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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 June 30, 2010

( )

TRANSITION 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act. (check one)

	Large Accelerated Filer o	Accelerated Filer x
	Non-accelerated Filer o	Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-2 of the Exchange Act)Yes o No x

Partnership units outstanding at August 3, 2010: 4,643,340

Pope Resources

Index to Form 10-Q Filing

For the Quarter Ended June 30, 2010

Description		Page Number
Part I. Financial Information

Item 1 Financial Statements (unaudited)
Condensed Consolidated Balance Sheets		4
Condensed Consolidated Statements of Operations		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3. Quantitative and Qualitative Disclosures about Market Risk		38

Item 4. Controls and Procedures		38

Part II. Other Information

Item 1. Legal Proceedings		38

Item 1A. Risk Factors		39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		40

Item 3. Defaults Upon Senior Securities		40

Item 4. Submission of Matters to a Vote of Security Holders		40

Item 5. Other Information		40

Item 6. Exhibits		40

Signatures		41

P A R T I – FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Pope Resources, a Delaware Limited Partnership
June 30, 2010 and December 31, 2009
(Thousands)
	2010		2009
ASSETS
Current assets:
Pope cash and cash equivalents	$	7,631	$	6,035
ORM Timber Funds cash and cash equivalents		1,568		1,145
Cash and cash equivalents		9,199		7,180
Student loan auction rate securities, current		-		690
Accounts receivable, net		2,334		261
Land held for sale		401		367
Current portion of contracts receivable		45		320
Prepaid expenses and other		225		444
Total current assets		12,204		9,262
Properties and equipment, at cost:
Land held for development		26,320		25,872
Land		25,048		25,072
Roads and timber, net of accumulated depletion
of $56,997, and $54,743		118,380		120,457
Buildings and equipment, net of accumulated
depreciation of $7,521, and $7,321		3,956		3,967
Total properties and equipment, at cost		173,704		175,368
Other assets:
Contracts receivable, net of current portion		1,334		1,140
Student loan auction rate securities, non-current		-		796
Other		566		490
Total other assets		1,900		2,426
Total assets	$	187,808	$	187,056
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable	$	925	$	586
Accrued liabilities		1,280		784
Current portion of environmental remediation		170		200
Current portion of long-term debt		82		831
Deferred revenue		619		469
Other current liabilities		243		196
Total current liabilities		3,319		3,066
Long-term liabilities:
Long-term debt, net of current portion		29,986		28,659
Environmental remediation, net of current portion		1,528		1,069
Other long-term liabilities		180		205
Partners' capital and noncontrolling interests:
Partners' capital:
General partners' capital (units outstanding 60 and 60)		1,083		1,103
Limited partners' capital (units outstanding 4,487 and 4,460)		81,019		82,023
Noncontrolling interests		70,693		70,931
Total partners' capital and noncontrolling interests		152,795		154,057
Total liabilities, partners' capital, and noncontrolling interests	$	187,808	$	187,056

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Pope Resources, a Delaware Limited Partnership
For the Three Months and Six Months Ended June 30, 2010 and 2009
(Thousands, except per unit data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009

Revenue	$	8,089		$	3,666		$	14,055		$	8,645
Cost of timber and land sold		(3,825	)		(1,882	)		(6,431	)		(4,080	)
Operating expenses		(2,681	)		(1,607	)		(4,528	)		(3,585	)
General and administrative expenses		(1,452	)		(901	)		(2,393	)		(1,745	)
Income (loss) from operations		131			(724	)		703			(765	)

Other income (expense):
Interest expense		(321	)		(593	)		(862	)		(1,210	)
Debt extinguishment costs		(1,250	)		-			(1,250	)		-
Capitalized interest		78			313			318			618
Interest income		27			63			61			132
Realized gain on investments		-			3			11			3
Unrealized loss on investments		-			-			-			(60	)
Total other expense		(1,466	)		(214	)		(1,722	)		(517	)

Loss before income taxes		(1,335	)		(938	)		(1,019	)		(1,282	)
Income tax expense		-			(5	)		(12	)		(5	)
Net loss		(1,335	)		(943	)		(1,031	)		(1,287	)

Net loss attributable to noncontrolling interests:
ORM Timber Funds		209			250			356			471
Net loss attributable to unitholders	$	(1,126	)	$	(693	)	$	(675	)	$	(816	)

Allocable to general partners	$	(15	)	$	(9	)	$	(9	)	$	(11	)
Allocable to limited partners		(1,111	)		(684	)		(666	)		(805	)
Net loss attributable to unitholders	$	(1,126	)	$	(693	)	$	(675	)	$	(816	)

Loss per unit attributable to unitholders:
Basic	$	(0.25	)	$	(0.16	)	$	(0.15	)	$	(0.18	)
Diluted	$	(0.25	)	$	(0.16	)	$	(0.15	)	$	(0.18	)

