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Pope Resources Reports Fourth Quarter Loss of $1.4 Million

February 11, 2009

POULSBO, Wash.--(BUSINESS WIRE)--Feb. 11, 2009-- Pope Resources (NASDAQ:POPE) reported a net loss of $1.4 million, or 31 cents per diluted ownership unit, on revenues of $3.2 million for the fourth quarter ended December 31, 2008. This compares to net income of $6.3 million, or $1.30 per diluted ownership unit, on revenues of $17.6 million for the comparable period in 2007.

Net income for the year ended December 31, 2008 totaled $1.2 million, or 25 cents per diluted ownership unit, on revenues of $28.2 million. Net income for the corresponding period in 2007 totaled $15.5 million, or $3.21 per diluted ownership unit, on revenues of $51.9 million.

Cash used in operations for the quarter ended December 31, 2008 was $539,000, compared to cash provided by operations of $10.0 million for the fourth quarter of 2007, a decline of $10.5 million. For the year ended December 31, 2008, cash provided by operations was $7.4 million, compared to $22.0 million in 2007.

“Results for both the fourth quarter and full year 2008 were down dramatically compared to corresponding periods in 2007 because of poor markets for our products and our decision a year ago to reduce harvest volume for 2008 by 35% in the face of expected market weakness,” said David L. Nunes, President and CEO. “Prices for our logs reflect the fact that new housing starts are at a 50-year low and, as a result, sawmill operating rates are also at historic lows. Our Real Estate segment has also experienced a sharp decline in demand for raw land as a result of the current economic climate and constrained credit markets. We expect these difficult market conditions to extend through 2009 or longer, which is why, as previously announced, we plan to hold our 2009 timber harvest at 37 million board feet, a level that is almost 30% below our long-term sustainable level. During difficult times such as these, the liquidity inherent in our strong balance sheet grants us the flexibility and patience to let our trees continue to grow in volume and value while waiting for the business cycle to improve.”

Fourth quarter operating income for our Fee Timber segment decreased 92% from $1.6 million in 2007 to $136,000 in 2008. This decline was primarily driven by our 72% fourth quarter drop in harvest volume from 7 million board feet (MMBF) in 2007 to 2 MMBF this year. Compounding the impact from lower harvest volume was a 16% decline in realized log prices from $585 per thousand board feet (MBF) in the fourth quarter of 2007 to $494 per MBF in the fourth quarter of 2008.

Fee Timber operating income for 2008 was $6.3 million, a 59% decrease from 2007 results of $15.2 million. Declines in both annual harvest volume and realized log prices worked in tandem to cause this decline in segment operating results. At 38 MMBF, log harvest volume decreased 32% in 2008 from 2007’s harvest of 55 MMBF. Harvest volume in 2008 and 2007 includes 5 MMBF of volume harvested from tree farms acquired in late 2006 by ORM Timber Fund I, LP. Our average realized log price for the year dropped 17% from $607 per MBF in 2007 to $506 per MBF in 2008.

Our Timberland Management & Consulting segment posted an operating loss of $99,000 for the fourth quarter of 2008 and $543,000 for the full year, which was somewhat improved from the operating losses of $339,000 and $883,000, respectively, for the same periods in 2007. These losses in both years reflect the start-up mode of our timber fund business activities, which were dominated by capital raising expenses for our second timber fund during this period. Losses also declined in 2008 as a result of the closure of our McCloud, California office in December 2007. Full year revenue in 2008 of $898,000 generated by the Timberland Management & Consulting segment in connection with providing services to the two timber funds is eliminated as a result of the consolidation of these funds into the Partnership’s financial statements. This revenue represents in turn an expense of the timber funds that is also eliminated in consolidation for purposes of our Fee Timber segment reporting.

For the fourth quarter of 2008 our Real Estate segment generated a $344,000 operating loss on revenue of $1.3 million, compared to $5.6 million of operating income on $12.5 million of revenue in the comparable quarter of 2007. Full year 2008 results for the Real Estate segment reflect an operating loss of $1.1 million on revenue of $3.7 million, compared to operating income of $5.2 million on revenue of $15.0 million for 2007. The results for 2008’s fourth quarter and full year reflect a pattern of modest sales throughout the year while the last quarter of 2007’s results included recognition of approximately $5.3 million of income related to previously deferred revenue on two sales that closed in 2006. Additionally, in the fourth quarter of 2007, we recorded a $1.9 million charge to earnings to adjust our accrual for estimated future environmental cleanup liabilities in Port Gamble.

General & Administrative expenses of $1.0 million for the fourth quarter of 2008 and $4.0 million for the full year 2008 were $59,000 and $831,000 lower, respectively, compared to the same periods of the prior year primarily because of professional service fees incurred in 2007 that did not recur in the current year.

