UNITED STATES ~~SECURITIES AND EXCHANGE COMMISSION~~

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2004

OR

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

For the transition period from to

Commission file number 0-24976

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

For the quarterly period ended March 31, 2004

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

For the transition period from to

Commission file number 0-24976

CROWN PACIFIC PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

Delaware		93-1161833
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

805 SW Broadway Street, Suite 1500, Portland, Oregon		97205
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 503-274-2300

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

Common Units		30,527,030
(Class)		(Outstanding at August 6, 2004)

Common Units		30,527,030
(Class)		(Outstanding at May 24, 2004)

CROWN PACIFIC PARTNERS, L.P.

FORM 10-Q

INDEX

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Statements of Operations – Three Months Ended March 31, 2004 and 2003
	Consolidated Statements of Operations – Three and Six Month Periods Ended June 30, 2004 and 2003
	Consolidated Balance Sheets – March 31, 2004 and December 31, 2003
	Consolidated Balance Sheets – June 30, 2004 and December 31, 2003
	Consolidated Statements of Cash Flows – Three Months Ended March 31, 2004 and 2003
	Consolidated Statements of Cash Flows – Six Months Ended June 30, 2004 and 2003
	Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II - OTHER INFORMATION
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
Signatures

PART 1I - FINANCIAL INFORMATION

Item. 1. Financial Statements

Crown Pacific Partners, L.P.

(Debtor-in-Possession)

Consolidated Statements of Operations

(In thousands, except unit and per unit data)

(Unaudited)

	For the Three Months Ended March 31,
	For the Three Months Ended June 30,
	2004			2003
Revenues	$	82106,~~547~~836		$	6660,~~113~~179
Operating costs:
Cost of products sold	6987,~~511~~009			6055,~~507~~313
Gain on disposal of assets	(18		)	(485		)
Loss on disposal of assets	—			1,269
Selling, general and administrative expenses	5,~~404~~309			56,~~347~~220
Operating income	7,650			744
Operating income (loss)	14,518			(2,623		)
Interest expense (excluding contractual interest expense of $12,736 and $0)	268			11,952
Interest expense (excluding contractual interest expense of $12,875 and $0)	180			12,068
Amortization of debt issuance costs	~~468~~752			~~423~~640
Other income, net	(54289		)	(~~129~~25		)
Income (loss) from operations before reoganization items	6,968			(11,502		)
Income (loss) from operations before reorganization items	13,875			(15,306		)
Reorganization items:
Professional fees	(21,~~015~~382		)	—(4,860		)
Other	(108		)	—
Impairment of assets	(216		)	—
	(2,123		)	—
Other	(286		)	(218		)
Income (loss) before discontinued operations	4,845			(11,502		)
	(1,884		)	(5,078		)
Income (loss) from discontinued operations	480			(5,013		)
Income (loss) before discontinued operations	11,991			(20,384		)
Net income (loss).	$	5,325		$	(16,515	)
Loss on discontinued operations (including gain (loss) on disposal of ($1,198) and $4)	(1,081		)	(519		)
Basic and diluted income (loss) per limited partner unit before discontinued operations	$	—		$	(0.37	)
Net income (loss)	$	10,910		$	(20,903	)
Basic and diluted income (loss) per limited partner unit from discontinued operations	—			(0.17		)
Basic and diluted loss per limited partner unit before discontinued operations	$	—		$	(0.66	)
Basic and diluted net income (loss) per limited partner unit	$	—		$	(0.54	)
Basic and diluted loss per limited partner unit from discontinued operations	—			(0.02		)
Weighted average units outstanding.	30,527,030			30,527,030
Basic and diluted net loss per limited partner unit	$	—		$	(0.68	)
Weighted average units outstanding	30,527,030			30,527,030

~~The~~See accompanying ~~notes~~Notes ~~are~~to ~~an integral part~~Consolidated ofFinancial ~~these financial statements~~Statements.

Crown Pacific Partners, L.P.

(Debtor-in-Possession)

Consolidated ~~Balance~~ ~~Sheets~~Statements of Operations

(In thousands, except unit and per unit data)

(Unaudited)

	March 31, 2004			December 31, 2003
	For the Six Months Ended June 30,
Assets
	2004			2003
Current assets:
Revenues	$	189,383		$	126,291
Cash and cash equivalents	$	7,897		$	11,028
Operating costs:
Accounts receivable, net of allowance of $927 and $862	41,315			43,993
Cost of products sold	156,519			115,819
Notes receivable	528			558
(Gain) loss on disposal of assets	(18		)	794
Inventories	23,093			27,943
Selling, general and administrative expenses	10,713			11,567
Deposits on timber cutting contracts	1,206			516
Operating income (loss)	22,169			(1,889		)
Assets held for sale	14,286			—
Interest expense (excluding contractual interest expense of $25,611 and $0)	448			24,020
Prepaid and other current assets	13,252			12,305
Amortization of debt issuance costs	1,220			1,063
Total current assets	101,577			96,343
Other income, net	(343		)	(154		)
Property, plant and equipment, net of accumulated depreciation of $43,896 and $44,390	40,007			41,476
Income (loss) from operations before reorganization items	20,844			(26,818		)
Timber, timberlands and roads, net	300,763			302,737
Reorganization items:
Other assets	5,462			5,930
Professional fees	(3,397		)	(4,860		)
Total assets	$	447,809		$	446,486
Impairment of assets	(216		)	—
Liabilities and Partners’ Deficit
Other	(394		)	(218		)
Liabilities not subject to compromise:
	(4,007		)	(5,078		)
Current liabilities:
Income (loss) before discontinued operations	16,837			(31,896		)
Revolving credit facility	$	18,346		$	23,370
Loss on discontinued operations (including gain (loss) on disposal of ($1,198) and $4)	(602		)	(5,522		)
Accounts payable	5,899			4,291
Net income (loss)	$	16,235		$	(37,418	)
Accrued expenses	9,395			9,194
Basic and diluted loss per limited partner unit before discontinued operations	$	—		$	(1.03	)
Liabilities held for sale	838			—
Basic and diluted loss per limited partner unit from discontinued operations	—			(0.18		)
Current portion of long-term debt	94			123
Basic and diluted net loss per limited partner unit	$	—		$	(1.21	)
Total current liabilities	34,572			36,978
Weighted average units outstanding	30,527,030			30,527,030
Long-term debt	53			86
Other non-current liabilities	270			270
	34,895			37,334
Liabilities subject to compromise	545,640			547,203
Total liabilities	580,535			584,537
Partners’ deficit:
General partners	(132,726		)	(138,051		)
Limited partners (30,527,030 units outstanding at March 31, 2004 and December 31, 2003)	—			—
Total partners’ deficit	(132,726		)	(138,051		)
Total liabilities and partners’ deficit	$	447,809		$	446,486

~~The~~See accompanying ~~notes~~Notes ~~are~~to ~~an integral part~~Consolidated ofFinancial ~~these financial statements~~Statements.

Crown Pacific Partners, L.P.

(Debtor-in-Possession)

Consolidated ~~Statements~~Balance ~~of Cash Flows~~Sheets

(In thousands, except unit data)

(Unaudited)

	For the Three Months Ended March 31,
	June 30,			December 31,
	2004			2003
Cash flows from operating activities:
Assets
Net income (loss)	$	5,325		$	(16,515	)
Current assets:
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Cash and cash equivalents	$	10,446		$	11,028
Depletion, depreciation and amortization	5,020			6,110
Accounts receivable, net of allowance of $992 and $862	50,704			43,993
Deferred interest	—			1,168
Notes receivable	498			558
Impairment of goodwill	—			5,502
Inventories	31,339			27,943
Loss on purchase commitments	—			149
Deposits on timber cutting contracts	2,610			516
Gain on disposal of assets	(18		)	(479		)
Prepaid and other current assets	11,430			12,305
Net change in current assets and current liabilities:
Total current assets	107,027			96,343
Accounts and notes receivable	(6,945		)	(570		)
Property, plant and equipment, net of accumulated depreciation of $44,880 and $44,390	38,470			41,476
Inventories	917			(5,299		)
Timber, timberlands and roads, net	299,836			302,737
Deposits on timber cutting contracts	(690		)	105
Other assets	4,710			5,930
Prepaid and other current assets	(1,646		)	(386		)
Total assets	$	450,043		$	446,486
Accounts payable and accrued expenses	2,560			3,321
Liabilities and Partners’ Deficit
Net cash provided by (used in) operating activities	4,523			(6,894		)
Liabilities not subject to compromise:
Cash flows from investing activities:
Current liabilities:
Additions to timberlands	(1,001		)	(1,389		)
Revolving credit facility	$	14,127		$	23,370
Additions to timber cutting rights	(10		)	(529		)
Accounts payable	5,950			4,291
Additions to equipment	(97		)	(637		)
Accrued expenses	7,422			9,194
Proceeds from sale of assets	18			641
Current portion of long-term debt	96			123
Net cash used in investing activities	(1,090		)	(1,914		)
Total current liabilities	27,595			36,978
Cash flows from financing activities:
Long-term debt	21			86
Net increase (decrease) in revolving credit facility	(5,024		)	1,000
Other non-current liabilities	—			270
Repayments of long-term debt	(1,540		)	(22		)
	27,616			37,334
Net cash provided by (used in) financing activities	(6,564		)	978
Liabilities subject to compromise	544,243			547,203
Net decrease in cash and cash equivalents	(3,131		)	(7,830		)
Total liabilities	571,859			584,537
Cash and cash equivalents at beginning of period	11,028			12,993
Partners’ deficit:
Cash and cash equivalents at end of period	$	7,897		$	5,163
General partners	(121,816		)	(138,051		)
Supplemental Cash Flow Information:
Limited partners (30,527,030 units outstanding at June 30, 2004 and December 31, 2003)	—			—
Cash paid for reorganization items	$	1,393		$	—
Total partners’ deficit	(121,816		)	(138,051		)
Cash paid for interest	$	268		$	7,891
Total liabilities and partners’ deficit	$	450,043		$	446,486

~~The~~See accompanying ~~notes~~Notes ~~are~~to ~~an integral part~~Consolidated ofFinancial ~~these financial statements~~Statements.

~~CROWN~~Crown ~~PACIFIC~~Pacific ~~PARTNERS~~Partners, L.P.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~(Debtor-in-Possession)

~~(Unaudited)~~Consolidated Statements of Cash Flows

~~Note 1: Organization~~(In ~~and Basis of Presentation~~thousands)

~~Crown Pacific Partners, L.P.~~ (~~the “Partnership”~~Unaudited), a Delaware limited partnership, through its 99% owned subsidiary, Crown Pacific Limited Partnership (the “Operating Partnership”), was formed in 1994 to acquire, own and operate timberlands and wood product manufacturing facilities located in the Northwest United States. The Partnership’s business consists primarily of growing and harvesting timber for sale as logs in domestic and export markets and the manufacturing, selling and distribution of lumber and other wood products.

During the second quarter of 2003, the Partnership was unable to meet the financial covenants and scheduled interest payments pursuant to its bank loan and senior note agreements. In addition, the Partnership was unable to successfully negotiate a recapitalization with its bank lenders and senior note holders. Therefore, on June 29, 2003, the Partnership and all but one of its subsidiaries, Klamath Northern Railway, Co., each filed voluntary petitions for relief under Chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Arizona in Phoenix, Arizona (the “Bankruptcy Court”), case numbers 03-11258-PHX-RJH through 03-11263-PHX-RJH. These cases are jointly administered under case number 03-11258-PHX-RJH. The Partnership and its subsidiaries currently manage their properties and operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. See Note 2 below.

	For the Six Months Ended June 30,
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	16,235		$	(37,418	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depletion, depreciation and amortization	9,851			11,283
Deferred interest	—			2,402
Non-cash reorganization items	216			218
Loss on purchase commitments	—			413
Impairment of goodwill	—			5,502
Loss on disposal of assets	1,179			780
Net change in current assets and current liabilities:
Accounts and notes receivable	(16,304		)	4,694
Inventories	(7,329		)	5,148
Deposits on timber cutting contracts	(2,094		)	105
Prepaid and other current assets	150			(2,852		)
Accounts payable and accrued expenses	423			9,485
Net cash provided by (used in) operating activities	2,327			(240		)

Cash flows from investing activities:
Additions to timberlands	(2,605		)	(2,990		)
Additions to timber cutting rights	(10		)	(629		)
Additions to equipment	(300		)	(1,111		)
Proceeds from sale of assets	12,320			7,143
Principal payments received on notes	—			67
Net cash provided by investing activities	9,405			2,480

Cash flows from financing activities:
Net decrease in short-term borrowings	(9,221		)	(6,876		)
Repayments of long-term debt	(3,093		)	(44		)
Net cash used in financing activities	(12,314		)	(6,920		)

Net decrease in cash and cash equivalents	(582		)	(4,680		)
Cash and cash equivalents at beginning of period	11,028			12,993

Cash and cash equivalents at end of period	$	10,446		$	8,313

Supplemental Cash Flow Information
Cash paid for reorganization items	$	3,520		$	—
Cash paid for interest	$	448		$	8,083

~~The~~See Partnership has experienced net losses in thirteen of the last fourteen fiscal quarters, and would have reported a net loss in the current quarter if $12.7 million of contractual interest expense had been recognized. The accompanying ~~consolidated~~Notes ~~financial~~to ~~statements have~~Consolidated ~~been prepared assuming that the Partnership will continue as a going concern, and in accordance with Statement of Position 90-7 (“SOP 90-7”), “~~Financial ~~Reporting~~ ~~by Entities in Reorganization Under the Bankruptcy Code~~Statements.” As a result of the Chapter 11 filing, there is no assurance that the carrying amounts of assets will be realized or that the liabilities will be settled for the amounts recorded. Until a plan of reorganization is confirmed by the Bankruptcy Court, the Partnership is not able to determine the ultimate disposition of its assets and liabilities. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior period reclassifications have been made to conform to the current period presentation.

~~Note 2: Chapter 11 Bankruptcy Reorganization~~5

~~During~~CROWN ~~the first quarter of 2004~~PACIFIC PARTNERS, ~~the following occurred under the jurisdiction of the Bankruptcy Court:~~L.P.

~~• Negotiations~~NOTES ~~on a~~TO ~~consensual plan of re-organization with representatives of the senior note~~CONSOLIDATED ~~holders~~FINANCIAL ~~and acquisition facility banks continued.~~STATEMENTS

~~• A marketing process was initiated regarding the Partnership’s Manufacturing Segment and Alliance Lumber Segment assets.~~(Unaudited)

~~• On March 24,~~Note ~~2004,~~1: ~~the~~Organization ~~Bankruptcy~~and ~~Court~~Basis ~~approved a motion to dispose~~ of ~~the~~ ~~Partnership’s Alliance Lumber Segment operations in Las Vegas, Nevada. See Note 10.~~Presentation

~~The~~Crown ~~creditors~~Pacific onPartners, ~~the acquisition facility and senior notes assert~~L.P. ~~that their debt is collateralized by~~ (the “Partnership’s”), ~~timberlands~~a ~~and~~Delaware ~~certain real~~limited ~~property~~partnership, ~~and~~through ~~equipment associated with~~ its ~~Manufacturing~~99% ~~Segment. The~~owned ~~remaining~~subsidiary, ~~liabilities~~Crown ~~subject~~Pacific toLimited ~~compromise~~Partnership ~~are generally unsecured. The Chapter 11 filing constitutes a default or event of default under a number of~~ (the ~~company’s~~“Operating ~~debt~~Partnership”), ~~lease and~~ ~~other~~was ~~contractual~~formed ~~relationships. While~~in ~~the~~1994 ~~Partnership~~to ~~is under bankruptcy protection~~acquire, ~~any~~own ~~scheduled~~and ~~interest~~operate ortimberlands ~~principal payments on debt are deferred~~ and ~~creditors~~wood ~~are generally prohibited from pursuing collection of~~product ~~their~~manufacturing ~~pre-petition~~facilities ~~claims~~located byin the ~~automatic~~Northwest ~~stay~~United ~~provisions of the Bankruptcy Code~~States. In ~~accordance with SOP 90-7, the~~The Partnership’s ~~discontinued~~business ~~accruing~~consists ~~interest~~primarily onof ~~its~~growing ~~term~~and ~~debt~~harvesting ~~effective~~timber for ~~June 30,~~sale ~~2003,~~as ~~because~~logs itin isdomestic ~~not~~and ~~probable~~export itmarkets ~~will~~and ~~be paid during~~ the ~~bankruptcy~~ ~~proceedings~~manufacturing, orselling ~~be an allowed claim.~~ and Andistribution ~~additional $12.7 million~~ of ~~interest~~lumber ~~expense~~and ~~would~~other ~~have~~wood ~~been recognized in the first quarter of 2004 if not for the Chapter 11 bankruptcy petition~~products.

