POPE RESOURCES LTD PARTNERSHIP - 10-Q Quarterly Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2004

OR

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

Commission File Number 1-9035

POPE RESOURCES, A DELAWARE
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)

DELAWARE 91-1313292
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)

19245 10TH AVENUE NE, POULSBO, WA 98370
Telephone: (360) 697-6626
(Address of principal executive offices including zip code)
(Registrant's telephone number including area code)

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 (or for such shorter period that the registrant
was required to file such reports), 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 Exchange Act).

Yes____ No__X__

Partnership units outstanding at November 1, 2004: 4,521,995

Pope Resources
Index to Form 10-Q Filing
For the Quarter and Nine Month Period Ended September 30, 2004

Description Page Number

Part I. Financial Information

Item 1 Financial Statements

Consolidated Balance Sheets 4
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7-11

Item 2. Management's Discussion and Analysis of Financial Condition and Results 12-30
of Operations

Item 3. Quantitative and Qualitative Disclosures about Market Risk 30

Item 4. Controls and Procedures 31

Part II. Other Information

Item 1. Legal Proceedings 31

Item 2. Unregistered Sales of Securities and Use of Proceeds 31

Item 3. Defaults Upon Senior Securities 31

Item 4. Submission of Matters to a Vote of Security Holders 32

Item 5. Other Information 32

Item 6. Exhibits 32

P A R T I - FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

3

CONSOLIDATED BALANCE SHEETS (Unaudited)

Pope Resources
September 30, 2004 and December 31, 2003

(Thousands)
2004 2003
- --------------------------------------------------------------------------------
Assets
Current assets:

Cash and cash equivalents $10,088 $10,361
Accounts receivable 1,152 865
Land held for sale 110 135
Current portion of contracts receivable 17 872
Prepaid expenses and other 1,435 545
------- -------
Total current assets 12,802 12,778
------- -------
Properties and equipment at cost:
Land and land improvements 22,697 20,800
Roads and timber (net of accumulated
depletion of $25,053 and $21,335) 53,306 48,203
Buildings and equipment (net of accumulated
depreciation of $5,921 and $5,537) 3,071 3,107
------- -------
79,074 72,110
------- -------
Other assets:
Contracts receivable, net of current portion 158 196
Deferred tax asset and other 1,200 1,224
------- -------
1,358 1,420
------- -------
$93,234 $86,308
======= =======
Liabilities and Partners' Capital
Current liabilities:
Accounts payable $ 491 $ 536
Accrued liabilities 1,330 1,325
Environmental remediation 555 100
Current portion of long-term debt 1,602 1,631
Minority interest 30 89
Deferred profit 642 103
Other current liabilities 122 32
------- -------
Total current liabilities 4,772 3,816
Long-term debt, net of current portion 34,164 36,114
Other long term liabilities 168 342
Partners' capital 54,130 46,036
------- -------
$93,234 $86,308
======= =======

See accompanying notes to condensed consolidated financial statements.

4

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Pope Resources
For the Three Months and Nine Months Ended September 30, 2004 and 2003

(Thousands, except per unit data) Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
-------- ------- ------- -------

Revenues $ 8,051 $ 6,565 $ 31,671 $ 21,357
Cost of sales (3,269) (2,758) (11,885) (8,757)
Operating expenses (1,892) (1,530) (5,624) (4,870)
Environmental Remediation (171) -- (466) --
General and administrative expenses (660) (649) (2,116) (2,104)
-------- -------- -------- --------
Income from operations 2,059 1,628 11,580 5,626
-------- -------- -------- --------
Other income (expense):
Interest expense (739) (761) (2,314) (2,321)
Interest income 41 74 90 226
-------- -------- -------- --------
(698) (687) (2,224) (2,095)
Income before income taxes 1,361 941 9,356 3,531
Income tax provision -- -- -- (3)
-------- -------- -------- --------
Net income $ 1,361 $ 941 $ 9,356 $ 3,528
======== ======== ======== ========
Allocable to general partners $ 18 $ 13 $ 124 $ 47
Allocable to limited partners 1,343 928 9,232 3,481
-------- -------- -------- --------
$ 1,361 $ 941 $ 9,356 $ 3,528
======== ======== ======== ========
Earnings per unit:
Basic $ 0.30 $ 0.21 $ 2.07 $ 0.78
======== ======== ======== ========
Diluted $ 0.30 $ 0.21 $ 2.04 $ 0.78
======== ======== ======== ========
Weighted average units outstanding:
Basic 4,522 4,518 4,520 4,518
======== ======== ======== ========
Diluted 4,608 4,524 4,588 4,521
======== ======== ======== ========

See accompanying notes to condensed consolidated financial statements.

5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Pope Resources
Nine Months Ended September 30, 2004 and 2003

(Thousands) 2004 2003
-------- ---------
Cash flows provided by operating activities

Net income $ 9,356 $ 3,528
Add back non-cash charges:
Deferred profit 539 2
Depletion 3,740 2,433
Depreciation and amortization 507 495
Cost of land sold 40 200
Change in working capital accounts:
Accounts receivable (287) 378
Contracts receivable 893 1,155
Land held for sale 25 --
Other current assets (890) (134)
Accounts payable (45) (222)
Accrued liabilities 5 (533)
Other current liabilities 90 3
Environmental remediation 280 (275)
Restructuring -- (466)
Other 7 (10)
-------- --------
Net cash flows provided by operating activities 14,260 6,554

Cash flows from investing activities:
Timberland acquisitions (8,922) --
Capital expenditures (2,311) (1,116)
Proceeds from sale of building -- 14
-------- --------
Net cash used in investing activities (11,233) (1,102)
-------- --------
Cash flows from financing activities:
Option exercise 49 --
Minority interest distribution (59) (162)
Repayment of long-term debt (1,979) (1,662)
Unitholder distribution (1,311) (768)
-------- --------
Net cash used in financing activities (3,300) (2,592)
-------- --------
Net increase (decrease) in cash and cash equivalents (273) 2,860
Cash and cash equivalents at beginning of year 10,361 6,627
-------- --------
Cash and cash equivalents at end of the nine-month period $ 10,088 $ 9,487
======== ========
Supplemental disclosure of non-cash transaction:
Capital improvement funded with local
improvement district debt $ -- $ 96
======== ========

See accompanying notes to condensed consolidated financial statements.

6

POPE RESOURCES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2004

1. The condensed consolidated financial statements as of September 30, 2004
and December 31, 2003 and for the three-months (quarter), and nine months
ended September 30, 2004 and 2003 have been prepared by Pope Resources, A
Delaware Limited Partnership ("the Partnership") pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). The
financial information for the quarters and nine months ended September 30,
2004 and 2003 is unaudited, but, in the opinion of management, reflects all
adjustments (consisting only of normal recurring adjustments and accruals)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods. The financial
information as of December 31, 2003, is derived from the Partnership's
audited consolidated financial statements and notes thereto for the year
ended December 31, 2003, and should be read in conjunction with such
financial statements. The results of operations for the quarter and nine
months ended September 30, 2004 are not necessarily indicative of the
results of operations that may be achieved for the entire fiscal year
ending December 31, 2004.

2. The financial statements in the Partnership's 2003 annual report on Form
10-K include a summary of significant accounting policies of the
Partnership and should be read in conjunction with this Form 10-Q.

3. Basic earnings per unit are based on the weighted average number of units
outstanding during the period. Diluted earnings per unit are based on the
weighted average number of units and dilutive unit options outstanding at
the end of the period.

Quarter Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
----- ----- ----- ----
Weighted average units
outstanding (in thousands):
Basic 4,522 4,518 4,520 4,518
Dilutive effect of unit
options 86 6 68 3
----- ----- ----- -----
Diluted 4,608 4,524 4,588 4,521
===== ===== ===== =====

Options to purchase 393,000 units at prices ranging from $9.30 to $27.88
per unit were outstanding as of September 30, 2004. For the computation of
dilutive effect of unit options for the quarter ended September 30, 2004,
93,000 options to purchase units at prices ranging from $21.00 to $27.88
were not included in the calculation because the option exercise prices
were greater than the average market prices of units during the period. For
the computation of dilutive effect of unit options for the nine-month
period ended September 30, 2004, options to purchase, 167,000 units at
prices ranging from $18.50 to $27.88 were not included in the calculation
because the option exercise prices were greater than the average market
price during the period.

Options to purchase 362,000 units at prices ranging from $9.30 to $27.88
were outstanding as of September 30, 2003. For the computation of dilutive
effect of unit options for the quarter ended September 30, 2003, options to
purchase 339,000 units at prices ranging from $12.50 to $27.88 per unit
were not included in the calculation because the option exercise prices
were greater than the weighted average market price for the period. For the
computation of dilutive effect of unit options for the nine-month period
ended September 30, 2003, options to purchase 348,000 units at prices
ranging from $11.55 to $27.88 were not included in the calculation of
diluted earnings per unit because the option exercise prices were greater
than the average market price during the period.

7

4. The Partnership accounts for unit-based compensation in accordance with APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Accordingly,
compensation cost for unit options is measured as the excess, if any, of
the fair value of the Partnership's units at the date of grant over the
amount an employee must pay to acquire the unit.

