a50972246.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q
 
 
  ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2014

OR
 
  ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 1-9035

POPE RESOURCES, A DELAWARE
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 91-1313292
(State or other jurisdiction of 
incorporation or organization) 
(IRS Employer
Identification Number)
 
19950 7th Avenue NE, Suite 200, Poulsbo, WA 98370
Telephone: (360) 697-6626
(Address of principal executive offices including zip code)
(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yesx          Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yesx          Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
  Large Accelerated Filero      Accelerated Filerx    
  Non-accelerated Filero Smaller Reporting Companyo  
                                                                                                           
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)     Yeso          Nox

Partnership units outstanding at October 31, 2014: 4,325,974
 
 
 

 
 
Pope Resources
Index to Form 10-Q Filing
For the nine Months Ended September 30, 2014

Description
 
Page Number
   
     
   
 
4
 
5
 
6
 
7
     
 
13
     
 
36
     
 
36
     
   
     
 
37
     
 
37
     
 
40
     
 
40
     
 
40
     
 
40
     
 
40
     
 
42

 
 
 

 
 
P A R T  I – FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

 
3

 
 
 
           
Pope Resources, a Delaware Limited Partnership
           
September 30, 2014 and December 31, 2013
           
(in thousands)
           
   
2014
 
2013
ASSETS            
Current assets            
   Partnership cash and cash equivalents   $ 3,658     $ 5,704  
   ORM Timber Funds cash     38,528       1,256  
       Cash and cash equivalents     42,186       6,960  
   Short-term investments     4,000       -  
   Accounts receivable, net     1,845       1,501  
   Land and timber held for sale     20,554       10,258  
   Prepaid expenses and other     5,248       1,660  
           Total current assets     73,833       20,379  
Properties and equipment, at cost                
   Timber and roads, net of accumulated depletion (2014 -  $90,518; 2013 - $92,971)     163,753       211,946  
   Timberland     40,318       44,946  
   Land held for development     28,017       27,040  
   Buildings and equipment, net of accumulated depreciation (2014 - $6,752; 2013 - $6,437)     6,041       6,205  
           Total property and equipment, at cost     238,129       290,137  
                 
Other assets     280       392  
   Total assets   $ 312,242     $ 310,908  
                 
LIABILITIES, PARTNERS' CAPITAL AND NONCONTROLLING INTERESTS                
Current liabilities                
   Accounts payable   $ 1,439     $ 2,196  
   Accrued liabilities     3,337       4,109  
   Current portion of long-term debt     5,108       109  
   Deferred revenue     845       599  
   Current portion of environmental remediation liability     2,060       700  
   Other current liabilities     269       266  
           Total current liabilities     13,058       7,979  
   Long-term debt, net of current portion     70,500       75,581  
   Environmental remediation and other long-term liabilities     10,656       12,734  
Partners' capital and noncontrolling interests                
   General partners' capital (units issued and outstanding 2014 - 60; 2013 - 60)     1,082       974  
   Limited partners' capital (units issued and outstanding 2014 - 4,225; 2013 - 4,312)     68,864       68,471  
Noncontrolling interests     148,082       145,169  
           Total partners' capital and noncontrolling interests     218,028       214,614  
Total liabilities, partners' capital and noncontrolling interests   $ 312,242     $ 310,908  
   
See accompanying notes to condensed consolidated financial statements.
 
 
 
 
 
4

 
 
 
Pope Resources, a Delaware Limited Partnership
                       
For the Three and Nine Months Ended September 30, 2014 and 2013
                   
(in thousands, except per unit data)
                       
   
Three Months Ended September 30
 
Nine Months Ended September 30,
   
2014
   
2013
   
2014
   
2013
 
                         
Revenue
  $ 13,755     $ 11,724     $ 70,117     $ 51,639  
Cost of sales
    (9,125 )     (7,769 )     (39,426 )     (28,718 )
Operating expenses
    (3,686 )     (3,483 )     (10,590 )     (9,401 )
Gain on sale of timberland
    9,188       -       9,188       -  
General and administrative expenses
    (941 )     (1,002 )     (2,713 )     (3,433 )
     Income (loss) from operations
    9,191       (530 )     26,576       10,087  
                                 
Other expense
                               
  Interest expense, net
    (659 )     (385 )     (1,862 )     (1,083 )
                                 
Income (loss) before income taxes
    8,532       (915 )     24,714       9,004  
Income tax benefit (expense)
    (259 )     202       (485 )     218  
     Net income (loss)
    8,273       (713 )     24,229       9,222  
                                 
Net (income) loss attributable to noncontrolling interests - ORM Timber Funds
    (6,773 )     638       (8,642 )     315  
     Net and comprehensive income (loss) attributable to unitholders    
    1,500       (75 )     15,587       9,537  
                                 
Allocable to general partners
  $ 21     $ (1 )   $ 214     $ 131  
Allocable to limited partners
    1,479       (74 )     15,373       9,406  
    Net and comprehensive income (loss) attributable to unitholders
  $ 1,500     $ (75 )   $ 15,587     $ 9,537  
                                 
Basic and diluted earnings (loss) per unit attributable to unitholders
  $ 0.34     $ (0.03 )   $ 3.52     $ 2.09  
                                 
Basic and diluted weighted average units outstanding
    4,350       4,371       4,376       4,369  
                                 
Distributions per unit
  $ 0.65     $ 0.55     $ 1.85     $ 1.45  
                                 
See accompanying notes to condensed consolidated financial statements.
 