5During the second quarter of 2003, the Partnership was unable to meet the financial covenants and scheduled interest payments pursuant to its bank loan and senior note agreements. In addition, the Partnership was unable to successfully negotiate a recapitalization with its bank lenders and senior note holders. Therefore, on June 29, 2003, the Partnership and all but one of its subsidiaries, Klamath Northern Railway, Co., each filed voluntary petitions for relief under Chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Arizona in Phoenix, Arizona (the “Bankruptcy Court”), case numbers 03-11258-PHX-RJH through 03-11263-PHX-RJH. These cases are jointly administered under case number 03-11258-PHX-RJH. The Partnership and its subsidiaries currently manage their properties and operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. See Note 2 also.

OnThe Partnership ~~November 10,~~has ~~2003,~~experienced anet ~~hearing~~losses ~~was~~in ~~held~~thirteen inof the ~~Bankruptcy~~last ~~Court~~fifteen fiscal onquarters, aand ~~motion~~would ~~from~~have ~~the~~reported ~~Partnership,~~a ~~which~~net ~~was~~loss ~~opposed~~in byeach of the ~~creditors,~~first toand ~~extend~~second ~~the~~quarters ~~period~~ of ~~exclusivity~~2004 inif ~~which~~$12.7 ~~only~~million ~~the~~and ~~Partnership~~$12.9 ~~may~~million, ~~present~~respectively, ~~a plan~~ of ~~reorganization~~contractual tointerest ~~the~~expense ~~Bankruptcy~~had ~~Court~~been recognized. At ~~the~~The ~~hearing,~~accompanying ~~the~~consolidated financial ~~Bankruptcy~~statements ~~Court~~have ~~denied~~been ~~the~~prepared ~~Partnership’s~~assuming ~~motion, thereby~~that ~~ending~~ the ~~period within which the~~ Partnership ~~had the exclusive right~~will tocontinue ~~propose~~as a ~~reorganization~~going ~~plan. The Partnership~~concern, isand ~~negotiating~~in accordance with ~~the~~Statement ~~major~~of ~~creditor~~Position ~~constituents in its Chapter~~90-7 11(“SOP ~~proceedings~~90-7”), ~~and~~“Financial ~~has~~Reporting ~~begun to pursue a process~~ by ~~which~~Entities ~~the Partnership’s assets and operations will be sold or otherwise divested~~ in ~~order~~Reorganization toUnder ~~satisfy~~the ~~creditor~~Bankruptcy ~~claims~~Code.” ~~Management~~As ~~anticipates~~a ~~that~~result of the ~~Partnership will file a consensual~~ Chapter 11 ~~plan~~filing, ~~jointly~~there ~~with~~is ~~these~~no ~~creditor constituents, that will~~assurance ~~further this divestiture process. It appears highly unlikely~~ that the ~~claims~~carrying ~~of the~~amounts ~~holders~~ of ~~the~~assets ~~acquisition facility bank debt and senior notes~~ will be ~~satisfied~~ inrealized ~~full.~~or ~~Accordingly,~~that the ~~Chapter 11 plan that is currently under~~liabilities ~~negotiation~~will ~~contemplates~~be ~~the~~settled ~~extinguishment~~for of the ~~Partnership~~amounts ~~units with no~~recorded. ~~recovery~~Until toa ~~holders~~plan of ~~units,~~reorganization ~~and any plan that~~ is ~~ultimately~~ confirmed by the Bankruptcy Court, ~~will~~the Partnership ~~likely~~is ~~extinguish~~not able to determine the ~~equity~~ultimate ~~units.~~disposition ~~Further,~~of itits isassets ~~likely~~and ~~that~~liabilities. All ~~any~~significant intercompany ~~plan~~transactions ~~that~~and isbalances ~~ultimately~~have ~~confirmed~~been ~~will,~~eliminated in consolidation. Certain ~~conjunction~~prior ~~with any~~period ~~pre-confirmation~~reclassifications ~~asset~~have ~~dispositions,~~been ~~result~~made into ~~the~~conform ~~disposition~~to ~~of all of~~ the ~~Partnership’s~~ ~~operations~~current ~~and~~period ~~associated assets~~presentation.

Note 32: ~~Debtor-in-Possession~~ ~~Credit~~Chapter ~~Facility~~11 Bankruptcy Reorganization

~~On July 1, 2003,~~ During the ~~Bankruptcy~~first Court entered an interim financing order and on July 17, 2003 the Bankruptcy Court entered a final financing order approving a $40 million debtor-in-possession credit facility (“DIP Revolver”) with CIT Group/Business Credit (“CIT”). The $40 million limit is subject to a borrowing base and is reduced to $20 million should the Partnership dispose of all of its Alliance Lumber Segment. The DIP Revolver is collateralized by accounts receivable, inventory and substantially all personal property. The DIP Revolver bears interest at either (a) the Chase Bank Prime Rate plus 0.5% or (b) LIBOR plus 3%, at the option of the Partnership. Any LIBOR loans are made for fixed one, two orquarters ~~three month terms. The DIP Revolver terminates on January 1, 2005 or upon the effective date~~ of ~~a Bankruptcy Court approved plan of reorganization and contains certain covenants and restrictions. As of March 31,~~ 2004, ~~there was $18.3 million outstanding at an interest rate of 4.5% and approximately $16.5 million remained available on~~ the ~~DIP~~following ~~Revolver~~occurred ~~(see~~under ~~Note 10). As of March 31, 2004,~~ the ~~Partnership was not in compliance with all~~ jurisdiction of the ~~financial~~Bankruptcy reporting covenants of the DIP Revolver, but CIT did not declare an event of default and the Partnership has subsequently complied with all financial reporting covenants. As of March 31, 2004, the Partnership was in compliance with all of the other covenants of the DIP Revolver.Court:

~~Note~~• Negotiations ~~4: Liabilities~~on a ~~Subject~~consensual toplan ~~Compromise~~of re-organization with representatives of the senior note holders and acquisition facility banks continued.

~~Pursuant~~• A tomarketing process ~~the~~was ~~bankruptcy~~conducted ~~proceedings,~~regarding the Partnership’s ~~has classified~~Manufacturing ~~certain~~Segment ~~liabilities which existed prior to the June 29, 2003 bankruptcy petition filing as liabilities subject to compromise in accordance with SOP 90-7. Disposition~~ and ~~settlement~~Alliance ofLumber ~~such~~Segment ~~liabilities is under the jurisdiction of the Bankruptcy Court~~assets. ~~The following table summarizes the pre-petition liabilities that are included as liabilities subject to compromise on the accompanying consolidated balance sheets (in thousands):~~

	March 31, 2004			December 31, 2003
Acquisition facility principal	$	112,372		$	112,372
Senior notes principal	400,658			400,658
Adequate protection payments(1)	(4,500		)	(3,000		)
Accrued interest	21,039			21,039
Deferred enhanced interest	4,927			4,927
Make whole fees and interest	6,360			6,360
Accounts payable	1,294			1,419
Other accrued expenses	3,490			3,428
Total	$	545,640		$	547,203

• In April 2004, the Partnership closed the sale of its Alliance Lumber Segment operations in Las Vegas, Nevada. See Note 10 also.

~~(1)~~ • In ~~October 2003~~June 2004, the Partnership ~~agreed~~filed tomotions ~~pay~~with ~~$0.5 million per month, retroactive to July 2003, to~~ the ~~acquisition~~Bankruptcy ~~facility~~Court ~~banks and senior note holders as adequate protection payments related~~ to ~~their~~dispose ~~asserted collateral. Such payments are to be applied to reduce, on a dollar-for-dollar basis, the aggregate allowed secured claims~~ of the ~~senior~~Partnership’s ~~note~~remaining ~~holders~~Alliance ~~and~~Lumber ~~the~~Segment ~~acquisition~~operations ~~facility~~in ~~banks. The~~Reno, ~~method~~Nevada ~~for allocating the adequate~~and ~~protection~~in ~~payments will be determined by the Bankruptcy Court and~~Phoenix, ~~therefore, the~~Arizona. See ~~Partnership~~Note is11 ~~not able to apply these payments to specific debt components at this time~~also.

6See Note 11 also for events in the bankruptcy process which occurred subsequent to June 30, 2004.

~~Note~~The 5:creditors ~~Inventories~~on the acquisition facility and senior notes assert that their debt is collateralized by the Partnership’s timberlands and certain real property and equipment associated with its Manufacturing Segment. The remaining liabilities subject to compromise are generally unsecured. The Chapter 11 filing constitutes a

~~All inventories, consisting primarily of logs, lumber and building materials, are stated at the lower of average cost or market and consisted of the following (in thousands):~~6

	March 31, 2004		December 31, 2003
Lumber	$	4,505	$	3,554
Logs	2,434		1,887
Supplies	3,342		3,326
Manufacturing inventory	10,281		8,767
Wholesale products	12,812		19,176
Total	$	23,093	$	27,943

default or event of default under a number of the Partnership’s debt, lease and other contractual relationships. While the Partnership is under bankruptcy protection, any scheduled interest or principal payments on debt are deferred and creditors are generally prohibited from pursuing collection of their pre-petition claims by the automatic stay provisions of the Bankruptcy Code. In accordance with SOP 90-7, the Partnership discontinued accruing interest on its term debt effective June 30, 2003, because it is not probable it will be paid during the bankruptcy proceedings or be an allowed claim. An additional $12.9 million and $25.6 million, respectively, of interest expense would have been recognized in the three and six month periods ended June 30, 2004, if not for the Chapter 11 bankruptcy petition.

~~Note~~On 6: November 10, 2003, a hearing ~~Timber~~was held in the Bankruptcy Court on a motion from the Partnership, ~~Timberlands~~which was opposed by the creditors, to extend the period of exclusivity in which only the Partnership may present a plan of reorganization to the Bankruptcy Court. At the hearing, the Bankruptcy Court denied the Partnership’s motion, thereby ending the period within which the Partnership had the exclusive right to propose a reorganization plan. The Partnership is negotiating with the major creditor constituents in its Chapter 11 proceedings, and ~~Roads~~has begun a process by which the Partnership’s assets and operations will likely be sold or otherwise divested in order to satisfy creditor claims. Management anticipates that the Partnership will file a consensual Chapter 11 plan, ~~Net~~jointly with these creditor constituents, that will likely further this divestiture process. It appears highly unlikely that the claims of the holders of the acquisition facility bank debt and senior notes will be satisfied in full. Accordingly, the Chapter 11 plan that is currently under negotiation contemplates the extinguishment of the Partnership units with no recovery to holders of units, and any plan that is ultimately confirmed by the Bankruptcy Court will likely extinguish the equity units. Further, it is likely that any plan that is ultimately confirmed will, in conjunction with any pre-confirmation asset dispositions, result in the disposition of all of the Partnership’s operations and associated assets.

~~The~~Note ~~Partnership updates its timber inventory system annually for changes in estimated volume due to timber verification cruises, timber growth factors and actual harvest levels by species.~~3: ~~The changes to estimated timber volume, along with changes~~ Debtor-in-Possession ~~book~~Credit value from capitalized expenditures, impairment adjustments and any timber purchase or sale transactions, result in a change in estimated depletion rates. The revised estimate made at the beginning of 2004 decreased depletion expense for the first quarter of 2004 by $0.2 million, compared to the depletion rates that were in effect at the start of 2003 applied to the actual volume harvested in the first quarter of 2004.Facility

~~Note~~On 7:July ~~Allocation~~17, 2003 the Bankruptcy Court entered a final financing order approving a $40 million debtor-in-possession credit facility (“DIP Revolver”) with CIT Group/Business Credit (“CIT”). The $40 million limit is subject to a borrowing base and is collateralized by accounts receivable, inventory and substantially all personal property. The DIP Revolver bears interest at either (a) the Chase Bank Prime Rate plus 0.5% or (b) LIBOR plus 3%, at the option of the Partnership. Any ~~Losses~~LIBOR loans are made for fixed one, two or three month terms. The DIP Revolver terminates on January 1, 2005 or upon the effective date of a Bankruptcy Court approved plan of reorganization and contains certain covenants and restrictions. As of June 30, 2004, there was $14.1 million outstanding at an interest rate of 4.5% and approximately $25.9 million remained available on the DIP Revolver. However, subsequent to June 30, 2004, borrowings and availability under the DIP Revolver have been reduced by the disposition of assets and operations discussed in Note 11. As of June 30, 2004, the Partnership was in compliance with all of the covenants of the DIP Revolver.

~~The~~Note ~~Partnership Agreement~~4: ~~provides~~Liabilities ~~that~~Subject ~~profit and losses are generally allocated 1.01%~~ to the General Partner interest and 98.99% to the Limited Partner interest. In addition, the Partnership Agreement specifies that net losses are not allocated to limited partners to the extent doing so would result in (or increase) a deficit balance in their capital accounts. At that point, net losses are allocated 100% to the General Partners. In the third quarter of 2003, the Limited Partners’ capital accounts were reduced to zero, and subsequent income and losses have been allocated 100% to the General Partners. Accordingly, the General Partner interest was allocated the entire net income that was reported in the first quarter of 2004. 100% of income and losses will continue to be allocated to the General Partners unless and until the cumulative additional losses they have been allocated are fully recovered.Compromise

~~Note~~Pursuant 8:to ~~Unit~~the bankruptcy proceedings, the Partnership has classified certain liabilities which existed prior to the June 29, 2003 bankruptcy petition filing as liabilities subject to compromise in accordance with SOP 90-~~Based~~7. Disposition and settlement of such liabilities is under the ~~Compensation~~jurisdiction of the Bankruptcy Court. Certain accounts payable and accrued expenses classified as liabilities subject to compromise have been satisfied through the disposition of the Partnership’s Alliance Lumber operations in Las Vegas, Nevada in April 2004, and additional portions of these liabilities have been further satisfied through the dispositions recorded in July and August of 2004 (see Note 11).

The Partnership accounts for unit options using the intrinsic value method as prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” Pursuant to Statement of Financial Accounting Standards (SFAS) No. 148 “Accounting for Stock-Based Compensation - Transition and Disclosure,” the Partnership has computed, for pro forma disclosure purposes, the impact on net income (loss) and net income (loss) per unit as if it had accounted for its unit-based compensation plans in accordance with the fair value method prescribed by SFAS No. 123 “Accounting for Stock-Based Compensation” as follows (in thousands, except per unit amounts):7

Three Months Ended March 31,	2004			2003
Net income (loss), as reported	$	5,325		$	(16,515	)
Fair value of unit-based employee compensation	(1		)	(8		)
Net income (loss), pro forma	$	5,324		$	(16,523	)
Basic and diluted net income (loss) per limited partner unit:
As reported	$	—		$	(0.54	)
Pro forma	$	—		$	(0.54	)

The following table summarizes the pre-petition liabilities that are included as liabilities subject to compromise on the accompanying consolidated balance sheets (in thousands):

There were no unit options granted in the first quarter of 2004 or 2003.

