May 27, 2008
VIA FACSIMILE AND EDGAR SUBMISSION
- ----------------------------------
(202) 772-9202
Division of Corporation Finance
Securities and Exchange Commission
Attn: Linda Cvrkel
Branch Chief Mail Stop 3561
100 F Street, N.E.
Washington, D.C. 20549-7010
Re: Pope Resources, A Delaware Limited Partnership
Dear Ms. Cvrkel:
We are in receipt of your letter dated April 17, 2008 to Mr. Thomas M. Ringo
regarding the Form 10-K for the year ended December 31, 2007 of Pope Resources,
A Delaware Limited Partnership (the "Partnership").
The Partnership acknowledges that:
o the Partnership is responsible for the adequacy and accuracy of
disclosure in the filing;
o staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filing; and
o the Partnership may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
As discussed below in greater detail, the Partnership respectfully requests that
the Staff accept the explanations and proposed changes to future filings
described in this letter in lieu of the filing of an amendment to its annual
report on Form 10-K for the fiscal year ended December 31, 2007.
Set forth below are your comments (numbered to correspond to your comment
letter) followed by our response on behalf of the Partnership.
Division of Corporation Finance
Securities and Exchange Commission
May 27, 2008
Page 2
Comment 1: We note your presentation of the non-GAAP measure free cash flow. In
light of your disclosure in footnote (3) that you use this measure as a
meaningful indicator of liquidity, we believe that you should also reconcile the
free cash flow measure to cash flows from operations as presented on the
statement of cash flows, rather than net income, as this is the most comparable
GAAP measure. Please revise future filings accordingly. Also, please present
free cash flow and the reconciliation below the balance sheet data in your table
of selected financial data, as non-GAAP information should be presented less
prominently than any GAAP disclosures.
Management will reconcile free cash flow to cash flow provided by
operations and place the free cash flow measure and reconciliation below
the balance sheet data in future filings.
Comment 2: Please revise future filings to include disclosure of cash
distributions per unit for each year presented. See Item 301 of Regulation SK.
Distributions per unit will be added to the table of selected financial
data in future filings.
Comment 3: We note your disclosure that the Fund is consolidated into the Fee
Timber reporting segment. Please revise your discussion of the results of
operations in future filings to separately discuss the revenue and operating
income generated from the Fund.
The table below was added to page 14 of the Partnership's March 31, 2008
Form 10-Q to discretely identify Fund performance results and will be
included in future filings:
Mineral, Cell Total Fee
Log Sale Tower & Other Timber Operating Harvest
Revenue Revenue Revenue Income/(loss) Volume
Quarter ended (million) (million) (million) (million) (MMBF)
-----------------------------------------------------------------------------------------------------------------------
Pope Resources Timber $ 5.0 $ 0.5 $ 5.5 $ 2.4 9.3
Timber Fund 0.1 - 0.1 -0.1 0.2
---------- --------------- ---------- --------------- ----------
Total Fee Timber March 31, 2008 5.1 0.5 5.6 2.3 9.5
Pope Resources Timber $ 4.1 $ 0.6 $ 4.7 $ 1.6 6.8
Timber Fund 0.2 - 0.2 - 0.5
---------- --------------- ---------- --------------- ----------
Total Fee Timber December 31, 2007 $ 4.3 $ 0.6 $ 4.9 $ 1.6 7.3
Pope Resources Timber $ 5.8 $ 0.4 $ 6.2 $ 2.4 10.0
Timber Fund - - - - -
---------- --------------- ---------- --------------- ----------
Total Fee Timber March 31, 2007 $ 5.8 $ 0.4 $ 6.2 $ 2.4 10.0
-----------------------------------------------------------------------------------------------------------------------
We have also provided the following paragraph at the end of page 14 in our
March 31, 2008 10-Q to separately discuss the revenue and operating income
generated from the Fund operations and will include similar explanations in
future filings:
Division of Corporation Finance
Securities and Exchange Commission
May 27, 2008
Page 3
The Fund is consolidated into our financial statements and, as a result,
the Fund's harvest and operating results are included in the Fee Timber
discussion herein. The 80% of the Fund owned by third parties is reflected
in our Statement of Earnings under the caption "Minority Interest-ORM
Timber Fund I, LP". The Fund harvested 205 MBF with an average price
realized of $523/MBF during the quarter ended March 31, 2008 compared to a
harvest of 30 MBF with average price realized of $585/MBF during the first
quarter of 2007. We plan to harvest an additional 27 MMBF during the
remainder of 2008, of which 5 MMBF will come from the Fund's timberlands.
