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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) December 31, 2003
Pope Resources, A Delaware Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 91-1313292
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19245 Tenth Avenue NE, Poulsbo, Washington 98370
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (360) 697-6626
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NOT APPLICABLE
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(Former name or former address, if changed since last report.)
INFORMATION TO BE INCLUDED IN THE REPORT
----------------------------------------
Item 5. OTHER EVENTS AND REGULATION FD DISCLOSURE
On January 30, 2004 the registrant issued a press release relating to its
earnings for the quarter ended December 31, 2003. A copy of that press release
is attached hereto as Exhibit 99.1.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit No. Description
- ---------- -----------
99.1 Press release of the registrant dated January 30, 2004
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
POPE RESOURCES, A DELAWARE LIMITED
PARTNERSHIP
DATE: January 30, 2004 BY: /s/ Thomas M. Ringo
-------------------
Thomas M. Ringo
Vice President and Chief Financial Officer, Pope
Resources, A Delaware Limited Partnership, and
Pope MGP, Inc., General Partner
Exhibit 99.1
Pope Resources Reports Breakeven 2003 Fourth Quarter Earnings
POULSBO, Wash.--(BUSINESS WIRE)--Jan. 30, 2004--Pope Resources
(Nasdaq:POPEZ) reported breakeven results, or less than one cent per
diluted ownership unit, on revenues of $5.7 million for the quarter
ended December 31, 2003. This compares to net income of $0.7 million,
or 15 cents per diluted ownership unit, on revenues of $7.8 million,
for the same period in 2002.
Net income for the twelve months ended December 31, 2003 totaled
$3.5 million, or 78 cents per diluted ownership unit, on revenues of
$27.0 million. For the corresponding period in 2002, the Partnership
reported net income of $3.3 million, or 74 cents per diluted ownership
unit, on revenues of $32.2 million.
"While overall earnings for the year were up a modest 6%, we saw
some encouraging signs in our results," said David L. Nunes, President
and CEO. "In our Fee Timber segment, since we own no mills, we took
advantage of the operating flexibility this affords us by front-end
loading our planned timber harvest for 2003 into the first three
quarters of the year. This operating strategy allowed us to move into
harvest units that had a heavier component of hardwood logs, which was
a market that enjoyed strong pricing in 2003. This translated into
average log prices for the year that declined by only 2% (or $12/MBF)
versus a decline of 4% (or $21/MBF) in our primary domestic softwood
log market. At the end of 2002, we lost an important third-party
timberland management client representing over $4 million in annual
revenues, which was the main factor in the decline in our total
revenues year over year. However, with improved profitability on the
remaining business and a $1 million reduction in general and
administrative costs driven by this change, we made up most of the
impact of this lost business."
"The main driver for fourth quarter results was a lower log
harvest volume, which related to our decision to front-load the 2003
annual timber harvest into earlier months. We harvested less than 16%
of our annual volume in 2003's fourth quarter, while 2002's comparable
period saw a harvest volume at nearly 25% of the annual level.
Notwithstanding fourth quarter results coming in at a break-even
level, we finished the year with a flurry of activity that we can
build on in future years. At the end of the year, we announced the
signing of a purchase and sale agreement to acquire 3,300 acres of fee
timberland in Washington. We closed on this sale in early January and
expect it to contribute meaningfully to harvest levels in 2004 and
2005, inasmuch as the property has a significant component of
currently merchantable timber. We also announced the signing of a
purchase and sale agreement to sell 20 acres in our Gig Harbor project
to Costco, which we expect to close in 2005."
The fiscal 2002 results included four non-recurring items totaling
a loss of $661,000 that should be adjusted out to better understand
comparisons to the 2003 results: a charge of $730,000 to adjust a
previously established liability for environmental remediation costs
at Port Gamble, Washington; a charge of $165,000 for residual home
warranty liabilities related to our 2001 sale of operations in Port
Ludlow, Washington; restructuring charges of $673,000 in connection
with the expiration of a major timberland management contract and the
closure of our Canadian offices; and an income tax benefit of $907,000
resulting from the reorganization of our Canadian operations. The 2003
results include no such charges but do include a one-time gain on the
sale of an art collection. The following table reconciles between GAAP
earnings and what management views as our core operating earnings
(without these non-recurring items) with per unit amounts for each:
2003 2002
---------------- ----------------
($000's) $/unit ($000's) $/unit
-------- ------ -------- ------
Net income/(loss) 3,528 $ 0.78 3,334 $ 0.74
Items not expected to recur:
Addbacks: Adjustment of liability for
environmental remediation 730 $ 0.16
Home warranty liability adjustment 165 $ 0.04
Restructuring charges 673 $ 0.15
Deducts: Tax benefit on exit
from Canadian operations (907) $(0.20)
Gain on sale of art
collection (140) $(0.03)
-------- ------ -------- -------
Subtotal (140) $(0.03) 661 $ 0.15
-------- ------ -------- ------
Net income from core operations 3,388 $ 0.75 3,995 $ 0.89
-------- ------ -------- ------
Fee Timber
Operating income from Fee Timber operations totaled $1.2 million
in the fourth quarter of 2003 versus $2.6 million in the fourth
quarter of last year, with the difference attributable to planned
reductions in harvest volume. As the following table points out, our
fourth quarter 2003 harvest volume of 7.1 million board feet (MMBF)
was down 37% from the volume harvested in the same quarter a year ago.