	June 30, 2004			December 31, 2003
Acquisition facility principal	$	112,372		$	112,372
Senior notes principal	400,658			400,658
Adequate protection payments(1)	(6,000		)	(3,000		)
Accrued interest	21,039			21,039
Deferred enhanced interest	4,927			4,927
Make whole fees and interest	6,360			6,360
Accounts payable	1,163			1,419
Other accrued expenses	3,724			3,428
Total	$	544,243		$	547,203

7(1) In October 2003, the Partnership agreed to pay $0.5 million per month, retroactive to July 2003, to the acquisition facility banks and senior note holders as adequate protection payments related to their asserted collateral. Such payments are to be applied to reduce, on a dollar-for-dollar basis, the aggregate allowed secured claims of the senior note holders and the acquisition facility banks. The method for allocating the adequate protection payments will be determined by the Bankruptcy Court and, therefore, the Partnership is not able to apply these payments to specific debt components at this time.

Note 95: ~~Segment Reporting~~Inventories

~~The~~All ~~Partnership classifies its business into three fundamental areas for purposes of providing segment information: 1) Timberlands~~inventories, consisting ofprimarily ~~the operation~~ of ~~tree farms and the harvest and sale of~~ logs ~~to the Partnership’s manufacturing facilities and to third parties~~, ~~and~~lumber ~~the sale of timber~~ and ~~timberlands~~building ~~to third parties; 2) Manufacturing~~materials, ~~consisting~~are ofstated ~~the~~at ~~manufacture of logs into dimension lumber~~the ~~and~~lower ~~the sale~~ of ~~such~~average ~~lumber~~cost asor ~~well~~market ~~as residual chips~~ and ~~other~~consisted ~~by-products; and 3) Alliance Lumber, consisting~~ of the ~~distribution~~following ~~and supply of building~~(in materials through the Partnership’s professional contractor service yards. Corporate and Other includes general corporate overhead and expenses not allocated to the segments, miscellaneous operations not significant enough to be classified as a separate segment and other items not specifically allocated to the operating segments.thousands):

The Partnership discontinued its Trading and Distribution Segment during the second quarter of 2003, and the results from this segment are shown as discontinued operations for all periods presented. The Trading and Distribution Segment consisted of the wholesale trading, marketing and distribution of lumber and panel products. See Note 10.

	June 30, 2004		December 31, 2003
Lumber	$	4,106	$	3,554
Logs	2,390		1,887
Supplies	3,383		3,326
Manufacturing inventory	9,879		8,767
Distribution products	21,460		19,176
Total	$	31,339	$	27,943

~~On March 24, 2004~~Note ~~the Bankruptcy Court approved a motion to sell the net assets of the Las Vegas operations of the Partnership’s Alliance Lumber Segment~~6: Timber, Timberlands and, ~~accordingly~~Roads, ~~the results from the Las Vegas business unit are shown as discontinued operations for all periods presented. See Note 10.~~Net

The Partnership updates ~~does~~its ~~not~~timber inventory system annually for changes in estimated volume ~~show~~due ~~assets~~to bytimber ~~segment~~verification cruises, astimber ~~historic~~growth ~~costs~~factors ~~are~~and ~~not~~actual ~~used~~harvest levels by ~~management~~species. The changes to ~~allocate~~estimated ~~resources~~timber volume, along with changes in book value from capitalized expenditures, impairment adjustments and any timber purchase or ~~assess~~sale transactions ~~performance~~result in a change in estimated depletion rates. The revised estimate made at the beginning of 2004 decreased depletion expense for the three and six month periods ended June 30, 2004 by $0.1 million and $0.3 million, respectively, compared to the depletion rates that were in effect in the comparable periods of 2003, applied to the actual volume harvested in the three and six month periods ended June 30, 2004.

~~The~~Note ~~following summarizes~~7: ~~the~~Allocation of Partnership’s ~~segment information (in thousands):~~Losses

	Three Months Ended March 31,
Revenues	2004			2003
Timberlands:
Trade	$	5,529		$	6,917
Intersegment	8,890			9,544
	14,419			16,461
Manufacturing:
Trade	26,121			21,976
Intersegment	852			1,173
	26,973			23,149
Alliance Lumber:
Trade	48,620			34,781
Intersegment	—			—
	48,620			34,781
Corporate and Other:
Trade	2,277			2,439
Intersegment	—			60
	2,277			2,499
Total:
Total Revenue	92,289			76,890
Less Intersegment	(9,742		)	(10,777		)
Net Revenue	$	82,547		$	66,113

The Partnership Agreement provides that profit and losses are generally allocated 1.01% to the General Partner interest and 98.99% to the Limited Partner interest. In addition, the Partnership Agreement specifies that net losses are not allocated to the Limited Partner Interest to the extent doing so would result in (or increase) a deficit balance in their capital accounts. At that point, net losses are allocated 100% to the General Partner interest. In the third quarter of 2003, the Limited Partners’ capital accounts were reduced to zero, and subsequent income and losses have been allocated 100% to the General Partners. Accordingly, the General Partner interest was allocated the entire net income that was reported in the three and six month periods ended

	Three Months Ended March 31,
Operating income (loss)	2004			2003
Timberlands	$	408		$	779
Manufacturing	6,962			(576		)
Alliance Lumber	2,369			2,368
Corporate and Other	(2,089		)	(1,827		)
Operating Income	7,650			744
Interest Expense (excluding contractual interest expense of $12,736 and $0)	(268		)	(11,952		)
Other	(414		)	(294		)
Reorganization Items	(2,123		)	—
Income (Loss) from Continuing Operations	$	4,845		$	(11,502	)

June 30, 2004. In accordance with the Partnership Agreement, 100% of income and losses will continue to be allocated to the General Partners unless and until the cumulative additional losses they have been allocated are fully recovered.

	Three Months Ended March 31,
Depreciation, depletion and amortization	2004		2003
Timberlands	$	3,172	$	4,146
Manufacturing	1,212		1,218
Alliance Lumber	75		144
Corporate and Other	561		583
Total	$	5,020	$	6,091

Note 8: Unit-Based Compensation

~~Note~~The ~~10: Discontinued~~Partnership ~~Operations~~accounts for unit options using the intrinsic value method as prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” Pursuant to SFAS No. 148 “Accounting for Stock-Based Compensation - Transition and Disclosure,” which the Partnership adopted in December 2002, the Partnership has computed, for pro forma disclosure purposes, the impact on net loss and net loss per unit as if it had accounted for its unit-based compensation plans in accordance with the fair value method prescribed by SFAS No. 123 “Accounting for Stock-Based Compensation” as follows (in thousands, except per unit amounts):

Las Vegas Operations of Alliance Lumber Segment

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Net income (loss), as reported	$	10,910		$	(20,903	)	$	16,235		$	(37,418	)
Deduct - total unit-based employee compensation expense determined under the fair value based method for all awards	(1		)	(8		)	(3		)	(16		)
Net income (loss), pro forma	$	10,909		$	(20,911	)	$	16,232		$	(37,434	)
Basic and diluted net income (loss) per unit:
As reported	$	—		$	(0.68	)	$	—		$	(1.21	)
Pro forma	$	—		$	(0.68	)	$	—		$	(1.21	)

On March 24, 2004, the Bankruptcy Court approved a motion to dispose of the Partnership’s Alliance Lumber Segment operations in Las Vegas, Nevada. In April 2004, the Partnership closed the sale of this operation, resulting in a recognized loss of $1.2 million in the second quarter of 2004. Results of operations for the Las Vegas operations are reported as discontinued operations for all periods presented in accordance with Statement of Financial Accounting Standards No~~. 144~~ ~~(“SFAS~~unit ~~No.~~options ~~144”)~~have ~~“Accounting for the Impairment or Disposal of Long-Lived~~been ~~Assets.” Summarized~~granted ~~financial information~~since ~~for these operations is as follows (in thousands):~~2001.

Three Months Ended March 31,	2004		2003
Revenues	$	18,756	$	13,040
Operating income	480		338

Note 9: Segment Reporting

AsThe ofPartnership ~~March 31~~classifies its business into three segments: 1) Timberlands, ~~2004~~consisting of the operation of tree farms and the harvest and sale of logs to the Partnership’s manufacturing facilities and to third parties, and the ~~assets~~sale of timber and ~~liabilities~~timberlands to third parties; 2) Manufacturing, consisting of the ~~Las~~manufacture of logs into dimension lumber and ~~Vegas~~the ~~operations~~sale ~~were~~of ~~classified~~such lumber as ~~held~~well ~~for~~as ~~sale~~residual onchips and other by-products; and 3) Alliance Lumber, consisting of the ~~consolidated~~distribution ~~balance~~and supply of building ~~sheet~~materials through the Partnership’s professional contractor service yards. ~~Components~~The ofCorporate ~~these~~and ~~assets~~Other category includes general corporate overhead and expenses not allocated to the segments, ~~liabilities~~miscellaneous ~~were~~operations not significant enough to be classified as ~~follows~~a ~~(in~~separate segment ~~thousands):~~and other items not specifically allocated to the operating segments.

	March 31, 2004
Accounts receivable, net	$	9,653
Inventory	3,933
Other assets	700
Assets held for sale	$	14,286
Liabilities held for sale	$	(838	)

The Partnership does not show assets by segment, as historic costs are not used by management to allocate resources or assess performance.

Sale of the net assets of the Las Vegas operations produced cash proceeds of $12.3 million, all of which was immediately paid to CIT to reduce outstanding borrowings under the DIP Revolver. This disposition is expected to reduce availability under the DIP Revolver by $4.0 to $5.0 million.9

9The following summarizes the Partnership’s segment information (in thousands):

Trading and Distribution Segment

	Three Months Ended June 30,						Six Months Ended June 30,
Revenues	2004			2003			2004			2003
Timberlands:
Trade	$	6,161		$	4,252		$	11,690		$	11,169
Intersegment	3,254			6,257			12,144			15,801
	9,415			10,509			23,834			26,970
Manufacturing:
Trade	32,790			16,611			58,911			38,587
Intersegment	2,036			899			2,888			2,072
	34,826			17,510			61,799			40,659
Alliance Lumber:
Trade	65,185			37,481			113,805			72,261
Intersegment	—			—			—			—
	65,185			37,481			113,805			72,261
Corporate and Other:
Trade	2,700			1,835			4,977			4,274
Intersegment	—			16			—			76
	2,700			1,851			4,977			4,350
Total:
Total revenues	112,126			67,351			204,415			144,240
Less intersegment	(5,290		)	(7,172		)	(15,032		)	(17,949		)
Revenues	$	106,836		$	60,179		$	189,383		$	126,291

In April and May 2003, in two separate transactions, the Partnership sold the inventory and fixed assets related to its Trading and Distribution Segment and discontinued the segment’s operations. The purchasers of these assets assumed the operating leases, accounts payable and accrued expenses related to these businesses. The Partnership received a total of $4.5 million from these asset sales, all of which was immediately applied to outstanding principal on the revolving credit facility. The results of operations of the Trading and Distribution Segment are reflected as discontinued operations on the accompanying consolidated statements of operations for all periods presented in accordance with SFAS No. 144.

	Three Months Ended June 30,						Six Months Ended June 30,
Operating income (loss)	2004			2003			2004			2003
Timberlands	$	609		$	226		$	1,214		$	1,005
Manufacturing	11,277			(605		)	18,239			(1,182		)
Alliance Lumber	4,064			2,086			6,431			4,455
Corporate and Other	(1,432		)	(4,330		)	(3,715		)	(6,167		)
Operating income (loss)	14,518			(2,623		)	22,169			(1,889		)
Interest expense	(180		)	(12,068		)	(448		)	(24,020		)
Reorganization expenses	(1,884		)	(5,078		)	(4,007		)	(5,078		)
Other	(463		)	(615		)	(877		)	(909		)
Net income (loss) from continuing operations	$	11,991		$	(20,384	)	$	16,837		$	(31,896	)

~~During~~Note ~~March~~10: ~~2003, deterioration of the~~ ~~Partnership’s~~Discontinued trade credit availability began to adversely affect operating margins in the Trading and Distribution Segment. Pursuant to the provisions of SFAS No. 142 “Goodwill and Other Intangible Assets,” the Partnership evaluated the goodwill balance of this segment for impairment following the change in circumstances during the first quarter of 2003, utilizing a fair value analysis of the business in the current market environment. Based on the results of this evaluation, the Partnership determined that its goodwill was impaired and recorded a non-cash impairment charge of $5.5 million in the three months ended March 31, 2003. This $5.5 million charge is included in discontinued operations.Operations

~~Summarized~~Trading ~~financial~~and ~~information~~Distribution ~~for these operations is as follows (in thousands):~~Segment

Three Months Ended March 31,	2003
External revenues	$	27,807
Operating loss	(5,351		)

In April and May 2003, in two separate transactions, the Partnership sold the inventory and fixed assets related to its Trading and Distribution Segment and discontinued the segment’s operations. The purchasers of these assets assumed the operating leases, accounts payable and accrued expenses related to these businesses. The Partnership received cash proceeds of $4.5 million from these asset sales, all of which was immediately applied to outstanding principal on the revolving credit facility. The results of operations of the Trading and Distribution Segment are reflected as discontinued operations on the accompanying consolidated statements of operations for all 2003 periods presented in accordance with Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”) “Accounting for the Impairment or Disposal of Long-Lived Assets.”

~~Reno~~During March 2003, ~~Nevada~~deterioration ~~Operations~~ of the Partnership’s trade credit availability began ~~Alliance~~to ~~Lumber~~adversely affect operating margins in the Trading and Distribution Segment. Pursuant to the provisions of SFAS No. 142 “Goodwill and Other Intangible Assets,” the Partnership evaluated the goodwill balance of this segment for impairment following the change in circumstances during the first quarter of 2003, utilizing a fair value analysis of the business in the current market environment. Based on the results of this evaluation, the Partnership determined that its goodwill was impaired and recorded a non-cash impairment charge of $5.5 million in the three months ended March 31, 2003. This $5.5 million charge is included in discontinued operations.