Weighted average units outstanding:
Basic		4,541			4,529			4,536			4,561
Diluted		4,541			4,529			4,536			4,561

Distributions per unit	$	0.10		$	0.20		$	0.20		$	0.40

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Pope Resources, a Delaware Limited Partnership
Six Months Ended June 30, 2010 and 2009
(Thousands)
	2010			2009
Net loss	$	(1,031	)	$	(1,287	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depletion		2,189			1,033
Capitalized development activities, net of reimbursements		(472	)		(860	)
Equity based compensation		424			303
Depreciation and amortization		305			405
(Gain) loss on investments		(11	)		57
Deferred taxes		-			(109	)
Cost of land sold		67			116
Write-off of debt issuance costs		32			-
Increase (decrease) in cash from changes in operating accounts:
Deferred revenue		150			208
Accounts receivable, net		(2,073	)		(149	)
Contracts receivable		81			59
Prepaid expenses and other current assets		219			118
Accounts payable and accrued liabilities		798			(734	)
Other current liabilities		47			54
Environmental remediation		429			(206	)
Other long-term liabilities		(25	)		(74	)
Other, net		(6	)		(9	)
Net cash provided by (used in) operating activities		1,123			(1,075	)

Cash flows from investing activities:
Redemption of investments		1,497			25
Reforestation and roads		(230	)		(306	)
Other capital expenditures		(213	)		(539	)
Proceeds from fixed asset sale		-			15
Net cash provided by (used in) investing activities		1,054			(805	)

Cash flows from financing activities:
Repayment of long-term debt		(868	)		(1,350	)
Extinguishment of long-term debt		(18,554	)		-
Proceeds from issuance of long-term debt		20,000			-
Debt issuance costs		(81	)
Unit repurchases		-			(1,824	)
Proceeds from option exercises		148			-
Cash distributions to unitholders		(920	)		(1,846	)
Capital call- ORM Timber Fund II, Inc.		-			305
Preferred stock issuance- ORM Timber Fund II, Inc.		125			-
Preferred stock distribution- ORM Timber Fund II, Inc.		(8	)		-
Net cash used in financing activities		(158	)		(4,715	)

Net increase (decrease) in cash and cash equivalents		2,019			(6,595	)
Cash and cash equivalents at beginning of period		7,180			17,978

Cash and cash equivalents at the end of the six-month period	$	9,199		$	11,383

See accompanying notes to condensed consolidated financial statements.

POPE RESOURCES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2010

The condensed consolidated financial statements as of June 30, 2010 and December 31, 2009 and for the three-month periods (quarters) and six-month periods ended June 30, 2010 and 2009 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 condensed consolidated financial statements are unaudited, but, in the opinion of management, reflect 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, 2009, is derived from the Partnership’s audited consolidated financial statements and notes thereto for the year ended December 31, 2009, and should be read in conjunction with such financial statements. The results of operations for the interim periods are not indicative of the results of operations that may be achieved for the entire fiscal year ending December 31, 2010.

Certain amounts have been reclassified in the December 31, 2009 financial statements to conform to the June 30, 2010 presentation. See note 5.

2.	The financial statements in the Partnership's 2009 annual report on Form 10-K include a summary of significant accounting policies of the Partnership and should be read in conjunction with this Quarterly Report on Form 10-Q.

Basic net earnings (loss) per unit are based on the weighted average number of units outstanding during the period. Diluted net earnings per unit are calculated by dividing net income (loss) attributable to unitholders, adjusted for non-forfeitable distributions paid out to unvested restricted unitholders, by the weighted average units outstanding during the year plus additional units that would have been outstanding assuming the exercise of in-the-money unit equivalents using the treasury stock method.

The table below displays how we arrived at options used to calculate dilutive unit equivalents and subsequent treatment of dilutive unit equivalents based on net loss for the period:

	Quarter Ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Average trading price	$	27.50		$	21.29		$	26.32		$	19.99
Total options outstanding		136,810			163,000			136,810			163,000
Less: options with strike price above average trading price (not in-the-money)		(1,869	)		(41,323	)		(1,869	)		(43,525	)
Options used in calculation of dilutive unit equivalents		134,941			121,677			134,941			119,475
Net loss attributable to Pope Resources’ unitholders	$	(1,126	)	$	(693	)	$	(675	)	$	(816	)
Dilutive unit equivalents		57,883			42,222			55,028			38,097
Less: unit equivalents considered anti-dilutive due to net loss in period		(57,883	)		(42,222	)		(55,028	)		(38,097	)
Dilutive unit equivalents used to calculate dilutive EPS		-			-			-			-