Volume Volume
decrease decrease
from Q4 '02 from Q3 '03
Qtr to Q4 '03 Qtr to Q4 '03 Qtr
ended ------------ ended ------------ ended
12/31/03 MBF % 12/31/02 MBF % 9/30/2003
Log sale volumes
(MBF):
Export conifer 654 (896) -58% 1,550 (293) -31% 947
Domestic
conifer 4,893 (2,936) -38% 7,829 (3,987) -45% 8,880
Pulp conifer 1,267 (230) -15% 1,497 (547) -30% 1,814
Hardwoods 303 (49) -14% 352 (105) -26% 408
-------- ------- ---- -------- ------- ---- ---------
Total 7,117 (4,111) -37% 11,228 (4,932) -41% 12,049
-------- ------- ---- -------- ------- ---- ---------
In addition, our weighted average log price of $467 per thousand
board feet (MBF) for the fourth quarter of 2003 was down $21/MBF (or
4%) from the fourth quarter of 2002, but up $11/MBF (or 2%) from the
third quarter of 2003. The following table offers a breakdown of
quarterly realized log prices (by market), comparing the fourth
quarter of 2003 to the prior year's fourth quarter and this year's
third quarter.
Price Price
increase/ increase/
(decrease) (decrease)
from from
Q4 '02 Q3 '03
to Q4 '03 to Q4 '03
Qtr ended ---------- Qtr ended ---------- Qtr ended
12/31/2003 $/MBF % 12/31/2002 $/MBF % 9/30/2003
Average price realizations
(per MBF):
Export conifer $595 (19) -3% $614 53 10% $542
Domestic
conifer $502 (22) -4% $524 10 2% $492
Pulp conifer $223 43 24% $180 15 7% $208
Hardwoods $630 141 29% $489 71 13% $559
Overall $467 (21) -4% $488 11 2% $456
The price data shown above demonstrates some unexpected firming in
log prices late in the year, especially in the export and hardwood
markets. A major contributing factor toward the lift in export prices
is the weakened state of the U.S. dollar relative to the Japanese yen.
We are seeing some continuing strength in log prices continuing into
the first quarter of 2004 and are planning to push production forward
in 2004 to capitalize on this current pricing environment.
For the full year 2003, operating income from the Fee Timber
segment was $9.7 million compared to $10.2 million for 2002. As the
following table shows, overall harvest volumes for the two years were
nearly identical but the percentage of the total attributable to
export sorts declined from 14% in 2002 to 9% in 2003.
Volume
increase/(decrease)
from '02 to '03
Year ended -------------------- Year ended
12/31/2003 MBF % 12/31/2002
Log sale volumes (MBF):
Export conifer 4,234 (2,046) -33% 6,280
Domestic conifer 31,999 1,395 5% 30,604
Pulp conifer 6,829 552 9% 6,277
Hardwoods 1,945 (30) -2% 1,975
---------- -------------------- ------------
Total 45,007 (129) 0% 45,136
---------- -------------------- ------------
The following table shows that our average weighted log price for
2003 dropped $12/MBF (or 2%) from 2002 levels. Price declines in the
domestic sorts were offset by stronger pricing obtained for hardwoods
and pulp logs.
Price
increase/(decrease)
from '02 to '03
Year ended ------------------- Year ended
12/31/03 $/MBF % 12/31/02
Average price realizations
(per MBF):
Export conifer $574 - 0% $574
Domestic conifer $514 (21) -4% $535
Pulp conifer $215 38 21% $177
Hardwoods $560 81 17% $479
Overall $476 (12) -2% $488
As a result of our January 2004 acquisition of 3,300 acres
adjacent to our Columbia tree farm, we expect total log harvest volume
for 2004 (and 2005) to be 58 MMBF, as compared to the 45 MMBF
sustainable cut we expect to resume in 2006. This expectation derives
largely from the fact that the newly purchased property has a heavy
component of merchantable timber.
