SEC Filing | Rayonier Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

a50812183.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark one)

X	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2013

__	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from to________

Commission File No. 1-9035

Pope Resources, A Delaware Limited Partnership
(Exact name of registrant as specified in its charter)

Delaware	91-1313292
(State of Organization)	(IRS Employer I.D. No.)

19950 Seventh Avenue NE, Suite 200, Poulsbo, WA 98370
(Address of principal executive offices, Zip Code)

Registrant's telephone number, including area code: (360) 697-6626

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

Title of each class	Name of each exchange on which registered
Depositary Receipts (Units)	NASDAQ

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x

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 than 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large Accelerated Filer o	Accelerated Filer x
Non-Accelerated Filer o(Do not check if a smaller reporting company)	Smaller reporting company o

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

At June 30, 2013, the aggregate market value of the non-voting equity units of the registrant held by non-affiliates was approximately $223,501,000.

The number of the registrant’s limited partnership units outstanding as of February 17, 2014 was 4,452,511.

Documents incorporated by reference: None

	Pope Resources, A Delaware Limited Partnership
	Form 10-K
	For the Fiscal Year Ended December 31, 2013
	Index


Part I		Page

Item 1.	Business	3
Item 1A.	Risk Factors	20
Item 1B.	Unresolved Staff Comments	23
Item 2.	Properties	23
Item 3.	Legal Proceedings	24
Item 4.	Mine Safety Disclosures	24

Part II

Item 5.	Market for Registrant's Units, Related Security Holder
	Matters and Issuer Purchases of Equity Securities	25
Item 6.	Selected Financial Data	28
Item 7.	Management's Discussion and Analysis of Financial Condition
	and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 8.	Financial Statements and Supplementary Data	60
Item 9.	Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure	87
Item 9A.	Controls and Procedures	87
Item 9B.	Other Information	88

Part III

Item 10.	Directors and Executive Officers of the Registrant	89
Item 11.	Executive Compensation; Compensation Discussion & Analysis	93
Item 12.	Security Ownership of Certain Beneficial Owners and Management
	and Related Security Holder Matters	104
Item 13.	Certain Relationships and Related Transactions and Director Independence	106
Item 14.	Principal Accountant Fees and Services	107

Part IV

Item 15.	Exhibits	108
	Signatures	114

PART I

Item 1. BUSINESS

OVERVIEW

When we refer to the “Partnership,” the “Company,” “we,” “us,” or “our,” we mean Pope Resources, A Delaware Limited Partnership and its consolidated subsidiaries. References to notes to the financial statements refer to the Notes to the Consolidated Financial Statements of Pope Resources, A Delaware Limited Partnership included in Item 8 of this form. The Partnership was formed in 1985 as a result of the spinoff of certain timberlands and development properties from Pope & Talbot, Inc.

The Partnership currently operates in three primary business segments: (1) Fee Timber, (2) Timberland Management & Consulting (TM&C), and (3) Real Estate. Fee Timber operations consist of growing and harvesting timber from the 201,000 acres that we own or co-own with our timber fund investors as tree farms. Activities in the Timberland Management & Consulting segment are centered on raising and investing capital from third parties for private equity timber funds, and thereafter managing those funds. Our Real Estate segment’s operations are focused on a portfolio of approximately 2,900 acres in the west Puget Sound region of Washington. This segment’s activities consist of efforts to enhance the value of our land by obtaining the entitlements and, in some cases, building the infrastructure necessary to enable further development. Further segment financial information is presented in Note 10 to our consolidated financial statements included in this report. Copies of the Partnership’s reports filed or furnished under the Securities Exchange Act, including our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, and all amendments to these reports, are available free of charge at www.poperesources.com. The information contained in or connected to our web site is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with or furnished to the Securities and Exchange Commission. The public may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site at www.sec.gov that also contains our current and periodic reports and all of our other securities filings.

DESCRIPTION OF BUSINESS SEGMENTS

Fee Timber

Operations. As indicated above, our Fee Timber operations consist primarily of growing, harvesting, and marketing timber. Delivered log sales to domestic manufacturers and export brokers represent the overwhelming majority of Fee Timber revenue, but we also occasionally sell rights to harvest timber (timber deed sale) from the Combined tree farms. In addition, our tree farms generate revenue from ground leases for cellular communication towers, gravel mines and quarries. The 201,000 timberland acres that we own or manage under the banner of this segment break down into two categories. The first of these categories consists of the approximately 69,200-acre Hood Canal tree farm, located in the Hood Canal area of Washington, and the 41,300-acre Columbia tree farm located in southwest Washington. Management views the Hood Canal and Columbia tree farms as the Partnership’s core holdings, and manages them as a single operating unit. When we refer to these two tree farms we will describe them as the “Partnership’s tree farms”. We have owned the Hood Canal tree farm, substantially as currently comprised, since our formation in 1985, while we acquired the bulk of the Columbia tree farm in 2001.

This segment also includes as a second category the operations of ORM Timber Fund I, LP (Fund I), ORM Timber Fund II, Inc. (Fund II), and ORM Timber Fund III (REIT), Inc. (Fund III), which are consolidated into our financial statements. When referring to all the Funds collectively, depending on context, we will use the designations “Fund” or “the Funds” interchangeably. The Funds’ assets consist of 91,000 acres of timberland located in western Washington, northwestern Oregon and northern California. Fund I acquired 24,000 acres of timberland in 2006, Fund II acquired its 37,000 acres of timberland in 2009 and 2010. Fund III acquired 19,000 acres of northern California timberland in the fourth quarter of 2012 and 11,000 acres in southwest Washington in December 2013. We will refer to tree farms owned by the Funds as “Fund tree farms”. The Partnership’s ownership interest in both Funds I and II is 20% and is 5% with respect to Fund III.

When referring to the Partnership and Fund tree farms together we will refer to them as the “Combined tree farms”. When referring to the combination of the Partnership’s tree farms and the aggregate proportion of each of the Funds owned by the Partnership, we will refer to the sums as “Look-through totals”. Our Fee Timber segment produced 79%, 84%, and 92% of our consolidated revenue in 2013, 2012, and 2011, respectively.

Inventory. Timber volume is generally expressed in thousand board feet (MBF) or million board feet (MMBF). In the discussion below, merchantable volume, productive acres and projected harvest level data for the Partnership’s tree farms is presented separately from that of the Funds’ tree farms, in addition to presentation of merchantable volume, productive acres and harvest level data on a Look-through basis. On our Washington and Oregon tree farms, we define “merchantable volume” to mean timber inventory in productive stands that are 35 years of age and older. On our California tree farm, which has historically utilized uneven age management wherein stands consist of trees of a variety of age classes, we classify merchantable volume based on the tree’s diameter at breast height (DBH). Trees with a DBH greater than or equal to 16 inches are considered merchantable and less than 16 inches are considered pre-merchantable. Accordingly, merchantable volume from our California tree farm is reflected in the tables below as “16+”.

In addition, volume on the California tree farm is measured using “short-log” scale, as opposed to the “long-log” scale that is used on our Washington and Oregon tree farms. To make aggregate volume data more meaningful and relevant on the following tables, we have converted the California tree farm’s volume from short-log scale to long-log scale by multiplying the short-log volume by 0.87.

Partnership merchantable volume (in MMBF) as of December 31:
	2013
Merch Class	Sawtimber		Pulpwood		Total		2012 Total
35 to 39 yrs.		93		24		117		101
40 to 44 yrs.		60		11		71		68
45 to 49 yrs.		32		6		38		35
50 to 54 yrs.		4		2		6		5
55 to 59 yrs.		6		2		8		12
60 to 64 yrs.		13		1		14		16
65+ yrs.		30		5		35		52
		238		51		289		289

Total merchantable inventory on the Partnership’s tree farms was unchanged at 289 MMBF for both 2012 and 2013. Decreases related to 2013 harvest volume of 49 MMBF and 9 MMBF of volume from land sold during the year were offset by growth on the merchantable inventory, shifts in age-class layers, and net changes resulting from ongoing cruising.

Fund merchantable volume (in MMBF) as of December 31:
	2013
Merch Class	Sawtimber		Pulpwood		Total		2012 Total
35 to 39 yrs.		114		9		123		95
40 to 44 yrs.		105		7		112		97
45 to 49 yrs.		64		3		67		53
50 to 54 yrs.		44		1		45		33
55 to 59 yrs.		26		0		26		33
60 to 64 yrs.		5		1		6		5
65+ yrs.		17		1		18		11
16+ inches		174		0		174		149
		549		22		571		476

Merchantable volume on the Funds’ tree farms increased 95 MMBF, or 20%, from 476 MMBF in 2012 to 571 MMBF in 2013. The increase is primarily attributable to an increase of 76 MMBF related to growth on merchantable inventory, age class shifts, and net volume adjustments related to ongoing cruises. In addition, the Fund III acquisition in December 2013 added 60 MMBF of merchantable volume. These additions were partially offset by 41 MMBF of timber harvested in 2013, including timber deed sales.

Look-through merchantable volume (in MMBF) as of December 31:
	2013 Volume						2012 Volume
	Partnership						Partnership
	100%		Share of		Look-		100%		Share of		Look-
Merch Class	Owned		Funds		through		Owned		Funds		through
35 to 39 yrs.		117		23		140		101		19		120
40 to 44 yrs.		71		18		89		68		19		87
45 to 49 yrs.		38		12		50		35		11		46
50 to 54 yrs.		6		8		14		5		7		12
55 to 59 yrs.		8		5		13		12		7		19
60 to 64 yrs.		14		1		15		16		1		17
65+ yrs.		35		3		38		52		2		54
16+ inches		0		9		9		0		7		7
		289		79		368		289		73		362

Merchantable volume on a Look-through basis increased 6 MMBF, or 2%, from 362 MMBF as of December 31, 2012, to 368 MMBF as of December 31, 2013. Given that the majority of the Funds’ inventory increase is attributable to Fund III and that the Partnership only owns 5% of Fund III, on a Look-through basis, the impact of the Funds’ inventory increase is heavily muted.

