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Pope Resources Reports Third Quarter Loss of $23,000

October 29, 2008

POULSBO, Wash.--(BUSINESS WIRE)--Oct. 29, 2008--Pope Resources (NasdaqGSM:POPE) reported a net loss of $23,000, or 1 cent per diluted ownership unit, on revenues of $7.4 million for the third quarter ended September 30, 2008. This compares to net income of $3.6 million, or 74 cents per diluted ownership unit, on revenues of $12.2 million for the comparable period in 2007.

Net income for the nine months ended September 30, 2008 totaled $2.6 million, or $0.55 per diluted ownership unit, on revenues of $25.0 million. Net income for the corresponding period in 2007 totaled $9.2 million, or $1.91 per diluted ownership unit, on revenues of $34.3 million.

Cash flows provided by operations for the quarter ended September 30, 2008 were $2.3 million, compared to $5.1 million for the third quarter of 2007. For the nine months ended September 30, 2008, cash flows from operations were $7.9 million, compared to $12.0 million for the same period in 2007.

"Our December 2007 decision to reduce harvest volume by 35% in the face of unfavorable log market conditions is reflected in results for the quarter and year-to-date periods ending on September 30, 2008, both of which compare unfavorably to corresponding periods in 2007," said David L. Nunes, President and CEO. "New housing starts have continued to decline, which reduced demand for lumber and in turn reduced demand for sawlogs. The current economic climate and tighter lending standards have also reduced demand for raw land which has negatively impacted our Real Estate segment. The difficult market conditions faced by our Fee Timber and Real Estate business segments are expected to extend at least through 2009. Fortunately our strong balance sheet allows us the flexibility and patience to be able to defer our timber harvest until market conditions improve, which has the added benefit of allowing trees to continue to grow in value and volume during that time period."

Third quarter Fee Timber operating income declined by 76%, from $3.9 million in 2007 to $929,000 in 2008, driven by both a 23% reduction in our harvest volume, from 15 million board feet (MMBF) in 2007 to 12 MMBF in 2008, and a 20% decline in average realized log price, from $611 per thousand board feet (MBF) in 2007 to $489 per MBF in 2008. Similarly, on a year to date basis, a decline in harvest volume and log prices between periods caused Fee Timber operating income to decline by 55%, from $13.6 million for the first nine months of 2007 to $6.2 million for year-to-date 2008. On a year-to-date basis, harvest volumes dropped 25%, from 48 MMBF in 2007 to 36 MMBF in 2008, and the average realized log price declined 17% from $611 per MBF in 2007 to $507 per MBF in 2008. Through the first nine months of 2008, we harvested 94% of our planned annual harvest volume for the year.

Our Timberland Management & Consulting segment posted an operating loss of $135,000 for the third quarter of 2008 and $444,000 for the nine months ended September 30, 2008, which was somewhat improved from the $244,000 and $544,000 operating loss, respectively, for the same periods in 2007. These losses reflect the start up mode of our timber fund business activities.

Real Estate segment operating losses for the third quarter of 2008 were $61,000 as compared to a gain of $540,000 for the third quarter of 2007. Year-to-date Real Estate segment operating losses first nine months of the year were $767,000 for 2008 as compared to $483,000 in 2007. Losses in the third quarter of 2008 and for both the nine-month periods reflect continued entitlement efforts for on-going development projects and the absence of significant property sales during these periods.

General & Administrative expenses of $1.0 million for the third quarter of 2008 and $2.9 million for the first nine months of 2008 were $65,000 higher and $772,000 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 September 30, 2008 Pope Resources held AAA-rated Student Loan Auction Rate Securities ("SLARS") with a par value of $14.6 million. This amount is $1.1 million less than our SLARS position at June 30, 2008, with the reduction due to redemptions by issuers at par value during the third quarter of 2008. SLARS are collateralized long-term debt instruments that in prior years have provided liquidity through a Dutch auction process. However, in February 2008 these auctions failed, resulting in a loss of liquidity for holders of these securities.

