POPEZ Pope Resources

Pope Resources (Nasdaq:POPEZ) reported earnings of $0.9 million or 18 cents per diluted ownership unit, on revenues of $8.9 million for the quarter ended December 31, 2005. This compares to earnings of $0.8 million or 18 cents per diluted ownership unit, on revenues of $8.0 million for the quarter ended December 31, 2004. Net income for the twelve months ended December 31, 2005 totaled $13.7 million, or $2.88 per diluted ownership unit, on revenues of $57.0 million. For the corresponding period in 2004, net income totaled $10.2 million, or $2.22 per diluted ownership unit, on revenues of $39.6 million. Earnings before interest, income tax, depreciation, depletion, and amortization (EBITDDA) for the quarter ended December 31, 2005 were $2.9 million, compared to $3.1 million for the fourth quarter of 2004. For the twelve months ended December 31, 2005, EBITDDA was $28.4 million, compared to $18.9 million in 2004. "With a solid foundation for growth laid down over the past few years, we posted our strongest results in over a decade in 2005," said David L. Nunes, President and CEO. "Three primary drivers contributed to this breakout year: continued favorable market conditions in our core log markets, a significant new timberland management client, and robust markets for rural residential real estate." In the fourth quarter of 2005, our Fee Timber segment experienced a 2% increase in average log prices from the corresponding quarter in 2004, while log volumes decreased from 9 million board feet (MMBF) in 2004 to 8 MMBF in 2005. Fee Timber operating income for both the fourth quarter of 2005 and 2004 was $1.6 million. On a year-to-date basis, average realized log prices increased 9%, rising from $529 per thousand board feet (MBF) in 2004 to $576 per MBF in 2005. Total harvest volume increased to 74 MMBF in 2005 from 60 MMBF in 2004. Fee Timber segment operating income increased 8%, from $15.1 million in 2004 to $16.3 million in 2005. While the increased harvest level in 2005 resulted in substantially higher log revenues, it did not translate to a corresponding increase in operating income due to the use of a separate depletion pool on 17 MMBF of timber harvested in 2005 from a late-2004 timberland purchase. The separate depletion pool was used to account for timber harvested from this acquired property because it was stocked primarily with merchantable timber. While the harvest of this 17 MMBF did not generate significant incremental earnings, it did contribute to significantly higher cash flow, allowing the Partnership to recover much of the purchase price of the property while leaving an incremental 1,300 acres of prime timberland. On the strength of a new management contract, results for our Timberland Management & Consulting segment improved substantially, with operating income of $3.5 million in 2005 compared to a loss of $0.6 million for 2004. Similarly, this segment reported operating income of $1.5 million for the fourth quarter of 2005 compared to breakeven results for the fourth quarter of 2004. This improvement in both quarterly and annual performance is due to our taking on a significant new client in January 2005 for whom we have performed timberland management, forestry consulting, and property disposition services. Our Real Estate segment also performed well in 2005, posting its second consecutive profitable year, with operating income of $1.3 million on revenues of $4.8 million. This compares to operating income of $1.6 million on revenues of $4.5 million in 2004. The majority of Real Estate segment sales in 2005 were generated from a new rural residential land sale program which generated $3.0 million of revenue from 18 sales totaling 523 acres. In addition, in 2005 we recognized $0.9 million of revenue from a bulk land sale of 390 acres. This compares to 2004's revenue of $3.5 million from two large bulk land sales totaling 636 acres. 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 nearly 560,000 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.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; our ability to discover and accurately to estimate liabilities associated with our properties; 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 "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. Management considers earnings (net income or loss) before interest expense, income taxes, depreciation, depletion and amortization (EBITDDA) to be an important measure of operating profitability, particularly when comparing results between different timber-owning companies because there are varying methods of calculating depletion expense under GAAP. With different issuers employing various calculation methodologies, disclosure of EBITDDA can make it easier for the reader to make meaningful comparisons between the operating results and cash-generating capabilities of different timber companies. -0- *T Pope Resources, A Delaware Limited Partnership Unaudited CONSOLIDATED STATEMENTS OF OPERATIONS (all amounts in $000's, except per unit amounts) Three months ended Twelve months ended Dec.31, Dec. 31, 2005 2004 2005 2004 Revenues $ 8,907 $ 7,977 $ 57,006 $ 39,648 Costs and expenses: Cost of sales (2,751) (3,299) (24,596) (15,184) Operating expenses (4,264) (3,130) (14,931) (11,336) --------- --------- ---------- ---------- Opertaing income 1,892 1,548 17,479 13,128 Interest, net (539) (728) (2,477) (2,952) Minority interest (46) - (321) - --------- --------- ---------- ---------- Income before income taxes 1,307 