(1,598	)	(1,827	)	(3,990	)	(7,153	)
Interest income		306		117		350		180
Interest and other debt expense		(1,599	)	(1,110	)	(5,145	)	(3,356	)
Other income/(expense)		61		101		162		342
Income/(loss) before income taxes		588		(1,050	)	6,348		443
Income taxes		(254	)	58		(2,383	)	(624	)
Net income/(loss)	$	334		(992	)	3,965		(181	)
Earnings per common share
Basic	$	.03		(.13	)	.33		(.16	)
Assuming dilution		.03		(.13	)	.33		(.16	)
Dividends declared per common share	$	.0625		.0625		.1875		.1875
Average common shares outstanding (thousands)		11,919		11,941		11,909		11,921

See accompanying notes to consolidated financial statements.

4

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30,

(Thousands of dollars)

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

See accompanying notes to consolidated financial statements.

5

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (Unaudited)

Nine Months Ended September 30,

(Thousands of dollars)

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

See accompanying notes to consolidated financial statements.

6

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for December 31, 2002)

Note 1 – Interim Financial Statements

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

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

Note 2 – Impact of Recently Effective Accounting Pronouncements

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

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

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

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

7

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for December 31, 2002)

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

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

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

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

8

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for December 31, 2002)

Note 3 – Earnings per Common Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(Thousands, except per share amounts)	2003		2002		2003	2002
Net income/(loss)	$	334	(992	)	3,965	(181	)
Less preferred dividends		—	(566	)	—	(1,697	)
Income available to common shareholders	$	334	(1,558	)	3,965	(1,878	)
Weighted average number of common shares used in basic EPS		11,919	11,941		11,909	11,921
Effect of dilutive stock options*		49	—		24	—
Weighted average number of common shares and dilutive potential common stock used in EPS assuming dilution		11,968	11,941		11,933	11,921
Earnings per common share
Basic	$	.03	(.13	)	.33	(.16	)
Assuming dilution		.03	(.13	)	.33	(.16	)

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

9

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for December 31, 2002)

Note 4 – Stock-Based Compensation

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

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

	Three Months Ended September 30,					Nine Months Ended September 30,
(Thousands, except per share amounts)	2003			2002		2003		2002
Net income/(loss), as reported	$	334		(992	)	3,965		(181	)
Plus total stock-based compensation expense determined under the intrinsic value method for awards, net of related tax effects, included in the determination of net income		46		82		191		349
Less pro forma total stock-based compensation expense determined under the fair value method for all awards, net of related tax effects		(165	)	(195	)	(563	)	(822	)
Pro forma net income/(loss)	$	215		(1,105	)	3,593		(654	)
Basic earnings per share
As reported		.03		(.13	)	.33		(.16	)
Pro forma		.02		(.14	)	.30		(.20	)
Dilutive earnings per share
As reported		.03		(.13	)	.33		(.16	)
Pro forma		.02		(.14	)	.30		(.20	)

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

10

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for December 31, 2002)

Note 5 – Inventories

Inventories at the balance sheet dates consisted of the following:

(Thousands of dollars)	Sept. 30, 2003		Dec. 31, 2002
Logs	$	1,251	1,313
Lumber		3,772	4,630
Materials and supplies		252	314
	$	5,275	6,257

Note 6 – Investment in Del-Tin Fiber

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

11

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for December 31, 2002)

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

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

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

(Thousands of dollars)	Sept. 30, 2003		Dec. 31, 2002
Condensed Balance Sheet Information
Current assets	$	6,658	5,874
Debt service reserve funds		3,510	3,485
Bond sinking funds		20,549	13,950
Property, plant, and equipment - net		96,397	98,230
Other noncurrent assets		552	736
Total assets	$	127,666	122,275
Current liabilities	$	4,532	4,407
Long-term debt		89,000	89,000
Other noncurrent liabilities		15	3
Members’ capital/(deficit)		34,119	28,865
Total liabilities and members’ capital/(deficit)	$	127,666	122,275

12

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for December 31, 2002)