Timberland Management and Consulting
Current quarter results for this segment compare favorably to
2002's fourth quarter as the result of disposition fee revenue in
connection with a third-party management contract. The year-to-date
results compare unfavorably to the prior year's comparable periods as
a result of reduced timberland management fees in 2003. This
unfavorable comparison occurs notwithstanding that 2002 results
include $583,000 of restructuring charges associated with the
expiration of a major timberland management contract and the closure
in late 2002 of our Canadian consulting offices. The following table
provides a view of operating results for the segment with and without
restructuring charges in 2002:
(all amounts in $000's) Fourth Quarter Full Year
--------------- -------------
2003 2002 2003 2002
------- ------- ------ ------
Operating income/(loss) 717 (134) 272 919
Add back: restructuring charges 583 583
------- ------- ------ ------
Operating income/(loss) - as adjusted 717 449 272 1,502
------- ------- ------ ------
Disposition fees generated in 2003 resulted from the successful
completion of a three-year project to dispose of the properties owned
by a timberland management client. As we begin 2004, we are without a
major third-party timberland management contract for the first time
since 1997. As such, segment revenues and operating income in fiscal
year 2004 are expected to be significantly lower unless new contracts
can be secured.
Real Estate
Fourth quarter 2003 results for this segment are comparable to
2002's fourth quarter after adjusting the current period's operating
loss for a one-time sale of an art collection. For the full year,
after adjusting for non-recurring items in both 2003 and 2002, results
were stronger based on the net effect of improved operating income in
Port Gamble offset somewhat by higher costs associated with our Gig
Harbor project. The following table provides a view of operating
results for the segment with and without the 2003 art sale and the
2002 special charges.
(all amounts in $000's) Fourth Full Year
Quarter
------------- --------------
2003 2002 2003 2002
------ ------ ------ -------
Operating loss (218) (349) (476) (1,667)
Add back: environmental reserve charges 730
Add back: warranty reserves 165
Less: gain on fine art sale (140) (140)
------ ------ ------ -------
Operating loss - as adjusted (358) (349) (616) (772)
------ ------ ------ -------
Segment revenues and operating income for Real Estate in fiscal
year 2004 are expected to significantly outperform 2003 results and
produce meaningful operating income based primarily on anticipated
property sales.
General and Administrative
General and administrative costs for the fourth quarter 2003
declined by 32% from the fourth quarter of 2002 to $738,000 as we
trimmed overhead costs in response to a loss of acres under
management. For the full year 2003, costs of $2.8 million were $1.0
million (or 26%) below the comparable level in 2002. We expect general
and administrative costs for 2004 to be in line with 2003 amounts. The
following table compares general and administrative costs with and
without restructuring charges in 2002:
(all amounts in $000's) Fourth Quarter Full Year
---------------- ----------------
2003 2002 2003 2002
------- ------- ------- -------
General and administrative costs (738) (1,078) (2,842) (3,864)
Add back: restructuring 90
------- ------- ------- -------
General and administrative costs - as
adjusted (738) (1,078) (2,842) (3,774)
------- ------- ------- -------
Capital expenditures for 2003 and 2002 were $2.0 and $2.2 million,
respectively. The Partnership's debt to total capitalization ratio, as
measured on a book basis, improved to 45% as of December 31, 2003 from
47% at the end of 2002.
About Pope Resources
Pope Resources, a publicly traded limited partnership, and its
subsidiaries Olympic Resource Management and Olympic Property Group,
own 118,000 acres of timberland and development property in
Washington. 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.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 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.
The Company 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.
Pope Resources, A Delaware Limited Partnership
Unaudited
CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts in $000's)
Three months ended Twelve months ended
Dec.31, Dec. 31,
2003 2002 2003 2002
Revenues $ 5,679 $ 7,766 $ 27,036 $ 32,192
Costs and expenses:
Cost of sales (1,783) (2,875) (10,540) (11,354)
Operating expenses (2,899) (3,858) (9,873) (15,251)
Opertaing income 997 1,033 6,623 5,587