Merchantable volume from the Combined tree farms increased 95 MMBF, or 12%, from 765 MMBF at December 31, 2012, to 860 MMBF at December 31, 2013. The entire increase is attributable to the aforementioned increase in Fund volume during 2013.

Merchantable volume estimates are updated annually. Of the timber stands older than 24 years, 10% to 20% are physically re-measured each year using a statistical sampling process called “cruising”. Adjustments are made for depletion of areas harvested, growth, changes in acres, and associated timber volume resulting from acquisitions, dispositions, and reclassification of acres as available or unavailable for harvest.

The dominant timber species on the Partnership’s tree farms is Douglas-fir, which has unique structural characteristics that make it generally preferable to other softwoods and hardwoods for the production of construction grade lumber and plywood. A secondary conifer, or softwood, species on the Partnership’s tree farms is western hemlock, which is similar in color and structural characteristics to a number of other minor conifer timber species, including Sitka spruce and the true firs. These secondary species are thus purchased and manufactured into lumber generically, and referred to as “whitewoods”. There is also a minor amount of another conifer species, western red cedar, which is used in siding and fencing. Hardwood species on the Partnership’s tree farms include red alder and minor volumes of other hardwood species.

The merchantable timber inventory on Fund properties contains a greater proportion of whitewoods than do the Partnership’s timberlands. With the acquisition of timberland by Fund III in northern California, we added ponderosa pine and white fir to the Combined species inventory mix. Ponderosa pine is used for shelving, lumber, and parts for windows, doors, and furniture. White fir is a member of the whitewood species group and is used primarily for lumber production and for core layers in plywood.

Partnership merchantable volume (in MMBF) as of December 31:
Species	2013 Volume		Percent of total			2012 Volume		Percent of total
Douglas-fir		207		72	%		206		71	%
Western hemlock		34		12	%		35		12	%
Western red cedar		14		5	%		15		5	%
Other conifer		12		4	%		11		4	%
Red alder		19		7	%		19		7	%
Other hardwood		3		1	%		3		1	%
Total		289		100	%		289		100	%

Fund merchantable volume (in MMBF) as of December 31:
Species	2013 Volume		Percent of total			2012 Volume		Percent of total
Douglas-fir		204		36	%		193		41	%
Western hemlock		137		24	%		91		19	%
Western red cedar		2		0	%		2		0	%
Pine		51		9	%		41		9	%
Other conifer		160		28	%		135		28	%
Red alder		15		3	%		12		3	%
Other hardwood		2		0	%		2		0	%
Total		571		100	%		476		100	%

Look-through merchantable volume (in MMBF) as of December 31:
	2013 Volume
	Partnership
	100%		Share of		Look-		Percent
Species	Owned		Funds		through		of total
Douglas-fir		207		36		243		66	%
Western hemlock		34		22		56		15	%
Western red cedar		14		0		14		4	%
Pine		0		3		3		1	%
Other conifer		12		15		27		7	%
Red alder		19		3		22		6	%
Other hardwood		3		0		3		1	%
Total		289		79		368		100	%

Look-through merchantable volume (in MMBF) as of December 31:
	2012 Volume
	Partnership
	100%		Share of		Look-		Percent
Species	Owned		Funds		through		of total
Douglas-fir		206		38		244		67	%
Western hemlock		35		18		53		15	%
Western red cedar		15		0		15		4	%
Pine		0		2		2		1	%
Other conifer		11		12		23		6	%
Red alder		19		3		22		6	%
Other hardwood		3		0		3		1	%
Total		289		73		362		100	%

The Partnership’s tree farms as of December 31, 2013 consist of approximately 110,000 acres. Of this total, approximately 93,000 acres are designated as productive acres, meaning land that is capable of growing merchantable timber and where the harvesting of that timber is not constrained by physical, environmental or regulatory restrictions. The Funds’ tree farms as of December 31, 2013 totaled approximately 91,000 acres, of which almost 79,000 were designated as productive acres. Productive acres on a Look-through basis, as of December 31, 2013, were 105,000 acres. Approximately 32% of the Partnership’s acreage and 23% of the Funds’ Washington and Oregon acreage is in the 25-34 year age classes, much of which will begin moving from pre-merchantable to merchantable timber volume over the next five years. There is no age-class associated with the California tree farm and its productive acres are shown in the following tables under the heading “California.” As of December 31, 2013, Combined productive acres are spread by timber age-class as follows:

Age	12/31/2013 Productive Acres (in thousands)
Class	Partnership		%			Funds		%			Combined		%
Clear-cut		1.8		2	%		2.1		3	%		3.9		2	%
0 to 4		7.0		8	%		4.1		5	%		11.1		6	%
5 to 9		9.9		11	%		4.5		6	%		14.4		8	%
10 to 14		9.3		10	%		4.6		6	%		13.9		8	%
15 to 19		11.8		13	%		3.2		4	%		15.0		9	%
20 to 24		7.7		8	%		6.8		9	%		14.5		8	%
25 to 29		15.3		16	%		7.3		9	%		22.6		13	%
30 to 34		14.7		16	%		6.3		8	%		21.0		12	%
35 to 39		7.6		8	%		8.0		10	%		15.6		9	%
40 to 44		3.7		4	%		6.0		8	%		9.7		6	%
45 to 49		1.8		2	%		3.4		4	%		5.2		3	%
50 to 54		0.4		0	%		1.8		2	%		2.2		1	%
55 to 59		0.5		1	%		0.9		1	%		1.4		1	%
60 to 64		0.5		1	%		0.2		0	%		0.7		0	%
65+		1.3		1	%		0.7		1	%		2.0		1	%
California		-		0	%		18.8		24	%		18.8		11	%
		93.3					78.7					172.0

Look-through productive acres are spread by timber age-class as follows as of December 31, 2013:

	12/31/2013 Productive Acres (in thousands)
Age	100%					Share of					Look-
Class	Owned		%			Funds		%			through		%
Clear-cut		1.8		2	%		0.4		3	%		2.2		2	%
0 to 4		7.0		8	%		0.7		6	%		7.7		7	%
5 to 9		9.9		11	%		0.7		6	%		10.6		10	%
10 to 14		9.3		10	%		0.8		7	%		10.1		10	%
15 to 19		11.8		13	%		0.5		4	%		12.3		12	%
20 to 24		7.7		8	%		1.3		11	%		9.0		9	%
25 to 29		15.3		16	%		1.4		12	%		16.7		16	%
30 to 34		14.7		16	%		1.2		10	%		15.9		15	%
35 to 39		7.6		8	%		1.5		13	%		9.1		9	%
40 to 44		3.7		4	%		1.1		9	%		4.8		5	%
45 to 49		1.8		2	%		0.6		5	%		2.4		2	%
50 to 54		0.4		0	%		0.3		3	%		0.7		1	%
55 to 59		0.5		1	%		0.2		2	%		0.7		1	%
60 to 64		0.5		1	%		-		0	%		0.5		0	%
65+		1.3		1	%		0.1		1	%		1.4		1	%
California		-		0	%		0.9		8	%		0.9		1	%
		93.3					11.7					105.0

Look-through productive acres are spread by timber age-class as follows as of December 31, 2012:

	12/31/2012 Productive Acres (in thousands)
Age	100%					Share of					Look-
Class	Owned		%			Funds		%			through		%
Clear-cut		2.5		3	%		0.3		3	%		2.8		3	%
0 to 4		6.6		7	%		0.6		5	%		7.2		7	%
5 to 9		10.8		11	%		0.5		5	%		11.3		11	%
10 to 14		10.2		11	%		0.6		5	%		10.8		10	%
15 to 19		9.7		10	%		0.5		5	%		10.2		10	%
20 to 24		9.4		10	%		1.4		13	%		10.8		10	%
25 to 29		17.0		18	%		1.4		13	%		18.4		17	%
30 to 34		14.0		15	%		1.2		11	%		15.2		14	%
35 to 39		6.6		7	%		1.4		13	%		8.0		7	%
40 to 44		3.7		4	%		1.1		10	%		4.8		4	%
45 to 49		1.6		2	%		0.6		5	%		2.2		2	%
50 to 54		0.3		0	%		0.3		3	%		0.6		1	%
55 to 59		0.7		1	%		0.2		2	%		0.9		1	%
60 to 64		0.6		1	%		-		0	%		0.6		1	%
65+		1.9		2	%		0.1		1	%		2.0		2	%
California		-		0	%		0.9		8	%		0.9		1	%
		95.6					11.1					106.7

Long-term Harvest Planning. Long-term harvest plans for the Partnership’s tree farms and the Funds’ tree farms reflect the different ownership time horizons associated with each group. Plans for the Partnership timberlands are designed to maintain sustainable harvest levels, assuming perpetual ownership. Plans for the Funds’ tree farms, on the other hand, reflect the 10-13 year combined investment and drawdown term of each fund, and take into account further the different mix of age classes in each fund. The harvest level for the Funds’ tree farms is developed to maximize the total return during each of the Fund’s respective investment periods by blending harvest income with the value of the portfolio upon disposition. This will result in more harvest variability between years than is the case with the Partnership’s tree farms. The Funds’ tree farms also enjoy greater harvest flexibility relative to the Partnership’s tree farms due to the fact that they have nearly two times the percentage of merchantable acres (35% of Fund productive acres in Washington and Oregon are 35 years of age and older versus 17% for Partnership tree farms).

