UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9035
POPE RESOURCES, A DELAWARE
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 91-1313292
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
19245 10th Avenue NE, Poulsbo, WA 98370
Telephone: (360) 697-6626
(Address of principal executive offices including zip code)
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes_X_ No__
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Securities and Exchange Act of 1934). Yes__ No_X_
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12-2 of the Exchange Act Yes__ No_X_
Partnership units outstanding at November 2, 2005: 4,646,371
Pope Resources
Index to Form 10-Q Filing
For the Quarter Ended September 30, 2005
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Description Page Number
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Part I. Financial Information
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Item 1 Financial Statements (unaudited)
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Condensed Consolidated Balance Sheets 4
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Condensed Consolidated Statements of Operations 5
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Condensed Consolidated Statements of Cash Flows 6
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Notes to Condensed Consolidated Financial Statements 7
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
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Item 3. Quantitative and Qualitative Disclosures about Risk 31
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Item 4. Controls and Procedures 32
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Part II. Other Information
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Item 1. Legal Proceedings 32
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Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds 32
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Item 3. Defaults Upon Senior Securities 32
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Item 4. Submission of Matters to a Vote of Security Holders 32
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Item 5. Other Information 33
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Item 6. Exhibits 33
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Signatures 34
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P A R T I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Pope Resources
September 30, 2005 and December 31, 2004
(Thousands)
2005 2004
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 3,009 $ 757
Short-term investments 14,000 -
Accounts receivable 2,481 1,120
Land held for sale 3,450 152
Current portion of contracts receivable 633 606
Prepaid expenses and other 607 194
---------- ---------
Total current assets 24,180 2,830
---------- ---------
Properties and equipment at cost:
Land held for development 6,904 9,074
Land and land improvements 15,565 15,760
Roads and timber (net of accumulated
depletion of $36,109 and $26,418) 53,779 62,684
Buildings and equipment (net of accumulated
depreciation of $6,490 and $6,034) 3,266 3,166
---------- ---------
79,514 90,683
---------- ---------
Other assets:
Contracts receivable, net of current portion 295 158
Other 183 1,198
---------- ---------
478 1,355
---------- ---------
Total assets $ 104,172 $ 94,868
========== =========
Liabilities and Partners' Capital
Current liabilities:
Accounts payable $ 1,219 $ 597
Accrued liabilities 1,566 1,492
Environmental remediation 95 468
Current portion of long-term debt 1,602 1,602
Minority interest 279 30
Operating line of credit - 759
Deferred profit 223 918
Other current liabilities 61 70
---------- ---------
Total current liabilities 5,045 5,935
Long-term debt, net of current portion 32,308 34,164
Other long term liabilities 211 236
Partners' capital 66,608 54,532
---------- ---------
Total liabilities and partners' capital $ 104,172 $ 94,868
========== =========
See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Pope Resources
For the Three Months and Nine Months Ended September 30, 2005 and 2004
(Thousands, except per unit data) Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
--------- --------- ---------- ----------
Revenues $ 15,312 $ 8,051 $ 48,099 $ 31,671
Cost of timber and land sold (6,631) (3,269) (21,845) (11,885)
Operating expenses (3,038) (1,892) (8,042) (5,624)
Environmental remediation - (171) (108) (466)
General and administrative expenses (822) (660) (2,517) (2,116)
--------- --------- ---------- ----------
Income from operations 4,821 2,059 15,587 11,580
--------- --------- ---------- ----------
Other income (expense):
Interest expense (710) (739) (2,154) (2,314)
Interest income 124 41 217 90
--------- --------- ---------- ----------
(586) (698) (1,937) (2,224)
Income before income taxes and minority interest 4,235 1,361 13,650 9,356
Income tax provision (52) - (562) -
--------- --------- ---------- ----------
Income before minority interest 4,183 1,361 13,088 9,356
Minority interest (46) - (275) -
--------- --------- ---------- ----------
Net income $ 4,137 $ 1,361 $ 12,813 $ 9,356
========= ========= ========== ==========
Allocable to general partners $ 54 $ 18 $ 167 $ 124
Allocable to limited partners 4,083 1,343 12,645 9,232
Earnings per unit:
Basic $ 0.90 $ 0.30 $ 2.79 $ 2.07
========= ========= ========== ==========
Diluted $ 0.87 $ 0.30 $ 2.70 $ 2.04
========= ========= ========== ==========
Distributions declared per unit 0.25 0.15 0.55 0.29
========= ========= ========== ==========
Weighted average units outstanding:
Basic 4,621 4,522 4,593 4,520
========= ========= ========== ==========
Diluted 4,773 4,608 4,742 4,588
========= ========= ========== ==========
See accompanying notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Pope Resources
Nine Months Ended September 30, 2005 and 2004
(Thousands) 2005 2004
--------- ---------
Cash flows provided by operating activities
Net income $ 12,813 $ 9,356
Add back (deduct) non-cash charges (credits):
Deferred profit (695) 539
Deferred taxes 594 -
Minority interest 275 -
Unit based compensation 14 -
Depletion 9,662 3,706
Timber depletion on land sale 28 34
Depreciation and amortization 482 507
Cost of land sold 344 40
Change in working capital accounts:
Accounts receivable (1,361) (287)
Contracts receivable (164) 76
Note receivable from Port Ludlow sale - 817
Land held for sale - 25
Other current assets (15) 360
Accounts payable 622 (45)
Accrued liabilities 74 5
Deposits (8) 90
Environmental remediation (373) 280
Other long term liabilities (25) -
Other 1 8
--------- ---------
Net cash flows provided by operating activities 22,268 15,511
Cash flows from investing activities:
Timberland acquisition - (8,922)
Capital expenditures (2,624) (3,561)
Purchase of short-term investments (14,000) -
--------- ---------
Net cash used in investing activities (16,624) (12,483)
--------- ---------
Cash flows from financing activities:
Option exercises 1,790 49
Repayment of operating line of credit (759) -
Minority interest distribution (27) (60)
Repayment of long-term debt (1,856) (1,978)
Unitholder distribution (2,540) (1,311)
--------- ---------
Net cash used in financing activities (3,392) (3,300)
--------- ---------
Net increase (decrease) in cash and cash equivalents 2,252 (272)
Cash and cash equivalents at beginning of year 757 10,361
--------- ---------
Cash and cash equivalents at end of the nine-month period $ 3,009 $ 10,089
========= =========
See accompanying notes to condensed consolidated financial statements.
6
POPE RESOURCES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2005
1. The condensed consolidated financial statements as of September 30, 2005
and December 31, 2004 and for the three months (quarter) and nine months
(year-to-date) ended September 30, 2005 and September 30, 2004 have been
prepared by Pope Resources, A Delaware Limited Partnership ("the
Partnership") pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). The financial information for the quarters
and nine month periods ended September 30, 2005 and 2004 is unaudited, but,
in the opinion of management, reflects all adjustments (consisting only of
normal recurring adjustments and accruals) necessary for a fair
presentation of the financial position, results of operations and cash
flows for the interim periods. The financial information as of December 31,
2004, is derived from the Partnership's audited consolidated financial
statements and notes thereto for the year ended December 31, 2004, and
should be read in conjunction with such financial statements. The results
of operations for the quarter and nine month period ended September 30,
2005 are not necessarily indicative of the results of operations that may
be achieved for the entire fiscal year ending December 31, 2005.
2. The financial statements in the Partnership's 2004 annual report on Form
10-K include a summary of significant accounting policies of the
Partnership and should be read in conjunction with this Quarterly Report on
Form 10-Q.
3. Basic net earnings per unit are based on the weighted average number of
units outstanding during the period. Diluted net earnings per unit are
based on the weighted average number of units and dilutive unit options
outstanding at the end of the period.
Quarter Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
--------------------------------------
Weighted average units outstanding
(in thousands):
Basic 4,621 4,522 4,593 4,520
Dilutive effect of unit options 152 86 149 68
--------------------------------------
Diluted 4,773 4,608 4,742 4,588
======================================
Options to purchase 277,000 units at prices ranging from $9.30 to $37.73
per unit were outstanding as of September 30, 2005. For the computation of
dilutive effect of unit options for the quarter ended September 30, 2005,
options to purchase 927 units at prices ranging from $35.00 to $37.73 were
not included in the calculation because the option exercise prices were
greater than the average market prices of units during the period.
Similarly, for the nine month period ended September 30, 2005, options to
purchase 927 units at prices ranging from $35.00 to $37.73 were not
included in the calculation because the option exercise prices were greater
than the average market prices of units during the period.
7
In the prior year, options to purchase 393,000 units at prices ranging from
$9.30 to $27.88 per unit were outstanding as of September 30, 2004. For the
computation of dilutive effect of unit options for the quarter ended
September 30, 2004, 93,000 options to purchase units at prices ranging from
$21.00 to $27.88 were not included in the calculation because the option
exercise prices were greater than the average market prices of units during
the period. Similarly, for the computation of dilutive effect of unit
options for the nine-month period ended September 30, 2004, options to
purchase 167,000 units at prices ranging from $18.50 to $27.88 were not
included in the calculation because the option exercise prices were greater
than the average market price during the period.