The Fund's operating loss in the first quarter of 2008 was $71,000 compared
to losses of $14,000 in the first quarter and $1,000 in the fourth quarter
of 2007.
Comment 4: Please tell us and explain in MD&A in future filings why the
depletion rate for the Timber Fund is significantly higher than the depletion
rate for the Company's other timber assets during all periods presented in the
Company's financial statements.
The following explanation was provided on page 19 of our March 31, 2008
10-Q and a similar explanation will be included in future filings:
The separate depletion pool for 2008 and 2007 harvest volume
represents harvest from timberlands owned by the Fund. These separate
depletion pools carry a higher depletion rate than our combined pool.
The combined depletion pool consists primarily of historical timber
cost that has been owned by the Partnership for many decades and the
Columbia property that was acquired in 2001. The separate depletion
pool for the Fund consists of timber acquired at a higher overall cost
in the fourth quarter of 2006 and therefore carries a higher depletion
rate.
Comment 5: Please consider revising future filings to include a discussion on
the estimates and assumptions used in the impairment analysis performed on
long-lived assets such as land, roads, and timber as a critical accounting
estimate. Your discussion should address the following areas:
o Types of assumptions underlying the most significant and subjective
estimates;
o Sensitivity of those estimates to deviations of actual results from
management's assumptions; and
o Circumstances that have resulted in revised assumptions in the past.
Refer to SEC Interpretive Release No. 33-8350 (i.e. FR-72).
The following discussion was included on pages 30 and 31 of our March 31,
2008 10-Q under critical accounting policies and a similar discussion will
be included in future filings. There have not been circumstances that have
resulted in revised assumptions in the past:
Impairment of Long Lived Assets: The Partnership evaluates its long lived
assets for impairment in accordance with Statement of Financial Accounting
Standards No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144). SFAS No. 144 requires recognition of an impairment
loss in connection with long-lived assets used in a business when the
Division of Corporation Finance
Securities and Exchange Commission
May 27, 2008
Page 4
carrying value exceeds the estimated future undiscounted cash flows
attributable to those assets over the expected useful life. The Partnership
obtains annual appraisals of its timberlands and evaluates the appraised
value of those properties to the carrying value to determine if an asset
impairment is indicated. The long-term holding period of timberland
properties makes an asset impairment unlikely as the undiscounted expected
cash flows from a timberland property would need to decrease very
significantly to not total in excess of the carrying value of a timber
property. The Partnership evaluates its development properties for
impairment by comparing actual income generated by the project against
expectations. When actual results compare unfavorably to plan the property
is evaluated to determine if the carrying value is less than the projected
undiscounted cash flows attributable to the property. The land basis
associated with most of our development properties is well below current
market value; therefore, an asset impairment charge on one of our
development projects is not likely.
Comment 6: We note that a significant portion of your current assets as of
December 31, 2007 and 2006 consist of short-term investments. Please tell us,
and revise your notes to the financial statements in future filings to disclose,
the nature and terms of these investments. Also, based on the category of the
securities (i.e., available for sale, trading, or held to maturity), please
include the disclosures required by paragraph 19 of SFAS No. 115. Additionally,
in light of the disclosures in Note 13 about the failure of the SLARS auctions,
please tell us why you believe any SLARS held as of December 31, 2007 are not
considered impaired.