Unit options granted have an exercise price not less than the fair value of
the Partnership's unit price on the date of the grant. Had compensation
expense for unit option grants been recognized based on the fair value at
the grant date consistent with the Black-Scholes method described in SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Partnership's net
income would have been adjusted to the pro forma amounts indicated below:

Quarter ended Nine months ended
September 30, September 30,
(In thousands except per unit
amounts) 2004 2003 2004 2003
--------- --------- --------- ---------

Net income as reported $ 1,361 $ 941 $ 9,356 $ 3,528

Compensation expense recognized -- -- -- --

Subtract proforma compensation
expense under SFAS 123 (50) (72) (150) (207)
--------- --------- --------- ---------

Proforma net income under SFAS 123 $ 1,311 $ 869 $ 9,206 $ 3,321
========= ========= ========= =========

As reported:
Basic $ 0.30 $ 0.21 $ 2.07 $ 0.78
========= ========= ========= =========
Diluted $ 0.30 $ 0.21 $ 2.04 $ 0.78
========= ========= ========= =========
Proforma net income per unit:
Basic $ 0.29 $ 0.19 $ 2.04 $ 0.74
========= ========= ========= =========
Diluted $ 0.28 $ 0.19 $ 2.01 $ 0.73
========= ========= ========= =========

Options granted to employees during the nine months ended September 30,
2004 and 2003 had fair values of $4.33 and $2.09, respectively. Options
granted to outside Board members ranged in fair value from $3.33 to $6.12
for the nine months ended September 30, 2004 and $1.60 to $2.65 for the
nine months ended September 30, 2003.

8

The fair value of options was calculated using the Black-Scholes
option-pricing model, with the following assumptions:

2004 2003
---------------- ---------------
Expected life 5 years 5 years
Risk free interest rate 4.75% to 3.97% 4.46% to 3.35%
Dividend yield 1.6% to 1.2% 2.1% to 1.6%
Volatility 57% to 46% 44% to 39%

5. Supplemental disclosure of cash flow information: Interest paid amounted to
approximately $760,000 and $769,000 for the quarters ended September 30,
2004 and 2003, respectively. For the nine months ended September 30, 2004
and 2003, interest paid amounted to $2,329,000 and $2,351,000,
respectively.

6. Revenue and operating income by segment for the quarter and nine months
ended September 30, 2004 and 2003, respectively, are as follows:

9

Timberland
Three Months Ended Fee Management &
September 30 (Thousands) Timber Consulting Real Estate Other Consolidated
- ----------------------------------------------------------------------------------------------------------
2004

Revenue $ 7,230 $ 592 $ 368 $ -- $ 8,190
Eliminations (15) (115) (9) -- (139)
-------- ------- ------- ------- --------
Revenue 7,215 477 359 -- 8,051

Cost of sales (3,233) -- (36) -- (3,269)

Operating expenses (1,037) (564) (601) (660) (2,862)
Eliminations 113 24 2 -- 139
-------- ------- ------- ------- --------
Operating expenses (924) (540) (599) (660) (2,723)

Income (loss) from operations 2,960 28 (269) (660) 2,059
Eliminations 98 (91) (7) -- --
-------- ------- ------- ------- --------
Income (loss) from operations $ 3,058 $ (63) $ (276) $ (660) $ 2,059
======== ======= ======= ======= ========

2003
Revenue $ 6,012 $ 474 $ 290 $ -- $ 6,776
Eliminations (18) (121) (72) -- (211)
-------- ------- ------- ------- --------
Revenue 5,994 353 218 -- 6,565

Cost of sales (2,748) -- (10) -- (2,758)

Operating expenses (832) (507) (402) (649) (2,390)
Eliminations 177 32 2 -- 211
-------- ------- ------- ------- --------
Operating expenses (655) (475) (400) (649) (2,179)

Income (loss) from operations 2,432 (33) (122) (649) 1,628
Eliminations 159 (89) (70) -- --
-------- ------- ------- ------- --------
Income (loss) from operations $ 2,591 $ (122) $ (192) $ (649) $ 1,628
======== ======= ======= ======= ========

10

Timberland
Three Months Ended Fee Management &
September 30 (Thousands) Timber Consulting Real Estate Other Consolidated
- ----------------------------------------------------------------------------------------------------------
2004

Revenue $ 28,040 $ 1,323 $ 2,704 $ -- $ 32,067
Eliminations (45) (324) (27) -- (396)
-------- ------- ------- ------- --------
Revenue 27,995 999 2,677 -- 31,671

Cost of sales (11,781) -- (104) -- (11,885)

Operating expenses (2,956) (1,652) (1,878) (2,116) (8,602)
Eliminations 303 87 6 -- 396
-------- ------- ------- ------- --------
Operating expenses (2,653) (1,565) (1,872) (2,116) (8,206)

Income (loss) from operations 13,303 (329) 722 (2,116) 11,580
Eliminations 258 (237) (21) -- --
-------- ------- ------- ------- --------
Income (loss) from operations $ 13,561 $ (566) $ 701 $(2,116) $ 11,580
======== ======= ======= ======= ========

2003
Revenue $ 19,166 $ 1,405 $ 1,304 $ -- $ 21,875
Eliminations (59) (369) (90) -- (518)
-------- ------- ------- ------- --------
Revenue 19,107 1,036 1,214 -- 21,357

Cost of sales (8,524) -- (233) -- (8,757)

Operating expenses (2,582) (1,555) (1,246) (2,109) (7,492)
Eliminations 432 74 7 5 518
-------- ------- ------- ------- --------
Operating expenses (2,150) (1,481) (1,239) (2,104) (6,974)

Income (loss) from operations 8,060 (150) (175) (2,109) 5,626
Eliminations 373 (295) (83) 5 --
-------- ------- ------- ------- --------
Income (loss) from operations $ 8,433 $ (445) $ (258) $(2,104) $ 5,626
======== ======= ======= ======= ========

There were two timberland acquisitions in the first nine months of 2004
resulting in an $8.9 million shift of cash from the segment Other to timberland
and land in the Fee Timber segment

11

ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THIS REPORT CONTAINS A NUMBER OF PROJECTIONS AND STATEMENTS ABOUT OUR EXPECTED
FINANCIAL CONDITION, OPERATING RESULTS, AND BUSINESS PLANS AND OBJECTIVES. THESE
STATEMENTS REFLECT OUR MANAGEMENT'S ESTIMATES BASED ON OUR CURRENT GOALS, IN
LIGHT OF MANAGEMENT'S EXPECTATIONS ABOUT FUTURE DEVELOPMENTS. STATEMENTS ABOUT
EXPECTATIONS AND FUTURE PERFORMANCE ARE "FORWARD LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
FORWARD LOOKING STATEMENTS ARE NON-HISTORICAL STATEMENTS IDENTIFIED BY "EXPECT,"
"BELIEVE," "ANTICIPATE," AND WORDS OF SIMILAR IMPORT. BECAUSE THESE STATEMENTS
DESCRIBE OUR GOALS, OBJECTIVES AND ANTICIPATED PERFORMANCE, THEY ARE INHERENTLY
UNCERTAIN, AND SOME OR ALL OF THE ACTIVITIES, RESULTS, ACTIONS OR CONSEQUENCES
CONTAINED IN THESE STATEMENTS MAY NOT COME TO PASS. ACCORDINGLY, YOU SHOULD NOT
INTERPRET THESE STATEMENTS AS PROMISES THAT WE WILL PERFORM AT A GIVEN LEVEL OR
THAT WE WILL TAKE ANY OR ALL OF THE ACTIONS WE CURRENTLY EXPECT TO TAKE. OUR
FUTURE ACTIONS, AS WELL AS OUR ACTUAL PERFORMANCE, WILL VARY FROM OUR CURRENT
EXPECTATIONS, AND UNDER VARIOUS CIRCUMSTANCES THESE VARIATIONS MAY BE MATERIAL
AND ADVERSE. SOME OF THE FACTORS THAT MAY CAUSE OUR ACTUAL OPERATING RESULTS AND
FINANCIAL CONDITION TO FALL SHORT OF OUR EXPECTATIONS ARE SET FORTH IN THE PART
OF THIS REPORT ENTITLED "RISKS AND UNCERTAINTIES" BELOW AND OTHER FACTORS
DISCUSSED IN OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 2003. OTHER ISSUES THAT MAY HAVE AN ADVERSE AND MATERIAL IMPACT ON OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION INCLUDE ENVIRONMENTAL AND
LAND USE REGULATIONS THAT LIMIT OUR ABILITY TO HARVEST TIMBER AND DEVELOP
PROPERTY AND ECONOMIC CONDITIONS THAT AFFECT CONSUMER DEMAND FOR OUR PRODUCTS
AND THE PRICES WE RECEIVE FOR THEM, AND THOSE OTHER RISKS AND UNCERTAINTIES
DISCUSSED IN OUR OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
FORWARD-LOOKING STATEMENTS IN THIS REPORT ARE ACCURATE AS OF THE DATE OF THE
REPORT, AND WE CANNOT UNDERTAKE TO UPDATE THESE STATEMENTS AS OUR BUSINESS
OPERATIONS AND ENVIRONMENT CHANGE, EXCEPT AS OTHERWISE REQUIRED BY APPLICABLE
FEDERAL SECURITIES LAW.