As a result of the Global Financial Crisis and commensurate reduction in demand for housing, log prices began to decline in 2008, bottoming out in 2010. During the period of declining log prices, we chose to defer volume from the Combined tree farms, storing the timber on the stump and waiting for stronger prices to emerge at a later date. Since 2010, log prices have recovered due to improved fundamentals in both the domestic housing market as well as the log export market to Asia, particularly China. Beginning in 2011 and continuing through 2013, we have been harvesting portions of the previously deferred volume. Over the next one to two years, assuming a continuation in log market price recovery, we expect to take advantage of spikes in demand and corresponding pricing opportunities to increase the harvest volume from the Partnership’s tree farms to meter in the remaining 10 MMBF (see table below) of deferred volume on top of the sustainable harvest level of 44 MMBF per year. Similarly, over the next one to two years, harvest from Fund tree farms will incorporate the remaining 13 MMBF of deferred harvest volume, which will be reduced further to the extent we sell any of the Funds’ tree farms during that period. As described above, the base level of harvest from the Funds’ tree farms will fluctuate more widely relative to the planned harvest level of 55 MMBF. Assuming full operations on the Funds’ existing tree farms, at December 31, 2013 the long-term planned annual harvest level for each ownership and on a Look-through basis, along with cumulative deferred volumes, can be found in the table below:

(amounts in MMBF)			Look-through				Accumulated
	Planned annual		planned annual		Accumulated		Look-through
	harvest volume		harvest volume		volume deferral		volume deferral
Partnership Properties		44		44		10		10
Fund Properties		55		8		13		3
Total		99		52		23		13

Marketing and Markets. The following marketing and markets discussion applies to the Combined tree farms. We market timber by selling finished logs to wood manufacturers or to export brokers. To do so, we engage independent logging and trucking contractors to harvest the standing timber, manufacture it into logs, and deliver it to our customers on the open market. We retain title to the logs until delivery takes place, which normally occurs at a customer log yard. We sell our logs to international customers and to domestic manufacturers, the former through log exporting intermediaries. While domestic manufacturers historically represent the largest consumer of our sawlogs, they slid behind export markets as a percent of total sawlog production in the fourth quarter of 2010 and have bounced between the primary and secondary market for us since that time.

Historically, Japanese customers have paid a premium for the highest quality logs from which visually appealing beams for residential construction are produced. U.S. mills, on the other hand, manufacture mostly framing lumber requiring structural integrity for wall systems that are concealed by drywall. The logs required by U.S. sawmills for domestic lumber consumption do not have to be of as high a quality and are more of a commodity relative to logs headed for the Japanese market, and thus command a lower price. Beginning in 2010, the reduction in China’s log imports from Russia opened up an opportunity for North American log producers to supply a larger portion of the growing Chinese market. Over the course of 2010 and into 2011, log export volumes from the Pacific Northwest to China surged, resulting in the migration of the export market from one focused on Japan to a market that now includes more volume to China.

This evolving export market provided support to log prices during the first half of 2011, despite a weak domestic housing market. Sawlogs sold to China are used chiefly for concrete forms, pallets, and other low-end uses that can be satisfied with the commoditized logs traditionally purchased by domestic sawmills. The lower average sawlog quality and more diverse species mix flowing to China, combined with the limited volume of high-quality Douglas-fir flowing to Japan, resulted in a narrowing of the overall export premium received for sales of logs into these export markets relative to the domestic market. By the second half of 2011, the Chinese government restricted credit in an effort to curb inflation and slow down the pace of building. This resulted in a buildup of inventory and, in turn, a weakening of demand and pricing in 2011’s fourth quarter. Subsequently in 2011, the U.S. home building industry was still in a slump, with low lumber demand and pricing making it hard for U.S. mills to compete for logs. Domestic mills, however, were able to sell significant volumes of lumber into the Chinese market, allowing them to better compete for log supply.

During 2012, export log prices for both the China and Japan segments of the export market remained at a diminished premium over the pricing of U.S. domestic sawmills, as domestic lumber markets improved in 2012 in response to improved fundamentals in the housing market. The premium offered for export logs was thin enough to encourage delivery of our logs to domestic customers closer to the point of production, including some specialty mills that produced high-grade lumber for export to Japan and paid prices for export quality logs that were equivalent to those paid by exporters. These modest economic improvements, coupled with spot export markets, helped to form a consistent, yet diverse, sales base in 2012.

During 2013, fundamentals in both the domestic and export market continued to improve, affording the Partnership two viable markets in which to sell manufactured logs. Improving lumber prices allowed mills to compete for logs in the first half of the year, before stronger prices during the second half of the year in the export market once again caused us to deliver more volume into that market.

The logs that we sell to China, Japan, and Korea are actually sold to U.S.-based brokers who in turn sell directly to offshore customers. Our decision to sell through intermediaries is predicated on risk management. Mitigation of foreign exchange risk, loss prevention, and minimizing cash collection risks inform our decision to sell through brokers. For the years 2005 through 2009, the percentage of our annual production sold into export markets ranged from 6% to 15%. For the years 2010 and 2011, however, our export mix surged to 33% and 45%, respectively, as demand from China continued to climb. With the narrowing of the export premium, the percent of logs sold to export customers diminished to 25% in 2012, before climbing again to 36% in 2013. Factors that affect the proportion of our sales to export markets include the net stumpage realization of delivering into that market, maintaining a diverse customer base, and currency exchange rates to the extent they may impact pricing to export markets.

Customers. Logs from the Combined tree farms are sold to a number of customers in both the domestic and export markets. Domestic customers include lumber mills and other wood fiber processors located throughout western Washington, northwestern Oregon, and northern California. Export customers consist of intermediaries located at the ports of Longview, Tacoma, Port Angeles, and Olympia, Washington and Astoria, Oregon. Whether destined for export or domestic markets, the cost of transporting logs limits the destinations to which the Partnership can profitably deliver and sell its logs.

The ultimate decision on where to sell logs is based on the net proceeds we receive after taking into account both the delivered log prices paid by a prospective customer and the hauling cost needed to deliver logs to that customer. In instances where harvest operations are closer to a domestic mill than the log yard of an export broker, we may take advantage of a favorable haul cost differential that exceeds the difference in delivered log price that an export broker is willing to pay. The higher net stumpage values earned by selling to the domestic mill will, in such instances, result in lower reported delivered log prices. As such, realized log price movements are influenced by marketing decisions predicated on net stumpage values rather than exclusively focusing on the delivered log price. In such instances our reported log realizations may reflect more of our own proximity to customers rather than the broader market trend.

Weyerhaeuser was the largest customer for our Fee Timber segment in 2013, representing 18% of segment revenue, followed by Formark which represented 15% of segment revenue. The Combined tree farms delivered logs to 41 separate customers during 2013, compared to 45 during 2012.

Competition. Most of our competitors are comparable in size or larger. Log sellers like the Partnership compete on the basis of quality, pricing, and the ability to satisfy volume demands for various types and grades of logs to particular markets. Management believes that the location, type, and grade of timber from the Combined tree farms will enable it to compete effectively in these markets. However, our products are subject to some competition from a variety of non-wood and engineered wood products as well as competition from foreign-produced logs and lumber.

Forestry and Stewardship Practices. Timberland management activities on the Combined tree farms include reforestation, control of competing brush in young stands, thinning of the timber to achieve optimal spacing after stands are established, fertilization, and road maintenance. During 2013, we planted 1.2 million seedlings on 3,300 acres of the Combined tree farms. This compares to the years 2012 and 2011 in which the Partnership planted 1.2 million and 803,000 seedlings on 3,300 and 2,000 acres, respectively, of the Combined tree farms. Seedlings are generally planted from December to April, depending on weather and soil conditions, to restock plantations that were harvested during the preceding twelve months. Planting will vary from year to year based upon harvest level, the timing of harvest, and seedling availability. Management’s policy is to return all timberlands to productive status in the first planting season after harvest.

All harvest and road construction activities are conducted in compliance with federal environmental laws and state forest practice laws and regulations. Many of these regulations are programmatic and include, for example; limitations on the size of clearcuts, reforestation following harvest, retention of trees for wildlife and water quality, and sediment management on forest roads. The regulations also require project-specific permits or notifications that govern a defined set of forest operations. An application for harvest or road construction may require more specific guidance to avoid potential impact to public resources. For example, we consult third-party, state-qualified geo-technical consultants for operations that have the potential to impact unstable slopes in order avoid, minimize, or mitigate risks to safety and public resources.

Sustainable Forestry Initiative (SFI®). Since 2001, we have been a member of the SFI forest certification program, an independent environmental review and certification program that promotes sustainable forest management, focusing on water quality, biodiversity, wildlife habitat, and species protection. With our voluntary entry into this certification program, we have been subject to independent audits of the required standards for the program. Management views this certification as an important indication of our commitment to manage our lands sustainably while continually seeking ways to improve our management practices. We believe this commitment is an important business practice that contributes positively to our reputation and to the long-term value of our assets.

Beginning in 2007, SFI third-party audits increased in frequency from every three years to annually. Our certifications are current for all of the Partnership’s and Funds’ properties. We believe this certification allows us to obtain the broadest market penetration for our logs while protecting the core timberland assets of the Partnership and the Funds.

Timberland Management & Consulting

Background. In 1997, the Partnership formed two wholly owned subsidiaries, ORM, Inc. and Olympic Resource Management LLC (“ORMLLC”), to facilitate the Timberland Management & Consulting activities. Our TM&C segment earns management fees and incurs expenses resulting from managing property on behalf of third-party owners and investors. Since the launch of our timberland private equity fund strategy in 2003, the activities in this segment have consisted primarily of attracting third-party investment capital for the Funds and then acquiring and managing properties on behalf of the Funds. When we discuss the TM&C properties we will refer to either the acquisition values, defined as contractually agreed-upon prices paid for the properties, or the value of assets under management, defined as the current appraised value of the properties. As of December 31, 2013, we manage 91,000 acres of timberland properties in Washington, Oregon, and California in this business segment with combined appraised values of approximately $302 million.