The Partnership accounts for unit-based compensation in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly,
compensation cost for unit options is measured as the excess, if any, of
the fair value of the Partnership's units at the measurement date over the
amount an employee must pay to acquire the unit.
Unit options granted have an exercise price not less than the fair value of
the Partnership's unit price on the date of the grant. Had compensation
expense for unit option grants been recognized based on the fair value at
the grant date consistent with the Black-Scholes method described in
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, the Partnership's net income would have been
adjusted to the pro forma amounts indicated below:
Quarter ended Nine months ended
September 30, September 30,
(In thousands except per unit amounts) 2005 2004 2005 2004
-------- -------- --------- --------
Net income as reported $ 4,137 $ 1,361 $ 12,813 $ 9,356
Compensation expense recognized 14 - 14 -
Subtract proforma compensation
expense under SFAS 123 (49) (50) (119) (150)
-------- -------- --------- --------
Proforma net income under SFAS 123 $ 4,102 $ 1,311 $ 12,708 $ 9,206
======== ======== ========= ========
Earnings per unit as reported:
Basic $ 0.90 $ 0.30 $ 2.79 $ 2.07
======== ======== ========= ========
Diluted $ 0.87 $ 0.30 $ 2.70 $ 2.04
======== ======== ========= ========
Proforma earnings per unit:
Basic $ 0.89 $ 0.29 $ 2.77 $ 2.04
======== ======== ========= ========
Diluted $ 0.86 $ 0.28 $ 2.68 $ 2.01
======== ======== ========= ========
The fair value of options was calculated using the Black-Scholes
option-pricing model, with the following assumptions during the first nine
months of 2005 and 2004:
8
2005 2004
--------------- ---------------
Expected life 5 years 5 years
Risk free interest rate 4.00% - 4.49% 3.97% - 4.75%
Dividend yield 1.2% - 1.7% 1.2% - 1.6%
Volatility 25.0% - 27.5% 20.7% - 25.4%
Weighted average value $8.80 $4.61
4. Supplemental disclosure of cash flow information: Interest paid amounted to
approximately $729,000 and $760,000 for the quarters ended September 30,
2005 and 2004, respectively. For the nine months ended September 30, 2005
and 2004, interest paid amounted to $2,174,000 and $2,329,000,
respectively. Income taxes paid amounted to approximately $36,000 and zero
for the quarters ended September 30, 2005, and 2004, respectively. For the
nine months ended September 30, 2005 and 2004 income taxes paid amounted to
$32,000 and $4,000, respectively.
5. Revenue and operating income by segment for the quarters and nine month
periods ended September 30, 2005 and 2004, are as follows:
9
Timberland
Three Months Ended Fee Management & Real
September 30 (Thousands) Timber Consulting Estate Other Consolidated
- -------------------------------------- --------- ----------- -------- ------- -------------
2005
Revenue internal $ 12,349 $ 1,667 $ 1,308 $ - $ 15,324
Eliminations (2) (1) (9) - (12)
--------- --------- -------- ------- ---------
Revenue external 12,347 1,666 1,299 - 15,312
Cost of sales (6,511) - (120) - (6,631)
Operating expenses internal (1,088) (1,279) (683) (822) (3,872)
Eliminations 6 6 - - 12
--------- --------- -------- ------- ---------
Operating expenses external (1,082) (1,273) (683) (822) (3,860)
Income (loss) from operations internal 4,750 388 505 (822) 4,821
Eliminations 4 5 (9) - -
--------- --------- -------- ------- ---------
Income (loss) from operations external $ 4,754 $ 393 $ 496 $ (822) $ 4,821
--------- --------- -------- ------- ---------
EBITDDA reconciliation:
Minority interest - - - (46) (46)
Depletion 2,701 - (77) - 2,624
Depreciation and amortization 34 26 38 64 162
--------- --------- -------- ------- ---------
EBITDDA $ 7,489 $ 419 $ 457 $ (804) $ 7,561
========= ========== ======== ======= =========
2004
Revenue internal $ 7,230 $ 592 $ 368 $ - $ 8,190
Eliminations (15) (115) (9) - (139)
--------- --------- -------- ------- ---------
Revenue external 7,215 477 359 - 8,051
Cost of sales (3,233) - (36) - (3,269)
Operating expenses internal (1,037) (564) (601) (660) (2,862)
Eliminations 113 24 2 - 139
--------- --------- -------- ------- ---------
Operating expenses external (924) (540) (599) (660) (2,723)
Income (loss) from operations internal 2,960 28 (269) (660) 2,059
Eliminations 98 (91) (7) - -
--------- --------- -------- ------- ---------
Income (loss) from operations external $ 3,058 $ (63) $ (276) $ (660) $ 2,059
--------- --------- -------- ------- ---------
EBITDDA reconciliation:
Depletion 966 - - - 966
Depreciation and amortization 31 22 30 91 174
--------- --------- -------- ------- ---------
EBITDDA $ 4,055 $ (41) $ (246) $ (569) $ 3,199
========= ========== ======== ======= =========
10
Timberland
Nine Months Ended Fee Management & Real
September 30 (Thousands) Timber Consulting Estate Other Consolidated
- -------------------------------------- --------- ----------- -------- --------- ------------
2005
Revenue internal $ 39,232 $ 5,127 $ 3,773 $ - $ 48,132
Eliminations (2) (4) (27) - (33)
--------- --------- -------- --------- ----------
Revenue external 39,230 5,123 3,746 - 48,099
Cost of sales (21,278) - (567) - (21,845)
Operating expenses internal (3,232) (3,093) (1,858) (2,517) (10,700)
Eliminations 6 25 2 - 33
--------- --------- -------- --------- ----------
Operating expenses external (3,226) (3,068) (1,856) (2,517) (10,667)
Income (loss) from operations internal 14,722 2,034 1,348 (2,517) 15,587
Eliminations 4 21 (25) - -
--------- --------- -------- --------- ----------
Income (loss) from operations external $ 14,726 $ 2,055 $ 1,323 $ (2,517) $ 15,587
--------- --------- -------- --------- ----------
EBITDDA reconciliation:
Minority interest - - - (275) (275)
Depletion 9,662 - 28 - 9,690
Depreciation and amortization 102 74 108 198 482
--------- --------- -------- --------- ----------
EBITDDA $ 24,490 $ 2,129 $ 1,459 $ (2,594) $ 25,484
========= ========== ======== ========= ==========
2004
Revenue internal $ 28,040 $ 1,323 $ 2,704 $ - $ 32,067
Eliminations (45) (324) (27) - (396)
--------- --------- -------- --------- ----------
Revenue external 27,995 999 2,677 - 31,671
Cost of sales (11,781) - (104) - (11,885)
Operating expenses internal (2,956) (1,652) (1,878) (2,116) (8,602)
Eliminations 303 87 6 - 396
--------- --------- -------- --------- ----------
Operating expenses external (2,653) (1,565) (1,872) (2,116) (8,206)
Income (loss) from operations internal 13,303 (329) 722 (2,116) 11,580
Eliminations 258 (237) (21) - -
--------- --------- -------- --------- ----------
Income (loss) from operations external $ 13,561 $ (566) $ 701 $ (2,116) $ 11,580
--------- --------- -------- --------- ----------
EBITDDA reconciliation:
Depletion 3,706 - 34 - 3,740
Depreciation and amortization 92 66 80 269 507
--------- --------- -------- --------- ----------
EBITDDA $ 17,359 $ (500) $ 815 $ (1,847) $ 15,827
========= ========== ======== ========= ==========
11
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains a number of projections and statements about our expected
financial condition, operating results, and business plans and objectives. These
statements reflect our management's estimates based on our current goals, in
light of management's expectations about future developments. Statements about
expectations and future performance are "forward looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
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, you should not interpret these statements as
promises that we will perform at a given level or that we will take any or all
of the actions we currently expect to take. Our future actions, as well as our
actual performance, will vary from our current expectations, and under various
circumstances these variations may be material and adverse. Some of the factors
that may cause our actual operating results and financial condition to fall
short of our expectations are set forth in the part of this report entitled
"Risks and Uncertainties" below and other factors discussed in our annual report
on Form 10-K for the fiscal year ended December 31, 2004. Other issues that may
have an adverse and material impact on our business, operating results and
financial condition include environmental and land use regulations that limit
our ability to harvest timber and develop property and economic conditions that
affect consumer demand for our products and the prices we receive for them, and
other risks and uncertainties which are discussed in our other filings with the
Securities and Exchange Commission. The forward-looking statements in this
report reflect our estimates as of the date of the report, and we cannot
undertake to update these statements as our business operations and environment
change.
This discussion should be read in conjunction with the condensed
consolidated financial statements and related notes included with this report.
EXECUTIVE OVERVIEW
Pope Resources, A Delaware Limited Partnership ("we" or the "Partnership"),
was organized in October 1985 as a result of a spin-off by Pope & Talbot, Inc.