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

(Thousands of dollars)	Three Months Ended September 30,					Nine Months Ended September 30,
	2003			2002		2003		2002
Condensed Income Statement Information
Net sales	$	9,554		9,221		31,962		23,392
Costs and expenses
Cost of sales		10,265		10,251		32,094		29,788
Depreciation		1,095		1,102		3,710		2,916
General and administrative expenses		442		410		1,476		1,210
Total costs and expenses		11,802		11,763		37,280		33,914
Operating income/(loss)		(2,248	)	(2,542	)	(5,318	)	(10,522	)
Interest income		50		43		121		105
Interest and other debt expense		(1,216	)	(928	)	(2,868	)	(3,210	)
Gain/(loss) on disposal of assets		(529	)	(228	)	(529	)	(679	)
Net income/(loss)		(3,943	)	(3,655	)	(8,594	)	(14,306	)
Other comprehensive income		—		—		—		360
Comprehensive income/(loss)	$	(3,943	)	(3,655	)	(8,594	)	(13,946	)

Note 7 – Timber and Timberlands

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

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

13

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for December 31, 2002)

Note 8 – Property, Plant, and Equipment

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

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

Note 9 – Credit Facilities

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

14

DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for December 31, 2002)

Note 10 – Supplemental Cash Flow Disclosures

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

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

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

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DELTIC TIMBER CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2003

(Unaudited, except for December 31, 2002)

Note 11 – Business Segments

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

	Three Months Ended September 30,					Nine Months Ended September 30,
(Thousands of dollars)	2003			2002		2003		2002
Net sales
Woodlands	$	9,012		8,624		25,469		30,236
Mills		19,561		18,343		59,305		55,079
Real Estate		6,423		3,018		23,904		9,773
Eliminations*		(4,266	)	(4,420	)	(10,559	)	(14,322	)
	$	30,730		25,565		98,119		80,766
Income/(loss) before income tax
Operating income
Woodlands	$	5,163		5,051		15,211		18,142
Mills		(1,049	)	(1,600	)	(4,962	)	(3,055	)
Real Estate		1,008		25		9,471		1,078
Corporate		(1,626	)	(1,631	)	(4,971	)	(5,398	)
Eliminations		(78	)	(176	)	222		(337	)
Operating income		3,418		1,669		14,971		10,430
Equity in Del-Tin Fiber		(1,598	)	(1,827	)	(3,990	)	(7,153	)
Interest income		306		117		350		180
Interest and other debt expense		(1,599	)	(1,110	)	(5,145	)	(3,356	)
Other income/(expense)		61		101		162		342
	$	588		(1,050	)	6,348		443
Depreciation, amortization, and cost of fee timber harvested
Woodlands	$	1,488		1,249		5,213		7,624
Mills		1,478		1,504		4,449		4,338
Real Estate		135		121		396		326
Corporate		25		36		67		124
	$	3,126		2,910		10,125		12,412
Capital expenditures
Woodlands	$	585		1,620		11,813		3,447
Mills		1,344		859		2,499		2,411
Real Estate		2,669		3,972		6,326		9,889
Corporate		33		21		189		69
	$	4,631		6,472		20,827		15,816

* Intersegment sales of timber from Woodlands to Mills

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

Results of Operations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial Condition

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

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

	Nine Months Ended September 30,
(Thousands of dollars)	2003		2002
Woodlands*	$	11,813	3,447
Mills		2,499	2,411
Real Estate		6,326	9,889
Corporate		189	69
Capital expenditures	$	20,827	15,816