ORMLLC has deployed $213 million of equity capital and $43 million of debt capital for the Funds. Our co-investment in the Funds totals $32 million. In July 2012 we completed our final close of Fund III with commitments totaling $180 million, including our co-investment commitment of $9 million. The following table provides detail behind committed and called capital by the Funds as of December 31, 2013.

	Total Fund				Co-investment
(in millions)	Commitment		Called Capital		Commitment		Called Capital		Distributions Received
Fund I	$	62	$	59	$	12	$	12	$	1

Fund II	$	84	$	83	$	17	$	17	$	6

Fund III	$	180	$	72	$	9	$	4	$	0
Total	$	326	$	213	$	38	$	32	$	7

The Funds afford us greater economies of scale in the management, acquisition, and disposition of timberland than would be possible with the Partnership’s investment capital alone. In addition, we earn management fees that are paid by the Funds for managing the Funds and their respective timberland portfolios. Accounting rules require us to consolidate the Funds into our financial statements, based in part on ORMLLC’s controlling role as the general partner or managing member of the Funds, resulting in the elimination of $2.8 million, $2.2 million, and $2.4 million of management fee revenue in 2013, 2012, and 2011, respectively. These fees are eliminated in concert with a corresponding elimination of operating expenses for the Fee Timber segment.

Operations. The TM&C segment’s key activity is to provide investment and timberland management services to the Funds and to other third-party timberland owners. We anticipate growth in this segment as we continue to manage the Funds, together with any future funds successfully established by the Partnership. The TM&C segment represents less than 1% of consolidated revenue for each of the three years ended December 31, 2011 through 2013, due to the elimination of the fees generated from asset and timberland management of the Funds. Notwithstanding the elimination of fee revenue, the Partnership’s bottom line does benefit, however, in a number of ways. First, we benefit through the opportunity to co-invest in each of these funds. In addition to the benefits of deploying additional capital, we are also able to diversify our market exposure across more tree farms than we could by investing only for the Partnership. We benefit from the economies of scale generated through managing these additional acres of timberland, which accrue to both the Partnership and Fund timberlands. The contribution margin from the fees charged to the funds acts to further lower the management costs on the Partnership’s timberlands. Lastly, we are able to hire additional expertise that neither the Partnership nor the Funds’ timberlands could justify on a stand-alone basis.

We earn annual asset management fees for managing this capital once timberland properties are acquired. We also earn annual timberland management fees on acres owned by the Funds and log marketing fees based on harvest activity from Fund tree farms. At the end of a Fund term, if a Fund achieves threshold return levels, we earn a carried interest incentive fee.

As mentioned earlier, accounting guidance requires that all fees generated from managing the Funds and corresponding operating expenses for the Fee Timber segment are eliminated as a result of consolidation of the Funds into the Partnership’s financial statements. The elimination of these fees and corresponding operating expenses results in a decrease in the otherwise reported cost per acre of managing Fund tree farms under our Fee Timber segment as well as eliminating the revenue generated from managing the Funds in the TM&C segment. An effect of these eliminations is to make the Fee Timber results look stronger and the TM&C results look correspondingly weaker.

Marketing. When raising capital for a new Fund, we market these opportunities to accredited investors with an interest in investing alongside a manager with a specific regional specialization and expertise in the timberland asset class. Our Funds fill a unique niche among timberland investment management organizations due to our regional specialization, degree of co-investment, smaller fund sizes, and the targeting of relatively small transactions. Additional marketing and business development efforts include regular contact with forest products industry representatives, non-industry owners, and others who provide key financial services to the timberland sector. Our acquisition and disposition activities keep management informed of changes in timberland ownership that can represent opportunities for us to market our management and consulting services.

Customers. The Funds are the primary customers and users of TM&C services.

Competition. We compete against both larger and comparably sized companies providing similar timberland investment management services. There are over 20 established timberland investment management organizations competing against us in this business. The companies in this group have access to established sources of capital and, in some cases, increased economies of scale that can put us at a disadvantage. Our value proposition to investors is centered on the differentiation we provide relative to other managers, as described above, as well as our long track record of success in the Pacific Northwest.

Real Estate

Background. The Partnership’s real estate activities are closely associated with the management of its timberlands. Management continually evaluates timberlands in terms of the best economic use, whether this means continuing to grow and harvest timber, seeking a rezone of the property for sale or development, or working with conservation organizations and the public on a sale. After timberland has been logged, management has a choice between four primary alternatives for the underlying land: reforest and continue to use as timberland, sell as undeveloped property, undertake some level of development to prepare the land for sale as improved property, or hold as property slated for later development or sale. Generally speaking, the Real Estate segment’s activities consist of investing in and later reselling improved properties, and holding properties for later development and sale. As a result, revenue from this segment tends to fluctuate substantially, and is characterized by relatively long periods in which revenue is relatively low, while expenses incurred to increase the value of the Partnership’s development properties may be higher. During periods of diminished demand, entitlement related costs and infrastructure investment are managed so as to minimize negative cash flows, but segment expenses do not trend directly with segment revenues. When improved properties are sold, income is recognized in the form of sale price net of acquisition and development costs. The Partnership has a 2,900-acre portfolio of property for which management believes there to be a higher and better use than timberland.

Operations. Real Estate operations focus on maximizing the value of the Partnership’s real estate portfolio. For Real Estate projects, management secures entitlements and/or infrastructure necessary to make development possible and then sells the entitled property to a party who will construct improvements. In addition, this segment works to negotiate conservation easements (CE) that typically encumber Fee Timber properties to preclude land from future development. The third and final area of operations in this segment includes leasing residential and commercial properties in Port Gamble, Washington, and leasing out a portion of a commercial office building in Poulsbo, Washington. The Real Estate segment represents 21%, 16%, and 8% of consolidated revenue in 2013, 2012, and 2011, respectively.

Development Properties

Other Land Investments. Management recognizes the significant value represented by the Partnership’s Real Estate holdings and is focused on adding to that value. The means and methods of adding value to this portfolio vary considerably depending on the specific location and zoning of each parcel. The variety of our holdings extends from land that has commercial activity zoning where unit values are valued on a per-square-foot basis to large lots of recently cutover timberland where value is measured in per-acre terms. In general, value-adding activities that allow for the highest-and-best-use of the properties include: working with communities and elected officials to develop grass roots support for entitlement efforts, securing favorable comprehensive plan designation and zoning, acquiring easements, and obtaining plat approvals.

Master planned communities in Gig Harbor, Port Gamble, Kingston, Bremerton, Hansville, and Port Ludlow, Washington make up approximately half of the acres in our development property portfolio. Due to each property’s size, development complexity, and regulatory environment, the projects are long-term in nature and require extensive time and capital investments to maximize returns.

Gig Harbor. Gig Harbor, a suburb of Tacoma, Washington, is the site of Harbor Hill, a mixed-use development project that includes a 13-acre commercial/retail site, 18 acres of business park lots, and 187 acres of land with residential zoning. A 20-year development agreement was approved in late 2010. We received preliminary plat approval in early 2011 for the then 200-acre residential portion of this project that included 554 single-family and 270 multi-family units. Key provisions of the development agreement and plat approval include: (a) extending the project approval from 7 to 20 years; (b) reserving sufficient domestic water supply, sanitary sewer, and traffic trip capacity on behalf of the project’s 824 residential units; and (c) waiver of park impact fees in exchange for a 7-acre parcel of land for City park purposes. All components of this project have transportation, water and sewer capacities reserved for full build-out. In December 2012, we sold an 11.5-acre residential land parcel containing 172 multi-family units from our Gig Harbor development and in 2013 sold 14 acres of business park land for a school. Management has entered into agreements for sale of 105 acres of the residential property, consisting of 234 lots, to single-family developers and 17.5 acres of the remaining multi-family units to an extended care facility developer. In January 2014, we sold 40 of the single-family lots and we expect to close on the remaining sales over the next two to three years.

Port Gamble. The Partnership owns and operates the town of Port Gamble, Washington, northwest of Kingston on the Kitsap Peninsula. Port Gamble was designated a “Rural Historic Town” under Washington’s Growth Management Act in 1999. This designation allows for substantial new commercial, industrial, and residential development using historic land use patterns and densities while maintaining the town’s unique architectural character. In 2012, substantial work was completed toward making a plat application to Kitsap County that, if approved, will allow for between 200 and 240 additional residential units and 200,000 to 260,000 square feet of additional commercial building space. Submission of this master plan for the 114-acre townsite and adjoining 205-acre agrarian district was submitted in January 2013, kicking off what is expected to be a multi-year period of environmental impact review and public comment before any approval is granted and construction can take place. The plan currently calls for development of homes, an inn, a dock, waterfront trails, and an agricultural area with a creamery, garden plots, greenhouses, orchard and winery. The vision is also to bring back the New England-style homes that have slowly disappeared since Port Gamble’s heyday in the 1920’s. Walking trails along the shoreline, through the adjoining forestlands and along pastoral farmland would contribute to the lifestyle of residents and enhance Port Gamble as a unique tourist attraction.

Kingston. The Partnership owns a 360-acre property in Kingston that is named “Arborwood” with plans for the development of 663 single-family lots and 88 multi-family units. Final approval of a preliminary plat and a 15-year development agreement was completed in February 2010. Further development will not proceed until the local market demonstrates an increased appetite for residential lots. The Partnership owns an additional 366 acres bordering this project, which has zoning for 5-acre lots. This property is currently under contract for sale as conservation open space to be added to the neighboring park owned by Kitsap County.