("P&T"). The Partnership is engaged in three primary businesses. The first, and
by far most significant, segment in terms of owned assets and operations is the
Fee Timber segment. Operations in this segment consist of growing timber to be
harvested as logs for sale to export and domestic manufacturers. The second most
significant business in terms of total assets owned is the development and sale
of real estate. Real Estate activities primarily take the form of securing
permits and entitlements for unimproved land and then realizing that land's
value by selling parcels to buyers who will take the land further up the value
chain, either to home buyers, builders, or commercial property operators or
lessors. Since these land projects span multiple years, the Real Estate segment
may incur losses for multiple years until a major project is sold, which then
results in operating income. Our third business is providing timberland-related
services to third parties. These services may take the form of large-scale
timberland management, forestry consulting, or acquisition or disposition
services.
Management's major opportunity and challenge is to profitably grow our
revenue base. We have added over 44,000 acres to our timberland portfolio over
the last five years. Our real estate challenges center around how and when to
"harvest" a parcel of land and capture the optimum value by selling the
property.
12
Regarding our third-party timberland services, we entered into a management
contract with Cascade Timberlands LLC in January 2005 to manage that company's
522,000 acres of timberland in Washington and Oregon. Additionally, now that we
have closed the $61.8 million ORM Timber Fund I, LP we will seek to add to our
timberland ownership, albeit indirectly, through Pope Resources' co-investment
in the fund. Successful acquisitions by the fund will also result in additional
management fees for the Timberland Management & Consulting segment.
RESULTS OF OPERATIONS
The following table reconciles and compares key revenue and cost elements that
impact our net income for each of the three-month periods ended September 30,
2005 and September 30, 2004. In addition to the table's detailed numeric
analysis, the explanatory text that follows the table describes many of these
changes by business segment.
QUARTER TO QUARTER COMPARISONS
(Amounts in $000's)
Q3 2005 vs. Q3 2004
Total
Net income:
3rd Quarter 2005 $ 4,137
3rd Quarter 2004 1,361
-------------------
Variance $ 2,776
Detail of earnings variance:
Fee Timber
Log price realizations (A) $ 838
Log volumes (B) 4,188
Production costs (1,630)
Depletion (1,648)
Other Fee Timber (52)
Timberland Management & Consulting
Management fees 176
Other Timberland Management & Consulting 280
Real Estate
Land sales 829
Environmental remediation 63
Other Real Estate (120)
General & administrative costs (162)
Interest expense 29
Other (taxes, minority interest, interest inc.) (15)
-------------------
Total change in earnings $ 2,776
===================
(A) Price variance calculated by multiplying change in average price by prior
period volume.
(B) Volume variance calculated by multiplying change in volume by current
average price.
13
Fee Timber
- ----------
Fee Timber revenue is earned primarily from the harvest and sale of logs
from the Partnership's nearly 115,000 acres of fee timberland located in western
Washington and, to a lesser extent, from the lease of cellular communication
towers and the sale of gravel. Revenue from the sales of timberland tracts will
also appear periodically in results for this segment. Our Fee Timber revenue is
driven primarily by the volume of timber harvested, which we ordinarily express
in terms of millions of board feet, or "MMBF", and by the average prices
realized on log sales, which we express in dollars per thousand board feet, or
"MBF".
When discussing our Fee Timber operations, we compare current results to
both the previous quarter and the corresponding quarter of the prior year. Both
of these comparisons are made to help the reader gain an understanding of the
trends in market price and harvest volumes that affect Fee Timber results of
operations. Revenue and operating income for the Fee Timber segment for the
quarters ended September 30, 2005, June 30, 2005 and September 30, 2004 are as
follows:
- --------------------------------------------------------------------------------
Total Fee
Mineral, Cell Timber Operating
Quarter Ended: Log Sales Tower & Other Revenue Income
- --------------------------------------------------------------------------------
September 30, 2005 $ 11.9 million $ 0.4 million $ 12.3 million $ 4.8 million
June 30, 2005 12.9 million 0.3 million 13.2 million 4.9 million
September 30, 2004 6.8 million 0.4 million 7.2 million 3.1 million
- --------------------------------------------------------------------------------
The decrease in revenue and operating income for the current quarter
relative to the second quarter of 2005 is attributable to an 8% decrease in
volume harvested partially offset by a less than 1% increase in average price
realized. Log volume sold for the quarter ended September 30, 2005 increased 54%
from the quarter ended September 30, 2004 while average price realized increased
12%, which resulted in a substantial increase in revenue and operating income
for the current quarter relative to the third quarter of 2004. This increase in
both volume harvested and average price realized was offset by an increase in
depletion rate from $73/MBF in 2004 to $131/MBF in 2005. The large increase in
depletion rate is due to harvest activities from timberland acquired in late
2004 for which we have established a separate depletion pool with high per unit
costs.
Revenue and operating income for the Fee Timber segment for the nine months
ended September 30, 2005, and 2004 are as follows:
- --------------------------------------------------------------------------------
Total Fee
Mineral, Cell Timber Operating
Nine Months Ended: Log Sales Tower & Other Revenue Income
- --------------------------------------------------------------------------------
September 30, 2005 $ 38.1 million $ 1.1 million $ 39.2 million $ 14.7 million
September 30, 2004 26.9 million 1.1 million 28.0 million 13.6 million
- --------------------------------------------------------------------------------
Harvest volume was up 29% during the first three quarters of 2005 from the
corresponding period in 2004. This increase is due to a higher planned harvest
in 2005 following two timberland acquisitions in 2004. In addition, average log
prices were up $53 per MBF, representing a 10% increase over 2004's log prices
for the corresponding period. These higher volumes and stronger prices explain
the $11.2 million increase in revenue for the first three quarters of 2005
versus the corresponding period in 2004. Year-to-date 2005 operating income for
the Fee Timber segment did not increase proportionate to revenue, going up $1.1
million, or 8%, compared to the same period in 2004 due to a $6.0 million
increase in depletion expense. The increase in depletion expense results from
the use of a separate depletion pool for the timberland acquired in the fourth
quarter of 2004. The log harvest volume coming from this acquisition has a
separate depletion pool because the timber inventory from this acquisition was
almost completely merchantable. Incremental harvest cash flow attributable to
this acquired timberland will serve to offset a large portion of the purchase
price. As a result of harvesting volume from this acquisition, overall depletion
expense for the first three quarters of 2005 increased $75 per MBF, representing
a 104% increase on a per MBF basis over the same period in 2004. Harvest
activities from this separate depletion pool are expected to continue into 2006.
However, because management's practice has been to accelerate our timber harvest
during the early months of the year where log market prices permit, readers
should not assume that our nine-month revenues are indicative of results that
would occur for the entire fiscal year or for the coming twelve-month period.
14
The Partnership harvested the following log volumes from its timberlands
for the quarters ended September 30, 2005, June 30, 2005, and September 30, 2004
and for the nine-month periods ended September 30, 2005 and 2004:
Quarter Ended
30-Sept-05 30-June-05 30-Sept-04
---------- ---------- ----------
Log sale volumes (MBF):
Export 1,046 978 530
Domestic 15,192 16,774 9,256
Pulp 2,655 3,282 2,807
Hardwoods 1,649 1,329 716
---------- ---------- ----------
Total 20,542 22,363 13,309
========== ========== ==========
Nine Months Ended
30-Sept-05 30-Sept-04
---------- ----------
Log sale volumes (MBF):
Export 4,780 7,196
Domestic 48,069 33,991
Pulp 8,590 8,226
Hardwoods 4,466 1,803
---------- ----------
Total 65,905 51,216
========== ==========
Through September 30, 2005, we have harvested 83% of our targeted annual
harvest (versus 85% for the corresponding period in the prior year). Inasmuch as
our late-2004 timberland acquisition represented primarily a purchase of
merchantable timber, our annual harvest in 2005 was targeted to increase to a
projected level of 79 MMBF from 2004's annual level of 60 MMBF. We expect the
total harvest for 2005 to end up closer to 74 or 75 MMBF.
Export-grade log volume sold in the quarter ended September 30, 2005 was 5%
versus 4% of volume sold for the quarter ended June 30, 2005. On a year-to-date
basis, export-grade log volume sold declined to 7% in the first three quarters
of 2005 versus 14% for the corresponding period in 2004. This decline is due to
the strengthening U.S. dollar, which has made U.S.-sourced logs more expensive
to the Japanese market combined with a harvest mix in 2004 that included a
number of timber stands with high quality export timber. In addition, domestic
sawmills are purchasing a higher proportion of high quality logs that
historically flowed to export markets.