The Partnership is in negotiations to sell its Alliance Lumber Segment operations in Reno, Nevada and anticipates signing an asset purchase agreement in the second quarter of 2004. If an asset purchase agreement is signed and approved by the Bankruptcy Court, the disposition of the Reno, Nevada operations is expected to generate approximately $11.0 to $12.5 million of cash, all of which will be immediately paid to CIT to reduce outstanding borrowings under the DIP Revolver. In addition, the disposition is expected to reduce the borrowing base on the Partnership’s DIP Revolver by approximately $8.5 to $9.5 million.10

~~Item~~Summarized ~~2. Management’s Discussion~~financial ~~and~~information ~~Analysis~~for ofthese ~~Financial~~operations ~~Condition~~is ~~and~~as ~~Results~~follows of(in ~~Operations~~ thousands):

Chapter 11 Bankruptcy Reorganization

	Three Months Ended June 30, 2003			Six Months Ended June 30, 2003
External revenues	$	6,333		$	34,140
Operating loss	(482		)	(5,826		)

~~During~~Las ~~the~~Vegas ~~second~~Operations ~~quarter~~ of ~~2003,~~Alliance ~~we were~~Lumber unable to meet the financial covenants and scheduled interest payments pursuant to our bank loan and senior note agreements. In addition, we were unable to successfully negotiate a recapitalization with our bank lenders and senior note holders. Accordingly, on June 29, 2003, we filed voluntary petitions for relief under Chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Arizona in Phoenix, Arizona (the “Bankruptcy Court”) for the Partnership and all but one of our subsidiaries, Klamath Northern Railway, Co. We currently manage our properties and operate our businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.Segment

WeIn ~~have~~April ~~experienced~~2004, ~~net losses in thirteen of~~ the ~~last~~Partnership ~~fourteen~~closed ~~fiscal quarters, and would have reported a net loss in~~ the ~~current~~ ~~quarter~~sale ~~if $12.7 million~~ of ~~contractual~~its ~~interest~~Alliance ~~expense had been~~Lumber ~~recognized. The~~Segment ~~accompanying consolidated~~operations ~~financial~~in ~~statements~~Las ~~have~~Vegas, ~~been prepared assuming that we will continue as a going concern~~Nevada, ~~and~~resulting in ~~accordance~~a ~~with~~recognized ~~SOP~~loss ~~90-7,~~of ~~“Financial~~$1.2 ~~Reporting~~million ~~by Entities~~ in ~~Reorganization Under~~ the ~~Bankruptcy~~second ~~Code.” As~~quarter ~~a result~~ of ~~our Chapter 11 filing, there~~2004. isResults noof ~~assurance~~operations ~~that~~for the ~~carrying~~Las ~~amounts~~Vegas ofoperations ~~our~~are ~~assets~~reported ~~will~~as bediscontinued operations ~~realized~~for orall ~~that the~~periods ~~liabilities~~presented ~~will~~in beaccordance ~~settled~~with ~~for~~SFAS ~~the~~No. ~~amounts recorded~~144. Summarized ~~Until~~financial ainformation ~~plan~~for ofthese ~~reorganization~~operations is ~~confirmed~~as byfollows ~~the~~(in ~~Bankruptcy Court, we are not able to determine the ultimate disposition of our assets and liabilities.~~thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
External revenues	$	—		$	13,231		$	18,756		$	26,271
Operating income (loss)	117			(41		)	596			300
Gain (loss) on disposal	(1,198		)	4			(1,198		)	4

~~The~~Sale ~~following~~of ~~occurred under~~ the ~~jurisdiction~~net assets of the ~~Bankruptcy~~Las ~~Court~~Vegas inoperations ~~the~~produced ~~first~~cash ~~quarter~~proceeds of ~~2004:~~$12.3 million, all of which was immediately paid to CIT to reduce outstanding borrowings under the DIP Revolver.

~~• Negotiations~~Note ~~on a~~11: ~~consensual~~Subsequent ~~plan of re-organization with representatives of the senior note holders and acquisition facility banks continued.~~Events

~~• A~~Reno, ~~marketing process~~Nevada ~~was~~Operations ~~initiated~~of ~~regarding the Partnership’s Manufacturing Segment and~~ Alliance Lumber Segment ~~assets.~~

• On ~~March 24~~ July 13, 2004, the Bankruptcy Court approved a motion filed by the Partnership to ~~dispose~~sell ofits ~~our~~ Alliance Lumber Segment operations in ~~Las Vegas~~Reno, Nevada. This ~~See~~transaction ~~Discontinued~~closed in July 2004 and generated $14.2 million of ~~Operations~~cash, $1.4 million of which was immediately paid to CIT to eliminate outstanding borrowings under the DIP Revolver. No gain or loss was recognized on the transaction. This disposition reduced the borrowing base and availability on the Partnership’s DIP Revolver (see below). For income tax purposes, sale of these operations is expected to trigger a deferred taxable gain from the original acquisition transaction, resulting in an income tax liability of approximately $0.5 million, which will be recognized in the third quarter of 2004. This tax liability is a liability of the wholly-owned C-Corporation subsidiary which made the original acquisition, and would not be allocated to unit holders.

The creditors on the acquisition facility and senior notes assert that their debt is collateralized by our timberlands and certain real property and equipment associated with our Manufacturing Segment. The remaining liabilities subject to compromise are generally unsecured. The Chapter 11 filing constitutes a default or event of default under a number of our debtPhoenix, ~~lease~~Arizona ~~and other~~Operations ~~contractual relationships. While we are under bankruptcy protection, any scheduled interest or principal payments are deferred and creditors are generally prohibited from pursuing collection~~ of ~~their~~Alliance ~~pre-petition~~Lumber claims by the automatic stay provisions of the Bankruptcy Code. In accordance with SOP 90-7, we stopped accruing interest on our term debt effective June 30, 2003, because it is not probable it will be paid during the bankruptcy proceedings or be an allowed claim. An additional $12.7 million and $25.3 million, respectively, of interest expense would have been recognized in the first quarter of 2004 and in the second half of 2003 if not for the Chapter 11 bankruptcy petition.Segment

On ~~November 10~~ July 13, ~~2003~~2004, ~~a hearing was held in~~ the Bankruptcy Court onapproved a motion ~~from~~ ~~us,~~filed ~~which was opposed~~ by the ~~creditors,~~Partnership to ~~extend~~sell ~~the~~its ~~period~~Alliance ofLumber ~~exclusivity~~Segment operations in ~~which~~Phoenix, ~~only~~Arizona. This wetransaction ~~could~~closed ~~present~~in aAugust ~~plan~~2004 ofand ~~reorganization~~generated ~~to the Bankruptcy Court~~$39. At4 ~~the~~million ~~hearing, the~~of ~~Bankruptcy~~cash. ~~Court~~A ~~denied~~gain ~~our~~of ~~motion,~~approximately ~~thereby~~$1.0 ~~ending~~million ~~the~~was ~~period~~recognized ~~within~~on ~~which we had~~ the ~~exclusive right to propose a reorganization plan~~ transaction. WeThis ~~are~~disposition, ~~negotiating~~ along with the ~~major~~earlier ~~creditor~~Las ~~constituents~~Vegas ~~in our~~and ~~Chapter~~Reno, 11Nevada ~~proceedings~~dispositions, ~~and~~reduced ~~have~~the ~~begun to pursue a process by which our~~DIP ~~assets~~Revolver ~~and~~limit ~~operations~~from ~~will~~$40.0 bemillion ~~sold or otherwise divested in order~~ to ~~satisfy creditor claims~~$20.0 Wemillion ~~anticipate~~and ~~that~~also wereduced ~~will~~the ~~file a consensual Chapter 11 plan,~~related ~~jointly~~borrowing ~~with~~base ~~these~~and ~~creditor~~availability ~~constituents,~~(see ~~that will further this divestiture process~~below). ItFor ~~appears~~income ~~highly~~tax ~~unlikely~~purposes, ~~that~~sale ~~the claims~~ of ~~the holders of our~~ ~~acquisition~~these ~~facility~~operations ~~bank~~is ~~debt~~expected ~~and~~to ~~senior~~trigger ~~notes~~a ~~will~~deferred betaxable ~~satisfied~~gain infrom ~~full. Accordingly,~~ the ~~Chapter 11 plan that is currently under negotiation~~ ~~contemplates~~original ~~the~~acquisition ~~extinguishment~~transaction, ofresulting ~~our~~in ~~partnership~~an ~~units~~income ~~with~~tax noliability ~~recovery to~~of ~~holders~~approximately of$1.3 ~~units~~million, ~~and~~which ~~any~~will ~~plan~~be ~~that~~recognized isin ~~ultimately confirmed by~~ the ~~Bankruptcy Court~~third ~~will~~quarter ~~likely extinguish the equity units~~of 2004. This ~~Further,~~tax itliability is ~~likely~~a ~~that any~~liability ~~plan~~of ~~that~~the iswholly-owned ~~ultimately~~C-Corporation ~~confirmed~~subsidiary ~~will,~~which inmade ~~conjunction~~the ~~with any~~original ~~pre-confirmation asset dispositions~~acquisition, ~~result~~and inwould ~~the~~not ~~disposition~~be ofallocated ~~substantially all~~to ofunit ~~our operations and associated assets~~holders.

~~Industry~~DIP ~~Overview~~Revolver Availability

The ~~forest~~DIP ~~products~~Revolver ~~and building materials~~agreement ~~industries~~provides ~~are~~that ~~characterized~~the bytotal ~~highly~~borrowing ~~volatile~~limit ~~commodity pricing. Product pricing for logs, dimension lumber and other building materials~~ is areduced ~~function~~from ~~of species, grade, size and availability~~$40.0 ~~Prices~~million ~~are heavily influenced by supply and demand for products. Prices tend~~ to ~~follow broad seasonal and cyclical patterns~~$20. ~~Demand is~~0 ~~influenced~~million byfollowing ~~activity~~the ~~levels~~disposition inof the ~~housing~~Alliance ~~and~~Lumber ~~construction industries~~Segment, aswhich was ~~well~~completed asin ~~general~~August ~~economic conditions and foreign currency exchange rates~~2004. In ~~recent years~~addition, borrowings ~~over~~under ~~capacity~~the ofDIP ~~lumber~~Revolver ~~manufacturing~~are ~~facilities~~limited ~~has led~~ to ana ~~abundance of~~borrowing ~~supply~~base. The ~~Supply~~borrowing ~~has~~base ~~been~~is ~~further~~a ~~increased~~function byof ~~imported products from Canada~~the ~~and~~levels ~~other~~of ~~countries.~~related ~~In addition~~collateral, ~~competition from non-wood based products~~ and ~~composite~~ ~~materials~~ has ~~also influenced prices for dimension lumber. Although demand has~~ been ~~strong~~reduced ~~over~~by the ~~last three years, excess supply has contributed~~dispositions todescribed ~~low prices for lumber, which, in turn, has depressed prices for logs and timberlands~~above. ~~Beginning~~As ~~in the second half~~ of ~~2003,~~August ~~prices for lumber and paneling increased sharply~~3, ~~and have remained~~ ~~relatively strong through the first quarter of~~ 2004~~. Prices for logs have remained relatively low~~, ~~but~~there ~~have~~was ~~increased modestly~~zero inoutstanding ~~late 2003~~ and ~~early~~approximately ~~2004~~$13. ~~A major~~1 ~~trade~~million ~~dispute~~available ~~with Canada over the importation of lumber and paneling has~~on ~~continued to cast uncertainty over~~ the ~~markets~~DIP ~~for these products~~Revolver. ~~Weather and forest fire activity, as well as environmental issues concerning the harvesting of timber, are also contributing factors to supply and the volatility of prices in our industry.~~

~~Forward-Looking Statements~~Manufacturing Segment

~~Information~~In ~~contained~~July in2004, ~~Item~~the 2Partnership signed ~~and~~an ~~other~~Asset ~~sections~~Purchase ofAgreement ~~this~~to ~~report includes~~sell ~~“forward-looking~~its ~~statements”~~Manufacturing ~~within~~Segment operations, ~~the~~subject ~~meaning~~to ofhigher ~~the~~and ~~Private Securities~~better ~~Litigation~~bids ~~Reform~~and ~~Act~~objections ofunder ~~1995,~~the jurisdiction ~~including~~of ~~statements~~the ~~regarding~~Bankruptcy ~~our~~Court. ~~expectations,~~On ~~forecasts,~~July ~~hopes~~13, ~~beliefs~~2004, ~~predictions,~~the ~~intentions~~Partnership orfiled ~~strategies regarding~~a motion with the ~~future~~Bankruptcy Court ~~that~~for ~~are~~the ~~not~~disposition ~~purely~~of ~~historical,~~these ~~but~~assets. ~~are~~A ~~based~~hearing was held on ~~assumptions~~July 26, ~~that~~2004, inand a motion for the ~~future~~bidding ~~may~~procedures ~~prove~~regarding ~~not~~these tooperations bewas approved ~~accurate.~~by ~~These~~the ~~assumptions~~Bankruptcy ~~include~~Court. Any ~~harvest~~competing ~~volumes,~~bids ~~species~~from ~~mix,~~interested ~~prices~~parties ~~for~~are ~~logs~~due ~~and~~at ~~lumber,~~the ~~demand~~Bankruptcy ~~for~~Court ~~housing~~by ~~and~~August ~~levels~~10, ~~and~~2004. A ~~amounts~~hearing ~~received~~is scheduled for ~~stumpage~~August ~~and~~18, ~~property~~2004 ~~sales.~~with ~~Our~~the ~~business and~~Bankruptcy ~~prospects~~Court ~~are~~to ~~subject~~conduct toan auction, if necessary, after which a ~~number~~motion ofis ~~risks,~~expected ~~including~~to be filed for the ~~volatility~~sale of these ~~timber~~operations. A ~~and~~hearing ~~lumber~~has ~~prices,~~been scheduled ~~factors~~with ~~limiting~~the ~~harvesting~~Bankruptcy ofCourt ~~timber~~to ~~including contractual~~hear ~~obligations,~~the ~~governmental~~sale ~~restrictions,~~motion ~~weather~~on ~~and~~August ~~access limitations~~19, –2004. If asapproved ~~well~~by as the ~~substantial~~Bankruptcy ~~capital~~Court, ~~resources~~the disposition ~~required~~is expected to ~~fund~~close ~~our operations~~in ~~and~~August ~~the~~or ~~uncertainty~~September ~~regarding~~2004, ~~procurement~~resulting in estimated cash proceeds of ~~additional~~approximately ~~equity capital~~$57.2 million. ~~Accordingly,~~This ~~actual~~disposition ~~results may~~will ~~differ~~further ~~materially~~reduce ~~from~~ the borrowing ~~expectations~~base ~~expressed~~and inavailability ~~this~~on ~~report~~the Partnership’s DIP Revolver.

~~Additional~~Item ~~factors that could affect future performance include our~~2. Management’s ~~ability~~Discussion ~~to successfully reorganize under bankruptcy protection, environmental risks, operating risks normally associated with the timber industry, competition, government regulations~~ and ~~policies,~~Analysis ~~and~~of ~~economic~~Financial ~~changes~~Condition ~~in the regions where our products or substitute products are sold, including Southeast Asia~~ and ~~Japan.~~Results ~~Other risk factors include fluctuations in the value~~ of the U.S. dollar against foreign currencies, and our ability to implement our business strategy. These and other risks are described in our registration statements and reports filed from time to time on forms 10-K, 8-K, and 10-Q and reports to unitholders, which are available from us or the United States Securities and Exchange Commission.Operations

~~Liquidity~~Chapter ~~and~~11 ~~Capital~~Bankruptcy ~~Resources~~Reorganization

AsDuring the ~~discussed~~second ~~above~~quarter of 2003, we were unable to meet the financial covenants and scheduled interest payments pursuant to our bank loan and senior note agreements. In addition, we were unable to successfully negotiate a recapitalization with our bank lenders and senior note holders. Accordingly, on June 29, 2003, we filed voluntary petitions for relief under Chapter 11 ~~bankruptcy~~ ~~protection. Pursuant~~of totitle 11 of the United States ~~bankruptcy~~Code ~~proceedings,~~(the we“Bankruptcy ~~have~~Code”) ~~listed~~in ~~certain~~the ~~pre-petition~~United ~~liabilities~~States ~~which existed~~Bankruptcy ~~prior~~Court tofor the District ~~June 29~~of Arizona in Phoenix, ~~2003~~Arizona ~~bankruptcy~~(the ~~filing~~“Bankruptcy asCourt”) ~~liabilities~~for the ~~subject~~Partnership toand ~~compromise~~all but one of our subsidiaries, Klamath Northern Railway, Co. ~~Disposition~~We currently manage our properties and ~~settlement~~operate ofour ~~such~~businesses ~~liabilities~~as is“debtors-in-possession” under the jurisdiction of the ~~Bankruptcy~~ Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.

~~The~~We ~~following~~have experienced ~~table~~net ~~summarizes~~losses in thirteen of the ~~pre-petition~~last ~~liabilities~~fifteen ~~that~~fiscal quarters, and ~~are~~would ~~included~~have reported a net loss in the first and second quarters of 2004 if $12.7 million and $12.9 million, respectively, of contractual interest expense had been recognized. The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, and in accordance with SOP 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.” As a result of our Chapter 11 filing, there is no assurance that the carrying amounts of our assets will be realized or that the liabilities ~~subject~~will be settled for the amounts recorded. Until a plan of reorganization is confirmed by the Bankruptcy Court, we are not able to determine ~~compromise~~the ~~(in~~ultimate ~~thousands):~~disposition of our assets and liabilities.