The following table shows how we arrived at basic and diluted loss:

(Thousands)	Quarter Ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Net loss attributable to Pope Resources’ unitholders	$	(1,126	)	$	(693	)	$	(675	)	$	(816	)
Nonforfeitable distributions paid to unvested restricted unitholders		(7	)		(12	)		(13	)		(24	)
Preferred dividends paid to Fund II preferred shareholders		(4	)		-			(8	)		-
Adjusted net loss attributable to unitholders	$	(1,137	)	$	(705	)	$	(696	)	$	(840	)
Weighted average units outstanding (in thousands):
Basic		4,541			4,529			4,536			4,561
Dilutive effect of unit equivalents		-			-			-			-
Diluted		4,541			4,529			4,536			4,561

Loss per unit: Basic	$	(0.25	)	$	(0.16	)	$	(0.15	)	$	(0.18	)

Loss per unit: Diluted	$	(0.25	)	$	(0.16	)	$	(0.15	)	$	(0.18	)

Options to purchase 136,810 and 163,000 units at prices ranging from $9.30 to $37.73 per unit were outstanding as of June 30, 2010 and 2009, respectively.

In 2005, we adopted the 2005 Unit Incentive Plan. Following adoption of this plan the Human Resources Committee of the Board of Directors began issuing restricted units instead of unit options as its primary method of granting equity based compensation. However, the plan also permits the issuance of unit options, unit appreciation rights and other equity compensation at the discretion of the Human Resources Committee.

Restricted Units

As of June 30, 2010, total compensation expense not yet recognized related to non-vested restricted unit awards was $804,000 with a weighted average 17 months remaining to vest.

Restricted units	June 30, 2010
Number outstanding	65,395
Aggregate value	$1,683,000

Unit Options

Unit options have not been granted since December 2005. Units options granted prior to January 1, 2006 were non-qualified options granted at an exercise price not less than 100% of the fair value on the grant date. Unit options granted to employees vested over four or five years. Board members had the option of receiving their annual retainer in the form of unit options and those options vested immediately as they were granted monthly for services rendered during the month. Options granted have a life of ten years.

Options Outstanding and Exercisable	June 30, 2010
Number outstanding	136,810
Weighted average exercise price	$15.08
Aggregate intrinsic value	$1,471,000
Weighted average remaining contractual term (yrs)	2.05

Supplemental disclosure of cash flow information: interest paid, net of amounts capitalized, totaled $540,000 and $587,000 for the six months ended June 30, 2010 and 2009, respectively. Income taxes paid in the first half of 2010 was $5,000 compared to an income tax refund received of $61,000, net of income taxes paid of $1,000 in the first half of 2009.

During the quarter ended September 30, 2009, the Partnership changed its classification of cash flows to include real estate development capital expenditures within cash flows from operating activities. Prior to the quarter ended September 30, 2009, these expenditures were reported as part of investing activities within the Partnership’s statement of cash flows. Certain accounts in the prior year statement of cash flows have been revised for comparative purposes to conform to the presentation in the current year financial statements. The table below details the changes made to the statement of cash flows for the six-month period ended June 30, 2009.

	As Originally
(Thousands)	Reported			Adjustments			As Revised
Cash flows from operating activities:
Capitalized development activities		-			(860	)		(860	)
Net cash used in operating activities		(215	)		(860	)		(1,075	)

Cash flows from investing activities:
Capitalized development activities		(860	)		860			-
Net cash used in investing activities		(1,665	)		860			(805	)

6.	The fair values of cash and cash equivalents and investments held at June 30, 2010 and December 31, 2009 were as follows (in thousands):

	June 30, 2010
			Gross
	Amortized		Unrealized			Estimated
	Cost		Loss			Fair Value
Cash and cash equivalents	$	9,199	$	-		$	9,199

	December 31, 2009
			Gross
	Amortized		Unrealized			Estimated
	Cost		Loss			Fair Value
Cash and cash equivalents	$	7,180	$	-		$	7,180
Securities maturing after ten years:
Auction rate securities, current		925		(235	)		690
Auction rate securities, non-current		1,000		(204	)		796

During the six-month period ended June 30, 2010, we liquidated the remaining $1.5 million of auction rate securities held as of December 31, 2009 resulting in a realized gain of $11,000. This realized gain resulted from the following three transactions:


Date	Description	Proceeds		Basis		Gain/(Loss)
Jan 21st	Pennsylvania Higher Education	$	25,000	$	18,653	$	6,347
Jan 28th	Pennsylvania Higher Education		702,000		671,490		30,510
Mar 5th	Brazos		770,000		796,100		(26,100	)
	Total	$	1,497,000	$	1,486,243	$	10,757

For the same period in 2009, we reported a $60,000 other-than-temporary impairment, offset by a realized gain of $3,000. The realized gain for the six-month period ended June 30, 2009 resulted from a redemption at par for a $25,000 portion of one of the auction rate securities during the second quarter of 2009. The gain represents the amount by which the redemption proceeds exceeded the basis, as adjusted for previous impairments.