15
We realized the following log prices from our fee timberlands for the
quarters ended September 30, 2005, June 30, 2005 and September 30, 2004 and the
nine-month periods ended September 30, 2005 and 2004:
Quarter Ended
Average price realizations (per MBF): 30-Sept-05 30-June-05 30-Sept-04
Export $ 665 $ 662 $ 694
Domestic 631 646 591
Pulp 211 205 226
Hardwoods 643 557 564
Overall 580 577 517
Nine Months Ended
Average price realizations (per MBF): 30-Sept-05 30-Sept-04
Export $ 664 $ 660
Domestic 633 568
Pulp 211 227
Hardwoods 612 570
Overall 579 526
We sell our logs domestically to mills and internationally to log brokers
that resell our logs to Japanese customers and, when export conditions allow, to
the Korean and Chinese log markets. Prices paid by these log brokers are
dependent upon the export market for logs but are generally purchased for a
premium to prices paid by domestic customers. In the current quarter, export
prices have increased modestly from the second quarter of 2005 and have
decreased 4% from the corresponding period in 2004. The small decrease in price
realized on export logs when comparing third quarter 2004 to the current quarter
is attributed to the strengthening U.S. dollar against the Japanese yen, which
makes U.S. products more expensive to the Japanese marketplace. On a
year-to-date basis, the average export price has increased only modestly. Over
the last several years, the export market for logs has become a much less
significant consumer of supply, taking only the highest quality, most expensive
logs into the export market.
Domestic log prices for the quarter ended September 30, 2005 were 2% lower
than the second quarter of 2005 and increased 7% from the comparable period in
the prior year. The modest decline in domestic log prices realized in the
current quarter compared to the second quarter of 2005 is indicative of a slight
weakening in log markets experienced in the latter part of 2005. On the other
hand, the increase in domestic log prices realized in the current quarter
compared to 2004's third quarter is attributed to the continued strong domestic
housing and repair and remodel markets. These logs are commanding a higher price
as domestic mills have been producing at capacity to keep up with the strong
demand for lumber. On a year-to-date basis, domestic log prices have increased
11% from the corresponding period in 2004. This increase is also attributed to
the strong domestic housing market and strong overall domestic economic
conditions.
The average price realized per MBF on pulp logs was $211, $205, and $226,
for the quarters ended September 30, 2005, June 30, 2005 and September 30, 2004,
respectively. Pulp log prices have increased modestly from the second quarter of
2005 but remain below levels experienced in 2004 due to the strong domestic
market for logs. The strong domestic market for logs results in an increase in
harvest activities, which produces additional supply of pulp logs. As a result,
local pulp log inventories have increased resulting in some downward pressure on
price.
16
The average price realized per MBF on hardwood sawlogs was $643, $557, and
$564, for the quarters ended September 30, 2005, June 30, 2005 and September 30,
2004, respectively. The increase in price realized for hardwood logs during the
quarter ended September 30, 2005 is due to an increase in the quality of
hardwood logs harvested during the quarter. The units harvested in the third
quarter of 2005 included several areas with a large component of high-quality
alder stands resulting in higher prices relative to the second quarter of 2005
and the comparable period in 2004.
Cost of Sales
Cost of sales for the Fee Timber segment consists of harvest costs and
depletion expense. Harvest costs represent the direct cost incurred to convert
trees into logs and deliver those logs to their point of sale. Depletion expense
represents the cost of acquiring or growing the timber harvested and is
calculated using a depletion rate developed from an accumulation of the cost of
the timber and capitalized road cost, divided by the estimated volume of
merchantable timber available for harvest. The depletion rate is then applied to
the volume harvested to calculate depletion expense. Fee Timber cost of sales
for the quarters ended September 30, 2005, June 30, 2005, and September 30,
2004, respectively, were:
- --------------------------------------------------------------------
Harvest and Depletion
Quarter Ended: Haul Costs Expense Total
- --------------------------------------------------------------------
September 30, 2005 $ 3.8 million $ 2.7 million $ 6.5 million
June 30, 2005 4.1 million 3.1 million 7.2 million
September 30, 2004 2.2 million 1.0 million 3.2 million
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Harvest and Depletion
Haul Costs Expense
Quarter Ended: per MBF per MBF Total
- --------------------------------------------------------------------
September 30, 2005 $ 186 $ 131 $ 317
June 30, 2005 184 140 324
September 30, 2004 171 72 243
- --------------------------------------------------------------------
Cost of sales have decreased in the third quarter of 2005 relative to
second quarter of 2005 due to the following combination of factors: a decrease
in overall volume harvested; a decrease in specific volume harvested from the
separate depletion pool created following a fourth quarter 2004 timberland
acquisition; and an increase in harvest and haul cost per MBF harvested. The
first two of these factors contribute to a reduction in comparative costs while
the third partially offsets this decrease.
When compared to the third quarter of 2004, cost of sales for the current
quarter has increased due to (a) an increase in overall harvest volume and (b)
an increase in depletion rate applied to volume harvested from the separate
depletion pool and (c) an increase in harvest and haul costs per MBF. Harvest
costs vary based upon the physical site characteristics of the specific acres
harvested during the period. For example, difficult-to-access sites or those
located on steep hillsides are more expensive to harvest. Furthermore, haul
costs vary based upon the distance between the harvest area and the mill
customer's location. For the quarter ended September 30, 2005, harvest and haul
costs per MBF have increased relative to the second quarter of 2005 and the
corresponding period in the prior year. The increase is due to higher fuel costs
and a 2005 harvest schedule that includes a higher-than-usual proportion of high
quality cedar that was hauled longer distances to take advantage of higher
prices offered by more distant customers.
17
Fee Timber cost of sales for the nine months ended September 30, 2005 and 2004
were as follows:
- ---------------------------------------------------------------------
Harvest and
Nine Months Ended: Haul Costs Depletion Total
- ---------------------------------------------------------------------
September 30, 2005 $ 11.6 million $ 9.7 million $ 21.3 million
September 30, 2004 8.1 million 3.7 million 11.8 million
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Harvest and Depletion
Haul Costs Expense
Nine Months Ended: per MBF per MBF Total
- ---------------------------------------------------------------------
September 30, 2005 $ 176 $ 147 $ 323
September 30, 2004 158 72 230
- ---------------------------------------------------------------------
On a year-to-date basis, cost of sales have increased relative to 2004 due
to the increase in harvest volume, an increase in depletion rate due to volume
harvested from the separate depletion pool, and the increase in fuel costs which
have increased the operating costs of the contractors we hire to harvest timber.
We expect harvest and haul costs on a per MBF basis to remain above levels
experienced in prior years as long as fuel costs remain high.
A depletion rate is applied to all volume harvested based upon the
historical cost of the timber. We are using two separate depletion rates in
2005, one for volume harvested from those timberlands we acquired in the fourth
quarter of 2004 (the "Quilcene Timberlands"), and one for volume harvested from
all other owned timberlands. Since the Quilcene Timberlands were recently
acquired, the cost of the timber is high relative to the cost basis of our
existing timber. The increase in depletion expense experienced in 2005 stemmed
from harvest activity on the Quilcene Timberlands for which we created a
separate depletion pool. We created this separate depletion pool because the
timber inventory from this acquisition was almost completely merchantable. We
expect to harvest a total of approximately 74 to 75 MMBF in 2005, of which 18
MMBF is expected to come from this separate depletion pool. The depletion cost
resulting from log harvests on this acquired timberland will approximate the net
stumpage value (delivered log price less harvesting and transportation cost)
realized on the sale of this particular timber. As such, the incremental harvest
from this acquired property will result in a negligible net income impact while
nonetheless generating significant operating cash flow and EBITDDA.
Depletion expense for the quarters ended September 30, 2005, June 30, 2005,
and September 30, 2004 was calculated as follows:
18
Three months ended September 30, 2005
Pooled Separate Total
----------------------------------------
Volume harvested (MBF) 16,832 3,710 20,542
Rate/MBF $ 75 $ 387 $ 131
----------------------------------------
Depletion expense $ 1,267,000 $ 1,434,000 $ 2,701,000
========================================
Three months ended June 30, 2005
Pooled Separate Total
----------------------------------------
Volume harvested (MBF) 17,284 5,079 22,363
Rate/MBF $ 72 $ 370 $ 140
----------------------------------------
Depletion expense $ 1,246,000 $ 1,879,000 $ 3,125,000
========================================
Three months ended September 30, 2004
Pooled Total
--------------------------
Volume harvested (MBF) 13,309 13,309
Rate/MBF $ 72 $ 72
--------------------------
Depletion expense $ 958,000 $ 958,000
==========================
The calculations outlined above point out the significant role that the
separate depletion pool for timber acquired in late-2004 plays in defining the
aggregate rate for each period described above. As relative harvest volume from
the separate depletion pool declined in the third quarter of 2005 relative to
the second quarter of 2005 the average depletion rate declined to $131 per MBF
from $140 per MBF in the second quarter. The depletion rate applied to volume
harvested from the Quilcene acquisition increased in the third quarter of 2005
to $387 per MBF from $370 per MBF in the second quarter of 2005. The table below
details the calculation of depletion expense on a year-to-date basis and shows
the increase in average depletion rate from $72 per MBF for the first three
quarters of 2004 to $147 per MBF for the corresponding period in 2005.