This discussion should be read in conjunction with the Partnership's
condensed consolidated financial statements and related notes included with this
report.

EXECUTIVE OVERVIEW

Pope Resources, A Delaware Limited Partnership ("we" or the
"Partnership"), was organized in October 1985 as a result of a spin-off by Pope
& Talbot, Inc. ("P&T"). We are engaged in three primary business segments. The
first, and by far most significant, segment in terms of owned assets and
operations is the Fee Timber segment. Operations in this segment consist of
growing timber to be harvested as logs for sale to export and domestic
manufacturers. The second most significant segment in terms of total assets
owned is the development and sale of real estate. Real Estate segment activities
primarily take the form of securing permits and entitlements for unimproved land
and then realizing that land's value by selling large parcels to buyers who will
take the land further up the value chain, either to home buyers or commercial
property operators or lessors. Since these land projects span multiple years,
the Real Estate segment may incur losses for multiple years until a major
project is sold, which then results in operating income. Our third segment,
Timberland Management and Consulting, provides timberland-related services to
third parties. These services may take the form of large-scale timberland
management, establishing a private timberland investment fund operated by an
affiliate of the Partnership, forestry consulting, or acquisition and
disposition services.

12

Management's major opportunity and challenge is to profitably grow our
revenue base. We have added over 46,000 acres, including a 1,300-acre
acquisition that closed in October 2004, over the last three years to our owned
timberland portfolio. Our real estate challenges center around how and when to
"harvest" a parcel of land and capture the optimum value increment through sale.
Regarding our third-party timberland services, we are currently without a
long-term client contract for the first time since 1997 but continue to
diligently seek to secure revenue-producing opportunities for this segment.

RESULTS OF OPERATIONS

The following table reconciles and compares key revenue and cost elements that
determined net income realized for the three-month period ended September 30,
2004 to the comparable period in 2003. In addition to the table's detailed
numeric analysis, the explanatory text that follows the table describes many of
these changes by business segment.

QUARTER TO QUARTER COMPARISONS
(Amounts in $000's except per unit data)

Q3 2004 vs. Q3 2003

Total Per Unit

Net income:
3rd Quarter 2004 $ 1,361 $0.30
3rd Quarter 2003 941 0.21
------- -----
Variance $ 420 $0.09
======= =====
Detail of earnings variance:
Fee Timber
Log price realizations (A) $ 735 $0.16
Log volumes (B) 367 0.08
Timberland sale income -- --
Depletion (196) (0.04)
Other Fee Timber (439) (0.09)
Timberland Management & Consulting --
Management fee changes 176 0.04
Other Timberland Mgmnt & Consulting (117) (0.03)
Real Estate --
Environmental remediation reserve (171) (0.04)
Other Real Estate 87 0.02
General & administrative costs (11) --
Interest expense 22 --
Other (minority interest and interest inc.) (33) (0.01)
------- -----
Total change in earnings $ 420 $0.09
======= =====

(A) Price variance allocated based on changes in price using the higher period
volume.

(B) Volume variance allocated based on change in sales volume and the average
log sales price for higher margin less variance in log production costs.

13

FEE TIMBER

Fee Timber revenue is earned primarily from the harvest and sale of
logs from the Partnership's 116,000 acres of fee timberland located in western
Washington and, to a lesser extent, from the sale of gravel and leases of
cellular communication tower sites on our properties. Revenue from the sale of
timberland tracts will also appear periodically in results for this segment.
Property that the Partnership is using for timberland that is sold for use as
development property is accounted for in our Real Estate segment. Our Fee Timber
revenue is driven primarily by the volume of timber harvested, which we
ordinarily express in terms of millions of board feet, or "MMBF", and by the
average prices realized on log sales, which we express in dollars per thousand
board feet, or "MBF". In October 2004 we closed on a 1,300-acre timberland
acquisition for $12.3 million. This acquisition is primarily merchantable timber
that will be harvested over the next few years.

When discussing our Fee Timber operations, current results are compared
to both the last completed quarter and the comparable quarter from the prior
year. Both of these comparisons are made to help the reader gain an
understanding of the trends in market prices and harvest volumes that affect Fee
Timber results of operations. When discussing other segment results, we discuss
current quarter performance only in comparison to the prior year's comparable
quarter and not in relation to the immediately preceding quarter. This expanded
trend analysis for our Fee Timber segment reflects the significance of this
segment to our overall results and the impact that market price and harvest
volume trends have on Fee Timber and overall Partnership income. Revenue and
operating income for the Fee Timber segment for the quarters ended September 30,
2004, June 30, 2004 and September 30, 2003 are as follows:

- ------------------------------------------------------------------------------------------------------------------

MINERAL, CELL TOTAL FEE TIMBER OPERATING
QUARTER ENDED: LOG SALES TOWER & OTHER REVENUE INCOME
- ------------------------------------------------------------------------------------------------------------------

September 30, 2004 $ 6.8 million $ 0.4 million $ 7.2 million $ 3.1 million
June 30, 2004 9.1 million 0.3 million 9.4 million 4.4 million
September 30, 2003 5.5 million 0.5 million 6.0 million 2.6 million
- ------------------------------------------------------------------------------------------------------------------

Fluctuations in total Fee Timber revenue and operating income between Quarter 3
2004 and Quarter 2 2004, and Quarter 3 2004 and Quarter 3 2003, are as follows:

- ---------------------------------------------------------------------
QUARTERLY CHANGES TOTAL FEE TIMBER REVENUE OPERATING INCOME
- ---------------------------------------------------------------------
Q-3 2004 and Q-2 2004 $ (2.2) million $ (1.3) million
- ---------------------------------------------------------------------
Q-3 2004 and Q-3 2003 1.2 million 0.5 million
- ---------------------------------------------------------------------

14

The decrease in revenue and operating income for the current quarter
from the quarter ended June 30, 2004 is due to a 4.2 MMBF decrease in harvest
volume for the quarter. The decline in harvest volume resulted from our decision
to front-load harvest into the first half of 2004 to take advantage of strong
export and domestic log markets. By contrast, both revenue and operating income
for Fee Timber in the third quarter of 2004 increased relative to the comparable
period in 2003. This increase in revenue and operating income is due to harvest
volumes that were 1.3 MMBF higher than last year's comparable quarter combined
with an improvement in average price realized of $61 per MBF or 13%. The
increase in harvest volume is attributable to the January 2004 acquisition of
3,300 acres from Plum Creek Timber Company that enabled us to increase our
annual harvest. As a result of three 2004 timberland acquisitions, all of which
contained varying, but significant, components of merchantable timber, our
annual harvest is expected to be over 60 MMBF in 2004 and 79 MMBF in 2005. Cash
flow resulting from this incremental harvest on these acquired lands will serve
to offset a large portion of the purchase price for each of these transactions.

The Partnership harvested the following timber and realized the
following average log prices from its fee timberlands for the quarters ended
September 30, 2004, June 30, 2004, and September 30, 2003:

QUARTER ENDED
30-SEPTEMBER-04 30-JUNE-04 30-SEPTEMBER-03
--------------------- ---------------- ----------------------
LOG SALE VOLUMES (MBF):

Export 550 1,558 947
Domestic 9,236 12,529 8,880
Pulp 2,807 2,786 1,814
Hardwoods 716 682 408
--------------------- ---------------- ----------------------
Total 13,309 17,555 12,049
===================== ================ ======================

QUARTER ENDED
AVERAGE PRICE REALIZATIONS (PER MBF): 30-SEPTEMBER-04 30-JUNE-04 30-SEPTEMBER-03

Export $ 695 $ 628 $ 542
Domestic 591 562 492
Pulp 226 234 208
Hardwoods 564 582 559
Overall 517 517 456

We sell our logs to domestic mills and to log brokers that resell our
logs to Japanese customers and, when export conditions allow, to the Korean and
Chinese log markets. Prices paid by these log brokers are dependent upon the
export market for logs but are generally purchased at prices above those paid by
domestic customers. In the current quarter, realized export prices increased 28%
from the comparable quarter in 2003, and 11% from the second quarter of 2004.
The increase in export prices realized from the second quarter of 2004 reflects
a higher quality export log mix and a slight decline in export market conditions
relative to the second quarter of 2004.

The amount of log volume sold to the export market as a percentage of
overall volume has decreased to 4% in the third quarter of 2004 from 9% in the
second quarter of 2004 and 8% for the comparable period in the prior year. This
drop in export percentage results from the harvest unit selection process.
Certain harvest units are projected before cutting to have a relatively large
component of export-quality wood. We moved these units to the front of our
annual harvest queue to take advantage of what appeared to be a short-term bump
in export pricing. The export market did indeed soften as the year progressed,
thus our harvest unit planning in 2004 appears to have had a positive impact on
overall price realizations.