	March 31, 2004			December 31, 2003
Acquisition facility principal	$	112,372		$	112,372
Senior notes principal	400,658			400,658
Adequate protection payments(1)	(4,500		)	(3,000		)
Accrued interest	21,039			21,039
Deferred enhanced interest	4,927			4,927
Make whole fees and interest	6,360			6,360
Accounts payable	1,294			1,419
Other accrued expenses	3,490			3,428
Total	$	545,640		$	547,203

During the first two quarters of 2004, the following occurred under the jurisdiction of the Bankruptcy Court:

~~(1) In October 2003,~~• Negotiations ~~the Partnership agreed to pay $0.5 million per month, retroactive~~on toa ~~July 2003,~~consensual toplan ~~the~~of ~~acquisition facility banks and senior note holders as adequate protection payments related to their asserted collateral. Such payments are to be applied to reduce, on a dollar~~re-~~for-dollar~~organization ~~basis,~~with ~~the~~representatives ~~aggregate allowed secured claims~~ of the senior note holders and ~~the~~ acquisition facility banks~~. The~~ method for allocating the adequate protection payments will be determined by the Bankruptcy Court and, therefore, the Partnership is not able to apply these payments to specific debt components at this timecontinued. ~~All of these payments have been made as scheduled.~~

On• A ~~July 1,~~marketing process ~~2003,~~was ~~the~~conducted ~~Bankruptcy~~regarding ~~Court entered an interim financing order and on July 17, 2003~~ the ~~Bankruptcy~~Partnership’s ~~Court~~Manufacturing ~~entered~~Segment a final financing order approving a $40 million debtor-in-possession credit facility (“DIP Revolver”) with CIT Group/Business Credit (“CIT”). The $40 million limit is subject to a borrowing base and ~~is reduced to $20 million should we dispose of all of our~~ Alliance Lumber Segment. ~~The DIP Revolver is collateralized by accounts receivable, inventory and substantially all personal property~~assets. ~~The DIP Revolver bears interest at either (a) the Chase Bank Prime Rate plus 0.5% or (b) LIBOR plus 3%, at our option. Any LIBOR loans are made for fixed one, two or~~

12• In April 2004, the Partnership closed the sale of its Alliance Lumber Segment operations in Las Vegas, Nevada.

~~three~~• In ~~month terms. The DIP Revolver terminates on January 1~~June, ~~2005 or upon~~ 2004, the ~~effective~~Partnership ~~date~~filed ofmotions awith the Bankruptcy Court ~~approved~~to ~~plan~~dispose of reorganization and contains certain covenants and restrictions. As of March 31, 2004, there was $18.3 million outstanding at an interest rate of 4.5% and approximately $16.5 million remained available on the Partnership’s ~~DIP~~remaining ~~Revolver.~~Alliance AsLumber ofSegment ~~March 31,~~operations ~~2004, we were not~~ in ~~compliance with all of the financial reporting covenants of the DIP Revolver~~Reno, ~~but~~Nevada ~~CIT did not declare an event of default~~ and in ~~we have subsequently complied with all financial reporting covenants. As of March 31~~Phoenix, ~~2004, we were in compliance with all of the other covenants of the DIP Revolver~~Arizona.

~~Working~~See ~~capital increased~~further todiscussion ~~$67.0~~below for ~~million~~events atin ~~March 31,~~the ~~2004~~bankruptcy ~~compared~~process towhich ~~$59.4~~occurred ~~million~~subsequent ~~at December 31, 2003, primarily due~~ to ~~$4.5~~June ~~million of cash provided by operating activities. Net cash provided by operating activities resulted from net income of $5.3 million and depletion~~30, ~~depreciation and amortization of $5~~2004.~~0 million, partially off-set by changes in working capital components.~~

~~Accounts~~The creditors on ~~receivable~~the ~~decreased~~acquisition tofacility ~~$41.3~~and ~~million~~senior atnotes ~~March 31,~~assert ~~2004~~that ~~compared~~their todebt ~~$44.0~~is ~~million~~collateralized atby ~~December 31,~~our ~~2003,~~timberlands ~~primarily~~and ~~due~~certain toreal ~~the~~property ~~reclassification~~and ~~of receivables~~equipment associated with our ~~Las~~Manufacturing ~~Vegas,~~Segment. ~~Nevada~~The ~~operations~~remaining liabilities subject to compromise ~~assets~~are ~~held~~generally ~~for~~unsecured. ~~sale~~The Chapter 11 filing constitutes a default or event of default under a number of our debt, lease and other contractual ~~net~~relationships. ~~Excluding~~ ~~this~~While ~~reclassification~~we are under bankruptcy protection, any scheduled interest ~~accounts~~or ~~receivable~~principal ~~would~~payments ~~have~~are ~~increased~~deferred byand ~~$7.0~~creditors ~~million~~are ~~reflecting~~generally ~~increased revenues~~prohibited from pursuing ~~higher~~collection ~~prices~~of ~~for~~their ~~lumber~~pre-petition ~~and~~claims ~~paneling~~by the automatic stay provisions of the Bankruptcy Code. In

The $4.9 million decrease in inventories is primarily due to the reclassification of inventory associated with our Las Vegas, Nevada operations to assets held for sale, net. Excluding this reclassification, inventories would have decreased by $0.9 million, reflecting normal timing fluctuations in inventory levels, offset by a $1.8 million increase in prepaid inventories included in prepaid and other current assets.12

~~Assets~~accordance ~~and~~with ~~liabilities~~SOP ~~held~~90-7, ~~for~~we ~~sale~~stopped ataccruing ~~March 31~~interest on our term debt effective June 30, 2003, ~~2004~~because ~~relate~~it tois not probable it will be paid during the ~~net~~bankruptcy proceedings ~~assets~~or ~~sold~~be an allowed claim. An additional $12.9 million and $25.6 ~~with~~million, ~~our~~respectively, ~~Las~~of ~~Vegas~~interest ~~operations~~expense would have been recognized in ~~April~~ the three and six month periods ended June 30, 2004, ~~and~~if ~~consisted~~not offor the ~~following~~ ~~(in~~Chapter ~~thousands):~~11 bankruptcy petition.

	March 31, 2004
Accounts receivable, net	$	9,653
Inventory	3,933
Other assets	700
Assets held for sale	$	14,286
Liabilities held for sale	$	(838	)

On November 10, 2003, a hearing was held in the Bankruptcy Court on a motion from us, which was opposed by the creditors, to extend the period of exclusivity in which only we could present a plan of reorganization to the Bankruptcy Court. At the hearing, the Bankruptcy Court denied our motion, thereby ending the period within which we had the exclusive right to propose a reorganization plan. We are negotiating with the major creditor constituents in our Chapter 11 proceedings, and have begun a process by which our assets and operations will likely be sold or otherwise divested in order to satisfy creditor claims. We anticipate that we will file a consensual Chapter 11 plan, jointly with these creditor constituents, that will likely further this divestiture process. It appears highly unlikely that the claims of the holders of our acquisition facility bank debt and senior notes will be satisfied in full. Accordingly, the Chapter 11 plan that is currently under negotiation contemplates the extinguishment of our partnership units with no recovery to holders of units, and any plan that is ultimately confirmed by the Bankruptcy Court will likely extinguish the equity units. Further, it is likely that any plan that is ultimately confirmed will, in conjunction with any pre-confirmation asset dispositions, result in the disposition of substantially all of our operations and associated assets.

~~Sale~~Subsequent of the net assets of our Las Vegas operations produced cash proceeds of $12.3 million, all of which was immediately paid to CIT to reduce outstanding borrowings under the DIP Revolver. This disposition is expected to reduce the borrowing base under the DIP Revolver by $4.0 to $5.0 million. If an asset purchase agreement is signed and approved by the Bankruptcy Court, the disposition of the Reno, Nevada operations is expected to generate approximately $11.0 to $12.5 million of cash, all of which will be immediately paid to CIT to reduce outstanding borrowings under the DIP Revolver. In addition, the disposition is expected to reduce the borrowing base on the Partnership’s DIP Revolver by approximately $8.5 to $9.5 million.Events

~~Additions~~Reno, ~~to timberlands~~Nevada ofOperations ~~$1.0 million in the first quarter~~ of ~~2004~~Alliance ~~resulted~~Lumber ~~from normal costs for road building and maintenance, pre-commercial thinning and reforestation activities.~~Segment

WeOn ~~indefinitely~~July ~~suspended~~13, 2004, the Bankruptcy Court approved a motion filed by us to sell our ~~cash~~Alliance ~~distributions~~Lumber Segment ~~beginning~~operations in ~~the~~Reno, Nevada. ~~fourth~~This ~~quarter~~transaction ofclosed ~~2000~~in July 2004 and generated $14.2 ~~Furthermore~~million of cash, we$1.4 ~~are~~million ~~prohibited~~of ~~from~~which ~~making~~was ~~cash distributions~~immediately paid to ~~unitholders~~CIT ~~during~~to ~~our~~eliminate outstanding ~~Chapter~~borrowings 11under ~~reorganization~~the ~~process~~DIP Revolver. No gain or loss was recognized ~~Since~~on itthe istransaction. This ~~unlikely~~disposition reduced ~~that~~the borrowing base and availability on our ~~unitholders~~DIP ~~will~~Revolver ~~receive~~(see ~~anything~~Liquidity and asCapital aResources). For ~~result~~income tax purposes, sale of these operations is expected to trigger a deferred taxable ~~our~~gain ~~Chapter~~from 11the ~~bankruptcy~~original ~~proceedings~~acquisition transaction, itresulting isin ~~unlikely~~an ~~that~~income wetax liability of approximately $0.5 million, which will ~~make~~be ~~any~~recognized in the third quarter of ~~future~~2004. This ~~cash~~tax ~~distributions~~liability onis ~~our~~a ~~units~~liability of the wholly-owned C-Corporation subsidiary which made the original acquisition, and would not be allocated to unit holders.

13Phoenix, Arizona Operations of Alliance Lumber Segment

~~Results~~On July 13, 2004, the Bankruptcy Court approved a motion filed by us to sell our Alliance Lumber Segment operations in Phoenix, Arizona. This transaction closed in August 2004 and generated $39.4 million of cash. ~~Operations~~A gain of approximately $1.0 million was recognized on the transaction. This disposition reduced the DIP Revolver limit from $40.0 million to $20.0 million and also reduced the related borrowing base and availability (see Liquidity and Capital Resources). For income tax purposes, sale of these operations is expected to trigger a deferred taxable gain from the original acquisition transaction, resulting in an income tax liability of approximately $1.3 million, which will be recognized in the third quarter of 2004. This tax liability is a liability of the wholly-owned C-Corporation subsidiary which made the original acquisition, and would not be allocated to unit holders.

~~During~~Manufacturing ~~the second quarter of 2003, we sold our Trading and Distribution~~ Segment, which is reflected as discontinued operations on our consolidated statements of operations for the first quarter of 2003. In addition, in March 2004, the Bankruptcy Court approved the sale of, and in April 2004, we sold, the assets related to our Las Vegas, Nevada Alliance Lumber Segment operations. The results of the Las Vegas operations are reflected as discontinued operations in all periods presented. Please see additional discussion below.

	Quarter Ended March 31,
	2004					2003
(In thousands, except per share amounts)	Dollars			% of revenue(1)		Dollars			% of revenue(1)
Revenue	$	82,547		100.0	%	$	66,113		100.0	%
Operating costs:
Cost of products sold	69,511			84.2		60,507			91.5
Gain on disposal of assets	(18		)	—		(485		)	(0.7	)
Selling, general and administrative expenses	5,404			6.6		5,347			8.1
Operating income	7,650			9.3		744			1.1
Interest expense	268			0.3		11,952			18.1
Amortization of debt issuance costs	468			0.6		423			0.6
Other income, net	(54		)	(0.1	)	(129		)	(0.2	)
Income (loss) from operations before reorganization items	6,968			8.4		(11,502		)	(17.4	)
Reorganization items	(2,123		)	(2.6	)	—			—
Income (loss) before discontinued operations	4,845			5.9		(11,502		)	(17.4	)
Income (loss) from discontinued operations	480			0.6		(5,013		)	(7.6	)
Net income (loss)	$	5,325		6.5	%	$	(16,515	)	(25.0	)%

In July 2004, we signed an Asset Purchase Agreement to sell our Manufacturing Segment operations, subject to higher and better bids and objections under the jurisdiction of the Bankruptcy Court. On July 13, 2004, we filed a motion with the Bankruptcy Court for the disposition of these assets. A hearing was held on July 26, 2004, and a motion for the bidding procedures regarding these operations was approved by the Bankruptcy Court. Any competing bids from interested parties are due at the Bankruptcy Court by August 10, 2004. A hearing is scheduled for August 18, 2004 with the Bankruptcy Court to conduct an auction, if necessary, after which a motion is expected to be filed for the sale of these operations. A hearing has been scheduled with the Bankruptcy Court to hear the sale motion on August 19, 2004. If approved by the Bankruptcy Court, the disposition is expected to close in August or September 2004, resulting in estimated cash proceeds of

~~(1) Percentages may not add due to rounding.~~13

~~Revenue~~approximately $57.2 million. This disposition will further reduce the borrowing base and availability on our DIP Revolver (see Liquidity and Capital Resources).

~~Revenue~~Industry increased $16.4 million, or 24.9%, to $82.5 million in the first quarter of 2004 compared to $66.1 million in the first quarter of 2003 due primarily to increased revenues from our Manufacturing Segment and our Alliance Lumber Segment, partially offset by a decrease in revenues from our Timberlands Segment, as discussed more fully below.Overview

~~Cost~~The forest products and building materials industries are characterized by highly volatile commodity pricing. Product pricing for logs, dimension lumber and other building materials is a function of ~~Products~~species, ~~Sold~~grade, size and availability. Prices are heavily influenced by short-term supply and demand factors. Prices tend to follow broad seasonal and cyclical patterns. Demand is influenced by activity levels in the housing and construction industries, as well as general economic conditions and foreign currency exchange rates. In recent years, over capacity of lumber manufacturing facilities has led to an abundance of supply. Supply has been further increased by imported products from Canada and other countries. In addition, competition from non-wood based products and composite materials has also influenced prices for dimension lumber. Although demand has been strong over the last three years, excess supply has contributed to low prices for lumber, which, in turn, has depressed prices for logs and timberlands. Beginning in the second half of 2003, prices for lumber and paneling increased sharply, and have remained relatively strong through the second quarter of 2004. Prices for logs have remained relatively low, but have increased modestly in late 2003 and the first half of 2004. A major trade dispute with Canada over the importation of lumber and paneling has continued to cast uncertainty over the markets for these products. Weather and forest fire activity, as well as environmental issues concerning the harvesting of timber, are also contributing factors to supply and the volatility of prices in our industry.

Cost of products sold increased $9.0 million, or 14.9%, to 69.5 million in the first quarter of 2004 compared to $60.5 million in the first quarter of 2003 due to increased sales volume. The decrease in cost of products sold as a percentage of revenue in the first quarter of 2004 compared to the first quarter of 2003 is primarily due to improved gross margins in our Manufacturing Segment, partially offForward-~~set~~Looking ~~by lower gross margins in our Alliance Lumber Segment, as discussed more fully below.~~Statements

~~Gain~~Information contained in Item 2 and other sections of this report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our expectations, forecasts, hopes, beliefs, predictions, intentions or strategies regarding the future that are not purely historical, but are based on ~~Disposal~~assumptions that in the future may prove not to be accurate. These assumptions include harvest volumes, species mix, prices for logs and lumber, demand for housing and levels and amounts received for stumpage and property sales. Our business and prospects are subject to a number of risks, ~~Assets~~including the volatility of timber and lumber prices, factors limiting harvesting of timber including contractual obligations, governmental restrictions, weather and access limitations – as well as the substantial capital resources required to fund our operations and the uncertainty regarding the outcome of our chapter 11 reorganization process. Accordingly, actual results may differ materially from the expectations expressed in this report.

