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Pope Resources Reports Third Quarter Income Of $3.7 Million

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POULSBO, Wash., Oct. 30, 2012 /PRNewswire/ -- Pope Resources (NASDAQ: POPE) reported net income attributable to unitholders of $3.7 million, or $0.81 per diluted ownership unit, on revenue of $14.6 million for the quarter ended September 30, 2012. This compares to a net loss attributable to unitholders of $562,000, or $0.14 per diluted ownership unit, on revenue of $7.5 million for the comparable period in 2011.

Net loss for the nine months ended September 30, 2012 totaled $4.4 million, or a $1.03 loss per diluted ownership unit, on revenue of $41.2 million. Net income for the corresponding period in 2011 totaled $6.4 million, or $1.42 per diluted ownership unit, on revenue of $39.5 million. Year-to-date results for 2012 were impacted by a $12.5 million charge for environmental remediation liabilities at Port Gamble, Washington. Adjusted net income, which excludes the environmental charge of $12.5 million, was $8.1 million, or $1.78 per diluted ownership unit, for the nine months ended September 30, 2012.

Cash provided by operations for the quarter ended September 30, 2012 was $3.3 million, compared to $603,000 for the third quarter of 2011. For the nine months ended September 30, 2012, cash provided by operations was $11.9 million, compared to $14.3 million for year-to-date 2011 results. 

"In spite of the modest recovery in home building, we are encouraged by the progress we are making across all our segments for growing our business over the next few years," said David L. Nunes, President and CEO.  "As we anticipated going into the year, log prices have been weaker in 2012 relative to 2011, when surging exports to China resulted in price spikes across a number of log sorts.  While prices have drifted lower in 2012, gradual improvements in domestic demand have resulted in a reasonably healthy log market.  We closed on two meaningful real estate sales in the third quarter and are seeing increasing interest on the part of homebuilders in our Gig Harbor project, which we expect to bear fruit beginning next year.  The final closing of our third private equity timber fund during the third quarter, at a higher than expected total fund size of $180 million, provides us with an excellent platform with which to more than double our third-party assets under management.  As discussed at length in our second quarter earnings release, however, the dominant financial story for us in 2012 remains the $12.5 million addition to our accrual for environmental remediation liabilities at Port Gamble, Washington.  We continue to work closely with the State of Washington's Department of Ecology to finalize the scope and extent of the clean-up at the Port Gamble site." 

Fee Timber operating income for the third quarter of 2012 was $1.7 million compared to $910,000 for the third quarter of 2011. This increase in segment operating income was due to a 45% lift in harvest volume, which increased from 12 million board feet (MMBF) in the third quarter of 2011 to 17 MMBF in the comparable 2012 period, partially offset by a 5% decline in average realized log price from $555 per thousand board feet (MBF) for the third quarter of 2011 to $525 per MBF for the current quarter. The proportion of third quarter harvest from timber fund properties was 41% in both 2011 and 2012.     

For the first nine months of 2012, Fee Timber operating income declined 10% from $11.4 million in 2011 to $10.2 million in 2012. Nearly $765,000 of this segment's 2012 operating income is attributable to a 4.4 MMBF timber deed sale on one of the Partnership's tree farms in the second quarter of 2012. Both harvest volume and log price realization metrics cited below exclude this timber deed sale unless specifically stated otherwise. Excluding the $765,000 impact of the timber deed sale mentioned above that had no counterpart in the first nine months of 2011, this decrease in segment operating income was driven by the combined effect of a $31 per MBF, or 5%, drop in average realized log price, which fell from $568 per MBF in 2011 to $537 per MBF in 2012, offset slightly by a 1% lift in harvest volume, which increased from 61 MMBF in 2011 to 62 MMBF in 2012. The 2012 year-to-date results were positively impacted due to the fact that the percentage of harvest from timber fund properties, which carry a higher depletion rate, decreased from 40% in 2011 to 34% in 2012.

As mentioned above, our average realized log price for the first nine months of 2012 decreased $31 per MBF, or 5%, from $568 per MBF in 2011 to $537 per MBF in 2012. Within this total, Douglas-fir log prices decreased $35 per MBF, or 6%, from $612 per MBF in 2011 to $577 per MBF in 2012, while whitewoods decreased $55 per MBF, or 10%, from $549 per MBF in 2011 to $494 per MBF in 2012. Across all species, export log prices dropped $37 per MBF, or 6%, from $625 per MBF in 2011 to $588 per MBF in 2012. In addition, while there was a healthy spread of 11%, or $64 per MBF, between export and domestic log market pricing in the first nine months of 2011, that spread has narrowed to 6%, or $31 per MBF, in 2012's year-to-date period.