15

Domestic log prices for the quarter ended September 30, 2004 were 5%
and 20% higher than the second quarter of 2004 and the third quarter of 2003,
respectively. This improvement in domestic log prices is attributed to a strong
housing market in the U.S. combined with a significant decline in logs imported
from Canada. The decline in Canadian log volume is due to several factors.
First, the unusually hot dry summer of 2003 in British Columbia resulted in a
decline in timber harvest. This was followed in late 2003 by a labor strike in
British Columbia. These two conditions led to reduced log inventories in western
Canada. Finally, hot and dry conditions in western Canada have continued into
2004, resulting in Canadian mills consuming a higher proportion of the timber
being harvested in Canada. These same weather conditions that have restricted
logging in western Canada have been present to a degree in the U.S. Pacific
Northwest. Our Hood Canal tree farm is in a marine-influenced climate, which
allows us to continue to harvest when many other tree farms that are further
inland are faced with harvest restrictions. All of these factors have resulted
in a relatively strong domestic market for logs during the spring and summer of
2004. The confluence of events that have made the strong domestic market for
logs possible in 2004 appear to be waning. Management is forecasting a weakening
of the domestic log market in 2005.

Pulp log volumes were 2.8 MMBF, 2.8 MMBF, and 1.8 MMBF for the quarters
ended September 30, 2004, June 30, 2004, and September 30, 2003, respectively.
The average price realized per MBF on pulp logs was $226, $234, and $208, for
the quarters ended September 30, 2004, June 30, 2004 and September 30, 2003,
respectively. Pulp log prices have declined 3% from the second quarter of 2004
due to higher chip inventories in local pulp mills. Wood chips are a byproduct
of lumber mills, which have had a very good year in 2004 and as a result are
producing more wood chips, which have in-turn, decreased the demand for pulp
logs.

Revenue and operating income for the Fee Timber segment for the nine
months ended September 30, 2004, and 2003 are as follows:

- ------------------------------------------------------------------------------------------------------------------
MINERAL, CELL TOTAL FEE TIMBER
NINE MONTHS ENDED: LOG SALES TOWER & OTHER REVENUE OPERATING INCOME
- ------------------------------------------------------------------------------------------------------------------

September 30, 2004 $ 26.9 million $ 1.1 million $ 28.0 million $ 13.6 million
September 30, 2003 18.1 million 1.0 million 19.1 million 8.4 million
- ------------------------------------------------------------------------------------------------------------------

On a year-to-date basis, revenue and operating income increased $8.9
million and $5.2 million, respectively, from September 30, 2003 to September 30,
2004. Both increases are due to the increased volume of log sales from the
January timberland acquisition and an increase in average log prices. Harvest
volume has increased 13.3 MMBF, or 35%, to 51.2 MMBF from 37.9 MMBF in the prior
year. Average log prices have increased $48 per MBF, or 10%, to $526 per MBF
from $478 per MBF in prior year.

The Partnership harvested the following timber and realized the
following average log prices from its fee timberlands for the nine months ended
September 30, 2004 and 2003:

16

30-SEPTEMBER-04 30-SEPTEMBER-03
---------------- ---------------
LOG SALE VOLUMES (MBF):

Export 7,732 3,580
Domestic 33,455 27,106
Pulp 8,226 5,562
Hardwoods 1,803 1,642
---------------- --------------
Total 51,216 37,890
================ ==============

AVERAGE PRICE REALIZATIONS (PER MBF): 30-SEPTEMBER-04 30-SEPTEMBER-03
---------------- ---------------
Export $ 655 $ 569
Domestic 568 516
Pulp 227 213
Hardwoods 570 547
Overall 526 478

Year-to-date export prices have increased 15% above prices realized
during the comparable period in the prior year. The cyclical improvement in the
export market is a welcome change from the last few years, but should be taken
in context with the structural changes that management continues to believe have
changed the long-term log export market. Logs from the Pacific Northwest region
of the United States continue to face competition in Asia from lower valued log
species supplied by other countries. Additionally, greater use of alternative
building materials and engineered wood products have diminished the price
premium we have historically been able to obtain for Douglas-fir logs sold to
the export market. Offsetting this downward pressure on log prices, the weakened
state of the U.S. dollar relative to the Japanese yen has helped improve the
competitiveness of our logs in certain markets this year. A modest economic
recovery in Japan has also contributed to stronger export log pricing this year.

Domestic log prices for the nine months ended September 30, 2004 are 10% above
those experiences for the comparable period in prior year. This increase in
domestic log prices is attributed to the decline in volume being imported from
Canada to the United States combined with relatively strong housing starts.
Lumber prices have begun to decline, which has had a negative impact on log
prices. Log prices have begun to decline in the last quarter of 2004 and are
expected to remain flat or decline in 2005.

For the nine-months ended September 30, 2004 and 2003 pulp log volumes
were 8.2 MMBF and 5.6 MMBF, respectively. The increase in pulp log volumes is
attributable to the overall increase in timber harvested. The factors sighted
above that have resulted in a weakening of the pulp market in the third quarter
of 2004 did not have as large an influence on pulp prices in the first half of
2004. As a result, pulp log price realizations for the nine months ended
September 30, 2004 and 2003 were $227 and $213 reflecting the overall
improvement in log prices in 2004 over 2003.

COST OF SALES

Cost of sales for the Fee Timber segment consists of harvest costs and
depletion expense. Harvest costs represent the direct costs incurred by us to
manufacture trees into logs and deliver those logs to their point of sale.
Depletion expense represents the cost of acquiring or growing the timber
harvested and is calculated using a depletion rate developed from an
accumulation of the cost of the timber, divided by the estimated volume of
merchantable timber available for harvest. The depletion rate is then applied to
the volume harvested to calculate depletion expense. Fee Timber cost of sales
for the quarters ended September 30, 2004, June 30, 2004, and September 30,
2003, respectively, were:

17

- --------------------------------------------------------------------------------------------------------
HARVEST AND HAUL
QUARTER ENDED: COSTS DEPLETION EXPENSE TOTAL
- --------------------------------------------------------------------------------------------------------

September 30, 2004 $ 2.2 million $ 1.0 million $ 3.2 million
June 30, 2004 2.8 million 1.3 million 4.1 million
September 30, 2003 1.9 million 0.8 million 2.7 million
- --------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------
HARVEST AND HAUL DEPLETION EXPENSE PER
QUARTER ENDED: COSTS PER MBF MBF TOTAL
- --------------------------------------------------------------------------------------------------------
September 30, 2004 $ 171 $ 72 $ 243
June 30, 2004 160 72 232
September 30, 2003 164 64 228
- --------------------------------------------------------------------------------------------------------

Harvest and haul costs, depletion expense, and total cost of sales have
increased in the third quarter of 2004 relative to the comparable period in 2003
and decreased relative to the second quarter of 2004. These changes are
explained primarily by changes in harvest volume. Harvest costs vary based upon
the physical site characteristics of acres harvested during the year. For
example, sites that are not readily accessible, or are located on a steep
hillside, are more expensive to harvest. Furthermore, haul costs vary based upon
the distance between the harvest area and the mill customer's location. For the
quarter ended September 30, 2004, harvest costs per MBF have increased relative
to the second quarter of 2004 due to longer haul distances to customer locations
and higher fuel costs. We did not begin to experience the impact of this
increase to fuel costs until the middle of 2004. In addition, the units
harvested during the third quarter from the Hood Canal tree farm were located on
steeper terrain relative to those harvested in the second quarter, thus
increasing the average cost to harvest.

The depletion expense rate applied to harvest volume is calculated
annually in January and does not normally change during the year. Depletion
expense per MBF has increased from $64 to $72, or 13%, in 2004 relative to 2003
due to the January 2004 timberland acquisition. Our depletion policy takes into
account a number of factors (i.e., age class distribution, species mix,
geography, and similarity of market outlets) in determining whether to add an
acquisition to a pre-existing depletion cost pool or to instead create a
separate stand-alone cost pool. Based on these factors, the January 2004
timberland acquisition was added to the pre-existing cost pool that includes our
Hood Canal and Columbia tree farms. By contrast, the depletable costs associated
with the above-referenced October 2004 timberland acquisition and a smaller
acquisition closed in August 2004 will be allocated to a separate cost pool.
This is due primarily to the fact that both of these transactions, relative to
the rest of our aggregate fee timberland portfolio, have a substantially higher
proportion of mature age classes containing merchantable timber. This separate
depletion pool is expected to result in an increase in our depletion rate for
timber harvested in the fourth quarter of 2004, as well as in 2005 and 2006.