 
5

 
 
           
Pope Resources, a Delaware Limited Partnership
           
Nine Months Ended September 30, 2014 and 2013
           
(in thousands)
           
   
2014
 
2013
Net income
  $ 24,229     $ 9,222  
Adjustments to reconcile net income to net cash provided by operating activities
               
 Depletion
    9,382       8,700  
 Timber depletion on land sale
    -       296  
 Equity-based compensation
    698       988  
 Depreciation and amortization
    542       525  
 Deferred taxes
    207       (262 )
 Cost of land sold
    8,378       1,529  
 Gain on sale of timberland
    (9,188 )     -  
    (Gain) loss on disposal of property and equipment
    (1 )     57  
Cash flows from changes in operating accounts
               
 Accounts receivable, net
    (345 )     (1,213 )
 Prepaid expenses and other assets
    13       53  
 Real estate project expenditures
    (3,438 )     (6,859 )
 Accounts payable and accrued liabilities
    (1,527 )     1,652  
 Deferred revenue
    294       (960 )
 Environmental remediation
    (694 )     (441 )
 Other current and long-term liabilities
    (159 )     (12 )
       Net cash provided by operating activities
    28,391     $ 13,275  
                 
Cash flows from investing activities
               
 Purchase of short-term investments
    (4,000 )     -  
 Reforestation and roads
    (1,543 )     (1,399 )
 Buildings and equipment
    (253 )     (205 )
 Deposit for acquisition of timberland
    (3,600 )     -  
 Acquisition of timberland
    (321 )     -  
 Proceeds from sale of timberland
    38,147       -  
       Net cash provided by (used in) investing activities
    28,430       (1,604 )
                 
Cash flows from financing activities
               
 Proceeds from issuance of long-term debt
    -       14,000  
 Repayment of long-term debt
    (82 )     (91 )
 Unit repurchase
    (7,363 )     -  
 Proceeds from preferred stock issuance - ORM Timber Funds
    125       -  
 Payroll taxes paid on unit net settlements
    (196 )     (241 )
 Cash distributions to unitholders
    (8,225 )     (6,443 )
 Cash distributions - ORM Timber Funds, net of distributions to Partnership
    (5,854 )     (15,752 )
 Capital call - ORM Timber Funds, net of Partnership contribution
    -       137  
       Net cash used in financing activities
    (21,595 )     (8,390 )
                 
Net increase in cash and cash equivalents
    35,226       3,281  
 Cash and cash equivalents at beginning of period
    6,960       3,779  
 Cash and cash equivalents at end of period
  $ 42,186     $ 7,060  
                 
See accompanying notes to condensed consolidated financial statements.
 
 
6

 
 
POPE RESOURCES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2014

1.
The condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013 and the related condensed consolidated statements of comprehensive income for the three- and nine-month periods and cash flows for the nine-month periods ended September 30, 2014 and 2013 have been prepared by Pope Resources, A Delaware Limited Partnership (the “Partnership”), pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated financial statements are unaudited, but, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments and accruals) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 2013, is derived from the Partnership’s audited consolidated financial statements and notes thereto for the year ended December 31, 2013, and should be read in conjunction with such financial statements and notes. The results of operations for the interim periods are not indicative of the results of operations that may be achieved for the entire fiscal year ending December 31, 2014.
 
2.
The financial statements in the Partnership’s 2013 annual report on Form 10-K include a summary of significant accounting policies of the Partnership and should be read in conjunction with this Quarterly Report on Form 10-Q.

 
In April 2014, the FASB issued ASU 2014-08 Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  The ASU is effective for annual and interim periods beginning in 2015, though early adoption is permitted.  The Partnership adopted this standard in the second quarter of 2014.  Under this new standard, Fund I’s sales of its tree farms, described in note 5, are not considered discontinued operations because the acquisition and sale of tree farms by the timber funds does not constitute a change in strategy.  The Partnership continues to invest in and manage private equity timber funds.

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective on January 1, 2017.   Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Partnership is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Partnership has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

3.
Short-term investments consist of certificates of deposit maturing 180 days from the date of purchase.
 
4.
The Partnership has two general partners: Pope MGP, Inc. and Pope EGP, Inc. In total, these two entities own 60,000 partnership units. The allocation of distributions, profits and losses between the general and limited partners is pro rata across all units outstanding.

5.
ORM Timber Fund I, LP (Fund I), ORM Timber Fund II, Inc. (Fund II), and ORM Timber Fund III (REIT) Inc. (Fund III), collectively “the Funds”, were formed by Olympic Resource Management LLC (ORMLLC), a wholly owned subsidiary of Pope Resources, for the purpose of attracting capital to purchase timberlands. The objective of these Funds is to generate a return on investments through the acquisition, management, value enhancement and sale of timberland properties. Each Fund will operate for a term of ten years from the end of the respective investment period, with Fund I terminating in August 2017, Fund II terminating in March 2021, and Fund III terminating on the tenth anniversary of the completion of its investment period.  Fund III’s investment period will end at the earlier of placement of all committed capital or July 31, 2015.
 
 
7

 
 
 
Pope Resources and ORMLLC together own 20% of Fund I and Fund II and 5% of Fund III. The Funds are consolidated into the Partnership’s financial statements based in part on ORMLLC’s controlling role as the general partner or managing member of the Funds. The consolidated financial statements exclude management fees paid by the Funds to ORMLLC as they are eliminated in consolidation. See note 6 for a breakdown of operating results before and after such eliminations. The portion of these fees, among other items of income and expense, attributed to third-party investors is reflected as an adjustment to income in the Partnership’s Condensed Consolidated Statement of Comprehensive Income under the caption “Net (income) loss attributable to noncontrolling interests - ORM Timber Funds.”

The Partnership’s condensed consolidated balance sheet included assets and liabilities of the Funds as of September 30, 2014 and December 31, 2013, which were as follows:
 
(in thousands)
 
September 30, 2014
 
December 31, 2013
Assets:
Cash
  $ 38,528     $ 1,256  
Land and timber held for sale
  $ 16,196       -  
Other current assets
    4,520       362  
      Total current assets
    59,244       1,618  
Timber, timberland and roads, net of accumulated depletion (2014 - $24,445; 2013 - $28,713)
    160,115       211,871  
Other long-term assets
    130       125  
        Total assets
  $ 219,489     $ 213,614  
Liabilities and equity:
               
Current liabilities excluding long-term debt
  $ 3,770     $ 1,747  
Current portion of long-term debt
    -       3  
Total current liabilities
    3,770       1,750  
Long-term debt, net of current portion
    42,980       42,980  
      Total liabilities
    46,750       44,730  
Funds' equity
    172,739       168,884  
        Total liabilities and equity
  $ 219,489     $ 213,614  


In September 2014, Fund I sold one of its two tree farms located in western Washington for $39.0 million and recognized a gain on the sale of $9.2 million. This tree farm’s carrying value consisted of $26.6 million for timber and roads plus $2.4 million for the land itself.