As of December 31, 2008Pope Resources held AAA-rated Student Loan Auction Rate Securities (“SLARS”) with a par value of $4.0 million. This amount is $10.6 million less than our SLARS position at September 30, 2008, due to a settlement reached between federal and state regulators and one of the broker-dealers through whom we invested in these securities. This settlement resulted in the broker-dealer repurchasing these securities from us at par during the fourth quarter of 2008. Management recorded other-than-temporary impairment in value charges of $293,000 and $88,000 in the third and fourth quarters of 2008, respectively. This results in a year-to-date charge of $381,000, reflecting the lack of marketability for the remaining $4.0 million of our SLARS portfolio.

The financial schedules attached to this earnings release provide detail on individual segment results and operating statistics.

About Pope Resources

Pope Resources, a publicly traded limited partnership, and its subsidiaries Olympic Resource Management and Olympic Property Group, own or manage over 400,000 acres of timberland and development property in Washington and Oregon. In addition, we provide forestry consulting and timberland investment management services to third-party owners and managers of timberland in Washington, Oregon, and California. We also manage and co-invest in two timberland investment funds that we manage for a fee. The company and its predecessor companies have owned and managed timberlands and development properties for more than 150 years. Additional information on the company can be found at www.poperesources.com. The contents of our website are not incorporated into this release or into our filings with the Securities and Exchange Commission.

This press release contains a number of projections and statements about our expected financial condition, operating results, business plans and objectives. These statements reflect management's estimates based on current goals and its expectations about future developments. Because these statements describe our goals, objectives, and anticipated performance, they are inherently uncertain, and some or all of these statements may not come to pass. Accordingly, they should not be interpreted as promises of future management actions or financial performance. Our future actions and actual performance will vary from current expectations and under various circumstances the results of these variations may be material and adverse. Some of the factors that may cause actual operating results and financial condition to fall short of expectations include conditions in the housing construction and wood-products markets that affect demand for our products; factors that affect our ability to anticipate and respond adequately to fluctuations in the market prices for our products; environmental and land use regulations that limit our ability to harvest timber and develop property, including changes in those regulations; labor, equipment and transportation costs that affect our net income; the impacts of natural disasters on our timberlands and on surrounding areas; and our ability to discover and to accurately estimate liabilities associated with our properties. Other factors are set forth in that part of our Annual and Quarterly Reports on Form 10-K and 10-Q, respectively, entitled "Risk Factors." Other issues that may have an adverse and material impact on our business, operating results, and financial condition include those risks and uncertainties discussed in our other filings with the Securities and Exchange Commission. Forward-looking statements in this release are made only as of the date shown above, and we cannot undertake to update these statements.

Pope Resources, A Delaware Limited Partnership
Unaudited
                 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts in $000's, except per unit amounts)
                 
    Three months ended December 31,   Twelve months ended December 31,
    2008   2007   2008   2007
                 
Revenues     3,150     $ 17,611       28,178     $ 51,895  
Costs and expenses:                
Cost of sales     (936 )     (6,160 )     (14,071 )     (20,462 )
Operating expenses     (3,556 )     (5,606 )     (13,418 )     (16,720 )
Operating income (loss)     (1,342 )     5,845       689       14,713  
Interest income     115       489       965       1,753  
Interest expense     (616 )     (635 )     (2,469 )     (2,574 )
Capitalized interest     339       333       1,279       1,145  
SLARS impairment     (88 )     -       (381 )     -  
Income (loss) before income taxes and minority interest     (1,592 )     6,032       83       15,037  
Income tax benefit (expense)     67       91       61       69  
Income (loss) before minority interest     (1,525 )     6,123       144       15,106  
Minority interest     86       165       1,018       402  
Net income (loss)   $ (1,439 )   $ 6,288     $ 1,162     $ 15,508  
                 
Average units outstanding - Basic     4,601       4,682       4,597       4,680  
Average units outstanding - Diluted     4,601       4,828       4,690       4,825  
                 
Basic net income (loss) per unit   $ (0.31 )   $ 1.34     $ 0.25     $ 3.31  
Diluted net income (loss) per unit   $ (0.31 )   $ 1.30     $ 0.25     $ 3.21  

 

      CONDENSED CONSOLIDATED BALANCE SHEETS
      (all amounts in $000's)
           
           
      31-Dec-08   31-Dec-07
Assets:        
  Cash and cash equivalents   $ 17,978   $ 2,174
  Auction rate securities, current     -     30,775
  Other current assets     1,868     2,095
  Total current assets     19,846     35,044
  Roads and timber     92,753     94,635
  Properties and equipment     47,946     47,054
  Auction rate securities, long-term     3,619     -
  Other assets     1,247     2,592

 

Total   $ 165,411   $ 179,325
Liabilities and partners' capital:        
  Current liabilities   $ 3,581   $ 5,451
  Long-term debt, excluding current portion     28,169     29,385
  Other long-term liabilities     1,490     2,042
  Total liabilities     33,240     36,878
  Minority interest     44,354     45,803
  Partners' capital     87,817     96,644
  Total   $ 165,411   $ 179,325

