Net loss attributable to unitholders for the year ended December 31, 2009 totaled $272,000, or $0.07 per diluted ownership unit, on revenue of $20.5 million. Results for the full year ended December 31, 2009 include a $1.1 million loss on early extinguishment of debt. Net income for the corresponding period in 2008 totaled $1.2 million, or $0.23 per diluted ownership unit, on revenue of $28.2 million.
Cash provided by operations for the quarter ended December 31, 2009 was $853,000, compared to cash used by operations of $1.8 million for the fourth quarter of 2008. For the year ended December 31, 2009, cash provided by operations was $662,000, compared to $4.0 million in 2008.
"While we concluded both the fourth quarter and year with small losses, we are seeing some modest improvements in log pricing relative to earlier in 2009, with a sense that a market bottom may have been reached," said David L. Nunes, President and CEO. "But we expect the home building sector's recovery to be slow based on continuing challenges with high unemployment, a large and growing stock of foreclosed properties, and tight credit. We are entering 2010 with tempered log price expectations and, as with the past two years, plan to harvest less than our long-term sustainable level. We are targeting a harvest of 32 million board feet (MMBF) for 2010, essentially the same as 2009 and nearly 50% below our estimated long-term sustainable harvest level of 60 MMBF."
Fee Timber operating income in the fourth quarter improved to the highest level since the second quarter of 2008. Fourth quarter operating income increased from $136,000 in 2008 to $1.7 million in 2009, driven by harvest volume that increased from 2 MMBF in 2008 to 10 MMBF in 2009, offset in part by a 16% decline in average realized log price, which fell from $494 per thousand board feet (MBF) in 2008 to $415 per MBF in 2009. We also responded to a stronger relative pulpwood market by shifting into some lower quality harvest units that had a higher proportion of pulpwood volume. While this pushed down our average realized log price, it allowed higher valued log inventory to continue to add volume and value through biological growth.
Fee Timber operating income for 2009 was $3.7 million compared to $6.3 million for 2008, a drop of 41%. This decline was driven by the combined effect of a 14% drop in harvest volumes, from 38 MMBF in 2008 to 32 MMBF in 2009, and a 19% decrease in average realized log price, which dropped from $506 per MBF in 2008 to $410 per MBF in 2009.
Our Timberland Management & Consulting segment posted an operating loss of $172,000 for the fourth quarter of 2009, higher than the operating loss of $99,000 for the corresponding quarter in 2008 due to the termination of the Cascade Timberlands contract in mid-2009. For the year ended December 31, 2009, this segment's operating loss of $375,000 represented an improvement on 2008's operating loss of $543,000 due in large part to a reduction in expense associated with forming our second timberland investment fund, offset partially by the loss of the Cascade contract.
The operating loss of $398,000 posted by our Real Estate segment for the fourth quarter of 2009 was slightly higher than the operating loss of $344,000 for 2008's fourth quarter. For the year ended December 31, 2009, this segment's operating income of $1.7 million represented a significant reversal of 2008's operating loss of $1.1 million due in large part to a $3.3 million conservation easement sale in the third quarter of 2009.
General & Administrative expenses for 2009 declined 6% to $3.7 million, compared to $4.0 million in the prior year. This improvement was driven primarily by cost-cutting measures put in place at the end of the first quarter due to our lower harvest level and the uncertainty with respect to the length of the recession, offset partially by legal costs incurred in pursuing our SLARS arbitration case.
A significant contributing factor to our overall loss for 2009 was the decision to refinance one of our two timber mortgages, which resulted in the aforementioned $1.1 million loss on early extinguishment of debt. In an effort to both reduce the future refinancing risk on our two timber mortgages, both due in 2011, and reduce our weighted average interest expense, we decided to refinance the mortgage with the higher interest rate of 9.65%. Our new mortgage reduced our interest rate to 6.4%, extended the term out 10 years, and folded in the debt extinguishment costs as incremental borrowing.