In October 2014, Fund I entered into an agreement and sold its remaining tree farm, located in western Washington, for $31.5 million.  The carrying value of this tree farm has been reclassified to land and timber held for sale on the balance sheet as of September 30, 2014.

The Partnership’s share of the pretax profit or loss generated by these two Fund I tree farms was a profit of $1.8 million and a loss of $41,000 for the third quarter of 2014 and 2013, respectively.  For the first nine months of 2014 and 2013, the Partnership’s share of the pretax profit or loss generated by these two Fund I tree farms was a profit of $1.7 million and a loss of $61,000, respectively.  The aforementioned 2014 pretax profit amounts include the Partnership’s share of the gain on sale of timberland.
 
 
8

 

In August 2014, Fund III entered into an agreement to acquire a 13,000-acre tree farm in northwestern Oregon for $72.0 million.  In connection with the agreement, Fund III has paid deposits totaling $3.6 million that are reflected in the condensed consolidated balance sheet in prepaid expenses and other current assets.  The transaction closed in October 2014.  The purchase price was financed in part by a $14.4 million loan from Northwest Farm Credit Services (NWFCS) with the remainder coming from capital contributed by Fund III’s investors.

6.
In the presentation of the Partnership’s revenue and operating income (loss) by segment, all intersegment revenue and expense is eliminated to determine operating income (loss) reported externally. The following tables reconcile internally reported income (loss) from operations to externally reported income (loss) from operations by business segment, for the three and nine months ended September 30, 2014 and 2013:

    Fee Timber        
Three Months Ended
 
Pope
Resources
 
ORM
Timber
 
Total Fee
 
Timberland
 
Real
       
September 30, (in thousands)
 
Timber
 
Funds
 
Timber
 
Management
 
Estate
 
Other
 
Consolidated
2014
                                         
Revenue internal
  $ 6,216     $ 6,321     $ 12,537     $ 814     $ 1,402     $ -     $ 14,753  
Eliminations
    (154 )     -       (154 )     (814 )     (30 )     -       (998 )
Revenue external
    6,062       6,321       12,383       -       1,372       -       13,755  
                                                         
Cost of sales
    (3,112 )     (4,932 )     (8,044 )     -       (1,081 )     -       (9,125 )
                                                         
Operating, general and administrative expenses internal
    (1,400 )     (1,671 )     (3,071 )     (695 )     (888 )     (971 )     (5,625 )
Eliminations
    -       814       814       154       -       30       998  
Operating, general and administrative expenses external
    (1,400 )     (857 )     (2,257 )     (541 )     (888 )     (941 )     (4,627 )
Gain on sale of timberlands
    -       9,188       9,188       -       -       -       9,188  
                                                         
Income (loss) from operations internal
    1,704       8,906       10,610       119       (567 )     (971 )     9,191  
Eliminations
    (154 )     814       660       (660 )     (30 )     30       -  
                                                         
Income (loss) from operations external
  $ 1,550     $ 9,720     $ 11,270     $ (541 )   $ (597 )   $ (941 )   $ 9,191  
                                                         
2013
                                                       
Revenue internal
  $ 5,167     $ 5,300     $ 10,467     $ 701     $ 1,454     $ -     $ 12,622  
Eliminations
    (168 )     -       (168 )     (701 )     (29 )     -       (898 )
Revenue external
    4,999       5,300       10,299       -       1,425       -       11,724  
                                                         
Cost of sales
    (2,374 )     (4,475 )     (6,849 )     -       (920 )     -       (7,769 )
                                                         
Operating, general and administrative expenses internal
    (1,231 )     (1,386 )     (2,617 )     (649 )     (1,087 )     (1,030 )     (5,383 )
Eliminations
    1       695       696       174       -       28       898  
                                                         
Operating, general and administrative expenses external
    (1,230 )     (691 )     (1,921 )     (475 )     (1,087 )     (1,002 )     (4,485 )
                                                         
Income (loss) from operations internal
    1,562       (561 )     1,001       52       (553 )     (1,030 )     (530 )
Eliminations
    (167 )     695       528       (527 )     (29 )     28       -  
                                                   
Income (loss) from operations external
  $ 1,395     $ 134     $ 1,529     $ (475 )   $ (582 )   $ (1,002 )   $ (530 )
 
 
9

 

    Fee Timber        
Nine Months Ended
 
Pope
Resources
 
ORM
Timber
 
Total
 
Timberland
 
Real
       
September 30, (in thousands)
 
Timber
 
Funds
 
Fee Timber
 
Management
 
Estate
 
Other
 
Consolidated
2014
                                         
Revenue internal   $ 26,398     $ 26,058     $ 52,456     $ 2,529     $ 18,219     $ -     $ 73,204  
Eliminations
    (469 )             (469 )     (2,529 )     (89 )     -       (3,087 )
Revenue external
    25,929       26,058       51,987       -       18,130       -       70,117  
                                                         
Cost of sales
    (11,266 )     (18,217 )     (29,483 )     -       (9,943 )     -       (39,426 )
                                                         
                                                         
Operating, general and administrative expenses internal
    (3,930 )     (4,751 )     (8,681 )     (2,130 )     (2,777 )     (2,802 )     (16,390 )
Eliminations
            2,529       2,529       469       -       89       3,087  
                                                         
Operating, general and administrative expenses external
    (3,930 )     (2,222 )     (6,152 )     (1,661 )     (2,777 )     (2,713 )     (13,303 )
Gain on sale of timberlands
    -       9,188       9,188       -       -       -       9,188  
                                                         
                                                         
Income (loss) from operations internal
    11,202       12,278       23,480       399       5,499       (2,802 )     26,576  
Eliminations
    (469 )     2,529       2,060       (2,060 )     (89 )     89       -  
                                                         