Our Timberland Management & Consulting (TM&C) segment generates revenue through the management of three private equity timber funds, which are consolidated into the Partnership's financial statements due to the Partnership's role as general partner or managing member of the funds. Consolidating these funds into the Partnership's financial statements results in the elimination of all management fees earned by the Partnership, with a corresponding decrease in the funds' operating expenses related to the management fee as recorded in the Fee Timber segment. The first two funds collectively have $171 million in assets under management following acquisition of 61,000 acres of commercial timberlands between 2006 and 2010.  Capital-raising for our third fund exceeded expectations, resulting in a final close in early August 2012 that brought the fund size to its revised maximum commitment level of $180 million. Our portion of this capital commitment is $9 million, of which $90,000 has been invested and the remainder will be drawn as properties are acquired over the fund's three-year drawdown period.

After eliminating $1.6 million of timber fund management fees for both nine-month periods ended September 30, 2012 and September 30, 2011, respectively, TM&C had no reportable revenue for either period. Operating losses generated by the TM&C segment for the nine months ended September 30, 2012 and 2011 totaled $1.2 million and $1.1 million, respectively, after eliminating revenue earned from managing the Funds.   

Our Real Estate segment posted operating income of $3.0 million for the quarter ended September 30, 2012, compared to an operating loss of $393,000 for the comparable period in 2011.  Results for the current quarter included the $2.9 million sale of two acres underlying our Poulsbo headquarters building, a 1,900-acre conservation easement sale for $1.2 million, and two smaller land sales, while results for the corresponding quarter in 2011 included 1 small land sale.

On a year-to-date basis in 2012, the Real Estate segment generated an operating loss of $10.7 million, which included a $12.5 million second quarter accrual for environmental remediation liabilities, compared to operating income of $414,000 for the comparable period in 2011 that also included a much smaller environmental remediation accrual of $346,000. Year-to-date results for this segment in 2012 included the aforementioned third quarter sales, while the 2011 results reflected a 386-acre conservation land sale that generated $2.0 million of revenue, and $1.7 million in operating income plus five smaller land sales.

General & Administrative expenses of $3.0 million for the first nine months of 2012 were 6% lower than the $3.2 million reported for the same nine-month period in 2011. This decrease was attributable to no single dominant factor, but rather a number of expense categories fluctuated up-and-or-down between year-to-date comparisons with the aggregate total slightly lower.

We anticipate that our harvest volume for 2012 will be between 80 and 82 MMBF, with the final total depending on weather conditions and the strength or weakness of log markets as we transition to winter. As winter sets in, the accumulation of snow in higher elevations tends to decrease log supply as these lands become difficult to access for harvest operations.  This harvest volume total for the year includes the aforementioned second quarter 4.4 MMBF timber deed sale. 

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 177,000 acres of timberland and development property in Washington and Oregon. We also manage, co-invest in, and consolidate three timberland investment funds that we manage for a fee. These timberland investment vehicles provide an efficient means of investing our own capital in Pacific Northwest timberland while earning fees from managing these vehicles for the third-party investors. 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 our ability accurately to estimate the cost of ongoing and changing environmental remediation obligations, conditions in the housing construction and wood-products markets, both domestically and globally, 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; our ability to consummate proposed or contracted transactions in a manner that will yield revenues; 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 INCOME

(all amounts in $000's, except per unit amounts)
















Three months ended September 30,


Nine months ended September 30,





2012


2011


2012


2011












Revenues



$14,595


$7,522


$41,189


$39,465

Costs and expenses:











Cost of sales



(6,725)


(4,449)


(21,221)


(20,366)


Operating expenses



(4,458)


(3,837)


(12,136)


(11,297)


Real estate environmental remediation



-


(2)


(12,500)


(346)

Operating income (loss)



$3,412


($766)


($4,668)


$7,456


Interest income



6


10


19


32


Interest expense



(513)


(559)


(1,563)


(1,674)


Capitalized interest



155


108


424


314

Income (loss) before income taxes 



3,060


(1,207)


