POPEZ Pope Resources

Pope Resources (Nasdaq:POPEZ) reported net income of $4.1 million, or 86 cents per diluted ownership unit, on revenues of $16.1 million for the second quarter ended June 30, 2005. This compares to net income of $4.0 million, or 87 cents per diluted ownership unit, on revenues of $11.9 million for the comparable period in 2004. Net income for the six months ended June 30, 2005 totaled $8.7 million, or $1.83 per diluted ownership unit, on revenues of $32.8 million. Net income for the corresponding period in 2004 totaled $8.0 million, or $1.75 per diluted ownership unit, on revenues of $23.6 million. Year-to-date earnings before interest, taxes, depreciation, depletion, and amortization (EBITDDA) were $17.9 million versus $12.6 million for the comparable period in 2004. "Performance by each of our operating segments in 2005's second quarter built upon the positive momentum of the first quarter to produce strong year-to-date results," said David L. Nunes, President and CEO. "For the first six months of this year compared to the same period a year ago, log sales volumes for our Fee Timber segment increased nearly 20%, from 38 million board feet (MMBF) in 2004 to 45 MMBF in 2005. Comparing the same six-month periods, average log prices were up $49 per thousand board feet (MBF) this year over last, a 9% increase. Together, these two performance drivers contributed greatly to a 28% increase in year-to-date Fee Timber EBITDDA, which increased from $13.3 million in 2004 to $17.0 million in 2005. In contrast to this EBITDDA comparison, year-to-date operating income for our Fee Timber segment declined by 5%, from $10.5 million in 2004 to $10.0 million in 2005. This decline is due to the impact in the current year of log harvest volume coming from a recent acquisition that carries a significantly higher depletion expense as a result of establishing a separate depletion cost pool for that acquired timber." "On the strength of a new management agreement, our Timberland Management & Consulting segment generated year-to-date operating income of $1.7 million, compared to an operating loss of $0.5 million in 2004. Additionally, our Real Estate segment has benefited by strong buyer interest in rural residential land and posted year-to-date 2005 operating income of $0.8 million, compared to income of $1.0 million for the comparable period in 2004, where last year's results were dominated by one large parcel sale." The Partnership does not expect financial results for the first six months of 2005 to be duplicated in the last half of the year. Timber harvest volume in the first two quarters of 2005 represented 57% of the planned 2005 harvest of 79 MMBF. Similarly, as a result of strong market conditions, the Real Estate segment has completed nearly two-thirds of its planned development property sales in 2005 as of this midpoint in the year. About Pope Resources Pope Resources, a publicly traded limited partnership, and its subsidiaries Olympic Resource Management and Olympic Property Group, own or manage over 640,000 acres of timberland and development property in Washington and Oregon. In addition, we provide forestry consulting and timberland 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.orm.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 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 economic conditions that affect consumer demand for our products and the prices we receive for them. Other factors are set forth in that part of our Annual Report on Form 10-K entitled "Management's Discussion & Analysis of Financial Condition and Results of Operation - Risks and Uncertainties." 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. Management considers earnings (net income or loss) before interest expense, income taxes, depreciation, depletion and amortization (EBITDDA) to be a relevant and meaningful indicator of liquidity and earnings performance commonly used by investors, financial analysts and others in evaluating companies in its industry and, as such, has provided this information in addition to the generally accepted accounting principle-based presentation of net income or loss and cash from operations. In that context, "depletion" refers to a measure of the cost of timber harvested. -0- *T Pope Resources, A Delaware Limited Partnership Unaudited CONSOLIDATED STATEMENTS OF OPERATIONS (all amounts in $000's, except per unit amounts) Three months Six months ended ended June 30, June 30, 2005 2004 2005 2004 Revenues $16,131 $11,888 $ 32,787 $ 23,620 Costs and expenses: Cost of sales (7,410) (4,128) (15,214) (8,616) Operating expenses (3,626) (2,987) (6,807) (5,483) ------- ------- -------- -------- Operating income 5,095 4,773 10,766 9,521 Interest, net (635) (776) (1,352) (1,526) ------- ------- -------- -------- Income before income taxes and minority interest 4,460 3,997 9,414 7,995 Income tax provision (263) - (510) - ------- ------- -------- -------- Income before minority interest 4,197 3,997 8,904 7,995 Minority interest (128) - (229) - ------- ------- -------- -------- Net income $ 4,069 $ 3,997 $ 8,675 $ 7,995 ======= ======= ======== ======== Average units outstanding - Basic 4,596 4,520 4,578 4,520 ======= ======= ======== ======== Average