Income (loss) from operations external
  $ 10,733     $ 14,807     $ 25,540     $ (1,661 )   $ 5,410     $ (2,713 )   $ 26,576  
                                                         
2013
                                                       
Revenue internal   $ 24,924     $ 19,378     $ 44,302     $ 2,114     $ 7,898     $ -     $ 54,314  
Eliminations
    (449 )     -       (449 )     (2,114 )     (112 )     -       (2,675 )
Revenue external
    24,475       19,378       43,853       -       7,786       -       51,639  
                                                         
Cost of sales
    (10,394 )     (15,235 )     (25,629 )     -       (3,089 )     -       (28,718 )
                                                         
                                                         
Operating, general and administrative expenses internal
    (3,378 )     (3,888 )     (7,266 )     (1,939 )     (2,784 )     (3,520 )     (15,509 )
Eliminations
    25       2,108       2,133       455       -       87       2,675  
                                                         
Operating, general and administrative expenses external
    (3,353 )     (1,780 )     (5,133 )     (1,484 )     (2,784 )     (3,433 )     (12,834 )
                                                         
                                                         
Income (loss) from operations internal
    11,152       255       11,407       175       2,025       (3,520 )     10,087  
Eliminations
    (424 )     2,108       1,684       (1,659 )     (112 )     87       -  
                                                         
Income (loss) from operations external
  $ 10,728     $ 2,363     $ 13,091     $ (1,484 )   $ 1,913     $ (3,433 )   $ 10,087  

7.
Basic and diluted earnings per unit are calculated by dividing net income (loss) attributable to unitholders, adjusted for non-forfeitable distributions paid out to unvested restricted unitholders and preferred shareholders of Fund II and Fund III, by the weighted average units outstanding during the period.  There were no dilutive securities outstanding during the periods presented. The following table shows the calculation of basic and diluted income (loss) per unit:
 
 
10

 
 
   
Quarter Ended
 
Nine Months Ended
   
September 30
 
September 30
(in thousands, except per unit amounts)
 
2014
   
2013
   
2014
   
2013
 
Net income (loss) attributable to Pope Resources' unitholders
  $ 1,500     $ (75 )   $ 15,587     $ 9,537  
Less:
                               
  Net income attributable to unvested restricted unitholders
    (23 )     (39 )     (168 )     (402 )
  Preferred share dividends - ORM Timber Funds
    (8 )     (4 )     (23 )     (12 )
    Net income (loss) for calculation of EPS
  $ 1,469     $ (118 )   $ 15,396     $ 9,123  
                                 
Basic and diluted weighted average units outstanding
    4,350       4,371       4,376       4,369  
                                 
Basic and diluted earnings (loss) per unit
  $ 0.34     $ (0.03 )   $ 3.52     $ 2.09  
 
8.  
In January 2014, the Partnership granted 9,966 restricted units pursuant to the management incentive compensation program. These restricted units vest ratably over four years with the grant date fair value equal to the market price on the date of grant. Simultaneous with the restricted unit grant to management, members of our Board of Directors received 3,000 restricted units. Restricted units granted to directors are not part of the management incentive compensation program, but are included in the calculation of total equity compensation expense. These awards to directors vest 50% on the third anniversary and 50% on the fourth anniversary of the date of grant. Total equity compensation expense is recognized over the vesting period. We recognized $177,000 and $225,000 of equity compensation expense in the third quarter of 2014 and 2013, respectively, and $698,000 and $988,000 for the nine months ended September 30, 2014 and 2013, respectively, related to these incentive compensation programs.
 
9.  
Supplemental disclosure of cash flow information: interest paid, net of amounts capitalized, totaled $1.8 million and $973,000 for the first nine months of 2014 and 2013, respectively. During the nine months ended September 30, 2014, the Partnership paid income taxes of $71,000 and received a net income tax refund of $172,000 during the first nine months of 2013.

10.  
The Partnership’s financial instruments include cash and cash equivalents, short-term investments and accounts receivable, for which the carrying amount of each represents fair value based on current market interest rates or their short-term nature. Carrying amounts of contracts receivable, although long-term, also approximate fair value based on current market rates.

The Partnership’s and the Funds’ fixed-rate debt collectively have a carrying value of $75.6 million and $75.7 million as of September 30, 2014 and December 31, 2013, respectively.   The estimated fair value of this debt, based on current interest rates for similar instruments (Level 2 inputs in the Fair Value Hierarchy), is approximately $81.5 million and $77.5 million, as of September 30, 2014 and December 31, 2013, respectively.

11.
The Partnership had an accrual for estimated environmental remediation costs of $12.5 million and $13.2 million as of September 30, 2014 and December 31, 2013, respectively. The environmental remediation liability represents management’s estimate of payments to be made to monitor and remediate certain areas in and around the townsite/millsite of Port Gamble, and at Port Ludlow, Washington.

In December of 2013, a consent decree and Clean-up Action Plan (CAP) related to Port Gamble were finalized with the Department of Ecology (DOE) and filed with Kitsap County Superior Court.  The scope of the clean-up in the final CAP is similar to that contemplated in the second quarter of 2012 when an additional accrual of $12.5 million was recorded. Certain unresolved issues remain; principally related to the degree to which the Department of Natural Resources (DNR), the other potentially liable party (PLP) in Port Gamble, is going to participate in funding the costs of clean-up, as well as finalizing the detailed design of certain elements of the remediation activity.
 
 
11

 

In developing its estimate of the Port Gamble environmental liability, management has employed a Monte Carlo statistical simulation model that, as of December 31, 2013, suggested a potential aggregate range of clean-up costs from $11.4 million to $15.3 million.  The $12.5 million liability recorded by the Company as of September 30, 2014 is based on the 50th percentile within the range, after payments made to date, which management considers the best estimate of the most likely outcome at this time.

The environmental liability at September 30, 2014 is comprised of $2.1 million that management expects to expend in the next 12 months and $10.4 million thereafter.