Fee Timber cost of sales for the nine months ended September 30, 2004
and 2003 were:

- --------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED: HARVEST AND HAUL TOTAL COST OF
COSTS DEPLETION SALES
- --------------------------------------------------------------------------------------------------------

September 30, 2004 $ 8.1 million $ 3.7 million $ 11.8 million
September 30, 2003 6.1 million 2.4 million 8.5 million
- --------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------
HARVEST AND HAUL DEPLETION EXPENSE PER TOTAL COST OF
NINE MONTHS ENDED: COSTS PER MBF MBF SALES
- --------------------------------------------------------------------------------------------------------
September 30, 2004 $ 158 $ 72 $ 230
September 30, 2003 161 64 225
- --------------------------------------------------------------------------------------------------------

18

Cost of sales has increased $3.3 million for the nine months ended
September 30, 2004 from the comparable period in 2003. This increase in cost of
sales is attributable to the 35% increase in harvest volume. The decrease in
harvest and haul costs per MBF is due to the types of stands that have been
harvested in 2004. When compared to the same period in 2003, the stands we have
been harvesting in 2004 have been in locations that are less costly to operate.
Harvest and haul costs per MBF are expected to increase in 2005 as the current
harvest plan includes a number of harvest units that are expected to be more
costly to harvest than those harvested in 2004.

OPERATING EXPENSES

Fee Timber operating expenses for the quarters ended September 30,
2004, June 30, 2004 and September 30, 2003 were $924,000, $931,000, and
$655,000, respectively. Operating expenses on a quarterly basis vary depending
primarily on the timing of road maintenance and silviculture projects. For
example, the increase in operating expenses between the quarter ended September
30, 2004 and September 30, 2003 is due to timing of chemical site preparation
and precommercial thinning projects. Fee Timber operating expenses for the nine
months ended September 30, 2004 and 2003 were $2.7 million and $2.2 million,
respectively.

The increase in year-to-date operating expenses compared to last year
is due primarily to an increase in the cost of road maintenance following
Washington State's new road maintenance and abandonment rules. The new road
maintenance and abandonment rules are expected to result in an increase in road
maintenance costs for the next two to three years.

TIMBERLAND MANAGEMENT & CONSULTING

Revenue and operating loss for the Timberland Management & Consulting
segment for the quarters and nine months ended September 30, 2004 and 2003 were
as follows:

- --------------------------------------------------------------------
QUARTER ENDED:
REVENUE OPERATING LOSS
- -------------------------------------------------------------------
September 30, 2004 $ 0.5 million $ 0.1 million
September 30, 2003 0.4 million 0.1 million
- -------------------------------------------------------------------

- -------------------------------------------------------------------
NINE MONTHS ENDED:
REVENUE OPERATING LOSS
- -------------------------------------------------------------------
September 30, 2004 $ 1.0 million $ 0.6 million
September 30, 2003 1.0 million 0.4 million
- -------------------------------------------------------------------

Revenue for the quarter ended September 30, 2004 was $124,000 higher
than the comparable period in 2003. Operating loss for the current quarter was
$59,000 lower than the comparable period in 2003. On a year-to-date basis,
revenue has decreased $37,000 and operating loss increased $121,000 from the
comparable period in the prior year. In December 2003 we completed a management
and disposition project, which has resulted in the decline in revenue and
increase in operating loss from the prior year's year to date results.
Management's focus on signing a new long-term management agreement and securing
equity capital for the launch of a private equity timber fund has also
contributed to the higher operating loss in 2004.

19

OPERATING EXPENSES

Timberland Management & Consulting operating expenses for the quarters
ended September 30, 2004 and 2003 were $540,000 and $475,000, respectively. The
increase in current quarter operating expenses over the comparable period in the
prior year is due to an increase in employee related costs. On a year-to-date
basis, operating expenses for the nine months ended September 30, 2004 and 2003
were $1.6 million and $1.5 million, respectively. Operating expenses were higher
in 2004 based primarily on a $70,000 bad debt expense in the first quarter of
2004 associated with the write-down of a receivable from a former customer of
our closed timberland consulting operation in British Columbia.

REAL ESTATE

The Partnership's Real Estate segment consists primarily of residential
and commercial property rents and of revenue from the sale of land to developers
or investors. The Partnership's real estate holdings are located in Pierce,
Kitsap, and Jefferson Counties in Washington State.

Revenue and operating income (loss) for the Real Estate segment for the
quarters and nine months ended September 30, 2004 and 2003 are as follows:

- -----------------------------------------------------------------------
QUARTER ENDED: REVENUE OPERATING LOSS
- -----------------------------------------------------------------------
September 30, 2004 $ 0.4 million $ 0.3 million
September 30, 2003 0.2 million 0.2 million
- -----------------------------------------------------------------------

- -----------------------------------------------------------------------
NINE MONTHS ENDED: REVENUE OPERATING
INCOME/(LOSS)
- -----------------------------------------------------------------------
September 30, 2004 $ 2.7 million $ 0.7 million
September 30, 2003 1.2 million (0.3) million
- -----------------------------------------------------------------------

Current quarter revenue includes $130,000 of sales from a residential
lot subdivision on a portion of the Columbia tree farm as well as lease revenue
from the Port Gamble townsite. On a year to date basis, revenue includes $1.9
million from a 426-acre sale to Kitsap County for a regional park in Kingston.
Operating expenses include costs incurred while management pursues zoning and
development entitlements to maximize value from the Partnership's 2,600-acre
portfolio of land investments in the Real Estate segment and environmental
remediation charges resulting from remediation activities at the Port Gamble
townsite. The current status of these pursuits is described below.

We are working on plans and permits for a water tank and road
improvements to the commercial portion of our development property in Gig
Harbor, Washington. We are currently negotiating terms of sale with Costco for
17 acres and Northwest Capital Investors for 1.7 acres. We do not expect either
of these transactions to close until 2006. We also have signed a purchase and
sale agreement with a developer to sell 205 acres of the 248-acre Hansville
property for $1.5 million. This portion of the Hansville property, also
identified by its plat name of "Homestead," has preliminary plat approval for 89
residential lots. We expect to close on this transaction in the fourth quarter
of 2004.

Separately, we have obtained preliminary approvals for several
large-lot residential subdivisions that we have started marketing. These
large-lot subdivisions reflect an emergent strategy for conversion of marginal
timberland into near-term cash where the realizable per acre real estate values
are sufficiently in excess of timberland values.

20

COST OF SALES

Real Estate cost of sales for the quarters ended September 30, 2004 and
2003 were $36,000 and $10,000, respectively. For the nine months ended September
30, 2004 and 2003 cost of sales were $104,000 and $233,000, respectively. Cost
of sales during the current quarter represents cost basis on the lots sold from
the subdivision located on a portion of the Columbia tree farm. On a
year-to-date basis, cost of sales captures not only the aforementioned basis of
subdivision lots but also represents the Partnership's cost basis of the
426-acre sale to Kitsap County. The property sold in this latter transaction was
raw acreage with a relatively low cost basis. For tax purposes, a portion of the
gain realized on this sale to Kitsap County was deferred as the result of
utilizing a reverse like-kind exchange strategy in connection with our January
2004 timberland purchase. Cost of sales in the comparable period in 2003
represented basis on a plat sale in Everett, Washington. The basis in the sale
completed in 2003 was higher due to the cost of platting the property.

OPERATING EXPENSES

Operating expenses in the Real Estate segment include employee and
professional consultant costs incurred as management works to secure the
entitlements necessary to add value to our portfolio of development properties
as well as the cost of environmental remediation charges and operating expenses
at the Port Gamble townsite. Real Estate operating expenses for the quarters
ended September 30, 2004 and 2003 were $599,000 and $400,000, respectively. For
the nine-month periods ended September 30, 2004 and 2003, operating expenses
were $1.9 million and $1.2 million, respectively. Operating expenses include
charges for environmental remediation at the Port Gamble townsite of $171,000 in
the current quarter and $466,000 on a year to date basis, which are discussed in
more detail below. The increase in operating expenses on a year to date basis
are due to both the environmental remediation charge and repairs and maintenance
costs at the Port Gamble townsite.

ENVIRONMENTAL REMEDIATION

Following remediation efforts performed in the third quarter of 2004,
management asked its environmental remediation consultant to update its estimate
of costs to complete the remediation project in and around the townsite of Port
Gamble. These experts informed management that the cost to complete the
remediation project at Port Gamble would be between $572,000 and $654,000. The
experts also informed management that no single estimate within that range has a
higher likelihood of representing actual results than another. Consistent with
Generally Accepted Accounting Principles, we recorded a $171,000 charge in
September 2004 to bring the liability to the low point of the range provided.
The environmental liability at September 30, 2004 includes $555,000 that the
Partnership expects to expend in the next 12 months and $17,000 thereafter.
Environmental remediation charges incurred in 2004 stem from the discovery in
the second quarter of 2004 of higher than anticipated levels of contamination at
the millsite during routine monitoring following the remediation activities
completed in 2002. As a result of this discovery, management's environmental
remediation experts made their best estimate of the cost to complete the
remediation project. This estimate was used to calculate the remediation charge
incurred in the second quarter of 2004. While no additional contamination was
discovered in the third quarter of 2004, management asked its remediation
experts to update their estimate of costs to complete the project, resulting in
the additional charge taken in the third quarter.

Port Gamble is a historic town that was owned by Pope & Talbot (P&T)
until 1985 when the townsite and other assets were spun off into the
Partnership. The townsite included a lumber mill that operated until 1995 and
was dismantled by the end of 1996. P&T continued to lease the millsite until
January 2002, when a settlement agreement was signed between the Partnership and
P&T that divided the responsibility for paying for environmental remediation
costs in Port Gamble.