units outstanding - Diluted 4,757 4,594 4,740 4,579 ======= ======= ======== ======== Basic net income per unit $ 0.89 $ 0.88 $ 1.89 $ 1.77 ======= ======= ======== ======== Diluted net income per unit $ 0.86 $ 0.87 $ 1.83 $ 1.75 ======= ======= ======== ======== CONSOLIDATED BALANCE SHEETS (all amounts in $000's) June 30, 2005 2004 --------- -------- Assets: Cash $ 1,574 $ 8,865 Short term investments 8,007 - Other current assets 4,517 2,120 Roads and timber 57,977 53,801 Properties and equipment 26,981 25,633 Other assets 989 1,337 -------- ------- Total $100,045 $91,756 ======== ======= Liabilities and partners' capital: Current liabilities $ 3,976 $ 3,927 Long-term debt, excluding current portion 32,497 34,198 Other long-term liabilities 211 184 Total liabilities 36,684 38,309 Partners' capital 63,361 53,447 -------- ------- Total $100,045 $91,756 ======== ======= RECONCILIATION BETWEEN NET INCOME AND EBITDDA (all amounts in $000's) Three months ended Six months ended June June 30, 30, 2005 2004 2005 2004 Net income $ 4,069 $ 3,997 $ 8,675 $ 7,995 Added back: Interest, net 635 776 1,352 1,526 Depletion 3,223 1,294 7,066 2,765 Depreciation and amortization 167 174 319 342 Income tax expense 263 - 510 - -------- -------- -------- -------- EBITDDA $ 8,357 $ 6,241 $ 17,922 $ 12,628 ======== ======== ======== ======== RECONCILIATION BETWEEN CASH FROM OPERATIONS AND EBITDDA (all amounts in $000's) Three months ended Six months ended June June 30, 30, 2005 2004 2005 2004 Cash from operations $ 5,921 $ 7,272 $ 12,814 11,497 Added back: Change in working capital 734 2,727 Interest 635 776 1,352 1,526 Deferred profit 837 33 685 - Income tax provision 263 - 510 - Other - - - Less: Change in working capital - (1,834) - (315) Deferred profit - - - (75) Cost of land sold (32) - (166) (5) Other (1) (6) - 0 -------- -------- -------- -------- EBITDDA $ 8,357 $ 6,241 $ 17,922 $ 12,628 ======== ======== ======== ======== SEGMENT INFORMATION (all amounts in $000's) Three months ended Six months ended June June 30, 30, 2005 2004 2005 2004 Revenues: Fee Timber $ 13,220 $ 9,369 $ 26,883 $ 20,780 Timberland Management & Consulting (TM&C) 1,843 396 3,457 522 Real Estate 1,068 2,123 2,447 2,318 -------- -------- -------- -------- Total 16,131 11,888 32,787 23,620 EBITDDA: Fee Timber 8,090 5,671 17,001 13,304 TM&C 847 (77) 1,710 (459) Real Estate 330 1,279 1,001 1,061 General & administrative (910) (632) (1,790) (1,278) -------- -------- -------- -------- Total 8,357 6,241 17,922 12,628 Depreciation, depletion and amortization: Fee Timber 3,160 1,299 7,029 2,801 TM&C 27 22 48 44 Real Estate 138 61 174 84 General & administrative 65 86 134 178 -------- -------- -------- -------- Total 3,390 1,468 7,385 3,107 Operating income/(loss): Fee Timber 4,930 4,372 9,972 10,503 TM&C 820 (99) 1,662 (503) Real Estate 192 1,218 827 977 General & administrative (847) (718) (1,695) (1,456) -------- -------- -------- -------- Total $ 5,095 $ 4,773 $ 10,766 $ 9,521 ======== ======== ======== ======== SELECTED STATISTICS Three months ended Six months ended 30-Jun-05 30-Jun-04 30-Jun-05 30-Jun-04 Log sale volumes (thousand board feet): Export conifer 1,963 1,558 5,473 7,182 Domestic conifer 15,789 12,529 31,138 24,219 Pulp conifer 3,282 2,786 5,935 5,419 Hardwoods 1,329 682 2,817 1,087 -------- -------- -------- -------- Total 22,363 17,555 45,363 37,907 ======== ======== ======== ======== Average price realizations (per thousand board feet): Export conifer $ 691 $ 628 $ 672 $ 652 Domestic conifer 642 562 630 558 Pulp conifer 205 234 211 228 Hardwoods 557 582 594 573 Overall 577 517 578 529 Owned timber acres 115,103 117,251 115,103 117,251 Acres under management 527,316 5,316 527,316 5,316 Capital expenditures ($000's) $ 744 $ 1,104 $ 1,691 $ 10,434 (a) Depletion ($000's) $ 3,223 $ 1,294 $ 7,066 $ 2,765 Depreciation ($000's) $ 167 $ 174 $ 319 $ 342 Debt to total capitalization 35% 40% 35% 40% (a) Includes $8.5 million timberland acquisition closed in January 2004. QUARTER TO QUARTER COMPARISONS (Amounts in $000's except per unit data) Q2 2005 vs. Q2 2004 Q2 2005 vs. Q1 2005 Per Basic Per Basic Unit Unit Total Outstanding Total Outstanding Net income: 2nd Quarter 2005 $ 4,069 $ 0.89 $ 4,069 $ 0.89 1st Quarter 2005 4,606 1.01 2nd Quarter 2004 3,997 0.88 -------- -------- -------- ---------- Variance $ 72 $ 0.01 $ (537) $ (0.12) Detail of earnings variance: Fee Timber Log price realizations (A) $ 1,342 $ 0.30 $ (67) $ (0.02) Log volumes (B) 1,174 0.26 (784) (0.18) Timberland sale income - - - - Depletion (1,855) (0.41) 716 0.16 Other Fee Timber (103) (0.02) 23 0.01 Timberland Management & Consulting Management fee changes 962 0.21 - - Other Timberland Mgmnt & Consulting (43) (0.01) (22) (0.01) Real Estate Environmental remediation liability 187 0.04 (108) (0.02) Land sales (1,118) (0.25) (241) (0.05) Depletion (74) (0.02) (96) (0.02) Other Real Estate (21) - 2 - General & administrative costs (129) (0.03) 1 - Interest expense 92 0.02 27 0.01 Other (taxes, minority int., interest inc.) (342) (0.08) 12 - -------- -------- -------- -------- Total change in earnings $ 72 $ 0.01 $ (537) $ (0.12) ======== ======== ======== ======== (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, less variance in log production costs. *T