Activity in the environmental liability is as follows:
 
   
Balances at
 
Additions
 
Expenditures
   
   
the Beginning
 
to
 
for
 
Balance at
(in thousands)
 
of the Period
 
Accrual
 
Remediation
 
Period-end
Year ended December 31, 2012
  $ 2,203     $ 12,500     $ 761     $ 13,942  
Year ended December 31, 2013
    13,942       -       701       13,241  
Quarter ended March 31, 2014
    13,241       -       11       13,230  
Quarter ended June 30, 2014
    13,230       -       203       13,027  
Quarter ended September 30, 2014
    13,027       -       480       12,547  
 
 
12

 
 
ITEM 2.

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

This report contains a number of projections and statements about our expected financial condition, operating results, and business plans and objectives. These statements reflect management’s estimates based upon our current goals, in light of management’s knowledge of existing circumstances and expectations about future developments. Statements about expectations and future performance are “forward looking statements” within the meaning of applicable securities laws, which describe our goals, objectives and anticipated performance. These statements can be identified by words such as “anticipate,” “believe,” “expect,” “intend” and similar expressions. These statements are inherently uncertain, and some or all of these statements may not come to pass. Accordingly, you should not interpret these statements as promises that we will perform at a given level or that we will take any or all of the actions we currently expect to take. Our future actions, as well as our actual performance, will vary from our current expectations, and under various circumstances these variations may be material and adverse. Some of the factors that may cause our actual operating results and financial condition to fall short of our expectations are set forth in the part of this report entitled “Risk Factors” in Part II, Item 1A below. Some of the issues that may have an adverse and material impact on our business, operating results and financial condition include economic conditions that affect consumer demand for our products and the prices we receive for them both domestically and overseas, particularly in certain parts of Asia; government regulation that affects our ability to access our timberlands and harvest logs from those lands; factors that affect the timing and amounts realized from the sales, if any, of our real estate holdings; the implications of significant indirect sales to overseas customers, including regulatory and tax matters; the effect of financial market conditions on our investment portfolio and related liquidity; the effects of competition, especially from larger, better-financed competitors; environmental and land use regulations that limit our ability to harvest timber and develop property; access to debt financing by our customers as well as ourselves; the impacts of climate change and natural disasters on our timberlands and on surrounding areas; and the potential impacts of fluctuations in foreign currency rates as they affect demand for our products. From time to time we identify other risks and uncertainties in our other filings with the Securities and Exchange Commission. The forward-looking statements in this report reflect our estimates and expectations as of the date of the report, and unless required by law, we do not undertake to update these statements as our business operations and environment change.

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

Pope Resources, A Delaware Limited Partnership (“we” or the “Partnership”), is engaged in three primary businesses. The first, and by far most significant segment in terms of owned assets and operations, is the Fee Timber segment. This segment includes timberlands owned directly by the Partnership and operations of the three private equity funds (“Fund I”, “Fund II”, and “Fund III”, collectively, the “Funds”). When we refer to the timberland owned by the Partnership, we describe it as the Partnership’s tree farms. We refer to timberland owned by the Funds as the Funds’ tree farms. When referring collectively to the Partnership’s and Funds’ timberlands we will refer to them as the Combined tree farms. Operations in this segment consist of growing timber to be harvested as logs for sale to export brokers and domestic manufacturers. The second most significant business in terms of total assets owned is the development and sale of real estate. Real Estate activities primarily take the form of securing permits, entitlements, and, in some cases, installing infrastructure for raw land development and then realizing that land’s value by selling larger parcels to buyers who will take the land further up the value chain, either to home buyers or to developers and lessors of commercial property. Since these projects span multiple years, the Real Estate segment may incur losses for multiple years while a project is developed, and will not recognize operating income until that project is sold. In addition, within this segment we sometimes negotiate and sell development rights in the form of conservation easements (CE’s) on Fee Timber properties to preclude future development. Our third business, which we refer to as Timberland Management, is engaged in organizing and managing private equity timber funds using capital invested by third parties and the Partnership.
 
 
13

 
 
Our current strategy for adding timberland acreage is centered on our private equity timber fund business model. We have closed and invested capital from three timber funds, with assets under management totaling approximately $262 million as of September 30, 2014 based on the most recent appraisals. Our 20% co-investments in Funds I and II, and our 5% co-investment in Fund III, which collectively totaled $32 million at time of acquisition, afford us a share of the Funds’ operating cash flows while also allowing us to earn asset management and timberland management fees, as well as potential future incentive fees, based upon the overall success of each fund. We also believe that this strategy allows us to maintain sophisticated expertise in timberland acquisition, valuation, and management more cost-effectively than we could maintain for the Partnership’s timberlands alone. We believe our co-investment strategy also enhances our credibility with existing and prospective investors by demonstrating that we have both an operational and a financial commitment to the Funds’ success.

The Funds are consolidated into our financial statements, but then income or loss attributable to equity owned by third parties is removed from consolidated results in our Condensed Consolidated Statements of Comprehensive Income under the caption “Net (income) loss attributable to non-controlling interests-ORM Timber Funds” to arrive at comprehensive income attributable to unitholders of the Partnership.

The challenge for our Real Estate segment centers around how and when to “harvest” parcels of our 2,900-acre portfolio in western Washington to optimize value realization by selling the property, balancing the long-term risks and costs of carrying and developing a property against the potential for income and positive cash flows upon sale.
 
Third quarter highlights

Harvest volume was 19 million board feet (MMBF) in Q3 2014 compared to 16 MMBF in Q3 2013, an 18% increase.  Harvest volume for the first nine months of 2014 was 75 MMBF compared to 69 MMBF for the first nine months of 2013, an 8% increase.
 
Average realized log price per thousand board feet (MBF) was $568 in Q3 2014 compared to $591 per MBF in Q3 2013, a 4% decrease.  For the first nine months of 2014, the average realized log price per MBF was $643 compared to $609 per MBF for the first nine months of 2013, a 6% increase.
 
Fund properties contributed 50% of Q3 2014 harvest volume, compared to 53% in Q3 2013.  For the first nine months of 2014, Fund properties contributed 52% of harvest volume, compared to 46% for the first nine months of 2013.
 
