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Pope Resources Reports Second Quarter Loss of $693,000

July 29, 2009

POULSBO, Wash.--(BUSINESS WIRE)--Jul. 29, 2009-- Pope Resources (Nasdaq:POPE) reported a net loss attributable to unitholders of $693,000, or $0.16 per diluted ownership unit, on revenue of $3.7 million for the second quarter ended June 30, 2009. This compares to net income attributable to unitholders of $1.7 million, or $0.36 per diluted ownership unit, on revenue of $11.3 million for the comparable period in 2008.

Net loss for the six months ended June 30, 2009 totaled $816,000, or $0.18 per diluted ownership unit, on revenue of $8.6 million. Net income for the corresponding period in 2008 totaled $2.6 million, or $0.55 per diluted ownership unit, on revenue of $17.6 million.

Cash used in operations for the quarter ended June 30, 2009 was $979,000, compared to cash provided by operations of $5.1 million for the second quarter of 2008. For the six months ended June 30, 2009, cash used in operations was $215,000, compared to cash provided by operations of $5.6 million for year-to-date 2008 results.

“Second quarter and year-to-date results for the first six months of 2009 were anemic by any standard,” said David L. Nunes, President and CEO. ”Although markets began to show significant weakness by the middle of 2008, results for 2009 were substantially poorer. Markets for both our logs and rural residential lots are as difficult as they have been in a generation, with prices and profit margins compressed by a combination of high inventories, limited demand, and continued constraints in credit markets. We entered 2009 aiming to harvest 37 million board feet (MMBF), nearly 30% below our estimated long-term sustainable harvest level of 52 MMBF. Even at this reduced harvest level, we chose to throttle back our harvest activities in the second quarter rather than push a ‘normal’ log volume onto these depressed markets. Through the first half of 2009, we harvested only 43% of this planned annual harvest volume, in contrast to 64% of the full-year total through the first half of 2008. We will be closely monitoring log market trends for the balance of the year and may elect to defer an even greater percentage of our sustainable harvest level than originally anticipated. In the face of these difficult market conditions, we implemented cost-cutting measures across all our business units at the end of the first quarter which we expect will offset a portion of the negative effects of the current market environment.”

Operating income in the second quarter for Fee Timber declined 89%, from $3.0 million in 2008 to $312,000 in 2009. This drop was driven primarily by a 50% reduction in our harvest volume, from 14 MMBF in 2008 to 7 MMBF in 2009, compounded by a 33% decline in average realized log price, which declined from $501 per thousand board feet (MBF) in 2008 to $338 per MBF in 2009. We consciously lowered the percentage of our planned annual harvest in the second quarter based on both poor current market conditions and the belief that markets could improve toward the end of the year. As a result, we harvested only 19% of our planned annual harvest during the second quarter, a level that is half that of the prior year in which second quarter harvest volume represented 38% of the full-year total.

For the first six months of 2008, Fee Timber operating income declined 68%, from $5.2 million in 2008 to $1.7 million in 2009. This decline was driven by the combined effect of a 34% drop in harvest volumes, from 24 MMBF in 2008 to 16 MMBF in 2009, and a 20% decrease in average realized log price, which dropped from $516 per MBF in 2008 to $415 per MBF in 2009.

Our Timberland Management & Consulting segment posted an operating loss of $45,000 for the six months ended June 30, 2009, which was an improvement on the $321,000 operating loss for the same period in 2008. This comparative improvement, however, is not expected to hold through the full year as our management contract for Cascade Timberlands was terminated in July due, in part, to inactive log markets in Cascade’s operating area.

Revenue generated by the Real Estate segment declined by $607,000 for the first six months of the year while operating performance improved slightly, with the decline in land sales activity offset by an even greater decline in operating expenses. Year-to-date operating losses for this segment were $653,000 for 2009 as compared to $706,000 in 2008.

General & Administrative expenses for the first six months of 2009 declined 8% to $1.7 million, compared to $1.9 million in the prior year. This improvement was driven primarily by cost-cutting measures put in place at the end of the first quarter.

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 nearly 140,000 acres of timberland and development property in Washington. 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. We also manage, co-invest in, and consolidate 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 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 June 30,   Six months ended June 30,
      2009   2008   2009   2008
                   
Revenues  

$

3,666     $ 11,252    

$

8,645     $ 17,592  
Costs and expenses:                
  Cost of sales     (1,882 )     (6,289 )     (4,080 )     (8,968 )
  Operating expenses     (2,508 )     (3,348 )     (5,330 )     (6,304 )
Operating income (loss)     (724 )     1,615       (765 )     2,320  
  Interest income     63       218       132       613  
  Interest expense     (593 )     (606 )     (1,210 )     (1,240 )
  Capitalized interest     313       311       618       619  
  Gain on SLARS redemption     3       -       3       -  
  SLARS impairment     -       -       (60 )     -  
Income (loss) before income taxes     (938 )     1,538       (1,282 )     2,312  
Income tax expense     (5 )     -       (5 )     (57 )
Net income (loss)     (943 )     1,538       (1,287 )     2,255  
  Net loss attributable to noncontrolling interest Timber Fund I, LP   240       145       459       369  
  Net loss attributable to noncontrolling interest Timber Fund II, Inc.   10       -       12       -  
Net income (loss) attributable to Pope Resources' unitholders   $ (693 )   $ 1,683     $ (816 )   $ 2,624  
                   
Average units outstanding - Basic     4,529       4,583       4,561       4,601  
Average units outstanding - Diluted     4,529       4,678       4,561       4,699  
                   
Basic net income (loss) per unit   $ (0.16 )   $ 0.36     $ (0.18 )   $ 0.56  
Diluted net income (loss) per unit   $ (0.16 )   $ 0.36     $ (0.18 )   $ 0.55  
                   