Bremerton. The West Hills area of Bremerton, Washington is the site of a 46-acre industrial park which is being developed in two phases that will result in a total of 24 lots. Construction on the 9 lots that make up Phase I was completed in 2007. One lot has been sold from Phase I. In 2013, management obtained a comprehensive plan designation change from industrial to residential for the 36-acre Phase II portion of this property. In 2014, it is expected a zoning change will be obtained and marketing of the property for residential use can commence.

Hansville. The Partnership owns a 149-acre residential development project in Hansville called “Chatham”, with 19 parcels ranging from 3 to 10 acres in size. Construction was completed in late 2007 and the lots are currently being marketed for sale. To date, only one lot has sold from this project.

Port Ludlow. Port Ludlow represents a 256-acre property located just outside the Master Planned Resort boundary of Port Ludlow, Washington. We currently expect preliminary plat approval in 2014 that, if obtained, will allow for up to 54 lots ranging from 1 to 1.5 acres each, with the balance of the property designated as open space. Development beyond the point of plat approval will not commence until demand for rural residential lots improves.

Rural Residential. Management launched the Rural Lifestyles program to capitalize on higher-and-better-use real estate values. These properties are typically non-contiguous smaller lots ranging in size between 5 and 40 acres with zoning ranging from one dwelling unit per 5 acres to one per 80 acres. Development and disposition strategies vary depending on the property’s unique characteristics. Development efforts and costs expended to ready these properties for sale include work to obtain development entitlements that will increase

the property’s value as residential property as well as making improvements to existing logging roads, constructing new roads, extending dry utilities, and sometimes establishing gated entrances. As is the case with much of the Real Estate portfolio, investments in the Rural Lifestyles program have been restricted to costs necessary to achieve entitlements, while deferring construction costs until such point in time when market conditions for the sale of rural land improve.

Commercial Properties

Poulsbo. In May 2011, we purchased a 30,000-square-foot commercial office building in Poulsbo, on a 2-acre parcel of land. The building has a long-term tenant with a five-year, triple-net lease with a term that began in late 2010. In November 2012 we moved our headquarters location into the new building, sharing the space with the aforementioned tenant. This new building currently contains square footage that is under lease but not presently occupied, thus providing potential availability for our expansion or alternative rental to other third parties.

Port Gamble. As described above under “Development Properties”, the Partnership owns and operates the town of Port Gamble where 25 residential buildings and approximately 46,000 square feet of commercial building space are currently rented to third parties. In addition, the Partnership operates a wedding and events business, with another 8,000 square feet in its venues, that leverages the charm of the townsite to attract clientele. These commercial activities serve as placeholders to help offset the costs of maintaining the town until the master plan process (also described above) progresses.

Pope & Talbot, Inc. (P&T), operated a sawmill at Port Gamble from 1853 to 1995. Following the mill shutdown, the Department of Ecology (DOE) expressed interest in the environmental conditions at Port Gamble. In 2002, P&T and Pope Resources entered into a settlement agreement dividing up responsibility for environmental contamination at the townsite and millsite. Under Washington law, both Pope Resources and P&T were considered by DOE to be “potentially liable persons” (PLP) based on their historic ownership and/or operation of the site, which includes the uplands and Port Gamble Bay. The State of Washington’s Department of Natural Resources (DNR) is also considered a PLP because of its ownership and operation of the submerged beds in Port Gamble Bay. Washington’s environmental laws allow DOE to impose joint and several liability on PLPs at sites where contamination has come to be located, meaning that the agency can assert liability for cleanup costs against any or all such PLPs. Following a series of actions under the U.S. Bankruptcy Code that began in 2007, P&T has been liquidated, leaving the Partnership as one of few remaining potentially liable persons.

Negotiations with DOE during 2012 centered on clean-up action priorities. Notwithstanding the absence of an agreement or conclusion to the negotiations, we accrued an additional $12.5 million for Port Gamble environmental liabilities during the second quarter of 2012. The accrual was heavily informed by elements of an expanded scope of clean-up actions envisioned by DOE. The clean-up action plan was finalized over the course of 2013 after public and regulatory review periods with no material changes from the scope of work contemplated in the second quarter of 2012. In December 2013, a consent decree and the clean-up action plan were filed with Kitsap County Superior Court. The degree of cost participation by each of the PLPs has yet to be determined.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Real Estate – Environmental Remediation Costs.”

Marketing. Marketing efforts for Development Properties in 2013 were focused primarily on our Harbor Hill development and conservation land sales. Marketing efforts for Development Properties in 2012 were centered on residential, commercial, and industrial lands for sale through traditional brokerage and real estate listing services. Efforts were also expended to sell North Kitsap lands for conservation. Commercial Properties marketing in 2012 and 2013 was designed to increase visitation to and exposure of Port Gamble, thereby boosting retail sales, which led to improved lease-up of the townsite’s commercial, industrial, and residential spaces.

Customers. Management typically markets properties from the Real Estate portfolio to private individuals, residential contractors, and developers of commercial property. Customers for rental space in the Port Gamble townsite consist of both residential and commercial tenants.

Competition. Development and Commercial Properties compete with local and regional peers that offer land for sale or property for lease.

Transportation. Land values for the Real Estate portfolio are strongly influenced by transportation options between the west side of Puget Sound where our properties are located and the Seattle-Tacoma metropolitan corridor. Transportation options between these areas separated by bodies of water include the Tacoma Narrows Bridge or one of several car/passenger ferries. Ferry transportation within the market area currently utilizes vessels that carry both automobiles and passengers from each of the communities of Kingston, Bremerton, and Bainbridge Island, respectively, to and from Edmonds and Seattle.

Employees

As of December 31, 2013, the Partnership employed 53 full-time, salaried employees and 5 part-time and seasonal personnel, who are distributed among the segments as follows:

Segment	Full-Time		Part-Time/ Seasonal		Total
Fee Timber		20		1		21
Timberland Management & Consulting		4		-		4
Real Estate		17		4		21
General & Administrative		12		-		12
Totals		53		5		58

None of our employees are subject to a collective bargaining agreement and the Partnership has no knowledge that any steps toward unionization are in progress. Management considers the Partnership’s relations with its employees to be good.

Government Regulation

The timberland and real estate assets owned and managed by the Partnership are subject to federal, state, and local environmental laws and regulations, including extensive permitting or notification processes. Changes in these laws and regulations can significantly affect regional or local harvest levels and market values of timber-based raw materials, and the ability to develop real estate. These include federal, state, and local pollution controls, solid and hazardous waste management, disposal and remediation laws, and regulations in each segment and all geographic regions in which it has operations.

Forest Management Practices. Federal laws and regulations that have the potential to impact forest practices include, for example, the Endangered Species Act (ESA) and the Clean Water Act (CWA). State laws and regulations such as the Washington, Oregon, and California Forest Practice Acts also directly regulate forest management operations. Collectively, these laws and regulations increasingly affect present or future harvest and forest management activities.

Each state in which the Partnership owns or manages timberlands has developed “best management practices” to reduce the effects of forest practices on water quality and plant and animal habitats. Additional, more stringent regulations may be adopted in order to achieve the following: enhance water quality standards under the federal Clean Water Act, protect fish and wildlife habitat, or advance other public policy objectives.

The following are examples of potential changes to the regulatory climate that could affect forest practices in Washington, Oregon, and California:

Listing of plants and animals under state and federal Endangered Species Acts.

A number of fish and wildlife species that inhabit geographic areas near or within Partnership timberlands have been listed as threatened or endangered under the federal Endangered Species Act (ESA) or similar state laws in the United States. Federal ESA listings include the Northern Spotted Owl, marbled murrelet, numerous salmon species, bull trout, and steelhead trout in the Pacific Northwest. Listings of additional species or populations may result from pending or future citizen petitions or be initiated by federal or state agencies. Federal and state requirements to protect habitat for threatened and endangered species have resulted in restrictions on timber harvest on some timberlands, including some timberlands of the Partnership. Additional listings of fish and wildlife species as endangered, threatened, or sensitive under the ESA and similar state laws as well as regulatory actions taken by federal or state agencies to protect habitat for these species may, in the future, result in the following: an increase in operating costs; additional restrictions on timber harvests; impacts to forest management practices or real estate development activities; and potential impact on timber supply and prices.

Compliance for state and federal endangered species is achieved through a combination of adherence to state regulations and the Partnership’s best management practices to preserve endangered species and their habitat.

In June 2006, the U.S. Fish & Wildlife Service and NOAA Fisheries signed a 50 year Forest Practices Habitat Conservation Plan (HCP) covering forestry activities in Washington State. The HCP is supported by the State’s forest practice regulatory structure established by the Forests and Fish Law. Together, they provide landowners assurance that forestry activities comply with both the federal Endangered Species Act (ESA) and the Clean Water Act (CWA) to protect Washington's native fish and aquatic species and assure clean water compliance.

Washington State’s forest practice rules are monitored for their effectiveness at meeting resource objectives and are designed to change, if needed, based on research. If there is scientific evidence that the rules need to be adjusted, new or modified regulations could result in increased costs, additional capital expenditures, and reduced operating flexibility.

In 2009, the California Board of Forestry adopted the Anadromous Salmonid Protection Rules that were intended to protect, maintain, and improve riparian habitats for state and federally listed anadromous salmonid species. These rules are permanent regulations and replace the interim Threatened or Impaired Watershed Rules which were originally adopted in July 2000 and readopted six times.

Changes in state water quality regulations such as water quality standards, total maximum daily loads, new permitting requirements, and herbicide use.