As a percentage of total harvest, softwood sawlog volume sold to export markets in Q3 2014 was 28%, down from 45% in Q3 2013, while the mix of softwood sawlog volume sold to domestic markets increased correspondingly to 56% in Q3 2014 from 36% in Q3 2013.  For the first nine months of the year, the relative percentages of softwood sawlog volume sold to export and domestic markets were 35% and 49%, respectively, compared to 33% and 49% in 2013.
 
The percentage of total harvest comprised of Douglas-fir sawlogs dropped to 37% in Q3 2014 from 50% in Q3 2013, with a corresponding increase in the whitewood component to 39% in Q3 2014 from 27% in Q3 2013.  Paralleling this species pattern shift, for the first nine months of 2014, the relative mix of Douglas-fir and whitewood was 48% and 32%, respectively, compared to 61% and 20% for the first nine months of 2013.
 
 
14

 
 
Our Fund I sold its Green River tree farm for $39.0 million, recognizing a gain on the sale of $9.2 million, with $1.8 million attributable to Pope Resources’ unitholders.
 
We closed on 10 single-family residential lots in Gig Harbor for a total sales price of $900,000 during Q3 2014, while in Q3 2013 we had no closings but did recognize $1.0 million of previously deferred land sale revenue.

Outlook

We expect our harvest volume for the full year 2014 to be between 95 and 98 MMBF, including timber deed sales, with the final total depending on log market conditions for the balance of the year

In the first nine months of 2014, we closed on the sale of a number of Real Estate properties and although we expect to close on several more during the fourth quarter, some of these transactions may not occur until early 2015 due to permitting or other delays.

In October 2014, Fund I sold its remaining tree farm for $31.5 million and Fund III acquired a 13,000-acre tree farm in northwestern Oregon for $72.0 million.

RESULTS OF OPERATIONS

The following table reconciles and compares key revenue and cost elements that impacted our net income for the respective quarters and nine months ended September 30, 2014 and 2013.  The explanatory text that follows the table describes in detail certain of these changes by business segment.
 
 
15

 
 
       
Nine Months
   
Quarter Ended
 
Ended
(in thousands)
 
September 30,
 
September 30,
Net income (loss) attributable to Pope Resources' unitholders:
           
     2014 period   $ 1,500     $ 15,587  
     2013 period     (75 )     9,537  
        Variance   $ 1,575     $ 6,050  
Detail of variance:
               
Fee Timber
               
     Log volumes (A)   $ 1,719     $ 3,372  
     Log price realizations (B)     (437 )     2,548  
     Gain on sale of timberland     9,188       9,188  
     Timber deed sales     522       404  
     Production costs     (518 )     (3,172 )
     Depletion     (677 )     (682 )
     Other Fee Timber     (56 )     791  
Timberland Management
    (66 )     (177 )
Real Estate
               
     Land sales     584       3,894  
     Timber depletion on land sale     -       376  
     Other Real Estate     (599 )     (773 )
General & administrative costs
    61       720  
Net interest expense
    (274 )     (779 )
Income taxes
    (461 )     (703 )
Noncontrolling interests
    (7,411 )     (8,957 )
Total variances
  $ 1,575     $ 6,050  
   
(A) Volume variance calculated by extending change in sales volume by the average log sales price for the comparison period.
 
(B) Price variance calculated by extending the change in average realized price by current period sales volume.
 
 
Fee Timber
 
Fee Timber results include operations from 110,000 acres of timberland owned by the Partnership and 75,000 acres of timberland owned by the Funds. Fee Timber revenue is earned primarily from the harvest and sale of logs from these timberlands which are located in western Washington, northwestern Oregon, and northern California. This revenue source is driven primarily by the volume of timber harvested and the average log price realized on the sale of that timber. Our volume harvested is typically based on manufactured log sales to domestic mills or log export brokers. We also occasionally sell rights to harvest timber (timber deed sale) from the Combined tree farms. During Q2 2013, Q3 2013, and Q3 2014, we sold volume under timber deed sales from Fund III’s timberland. The metrics used to calculate volumes sold and average price realized during the reporting periods exclude the timber deed sales, except where stated otherwise. Harvest volumes are generally expressed in million board feet (MMBF) increments while harvest revenue and related costs are generally expressed in terms of revenue or cost per thousand board feet (MBF). Fee Timber revenue is also derived from commercial thinning operations, ground leases for cellular communication towers, and royalties from gravel mines and quarries, all of which, along with timber deed sales, are included in Other Revenue below.
 
 
16

 
 
On September 30, 2014, Fund I sold the 16,000-acre Green River tree farm in western Washington for $39.0 million and recorded a gain of $9.2 million.
 
Revenue and operating income for the Fee Timber segment for the quarters ended September 30, 2014, June 30, 2014, and September 30, 2013 were as follows:
 
(in millions)
Quarter ended
 
Log Sale
Revenue
 
Other
Revenue
 
Total Fee
Timber
Revenue
 
Gain on
Sale of
Timberland
 
Operating
Income
 
Harvest
Volume
(MMBF)
Partnership tree farms
  $ 5.4     $ 0.7     $ 6.1     $ -     $ 1.6       9.5  
Funds' tree farms
    5.3       1.0       6.3       9.2       9.7       9.5  
Total Fee Timber September 30, 2014
  $ 10.7     $ 1.7     $ 12.4     $ 9.2     $ 11.3       19.0  
                                                 
Partnership tree farms
  $ 7.9     $ 0.8     $ 8.7     $ -     $ 3.0       12.7  
Funds' tree farms
    8.5       0.3       8.8       -       2.0       13.4  
Total Fee Timber June 30, 2014
  $ 16.4     $ 1.1     $ 17.5     $ -     $ 5.0       26.1  
                                                 
Partnership tree farms
  $ 4.6     $ 0.4     $ 5.0     $ -     $ 1.4       7.6  
Funds' tree farms
    4.8       0.5       5.3       -       0.1       8.5  
Total Fee Timber September 30, 2013
  $ 9.4     $ 0.9     $ 10.3     $ -     $ 1.5       16.1  
 
Operating Income
 
Comparing Q3 2014 to Q2 2014.  Operating income increased $6.3 million, or 126%, from $5.0 million in Q2 2014 to $11.3 million in Q3 2014 primarily as a result of a $9.2 million gain on the sale of our Funds’ Green River tree farm. This was offset partially by a 20% decrease in harvest volume, including timber deed sales, 10% decrease in average realized log prices, and a $144,000 increase in operating expenses.
 