21

Activity in the environmental remediation liability is detailed as
follows:

BALANCES AT THE ADDITIONS EXPENDITURES BALANCES AT
BEGINNING OF THE TO FOR THE END OF
PERIOD ACCRUAL REMEDIATION PERIOD
------------------------------------------------------------

Year Ended December 31, 2000 $ 120,000 $1,956,000 $ 206,000 $1,870,000
Year Ended December 31, 2001 1,870,000 -- 461,000 1,409,000
Year Ended December 31, 2002 1,409,000 730,000 1,510,000 629,000
Year Ended December 31, 2003 629,000 -- 337,000 292,000
Quarter ended March 31, 2004 292,000 -- 9,000 283,000
Quarter ended June 30, 2004 283,000 295,000 90,000 488,000
Quarter ended September 30, 2004 488,000 171,000 87,000 572,000

GENERAL AND ADMINISTRATIVE (G&A)

General and administrative expenses for the quarters ended September
30, 2004 and 2003 were $660,000 and $649,000, respectively. For the nine months
ended September 30, 2004 and 2003, general and administrative expenses were $2.1
million in both periods. The Partnership is projecting G&A expenses for 2004 to
approximate $3.0 million.

INTEREST INCOME AND EXPENSE

Interest income for the quarter ended September 30, 2004 declined to
$41,000 from $74,000 at September 30, 2003. For the nine-month period interest
income declined to $90,000 as of September 30, 2004 from $226,000 at September
30, 2003. The decline in interest income is due to receipt of payment on the
balance of the note receivable from the purchaser of the Port Ludlow resort
operations, sold in 2001. This note was paid off in March 2004.

Interest expense for the three-month period ended September 30, 2004
and 2003 was $739,000 and $761,000, respectively. For the nine-month period,
interest expense totaled $2.3 million as of September 30, 2004 and 2003. The
Partnership's debt consists primarily of mortgage debt with a fixed interest
rate. The decrease in interest expense in the third quarter of 2004 is due to
scheduled annual principal payments on the mortgage. In the second quarter of
2004 the Partnership was required to complete a "make-whole" payment due the
mortgage lender as the result of an unscheduled $347,000 prepayment on the
Partnership's timberland mortgage attributable to the land sale to Kitsap
County. The land sold in this transaction was included as collateral on the
Partnership's timberland mortgage. Sale of that property resulted in a required
principal payment and the "make whole" payment.

INCOME TAX

Pope Resources is a limited partnership and is therefore not subject to
corporate income tax. Taxable income/loss is reported to unitholders each year
on a Form K-1 for inclusion in each unitholder's tax return. Pope Resources does
have subsidiaries that are corporations and are subject to income tax.

22

In 2004 we have recorded a valuation allowance for the tax asset
created from the losses incurred in our taxable subsidiaries. As a result there
is no income tax provision in 2004. The valuation allowance recorded in 2004 was
based upon current projections of net income in these subsidiaries. As of
September 30, 2004 the Partnership has a deferred tax asset of $1.0 million
resulting from the liquidation of a Canadian entity with accumulated net
operating losses in 2002.

SUPPLEMENTAL SEGMENT INFORMATION

The following table provides comparative operating information for the
Partnership's segments:

SEGMENT INFORMATION
(all amounts in $000's)

Three months ended Sept.30, Nine months ended Sept. 30,
2004 2003 2004 2003
Revenues:

Fee Timber $ 7,215 $ 5,994 $ 27,995 $ 19,107
Timberland Management & Consulting (TM&C) 477 353 999 1,036
Real Estate 359 218 2,677 1,214
-------- -------- -------- --------
Total $ 8,051 $ 6,565 $ 31,671 $ 21,357
======== ======== ======== ========
EBITDDA:
Fee Timber $ 4,055 $ 3,398 $ 17,359 $ 10,959
TM&C (41) (106) (500) (395)
Real Estate (246) (169) 815 (196)
General & administrative and minority interest (569) (550) (1,847) (1,814)
-------- -------- -------- --------
Total $ 3,199 $ 2,573 $ 15,827 $ 8,554
-------- -------- -------- --------
Depreciation, depletion and amortization:
Fee Timber $ 997 $ 807 $ 3,798 $ 2,526
TM&C 22 16 66 50
Real Estate 30 23 114 62
General & administrative 91 99 269 290
-------- -------- -------- --------
Total $ 1,140 $ 945 $ 4,247 $ 2,928
======== ======== ======== ========
Operating income/(loss):
Fee Timber $ 3,058 $ 2,591 $ 13,561 $ 8,433
TM&C (63) (122) (566) (445)
Real Estate (276) (192) 701 (258)
General & administrative (660) (649) (2,116) (2,104)
-------- -------- -------- --------
Total $ 2,059 $ 1,628 $ 11,580 $ 5,626
======== ======== ======== ========

23

RECONCILIATION BETWEEN NET INCOME AND EBITDDA
(all amounts in $000's)

Three months ended
30-Sep-04 30-Sep-03 30-Jun-04

Net income $ 1,361 $ 941 $ 3,997
Added back:
Interest, net 698 687 776
Depletion 975 779 1,294
Depreciation and amortization 165 166 174
Income tax expense -- -- --
Less:
Income tax benefit -- -- --
---------- ---------- -------
EBITDDA $ 3,199 $ 2,573 $ 6,241
========== ========== =======

RECONCILIATION BETWEEN CASH FROM OPERATIONS AND EBITDDA
(all amounts in $000's)

Three months ended
30-Sep-04 30-Sep-03 30-Jun-04

Cash from operations $ 2,763 $ 2,647 $ 7,272
Added back:
Change in working capital 237 --
Interest 698 687 776
Deferred profit -- 26 33
Income tax expense -- -- -
Other -- -- -
Less:
Change in working capital -- (587) (1,834)
Deferred profit (465) -- --
Income tax benefit -- --
Cost of land sold (36) (200) --
Other 2 -- (6)
------------ ---------- ----------
EBITDDA $ 3,199 $ 2,573 $ 6,241
============ ========== ==========

* EBITDDA, a non-GAAP measure is defined as earnings before interest,
income tax, depletion, depreciation, and amortization. The Company considers
earnings (net income or loss) before interest expense, income taxes,
depreciation, depletion and amortization (EBITDDA) to be a relevant and
meaningful indicator of liquidity and earnings performance commonly used by
investors, financial analysts and others in evaluating companies in its industry
and, as such, has provided this information in addition to the generally
accepted accounting principle-based presentation of net income or loss.

ANALYSIS OF OPERATING INCOME

The following table sets forth expenses as a percentage of revenue for
the quarters and nine month periods ended September 30, 2004 and 2003:

QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ---------------------------
2004 2003 2004 2003
---------- ------------ ------------- -------------

Revenue 100% 100% 100% 100%
Cost of sales 41 42 37 41
Operating expenses 23 23 18 23
Environmental remediation 2 - 1 -
General, and
administrative expenses 8 10 7 10
---------- ------------ ------------- -------------
Operating income 26% 25% 37% 26%
========== ============ ============= =============

24

Cost of sales includes the cost of purchasing and producing tangible
goods for sale. Cost of sales for the Partnership will fluctuate due to the mix
of revenue between the sale of tangible goods and revenue generated from
providing services. Cost of sales as a percentage of revenue has decreased on
both a quarter-to-date and year-to-date basis from the comparable period in the
prior year. The small decrease in cost of sales as a percentage of revenue for
the quarter results from the increase in average price realized on timber sold.
Year-to-date results reflect the impact of a land sale recorded in the Real
Estate segment during the second quarter. This land sale consisted of $1.9
million of revenue and $55k of basis resulting in a decline in cost of sales as
a percentage of revenue. The land sold was timberland with a relatively low
basis resulting in a very high gross margin on the sale.

Operating expenses consist of salary and other costs directly
attributable to revenue-generating activities. As a percentage of revenue,
operating expenses as a percent of revenue have not changed from prior year. On
a year-to-date basis, operating expenses as a percentage of revenue decreased 5%
to 18% from 23%. The decrease in operating expenses as a percentage of revenue
is due to the aforementioned land sale, which contributed $1.9 million of
revenue with no change in operating expenses.

G&A expenses as a percentage of revenue have declined on both a
quarter-to-date and year-to-date basis. General and administrative expenses on a
raw dollar basis remained consistent between the two periods while revenue
increased.

LIQUIDITY AND CAPITAL RESOURCES

We ordinarily finance our operations using funds from operations and,
where appropriate in management's assessment, lender lines of credit. Funds
generated from operations and externally through financing are expected to
provide the required resources for the Partnership's capital expenditures for
the foreseeable future and the Partnership expects funds to be available from
its existing lenders on substantially the same terms and conditions as have been
available previously. Management completed a timberland acquisition in October
of 2004. The $12.3 million purchase price on this acquisition was funded through
a combination of cash on hand and short-term financing. We expect the short-term
financing to be paid off by early 2005.