We added the following footnotes 5 and 6 to our March 31, 2008 10-Q as an
enhancement of disclosure for the nature and term of the investments:
5. The fair value of cash and cash equivalents and investments held
at March 31, 2008 and December 31, 2007 are as follows:
March 31, 2008
---------------------------------------------
Gross
Amortized Unrealized Estimated
Cost Loss Fair Value
------------ -------------- ---------------
Cash and cash equivalents $ 8,906 $ - $ 8,906
Securities expected to be refinanced within one year:
Auction rate securities, current 1,000 - 1,000
Securities maturing after ten years:
Auction rate securities, non-current 15,850 (1,154) 14,696
December 31, 2007
---------------------------------------------
Gross
Amortized Unrealized Estimated
Cost Loss Fair Value
------------ -------------- ---------------
Cash and cash equivalents $ 2,174 $ - $ 2,174
Auction rate securities, current 30,775 - 30,775
Division of Corporation Finance
Securities and Exchange Commission
May 27, 2008
Page 5
There were no realized gains or losses for the three months ended March 31,
2008.
At March 31, 2008, Pope Resources held AAA-rated Student Loan Auction Rate
Securities ("SLARS") with a par value of $16.9 million but an estimated
fair value, based on the methodology described below, of $15.7 million.
SLARS are collateralized long-term debt instruments that provide liquidity
through a Dutch auction process that resets the applicable interest rate at
pre-determined intervals, typically every 35 days. Beginning in February
2008, auctions failed for approximately $17 million in par value of SLARS
we held because sell orders exceeded buy orders. When these auctions failed
to clear, higher interest rates for those securities went into effect.
However, the principal amount of these securities associated with these
failed auctions will not be accessible until the issuer calls the security,
a successful auction occurs, a buyer is found outside of the auction
process, or the security matures.
The underlying assets of the SLARS we hold, including the securities for
which auctions have failed, are student loans which are guaranteed by the
U.S. Department of Education for 97% of the loan and interest due. With the
exception of a single $1 million instrument that is scheduled for
refinancing in the next two months, we are reporting these investments as
non-current assets. We have performed an estimate of fair value for these
securities and determined that the estimated fair value is $1.2 million
below par and as a result we have recorded an asset impairment. The asset
impairment was estimated using a discounted cash flow model incorporating
assumptions that management believes market participants would use in their
estimates of fair value, including comparison of the yield on the SLARS we
own to corporate instruments with similar maturities and variable interest
rates. If the current market conditions deteriorate further or a recovery
in market values does not occur, we may be required to record additional
unrealized or realized losses in future quarters. Management believes that
the working capital and borrowing capacity available to the Partnership
excluding the funds invested in SLARS will be sufficient to meet cash
requirements for at least the next 12 months.
6. FASB Statement No. 157 Fair Value Measurement (SFAS No. 157) was followed
to determine the fair value of the Partnership's investments. SFAS No. 157
defines a hierarchy of three levels of evidence used to determine fair
value:
o Level 1 - quoted prices for identical assets/liabilities in active markets
o Level 2 - quoted prices in a less active market, quoted prices for similar
but not identical assets/liabilities, inputs other than quoted prices
o Level 3 - significant unobservable inputs including the Partnership's own
assumptions in determining the fair value of investments
Those SLARS where we have not received notice from the issuer of plans to
refinance the security are accounted for as long-term investments. Under
current credit market conditions there is no market for SLARS, thus
eliminating any available Level 1 inputs for use in determining a market
value. SLARS are unique and there are no actively traded markets that one
can observe to determine a value for the SLARS. Accordingly, the SLARS were
changed from Level 1 to Level 3 within SFAS 157's valuation levels since
the Partnership's adoption of SFAS No. 157 on January 1, 2008. The
following table provides the fair value measurements of applicable
Partnership financial assets according to the levels defined in SFAS No.