7.	ASC 820 Fair Value Measurements and Disclosures (FASB Statement No. 157 Fair Value Measurement (SFAS No. 157)) was followed to determine the fair value of the Partnership’s investments. ASC 820 defines a hierarchy of three levels of evidence used to determine fair value:

·	Level 1 - quoted prices for identical assets/liabilities in active markets

·	Level 2 - quoted prices in a less active market, quoted prices for similar but not identical assets/liabilities, inputs other than quoted prices

·	Level 3 - significant unobservable inputs including the Partnership’s own assumptions in determining the fair value of investments

The following table provides the fair value measurements of applicable Partnership financial assets according to the levels defined in ASC 820 as of June 30, 2010 and December 31, 2009:

	June 30, 2010
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	9,199	$	-	$	-	$	9,199

	December 31, 2009
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	7,180	$	-	$	-	$	7,180
Auction rate securities, current		-		690		-		690
Auction rate securities, non-current		-		796		-		796
Total financial assets at fair value	$	7,180	$	1,486	$	-	$	8,666

Total comprehensive loss for the three- and six-month periods ended June 30, 2010 is $1.3 million and $1.0 million, respectively, which is solely net loss for the periods presented. Total comprehensive loss for the three-month period ended June 30, 2009 was $821,000 which includes net loss for the quarter offset by an unrealized gain of $122,000 on redemption of auction rate securities. Total comprehensive loss for the six-month period ended June 30, 2009 was $1.1 million which consists of net loss offset by an unrealized gain of $141,000 on redemption of the auction rate securities.

9.	The Partnership has two general partners: Pope MGP, Inc. and Pope EGP, Inc. In total, these two entities own 60,000 partnership units. The allocation of distributions and loss between the general and limited partners is pro rata among all units outstanding.

10.

In the presentation of the Partnership’s revenue and operating income (loss) by segment all intersegment revenue and expense is eliminated to determine externally reported operating income by business segment. The tables that follow reconcile internally reported income (loss) from operations to externally reported income (loss) from operations by business segment, for the quarters and six-month periods ended June 30, 2010 and 2009:

	Fee Timber									Timberland
Three Months Ended	Pope Resources			Timber			Total			Management &			Real			General &
June 30, (Thousands)	Timber			Funds			Fee Timber			Consulting			Estate			Adminstrative			Consolidated
2010
Revenue internal	$	6,420		$	1,428		$	7,848		$	337		$	288		$	-		$	8,473
Eliminations		(35	)		-			(35	)		(337	)		(12	)		-			(384	)
Revenue external		6,385			1,428			7,813			-			276			-			8,089

Cost of timber and land sold		(2,570	)		(1,253	)		(3,823	)		-			(2	)		-			(3,825	)

Operating, general and administrative expenses internal		(837	)		(435	)		(1,272	)		(423	)		(1,370	)		(1,452	)		(4,517	)
Eliminations		12			324			336			48			-			-			384
Operating, general and administrative expenses external		(825	)		(111	)		(936	)		(375	)		(1,370	)		(1,452	)		(4,133	)

Income (loss) from operations internal		3,013			(260	)		2,753			(86	)		(1,084	)		(1,452	)		131
Eliminations		(23	)		324			301			(289	)		(12	)		-			-
Income (loss) from operations external	$	2,990		$	64		$	3,054		$	(375	)	$	(1,096	)	$	(1,452	)	$	131

2009
Revenue internal	$	2,784			-		$	2,784		$	501		$	621			-		$	3,906
Eliminations		(30	)		-			(30	)		(198	)		(12	)		-			(240	)
Revenue external		2,754			-			2,754			303			609			-			3,666

Cost of timber and land sold external		(1,723	)		-			(1,723	)		-			(159	)		-			(1,882	)

Operating, general and administrative expenses internal		(616	)		(313	)		(929	)		(274	)		(644	)		(901	)		(2,748	)
Eliminations		12			198			210			30			-			-			240
Operating, general and administrative expenses external		(604	)		(115	)		(719	)		(244	)		(644	)		(901	)		(2,508	)

Income (loss) from operations internal		445			(313	)		132			227			(182	)		(901	)		(724	)
Eliminations		(18	)		198			180			(168	)		(12	)		-			-
Income (loss) from operations external	$	427		$	(115	)	$	312		$	59		$	(194	)	$	(901	)	$	(724	)