820 14,681 10,176 Income tax provision (435) - (997) - --------- --------- ---------- ---------- Net income 872 820 13,684 10,176 ========= ========= ========== ========== Average units outstanding - Basic (000's) 4,646 4,522 4,605 4,522 ========= ========= ========== ========== Average units outstanding - Diluted (000's) 4,780 4,629 4,753 4,594 ========= ========= ========== ========== Basic net income per unit $ 0.19 $ 0.18 $ 2.97 $ 2.25 ========= ========= ========== ========== Diluted net income per unit $ 0.18 $ 0.18 $ 2.88 $ 2.22 ========= ========= ========== ========== CONSOLIDATED BALANCE SHEETS (all amounts in $000's) Dec. 31, 2005 2004 Assets: Cash and short-term investments $ 18,361 $ 757 Other current assets 5,770 2,073 Roads and timber 53,019 64,485 Properties and equipment 28,543 26,198 Other assets 665 1,355 ------------ ------------ Total 106,358 94,868 ============ ============ Liabilities and partners' capital: Current liabilities 7,454 5,935 Long-term debt, excluding current portion 32,281 34,164 Other long-term liabilities 218 236 ------------ ------------ Total liabilities 39,953 40,335 Partners' capital 66,405 54,533 ------------ ------------ Total 106,358 94,868 ============ ============ RECONCILIATION BETWEEN NET INCOME AND EBITDDA (all amounts in $000's) Three months ended Twelve months ended 31-Dec-05 31-Dec-04 31-Dec-05 31-Dec-04 Net income $ 872 $ 820 $ 13,684 $ 10,176 Added back: Interest, net 539 728 2,477 2,952 Income tax provision 435 - 997 - Depletion 922 1,353 10,611 5,092 Depreciation and amortization 159 152 641 660 -------- -------- ---------- ---------- EBITDDA $ 2,927 $ 3,053 $ 28,410 $ 18,880 ======== ======== ========== ========== RECONCILIATION BETWEEN CASH FROM OPERATIONS AND EBITDDA (all amounts in $000's) Three months ended Twelve months ended 31-Dec-05 31-Dec-04 31-Dec-05 31-Dec-04 Cash from operations $ 6,656 $ 3,595 $ 28,909 $ 17,854 Added back: Interest, net 539 728 2,477 2,952 Deferred profit - - 614 - Income tax expense 435 - 997 - Other - 1 - - Less: Change in working capital (4,456) (827) (4,075) (902) Unit compensation (76) - (76) - Deferred profit (81) (275) - (815) Cost of land sold (90) (169) (434) (209) Other - - (2) - -------- -------- ---------- ---------- EBITDDA $ 2,927 $ 3,053 $ 28,410 $ 18,880 ======== ======== ========== ========== SEGMENT INFORMATION (dollar amounts in 000's, except average price realizations) Three months ended Twelve months ended December 31, December 31, 2005 2004 2005 2004 Revenues: Fee Timber $ 5,194 $ 5,576 $ 44,424 $ 33,571 Timberland Management & Consulting (TM&C) 2,641 602 7,764 1,601 Real Estate 1,072 1,799 4,818 4,476 -------- -------- -------- -------- Total $ 8,907 $ 7,977 $ 57,006 $ 39,648 -------- -------- -------- -------- EBITDDA: Fee Timber $ 2,544 $ 2,960 $ 27,034 $ 20,319 TM&C 1,508 (10) 3,644 (510) Real Estate (10) 904 1,449 1,719 General & administrative and minority interest (1,115) (801) (3,717) (2,648) -------- -------- -------- -------- Total $ 2,927 $ 3,053 $ 28,410 $ 18,880 -------- -------- -------- -------- Depreciation, depletion and amortization: Fee Timber $ 950 $ 1,395 $ 10,714 $ 5,193 TM&C 23 22 97 88 Real Estate 43 19 178 133 General & administrative 65 69 263 338 -------- -------- -------- -------- Total $ 1,081 $ 1,505 $ 11,252 $ 5,752 -------- -------- -------- -------- Operating income/(loss): Fee Timber $ 1,594 $ 1,565 $ 16,320 $ 15,126 TM&C 1,485 (32) 3,540 (598) Real Estate (53) 885 1,270 1,586 General & administrative (1,134) (870) (3,651) (2,986) -------- -------- -------- -------- Total $ 1,892 $ 1,548 $ 17,479 $ 13,128 -------- -------- -------- -------- Log sale volumes (thousand board feet): Export conifer 952 1,153 5,732 8,885 Domestic conifer 5,373 5,414 53,442 38,869 Pulp conifer 1,338 1,422 9,928 9,648 Hardwoods 677 1,111 5,143 2,914 -------- -------- -------- -------- Total 8,340 9,100 74,245 60,316 ======== ======== ======== ======== Average price realizations (per thousand board feet): Export conifer $ 641 $ 676 $ 660 $ 658 Domestic conifer 620 590 631 571 Pulp conifer 223 209 213 224 Hardwoods 561 617 605 588 Overall 554 544 576 529 Owned acres 117,000 118,000 117,000 118,000 Acres under management 439,000 522,000 439,000 522,000 Capital expenditures $ 4,132 $ 948 $ 6,756 $ 3,260 Depletion 922 1,353 10,611 5,092 Depreciation 159 152 641 660 Debt to total capitalization 34% 40% 34% 40% QUARTER TO QUARTER COMPARISONS (Amounts in $000's) Q4 2005 vs. Q4 2004 Q4 2005 vs. Q3 2005 Total Total Net income: 4th Quarter 2005 872 872 3rd Quarter 2005 4,137 4th Quarter 2004 820 ------------------- ------------------- Variance 52 (3,265) Detail of earnings variance: Fee Timber Log price realizations (A) 83 (217) Log volumes (B) (413) (7,077) Log production costs (95) 2,177 Depletion 431 1,701 Other Fee Timber 22 255 Timberland Management & Consulting Management fee changes 918 724 Consulting fees 18 (413) Disposition fees 1,388 1,380 Other Timberland Mgmnt & Consulting (807) (599) Real Estate Development property sales (562) (280) Environmental remediation (90) 18 Other (285) (286) General & administrative costs (264) (312) Interest expense 14 (14) Other (taxes, minority int., interest inc.) (306) (322) ------------------- ------------------- Total change in earnings 52 (3,265) =================== =================== (A) Price variance calculated based on changes in price using the current period volume. (B) Volume variance calculated based on change in sales volume using the average log sales price for the prior period. *T