~~Gain~~Additional onfactors ~~disposal~~that ofcould affect ~~assets~~future ofperformance ~~$0.5~~include ~~million~~our ability to successfully reorganize under bankruptcy protection, environmental risks, operating risks normally associated with the timber industry, competition, government regulations and policies, and economic changes in the ~~first~~regions ~~quarter~~where ofour ~~2003~~products or substitute products are ~~represents~~sold, including Southeast Asia and Japan. Other risk factors include fluctuations in the ~~gain~~value of the U.S. dollar against foreign currencies, and our ability to implement our business strategy. These and other risks are described in our registration statements and reports filed from time to time on forms ~~sale~~10-K, of8-K ~~aviation~~and ~~equipment~~10-Q, which are available from us or the United States Securities and Exchange Commission.

Selling,Liquidity General and Administrative ExpensesCapital Resources

~~Selling~~As discussed above, ~~general~~on ~~and~~June ~~administrative~~29, ~~expenses~~2003, ~~were~~we ~~relatively~~filed ~~flat~~for ~~at $5~~Chapter 11 bankruptcy protection.4 Pursuant ~~million~~to inthe bankruptcy proceedings, we have listed certain pre-petition liabilities which existed prior to the ~~first~~June 29, ~~quarter~~2003 ofbankruptcy ~~2004~~filing ~~compared~~as liabilities subject to $5compromise.3 Disposition ~~million~~and insettlement ~~the~~of ~~first~~such ~~quarter~~liabilities is under the jurisdiction of ~~2003~~the Bankruptcy Court. ~~Reductions~~ inCertain accounts ~~personnel~~payable ~~costs~~and ~~from~~accrued ~~reduced~~expenses ~~headcount~~classified ~~were~~as ~~off-set~~liabilities bysubject ~~increased~~to ~~costs~~compromise have ~~for~~been satisfied through the disposition of our Alliance Lumber operations ~~insurance~~in Las Vegas, Nevada in April 2004, and ~~bad~~additional ~~debts~~portions ~~expense~~of these liabilities have been further satisfied through the dispositions recorded in July and August of 2004.

~~Interest~~The ~~Expense~~following table summarizes the pre-petition liabilities that are included as liabilities subject to compromise (in thousands):

In accordance with SOP 90-7, interest expense in the first quarter of 2004 does not include contractual interest totaling $12.7 million on the Senior Notes and Acquisition Facility since it is not probable it will be paid subsequent to our June 29, 2003 Chapter 11 bankruptcy filing. Please read “Chapter 11 Bankruptcy Reorganization” above also.

	March 31, 2004			December 31, 2003
Acquisition facility principal	$	112,372		$	112,372
Senior notes principal	400,658			400,658
Adequate protection payments(1)	(6,000		)	(3,000		)
Accrued interest	21,039			21,039
Deferred enhanced interest	4,927			4,927
Make whole fees and interest	6,360			6,360
Accounts payable	1,163			1,419
Other accrued expenses	3,724			3,428
Total	$	544,243		$	547,203

~~Reorganization~~(1) In ~~Items~~October 2003, we agreed to pay $0.5 million per month, retroactive to July 2003, to the acquisition facility banks and senior note holders as adequate protection payments related to their asserted collateral. Such payments are to be applied to reduce, on a dollar-for-dollar basis, the aggregate allowed secured claims of the senior note holders and the acquisition facility banks. The method for allocating the adequate protection payments will be determined by the Bankruptcy Court and, therefore, we are not able to apply these payments to specific debt components at this time.

~~Reorganization items~~On ~~consist~~July ~~primarily~~17, of2003 ~~professional~~the ~~fees~~Bankruptcy ~~and~~Court ~~other~~entered ~~charges~~a ~~incurred~~final ~~related~~ financing order approving a $40 million debtor-in-possession credit facility (“DIP Revolver”) with CIT Group/Business Credit (“CIT”). The $40 million limit is subject to a borrowing base and is collateralized by accounts receivable, inventory and substantially all personal property. The DIP Revolver bears interest at either (a) the Chase Bank Prime Rate plus 0.5% or (b) LIBOR plus 3%, at our ~~Chapter~~option. Any 11LIBOR loans are made for fixed one, two or three month terms. The DIP Revolver terminates on January 1, 2005 or upon the effective date of a Bankruptcy Court approved plan of reorganization and ~~recapitalization~~contains ~~efforts~~certain ~~subsequent~~covenants to and restrictions. As of June 29 30, ~~2003~~2004, there was $14.1 Wemillion ~~anticipate~~outstanding ~~continuing~~at toan ~~incur~~interest ~~significant~~rate ~~professional fees~~of 4.5% and ~~court~~approximately ~~costs~~$25.9 inmillion ~~future~~remained ~~quarters~~available ~~related~~on the DIP Revolver. However, subsequent to ~~our~~June ~~reorganization~~30, ~~efforts~~ 2004, borrowings and availability under ~~Chapter~~the 11DIP Revolver have been reduced by the disposition of assets and operations discussed above. As of June 30, 2004, we were in compliance with all of the covenants of the DIP Revolver.

~~Income~~The ~~Taxes~~DIP Revolver agreement provides that the total borrowing limit is reduced from $40.0 million to $20.0 million following the disposition of the Alliance Lumber Segment, which was completed in August 2004. In addition, borrowings under the DIP Revolver are limited to a borrowing base. The borrowing base is a function of the levels of related collateral, and has been reduced by the dispositions described above. As of August 3, 2004, there was zero outstanding and approximately $13.1 million available on the DIP Revolver.

InWorking ~~the~~capital ~~past,~~increased weto ~~have~~$79.4 ~~not~~million ~~paid~~at ~~significant~~June ~~income~~30, ~~taxes~~2004 ~~and~~compared ~~have~~to ~~not~~$59.4 ~~included~~million aat ~~provision~~December ~~for~~31, 2003, ~~income~~primarily ~~taxes~~due into ~~our~~increases ~~financial~~in ~~statements.~~accounts Asreceivable, ainventory ~~partnership,~~and ~~taxation~~deposits on ~~our~~ ~~results~~timber ofcutting ~~operations~~contracts isand ~~generally~~a decrease in the ~~responsibility~~amount ofoutstanding ~~the~~on ~~unitholders~~our DIP Revolver. ~~However,~~The weincreases ~~own,~~in ~~directly~~accounts receivable and ~~indirectly, four~~inventory ~~corporations~~are ~~that~~primarily ~~constitute~~due ato ~~consolidated~~higher ~~group~~product ofprices ~~corporations~~during ~~for~~the ~~federal~~quarter ~~income~~ended ~~tax~~June ~~purposes.~~30, ~~This~~2004 ~~consolidated~~compared ~~group~~with ofthe ~~corporations~~quarter ~~is expected~~ended toDecember ~~incur~~31, ~~an income tax liability in 2004~~2003, partially ~~following~~off-set by the ~~April 2004~~ disposition of our Las Vegas ~~operations~~, ~~but~~Nevada ~~we are not able to estimate the final 2004 tax liability for the consolidated group of corporations at this time~~operations. The Weincrease ~~may~~in ~~incur~~timber ~~material~~cutting ~~income tax liability in the~~contracts ~~future~~reflects ~~from~~deposits ~~any~~we ~~further~~have ~~disposition~~made ofon ~~additional~~several ~~assets. Any~~agency ~~such~~timber ~~income~~sales ~~tax~~for ~~incurred~~fire ~~by these~~salvage ~~taxable~~logging ~~entities~~in ~~would generally not be allocated to unitholders~~Oregon.

~~Allocation~~Net cash provided by operating activities of ~~Income~~$2.3 ~~(Losses)~~million resulted from net income of $16.2 million and depletion, depreciation and amortization of $9.9 million, partially off-set by changes in working capital components.

~~Our~~Additions ~~partnership agreement provides that profit and losses are generally allocated 1.01%~~ to ~~the General~~timberlands Partner interest and 98.99% to the Limited Partner interest. In addition, the partnership agreement specifies that net losses are not allocated to limited partners to the extent doing so would result in (or increase) a deficit balance in their capital accounts. At that point, net losses are allocated 100% to the General Partners. In the third quarter of 2003, the Limited Partners’ capital accounts were reduced to zero, and subsequent income and losses have been allocated 100% to the General Partners. Accordingly, the General Partner interest was allocated our entire $52.06 million of ~~income~~ in the first ~~quarter~~six months of 2004~~. 100%~~ ofresulted ~~income~~from ~~and~~normal ~~losses~~costs ~~will continue to be allocated to the General~~for ~~Partners~~road ~~unless~~building and ~~until~~maintenance, ~~the~~pre-commercial ~~cumulative~~thinning ~~additional~~and ~~losses they have been~~reforestation ~~allocated are fully recovered~~activities.

~~Discontinued Operations~~15

~~Trading~~The ~~and~~decrease ~~Distribution~~in ~~Segment~~the balance outstanding under our DIP Revolver reflects proceeds from the sale of our Las Vegas, Nevada operations, partially off-set by increased borrowing for inventories. Sale of the net assets of our Las Vegas operations produced cash proceeds of $12.3 million, all of which was immediately paid to CIT to reduce outstanding borrowings under the DIP Revolver.

~~Our~~We ~~Trading~~indefinitely ~~and~~suspended our ~~Distribution~~cash ~~Segment,~~distributions ~~which~~beginning ~~was comprised of operations based~~ in ~~Eugene, Oregon and Albuquerque, New Mexico, was sold during~~ the ~~second~~fourth quarter of ~~2003~~2000. ~~The Trading~~Furthermore, ~~and~~we ~~Distribution Segment involved the wholesale trading of lumber,~~are ~~panels~~prohibited ~~and~~from ~~other~~making ~~wood~~cash ~~products,~~distributions ~~most~~to ofunitholders ~~which~~during ~~were~~our ~~not~~Chapter ~~manufactured~~11 reorganization ~~by us~~process. ~~The results~~Since ofit ~~operations~~is ~~for~~unlikely ~~this~~that ~~segment~~our ~~are~~unitholders ~~reflected~~will ~~as discontinued operations~~receive onanything ~~our~~as ~~consolidated~~a ~~statement~~result of ~~operations~~our ~~for~~Chapter ~~the~~11 ~~quarter~~bankruptcy ~~ended March 31~~proceedings, ~~2003. This~~it ~~segment produced~~is ~~revenues of $27.8 million and an operating loss of $5.3 million in the~~unlikely ~~first~~that ~~quarter~~we ofwill ~~2003. The~~make ~~operating loss~~any ~~from~~future ~~this~~cash ~~segment~~distributions inon ~~the~~our ~~first quarter of 2003 included a $5~~units.~~5 million charge for the impairment of goodwill.~~

~~Las~~See ~~Vegas,~~further ~~Nevada~~discussion above ~~Alliance~~regarding ~~Lumber~~changes ~~Operations~~in Liquidity and Capital Resources which occurred subsequent to June 30, 2004.

InResults ~~March 2004, the Bankruptcy Court approved the sale~~ of, ~~and~~Continuing in April 2004, we sold, the assets related to our Las Vegas, Nevada Alliance Lumber Segment operations. The results of the Las Vegas operations are reflected as discontinued operations in all periods presented.Operations

~~The~~During ~~sale~~the second quarter of 2003, ~~these~~we sold our Trading and Distribution Segment, which is reflected as discontinued operations on our consolidated statements of operations for the three and six month periods ended June 30, 2003. In addition, in ~~April~~ March 2004, ~~resulted~~the inBankruptcy ~~an additional~~Court ~~loss~~approved the sale of, ~~$1.2~~and ~~million.~~ in April 2004, we sold, the assets related to our Las Vegas, Nevada ~~Summarized~~Alliance ~~financial~~Lumber ~~information~~Segment ~~for~~operations. The results of the Las Vegas operations isare reflected as ~~follows~~ (discontinued operations in ~~thousands):~~all periods presented. Please see additional discussion regarding discontinued operations below.

Three Months Ended March 31,	2004			2003
	Three Months Ended June 30,
Revenues	$	18,756		$	13,040
	2004					2003
Operating income	480			338
(Dollars in thousands)	Dollars			% of revenue(1)		Dollars			% of revenue(1)
Revenue	$	106,836		100.0	%	$	60,179		100.0	%
Operating costs:
Cost of products sold	87,009			81.4		55,313			91.9
Loss on disposal of assets	—			—		1,269			2.1
Selling, general and administrative expenses	5,309			5.0		6,220			10.3
Operating income (loss)	14,518			13.6		(2,623		)	(4.4	)
Interest expense	180			0.2		12,068			20.1
Amortization of debt issuance costs	752			0.7		640			1.1
Other income, net	(289		)	(0.3	)	(25		)	—
Income (loss) from operations before reorganization items	13,875			13.0		(15,306		)	(25.4	)
Reorganization items	(1,884		)	(1.8	)	(5,078		)	8.4
Income (loss) before discontinued operations	11,991			11.2		(20,384		)	(33.9	)
Loss from discontinued operations	(1,081		)	(1.0	)	(519		)	(0.9	)
Net income (loss)	$	10,910		10.2	%	$	(20,903	)	(34.7	)%

1516

Results of Operations by Segment

	Six Months Ended June 30,
	2004					2003
(Dollars in thousands)	Dollars			% of revenue(1)		Dollars			% of revenue(1)
Revenue	$	189,383		100.0	%	$	126,291		100.0	%
Operating costs:
Cost of products sold	156,519			82.6		115,819			91.7
(Gain) loss on disposal of assets	(18		)	—		794			0.6
Selling, general and administrative expenses	10,713			5.6		11,567			9.2
Operating income (loss)	22,169			11.7		(1,889		)	(1.5	)
Interest expense	448			0.2		24,020			19.0
Amortization of debt issuance costs	1,220			0.6		1,063			0.8
Other income, net	(343		)	(0.2	)	(154		)	(0.1	)
Income (loss) from operations before reorganization items	20,844			11.0		(26,818		)	(21.2	)
Reorganization items	(4,007		)	(2.1	)	(5,078		)	(4.0	)
Income (loss) before discontinued operations	16,837			8.9		(31,896		)	(25.3	)
Loss from discontinued operations	(602		)	(0.3	)	(5,522		)	4.4
Net income (loss)	$	16,235		8.6	%	$	(37,418	)	(29.6	)%

~~External~~(1) Percentages ~~revenue by~~may ~~segment~~not ~~and~~add asdue ato ~~percentage of total revenue was as follows (dollars in thousands):~~rounding.

	Quarter Ended March 31,
	2004				2003
Timberlands	$	5,529	6.7	%	$	6,917	10.5	%
Manufacturing	26,121		31.6	%	21,976		33.2	%
Alliance Lumber	48,620		58.9	%	34,781		52.6	%
Corporate and Other	2,277		2.8	%	2,439		3.7	%
	$	82,547			$	66,113

Revenue

~~Operating~~Revenue ~~income~~increased $46.7 ~~(loss)~~million, byor ~~segment~~77.5%, ~~was~~to as$106.8 ~~follows~~million (in ~~thousands):~~the second quarter of 2004 compared to $60.2 million in the second quarter of 2003 and increased $63.1 million, or 50.0% to $189.4 million in the six months ended June 30, 2004 compared to $126.3 million in the comparable period of 2003. These increases are primarily due to increased revenues from our Manufacturing and Alliance Lumber Segments, both of which benefited from higher prices for their products in 2004 as discussed more fully below.