	Fee Timber									Timberland
Six Months Ended	Pope Resources			Timber			Total			Management &			Real			General &
June 30, (Thousands)	Timber			Funds			Fee Timber			Consulting			Estate			Adminstrative			Consolidated
2010
Revenue internal	$	11,923		$	1,706		$	13,629		$	590		$	504		$	-		$	14,723
Eliminations		(54	)		-			(54	)		(590	)		(24	)		-			(668	)
Revenue external		11,869			1,706			13,575			-			480			-			14,055

Cost of timber and land sold		(5,099	)		(1,329	)		(6,428	)		-			(3	)		-			(6,431	)

Operating, general and administrative expenses internal		(1,598	)		(819	)		(2,417	)		(680	)		(2,099	)		(2,393	)		(7,589	)
Eliminations		27			577			604			64			-			-			668

Operating, general and administrative expenses external		(1,571	)		(242	)		(1,813	)		(616	)		(2,099	)		(2,393	)		(6,921	)

Income (loss) from operations internal		5,226			(442	)		4,784			(90	)		(1,598	)		(2,393	)		703
Eliminations		(27	)		577			550			(526	)		(24	)		-			-
Income (loss) from operations external	$	5,199		$	135		$	5,334		$	(616	)	$	(1,622	)	$	(2,393	)	$	703

2009
Revenue internal	$	7,349		$	1		$	7,350		$	913		$	883		$	-		$	9,146
Eliminations		(75	)		-			(75	)		(402	)		(24	)		-			(501	)
Revenue external		7,274			1			7,275			511			859			-			8,645

Cost of timber and land sold external		(3,920	)		-			(3,920	)		-			(160	)		-			(4,080	)

Operating, general and administrative expenses internal		(1,514	)		(589	)		(2,103	)		(631	)		(1,352	)		(1,745	)		(5,831	)
Eliminations		24			402			426			75			-			-			501
Operating, general andadministrative expenses external		(1,490	)		(187	)		(1,677	)		(556	)		(1,352	)		(1,745	)		(5,330	)

Income (loss) from operations internal		1,915			(588	)		1,327			282			(629	)		(1,745	)		(765	)
Eliminations		(51	)		402			351			(327	)		(24	)		-			-

Income (loss) from operations external	$	1,864		$	(186	)	$	1,678		$	(45	)	$	(653	)	$	(1,745	)	$	(765	)

11.

On June 10, 2010, the Partnership entered into a new $20.0 million term loan agreement with Northwest Farm Credit Services (NWFCS). Proceeds from this new term loan were used to retire a term loan from John Hancock Life Insurance Company (JHLIC) due in April 2011 and fund a make-whole premium of $1.2 million due on retirement of that timberland mortgage. Following funding of the new term loan and retirement of the final JHLIC term loan, the Partnership had the following long-term debt outstanding as of June 30, 2010 with staggered maturity dates as follows:

(Amounts in thousands:)	Jun-10		Dec-09
Mortgage payable to NWFCS, collateralized by timberlands, comprised of three tranches as follows:
Five-year tranche, interest at 4.10% with monthly interest-only
payments. Matures in July 2015.	$	5,000	$	-

Seven-year tranche, interest at 4.85% with monthly interest-
only payments. Matures in July 2017.		5,000		-

Fifteen-year tranche, interest at 6.05% with monthly interest-
only payments. Matures in July 2025.		10,000		-
		20,000		-

Mortgage payable to NWFCS, interest at 6.4%, collateralized by timberlands with monthly interest-only payments. Matures in September 2019.		9,800		9,800

Mortgage payable to JHLIC, interest at 7.63%, collateralized by timberlands with monthly interest payments and annual principal payments. Matures in April 2011.		-		19,303

Local improvement district assessments, with interest ranging from 5.03% to 6.5%, due through 2013.		155		260

Fund I note payable to the City of Tacoma, with interest at 4.5%, with monthly principal and interest payments maturing January 2014.		113		127
	$	30,068	$	29,490

The Company's long-term debt is not actively traded and, as such, fair values were estimated using discounted cash flow analyses, based on the Company's current estimated incremental borrowing rates for similar types of borrowing arrangements, which are considered level 3 inputs. As of June 30, 2010 and December 31, 2009, the Partnership’s fixed-rate debt outstanding had a fair value of approximately $30.9 million and $30.5 million, respectively.

In connection with the new term loan, the Partnership’s revolving line of credit with NWFCS was extended from August 2011 to August 2013 and reduced from $35 million to $20 million. Unamortized loan fees of approximately $32,000 were written off in connection with the second quarter mortgage refinancing.

12.