One of the broker-dealers through whom we invested in a $10.6 million subset of our SLARS portfolio has reached a settlement with federal and state regulators to cash out at par certain retail and small business investors. As a result, in October 2008 we successfully converted this previously illiquid position to $10.6 million of cash. Notwithstanding this, as of the September 30, 2008 balance sheet date the applicable accounting rules required us to report this $10.6 million of par value as a current asset with a fair value of $9.3 million which reflects a $1.3 million temporary impairment allowance against par value. This temporary impairment allowance will be reversed with no income statement impact in the fourth quarter given the repurchase of this portion of our portfolio.

As for the remaining $4.0 million of SLARS held through a different broker-dealer, management has recorded a $293,000 other-than-temporary impairment in value to our income statement for the quarter ended September 30, 2008, reflecting the lack of marketability and current absence of a broker-dealer repurchase agreement for the remainder 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. 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; labor, equipment and transportation costs that affect our net income; 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  Nine months ended
                                  September 30,       September 30,
                                   2008     2007     2008      2007

Revenues                         $ 7,436  $12,171  $ 25,028  $ 34,284
Costs and expenses:
  Cost of sales                   (4,167)  (5,171)  (13,135)  (14,302)
  Operating expenses              (3,558)  (3,772)   (9,862)  (11,114)
                                --------- -------- --------- ---------
Operating income (loss)             (289)   3,228     2,031     8,868
  Interest, net                      (55)     110       (63)      137
  SLARS impairment                  (293)       -      (293)        -
                                --------- -------- --------- ---------
Income (loss) before income
 taxes and minority interest        (637)   3,338     1,675     9,005
Income tax benefit (expense)          51       (5)       (6)      (22)
                                --------- -------- --------- ---------
Income (loss) before minority
 interest                           (586)   3,333     1,669     8,983
Minority interest                    563      218       932       237
                                --------- -------- --------- ---------
Net income (loss)                $   (23) $ 3,551  $  2,601  $  9,220
                                ========= ======== ========= =========

Average units outstanding -
 Basic                             4,585    4,687     4,596     4,679
                                ========= ======== ========= =========
Average units outstanding -
 Diluted                           4,585    4,831     4,720     4,823
                                ========= ======== ========= =========

Basic net income per unit        $ (0.01) $  0.76  $   0.57  $   1.97
                                ========= ======== ========= =========
Diluted net income per unit      $ (0.01) $  0.74  $   0.55  $   1.91
                                ========= ======== ========= =========
                CONDENSED CONSOLIDATED BALANCE SHEETS
                       (all amounts in $000's)

                                                   30-Sep-08 31-Dec-07
                                                   --------- ---------
Assets:
  Cash and cash equivalents                        $ 12,268   $  2,174
  Auction rate securities, current                    9,298     30,775
  Other current assets                                2,727      2,095
  Roads and timber                                   92,040     94,635
  Properties and equipment                           46,426     47,054
  Auction rate securities, long-term                  3,707          -
  Other assets                                        1,210      2,592
                                                   --------- ---------
    Total                                          $167,676   $179,325
                                                   ========= =========
Liabilities and partners' capital:
  Current liabilities                              $  4,169   $  5,451
  Long-term debt, excluding current portion          28,042     29,385
  Other long-term liabilities                         1,521      2,042
                                                   --------- ---------
  Total liabilities                                  33,732     36,878
  Minority interest                                  44,435     45,803
  Partners' capital                                  90,811     96,644
  Accumulated other comprehensive loss               (1,302)         -
                                                   --------- ---------
    Total                                          $167,676   $179,325
                                                   ========= =========
   RECONCILIATION BETWEEN NET INCOME AND CASH FLOWS FROM OPERATIONS
                       (all amounts in $000's)

                               Three months ended  Nine months ended
                                  September 30,       September 30,
                                 2008      2007      2008      2007

Net income                     $    (23) $  3,551  $  2,601  $  9,220
Added back:
  Depletion                       1,673     1,430     3,411     4,179
  SLARS impairment                  293         -       293         -
  Timber depletion on HBU sale        -         -       126         -
  Depreciation and
   amortization                     194       205       579       604
  Other non-cash additions         (472)   (1,164)     (498)     (791)
  Cost of land sold                  43       486     2,560       532
  Change in working capital
   balances                         595       579    (1,130)   (1,750)
                               --------- --------- --------- ---------
  Cash flows provided by (used
   in) operations              $  2,303  $  5,087  $  7,942  $ 11,994
                               ========= ========= ========= =========