A 2011 lawsuit in Oregon resulted in a ruling by the 9th Circuit Court of Appeals that water channeling structures such as culverts on logging roads are, in fact, point sources of pollution, with the potential impact of requiring the Environmental Protection Agency (EPA) to issue discharge permits under the National Pollutant Discharge Elimination System (NPDES), numbering millions of such permits across the nation. On December 12, 2011 the U.S. Supreme Court issued an order calling for the views of the U.S. Solicitor General on certiorari petitions filed by the state of Oregon and by the Oregon Forest Industry Council. The petitions asked the Supreme Court to review and reverse the 9th Circuit’s decision that storm water runoff from forest roads is a “point source” pollutant requiring a federal pollution discharge permit. On March 20, 2013, the U.S. Supreme Court ruled that an EPA rule exempts stormwater discharges on logging roads from requiring NPDES permits. In late 2012, just as the U.S. Supreme Court was to begin deliberations on whether to hear the appeal, EPA issued new stormwater rules that excluded logging road discharges from discharges associated with industrial activity, thus those activities would not require a NPDES permit. A lawsuit was filed in January 2013 by the plaintiff in the original lawsuit, the Northwest Environmental Defense Center (NEDC), challenging the new EPA rule. In light of the favorable ruling in Decker v. NEDC, the likelihood that NEDC’s new challenge to EPA’s 2012 amendment to the stormwater rules would result in additional permitting requirements is unlikely. In 2013, the U.S. House of Representatives passed a law that would place EPA’s rule upheld by the U.S. Supreme Court into statute, but was not acted on in the Senate. In February 2014, Congress included language in the Farm Bill which will prevent NPDES permitting of forest roads and silvicultural activities, prevent citizen enforcement suits for other regulatory measures related to forest roads, and remove additional legal ambiguity regarding runoff on forest roads.

The U.S. Environmental Protection Agency also promulgated regulations in 2000 requiring states to develop total maximum daily load (“TMDL”) allocations for pollutants in water bodies that have been determined to be “water quality impaired”. The TMDL requirements set limits on pollutants that may be discharged to a body of water or set additional requirements, such as best management practices for nonpoint sources, including timberland operations, to reduce the amounts of pollutants in water quality impaired bodies of water. These requirements have impacted tree farming principally through rules requiring tree farms to better minimize siltation of streams caused by roads, harvest operations and other management activities. TMDL targets will be established for specific water bodies in the states where the Partnership operates and these targets will be set so as to achieve water quality standards within 10 years, when practicable.

The Forest Practices HCP in Washington State also contains federal assurances with respect to the Clean Water Act. Changes to water quality regulations on forestland must be promulgated through the adaptive management program, and as such must be based on scientific information. Additionally, TMDLs for forested watersheds are given a low priority for development based on the existing regulatory structure. TMDL implementation plans in mixed use watersheds reference the existing regulatory structure for implementation plan recommendations on forestlands.

In December 2013, the Environmental Protection Agency and the National Oceanic and Atmospheric Administration disapproved Oregon’s coastal non- point source pollution control program, in part to specific forestry issues including; temperature impacts on medium and small fish bearing streams, high-risk landslide areas, current and legacy road operation and maintenance. The Oregon Board of Forestry is currently contemplating a range of regulatory actions in response to a study that indicated in that the buffer strategy applied on certain types of watercourses did not meet state anti-degradation standards for water temperature. Oregon will also be providing additional information to the federal agencies to document the effectiveness of Oregon’s overall regulatory structure and specific information related to measures addressing landslide risk and forest roads.

The California Board of Forestry in 2013 adopted a substantial revision to their rules governing the construction and maintenance of forest roads. Additionally, Regional Water Boards condition forest practice permits in order for them to be eligible for a waiver of a Report of Waste Discharge.

Changes in state permitting processes for timber harvest.

Washington, Oregon, and California all have a permitting or notification system as part of their forest practice rules. Changes in the permitting or notification processes can cause additional administrative expenses and/or delay project implementation.

California has as many as three separate permits that are required for conducting timber harvests including the Timber Harvest Plan (THP) administered by Cal Fire, Lake and Streambed Alteration Permit administered by the California Department of Fish and Wildlife for crossing watercourses, and various waivers of Reports of Waste Discharge administered by Regional Water Quality Control Boards. Timber Harvest Plans may have multiple operations spanning several years. Review of such plans is more comprehensive, with archaeological, botanical, biological and other disciplines involved. The public is allowed to review the plans and make comment. Only a Registered Professional Forester can sign a THP, a status that requires multidisciplinary training and testing. Once approved, a THP has a seven-year life.

Washington has a Forest Practice Application, a permit administered by the Department of Natural Resources. Forest practices that cross watercourses are also subject to regulations administered by the Department of Fish and Wildlife and until the end of 2013, subject to a permit called a Hydraulic Project Approval (HPA). As a result of legislation in 2012, these regulations have been integrated into the Forest Practice Rules, negating the need for a HPA.

Oregon does not have a permit system, but does require landowners to provide a Forest Practice Notification to the Department of Forestry. For certain activities, the Department does require a written plan describing specifically how certain elements of the regulations are to be met.

The regulatory and non-regulatory forest management programs described above have increased operating costs and resulted in changes in the value of the Combined timberlands. Management does not expect to be disproportionately affected by these programs in comparison with typical timberland owners. Likewise, management does not expect that these programs will significantly disrupt its planned operations over large areas or for extended periods.

Real Estate Development. Many of the federal laws (ESA and CWA) that impact forest management can in a more limited circumstance also apply to real estate development. Additionally, there are also state and local land use regulations that have additional permitting requirements and that limit development opportunities. For example, in Washington development rights are affected by the Growth Management Act, which requires counties to submit comprehensive plans that identify the future direction of growth and stipulate where population densities are to be concentrated. The purposes of the GMA include: (1) direction of population growth to population centers (Urban Growth Areas), (2) reduction of “suburban sprawl”, and (3) protection of historical sites. The Partnership works with local governments within the framework of the GMA to develop its real estate holdings to their highest and best use. Oregon also has growth management provisions in its land use laws which served as a model for Washington’s growth management provisions. Oregon's land use laws are generally more stringent outside of urban areas, especially in commercial forest lands where residential conversions are often outright disallowed without statutory action by the State legislature.

Item 1A. RISK FACTORS

We are subject to statutory and regulatory risks that currently limit, and may increasingly limit, our ability to generate income. Our ability to grow and harvest timber can be significantly impacted by legislation, regulations or court rulings that restrict or stop forest practices. For example, events that focus media attention upon natural disasters and damage to timberlands have at various times brought increasing public attention to forestry practices. Additional regulations, whether or not adopted in response to such events, may make it more difficult or expensive for us to harvest timber and may reduce the amount of harvestable timber on our properties. These and other 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. Any such additional restrictions likely would have a similar effect on our Timberland Management & Consulting operations, particularly in the case of the Funds.

Our real estate holdings are highly illiquid, and changes in economic and regulatory factors may affect the value of our properties or the timing of the proceeds, if any, that we expect to receive on the sale of such properties. The value of our real estate investments, and our income from Real Estate operations, is sensitive 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 land entitlements that would allow us to maximize the 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 effect on our investments. These investments often are highly illiquid and thus may not generate cash flow if and when needed to support our other operations.

We are sensitive to demand and price issues relating to our sales of logs in both domestic and foreign markets. We generate Fee Timber revenue primarily by selling softwood logs to domestic mills and to third-party intermediaries who resell them to the export market. The domestic market for logs in our operating area depends heavily on U.S. housing starts. Recently, the U.S. housing market has started to improve but, to the extent the recovery in the housing market should stall, such a turn of events could have a negative impact on our operating results. The export markets for Pacific Northwest logs are significantly affected by fluctuations in United States, Japanese and, increasingly, Chinese and Korean economies, as well as by the foreign currency exchange rate between these Asian currencies and the U.S. dollar, as well as ocean transportation costs.

We have certain environmental remediation liabilities associated with our Port Gamble and former Port Ludlow resort properties, and those liabilities may increase. We currently own certain real estate at Port Gamble on the Kitsap Peninsula and, up until mid-2001, owned real estate property within the resort community of Port Ludlow in Jefferson County in western Washington. Sediments adjacent to these properties were alleged to have been impacted by operations occurring prior to our acquisition of the properties, which occurred at the time of our spinoff from Pope & Talbot, Inc. in 1985. However, as current owner of Port Gamble and based on conditions of our sale of the Port Ludlow assets, we have environmental liability for these properties under Washington State’s Model Toxics Control Act (MTCA). We recently reached an agreement with the Washington State Department of Ecology (“DOE”) on a consent decree (“CD”) and clean-up action plan (“CAP”) for the cleanup environmental remediation effort in Port Gamble Bay. Together, these documents outline the terms under which the Partnership will conduct environmental remediation as well as the specific clean-up activities to be performed. The CD and CAP were filed with the Kitsap County Superior Court in December 2013. We are also negotiating with the other “potentially liable person”, the Washington State Department of Natural Resources (“DNR”), regarding its allocation of liability and its contribution towards cleanup costs.