The incremental interest expense from our refinancing largely overshadowed the positive impact of the cost cutting initiative we launched at the end of the first quarter. In addition to the general and administrative savings described above, this effort lowered our other operating expenses by 25%, or $2.4 million. While not immediately apparent in a year in which we are recording overall losses, we are encouraged by this initiative as it is expected to improve our overall cost competitiveness in the future.
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 152,000 acres of timberland and development property in Washington and Oregon. We also manage, co-invest in, and consolidate two timberland investment funds that we manage for a fee. In addition, we offer our forestry consulting and timberland investment management services to third-party owners and managers of timberland in Washington, Oregon, and California. 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; conditions affecting credit markets as they affect the availability of capital and costs of borrowing; 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 Report on Form 10-K 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 Twelve months ended
December 31, December 31,
2009 2008 2009 2008
Revenues $5,218 $3,150 $20,478 $28,178
Costs and expenses:
Cost of sales (2,346) (936) (8,372) (14,071)
Operating expenses (2,946) (3,556) (10,827) (13,418)
------ ------ ------- -------
Operating income (loss) (74) (1,342) 1,279 689
Interest income 52 115 219 965
Interest expense (552) (616) (2,317) (2,469)
Capitalized interest 238 339 1,091 1,279
SLARS impairment and loss on
dispositions (246) (88) (318) (381)
---- --- ---- ----
Income (loss) before debt
extinguishment costs (582) (1,592) (46) 83
Debt extinguishment costs - - (1,137) -
- - ------ -
Income (loss) before income taxes (582) (1,592) (1,183) 83
Income tax benefit (expense) (33) 67 (39) 61
--- -- --- --
Net income (loss) (615) (1,525) (1,222) 144
Net loss attributable to
noncontrolling interests 239 86 950 1,018
--- -- --- -----
Net income (loss) attributable to
Pope Resources' unitholders $(376) $(1,439) $(272) $1,162
===== ======= ===== ======
Average units outstanding - Basic 4,520 4,601 4,539 4,597
===== ===== ===== =====
Average units outstanding - Diluted 4,520 4,601 4,539 4,660
===== ===== ===== =====
Basic net income (loss) per unit $(0.08) $(0.32)* $(0.07) $0.23*
====== ====== ====== =====
Diluted net income (loss) per unit $(0.08) $(0.32)* $(0.07) $0.23*
====== ====== ====== =====
*Earnings (loss) per unit differ from amounts previously reported due to
retrospective application of new accounting guidance for determining
whether instruments granted in share-based payment transactions are
participating securities.
CONDENSED CONSOLIDATED BALANCE SHEETS
(all amounts in $000's)
31-Dec-09 31-Dec-08
--------- ---------
Assets:
Pope Resources cash and cash
equivalents $6,035 $15,931
ORM Timber Funds cash and cash
equivalents 1,145 2,047
----- -----
Cash and cash equivalents 7,180 17,978
Auction rate securities, current 690 -
Other current assets 1,392 1,868
----- -----
Total current assets 9,262 19,846
Roads and timber, net 120,787 92,753
Properties and equipment, net 54,581 47,946
Auction rate securities, non-current 796 3,619
Other assets 1,630 1,247
----- -----
Total $187,056 $165,411
======== ========
Liabilities and equity:
Current liabilities $3,066 $3,581
Long-term debt, excluding current
portion 28,659 28,169
Other long-term liabilities 1,274 1,490
----- -----
Total liabilities 32,999 33,240
Partners' capital 83,126 87,817
Noncontrolling interests 70,931 44,354
------ ------