157 as of March 31, 2008 and December 31, 2007:
Division of Corporation Finance
Securities and Exchange Commission
May 27, 2008
Page 6
March 31, 2008
-------------------------------------------------------------
Level 1 Level 2 Level 3 Total
------------- ------------ ------------ ----------------
Cash and cash equivalents $ 8,906 $ - $ - $ 8,906
Auction rate securities, current 1,000 - - 1,000
Auction rate securities, non-current - - 14,696 14,696
------------- ------------ ------------ ----------------
Total financial assets at fair value $ 9,906 $ - $ 14,696 $ 24,602
------------- ------------ ------------ ----------------
December 31, 2007
-------------------------------------------------------------
Level 1 Level 2 Level 3 Total
------------- ------------ ------------ ----------------
Cash and cash equivalents $ 2,174 $ - $ - $ 2,174
Auction rate securities, current 30,775 - - 30,775
------------- ------------ ------------ ----------------
Total financial assets at fair value $ 32,949 $ - $ - $ 32,949
------------- ------------ ------------ ----------------
We identified market interest rates for similar securities and
performed a discounted cash flow calculation using these alternative
interest rates. This method represents a Level 3 input, and represents
the best evidence we have to indicate value under current market
conditions. The table below summarizes the change in consolidated
balance sheet carrying value associated with Level 3 financial assets
for the three months ended March 31, 2008:
Non-current
Investments
-----------
Balance at December 31, 2007 $ -
Transfers into Level 3 15,850
Total unrealized losses included in other comprehensive loss (1,154)
-----------
Balance at March 31, 2008 $ 14,696
-----------
Management believes the impairment to the SLARS portfolio is temporary
and plans to hold these securities until they can be sold or otherwise
redeemed for their par value or materially close to par value. The
Partnership has had portions of its SLARS portfolio redeemed at par
since the auction failures began and is currently holding one security
that has an announced redemption at par in late May 2008. As a result,
the impairment noted above has been recorded as other comprehensive
loss. As a result, other comprehensive loss for the quarter ended
March 31, 2008 is $213,000 and includes the unrealized loss of $1.2
million on SLARS.
Successful auctions were completed for all of the securities in our SLARS
portfolio in January 2008. We believe these successful auctions completed
after December 31, 2007 are a clear indication that the portfolio was not
impaired as of December 31, 2007.
Comment 7. We note your presentation of net income on the face of the statement
of operations. Please revise future filings to clearly segregate the income
allocated to the general partner and the limited partners. Also, please revise
the equity section of a balance sheet to distinguish between amounts ascribed to
each ownership class. The equity ascribed to the general partners should be
stated separately from the equity of the limited partners, and changes in the
number of equity units authorized and outstanding should be shown for each
ownership class. See Staff Accounting Bulletin Topic 4:F.
Division of Corporation Finance
Securities and Exchange Commission
May 27, 2008
Page 7
Please see page 5 of our March 31, 2008 10-Q where we have segregated net
income attributed to the general partner and limited partners. We will
include the additional information requested in future filings.
Comment 8. We note from your statements of partners' capital and comprehensive
income that you allocate net income and comprehensive income and distributions
between the general partners and the limited partners. Please tell us, and
revise the notes to the financial statements to disclose how you allocate these
amounts between the general partner and limited partners.
Please see page 11 in our March 31, 2008 10-Q where we have added the
following footnote to our financial statements:
7. The Partnership's general partners hold 60,000 units. The
allocation of distributions and income between the general and
limited partners is pro rata among all units outstanding.
Comment 9. Please revise your notes to the financial statements in future
filings to include disclosure of the impact that recently issued accounting
standards will have on your financial position and results of operations when
such standards are adopted in a future period. See Staff Accounting Bulletin
Topic 11:M
Our future filings will include a discussion of the impact that recently
issued accounting standards will have on our financial position and results
of operations when such standards are adopted in a future period.
Comment 10. We note your disclosure that ORMLLC is the general partner of the
Fund and together Pope Resources and ORMLLC own 20% of the Fund which is
consolidated into your financial statements. Please tell us how you have
analyzed whether ORMLLC controls the limited partnership based on the framework
in EITF 04-05.