While these negotiations are ongoing, management continues to monitor the Port Gamble and Port Ludlow cleanup processes closely. The $13.2 million remediation accrual as of December 31, 2013 represents our current estimate of the remaining cleanup cost and most likely outcome to various contingencies within both locations. These estimates are predicated upon a variety of factors, including the proportion of costs that would be allocated to us in comparison to those allocable to DNR or other parties, the actual amount of the ultimate cleanup costs, the cost of any litigation if we cannot reach a settlement with DNR, and the outcome of any such litigation. These liabilities are based upon a number of estimates and judgments that are subject to change as the project progresses. We have used mathematical simulations to estimate the liability for the aforementioned matters and suggest a potential aggregate range of $11.4 million to $15.3 million, which represents a two-standard-deviation range from the mean of possible outcomes generated by the modeling process used to estimate the liability. However, changes in any one or more of the factors upon which our estimates are based may have the effect of increasing the amount of our actual financial exposure or may require us to increase the amount of our remediation accrual, either of which would adversely affect our net income in the period in which the adjustment is made. The filing of the CD limits our legal exposure substantially, but does not eliminate it entirely. Any litigation ensuing from this matter may have the effect of distracting management and other key personnel from the day to day operation of our business. These factors, alone or in combination with other challenges, may have a material adverse effect upon our assets, income and operations.

We have entered into real estate purchase and sale agreements that may not close on the projected timeline or at all. The Partnership has certain real estate purchase and sale arrangements that are subject to risk of delayed closing, cancellation, or expiration before closing. While we expect the agreements to come to fruition as agreed, including a number of transactions that are slated to conclude in 2014, a variety of factors may cause us to experience delays in closing, a change in sale proceeds, or a failure to close. These factors include delays in the entitlement process, change in buyer strategy, buyer access to funding, failure to reach consensus on deal points, or any number of risks could either preclude or delay closing. The sale of finished lots in our Gig Harbor project to homebuilders carries some incremental risk to closing based on either our ability to produce finished lots due to final permitting process, construction delays, or the buyer’s ability to sell homes.

We rely on contract loggers and truckers who are in short supply and seeking consistent work at increasing rates. We rely on contract loggers and truckers for the production and transportation, respectively, of our products to customers. During the economic downturn of 2008 and 2009 most industrial forestry firms deferred harvest, which resulted in a shortfall in demand for the contract logging and trucking work force. Many private logging and trucking companies did not survive the protracted economic downturn. As the economy has improved and companies return to harvesting, a shortage of logging contractors and truckers has developed. The remaining contractors who survived did so by reducing their workforce or, in the case of log truckers, converting their trucks to configurations suitable for highway freight hauling. This decline in the pool of available contractors has resulted in a steady increase in harvest and haul costs and market forces that are stressing continuity of work when soliciting contractor bids for a job. The commitment to more continuous work could preclude our ability to time markets, affecting total returns.

We benefit from certain tax treatment accorded to master limited partnerships, and if that status changes the holders of our units may realize less advantageous tax consequences. The Partnership is a Master Limited Partnership and is therefore not generally subject to U.S. federal income taxes. If a change in tax law (or interpretation of current tax law) caused the Partnership to become subject to income taxes, operating results would be adversely affected. We also have a handful of taxable subsidiaries. The estimation of income tax expense and preparation of income tax returns requires complex calculations and judgments. We believe the estimates and calculations used in this process are proper and reasonable and more likely than not would be sustained under examination by federal or state tax authorities, however if a federal or state taxing authority disagreed with the positions we have taken, a material change in provision for income taxes, net income, or cash flows could result.

We and our customers are dependent upon active credit markets to fund operations. We sell logs from our Fee Timber segment to mills and log brokers that in most circumstances rely upon an active credit market to fund their operations. Our Real Estate sales are also often dependent upon credit markets in order to fund acquisitions. To the extent borrowing restrictions impinge on customers’ access to debt, we expect those customers to respond by reducing their expenditures, and those reductions may have the effect of directly reducing our revenues and of indirectly reducing the demand for our products. Any such outcomes could materially and adversely impact our results of operations, cash flows, and financial condition.

We are controlled by our managing general partner. As a master limited partnership, substantially all of our day-to-day affairs are controlled by our managing general partner, Pope MGP, Inc. The board of directors of Pope MGP, Inc. serves as our board of directors, and by virtue of a stockholder agreement, each of the two individual shareholders of Pope MGP, Inc. have the ability to designate one of our directors and jointly appoint two others, with the fifth board position taken by our chief executive officer, who serves as a director by virtue of his executive position. Unitholders may remove the managing general partner only in limited circumstances, including, among other things, a vote by the holders of a two-thirds majority of the “qualified units,” which means the units that have been owned by their respective holders for at least five years prior to such vote. By virtue of the terms of our agreement of limited partnership, as amended, or “partnership agreement”, our managing general partner directly, and the general partner shareholders indirectly, have the ability to do the following: prevent or impede transactions that would result in a change of control of the Partnership; to prevent or, upon the approval of limited partners holding a majority of the units, to cause, the sale of the assets of the Partnership; and to cause the Partnership to take or refrain from taking certain other actions that one might otherwise perceive to be in the Partnership’s best interest. Under our partnership agreement, we are required to pay to Pope MGP, Inc. an annual management fee of $150,000, and to reimburse Pope MGP, Inc. for certain expenses incurred in managing our business.

We may incur losses as a result of natural disasters that may occur, or that may be alleged to have occurred, on our properties. Forests are subject to a number of natural hazards, including damage by fire, severe windstorms, insects and disease, flooding and landslides. Changes in global climate conditions may intensify these natural hazards. Severe weather conditions and other natural disasters can also reduce the productivity of timberlands and disrupt the harvesting and delivery of forest products. While damage from natural causes is typically localized and would normally affect only a small portion of our timberlands at any one time, these hazards are unpredictable and losses might not be so limited. While our timberlands are managed under the auspices of the Sustainable Forestry Initiative and management believes we follow sound forest management and risk mitigation procedures, and all forest operations meet or exceed the rules and regulations governing forest practices in Washington, Oregon and California, we cannot be certain that we will not be the subject of claims based on allegations that we acted improperly in managing our property. These claims may take the form of individual or class action litigation, regulatory or enforcement proceedings, or both. Any such claims could result in substantial defense costs and divert management’s attention from the ongoing operation of our business, and if any such claims were successful, may result in substantial damage awards, fines or civil penalties. Consistent with the practices of other large timber companies, we do not maintain insurance against loss of standing timber on our timberlands due to natural disasters.

We compete with a number of larger competitors that may be better able than we to absorb price fluctuations, may be able to expend greater resources on production, may have greater access to capital, and may operate more efficiently than we can. We compete against much larger companies in each of our business segments. We compete with these companies for management and line personnel, as well as for purchases of relatively scarce capital assets such as land and standing timber and for sales of our products. These larger competitors may have access to larger amounts of capital and significantly greater economies of scale, and they may be better able to absorb the risks of our line of business. Moreover, the timber industry has experienced significant consolidation in recent years and, as that consolidation occurs, our relative market share decreases and the relative financial capacity of our competitors increases. While management believes the Partnership is at a competitive advantage over some of these companies because of our lack of vertical integration into forest products manufacturing, our advantageous tax structure, and management’s attempts to diversify our asset base, we cannot assure readers that competition will not have a material and adverse effect on our results of operations or our financial condition.

Consolidation of sawmills in our geographic operating area may reduce competition among our customers, which could adversely affect our log prices. In the past we have experienced, and may continue to experience, consolidation of sawmills and other wood products manufacturing facilities in the Pacific Northwest. Because a portion of our cost of sales in our Fee Timber segment, which encompasses the Combined tree farms, consists of transportation costs for delivery of logs to domestic sawmills, it becomes increasingly expensive to transport logs over longer distances for sales in domestic markets. As a result, a reduction in the number of sawmills, or in the number of sawmill operators, may reduce competition for our logs, increase transportation costs, or both. These consolidations thus may have a material adverse impact upon our Fee Timber revenue or income and, as that segment has traditionally represented our largest business unit, upon our results of operation and financial condition as a whole. Any such material adverse impact on timber revenue and income as a result of regional mill consolidations will also indirectly affect our Timberland Management & Consulting segment in the context of raising capital for investment in Pacific Northwest-based timber funds.

Item 1B. UNRESOLVED SECURITIES AND EXCHANGE COMMISSION COMMENTS

None

Item 2. PROPERTIES

The following table reconciles acreage owned as of December 31, 2013 to acreage owned as of December 31, 2012. As noted previously, we own 20% of Funds I and II and 5% of Fund III. This table includes the entire 91,000 acres of timberland owned by the Funds and also presents the acreage on a look-through basis. Properties are typically transferred from Fee Timber to the Real Estate segment at the point in time when the Real Estate segment takes over responsibility for managing the properties with the goal of maximizing the properties’ value upon disposition.

	Timberland Acres (in thousands) by Tree Farm
Description	2012		Acquisitions		Sales			Transfer		2013
Hood Canal tree farm (1)		69.5		-		(0.3	)		-		69.2
Columbia tree farm (1)		43.6		-		(2.3	)		-		41.3
Subtotal Partnership Timberland		113.1		-		(2.6	)		-		110.5

Fund I tree farms		23.9		-		-			-		23.9
Fund II tree farms (2)		37.2		-		-			-		37.2
Fund III tree farms (2)		18.9		10.7		-			-		29.6
Subtotal Funds' Timberland		80.0		10.7		-			-		90.7

Total Fee Timber acres		193.1		10.7		(2.6	)		-		201.2

Partnership share of Funds		13.2		0.5		-			-		13.7
Total Real Estate acres (see detail below)		2.9		-		-			-		2.9
Combined Look-through total acres		129.2		0.5		(2.6	)		-		127.1

(1) A subset of this property is used as collateral for the Partnership's long-term debt, excluding debt of the Funds.

(2) A subset of these properties is used as collateral for the Funds' long-term debt.