	Quarter Ended March 31,
	2004			2003
Timberlands	$	408		$	779
Manufacturing	6,962			(576		)
Alliance Lumber	2,369			2,368
Corporate and Other	(2,089		)	(1,827		)
	$	7,650		$	744

Cost of Products Sold

~~Timberlands~~Cost of products sold increased $31.7 million, or 57.3%, to $87.0 million in the second quarter of 2004 compared to $55.3 million in the second quarter of 2003 and increased $40.7 million, or 35.1%, to $156.5 million in the six months ended June 30, 2004 compared to $115.8 million in the comparable period of 2003. These increases were due to increased sales volume. The decreases in cost of products sold as a percentage of revenue in the three and six months ended June 30, 2004 compared to the same periods of 2003 were primarily due to higher lumber prices in our Manufacturing Segment, as discussed more fully below.

~~The~~(Gain) ~~$1.4~~Loss ~~million, or~~on ~~20.1%,~~Disposal ~~decrease in external Timberlands Segment sales in the first quarter~~ of 2004 compared to the first quarter of 2003 reflects a 13.3% decrease in domestic log shipments, a 67.0% decrease in export log shipments and a 27.8% decrease in export weighted average sales realizations. These factors were partially offset by an 8.3% increase in domestic weighted average sales realizations. These factors are discussed more fully below.Assets

~~Internal~~The ~~sales of logs to our Manufacturing Segment decreased to~~ $80.98 million inloss ~~the first~~on ~~quarter~~disposal of ~~2004~~assets ~~compared to $9.5 million~~ in the ~~first~~six ~~quarter~~months ofended ~~2003.~~June ~~The decrease primarily reflects an 8.3% reduction in volume~~30, ~~due~~2003 inincludes ~~large~~a ~~part to~~$0.5 ~~lower~~million ~~production~~gain ~~levels~~ in ~~our~~the ~~Oregon~~first ~~manufacturing~~quarter ~~operations,~~of ~~following~~2003 ~~the shut-down~~from of the ~~dry-end~~sale ~~operations~~of atan ~~our~~aircraft, ~~Prineville sawmill in April 2003. These decreases were partially~~ offset by a $1.7%3 ~~increase~~million inloss ~~average~~on ~~internal~~disposal ~~sales~~of ~~realizations reflecting~~an ~~higher~~aircraft ~~market log prices~~ in the ~~first~~second quarter of ~~2004 compared to~~ ~~the first quarter of~~ 2003.

~~The $0.4 million decrease in Timberlands operating income in the first quarter of 2004 compared to the first quarter of 2003 was primarily a result of the decreased volume discussed above~~Selling, ~~partially~~General ~~off-set~~and byAdministrative ~~a $0.2 million reduction in overhead expenses.~~Expenses

~~Domestic~~Selling, ~~Log~~general ~~Sales~~and administrative expenses decreased $0.9 million, or 14.6%, to $5.3 million in the second quarter of 2004 compared to $6.2 million in the second quarter of 2003 and decreased $0.9 million, or 7.4%, to $10.7 million in the six months ended June 30, 2004 compared to $11.6 million in the comparable period of 2003. Reductions in personnel costs from reduced headcount and reduced retirement plan costs were partially off-set by increased costs for insurance and bad debts expense.

~~Average~~Interest ~~external domestic prices received for logs sold from the various tree farms, excluding pulpwood, were as follows (dollars per thousand board feet (“MBF”)):~~Expense

	Quarter Ended March 31,
Tree Farm	2004		2003		% Change
Hamilton	$	490	$	421	16.4	%
Olympic	$	373	$	377	(1.1	)%
Weighted average	$	433	$	400	8.3	%

In accordance with SOP 90-7, interest expense in the three and six month periods ended June 30, 2004 does not include contractual interest totaling $12.9 million and $25.6 million, respectively, on the Senior Notes and Acquisition Facility since it is not probable it will be paid subsequent to our June 29, 2003 Chapter 11 bankruptcy filing. Please read “Chapter 11 Bankruptcy Reorganization” above also.

The increase at the Hamilton Tree Farm is due to higher market prices for logs and changes in species and grade mix, while the slight decrease at the Olympic Tree Farm reflects changes in species and grade mix.17

~~All~~Reorganization ~~volume from the Oregon Tree Farm was utilized by our Gilchrist mill and therefore, there were no external sales from this tree farm.~~Items

16Reorganization items consist primarily of professional fees and other charges incurred related to our Chapter 11 reorganization and recapitalization efforts. We anticipate continuing to incur significant professional fees and court costs in future quarters related to our reorganization efforts under Chapter 11.

~~The~~Income ~~domestic external volume from each of our tree farms was as follows (in MBF):~~Taxes

	Quarter Ended March 31,
Tree Farm	2004	2003	% Change
Hamilton	5,584	6,460	(13.6	)%
Olympic	5,307	6,107	(13.1	)%
Total	10,891	12,567	(13.3	)%

In the past, we have not paid significant income taxes and have not included a provision for income taxes in our financial statements. As a partnership, taxation on our results of operations is generally the responsibility of the unitholders. However, we own, directly and indirectly, four corporations that constitute a consolidated group of corporations for federal income tax purposes. This consolidated group of corporations is expected to incur an income tax liability in 2004, following the 2004 dispositions of our Alliance Lumber Segment operations. We estimate an income tax liability of approximately $1.8 million will be incurred in the third quarter of 2004 from the disposition of our Reno and Phoenix operations. We may incur material income tax liabilities in the future from any further disposition of additional assets. Any such income tax incurred by these taxable entities would generally not be allocated to unitholders.

~~The~~Allocation ~~decreases~~of inIncome ~~volume from both tree farms are due to reduced fee harvests.~~(Losses)

~~Export~~Our ~~Log~~partnership ~~Sales~~agreement provides that profit and losses are generally allocated 1.01% to the General Partner interest and 98.99% to the Limited Partner interest. In addition, the partnership agreement specifies that net losses are not allocated to limited partners to the extent doing so would result in (or increase) a deficit balance in their capital accounts. At that point, net losses are allocated 100% to the General Partners. In the third quarter of 2003, the Limited Partners’ capital accounts were reduced to zero, and subsequent income and losses have been allocated 100% to the General Partners. Accordingly, the General Partner interest was allocated our entire $10.9 million and $16.2 million of net income in the three and six month periods ended June 30, 2004. In accordance with the Partnership Agreement, 100% of income and losses will continue to be allocated to the General Partners unless and until the cumulative additional losses they have been allocated are fully recovered.

~~Information~~Discontinued ~~regarding sales of logs to customers involved in exporting activities is as follows:~~Operations

	Quarter Ended March 31,
	2004			2003
Export sales revenue (in thousands)	$	134		$	563
As a percentage of total revenue	0.2		%	0.9		%
Sales volume (in MBF)	316			959
Average realizations ($/MBF)	$	424		$	587

Trading and Distribution Segment

~~The~~In ~~decrease~~April and May 2003, in two separate transactions, we sold the ~~export~~inventory ~~sales~~and ~~volume~~fixed isassets ~~due~~related to ~~reduced~~our ~~availability~~Trading ofand ~~export~~Distribution ~~grade~~Segment ~~logs~~and discontinued in the segment’s operations. ~~areas~~The purchasers of ~~our~~these ~~Washington~~assets ~~tree~~assumed ~~farms~~the ~~which~~operating ~~are~~leases, ~~currently~~accounts payable ~~being~~and ~~harvested~~accrued expenses related to these businesses. InWe ~~addition,~~received ~~higher~~cash ~~domestic~~proceeds ~~prices~~of ~~for~~$4.5 ~~such~~million ~~logs~~from ~~have~~these ~~currently~~asset ~~mitigated~~sales, ~~much~~all of ~~the~~which ~~advantage~~was ~~from~~immediately ~~exporting~~applied ~~them~~to outstanding principal on the revolving credit facility. The ~~decrease~~results inof operations of the ~~average~~Trading ~~realizations~~and isDistribution Segment are ~~due~~reflected toas ~~changes~~discontinued operations on the accompanying consolidated statements of operations for all 2003 periods presented in ~~product~~accordance ~~mix~~with Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”) “Accounting for the Impairment or Disposal of Long-Lived Assets.”

~~Manufacturing~~During March 2003, deterioration of our trade credit availability began to adversely affect operating margins in the Trading and Distribution Segment. Pursuant to the provisions of SFAS No. 142 “Goodwill and Other Intangible Assets,” we evaluated the goodwill balance of this segment for impairment following the change in circumstances during the first quarter of 2003, utilizing a fair value analysis of the business in the current market environment. Based on the results of this evaluation, we determined that our goodwill was impaired and recorded a non-cash impairment charge of $5.5 million in the three months ended March 31, 2003. This $5.5 million charge is included in discontinued operations.

~~The $4.1 million,~~Summarized orfinancial ~~18.9%,~~information ~~increase~~for inthese ~~external~~operations ~~revenue~~is ~~from~~as ~~our~~follows ~~sawmills~~ (in the first quarter of 2004 compared to the first quarter of 2003 reflects a 30.2% increase in average external lumber sales realizations, partially offset by a 7.0% decrease in external lumber sales volumes. These factors are discussed more fully below.thousands):

Internal shipments decreased 48.8% to 2.4 MMBF in the first quarter of 2004 compared to 4.6 MMBF in the first quarter of 2003, primarily due to the disposition of our Trading and Distribution Segment in the second quarter of 2003.

	Three Months Ended June 30, 2003			Six Months Ended June 30, 2003
External revenues	$	6,333		$	34,140
Operating loss	(482		)	(5,826		)

The improvement in operating results in the first quarter of 2004 compared to the first quarter of 2003 is primarily a result of the improved realizations and improved production efficiencies at our saw mills, partially off-set by lower sales volume.18

~~Average~~Las ~~external prices~~Vegas ~~received~~Operations ~~for~~of ~~lumber~~Alliance ~~sales by region were as follows (dollars per MBF):~~Lumber Segment

	Quarter Ended March 31,
Region	2004		2003		% Change
Oregon	$	345	$	270	27.8	%
Washington	$	344	$	259	32.8	%
Weighted average	$	345	$	265	30.2	%

In April 2004, we closed the sale of our Alliance Lumber Segment operations in Las Vegas, Nevada, resulting in a recognized loss of $1.2 million in the second quarter of 2004. Results of operations for the Las Vegas operations are reported as discontinued operations for all periods presented in accordance with SFAS No. 144. Summarized financial information for these operations is as follows (in thousands):

The improvements in the average realizations are due to improved market prices resulting from strong demand from the domestic housing market, as well as changes in product mix.

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
External revenues	$	—		$	13,231		$	18,756		$	26,271
Operating income (loss)	117			(41		)	596			300
Gain (loss) on disposal	(1,198		)	4			(1,198		)	4

17Sale of the net assets of the Las Vegas operations produced cash proceeds of $12.3 million, all of which was immediately paid to CIT to reduce outstanding borrowings under the DIP Revolver.

~~External~~Results ~~lumber sales~~of ~~volumes~~Operations by ~~region were as follows (in MBF):~~Segment

	Quarter Ended March 31,
Region	2004	2003	% Change
Oregon	38,576	42,172	(8.5	)%
Washington	31,699	33,380	(5.0	)%
Total	70,275	75,552	(7.0	)%

External revenue by segment and as a percentage of total revenue was as follows (dollars in thousands):

The decrease in volume from the Oregon region is primarily due to the curtailment of dry-end operations at our Prineville sawmill subsequent to the first quarter of 2003, and lower production levels in the 2004 period. The decrease in volume from the Washington region is due to lower production levels at our Washington saw mills.

	Three Months Ended June 30,								Six Months Ended June 30,
	2004				2003				2004				2003
Timberlands	$	6,161	5.8	%	$	4,252	7.1	%	$	11,690	6.2	%	$	11,169	8.8	%
Manufacturing	32,790		30.7	%	16,611		27.6	%	58,911		31.1	%	38,587		30.6	%
Alliance Lumber	65,185		61.0	%	37,481		62.3	%	113,805		60.1	%	72,261		57.2	%
Corporate and Other	2,700		2.5	%	1,835		3.0	%	4,977		2.6	%	4,274		3.4	%
	$	106,836			$	60,179			$	189,383			$	126,291

~~Following~~Operating isincome (loss) ~~information~~by ~~regarding~~segment ~~our~~was ~~chip~~as ~~sales~~follows (in thousands):

	Quarter Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Chip sales revenue (in thousands of dollars)	$	1,874		$	1,750
Timberlands	$	609		$	226		$	1,214		$	1,005
Chip sales as a percentage of revenue	2.3		%	2.6		%
Manufacturing	11,277			(605		)	18,239			(1,182		)
Chip prices (per bone-dry unit (“BDU”))	$	65		$	59
Alliance Lumber	4,064			2,086			6,431			4,455
Chip volume (in BDUs)	28,661			29,805
Corporate and Other	(1,432		)	(4,330		)	(3,715		)	(6,167		)
	$	14,518		$	(2,623	)	$	22,169		$	(1,889	)

The increase in the price per BDU is due to improved market prices for chips. The decrease in volume is due to the decrease in production volume at our saw mills, as chips are a by-product of saw mill operations.Timberlands

~~Alliance~~The ~~Lumber~~$1.9 million, or 44.9%, increase in external Timberlands Segment sales in the second quarter of 2004 compared to the second quarter of 2003 reflects a 52.6% increase in domestic log shipments, a 45.8% decrease in export log shipments and a 14.1% increase in weighted average domestic sales realizations. These factors are discussed more fully below.

~~Our~~The ~~Alliance~~$0.5 ~~Lumber~~million, ~~Segment includes professional contractor service~~or ~~yards~~4.7%, increase in ~~Arizona~~external ~~and~~Timberlands ~~Nevada~~Segment ~~and~~sales ~~involves~~in the ~~sale~~six ofmonth ~~lumber and building~~period ~~materials.~~ended ~~Our~~June ~~Las Vegas~~30, ~~Nevada~~2004 ~~operations~~compared ~~were~~to ~~sold~~the insame ~~April 2004~~period ~~and are~~of ~~reflected~~2003 asreflects ~~discontinued~~a ~~operations~~15.6% increase ~~for~~in ~~both~~domestic ~~periods~~log ~~presented. In addition~~shipments, ifa an62.0% ~~asset~~decrease ~~purchase~~in ~~agreement is~~export ~~signed~~log shipments and ~~approved~~an by8.7% ~~the~~increase ~~Bankruptcy~~in ~~Court,~~weighted weaverage ~~anticipate~~domestic ~~selling~~sales ~~our~~realizations. These ~~Reno, Nevada~~factors ~~operations~~are indiscussed ~~the~~more ~~second quarter of 2004~~fully below.

~~The~~Internal sales of logs to our Manufacturing Segment decreased to $133.83 million, orand 39$12.8%1 million, respectively, ~~increase~~ in ~~revenue~~the ~~from~~three ~~our~~and ~~Alliance Lumber~~six ~~Segment~~month inperiods ~~the~~ended ~~first~~June ~~quarter~~30, of 2004 compared to $6.3 million and $15.8 million, respectively, in the ~~first~~comparable ~~quarter~~periods of 2003. ~~reflects~~These decreases primarily reflect a 750.2% ~~increase~~and ina ~~unit~~25.2% reduction, respectively, in volume, ~~measured~~due to reduced harvest levels in ~~total~~2004 ~~board~~at ~~feet,~~all asof our ~~well~~tree asfarms. Our ~~higher~~Manufacturing ~~market~~Segment has ~~prices~~increased ~~for~~its ~~lumber~~purchases ~~and~~of ~~paneling,~~externally ~~reflecting~~sourced ~~the~~logs ~~strong housing~~during ~~market~~2004 in order to mitigate the ~~southwestern~~reduced ~~region~~fee ofharvest ~~the~~from ~~United~~our ~~States~~tree farms. These decreases were partially offset by a 4.4% and a 2.7% increase, respectively,

Operating income was flat in the comparable periods for our Alliance Lumber Segment. Increased revenues in the first quarter of 2004 compared to the first quarter of 2003 were off-set by lower gross margins and increased operating expenses. Gross margins were negatively impacted in the first quarter of 2004 by forward pricing commitments made to customers during a period of rising market prices for materials. Operating expenses were negatively impacted in the first quarter of 2004 by higher fuel costs and overtime labor costs incurred to meet higher sales volumes.19

~~Corporate~~in ~~and~~average ~~Other~~internal sales realizations reflecting higher market log prices in the first six months of 2004 compared to the first six months of 2003.