Total $187,056 $165,411
======== ========
RECONCILIATION BETWEEN NET INCOME (LOSS) AND CASH FLOWS FROM OPERATIONS
(all amounts in $000's)
Three months ended Twelve months ended
December 31, December 31,
2009 2008 2009 2008
Net income (loss) $(615) $(1,525) $(1,222) $144
Added back:
Depletion 552 26 2,001 3,437
Timber depletion on HBU sale - 352 - 478
SLARS activity 246 88 318 381
Depreciation and amortization 195 195 810 774
Unit compensation 154 162 621 584
Deferred taxes (82) (126) (222) (143)
Excess unit compensation tax
benefit (17) (167) (17) (167)
Development expenditures* (414) (1,226) (1,639) (3,451)
Cost of land sold 8 54 127 2,614
Change in operating accounts 826 401 (115) (699)
--- --- ---- ----
Cash provided by (used in)
operations $853 $(1,766) $662 $3,952
==== ======= ==== ======
* 2008 amounts have been revised due to a change in the classification
of real estate development expenditures from investing to operating
activities
SEGMENT INFORMATION
(all amounts in $000's)
Three months ended Twelve months ended
December 31, December 31,
2009 2008 2009 2008
Revenues:
Pope Resources Fee Timber $4,683 $1,616 $14,816 $18,706
ORM Timber Funds 27 46 31 4,845
-- -- -- -----
Total Fee Timber 4,710 1,662 14,847 23,551
Timberland Management &
Consulting (TM&C) 51 211 601 944
Real Estate 457 1,277 5,030 3,683
--- ----- ----- -----
Total 5,218 3,150 20,478 28,178
Operating income (loss):
Fee Timber 1,694 136 3,724 6,294
TM&C (172) (99) (375) (543)
Real Estate (398) (344) 1,663 (1,111)
General & administrative (1,198) (1,035) (3,733) (3,951)
------ ------ ------ ------
Total $(74) $(1,342) $1,279 $689
==== ======= ====== ====
SELECTED STATISTICS
Three months ended Twelve months ended
2009 2008 2009 2008
Log sale volumes
(thousand board feet):
Sawlogs
Douglas-fir 7,373 1,508 22,383 24,913
Whitewood 526 86 1,080 3,121
Cedar 149 54 827 795
Hardwood 135 51 835 977
Pulp
All species 2,017 374 7,336 7,942
----- --- ----- -----
Total 10,200 2,073 32,461 37,748
====== ===== ====== ======
Average price realizations
(per thousand board feet):
Sawlogs
Douglas-fir 438 516 435 537
Whitewood 332 384 309 412
Cedar 718 1,222 817 1,245
Hardwood 466 588 446 638
Pulp
All species 329 307 296 359
Overall 415 494 410 506
Owned timber acres 114,000 114,000 114,000 114,000
Acres owned by Funds 36,000 24,000 36,000 24,000
Third-party managed acres - 267,000 - 267,000
Capital expenditures ($000's) 672 2,641 2,863 6,070
Depletion ($000's) 552 378 2,001 3,915
Depreciation and
amortization ($000's) 195 195 810 774
Debt to total
capitalization (excludes
noncontrolling interest) 26% 25% 26% 25%
QUARTER TO QUARTER COMPARISONS
(Amounts in $000's except per unit data)
Q4 2009 vs. Q4 2008 Q4 2009 vs. Q3 2009
Total Total
----- -----
Net income (loss) attributable
to Pope Resources' unitholders:
4th Quarter 2009 $(376) $(376)
3rd Quarter 2009 920
4th Quarter 2008 (1,439)
------ -------
Variance $1,063 $(1,296)
Detail of earnings variance:
Fee Timber
Log price realizations (A) $(806) $275
Log volumes (B) 4,015 1,476
Depletion (524) (136)
Production costs (1,278) (420)
Other Fee Timber 151 146
Timberland Management & Consulting
Management fee changes (208) (20)
Other Timberland Mgmnt &
Consulting 135 6
Real Estate
Environmental remediation
liability (30) (30)
Land and conservation easement
sales (719) (2,906)
Timber depletion on HBU sale 346 (6)
Other Real Estate 349 (170)
General & administrative costs (163) (408)
Net interest expense (99) 24
Debt extinguishment costs - 1,137
Other (taxes, noncontrolling int.,
impairment) (106) (264)
---- ----
Total change in earnings $1,063 $(1,296)
====== =======
(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