 

RECONCILIATION BETWEEN NET INCOME AND CASH FLOWS FROM OPERATIONS
(all amounts in $000's)
                   
      Three months ended December 31,   Twelve months ended December 31,
      2008   2007   2008   2007
                   
Net income (loss)   $ (1,439 )   $ 6,288     $ 1,162     $ 15,508  
Added back:                
  Depletion     26       593       3,437       4,772  
  Timber depletion on HBU sale     352       -       478       -  
  SLARS impairment     88       -       381       -  
  Depreciation and amortization     195       173       774       777  
  Other non-cash charges to income (loss)     (104 )     1,026       (602 )     235  
  Cost of land sold     54       3,322       2,614       3,854  
  Change in operating accounts     289       (1,415 )     (841 )     (3,165 )
  Cash flows provided by (used in) operations   $ (539 )   $ 9,987     $ 7,403     $ 21,981  
                   
                   
      SEGMENT INFORMATION
      (all amounts in $000's)
                   
      Three months ended December 31,   Twelve months ended December 31,
      2008   2007   2008   2007
                   
Revenues:                
  Pope Resources   $ 1,616     $ 4,590     $ 18,706     $ 32,506  
  ORM Timber Funds     46       282       4,845       3,008  

 

Total Fee Timber     1,662       4,872       23,551       35,514  
  Timberland Management & Consulting (TM&C)     211       270       944       1,344  
  Real Estate     1,277       12,469       3,683       15,037  
  Total     3,150       17,611       28,178       51,895  
Operating income (loss):                
  Pope Resources     51       1,620       6,678       14,824  
  ORM Timber Funds     85       12       (384 )     391  
  Total Fee Timber     136       1,632       6,294       15,215  
  TM&C     (99 )     (339 )     (543 )     (883 )
  Real Estate     (344 )     5,646       (1,111 )     5,163  
  General & administrative     (1,035 )     (1,094 )     (3,951 )     (4,782 )
  Total   $ (1,342 )   $ 5,845     $ 689     $ 14,713  
                   
                   
      SELECTED STATISTICS
                   
      Three months ended December 31,   Twelve months ended December 31,
      2008   2007   2008   2007
Log sale volumes (thousand board feet):                
Sawlogs                
  Douglas-fir     1,508       4,405       24,913       35,113  
  Whitewood     86       508       3,121       6,493  
  Cedar     54       672       795       2,238  
  Hardwood     51       429       977       2,733  
Pulp                
  All species     374       1,272       7,942       8,584  
Total     2,073       7,286       37,748       55,161  
                   
Average price realizations (per thousand board feet):                
Sawlogs                
  Douglas-fir     516       572       537       621  
  Whitewood     384       399       412       462  
  Cedar     1,222       1,152       1,245       1,280  
  Hardwood     588       893       638       931  
Pulp                
  All species     307       296       359       381  
Overall     494       585       506       607  
                   
Owned timber acres     114,000       114,000       114,000       114,000  
Acres under management     291,000       316,000       291,000       316,000  
Capital expenditures ($000's)   $ 2,641     $ 4,748     $ 6,070     $ 12,162  
Depletion ($000's)     378       593       3,915       4,772  
Depreciation and amortization ($000's)     195       173       774       777  
Debt to total capitalization     25 %     24 %     25 %     24 %

 

      QUARTER TO QUARTER COMPARISONS
      (Amounts in $000's except per unit data)
           
      Q4 2008 vs. Q4 2007   Q4 2008 vs. Q3 2008
           
      Total   Total
           
Net income (loss):        
  3rd Quarter 2008       $ (23 )
  4th Quarter 2008   $ (1,439 )     (1,439 )
  4th Quarter 2007     6,288      
  Variance   $ (7,727 )   $ (1,416 )
           
Detail of earnings variance:        
Fee Timber        
  Log price realizations (A)   $ (190 )   $ 9  
  Log volumes (B)     (3,050 )     (4,709 )
  Depletion     587       1,645  
  Production costs     1,041       1,940  
  Other Fee Timber     115       353  
Timberland Management & Consulting        
  Management fee changes     (11 )     -  
  Other Timberland Mgmnt & Consulting     251       4  
Real Estate        

 

Environmental remediation liability     1,878       -  
  Land sales     (7,280 )     418  
  Timber depletion on HBU sale     (352 )     (352 )
  Other Real Estate     (236 )     (349 )
General & administrative costs     59       (13 )
Interest expense     25       15  
Other (taxes, minority int., interest inc.)     (564 )     (377 )
Total change in earnings   $ (7,727 )   $ (1,416 )
           

 

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

 

 

Source: Pope Resources

Pope Resources
VP & CFO
Tom Ringo, 360-697-6626
Fax: 360-697-1156

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