The ~~operating~~$0.4 ~~loss~~million ~~from our Corporate~~ and ~~Other~~$0.2 million ~~Segment~~increases, ~~increased~~respectively, ~~from~~in ~~$1.8~~Timberlands ~~million~~operating income in the ~~first~~three ~~quarter~~and ofsix ~~2003~~month toperiods ~~$2.1~~ended ~~million~~June in30, 2004 compared to the ~~first~~same ~~quarter~~periods of ~~2004. The~~2003 were ~~larger~~primarily ~~loss~~a ~~reflects~~result ~~increased~~of ~~costs~~the ~~for insurance~~volume and ~~bad~~price ~~debt~~changes discussed above as well as reduced depletion expense rates (see Note 6) partially off-set by slightly higher overhead expenses.

~~Critical~~Domestic ~~Accounting~~Log ~~Policies~~Sales

WeAverage ~~reaffirm~~external ~~the~~domestic ~~critical~~prices ~~accounting~~received ~~policies~~for ~~and~~logs ~~estimates~~sold ~~described~~from inthe ~~our~~various ~~2003~~tree ~~Annual~~farms ~~Report on~~were ~~Form~~as ~~10-K,~~follows (dollars ~~which~~per ~~was~~thousand ~~filed~~board ~~with~~feet ~~the Securities and Exchange Commission on April 22, 2004.~~(“MBF”)):

	Three Months Ended June 30,						Six Months Ended June 30,
Tree Farm	2004		2003		% Change		2004		2003		% Change
Oregon	$	373	$	627	(40.5	)%	$	373	$	627	(40.5	)%
Hamilton	$	469	$	436	7.6	%	$	456	$	425	7.3	%
Olympic	$	446	$	376	18.6	%	$	403	$	376	7.2	%
Weighted average	$	462	$	405	14.1	%	$	436	$	401	8.7	%

~~Item~~The ~~3. Quantitative~~increases at the Hamilton and ~~Qualitative~~Olympic ~~Disclosures~~tree farms in 2004 over the comparable 2003 periods are ~~About~~due ~~Market~~to ~~Risk~~higher market prices for logs and changes in species and grade mix.

~~Our~~The ~~$40~~domestic ~~million~~external ~~debtor-in-possession~~volume ~~financing~~from ~~agreement~~each ~~(“DIP Revolver”) has a variable rate~~ of ~~interest. At~~our ~~March 31,~~tree ~~2004,~~farms ~~we had~~was ~~$18.3~~as ~~million~~follows ~~outstanding under the DIP Revolver at an interest rate of 4.5%. A hypothetical 10 percent increase~~ (in ~~interest rates to 4.95% would not have a material effect on our cash flows or results of operations.~~MBF):

The fair market value of long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The interest rate changes affect the fair market value but do not impact earnings or cash flows. Our acquisition facility has a variable rate of interest. Our senior notes and acquisition facility, included in liabilities subject to compromise at March 31, 2004, are not publicly traded and similar instruments are not available for comparison. We are therefore unable to estimate the fair value of the senior notes or acquisition facility.

	Three Months Ended June 30,				Six Months Ended June 30,
Tree Farm	2004	2003	% Change		2004	2003	% Change
Oregon	57	227	(74.9	)%	58	227	(74.4	)%
Hamilton	8,208	2,755	197.9	%	14,548	9,215	57.9	%
Olympic	3,588	4,783	(25.0	)%	8,895	10,890	(18.3	)%
Total	11,853	7,765	52.6	%	23,501	20,332	15.6	%

~~Item~~The 4increase in volume from the Hamilton Tree Farm is due to increased fee harvest following the temporary curtailment of logging activity in the second quarter of 2003. ~~Controls~~ The ~~and~~decrease ~~Procedures~~in volume from the Olympic Tree Farm reflects reduced fee harvest levels in 2004.

~~Disclosure~~During ~~Controls~~the second quarter of 2003, a small volume of large diameter ponderosa pine logs were sold from our Oregon Tree Farm to an external customer. During the first half of 2004, a small volume of pulp, post and ~~Procedures~~pole logs were sold to external customers from our Oregon Tree Farm. The majority of volume from the Oregon Tree Farm was utilized by our Gilchrist mill.

~~Our~~Export ~~management~~Log has evaluated, under the supervision and with the participation of our President and Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.Sales

~~Internal~~Revenue ~~Control~~from ~~Over~~export logs ~~Financial~~accounted ~~Reporting~~for approximately 0.1% of total revenues in the three months and six months ended June 30, 2004. Revenue from export logs accounted for 0.2% and 0.6% of total revenues, respectively, in the three months and six months ended June 30, 2003. The decrease in export sales revenue is due to reduced sales volume from reduced availability of export grade logs in the areas of our Washington tree farms which are currently being harvested. In addition, higher domestic log prices and soft export demand for such logs have currently mitigated much of the advantage from exporting them.

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Manufacturing

~~PART~~The II$16.2 -million, ~~OTHER~~or ~~INFORMATION~~97.4%, increase in external revenue from our sawmills in the second quarter of 2004 compared to the second quarter of 2003 reflects a 53.0% increase in average external lumber sales realizations and a 32.1% increase in external lumber sales volumes. These factors are discussed more fully below.

~~Item 6. Exhibits and Reports on Form 8-K~~ 20

(The $20.3 million, or 52.7%, increase in external revenue from our sawmills in the six month period ended June 30, 2004 compared to the six month period ended June 30, 2003 reflects a) 42.4% increase in average external lumber sales realizations and a ~~Exhibits~~9.9% increase in external lumber sales volumes. These factors are discussed more fully below.

~~The~~Internal ~~exhibits~~shipments increased ~~filed~~31.7% asand ~~part~~decreased 14.3%, respectively, to 4.6 MMBF and 7.0 MMBF, respectively, in the three and six month periods ended June 30, 2004 compared to 3.5 MMBF and 8.1 MMBF, respectively, in the comparable periods of ~~this~~2003. These ~~report~~changes in internal shipments from our Manufacturing Segment are ~~listed~~primarily ~~below~~due to the disposition of our Trading and Distribution ~~this~~Segment in the second quarter of 2003. Excluding the impact from ~~list~~sales isto ~~intended~~our discontinued Trading and Distribution Segment, internal shipments increased in 2004 compared to ~~serve~~2003, asreflecting the ~~exhibit~~reduced ~~index:~~production levels in the second quarter of 2003 resulting from our temporary curtailment of production.

3.1		Form of Second Amended and Restated Agreement of Limited Partnership of Crown Pacific Partners, L.P. (filed as Exhibit A to Part I of Registrant’s Registration Statement on Form S-1 No. 83-85066).
3.2		Form of Agreement of Limited Partnership of Crown Pacific Limited Partnership (filed as Exhibit 3.2 to the Registrant’s Statement on Form S-1 No. 83-85066).
3.3		First Amendment to Second Amended and Restated Agreement of Limited Partnership of Crown Pacific Limited Partnership (filed as Exhibit 3.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 1997).
3.4		Second Amendment to Amended and Restated Agreement of Limited Partnership of Crown Pacific Limited Partnership (filed as Exhibit 3.4 to the Registrant’s Form 10-K for the year ended December 31, 1997).
3.5		Third Amendment to Amended and Restated Agreement of Limited Partnership of Crown Pacific Limited Partnership (filed as Exhibit 3.5 to the Registrant’s Form 10-K for the year ended December 31, 1999).
31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

The improvement in operating results of our Manufacturing Segment in the three and six month periods ended June 30, 2004 compared to the same periods of 2003 is primarily a result of the increased realizations and volume described above. The increased volume in the 2004 periods is largely a result of the temporary market-related curtailment of operations we implemented in the second quarter of 2003. In addition, we have improved production efficiencies at our sawmills during 2004.

~~(b)~~Average ~~Reports~~external onprices received ~~Form~~for ~~8-K~~lumber sales by region were as follows (dollars per MBF):

We did not file any reports on Form 8-K during the quarter ended March 31, 2004.

	Three Months Ended June 30,						Six Months Ended June 30,
Sawmill	2004		2003		% Change		2004		2003		% Change
Oregon	$	400	$	268	49.3	%	$	372	$	269	38.3	%
Washington	$	409	$	259	57.9	%	$	380	$	259	46.7	%
Weighted average	$	404	$	264	53.0	%	$	376	$	264	42.4	%

19The improvements in the average realizations are due to improved market prices resulting from strong demand from the domestic housing market, as well as changes in product mix.

~~SIGNATURES~~External lumber sales volumes by region were as follows (in MBF):

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

	Three Months Ended June 30,				Six Months Ended June 30,
Sawmill	2004	2003	% Change		2004	2003	% Change
Oregon	38,193	30,179	26.6	%	76,769	72,352	6.1	%
Washington	37,979	27,495	38.1	%	69,679	60,876	14.5	%
Total Volume	76,172	57,674	32.1	%	146,448	133,228	9.9	%

Date: May 26, 2004	CROWN PACIFIC PARTNERS, L.P.
	By: Crown Pacific Management Limited Partnership, as General Partner
	By:	/s/ Steven E. Dietrich
	Steven E. Dietrich
	Senior Vice President, Chief Financial Officer and Treasurer
	(Duly Authorized Officer and Principal Financial and Accounting Officer)

The increases in volume in both regions are primarily caused by the temporary market-related production curtailment we implemented during the second quarter of 2003.

20Following is information regarding our chip sales:

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Chip sales revenue (in thousands of dollars)	$	1,984		$	1,365		$	3,857		$	3,116
Chip sales as a percentage of revenue	1.9		%	2.3		%	2.0		%	2.5		%
Chip prices (per bone-dry unit (“BDU”))	$	67		$	64		$	66		$	61
Chip volume (in BDUs)	29,463			21,232			58,124			51,036

The increases in the price per BDU are due to improved market prices for chips. The increases in volume are due to the increases in production volume at our saw mills, as chips are a by-product of saw mill operations.

Alliance Lumber Segment

Our Alliance Lumber Segment includes professional contractor service yards in Arizona and Nevada and involves the sale of lumber and building materials. Our Las Vegas, Nevada operations were sold in April 2004 and are reflected as discontinued operations for all periods presented. In addition, we sold our Reno, Nevada operations and our Phoenix, Arizona operations in the third quarter of 2004. Following these dispositions, the Alliance Lumber Segment has been discontinued in the third quarter of 2004.

Revenue from our Alliance Lumber Segment increased $27.7 million, or 73.9%, in the second quarter of 2004 compared to the second quarter of 2003, and increased $41.5 million, or 57.5%, in the six months ended June 30, 2004 compared to the six months ended June 30, 2003. These increases reflect a 15.7% and an 11.7% increase, respectively, in unit volume, measured in total board feet, as well as higher market prices for lumber and paneling, reflecting the strong housing market in the southwestern region of the United States.

Operating income from our Alliance Lumber Segment increased $2.0 million, or 94.8%, in the second quarter of 2004 compared to the second quarter of 2003, and increased $2.0 million, or 44.4%, in the six months ended June 30, 2004 compared to the six months ended June 30, 2003. The improved operating income is primarily a result of the increased volume described above.

Corporate and Other

The operating loss from our Corporate and Other category decreased to $1.4 million and $3.7 million, respectively, in the three and six month periods ended June 30, 2004, compared to $4.3 million and $6.2 million, respectively, in the comparable periods of 2003. The improved results reflect lower personnel costs from reduced headcount and retirement plan expenses, offset in part by increased costs for insurance and bad debt expense.

Critical Accounting Policies

We reaffirm the critical accounting policies and estimates described in our 2003 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on April 22, 2004.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our $40 million debtor-in-possession financing agreement (“DIP Revolver”) has a variable rate of interest. At June 30, 2004, we had $14.1 million outstanding under the DIP Revolver at an interest rate of 4.5%. A hypothetical 10 percent increase in interest rates to 4.95% would not have a material effect on our cash flows or results of operations.

The fair market value of long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The interest rate changes affect the fair market value but do not impact earnings or cash flows. Our acquisition facility has a variable rate of interest. Our senior notes and acquisition facility, included in liabilities subject to compromise at June 30, 2004, are not publicly traded and similar instruments are not available for comparison. We are therefore unable to estimate the fair value of the senior notes or acquisition facility.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our President and Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our President and Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is

(1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

PART II - OTHER INFORMATION

Item 5. Other Information

Disposition of Reno, Nevada Operations of Alliance Lumber Segment

On July 21, 2004, we sold our Alliance Lumber Segment operations in Reno, Nevada to Reno Lumber, Inc. for $14.2 million in cash. Reno Lumber, Inc. is partially owned by our former manager of these operations. The sales price was determined by arms length negotiations. The buyer purchased the inventory, accounts receivable, property, plant and equipment, and certain prepaid assets, and assumed the accounts payable and certain accrued expenses related to these operations. This transaction was approved by the Bankruptcy Court in a hearing on July 13, 2004.

Phoenix, Arizona Operations of Alliance Lumber Segment

On August 2, 2004, we sold our Alliance Lumber Segment operations in Phoenix, Arizona to ALC Acquisition LLC for $39.4 million in cash. ALC Acquisition LLC is owned by the original founder of Alliance Lumber in Phoenix, Arizona and our former manager of these operations. The sales price was determined by arms length negotiations. The buyer purchased the inventory, accounts receivable, property, plant and equipment, and certain prepaid assets, and assumed the accounts payable and certain accrued expenses related to these operations. This transaction was approved by the Bankruptcy Court in a hearing on July 13, 2004.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

The exhibits filed as part of this report are listed below and this list is intended to serve as the exhibit index:

3.1 Form of Second Amended and Restated Agreement of Limited Partnership of Crown Pacific Partners, L.P. (filed as Exhibit A to Part I of Registrant’s Registration Statement on Form S-1 No. 83-85066).

3.2 Form of Agreement of Limited Partnership of Crown Pacific Limited Partnership (filed as Exhibit 3.2 to the Registrant’s Statement on Form S-1 No. 83-85066).

3.3 First Amendment to Second Amended and Restated Agreement of Limited Partnership of Crown Pacific Limited Partnership (filed as Exhibit 3.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 1997).

3.4 Second Amendment to Amended and Restated Agreement of Limited Partnership of Crown Pacific Limited Partnership (filed as Exhibit 3.4 to the Registrant’s Form 10-K for the year ended December 31, 1997).

3.5 Third Amendment to Amended and Restated Agreement of Limited Partnership of Crown Pacific Limited Partnership (filed as Exhibit 3.5 to the Registrant’s Form 10-K for the year ended December 31, 1999).

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

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

32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K:

We did not file any reports on Form 8-K during the quarter ended June 30, 2004.

SIGNATURES

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

Date: August 9, 2004	CROWN PACIFIC PARTNERS, L.P.

	By:		Crown Pacific Management Limited Partnership, as General Partner


	By:	/s/ Steven E. Dietrich
	Steven E. Dietrich
	Senior Vice President, Chief Financial Officer and Treasurer
	(Duly Authorized Officer and Principal Financial and Accounting Officer)

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