The Partnership's debt-to-total-capitalization ratio was 40% at
September 30, 2004. This represents a decline from December 31, 2003, at which
time we had a debt-to-total-capitalization ratio of 45%. Based upon current
plans, the debt-to-total-capitalization ratio is expected to continue its
decline as we make our regularly scheduled mortgage payments and net income adds
to partners' capital.

We are currently seeking investment capital for ORM Timber Fund I, LP.
Pope Resources will co-invest 10% of the fund's projected $50 million of
third-party equity capital, or approximately $5 million. ORMLLC, an indirect
subsidiary of the Partnership and general partner of the ORM Timber Fund, is
expected to earn asset management and acquisition fees from the fund.

25

Management's current plan is to harvest over 9 MMBF of timber over the
remaining three months of 2004 for a total fiscal 2004 harvest in excess of 60
MMBF. Since harvest plans are based on demand and pricing, actual harvesting may
vary subject to management's ongoing review.

In the nine months ended September 30, 2004, cash generated by
operating activities was $14.3 million, which represents a $7.7 million increase
over the prior year. This increase results primarily from the increase in
harvest volume to 51.2 MMBF from 37.9 MMBF for the comparable period in the
prior year. Overall cash and cash equivalents decreased $273,000 from December
31, 2003. Cash used in investing activities for the nine months ended September
30, 2004 was $11.2 million and consisted of $8.9 million for timberland
acquisitions, $1.1 million in capitalized costs for the Gig Harbor project,
$443,000 of reforestation expenditures, $415,000 of capital improvements to
buildings and a small land purchase at the Port Gamble townsite, and $326,000 in
other capital improvements. Cash used in financing activities included mortgage
and local improvement district principal payments of $2.0 million, three
unitholder distributions totaling $1.3 million and a minority interest payment
of $59,000.

In the nine months ended September 30, 2003, cash generated by
operating activities was $6.6 million and overall cash and cash equivalents
increased $2.9 million from December 31, 2002. Cash used in investing activities
for the nine months ended September 30, 2003 was $1.1 million and consisted of
reforestation expenditures, capital improvements to buildings at the Port Gamble
townsite, and capitalized expenditures for the Gig Harbor property. Cash used in
financing activities included the following: a mortgage principal payment of
$1.6 million; Local Improvement District principal payments of $64,000; three
unitholder distributions totaling $768,000; and a minority interest payment of
$162,000.

SEASONALITY

FEE TIMBER. The Partnership owns 116,000 acres of timberland in
Washington State. Our timber acreage is concentrated in two non-contiguous tree
farms: the 72,000-acre Hood Canal tree farm located in Kitsap, Jefferson, and
Mason Counties on the eastern side of Washington's Olympic Peninsula; and the
44,000-acre Columbia tree farm located in Cowlitz, Clark, Lewis, Skamania, and
Pierce counties on the western side of Washington's Cascade mountain range.

The Hood Canal tree farm is concentrated at low elevations, which
permits us to harvest trees year-round. Generally, we concentrate our harvests
from this tree farm in the winter and spring when supply, and thus competition,
is typically lower and, accordingly, when we can expect to receive higher
prices. With the acquisition of the Columbia tree farm in 2001, management
expected a decrease in the seasonality of Fee Timber operations as the Columbia
tree farm is at higher elevations where harvest activities are most feasible in
the middle nine months of the year. In practice, over the last few years our
harvest has tended to be more front-loaded as log prices have been relatively
strong in the first half of the year, leading management to weight the harvest
plans toward the first nine months. In future periods, management expects
quarterly harvest volume to be affected by both local market conditions for logs
and weather conditions.

TIMBERLAND MANAGEMENT & CONSULTING. Timberland Management &
Consulting operations are not significantly seasonal.

REAL ESTATE. While Real Estate results are not expected to be seasonal,
the nature of the activities in this segment will likely result in large
non-recurring transactions that may have large positive or negative impacts on
revenue and operating income of the Partnership.

26

RISKS AND UNCERTAINTIES

Our business is subject to a number of risks and uncertainties, any one
or more of which could impact our operating results and financial condition
materially and adversely. Some of these risks are discussed in greater detail
below, arranged according to business segment. In addition, we face a number of
risks that affect our business generally. For example the Partnership competes
against much larger companies in each of its business segments. These larger
competitors may have access to larger amounts of capital and significantly
greater economies of scale. As another example, land ownership carries with it
the risk of incurring liabilities due to accidents that take place on the land
and previously undiscovered environmental contamination. While the Partnership
tries to maintain adequate accruals to reflect the estimated cost of remediating
known environmental contamination and other liabilities resulting from land
ownership, these estimates may prove to be inadequate as additional information
is discovered.

A more thorough discussion of the risks and uncertainties that may
affect our business is contained in the Annual Report on Form 10-K for the
fiscal year ended December 31, 2003, and in our various other filings with the
Securities and Exchange Commission. Readers should review these risks in
evaluating the Partnership, and should recognize that those factors are not an
exhaustive list of risks that could cause us to deviate from our expectations.
Readers also are cautioned that, in reviewing these risk factors, the factors
contained in this report and in our other SEC filings are effective as of the
date the filing was made, and we cannot undertake to update those disclosures
except as required by applicable federal and state laws.

FEE TIMBER

Fee Timber revenue is generated primarily through the sale of softwood
logs to both domestic mills and third-party intermediaries for resale to the
export market. The markets for these products are significantly affected by
fluctuations in the U.S. and Japanese economies, as well as by the foreign
currency exchange rate between the Japanese yen and the U.S. dollar. Despite the
strong prices experienced in the current year, over the last few years the price
of logs has eroded in the Japanese market as competing logs and lumber from
regions outside of the U.S. have gained market share and engineered wood
products have gradually gained market acceptance.

The domestic market for logs in the Puget Sound region has been
impacted by imported lumber from Canada and decreased demand for lumber as
engineered wood products have gained market acceptance in the U.S. In addition,
we have experienced the gradual concentration of mill ownership with larger mill
operators resulting in a decrease in the number of mills operating in the Puget
Sound region. If this trend continues, decreases in local price competition for
logs may adversely impact our profitability.

Our ability to grow and harvest timber can be significantly impacted by
legislation, regulations or court rulings that restrict or stop forest
practices. Restrictions on logging, planting, road building, fertilizing,
managing competing vegetation and other activities can significantly increase
the cost or reduce available inventory thereby reducing income.

TIMBERLAND MANAGEMENT & CONSULTING

The Timberland Management & Consulting segment is currently operating
without a major long-term timberland management client for the first time since
1997. Management is working to expand our customer base through market outreach
efforts.

Representative of those efforts is our renewed focus on the Investor
Portfolio Management Business ("IPMB"), which is a component of our Timberland
Management & Consulting segment. Unlike many other components of our business
that relate solely or primarily to real estate and timber operations, this line
of business carries risks relating to the offer and sale of securities and to
the management of investment operations. These activities carry the additional
risks of potential liability to investors for breaches of federal and state
securities laws, state laws relating to fiduciary duties and similar types of
investor action. Litigating these types of claims can be expensive and time
consuming, and if brought, would likely distract management from their focus on
ordinary operating activities.

27

REAL ESTATE

The value of our real estate investments is subject to changes in the
economic and regulatory environment, as well as various land use regulations and
development risks, including the ability to obtain the necessary permits and
zoning variances that would allow us to maximize our revenue from our real
estate investments. Our real estate investments are long-term in nature, which
raises the risk that unforeseen changes in the economy or laws surrounding
development activities may have an adverse affect on our investments. Moreover,
these investments often are highly illiquid and thus may not generate cash flow
if and when needed to support our other operations.

CAPITAL EXPENDITURES AND COMMITMENTS

Total capital expenditures in 2004 (excluding $21.2 million of
timberland acquisitions) are currently expected to be approximately $3.8
million, of which $2.3 million has been expended through September 30, 2004. The
$3.8 million in 2004 capital expenditures includes $1.7 million of expenditures
related to the Real Estate project at Gig Harbor. The actual pace of aniticpated
expenditures in connection with the Gig Harbor project depend on how quickly we
are able get approval from the City of Gig Harbor on our planned infrastructure
improvements at the site. The Partnership expects that the funds for these
expenditures will be generated internally through operations and externally
through financing on terms substantially similar to those available previously.

COST OF COMPLIANCE WITH GOVERNMENT REGULATION

Compliance with laws, regulations and demands usually involves capital
expenditures as well as operating costs. The Partnership cannot easily quantify
future amounts of capital expenditures required to comply with these laws,
regulations and demands, or the effects on operating costs, because in some
instances compliance standards have not been developed or have not become final
or definitive. Accordingly, at this time the Partnership has not quantified any
future capital requirements to comply with any new regulations being developed
by the United States or Canadian regulatory agencies.

LITIGATION

The Partnership may from time to time be a defendant in lawsuits
arising in the ordinary course of business. As of September 30, 2004 and as of
the date of this report, there was no litigation pending or, to management's
knowledge, threatened that, if determined adversely to the Partnership, would
have a material adverse effect on the Partnership's business, operating results
or financial condition.