                                         SEGMENT INFORMATION
                                       (all amounts in $000's)

                               Three months ended  Nine months ended
                                  September 30,       September 30,
                                 2008      2007      2008      2007
Revenues:
  Pope Resources               $  4,297  $  8,657  $ 17,090  $ 27,916
  ORM Timber Funds                1,944     1,179     4,799     2,726
                               --------- --------- --------- ---------
    Total Fee Timber              6,241     9,836    21,889    30,642
  Timberland Management &
   Consulting (TM&C)                255       366       733     1,074
  Real Estate                       940     1,969     2,406     2,568
                               --------- --------- --------- ---------
    Total                         7,436    12,171    25,028    34,284
Operating income/(loss):
  Pope Resources                  1,342     3,930     6,627    13,204
  ORM Timber Funds                 (413)      (41)     (469)      379
                               --------- --------- --------- ---------
    Total Fee Timber                929     3,889     6,158    13,583
  TM&C                             (135)     (244)     (444)     (544)
  Real Estate                       (61)      540      (767)     (483)
  General & administrative       (1,022)     (957)   (2,916)   (3,688)
                               --------- --------- --------- ---------
    Total                      $   (289) $  3,228  $  2,031  $  8,868
                               ========= ========= ========= =========


                                         SELECTED STATISTICS

                               Three months ended   Nine months ended
                               30-Sep-08 30-Sep-07 30-Sep-08 30-Sep-07
Log sale volumes (thousand
 board feet):
 Sawlogs
  Douglas-fir                     7,279     7,602    23,405    30,708
  Whitewood                       1,293     2,272     3,035     5,985
  Cedar                             281       931       741     1,556
  Hardwood                          274     1,297       926     2,304
Pulp
  All species                     2,578     3,127     7,568     7,312
                               --------- --------- --------- ---------
Total                            11,705    15,229    35,675    47,865
                               ========= ========= ========= =========

Average price realizations
 (per thousand board feet):
Sawlogs
  Douglas-fir                       520       622       538       628
  Whitewood                         387       446       413       467
  Cedar                           1,277     1,347     1,246     1,335
  Hardwood                          593       960       641       938
Pulp
  All species                       357       353       361       397
Overall                             489       611       507       611

Owned timber acres              114,000   116,000   114,000   116,000
Acres under management          291,000   317,000   291,000   317,000
Capital expenditures ($000's)  $  1,143  $  3,003  $  3,429  $  7,413
Depletion ($000's)                1,673     1,430     3,537     4,179
Depreciation ($000's)               194       205       579       604
Debt to total capitalization         24%       25%       24%       25%
                                               QUARTER TO QUARTER
                                                    COMPARISONS
                                            (Amounts in $000's except
                                                  per unit data)

                                            Q3 2008 vs.    Q3 2008 vs.
                                               Q3 2007      Q2 2008

                                               Total          Total
                                            ------------   -----------

Net income (loss):
  3rd Quarter 2008                          $       (23)   $      (23)
  2nd Quarter 2008                                              1,683
  3rd Quarter 2007                                3,551
                                            ------------   -----------
    Variance                                $    (3,574)   $   (1,706)

Detail of earnings variance:
Fee Timber
  Log price realizations (A)                $    (1,427)   $     (148)
  Log volumes (B)                                (2,152)       (1,383)
  Depletion                                        (243)         (590)
  Production costs                                  780           428
  Other Fee Timber                                   50          (358)
Timberland Management & Consulting
  Management fee changes                           (159)           (1)
  Other Timberland Mgmnt & Consulting               300             9
Real Estate
  Land sales                                       (619)           58
  Depletion                                         (20)           (9)
  Other Real Estate                                  38            96
General & administrative costs                      (65)           (6)
Interest expense                                     51             3
Other (taxes, minority int., interest inc.)        (108)          195
                                            ------------   -----------
Total change in earnings                    $    (3,574)   $   (1,706)
                                            ============   ===========

(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.

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

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