                   
                   
CONDENSED CONSOLIDATED BALANCE SHEETS
(all amounts in $000's)
                   
                   
      30-Jun-09   31-Dec-08        
Assets:                
  Pope Resources cash and cash equivalents   $ 9,444     $ 15,931          
  ORM Timber Funds cash and cash equivalents     1,939       2,047          
  Cash and cash equivalents     11,383       17,978          
  Other current assets     1,466       1,868          
  Total current assets     12,849       19,846          
  Roads and timber, net     91,889       92,753          
  Properties and equipment, net     48,949       47,946          
  Auction rate securities     3,678       3,619          
  Other assets     1,667       1,247          
  Total   $ 159,032     $ 165,411          
Liabilities and equity:                
  Current liabilities   $ 2,877     $ 3,581          
  Long-term debt, excluding current portion     26,865       28,169          
  Other long-term liabilities     1,326       1,490          
  Total liabilities     31,068       33,240          
  Partners' capital     83,635       87,817          
  Accumulated other comprehensive income     141       -          
  Noncontrolling interests     44,188       44,354          
  Total   $ 159,032     $ 165,411          
                   
                   
RECONCILIATION BETWEEN NET INCOME (LOSS) AND CASH FLOWS FROM OPERATIONS
(all amounts in $000's)
                   
      Three months ended June 30,   Six months ended June 30,
      2009   2008   2009   2008
                   
Net income (loss)   $ (943 )   $ 1,538     $ (1,287 )   $ 2,255  
Added back:                
  Depletion     464       1,083       1,033       1,738  
  Timber depletion on HBU sale     -       -       -       126  
  SLARS activity     (3 )     -       57       -  
  Depreciation and amortization     202       197       405       385  
  Unit compensation     144       93       303       206  
  Deferred taxes     (109 )     -       (109 )     -  
  Cost of land sold     116       2,344       116       2,517  
  Change in operating accounts     (850 )     (113 )     (733 )     (1,588 )
  Cash provided by (used in) operations   $ (979 )   $ 5,142     $ (215 )   $ 5,639  
                   
                   
SEGMENT INFORMATION
(all amounts in $000's)
                   
      Three months ended June 30,   Six months ended June 30,
      2009   2008   2009   2008
                   
Revenues:                
  Pope Resources Fee Timber   $ 2,754     $ 7,341     $ 7,274     $ 12,793  
  ORM Timber Funds     -       2,747       1       2,855  
  Total Fee Timber     2,754       10,088       7,275       15,648  
  Timberland Management & Consulting (TM&C)     303       254       511       478  
  Real Estate     609       910       859       1,466  
  Total     3,666       11,252       8,645       17,592  
Operating income (loss):                
  Fee Timber     312       2,960       1,678       5,241  
  TM&C     59       (123 )     (45 )     (321 )
  Real Estate     (194 )     (206 )     (653 )     (706 )
  General & administrative     (901 )     (1,016 )     (1,745 )     (1,894 )
  Total   $ (724 )   $ 1,615     $ (765 )   $ 2,320  
                   
                   
SELECTED STATISTICS      
                   
      Three months ended   Six months ended
      2009   2008   2009   2008
Log sale volumes (thousand board feet):                
Sawlogs                
  Douglas-fir     4,953       8,928       12,483       16,129  
  Whitewood     207       1,230       272       1,742  
  Cedar     180       392       244       460  
  Hardwood     271       451       390       652  
Pulp                
  All species     1,509       3,461       2,476       4,987  
Total     7,120       14,462       15,865       23,970  
                   
Average price realizations (per thousand board feet):                
Sawlogs                
  Douglas-fir     343       525       443       546  
  Whitewood     290       416       294       432  
  Cedar     867       1,222       850       1,227  
  Hardwood     430       671       443       661  
Pulp                
  All species     247       366       239       363  
Overall     338       501       415       516  
                   
Owned timber acres     114,000       114,000       114,000       114,000  
Acres under management     291,000       291,000       291,000       291,000  
Capital expenditures ($000's)     924       301       1,704       2,286  
Depletion ($000's)     464       1,083       1,033       1,864  
Depreciation and amortization ($000's)     202       197       405       385  
Debt to total capitalization (excludes noncontrolling interest)     25 %     24 %     25 %     24 %
                   
                   
QUARTER TO QUARTER COMPARISONS
(Amounts in $000's except per unit data)
                   
   

 

Q2 2009 vs. Q2 2008

   

 

Q2 2009 vs. Q1 2009

   
      Total      

Total

   
                   
Net income (loss) attributable to Pope Resources' unitholders:                
  2nd Quarter 2009   $ (693 )       $ (693 )    
  1st Quarter 2009             (123 )    
  2nd Quarter 2008     1,683              
  Variance   $ (2,376 )       $ (570 )    
                   
Detail of earnings variance:                
Fee Timber                
  Log price realizations (A)   $ (1,164 )       $ (990 )    
  Log volumes (B)     (3,682 )         (775 )    
  Depletion     619           105      
  Production costs     1,585           369      
  Other Fee Timber     (6 )         237      
Timberland Management & Consulting                
  Management fee changes     95           95      
  Other Timberland Mgmnt & Consulting     87           68      
Real Estate                
  Land sales     (316 )         140      
  Other Real Estate     328           125      
General & administrative costs     115           (57 )    
Net interest expense     (140 )         26      
Other (taxes, noncontrolling int., impairment)     103           87      
Total change in earnings   $ (2,376 )       $ (570 )    
                   
(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
Tom Ringo, VP & CFO, 360-697-6626
Fax: 360-697-1156

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