(5,788)


6,128

Income tax expense



(201)


(19)


(335)


(158)

Net income (loss)



2,859


(1,226)


(6,123)


5,970


Net loss (income) attributable to noncontrolling interests



816


664


1,709


435

Net income (loss) attributable to Pope Resources' unitholders



$3,675


($562)


($4,414)


$6,405












Average units outstanding - Basic



4,354


4,329


4,350


4,321

Average units outstanding - Diluted



4,354


4,329


4,350


4,323












Basic net income (loss) per unit



$0.81


($0.14)


($1.03)


$1.42

Diluted net income (loss) per unit



$0.81


($0.14)


($1.03)


$1.42

 

CONDENSED CONSOLIDATING BALANCE SHEETS

(all amounts in $000's)


















September 30, 2012


December 31, 2011














Assets:



Pope


ORM
Timber Funds


Consolidating Entries


 Consolidated 




Cash and cash equivalents



$1,363


$2,565


$-


$3,928


$2,653


Other current assets



3,950


649


(667)


3,932


4,064


  Total current assets



5,313


3,214


(667)


7,860


6,717


Timber and roads, net



34,361


113,552


-


147,913


154,236


Timberlands



15,101


18,747


-


33,848


34,130


Buildings and equipment, net



6,123


-


-


6,123


6,019


Land held for development



28,685


-


-


28,685


28,413


Investment in ORM Timber Funds



26,027


-


(26,027)


-


-


Other assets



494


115


-


609


893


    Total



$116,104


$135,628


($26,694)


$225,038


$230,408

Liabilities and equity:













Current liabilities



4,498


$1,602


($667)


$5,433


5,024


Current portion of long-term debt



-


33


-


33


32


Current portion of environmental remediation



578


-


-


578


240


  Total current liabilities



5,076


1,635


(667)


6,044


5,296


Long-term debt



29,800


11,011


-


40,811


45,793


Environmental remediation



13,624


-


-


13,624


1,964


Other long-term liabilities



172


-


-


172


197


  Total liabilities



48,672


12,646


(667)


60,651


53,250


Partners' capital



67,432


122,982


(124,243)


66,171


75,759


Noncontrolling interests



-


-


98,216


98,216


101,399


    Total



$116,104


$135,628


($26,694)


$225,038


$230,408

 

RECONCILIATION BETWEEN NET INCOME (LOSS) ATTRIBUTABLE TO UNITHOLDERS AND 

ADJUSTED NET INCOME (LOSS) ATTRIBUTABLE TO UNITHOLDERS 

(all amounts in $000's)
















Three months ended September 30,


Nine months ended September 30,





2012


2011


2012


2011












Reported GAAP net income (loss) attributable to unitholders



$3,675


($562)


($4,414)


$6,405

Added back:











Environmental remediation



-


2


12,500


346


Adjusted Net income attributable to unitholders*



$3,675


($560)


$8,086


$6,751

 

RECONCILIATION BASIC AND DILUTED NET INCOME (LOSS) PER UNIT AND 

ADJUSTED BASIC AND DILUTED NET INCOME (LOSS) 

(all amounts in $000's)
















Three months ended September 30,


Nine months ended September 30,





2012


2011


2012


2011












Reported GAAP basic and diluted net income (loss) per unit



$0.81


($0.14)


($1.03)


$1.42

Added back:











Environmental remediation



-


0.01


2.81


0.08


Adjusted Basic and diluted net income per unit*



$0.81


($0.13)


$1.78


$1.50












*Pursuant to Regulation G, we are providing disclosure of the reconciliation of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. We believe that consideration of these non-GAAP financial measures may be important to investors to understand operating results excluding environmental charges.