The Partnership has an accrual for estimated environmental remediation costs of $1.7 million and $1.3 million as of June 30, 2010 and December 31, 2009, respectively. The environmental remediation liability represents estimated payments to be made to monitor and remedy certain areas in and around the townsite and millsite of Port Gamble, Washington. During the three months ended June 30, 2010, a draft Sawmill Site Feasibility Study Report was completed that suggested changes in remediation alternatives such that we considered an increase in our accrual for estimated remediation costs necessary. As such, we modified the cost assumptions used in the statistical modeling process which suggested an increase in the reserve for environmental remediation of $563,000. The Monte-Carlo simulation model by which we est imate this liability indicated a range of potential liability from $463,000 to $3.3 million compared to a range of $145,000 to $2.9 million the last time we ran this model at December 31, 2009. This represents a two-standard-deviation range from the mean of possible outcomes generated by the modeling process used to estimate this liability.

Approximately $25,000 of the accrual represents the maximum portion of the agreed-upon investigative costs yet to be paid by the Partnership in connection with the Port Ludlow Resort Community. While we have not concluded that we have an obligation to remediate, the investigation is intended to inform our evaluation of the buyer’s belief that remediation is necessary for contamination found on the site and whether or not the Partnership has liability.

13.

We have entered into two purchase and sale agreements for Fund II to purchase timberlands with a combined value of approximately $58 million. It is anticipated these transactions will close in the third quarter, utilizing $11 million of debt and $47 million of equity, of which the Partnership’s co-investment will be approximately $9.4 million.

14.

On January 4, 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 requires additional disclosure within the roll forward activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, ASU 2010-06 requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Level 2 and Level 3. ASU 2010-06 was adopted for the Partnership’s first quarter ending March 31, 2010, excep t for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements, for which disclosures are not required until the Partnership’s first quarter of fiscal 2011. During the second quarter of fiscal 2010, the Partnership did not have any transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy. The adoption of the additional disclosures for Level 1 and Level 2 fair value measurements did not have an impact on the Partnership’s financial position, results of operations or cash flows. The Partnership is currently evaluating the potential impact of the disclosures regarding Level 3 fair value measurements.

Recently, the Financial Accounting Standards Board (FASB) has issued a number of proposed Accounting Standards Updates (ASUs). Those proposed ASUs are as follows:

Proposed ASU – Comprehensive Income – was issued in May 2010 and will change the way comprehensive income is reported in the financial statements. The new standard will require a continuous statement of comprehensive income be reported combining the Company’s current statement of operations with comprehensive income. Comprehensive income or loss will be removed from the statement of shareholder’s equity.

• Proposed ASU – Revenue Recognition – was issued in June 2010. This proposed standard will completely replace all existing revenue recognition accounting literature. Generally, the proposed standard would require an entity to identify separate performance obligations under a contract, determine the transaction price, allocate that price to the separate components based on relative fair value, and recognize revenue when each performance obligation is satisfied. Management believes this standard may have an impact on the Company’s results of operations and disclosures, although the significance of that impact cannot be estimated at this time.

• Proposed ASU – Fair Value Measurements and Disclosures – was issued in June 2010. This proposed standard changes how fair value is determined for certain assets and liabilities and requires additional disclosures about fair value instruments. Management is currently evaluating the impact of this new standard on the Company’s financial position, results of operations, cash flows, and disclosures.

• Proposed ASU – Disclosure of Certain Loss Contingencies – was issued in July 2010. This proposed standard enhances financial statement disclosure surrounding certain loss contingencies such as legal disputes, environmental remediation liabilities, self-insurance liabilities, among others. The proposed standard primarily focuses on asserted claims and assessments and will require more robust disclosure of amounts, court or agency where legal proceedings are pending, principal parties, and other details not historically required. As the proposed standard impacts disclosure only, management does not expect this proposed standard to impact the Company’s financial position or results of operations.

These proposed ASUs are currently in comment period and are subject to change. There are no effective dates assigned to these proposals.

In July 2010, the FASB also issued an initial draft of new financial statement presentation requirements. These new requirements, as currently drafted, would substantially change the way financial statements are presented by disaggregating information in financial statements to explain the components of its financial position and financial performance. These changes will impact the presentation of the financial statements only and are not expected to impact the Company’s overall financial position, results of operations, or cash flows.

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 and present intentions based on our current goals, in light of currently known circumstances and management's expectations about future developments. Statements about expectations, plans and future performance are “forward looking statements” within the meaning of applicable securities laws. Because these statements describe our goals, objectives and anticipated performance, they are inherently uncertain, and some or all of 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 ac tions 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 “Item 1A: Risk Factors” below and other factors discussed elsewhere in this report or in our annual report on Form 10-K for the fiscal year ended December 31, 2009. Some of the issues that may have an adverse and material impact on our business, operating results and financial condition include economic conditions that affect consumer demand for our products and the prices we receive for them; the effect of financial market conditions on our investment portfolio and related liquidity; environmental and land use regulations that limit our ability to harvest timber and develop property; access to debt financing by our custom ers as well as ourselves; risks associated with our credit refinancing plans and objectives and the attendant potential for impacts on our liquidity; and other risks and uncertainties which are discussed in our other filings with the Securities and Exchange Commission. The forward-looking statements in this report reflect our estimates as of the date of the report, and we cannot undertake to update these statements as our business operations and environment change.