Nine months ended September 30, 2005
Pooled Separate Total
----------------------------------------
Volume harvested (MBF) 49,797 16,108 65,905
Rate/MBF $ 73 $ 374 $ 147
----------------------------------------
Depletion expense $ 3,642,000 $ 6,020,000 $ 9,662,000
========================================
Nine months ended September 30, 2004-Pooled
-------------------------------------------
Volume harvested (MBF) 51,216
Rate/MBF $ 72
------------
Depletion expense $ 3,706,000
============
19
Operating Expenses
Fee Timber operating expenses for the quarters ended September 30, 2005,
June 30, 2005, and September 30, 2004 were $1.1 million, $1.1 million, and
$924,000, respectively. Operating expenses are consistent between the current
quarter and the quarter ended June 30, 2005, and have increased 17% from the
third quarter of the prior year. Similarly, operating expenses on a year-to-date
basis have increased to $3.2 million at September 30, 2005 from $2.7 million at
September 30, 2004. These increases are primarily due to an increase in road
maintenance costs. Road maintenance costs have increased in 2005, due to the
cost of building temporary roads resulting from the increase in harvest volume
combined with the cost of complying with new Washington State regulations
surrounding road maintenance and abandonment plans. Additionally, the 2005
harvest schedule includes a higher-than-usual proportion of harvest units
characterized by either steep slopes or requiring more expensive roads to be
built to access the timber.
Timberland Management & Consulting
- ----------------------------------
Revenue and operating income/(loss) for the Timberland Management &
Consulting segment for the quarters and nine months ended September 30, 2005 and
2004 were as follows:
- --------------------------------------------------------------------------------
Quarter Ended: Revenue Operating Income/(Loss)
- --------------------------------------------------------------------------------
September 30, 2005 $ 1.7 million $ 0.4 million
September 30, 2004 0.5 million (0.1) million
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Nine Months Ended: Revenue Operating Income/(Loss)
- --------------------------------------------------------------------------------
September 30, 2005 $ 5.1 million $ 2.1 million
September 30, 2004 1.0 million (0.6) million
- --------------------------------------------------------------------------------
Revenue and operating income for the quarter ended September 30, 2005 were
$1.2 million and $456,000 higher, respectively, than those amounts for the
corresponding period in 2004. On a year-to-date basis, revenue and operating
income were $4.1 million and $2.7 million higher, respectively, than those
amounts for the corresponding period in 2004. The increase in revenue and
operating income is primarily due to timberland management and consulting
services provided to Cascade Timberlands LLC. Cascade Timberlands LLC is a new
Timberland Management & Consulting client that owns 522,000 acres of timberland
located in Washington and Oregon. Olympic Resource Management LLC, a subsidiary
of the Partnership, began providing timberland management and other timberland
consulting services to this client in January 2005. Revenue generated in 2004
consists of fees earned while providing advisory services to the parties that
eventually became the owners of Cascade Timberlands LLC and consulting fees
generated through providing miscellaneous consulting and management services to
a variety of timberland owners.
On August 1, 2005 the Partnership announced that management has obtained
capital commitments of $61.8 million, of which Pope Resources has committed
$12.4 million, for the launch of a private equity timber fund. Olympic Resource
Management LLC is the general partner for the fund and Pope Resources is a
limited partner. We closed the fund to new investors in July 2005, and are now
actively searching for timber properties for the fund to acquire. The Timberland
Management & Consulting segment is expected to earn fees from managing the fund.
20
Operating Expenses
Timberland Management & Consulting operating expenses for the quarters
ended September 30, 2005 and 2004 were $1.3 million and $540,000, respectively.
On a year-to-date basis, operating expenses were $3.1 million and $1.6 million
for the nine-month periods ended September 30, 2005 and 2004, respectively. The
increase in operating expenses is primarily attributable to the opening of two
new field office locations in Sedro-Woolley, Washington and Bend, Oregon and the
additional staffing necessary to provide services under the timberland
management agreement with Cascade Timberlands LLC. Expenses associated with
pre-operating and start-up of the aforementioned private equity timber fund were
$184,000 during the current quarter and $247,000 for the first nine months of
2005. These expenses are included in Timberland Management & Consulting
operating expenses.
Real Estate
- -----------
The Partnership's Real Estate segment consists primarily of residential and
commercial property rents and revenue from the sale of land that is expected to
be used for something other than growing and harvesting timber. The
Partnership's real estate holdings are located in Pierce, Kitsap, and Jefferson
Counties in Washington State.
Revenue and operating income (loss) for the Real Estate segment for the
quarters and nine months ended September 30, 2005 and 2004 were as follows:
- --------------------------------------------------------------------------------
Quarter Ended: Revenue Operating Income/(Loss)
- --------------------------------------------------------------------------------
September 30, 2005 $ 1.3 million $ 0.5 million
September 30, 2004 0.4 million (0.3) million
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Nine Months Ended: Revenue Operating Income
- --------------------------------------------------------------------------------
September 30, 2005 $ 3.7 million $ 1.3 million
September 30, 2004 2.7 million 0.7 million
- --------------------------------------------------------------------------------
Revenue in the Real Estate segment is generated through the sale of raw
land and rural residential lots. Raw land sales are generally made for something
other than residential or commercial use and are normally completed with very
little capital investment prior to sale. Rural residential lot sales are made to
developers or individuals where the lot is expected to be used for a residential
dwelling with a general requirement to undertake some capital improvements such
as zoning, road building, or utility access improvements prior to completing the
sale.
Real Estate segment revenue for the quarters and nine months ended
September 30, 2005 and 2004 consist of the following:
21
Description Revenue Acres Revenue/acres
- ----------- ------------ ------ -------------
For the three months ended September 30, 2005:
Raw land $ 890,000 390 $ 2,282
Rural residential 160,000 83 1,928
Rental revenue 247,000 NA NA
Other 2,000 NA NA
------------ ------ -------------
$ 1,299,000 473 $ 2,220
============ ====== =============
For the three months ended September 30, 2004:
Raw land $ - $ -
Rural residential 130,000 54 2,412
Rental revenue 215,000 NA NA
Other 14,000 NA NA
------------ ------ -------------
$ 359,000 54 $ 2,412
============ ====== =============
For the nine months ended September 30, 2005:
Raw land $ 890,000 390 $ 2,282
Rural residential 2,134,000 373 5,714
Rental revenue 680,000 NA NA
Other 42,000 NA NA
------------ ------ -------------
$ 3,746,000 763 $ 3,961
============ ====== =============
For the nine months ended September 30, 2004:
Raw land $ 1,871,000 426 $ 4,392
Rural residential 129,000 54 2,393
Rental revenue 657,000 NA NA
Other 20,000 NA NA
------------ ------ -------------
$ 2,677,000 480 $ 4,168
============ ====== =============
At our development property in Gig Harbor, Washington, Costco Wholesale
Corporation, Northwest Capital Investors ("NCI"), and a subsidiary of the
Partnership, Olympic Property Group ("OPG") submitted detailed applications with
the City of Gig Harbor for a 25-acre retail shopping center on OPG's Harbor Hill
project. The applications submitted to the City of Gig Harbor are for site plan
review and a binding site plan for a proposed Costco store and over five acres
of additional multi-tenant retail space. We expect our first closing on this
property during the first half of 2006 to Costco Wholesale Corporation for 17
acres of the 320-acre site.
The Partnership's rural residential lot program produces lots from 5 to 80
acres in size, based on underlying zoning densities. This type of program
entails an entitlement effort typically consisting of simple lot segregations
and boundary line adjustments. Development activities include minor road
building, surveying, and the extension of utilities. We anticipate selling
approximately 250 acres annually in the rural residential lot program. This year
we will exceed that target, in part because a very strong market interest in
rural lots has accelerated sales timing.
22
A 263-acre planned development in the City of Bremerton, Washington
("Bremerton West Hills") includes 60 acres of industrial and 203 acres of
residential uses. We have actively marketed the residential portion of this
property during the second and third quarters of 2005 resulting in a number of
bids. We are currently under contract to sell this property and anticipate a
closing by the end of 2006.
Cost of Sales
Real Estate cost of sales for the quarters ended September 30, 2005 and
2004 were $120,000 and $36,000, respectively. For the nine months ended
September 30, 2005 and 2004 cost of sales were $567,000 and $104,000,
respectively. Cost of sales during 2005 resulted from the aforementioned raw
land and rural residential lot sales. Cost of sales in 2004 represents primarily
the cost basis on the 426-acre park sale to Kitsap County and other land sales.
The park property sold in this transaction was raw acreage.
Operating Expenses
Real Estate operating expenses for the quarters ended September 30, 2005
and 2004 were $683,000 and $599,000, respectively. For both of the nine-month
periods ended September 30, 2005 and 2004, operating expenses were $1.9 million.
Year-to-date Real Estate operating expenses in 2005 include an environmental
remediation charge of $108,000 while operating expenses for the same period in
2004 include environmental remediation charges of $466,000. Operating expenses
less environmental remediation charges, discussed in more detail below,
increased $84,000 and $374,000 on a quarter and year-to-date basis,
respectively, compared to the corresponding periods in 2004. Higher operating
expenses in the Real Estate segment are due to an increase in personnel costs as
activities surrounding our development properties have increased over the last
year due to increased market activity for developable land. This trend is
expected to continue for the remainder of 2005 and 2006.