 

RECONCILIATION BETWEEN NET INCOME (LOSS) AND CASH FLOWS FROM OPERATIONS

(all amounts in $000's)
















Three months ended September 30,


Nine months ended September 30,





2012


2011


2012


2011












Net income (loss)



$2,859


($1,226)


($6,123)


$5,970

Added back:











Depletion



2,081


1,571


7,214


7,468


Timber depletion on HBU sale



-


-


-


150


Depreciation and amortization



488


175


825


526


Equity-based compensation



110


146


629


738


Capitalized development activities, net of reimbursements



(834)


(250)


(1,316)


(743)


Deferred taxes



(107)


(86)


(124)


(43)


Cost of land and building sold



348


21


348


110


(Gain) on sale of sale of land and fixed assets



(2,752)


-


(2,752)


-


Change in operating accounts



1,061


252


13,229


94


Cash provided by operations



$3,254


$603


$11,930


$14,270

 

SEGMENT INFORMATION

(all amounts in $000's)
















Three months ended
September 30,


Nine months ended
September 30,





2012


2011


2012


2011












Revenues:











Partnership Fee Timber



$5,866


$4,222


$24,466


$22,584


Funds Fee Timber



3,499


2,737


10,854


13,173


    Total Fee Timber



9,365


6,959


35,320


35,757


Timberland Management & Consulting (TM&C)



-


-


-


-


Real Estate



5,230


563


5,869


3,708


    Total



14,595


7,522


41,189


39,465

Operating income (loss):











Fee Timber



1,655


910


10,239


11,351


TM&C



(372)


(333)


(1,179)


(1,117)


Real Estate



2,961


(393)


(10,728)


414


General & administrative



(832)


(950)


(3,000)


(3,192)


    Total



$3,412


($766)


($4,668)


$7,456

 

SELECTED STATISTICS
















Three months ended September 30,


Nine months ended September 30,





2012


2011


2012


2011

Log sale volumes by species (million board feet):










 Sawlogs











Douglas-fir



10.1


5.9


40.5


35.2


Whitewood



4.2


2.6


10.9


14.2


Cedar



0.2


0.2


0.6


1.0


Hardwood



0.4


0.7


1.9


1.8

 Pulpwood











All species



2.2


2.4


7.9


8.7

Total



17.1


11.8


61.8


60.9












Log and timber deed sale volumes by destination (million board feet):










Export



2.3


4.9


14.3


32.1


Domestic



12.2


3.9


37.7


18.3


Hardwood



0.4


0.6


1.9


1.8


Pulpwood



2.2


2.4


7.9


8.7

Subtotal log sale volumes



17.1


11.8


61.8


60.9


Timber deed sale



-


-


4.4


-

Total



17.1


11.8


66.2


60.9












Average price realizations by species (per thousand board feet):










Sawlogs











Douglas-fir



577


597


577


612


Whitewood



486


562


494


549


Cedar



1,087


924


1,044


965


Hardwood



592


622


594


558

Pulpwood











All species



273


385


334


376

Overall



525


555


537


568












Average price realizations by destination (per thousand board feet):










Export 



570


614


588


625


Domestic



559


571


557


561


Hardwood



592


622


594


558


Pulpwood



273


385


334


376

Overall log sales



525


555


537


568

Timber deed sale



-


-


231


-












Owned timber acres



113,000


114,000


113,000


114,000

Acres owned by Funds



61,000


61,000


61,000


61,000

Capital and development expenditures ($000's)



1,301


241


2,559


4,685

Depletion ($000's)



2,081


1,571


7,214


7,618

Depreciation and amortization ($000's)



488


175


825


526

 

QUARTER TO QUARTER COMPARISONS

(Amounts in $000's except per unit data)














Q3 2012 vs.




Q3 2012 vs.





Q3 2011




Q2 2012

Net income (loss) attributable to Pope Resources' unitholders:









3rd Quarter 2012



$3,675




$3,675


2nd Quarter 2012



-




(9,295)


3rd Quarter 2011



(562)




-


   Variance



$4,237




$12,970










Detail of earnings variance:








Fee Timber









Log volumes (A)



$2,949




($6,955)


Log price realizations (B)



(514)




(120)


Stumpage sales



-




(1,026)


Production costs



(1,178)




2,632


Depletion



(510)




1,666


Other Fee Timber



(2)




49

Timberland Management & Consulting









Other Timberland Mgmt. & Consulting



(39)




51

Real Estate









Land and conservation easement sales



1,377




1,448


Sale of land underlying corporate office



2,726




2,726


Other Real Estate



(751)




(581)


Environmental remediation costs



2




12,500

General & administrative costs



118




172

Net interest expense



89




23

Other (taxes, noncontrolling interest)



(30)




385

Total variance



$4,237




$12,970











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


(B) Price variance calculated by extending the change in average realized price by current period volume.

SOURCE Pope Resources



RELATED LINKS
http://www.poperesources.com

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