Comparing Q3 2014 to Q3 2013.  Operating income increased $9.8 million, from $1.5 million in Q3 2013 to $11.3 million in Q3 2014 primarily as a result of a $9.2 million gain on the sale of our Funds’ Green River tree farm, and the 22% increase in harvest volume, including timber deed sales. This was offset partially by a 4% decrease in average realized log prices and a $334,000 increase in operating expenses.
 
Revenue
 
Comparing Q3 2014 to Q2 2014.  Log sale revenue in Q3 2014 decreased $5.7 million, or 35%, from $16.4 million in Q2 2014 to $10.7 million in Q3 2014. Weaker log prices in both the domestic and export log markets caused a 10% decrease in average realized price while a seasonal slowdown in our harvest volume resulted in a 27% reduction in harvest volume during the current quarter. The market price for logs typically declines during the summer months when favorable weather conditions bring increased supply to the market, resulting in weaker prices. We often plan our annual harvest with the expectation that we will throttle back our harvest levels during the third quarter, saving the volume for seasonally stronger markets during other times of the year. In addition, log inventories continued to expand at Asian ports as end-user demand for logs failed to keep pace with log imports. Without the price support in the export market, prices in the domestic market fell as well, with only minimal support from the very slow housing market recovery.
 
The increase in Other Revenue generated in Q3 2014 compared to Q2 2014 consisted primarily of a timber deed sale by Fund III of $775,000 representing 1.9 MMBF of timber, offset partially by less commercial thinning revenue on the Combined tree farms. Commercial thinning consists of the selective cutting of timber stands not yet of optimal harvest age.  However, they do have some commercial value, thus allowing us to earn revenue while at the same time improving the growth characteristics of the remaining stand.
 
 
17

 
 
Comparing Q3 2014 to Q3 2013.  Log sale revenue in Q3 2014 increased $1.3 million, or 14%, from $9.4 million in Q3 2013 to $10.7 million in Q3 2014. The improved log revenue was attributable to an 18% increase in harvest volume, partially offset by a 4% decrease in average realized log prices. The increase in volume is attributable to harvest operations on Fund III’s northern California tree farm whereas during Q3 2013 this tree farm’s only revenue came from a timber deed sale that is included in Other Revenue.
 
The increase in Other Revenue from Q3 2013 to Q3 2014 consisted primarily of increases in Fund III’s timber deed sale revenue and commercial thinning revenue from the Combined tree farms.
 
Revenue and operating income for the Fee Timber segment for the nine months ended September 30, 2014 and 2013 were as follows:
 
(in millions)
Nine Months Ended
 
Log Sale
Revenue
 
Other
Revenue
 
Total Fee
Timber
Revenue
 
Gain on
Sale of
Timberland
 
Operating
Income
 
Harvest
Volume
(MMBF)
Partnership tree farms
  $ 23.5     $ 2.4     $ 25.9     $ -     $ 10.7       36.2  
Funds' tree farms
  $ 24.6     $ 1.5     $ 26.1       9.2     $ 14.8       38.8  
Total Fee Timber September 30, 2014
  $ 48.1     $ 3.9     $ 52.0     $ 9.2     $ 25.5       75.0  
                                                 
Partnership tree farms
  $ 23.5     $ 1.0     $ 24.5     $ -     $ 10.7       37.4  
Funds' tree farms
    18.8       0.6       19.4       -       2.4       32.0  
Total Fee Timber September 30, 2013
  $ 42.3     $ 1.6     $ 43.9     $ -     $ 13.1       69.4  
                                                 
 
Operating Income
 
Comparing YTD 2014 to YTD 2013.  Operating income increased by $12.4 million, or 95%, from $13.1 million in the first nine months of 2013 to $25.5 million in the first nine months of 2014 primarily as a result of: the $9.2 million gain on the sale of our Funds’ Green River tree farm; an 8% increase in harvest volume, including timber deed sales; and a 6% increase in average realized log prices. This was offset partially by a $1.1 million increase in operating expenses.
 
Revenue
 
Comparing YTD 2014 to YTD 2013.  Log sale revenue increased $5.8 million, or 14%, from $42.3 million in 2013 to $48.1 million in 2014. The improvement was due to an 8% increase in harvest volume and 6% higher average realized log prices. The increases in both harvest volume and average log prices resulted from stronger demand from both domestic and export markets compared to a year ago. The increase in Other Revenue in 2014 compared to 2013 was due primarily to an increase in commercial thinning activity.
 
 
18

 
 
Log Volume

We harvested the following log volumes by species from the Combined tree farms, exclusive of timber deed sales, for the quarters ended September 30, 2014, June 30, 2014, and September 30, 2013:
 
Volume (in MMBF)
 
Quarter Ended
Sawlogs
    Sep-14 % Total   Jun-14 % Total   Sep-13 % Total
 
Douglas-fir
    7.0       37 %     10.9       42 %     8.1       50 %
 
Whitewood
    7.5       39 %     9.6       37 %     4.4       27 %
 
Pine
    1.3       7 %     0.5       2 %     -       0 %
 
Cedar
    0.2       1 %     0.8       3 %     0.5       3 %
 
Hardwood
    0.4       2 %     0.5       2 %     0.6       4 %
Pulpwood                                                  
 
All Species
    2.6       14 %     3.8       14 %     2.5       16 %
Total
      19.0       100 %     26.1       100 %     16.1       100 %
 
Comparing Q3 2014 to Q2 2014. Harvest volume decreased 7.1 MMBF, or 27%, from 26.1 MMBF in Q2 2014 to 19.0 MMBF in Q3 2014. The third quarter is typically our lowest-volume quarter as log prices generally weaken when favorable weather conditions allow timberland owners access to all elevations throughout the Pacific Northwest. Accordingly, we take advantage of our timberlands with favorable terrain characteristics by concentrating our harvest in periods when prices tend to be stronger. Douglas-fir harvest volume, as a percent of overall harvest, decreased from 42% in Q2 2014 to 37% in Q3 2014. Conversely, the component of whitewood harvest volume increased from 37% in Q2 2014 to 39% in Q3 2014. Pine harvest volume, as a percent of overall harvest, increased from 2% in Q2 2014 to 7% in Q3 2014. This shift in species mix is the result of the seasonal slowdown of harvest operations on the Combined tree farms in Washington and Oregon, coupled with the increase in harvest volume from the Fund III’s northern California tree farm which is located at a higher elevation making winter logging impractical.
 