Environmental Remediation
The Partnership has accrued liabilities for environmental cleanup of
$101,000 and $474,000 as of September 30, 2005 and December 31, 2004,
respectively. The environmental liability at September 30, 2005 includes $95,000
that the Partnership expects to expend in the next 12 months and $6,000
thereafter. The accrual represents estimated environmental remediation costs in
and around the townsite and millsite of Port Gamble, Washington. Current
activities at the site include monitoring to determine if prior clean up
activities were effective. Activity in the environmental remediation liability
is detailed as follows:
Balances at the Expenditures Balances at
Beginning of the Additions to for the End of
Period Accrual Remediation the Period
----------------------------------------------- ------------
Year Ended December 31, 2000 $ 120,000 $ 1,956,000 $ 206,000 $ 1,870,000
Year Ended December 31, 2001 1,870,000 - 461,000 1,409,000
Year Ended December 31, 2002 1,409,000 730,000 1,510,000 629,000
Year Ended December 31, 2003 629,000 - 337,000 292,000
Year Ended December 31, 2004 292,000 466,000 284,000 474,000
Quarter ended March 31, 2005 474,000 - 319,000 155,000
Quarter ended June 30, 2005 155,000 108,000 151,000 112,000
Quarter ended September 30, 2005 112,000 11,000 101,000
23
General and Administrative (G&A)
- --------------------------------
General and administrative expenses for the quarters ended September 30,
2005 and 2004 were $822,000 and $660,000, respectively. For the nine months
ended September 30, 2005 and 2004, general and administrative expenses were $2.5
million and $2.1 million, respectively. The increase in general and
administrative expenses experienced in 2005 is due to additional oversight of
the Cascade Timberland management contract and an increase in compensation cost
following strong financial performance in 2004 and 2005. In addition, we expect
to end 2005 with an increase in audit, professional services, and personnel
costs as we begin to implement the new requirements of the internal control
assessment and reporting requirements mandated by the Sarbanes Oxley Act of 2002
that will be required with our Form 10-K for the year ended December 31, 2005.
Interest Income and Expense
- ---------------------------
Interest income for the quarter ended September 30, 2005 increased $83,000
to $124,000 from $41,000 for the corresponding period of 2004. For the
nine-month period ended September 30, 2005 interest income increased $127,000 to
$217,000 from $90,000 for the corresponding period ended September 30, 2004. The
increase in interest income is due to higher cash and short-term investments
balances. In January 2004 our then-available cash balance was used to complete a
timberland acquisition such that very little interest income accrued for the
next nine months. Our combined cash and short-term investments balance in 2005
has grown from $757,000 at December 31, 2004 to $17.0 million at September 30,
2005.
Interest expense for the three-month periods ended September 30, 2005 and
2004 was $710,000 and $739,000, respectively. Interest expense for the
nine-month period totaled $2.2 million for 2005 and $2.3 million for the
corresponding period in 2004. The Partnership's debt consists primarily of
mortgage debt with a fixed interest rate. The decrease in interest expense is
the result of our annual $1.5 million principal payment on a timberland mortgage
made at the end of each first quarter.
Income Tax
- ----------
Pope Resources is a limited partnership and is, therefore, not subject to
corporate income tax. Taxable income/loss is reported to unitholders each year
on a Form K-1 for inclusion in each unitholder's tax return. Pope Resources does
have corporate subsidiaries, however, that are subject to income tax.
For the quarter ended September 30, 2005 the Partnership recorded $52,000
of income tax expense relating to the Partnership's taxable subsidiaries, as
compared to no tax expense for the corresponding period in 2004. On a
year-to-date basis, the Partnership has recorded a provision for income taxes of
$562,000, as compared to no tax expense for the corresponding period of 2004.
The increase in tax expense is due to improved results in our Timberland
Management & Consulting segment.
Minority Interest
- -----------------
Minority interest represents that share of income earned from the Investor
Portfolio Management Business (IPMB) attributable to Pope MGP, Inc., the
Managing General Partner of the Partnership. The amendment to the Limited
Partnership Agreement authorizing the Partnership to pursue the IPMB further
specifies that income from the IPMB will be split using a sliding scale
allocation method beginning at 80% to the Partnership's wholly-owned subsidiary,
ORM, Inc., and 20% to Pope MGP, Inc. The sliding scale allocation method evenly
divides IPMB income between ORM, Inc. and Pope MGP, Inc. once such income
reaches $7,000,000 in a given fiscal year.
24
Current activities of the IPMB are contained in the Timberland Management &
Consulting segment, which includes timberland consulting, management, and
expenses associate with the launch of a private equity timber fund. Minority
interest allocation of income increased from zero for the third quarter of 2004
to $46,000 in the third quarter of 2005 and, on a year-to-date basis, from zero
in 2004 to $275,000 in 2005. The increase in minority interest allocation is due
to improved Timberland Management & Consulting results related to the Cascade
Timberlands LLC management agreement.
Analysis of Operating Income
- ----------------------------
The following table sets forth expenses as a percentage of revenue for the
quarters ended September 30, 2005 and 2004 and for the nine-month period ended
September 30, 2005 and 2004:
Quarter ended Nine months ended
September 30, September 30,
-------------------------------------
2005 2004 2005 2004
-------------------------------------
Revenues 100% 100% 100% 100%
Cost of sales 43 42 45 37
Operating expenses 20 25 17 19
General and administrative expenses 5 8 5 7
-------------------------------------
Operating income 32% 25% 33% 37%
=====================================
Cost of sales includes the cost of purchasing and producing tangible goods
for sale. In addition to depletion associated with timber production levels,
cost of sales for the Partnership will fluctuate due to the mix of revenue
between the sale of tangible goods and revenue generated from providing
services. Cost of sales as a percentage of revenue increased 1 percentage points
from 42% in the third quarter of 2004 to 43% for the third quarter of 2005 and
increased 8 percentage points on a year-to-date basis, compared to the
comparable periods in the prior year. The increase in cost of sales as a
percentage of revenue is primarily attributable to the increase in depletion
expense resulting from timber harvested from the Partnership's separate
depletion pool, which carries a higher depletion rate, offset somewhat by the
increase in revenue generated by the Timberland Management & Consulting segment
which does not have related cost of sales.
Operating expenses consist of salary and other costs directly attributable
to revenue-generating activity. As a percentage of revenue, operating expenses
decreased for the quarter and year-to-date period ended September 30, 2005 by 5
and 2 percentage points, respectively, when compared to the period counterparts
in 2004. The decrease in operating expenses as a percentage of revenue is
principally due to an increase in Fee Timber revenue and a decrease in
environmental remediation charge.
General and administrative expenses as a percentage of revenue for the
quarter ended September 30, 2005 decreased by 3 percentage points to 5% from the
corresponding period in 2004 and decreased 2% for the nine month period from
prior year. On a raw dollar basis, general and administrative expenses increased
$162,000 from last year's third quarter and $401,000 on a year-to-date basis,
but declined as a percent of revenue because revenue increased at a much greater
rate between periods.
25
Liquidity and Capital Resources
- -------------------------------
We ordinarily finance our business activities using funds from operations
and, where appropriate in management's assessment, bank lines of credit. Funds
generated internally from operations and externally through financing are
expected to provide the required resources for the Partnership's future capital
expenditures. The Partnership's debt-to-total-capitalization ratio as measured
by the book value of equity was 34% at September 30, 2005 versus 40% as of June
30, 2005. Management considers capital resources to be adequate for its current
plans and does not have specific plans that would trigger a significant change
in its debt-to-total-capitalization ratio over the next 12 months. The
Partnership's debt consists primarily of a timberland mortgage with a fixed
amortization schedule and loan term which include a prepayment penalty. In view
of a cash and short-term investment balance of approximately $17 million at
September 30, 2005, we have elected not to renew a $10.0 million line of credit
which expired on October 31, 2005. We will continue to monitor and forecast our
expected cash requirements and re-establish a line of credit if need for the
additional liquidity should arise.
On August 1, 2005 we announced the closing of ORM Timber Fund I, LP (the
"Fund") with a committed equity balance of $61.8 million, of which Pope
Resources has committed to invest $12.4 million. Now that the Fund is fully
subscribed we are actively searching for suitable timber properties for the Fund
to acquire. Pope Resources and the other limited partners in the Fund are
required to contribute committed capital as properties are purchased by the
Fund.
Over the remaining three months of 2005, management plans to harvest
approximately 9 MMBF of timber for a total fiscal 2005 harvest of 74 to 75 MMBF.
Since harvest plans are based on demand and pricing, actual harvesting may vary
subject to management's ongoing review. The annual harvest target for 2006 is
expected to be approximately 58 MMBF as we complete harvest activities on
timberland acquisitions completed in 2003 and 2004. For 2007 and beyond, absent
new acquisitions or major dispositions, we expect an annual harvest level of
approximately 53 MMBF. The planned decrease in harvest volume in 2006 relative
to 2005 will result in a decline in Fee Timber revenue. We expect this decline
to be offset on a consolidated basis through planned Real Estate sales,
particularly on the Gig Harbor and Bremerton West Hills projects.