We have added the following discussion to pages 27 and 28 under Critical
Accounting Policies and Estimates to our March 31, 2008 10-Q:
Consolidation of ORM Timber Fund I, LP (the Fund): The Fund is owned
19% by Pope Resources, A Delaware Limited Partnership, 1% by Olympic
Resource Management LLC (a wholly owned subsidiary of the Partnership), and
80% by third-party investors. Olympic Resource Management LLC is the
general partner of the Fund. Limited partners do not have the right to
dissolve the Fund or otherwise remove the general partner without cause nor
do they have substantive participating rights in major decisions of the
Fund. Based on this governance structure, Olympic Resource Management LLC
has presumptive control of the Fund and, as a result, under accounting
rules the Fund must be consolidated into the Partnership's financial
statements.
Division of Corporation Finance
Securities and Exchange Commission
May 27, 2008
Page 8
Comment 11. We note your disclosure that you have revised your methodology for
assessing the environmental liability, shifting to a "Monte Carlo Simulation"
analysis. In future filings, please discuss this change in terms of a change in
estimate and include the disclosures required by paragraph 22 of SFAS No. 154.
We revised our methodology for assessing the environmental liability by
shifting to a "Monte Carle Simulation" analysis in 2006. This change was
not material to the financial statements but was separately disclosed on
our income statement and in the footnotes to our December 31, 2006
financial statements. The change to our environmental remediation liability
in 2007, which was material to the financial statements, resulted from the
Pope & Talbot bankruptcy and was disclosed on page 65 of our December 31,
2007 10-K in footnote 9 to our financial statements.
We have also considered the disclosures required by paragraph 22 of SFAS
No. 154, and believe that our disclosures appropriately indicate the effect
on income from continuing operations and net income. No per-share amounts
have been disclosed as we do not consider this a change in estimate that
affects several future periods, such as a change in service lives of
depreciable assets. In future filings, to the extent there are material
changes to our estimates, we will include the disclosures required by
paragraph 22 of SFAS No. 154.
Comment 12. If the range of loss to which you are exposed in connection with the
Port Gamble, Washington site where environmental contamination is present
exceeds the amount accrued at December 31, 2007 of approximately $2.0 million,
please revise Note 9, and MD&A to disclose the range of potential loss to which
you are exposed. Refer to the disclosure requirements outlines in paragraph 10
of SFAS No. 5.
We have added the following discussion to page 30 under Critical Accounting
Policies and Estimates to our March 31, 2008 10-Q:
The Monte Carlo simulation model results indicated a range of potential
losses of $276,000 to $6.3 million which represents the range of two
standard deviations from the mean of the estimated liability as of December
31, 2007.
Comment 13. We note that you have included reconciliations of the non-GAAP
measure "EBITDA" to both net income and cash flow from operations in your
reports on Form 8-K. As your related disclosures indicate that this non-GAAP
measure is used primarily by the Company's management as a measure of operating
profitability, please revise future filings to include only a reconciliation of
this measure to the most comparable GAAP measure, net income, in any future
filings.
Please note that the Partnership no longer discloses EBITDDA and does not
plan to disclose EBITDDA in future filings. We are now using Cash Flow from
Operations in its place.
Division of Corporation Finance
Securities and Exchange Commission
May 27, 2008
Page 9
***
Thank you for providing the Company with the opportunity to respond to your
comments. Please do not hesitate to contact me at (360) 394-0520 if you have any
questions or concerns, or if you would like to discuss the substance of this
letter or the documents referred to herein. In addition to the matters
identified in your letter we noted that the Consent of Independent Public
Accounting Firm (Exhibit 23.1) was inadvertently omitted from our filed Form
10-K for the year ended December 31, 2007. Accordingly, in connection with
transmittal of this letter we are filing an exhibits only amendment to file the
required consent.
Very truly yours,
/s/Thomas M. Ringo
Thomas M. Ringo
Vice President and Chief Financial Officer