ACCOUNTING MATTERS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management believes its most critical accounting policies and estimates
relate to management's calculation of timber depletion and liabilities for
matters such as environmental remediation, and potential asset impairments. In
relation to liabilities, potential impairments and other estimated charges, it
is management's policy to conduct ongoing reviews of significant accounting
policies and assumptions used in the preparation of the financial results of the
Partnership. The assumptions used are tested against available and relevant
information and reviewed with subject-matter experts for consistency and
reliability. During the preparation of financial results, tests are conducted to
ascertain that the net book carrying values of assets are not in excess of fair
values. These tests use current market information, if available, or other
generally accepted valuation methods, such as future cash flows. When the use of
estimates is necessary, an exact answer is unlikely, and therefore, the
reporting within a range of likely outcomes is used in the preparation of the
financial statements. Tests are also applied in order to be reasonably assured
that liabilities are properly reflected on the records of the Partnership and
that the notes to the financial statements are prepared in a fashion that
informs readers of possible outcomes and risks associated with the conduct of
business.

28

DEPLETION-COST POOLS: Depletion represents the cost of timber harvested
and is charged to operations by applying a depletion rate to volume harvested
during the period. The depletion rate is calculated in January each year by
dividing the Partnership's cost of merchantable timber by the volume of
merchantable timber. Merchantable timber is defined as timber that is equal to
or greater than 40 years of age.

To calculate the depletion rate the Partnership combines all properties
with similar characteristics and uses one depletion rate for all volume
harvested from that timberland asset pool. Each timberland acquisition is
evaluated for consistency with the already established timberland portfolio
using the following five characteristics:

1. Management-Will the acquisition be managed as part of the existing cost
pool?

2. Location-Is the tree farm in the same geography as the existing timberland
cost pool?

3. Products-Will the products harvested from the acquisition be substantially
similar to those harvested from the existing cost pool?

4. Customers/Markets-Will the harvest from the acquisition be sold to the same
customers/markets as logs harvested from the existing cost pool?

5. Stocking-Are the acres in the acquisition of a similar age class
distribution to the existing cost pool? (If the premerchantable timberland
acres in the acquisition are less than 50% of total acres, stocking on the
acquisition will be deemed sufficiently different and strongly indicate
that a separate pool is appropriate.)

In August 2004, the Partnership acquired 40 acres of timberland located
near the existing Hood Canal tree farm. Based upon the acquisition's
geographical location and management's evaluation of its inventory, this
acquisition was consistent with the existing cost pool for the first four
characteristics listed above. However, all 40 acres of this acquisition are
merchantable timber. As a result we will create a separate depletion pool for
this acquisition that will have a depletion rate of $381 per MBF and that rate
will be applied only to the timber harvested from these 40 acres. Similarly in
October 2004 we acquired 1,339 acres of timberland that are substantially all
merchantable timber. We will create a separate pool for this acquisition with a
depletion rate of $364 per MBF that will only be applied to timber harvested
from these acres

DEPLETION-ESTIMATED VOLUME: Inventory volumes take into account the
applicable state and federal regulatory limits on timber harvests as applied to
the Partnership's properties, including the new Forests and Fish law that
supplements Washington State's forest practice regulations to provide for
expanded riparian management zones, wildlife leave trees, and other harvest
restrictions. Timber inventory volume is accounted for by the Partnership's
standing timber inventory system, which utilizes annual statistical sampling of
the timber (cruising) with annual adjustments made for estimated growth and the
depletion of areas harvested.

29

The standing inventory system is subject to two processes each year to
monitor accuracy. The first is the annual cruise process and the second is a
comparison of (a) volume actually extracted by harvest to (b) inventory for the
corresponding stands of harvested timber in the standing inventory system at the
time of the harvest. A "cruise" represents a physical measurement of timber on a
specific set of acres. The cruise process is completed when the physical
measurement totals are compared to the inventory in the standing inventory
system. Only productive acres with timber that is at least 20 years old are
selected to cruise. The Partnership cruised 20% of its productive acres with 20
year old or greater timber in both 2002 and 2003 and plans to continue to cruise
20% for at least the next few years. Specific acres are first selected for
cruising with a bias towards those acres that have gone the longest without a
cruise and, second, with a bias towards those acres that have been growing the
longest. As the cruise is being performed, only those trees with a breast height
diameter (approximately 4.5 feet from the ground) of at least 6 inches are
measured for inclusion in the inventory.

A 5% change in estimated timber inventory volume would have changed
2003 depletion expense by $152,000.

ENVIRONMENTAL REMEDIATION: The environmental remediation liability
represents estimated payments to be made to remedy and monitor certain areas in
and around the townsite of Port Gamble. Port Gamble is a historic town that was
owned and operated by the Partnership's antecedent, Pope & Talbot (P&T), through
1985 when the townsite and other assets were spun off to the Partnership. P&T
continued to operate the townsite until 1996 and leased the mill site at Port
Gamble through January 2002, at which point P&T signed an agreement with the
Partnership dividing the responsibility for environmental remediation of Port
Gamble between the two parties.

The environmental remediation liability on the Partnership's books is
based upon an estimate of the Partnership's portion of the clean-up costs under
this agreement with P&T. During the current quarter the environmental liability
increased $171,000 because the most recent estimated cost to complete the
Partnership's share exceeded the prior estimate. While the majority of the
Partnership's portion of the clean up efforts is complete, there remains the
possibility that the remaining remediation or monitoring activities may exceed
estimates, resulting in an additional environmental remediation charge.
Management will continue to monitor the remaining liability against estimates to
complete the clean-up effort to determine if an adjustment to the environmental
remediation liability is necessary to accurately represent management's estimate
of remaining cost to complete the project.

DEFERRED TAX ASSETS: The Partnership has a United States subsidiary
corporation that has $1.0 million of deferred tax assets as of September 30,
2004. The majority of this balance represents net operating loss carryforwards
resulting from the liquidation of our subsidiary in Canada. Management evaluates
the likelihood of earning taxable income to absorb net operating loss
carryforwards each reporting period to determine if deferred tax assets are
likely to be utilized.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

INTEREST RATE RISK

As of September 30, 2004, the Partnership had $35.8 million of fixed
rate debt outstanding with a fair value of approximately $41.3 million based on
the current interest rates for similar financial instruments. A change in the
interest rate on fixed rate debt will affect the fair value of the debt, whereas
a change in the interest rate on variable rate debt will affect interest expense
and cash flows. A hypothetical 1% increase in prevailing interest rates would
decrease the fair value of the Partnership's fixed-rate long-term debt
obligations by $1.8 million.

30

ITEM 4

CONTROLS AND PROCEDURES

Management believes that the Partnership's system of internal controls
is adequate to promote the timely identification and reporting of material,
relevant information. Additionally the Partnership's senior management team
meets regularly to discuss significant transactions and events affecting the
Partnership's operations. The Partnership's President & CEO and V.P. & CFO lead
these meetings and consider whether topics discussed represent information that
should be disclosed under generally accepted accounting principles and the rules
of the SEC. The Board of Directors of the Partnership's general partner includes
an Audit Committee. The Audit Committee reviews the earnings release and all
reports on Form 10-Q and 10-K prior to their filing. The Audit Committee is
responsible for hiring the Partnership's external auditors and meets with those
auditors at least four times each year. The Partnership's system of internal
controls include (1) requiring executive management and all managers in
accounting roles to sign and adhere to a Code of Conduct and (2) implementation
of a confidential hotline for employees to contact the Audit Committee directly
with financial reporting concerns.

The Partnership's President & CEO and V.P. & CFO are responsible for
establishing and maintaining disclosure controls and procedures. They have
designed such controls to ensure that others make all material information known
to them within the organization. Management regularly evaluates ways to improve
internal controls.

As of the end of the period covered by this quarterly report on Form
10-Q our executive officers completed an evaluation of the disclosure controls
and procedures and have determined them to be functioning properly and
effectively. There were no significant changes in the Partnership's internal
controls over financial reporting that occurred during the most recent fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Partnership's internal control over financial reporting.

PART II

ITEM 1: LEGAL PROCEEDINGS

From time to time, the Partnership may be subject to legal proceedings
and claims that may have a material adverse impact on its business. Management
is not aware of any current legal proceedings or claims that will have,
individually or in the aggregate, a material adverse impact on our business,
prospects, financial condition or results of operations.

ITEM 2: UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

(a) - (e) None

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None

31

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5: OTHER INFORMATION

(a) None

(b) There have been no material changes in the procedures for
shareholders of the Partnership's general partner to nominate
directors to the board.

ITEM 6. EXHIBITS

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002.

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
(furnished with this report in accordance with SEC Rel. No. 33-8238).

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
(furnished with this report in accordance with SEC Rel. No. 33-8238).

32

SIGNATURES

Pursuant to the requirement 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, on November 4, 2004.

POPE RESOURCES,
A Delaware Limited Partnership

By: Pope Mgp, Inc.
Managing General Partner

By: /s/ David L. Nunes
----------------------------------------------------
David L. Nunes
President and Chief Executive Officer
(Principal Executive Officer)

By: /s/ Thomas M. Ringo
-----------------------------------------------------
Thomas M. Ringo
Vice President and CFO
(Principal Accounting and Financial Officer)

33