 Comparing Q3 2014 to Q3 2013. Harvest volume increased 2.9 MMBF, or 18%, from 16.1 MMBF in Q3 2013 to 19.0 MMBF in Q3 2014. The increase is attributable to harvest activity in Q3 2014 on Fund III’s northern California tree farm whose only volume during Q3 2013 consisted of a timber deed sale. Douglas-fir harvest volume, as a percent of overall harvest, decreased from 50% in Q3 2013 to 37% in Q3 2014. Conversely, the component of whitewood harvest volume increased from 27% in Q3 2013 to 39% in Q3 2014.  Pine harvest volume increased from 0% in Q3 2013 to 7% in Q3 2014, while the minor species of cedar and hardwood experienced a corresponding decline. These shifts in species mix are attributable to the harvest operations on Fund III’s northern California tree farm in Q3 2014 and the mix of stands harvested this year versus last year.
 
We harvested the following log volumes by species from the Combined tree farms, exclusive of the aforementioned timber deed sales, for the nine months ended September 30, 2014 and 2013:
 
 
19

 
 
Volume (in MMBF)
 
Nine Months Ended
Sawlogs
     Sep-14 % Total    Sep-13 % Total
 
Douglas-fir
    35.9       48 %     42.0       61 %
 
Whitewood
    23.8       32 %     14.1       20 %
 
Pine
    1.8       2 %     -       0 %
 
Cedar
    1.7       2 %     1.3       2 %
 
Hardwood
    1.9       3 %     2.0       3 %
Pulpwood
                               
 
All Species
    9.9       13 %     10.0       14 %
Total
      75.0       100 %     69.4       100 %
 
Comparing YTD 2014 to YTD 2013. Harvest volume increased 5.6 MMBF, or 8%, from 69.4 MMBF in the first nine months of 2013 to 75.0 MMBF in the corresponding period of 2014. The increase in harvest volume is attributable to stronger demand in both the domestic and export markets compared to a year ago, as well as the commencement in Q1 2014 of our first harvest operations on the northern California tree farm owned by Fund III. Douglas-fir harvest volume, as a percentage of overall harvest, decreased from 61% in 2013 to 48% in 2014.  Conversely, the component of whitewood and pine harvest volume increased from 20% in 2013 to 34% in 2014.  This shift in mix from Douglas-fir to whitewood and pine is attributable to the increase in share of harvest volume coming from Fund properties, 46% in 2013 compared to 52% in 2014. The Funds’ properties have a heavier component of whitewood than the Partnership properties.
 
Log Prices
 
Logs from the Combined tree farms serve a number of different domestic and export markets, with domestic mills historically representing our largest market destination. Export customers consist of log brokers who sell the logs primarily to Japan, China and, to a lesser degree, Korea.

We realized the following log prices by species for the quarters ended September 30, 2014, June 30, 2014, and September 30, 2013:
 
     
Quarter Ended
      Sep-14  
Jun-14
 
Sep-13
Average price realizations (per MBF):
       
Sawlogs
                   
 
Douglas-fir
  $ 637     $ 694     $ 657  
 
Whitewood
    590       653       615  
 
Pine
    514       525       -  
 
Cedar
    1,004       1,270       1,087  
 
Hardwood
    613       597       555  
Pulpwood
All Species
    302       281       252  
Overall
      568       630       591  
 
 
20

 
 
The following table compares the dollar and percentage change in log prices from each of Q2 2014 and Q3 2013 to Q3 2014:
   
     
Change to Q3 2014 from Quarter Ended
 
     
Jun-14
   
Sep-13
 
     
$/MBF
 
%
 
$/MBF
 
%
Sawlogs
Douglas-fir
  $ (57 )     -8 %   $ (20 )     -3 %
 
Whitewood
    (63 )     -10 %     (25 )     -4 %
 
Pine
    (11 )     -2 %     n/a       n/a  
 
Cedar
    (266 )     -21 %     (83 )     -8 %
 
Hardwood
    16       3 %     58       10 %
Pulpwood
All Species
    21       7 %     50       20 %
Overall
      (62 )     -10 %     (23 )     -4 %
 
Overall realized log prices in Q3 2014 were 10% lower than Q2 2014 and 4% lower than Q3 2013. Our overall average is heavily influenced by price movements for our two most prevalent species on the Combined tree farms, Douglas-fir and whitewood, and the relative mix of harvest volume between those two species.
 
From Q2 2014 to Q3 2014, export log prices for these two species continued to decline as log inventories built up steadily at Chinese ports and demand from Japan softened in response to its consumption tax increase earlier in the year. This in turn contributed to a decline in domestic log prices as demand from the U.S. housing market was not strong enough to compensate for the decline in demand from the export market. In addition, as mentioned above, the shifts in species mix from Douglas-fir in Q2 2014 to whitewood and pine in Q3 2014 also contributed to the log price decline.
 
From Q3 2013 to Q3 2014, the decline in average realized log prices was attributable to both the shifts in species mix from Douglas-fir in Q3 2013 to whitewood and pine in Q3 2014 and a generally weaker log market due to decreased demand from our export and domestic customers.
 
The following table compares realized log prices by species for the first nine months of 2014 and 2013, as well as the dollar and percentage change in log prices between the two periods:
 
     
Nine Months Ended
     
Sep-14
             
Sep-13
            ∆ from Sep-14 to Sep-13      
           
$/MBF