This discussion should be read in conjunction with the 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 late 1985 as a result of a spin-off by Pope & Talbot, Inc. (“P&T”). We are engaged in three primary businesses. The first, and by far most significant segment in terms of owned assets, revenues, income and operations, is the Fee Timber segment. This segment includes timberlands owned directly by the Partnership and operations of both ORM Timber Fund I, LP (“Fund I”) and ORM Timber Fund II, Inc. (“Fund II” and collectively the “Funds”). Operations in this segment consist of growing timber to be harvested as logs for sale to domestic manufacturers and export brokers. The second most significant business in terms of total assets owned is the development and sale of real estate. Real Estate activities primarily take the form of securing permits, entitlements, and, in some cases, installing infrastructure for raw land development and then realizing that land’s value through the sale of larger parcels to buyers who will take the land further up the value chain, either to home buyers or to operators and lessors of commercial property. Since these land projects span multiple years, the Real Estate segment may incur losses for multiple years while a project is developed until that project is sold resulting in operating income. Our third business segment, Timberland Management & Consulting, consists of raising investment capital from third parties for investment in timberland through private equity timber funds like the Funds and providing timberland management and related services for a fee to the Funds, as well as for other third party owners of timberland.

Our current strategy for adding timberland acreage is centered on our private equity timber fund business model. For example, in March 2009 we completed the final close for Fund II with $84 million of committed capital including Pope Resources’ 20% co-investment. In October 2009, Fund II closed on its first two timberland acquisitions representing 41% of its committed capital. Our 20% co-investment in the Funds affords us a share of the Funds’ operating cash flows while allowing us to earn annual asset management and timberland management fees as well as incentive fees based upon the overall success of each fund. Management also believes that this strategy allows us to maintain more sophisticated expertise in timberland acquisition, valuation, and management than could be cost-effectively maintained for the Partner ship’s timberlands alone. Our Real Estate challenges center around how and when to “harvest” a parcel of land and capture the optimum value increment by selling the property, balancing the long-term risks of carrying and developing a property against the potential for income and positive cash flows upon sale.

During periods in which the U.S. and, to a much lesser extent, Asian residential real estate markets perform poorly, we tend to experience diminishing financial performance in both our Fee Timber and Real Estate segments. In Fee Timber, declines in building construction affect log prices and volumes directly. As discussed below in greater detail, we often further reduce our harvest during these periods so as to avoid liquidating our timber assets at low prices, an opportunity afforded to us by our relatively low leverage and our relatively low-cost operating model. Land held for sale in western Washington by our Real Estate segment is suitable primarily for residential and commercial building sites and the market for this product has recently suffered along with regional and national markets, producing a decline in our sales.< /font>

We have a unit repurchase program which permits repurchases through December 2010. As of June 30, 2010, we have repurchased 111,295 units with a weighted average unit purchase price of $19.18 and we have an unutilized authorization for unit repurchases of $2.9 million.

RESULTS OF OPERATIONS

The following table reconciles and compares key revenue and cost elements that impacted our net loss for the respective quarter and year-to-date periods ended June 30, 2010 and June 30, 2009. In addition to the table’s numerical analysis, the explanatory text that follows the table describes certain of these changes by business segment.

	Quarter Ended			Six Months Ended
	June 30,			June 30,
	Total			Total

Net loss attributable to unitholders:
2010 period		($1,126	)		($675	)
2009 period		(693	)		(816	)
Variance		($433	)		$141

Detail of earnings variance:
Fee Timber
Log price realizations (A)		$2,587			$1,771
Log volumes (B)		2,480			4,226
Depletion		(1,001	)		(1,156	)
Production costs		(1,099	)		(1,353	)
Other Fee Timber		(225	)		168
Timberland Management & Consulting
Management fee changes		(303	)		(511	)
Other Timberland Management & Consulting		(131	)		(60	)
Real Estate
Environmental remediation liability		(563	)		(563	)
Land sales		(141	)		(142	)
Other Real Estate		(198	)		(264	)
General & administrative costs		(551	)		(648	)
Net interest expense		1			(23	)
Debt extinguishment costs		(1,250	)		(1,250	)
Other (taxes, noncontrolling interest, unrealized loss)		(39	)		(54	)
Total variance		($433	)		$141


(A) Price variance calculated by extending the change in average realized price by current period volume.
(B) Volume variance calculated by extending change in sales volume by the average log sales price for
the comparison period.