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

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

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

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

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

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

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

The Company has agreed to a contingent equity contribution agreement with Del-Tin Fiber and the group of banks from whom Del-Tin Fiber has obtained its $89 million credit facility. Under this agreement, Deltic and the other 50 percent owner of the joint venture have agreed to fund any deficiency in contributions to either Del-Tin Fiber’s required sinking fund or debt service reserve, up to a cumulative total of $17.5 million for each owner. The Company is currently funding its share of Del-Tin Fiber’s sinking fund obligation on a voluntary basis. As a result, potential future payments are estimated at approximately $32.6 million should the facility’s long-term debt not be refinanced, its financial results not become sufficient to fund its obligations, or if the Company has not sold its ownership interest by the end of 2005. In addition, each owner has committed to a production support agreement, under which each owner has agreed to make support obligation payments to Del-Tin Fiber to provide, on the occurrence of certain events, additional funds for payment of debt service until the plant is able to successfully complete a minimum production test. Both owners have agreed to fund any operating working capital needs until the facility is able to consistently generate sufficient funds to meet its cash requirements. While Deltic wrote off its investment in Del-Tin Fiber as of December 31, 2002, the Company’s contingent obligations are not reduced as a result of the write-off.

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

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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 table.

(Millions of dollars)	Total		2003 to 2004	2005 to 2006	2007 to 2008	After 2008
Contractual cash payment obligations
Long-term debt	$	121.1	1	—	94.3	26.7
Other commercial commitment expirations
Del-Tin Fiber contingent equity contribution agreement		17.5	—	17.5	—	—
Letters of credit		1.3	.9	.3	.1	—

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

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

Critical Accounting Policies and Estimates

Critical accounting policies are defined as those that are reflective of significant judgements and uncertainties and potentially result in materially different results under different assumptions and conditions. The Company has prepared its consolidated financial statements in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the reported amounts in these financial statements and accompanying notes. Actual results could differ from those estimates under different assumptions or conditions. The Company has disclosed its critical accounting policies in its 2002 annual report on Form 10-K, and this disclosure should be read in conjunction with this Form 10-Q. There have been no changes in these identified critical policies, nor have there been any initially adopted accounting policies having a material impact on reported financial results.

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Impact of Recently Effective Accounting Pronouncements

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

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

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

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

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

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

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

Outlook

Pine sawtimber harvest levels are expected to be 150,000 to 170,000 tons in the fourth quarter of 2003 and 595,000 to 615,000 tons for the year. The Company’s program to consider sales of timberland identified to be non-strategic or to have a higher and better use will continue, with sales for the year anticipated to be 3,500 to 4,500 acres. Finished lumber production and sales volume will continue to be subject to market conditions and is estimated at 50 to 55 million board feet for the fourth quarter and 220 to 225 million board feet for the year. Residential lot sales are projected to be 55 to 65 lots and 190 to 200 lots for the fourth quarter and the year, respectively. The Company had 90 lots under contract as of September 30, 2003. Under the current evaluation parameters, Deltic’s equity loss in Del-Tin Fiber will be equal to any cash advances made to the facility in excess of sinking fund payment requirements for 2003.

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

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s market risk has not changed significantly from that set forth under the caption “Quantitative and Qualitative Disclosures About Market Risk”, in Item 7A of Part II of its 2002 annual report on Form 10-K. Those disclosures should be read in conjunction with this Form 10-Q.

Item 4. Controls and Procedures

Deltic Timber Corporation (“the Company”) carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934. Such evaluation was under the supervision, and with the participation, of the Company’s senior management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”). Based on this evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2003, in timely alerting them to material information required to be included in any reports that the Company files or submits under the Securities Exchange Act of 1934, as amended. In addition, such controls have been deemed to be effective in ensuring that the required information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no significant changes during the quarter in internal controls over financial reporting or in any other factors that could significantly affect those internal controls. The Company has not identified any significant deficiency or material weakness in its internal controls, and therefore, no corrective actions were taken.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

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

31.1 Chief Executive Officer Certification Required by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Chief Financial Officer Certification Required by Section 302 of the Sarbanes-Oxley Act of 2002.

32 Certification Required by Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

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

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SIGNATURES

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

DELTIC TIMBER CORPORATION
By:	/s/Ray C. Dillon	Date:	October 29, 2003
	Ray C. Dillon, President
	(Principal Executive Officer)
	/s/Clefton D. Vaughan	Date:	October 29, 2003
	Clefton D. Vaughan, Vice President,
	Finance and Administration
	(Principal Financial Officer)
	/s/Emily R. Evers	Date:	October 29, 2003
	Emily R. Evers, Controller
	(Principal Accounting Officer)

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