	Real Estate Acres Detail
Project Location	2012		Acquisitions	Sales			Transfer	2013

Bremerton		46							46
Gig Harbor		232			(14	)			218
Hansville		149							149
Kingston - Arborwood		360							360
Kingston - 5-acre zoning		366							366
Port Gamble LAMIRD townsite (a)		114							114
Port Gamble Agrarian District (b )		205							205
Port Ludlow		256							256
Poulsbo		2							2
Other Rural Residential		1,188							1,188
Total		2,918	-		(14	)	-		2,904

The following table provides dwelling unit (DU) per acre zoning for the Partnership’s owned timberland and development properties as of December 31, 2013 and land sold during 2013. The table does not include sales of development rights or small timberland sales from tree farms properties:

Current Real Estate Land Inventory by Zoning Category			2013 Sales from RE Portfolio
Zoning Designation	Acres		Acres		$/Acre		Total Sales
Urban zoning - residential		488					$	1,628	*
Historic Rural Town		114
Commercial/retail		13
Business park/industrial		64		14		314,286		4,400
1 DU per 5 acres		726
1 DU per 10 acres		131
1 DU per 20 acres		861
1 DU per 40 acres		5
1 DU per 80 acres		251
Agrarian District		205
Forest Resource Lands		26
Open Space		20
Total		2,904					$	6,028
*Property was sold in 2012, but accounting rules require us to recognize revenue on a percentage of completion basis as we satisfy construction-related post-closing obligations. This property was 11.5 acres with total revenue per acre of $135,004.

Item 3. LEGAL PROCEEDINGS

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

Item 5.

MARKET FOR REGISTRANT’S UNITS, RELATED SECURITY HOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Partnership’s equity securities are listed on NASDAQ and traded under the ticker symbol “POPE”. The following table sets forth the 2011 to 2013 quarterly ranges of low and high prices, respectively, for the Partnership’s units together with per unit distribution amounts by the period in which they were paid:

	High		Low		Closing		Distributions
Year Ended December 31, 2011
First Quarter	$	48.00	$	35.02	$	46.75	$	0.25
Second Quarter		49.00		40.81		45.51		0.25
Third Quarter		50.29		39.02		41.00		0.35
Fourth Quarter		47.50		38.00		42.99		0.35
Year Ended December 31, 2012
First Quarter	$	45.78	$	41.19	$	43.70	$	0.35
Second Quarter		60.39		42.50		55.07		0.45
Third Quarter		57.13		50.71		52.15		0.45
Fourth Quarter		56.49		51.25		55.68		0.45
Year Ended December 31, 2013
First Quarter	$	66.49	$	56.15	$	61.50	$	0.45
Second Quarter		74.99		59.97		70.00		0.45
Third Quarter		73.07		60.07		67.69		0.55
Fourth Quarter		69.65		63.01		67.00		0.55

Unitholders

As of January 31, 2014, there were 4,452,511 outstanding units, representing 243 holders of record. Units outstanding include 64,188 that are currently restricted from trading and that were granted to 17 holders of record who are either management employees or members of the managing general partner’s board of directors. The trading restriction for these units is lifted as the units vest. These restricted units vest over a four-year vesting schedule, either ratably over four years for management or 50% on the third anniversary of the grant date and the remaining 50% upon reaching the fourth anniversary for non-management Board members.

Distributions

All cash distributions are at the discretion of the Partnership’s managing general partner, Pope MGP, Inc. (the “Managing General Partner”). During 2013, the Partnership made two quarterly distributions of 45 cents per unit and two of 55 cents per unit that totaled $8.9 million in the aggregate. In 2012, we made one distribution of 35 cents per unit and three of 45 cents per unit, totaling $7.5 million in the aggregate.

Confidence in our ability to generate cash flow in 2013 and continued improvement in all of our markets served to inform a $0.10, or 22% increase in quarterly distribution in the third quarter of 2013. This increase was in addition to a $0.10, or 29%, increase in quarterly distribution in the second quarter of 2012. The Managing General Partner, in its discretion, determines the amount of the quarterly distribution and regularly evaluates distribution levels. The Partnership recognizes that current economic conditions warrant continued sensitivity to the stewardship of cash balances. As such, the quarterly determination of distribution amounts, if any, will reflect the expectations of management and the Managing General Partner for the Partnership’s liquidity needs.

Equity Compensation Plan Information

The Partnership maintains the Pope Resources 2005 Unit Incentive Plan, which authorizes the granting of nonqualified equity compensation in order to provide incentives to align the interests of management with those of unitholders. Pursuant to the plan, the Partnership issues restricted unit grants that vest over four years. As of December 31, 2013 there were 70,758 unvested and outstanding restricted units of which 24,036 units are scheduled to vest during 2014, and 915,994 limited partnership units remained issuable under the plan. Additional information regarding equity compensation arrangements is set forth in Note 6 to Consolidated Financial Statements and Item 11 - Executive Compensation. Such information is incorporated herein by reference.

Repurchase of Equity Securities

In December 2008 we announced a unit repurchase plan pursuant to which the Partnership was authorized to repurchase limited partner units with an aggregate value of up to $2.5 million. We subsequently increased the aggregate value of units authorized for repurchase to $5 million and extended the repurchase plan to allow for repurchases through December 2013. There were no Partnership unit repurchases under this 2008 plan during 2011, 2012 or 2013. The unit repurchase plan has been terminated as of December 31, 2013.

Performance Graph

The following graph shows a five-year comparison of cumulative total unitholder returns for the Partnership, the Standard and Poor's 500 Index, the Standard and Poor's Smallcap 600 Index, the Standard and Poor’s Forest Products Index, the Wilshire 4500, and the Wilshire 5000 for the five years ended December 31, 2013. The total unitholder return assumes $100 invested at the beginning of the period in the Partnership’s units, the Standard and Poor's 500 Index, the Standard and Poor's Smallcap 600 Index, the Standard and Poor’s Forest Products Index, the Wilshire 4500, the Wilshire 5000, Former Long-Term Incentive Plan Peer Group and Current Long-Term Incentive Plan Peer Group. The graph assumes distributions are reinvested.


	12/31/08	12/31/09	12/31/10	12/31/11	12/31/12	12/31/13

Pope Resources	100.00	126.98	194.64	233.62	312.77	387.76
S & P 500	100.00	126.46	145.51	148.59	172.37	228.19
S & P Smallcap 600	100.00	125.57	158.60	160.22	186.37	263.37
Wilshire 4500	100.00	136.99	175.94	168.73	199.08	275.50
S & P Forest Products	100.00	143.51	143.01	143.01	143.01	143.01
Wilshire 5000	100.00	128.30	150.33	151.79	176.17	234.42
Former Long-Term Incentive Plan Peer Group	100.00	125.39	138.76	143.60	189.56	190.42
Current Long-Term Incentive Plan Peer Group	100.00	129.09	143.72	146.93	198.74	211.87

Issuance of Unregistered Securities

The Partnership did not conduct any unregistered offering of its securities in 2011, 2012, or 2013.

Item 6. SELECTED FINANCIAL DATA

Actual Results. The financial information set forth below for each of the indicated years is derived from the Partnership’s audited consolidated financial statements. This information should be read in conjunction with the audited consolidated financial statements and related notes included with this report.

(In thousands, except per unit data)	Year Ended December 31,
Statement of operations data	2013			2012			2011			2010			2009
Revenue:
Fee Timber	$	56,035		$	45,539		$	52,729		$	27,674		$	14,847
Timberland Management & Consulting		-			7			-			31			601
Real Estate		14,657			8,497			4,545			3,487			5,030
Total revenue		70,692			54,043			57,274			31,192			20,478

Operating income/(loss):
Fee Timber		16,168			11,853			16,899			9,703			3,724
Timberland Management & Consulting		(1,950	)		(1,568	)		(1,515	)		(1,250	)		(375	)
Real Estate (1)		3,276			(11,099	)		(349	)		(829	)		1,616
General and Administrative		(4,562	)		(4,170	)		(4,188	)		(4,711	)		(3,686	)
Total operating income (loss)		12,932			(4,984	)		10,847			2,913			1,279
Net income (loss) attributable to unitholders	$	13,135		$	(4,709	)	$	8,754		$	2,038		$	(272	)
Earnings (loss) per unit – diluted	$	2.96		$	(1.11	)	$	1.94		$	0.43		$	(0.07	)
Distributions per unit	$	2.00		$	1.70		$	1.20		$	0.70		$	0.70

Balance sheet data
Total assets	$	310,908		$	267,499		$	230,408		$	235,837		$	187,080
Long-term debt, net of current portion		75,581			43,710			45,793			50,468			28,659
Partners’ capital		69,445			64,223			75,759			70,990			83,126

(1)	Real Estate operating results in 2013, 2012, 2011, 2010, and 2009 included $0, $12.5 million, $977,000, $875,000, and $30,000, respectively, of environmental remediation charges.

Management uses adjusted cash available for distributions, a non-GAAP measure, as a meaningful indicator of liquidity for purposes of calibrating our distribution payout rate to unitholders and, as such, has provided this information in addition to the generally accepted accounting principle-based presentation of cash provided by operating activities. Management recognizes that there are varying methods of calculating cash flow and has provided the information below to give transparency to this particular metric’s calculation.

(In thousands)	Year Ended December 31,
Adjusted cash available for distribution:	2013			2012			2011			2010			2009
Cash provided by operations	$	17,949		$	16,209		$	21,660		$	8,950		$	662
Less: Maintenance capital expenditures (1)		(1,352	)		(1,284	)		(1,353	)		(858	)		(1,118	)
Less: Required debt service		(98	)		(3	)		(6	)		(1,015	)		(1,357	)

Less: Noncontrolling portion of Funds cash from operations (2)		(5,656	)		(3,270	)		(7,405	)		(733	)		543
Plus: Financed debt extinguishment costs (3)		-			-			-			1,250			1,137
Adjusted cash available for distribution (ACAD)	$	10,843		$	11,652		$	12,896		$	7,594		$	(133	)

Other data
Acres owned/managed (thousands)		204			196			178