Fee Timber

Fee Timber results include operations from 114,000 acres of timberland owned by the Partnership and 36,000 acres of timberland owned by the Funds. Fee Timber revenue is earned primarily from the harvest and sale of logs from these timberlands which are located in western Washington and northwestern Oregon and, to a lesser extent, from leasing cellular communication towers and selling gravel and other resources from our timberlands. Revenue from the sale of timberland tracts will also appear in this segment’s results on the relatively infrequent occasions when those transactions occur. Our Fee Timber revenue is driven primarily by the volume of timber harvested which is generally expressed in thousand board feet (MBF) or million board feet (MMBF). Fee Timber expenses, which consist predominantly of depletion, harvest and transportation costs, vary directly and roughly proportionately with harvest volume and the resulting revenues. Revenue and costs related to harvest activities on timberland owned by the Funds are consolidated into this discussion of operations.

Planned Harvest for 2010. We began 2010 with a plan to harvest 32 MMBF, representing a 47% harvest volume deferral from our estimate of the long-term sustainable harvest of 60 MMBF, which includes 16 MMBF of harvest from properties of the Funds. As first quarter progressed, we responded to improved domestic and export market conditions by moving more of our planned harvest volume forward and, given the improvement in log markets, we have harvested more volume in the first half of 2010 than we had originally planned. Our harvest volume for the year is expected to be between 46 and 50 MMBF, depending on the strength or weakness of log markets for the balance of the year. While this will constitute a significant increase over the harvest volume for 2009 , it will still represent between 17 and 23% less than our sustainable harvest level of 60 MMBF, including the timber funds.

When discussing our Fee Timber operations, we compare current results to both the previous quarter and the corresponding quarter of the prior year. These comparisons offer an understanding of trends in market price and patterns of harvest volumes that affect Fee Timber operating results. Revenue and operating income for the Fee Timber segment for the quarters ended June 30, 2010, March 31, 2010 and June 30, 2009 were as follows:


($ Million) Quarter Ended	Log Sale Revenue	Mineral, Cell Tower & Other Revenue	Total Fee Timber Revenue	Operating Income/(loss)	Harvest Volume (MBF)
Pope Resources Timber	$6.1	$0.3	$6.4	$3.0	11,654
Timber Funds	1.4	-	1.4	0.1	2,803
Total Fee Timber June 30, 2010	$7.5	$0.3	$7.8	$3.1	14,457

Pope Resources Timber	$5.1	$0.4	$5.5	$2.2	11,592
Timber Funds	-	0.3	0.3	0.1	-
Total Fee Timber March 31, 2010	$5.1	$0.7	$5.8	$2.3	11,592

Pope Resources Timber	$2.4	$0.4	$2.8	$0.4	7,120
Timber Funds	-	-	-	(0.1)	-
Total Fee Timber June 30, 2009	$2.4	$0.4	$2.8	$0.3	7,120

Comparing Q2 2010 to Q1 2010. Fee Timber revenue and operating income for the second quarter 2010 were $2.0 million and $774,000 higher, respectively, than the first quarter of 2010. This is a result of a 2.9 MMBF, or 25%, increase in harvest volume combined with a $76/MBF, or 17%, increase in average log price realized. In the case of operating income, these increases are partially offset by a corresponding increase of $1.2 million, or 46%, in costs of sales, which primarily include depletion expense and harvest and haul costs. The increase in price results from increased competition for logs generated by demand from China and Korea. We accelerated harvest into the second quarter to take advantage of the price improvement from the first q uarter of 2010.

Comparing Q2 2010 to Q2 2009. Fee Timber revenue and operating income for the first quarter of 2010 were $5.0 million and $2.8 million higher, respectively, than the comparable period in the prior year. The increase in revenue and operating income is due to a 7.3 MMBF, or 103%, increase in harvest volume coupled with a $179/MBF, or 53%, increase in average log price realized. These increases, in the case of operating income, are partially offset by a $2.1 million, or 124%, increase in costs of sales. Harvest volume increased in the second quarter of 2010 over 2009 to take advantage of strengthening log markets experienced in 2010. This log price increase reflects continued strength in log markets that began in the first quarter of 2010.


($ Million) Six Months Ended	Log Sale Revenue	Mineral, Cell Tower & Other Revenue	Total Fee Timber Revenue	Operating Income/(loss)	Harvest Volume (MBF)
Pope Resources Timber	$11.2	$0.7	$11.9	$5.2	23,246
Timber Funds	1.4	0.3	1.7	0.1	2,803
Total Fee Timber June 30, 2010	$12.6	$1.0	$13.6	$5.3	26,049

Pope Resources Timber	$6.6	$0.7