In the nine months ended September 30, 2005, overall cash and cash
equivalents increased $2.3 million versus a decrease of $272,000 for the
corresponding period in the prior year. Cash generated by operating activities
increased to $22.3 million for the first nine months of 2005 from $15.5 million
for the corresponding period in 2004. The increase in cash generated by
operating activities primarily results from the increase in timber harvested
offset by both an increase in accounts receivable of $1.4 million and $817,000
collected in 2004 on a note receivable.
Cash used for investing activities increased to $16.6 million for the first
nine months of 2005 from $12.5 million for the comparable period in 2004.
Year-to-date investing activities in 2005 consist of the purchase of $14 million
of auction rate securities and $2.6 million of capital expenditures. Capital
expenditures year-to-date in 2005 consist of the following: $701,000 of
capitalized development costs at the Gig Harbor site, $557,000 of capitalized
development costs on the Partnership's other development properties; $810,000 of
reforestation and road building costs on the owned timberlands; $239,000 of
capital improvements at the Port Gamble townsite; and $316,000 of other
miscellaneous capital expenditures. Cash used in investing activities for the
first nine months in 2004 totaled $12.5 million and included the following
capital expenditures: $8.9 million for timberland acquisitions; $1.3 million
deposit on the Quilcene timberland acquisition; $1.1 million in capitalized
costs for the Gig Harbor project; $443,000 of reforestation expenditures;
$415,000 of capital improvements to buildings and a small land purchase at the
Port Gamble townsite; and $326,000 in other capital improvements.
26
Cash used in financing activities increased $78,000 to $3.4 million for the
first nine months of 2005 from $3.3 million for the corresponding period in
2004. Cash used for financing activities year-to-date in 2005 consists of $1.9
million of payments on long-term debt, $759,000 of payments on the line of
credit, three unitholder distributions totaling $2.5 million and $27,000 in
minority interest distributions, offset by $1.8 million received from the
exercise of unit options. Cash used in financing activities for the first nine
months in 2004 included mortgage and local improvement district principal
payments of $2.0 million, three unitholder distributions totaling $1.3 million
and a minority interest payment of $60,000.
Seasonality
- -----------
Fee Timber. The Partnership owns 115,000 acres of timberland in Washington
State. Our timber acreage is concentrated in two non-contiguous tree farms: the
71,000-acre Hood Canal tree farm located in Kitsap, Jefferson, and Mason
Counties on the eastern side of Washington's Olympic Peninsula, and the
44,000-acre Columbia tree farm located in Cowlitz, Clark, Lewis, Skamania, and
Pierce counties on the western side of Washington's Cascade mountain range.
The Hood Canal tree farm is concentrated at low elevations, which permits
us to harvest trees year-round. Generally, we concentrate our harvests from this
tree farm in the winter and spring when supply, and thus competition, is
typically lower and, accordingly, when we can expect to receive higher prices.
With the acquisition of the Columbia tree farm in 2001, management expected a
decrease in the seasonality of Fee Timber operations as the Columbia tree farm
is at higher elevations where harvest activities are generally possible only in
the late spring and summer months. In practice, over the last two years our
harvest has tended to be more front-loaded, as log prices have been relatively
strong in the first half of the year and winter weather has been relatively
benign, enabling management to front-load the harvest plan. In future periods,
management expects quarterly harvest volume to be affected by both local market
conditions for logs and weather conditions.
Timberland Management & Consulting. Timberland Management & Consulting
operations are not significantly seasonal.
Real Estate. While Real Estate results are not expected to be seasonal, the
nature of the activities in this segment will likely result in periodic large
transactions that will have significant positive impacts on both revenue and
operating income of the Partnership in periods in which these transactions
close, and relatively limited revenue and income in other periods. While the
"lumpiness" of these results is not primarily a function of seasonal weather
patterns, we do expect to see some seasonal fluctuations in this segment because
of the general effects of weather on Pacific Northwest development activities.
Capital Expenditures and Commitments
- ------------------------------------
Total capital expenditures in 2005 are currently expected to be
approximately $7.5 million, of which $2.6 million has been expended through
September 30, 2005. The expected 2005 total capital expenditures of $7.5 million
include $4.6 million related to the Real Estate project at Gig Harbor,
Washington for roads, a community water tank, and water and sewer connections to
the property. The actual pace of the Gig Harbor expenditures will depend on how
quickly we are able get approval from the City of Gig Harbor on our planned
infrastructure improvements at the site. The Partnership expects that the source
of capital for these expenditures will be primarily funds generated internally
through operations with external financing supplementing as required.
27
Risks and Uncertainties
- -----------------------
Our business is subject to a number of risks and uncertainties, any one or
more of which could impact our operating results and financial condition
materially and adversely. Some of these risks are discussed in greater detail
below, arranged according to business segment. In addition, we face a number of
risks that affect our business generally. We compete against much larger
companies in each of our business segments. These larger competitors may have
access to larger amounts of capital and significantly greater economies of
scale. Land ownership carries with it the risk of incurring liabilities due to
accidents that take place on the land and previously undiscovered environmental
contamination. The Partnership endeavors to maintain adequate accruals to
reflect the cost of remediating known environmental contamination and other
liabilities resulting from land ownership. However these estimates may prove to
be inadequate as additional information is discovered. A more thorough
discussion of the risks and uncertainties that may affect our business is
contained in the Annual Report on Form 10-K for the fiscal year ended December
31, 2004, and in our various other filings with the Securities and Exchange
Commission. Readers should review these risks in deciding whether to invest in
Partnership units, and should recognize that those factors are not an exhaustive
list of risks that could cause us to deviate from management's expectations.
Readers also are cautioned that, in reviewing these risk factors, the factors
contained in this report and in our other SEC filings are effective as of the
date the filing was made, and we cannot undertake to update those disclosures.
Fee Timber
Fee Timber revenue is generated primarily through the sale of softwood logs
to both domestic mills and third-party intermediaries that resell to the export
market. The domestic market for logs in the Puget Sound region of Washington
State has been impacted by imported lumber from Canada and decreased demand for
lumber as engineered wood products have gained market acceptance in the U.S.
These factors have had the effect of concentrating mill ownership with larger
mill operators and decreasing the number of mills operating in the Puget Sound
region. If this trend continues, decreases in local demand for logs may decrease
our profitability. Over the last few years the Partnership has seen the price of
logs erode in the Japanese market as competing logs and lumber from regions
outside of the U.S. and engineered wood products have gradually gained market
acceptance. These export markets for Pacific Northwest logs are significantly
affected by fluctuations in U.S. and Japanese economies, as well as by the
foreign currency exchange rate between the Japanese yen and the U.S. dollar.
Our ability to grow and harvest timber can be significantly impacted by
legislation, regulations or court rulings that restrict or stop forest
practices. Restrictions on logging, planting, road building, fertilizing,
managing competing vegetation and other activities can significantly increase
the cost or reduce available inventory thereby reducing income.
Timberland Management & Consulting
The Timberland Management & Consulting segment is currently operating with one
major timberland management client. Management is working to expand our
fee-for-service business by the launch of our timber fund, also a component of
our Timberland Management & Consulting segment. Unlike other components of our
business, which relate solely or primarily to real estate and timber operations,
this line of business carries risks relating to the offer and sale of
securities, and to the management of investment operations, including potential
liability to investors if we are determined to have made material misstatements
or omissions to those investors, potential accusations that we have breached
fiduciary duties to other limited partners, and similar types of investor
action. Moreover, litigation of shareholder-related matters can be expensive and
time consuming, and if brought, would likely distract management from their
focus on ordinary operating activities.
28
Real Estate
The value of our real estate investments is subject to changes in the
economic and regulatory environment, as well as various land use regulations and
development risks, including the ability to obtain the necessary permits and
zoning variances that would allow us to maximize our revenue from our real
estate investments. Our real estate investments are long-term in nature, which
raises the risk that unforeseen changes in the economy or laws surrounding
development activities may have an adverse affect on our investments. Moreover,
these investments often are highly illiquid and thus may not generate cash flow
if and when needed to support our other operations.
ACCOUNTING MATTERS
Accounting Standards Not Yet Implemented
In December 2004, the FASB released its revised standard, SFAS No. 123R
(SFAS 123R), Share-Based Payment. SFAS 123R requires that a public entity
measure the cost of equity-based service awards based on the grant-date fair
value of the award. That cost will be recognized over the period during which an
employee is required to provide service in exchange for the award or the vesting
period. A public entity will initially measure the cost of liability based
service awards based on its current fair value and the fair value of that award
will be remeasured subsequently at each reporting date through the settlement
date. Changes in fair value during the requisite service period will be
recognized as compensation cost over that period. Adoption of SFAS 123R is
required for fiscal years beginning after June 15, 2005. The Partnership is
evaluating SFAS 123R and believes it will likely result in recognition of
additional non-cash stock-based compensation expense and accordingly would
decrease net income in amounts, which likely will be considered material. There
will be no effect on cash, working capital or total stockholders' equity.