Interest, net (711) (733) (2,806) (2,894)
Minority interest (47) (12) (47) (147)
Income before income taxes 239 288 3,770 2,546
Income tax
benefit/(provision) (239) 408 (242) 788
Net income - 696 3,528 3,334
Average units outstanding -
Basic (000's) 4,518 4,518 4,518 4,518
Average units outstanding -
Diluted (000's) 4,544 4,519 4,522 4,520
Basic net income per unit $ - $ 0.15 $ 0.78 $ 0.74
Diluted net income per unit $ - $ 0.15 $ 0.78 $ 0.74
CONSOLIDATED BALANCE SHEETS
(all amounts in $000's)
Dec. 31,
2003 2002
Assets:
Cash and short-term investments $ 10,361 $ 6,627
Other current assets 2,417 2,291
Roads and timber 48,203 50,316
Properties and equipment 23,907 23,514
Other assets 1,420 4,040
Total 86,308 86,788
Liabilities and partners' capital:
Current liabilities 3,816 5,126
Long-term debt, excluding current
portion 36,114 37,665
Other long-term liabilities 342 399
Total liabilities 40,272 43,190
Partners' capital 46,036 43,598
Total 86,308 86,788
RECONCILIATION BETWEEN NET INCOME AND EBITDDA
(all amounts in $000's)
Three months ended
31-Dec-03 31-Dec-02 30-Sep-03
Net income $ - $ 696 $ 941
Added back:
Interest, net 711 733 687
Depletion 454 736 779
Depreciation and amortization 131 164 166
Income tax expense 239 - -
Less:
Income tax benefit - (408) -
EBITDDA $ 1,535 $ 1,921 $ 2,573
RECONCILIATION BETWEEN CASH FROM OPERATIONS AND EBITDDA
(all amounts in $000's)
Three months ended
31-Dec-03 31-Dec-02 30-Sep-03
Cash from operations $ 1,915 $ 2,440 $ 2,647
Added back:
Change in working capital
Interest 711 733 687
Deferred profit 34 3 26
Income tax expense 239 -
Other 15 52
Less:
Change in working capital (1,204) (875) (587)
Deferred profit - -
Income tax benefit - (408)
Cost of land sold (200)
Other (175) (24)
EBITDDA $ 1,535 $ 1,921 $ 2,573
SEGMENT INFORMATION
(all amounts in $000's)
Three months ended Twelve months ended
Dec.31, Dec. 31,
2003 2002 2003 2002
Revenues:
Fee Timber $ 3,809 $ 5,873 $ 22,916 $ 23,298
Timberland Management &
Consulting (TM&C) 1,350 1,672 2,386 7,295
Real Estate 520 221 1,734 1,599
------- ------- -------- --------
Total $ 5,679 $ 7,766 $ 27,036 $ 32,192
------- ------- -------- --------
EBITDDA:
Fee Timber 1,717 3,323 12,676 13,363
TM&C 736 (94) 341 1,109
Real Estate (195) (337) (391) (1,610)
General & administrative and
minority interest (723) (971) (2,537) (3,558)
------- ------- -------- --------
Total $ 1,535 $ 1,921 $ 10,089 $ 9,304
------- ------- -------- --------
Depreciation, depletion and
amortization:
Fee Timber 481 729 3,007 3,164
TM&C 19 40 69 190
Real Estate 23 12 85 57
General & administrative 62 119 352 453
------- ------- -------- --------
Total $ 585 $ 900 $ 3,513 $ 3,864
------- ------- -------- --------
Operating income/(loss):
Fee Timber 1,236 2,594 9,669 10,199
TM&C 717 (134) 272 919
Real Estate (218) (349) (476) (1,667)
General & administrative (738) (1,078) (2,842) (3,864)
------- ------- -------- --------
Total $ 997 $ 1,033 $ 6,623 $ 5,587
------- ------- -------- --------
SELECTED STATISTICS
Three months Twelve months
ended Dec.31, ended Dec. 31,
2003 2002 2003 2002
Owned tree farm acres 112,200 112,200 112,200 112,200
Acres under management - 157,593 - 157,593
Capital expenditures ($000's) 902 613 2,017 2,158
Depletion ($000's) 454 736 2,888 3,085
Depreciation ($000's) 131 164 625 779
Debt to total capitalization 45% 47% 45% 47%
QUARTER TO QUARTER COMPARISONS
(Amounts in $000's except per unit data)
Q4 2003 vs. Q4 Q4 2003 vs. Q3
2002 2003
Total Per Total Per
Unit Unit
Net income:
4th Quarter 2003 - - - -
3rd Quarter 2003 941 0.21
4th Quarter 2002 696 0.15
Variance (696) (0.15) (941) (0.21)
Detail of earnings variance:
Fee Timber
Log price realizations (A) (253) (0.06) 128 0.03
Log volumes (B) (1,195) (0.27) (1,535) (0.34)
Timberland sale income - - (237) (0.05)
Depletion 282 0.06 325 0.07
Other Fee Timber (192) (0.04) (36) (0.01)
Timberland Management & Consulting
Management fee changes (951) (0.21) (28) (0.01)
Other Timberland Mgmnt & Consulting 1,802 0.40 867 0.19
Real Estate
Other Real Estate 131 0.03 (26) -
General & administrative costs 340 0.08 (89) (0.02)
Interest expense 70 0.02 (7) -
Other (taxes, minority int., interest
inc.) (730) (0.16) (303) (0.07)
--------- ------ -------- ------
Total change in earnings (696) (0.15) (941) (0.21)
========= ====== ======== ======
(A) Price variance allocated based on changes in price using the
current period volume.
(B) Volume variance allocated based on change in sales volume and the
average log sales price for the prior period less variance in log
production costs.
CONTACT: Pope Resources
Tom Ringo, 360-697-6626
fax, 360-697-1156