The Partnership has obtained commitments of $61.8 million for ORM Timber
Fund I, LP (the Fund), which includes Pope Resources' commitment to invest $12.4
million of that capital. The Fund is now seeking suitable timberland
investments. In accordance with EITF 04-5, Determining When General Partners are
Required to Consolidate Limited Partners the Fund is presently expected to be
consolidated into the Partnership's financial statements since an indirect
subsidiary of the Partnership (Olympic Resource Management LLC) will act as
manager and general partner of the Fund. The limited partners' interest in the
Fund, excluding Pope Resources, is expected to be presented as minority interest
in the Partnership's consolidated balance sheet and, furthermore, the profit or
loss allocated to the limited partners is expected to be presented as minority
interest in the Partnership's consolidated statement of operations.
Critical Accounting Policies and Estimates
- ------------------------------------------
Management believes its most critical accounting policies and estimates
relate to management's calculation of timber depletion and liabilities for
matters such as environmental remediation, and potential asset impairments. In
relation to liabilities, potential impairments and other estimated charges, it
is management's policy to conduct ongoing reviews of significant accounting
policies and assumptions used in the preparation of the financial results of the
Partnership. The assumptions used are tested against available and relevant
information and reviewed with subject-matter experts for consistency and
reliability. During the preparation of financial results, tests are conducted to
ascertain that the net book carrying values of assets are not in excess of
estimated future cash flows. These tests use current market information, if
available, or other generally accepted valuation methods, such as future cash
flows. When the use of estimates is necessary, an exact answer is unlikely, and
therefore, the reporting within a range of likely outcomes is used in the
preparation of the financial statements. Tests are also applied in order to be
reasonably assured that liabilities are properly reflected on the records of the
Partnership and that the notes to the financial statements are prepared in a
fashion that informs readers of possible outcomes and risks associated with the
conduct of business.
29
Purchased Timberlands Allocation: When the Partnership acquires
timberlands, a purchase price allocation is performed that allocates cost
between the categories of merchantable timber, premerchantable timber, and land
based upon the relative fair values pertaining to each of the categories. When
timberland is acquired the land is evaluated for current value. To the extent
the land has value under current market conditions as something other than
timberland, we assign a value greater than that typically associated with
timberland.
Depletion-Cost Pools: Depletion represents the cost of timber harvested and
is charged to operations by applying a depletion rate to volume harvested during
the period. The depletion rate is calculated in January each year by dividing
the Partnership's cost of merchantable timber by the volume of merchantable
timber. Merchantable timber is defined as timber that is equal to or greater
than 40 years of age.
To calculate the depletion rate, the Partnership combines all properties
with similar characteristics and uses one depletion rate for all volume
harvested from that timberland asset pool. Each timberland acquisition is
evaluated for consistency with the already established timberland portfolio
using the following five characteristics:
1. Management-Will the acquisition be managed as part of the existing
cost pool?
2. Location-Is the tree farm in the same geography as the existing
timberland cost pool?
3. Products-Will the products harvested from the acquisition be
substantially similar to those harvested from the existing cost pool?
4. Customers/Markets-Will the harvest from the acquisition be sold to the
same customers/markets as logs harvested from the existing cost pool?
5. Stocking-Are the acres in the acquisition of a similar age class
distribution to the existing cost pool? (If the premerchantable
timberland acres in the acquisition are less than 50% of total acres,
stocking on the acquisition will be deemed sufficiently different and
strongly indicate that a separate pool is appropriate.)
In October 2004 we acquired 1,339 acres of timberland that are
substantially all merchantable timber. We created a separate pool for this
acquisition with an initial depletion rate of $370 per MBF that is applied to
timber harvested from these recently acquired acres. In July 2005, we adjusted
this depletion rate to reflect the latest estimate of timber volume available
for harvest on this property. As a result of this evaluation the depletion rate
was increased to $387 per MBF.
Depletion-Estimated Volume: Inventory volumes take into account the
applicable state and federal regulatory limits on timber harvests as applied to
the Partnership's properties, including the Forests and Fish law that
supplements Washington State's forest practice regulations to provide for
expanded riparian management zones, wildlife leave trees, and other harvest
restrictions. Timber inventory volume is accounted for by the Partnership's
standing timber inventory system, which utilizes annual statistical sampling of
the timber (cruising) with annual adjustments made for estimated growth and the
depletion of areas harvested.
30
The standing inventory system is subject to two processes each year to
monitor accuracy. The first is the annual cruise process and the second is a
comparison of (a) volume actually extracted by harvest, to (b) inventory for the
corresponding stands of harvested timber in the standing inventory system at the
time of the harvest. A "cruise" represents a physical measurement of timber on a
specific set of acres. The cruise process is completed when the physical
measurement totals are compared to the inventory in the standing inventory
system. The standing inventory system is then updated for the results of the
cruise. Only productive acres with timber that is at least 20 years old are
selected to cruise. The Partnership cruised 20% of its productive acres with 20
year old or greater timber in both 2003 and 2004 and plans to cruise 20% in 2005
and thereafter. Specific acres are first selected for cruising with a bias
towards those acres that have gone the longest without a cruise and, second,
with a bias towards those acres that have been growing the longest. As the
cruise is being performed, only those trees with a breast-height diameter
(approximately 4.5 feet from the ground) of at least 6 inches are measured for
inclusion in the inventory.
Environmental Remediation: The environmental remediation liability
represents estimated payments to be made to monitor (and remedy if necessary)
certain areas in and around the townsite and millsite of Port Gamble,
Washington. Port Gamble is a historic town that was owned and operated by P&T, a
related party, until 1985 when the townsite and other assets were spun off to
the Partnership. P&T continued to operate the townsite until 1996 and leased the
millsite at Port Gamble through January 2002, at which point P&T signed an
agreement with the Partnership dividing the responsibility for environmental
remediation of Port Gamble between the two parties.
The environmental remediation liability on the Partnership's books is based
upon an estimate of the Partnership's portion of the clean-up costs under this
agreement with P&T. While the majority of the Partnership's portion of the clean
up efforts is complete, there remains the possibility that the remaining
remediation or monitoring activities may exceed estimates, resulting in an
additional environmental remediation charge. Management will continue to monitor
the remaining liability against estimates to complete to determine if an
adjustment to the environmental remediation liability is necessary to accurately
represent management's estimate of remaining cost to complete the project.
Deferred Tax Assets: The Partnership has a United States subsidiary
corporation that has $399,000 of deferred tax assets as of September 30, 2005.
The majority of this balance represents net operating loss carryforwards
resulting from the fourth quarter 2003 liquidation of our subsidiary in Canada.
Management evaluates the likelihood of earning taxable income to absorb net
operating loss carryforwards each reporting period to determine if deferred tax
assets will more likely than not be utilized.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Interest Rate Risk
- ------------------
As of September 30, 2005, the Partnership had $33.9 million of fixed-rate
debt outstanding with a fair value of approximately $39 million based on the
current interest rates for similar financial instruments. A change in the
interest rate on fixed-rate debt will affect the fair value of the debt, whereas
a change in the interest rate on variable-rate debt will affect interest expense
and cash flows. A hypothetical 1% change in prevailing interest rates would
change the fair value of the Partnership's fixed-rate long-term debt obligations
by $1.7 million.
31
ITEM 4. CONTROLS AND PROCEDURES
The Partnership's management maintains a system of internal controls, which
management views as adequate to promote the timely identification and reporting
of material, relevant information. Those controls include (1) requiring
executive management and all managers in accounting roles to sign and adhere to
a Code of Conduct and (2) implementation of a confidential hotline for employees
to contact the Audit Committee directly with financial reporting concerns.
Additionally, the Partnership's senior management team meets regularly to
discuss significant transactions and events affecting the Partnership's
operations. The Partnership's President & CEO and V.P. & CFO ("Executive
Officers") lead these meetings and consider whether topics discussed represent
information that should be disclosed under generally accepted accounting
principles and the rules of the SEC. The Board of Directors of the Partnership's
Managing General Partner includes an Audit Committee. The Audit Committee
reviews the earnings release and all reports on Form 10-Q and 10-K prior to
their filing. The Audit Committee is responsible for hiring the Partnership's
external auditors and meets with those auditors at least four times each year.
Our Executive Officers are responsible for establishing and maintaining
disclosure controls and procedures. They have designed such controls to ensure
that others make all material information known to them within the organization.
Management regularly evaluates ways to improve internal controls.
As of the end of the period covered by this quarterly report on Form 10-Q
our Executive Officers completed an evaluation of the disclosure controls and
procedures and have determined them to be functioning properly and effectively.
We have made no changes to internal controls over financial reporting that
materially affected, or that are reasonably likely to materially affect, our
internal control over financial reporting.
PART II
- -------
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Partnership may be subject to legal proceedings and
claims that may have a material adverse impact on its business. Management is
not aware of any current legal proceedings or claims that will have,
individually or in the aggregate, a material adverse impact on its business,
prospects, financial condition or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) - (e) None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
32
ITEM 5. OTHER INFORMATION
(a) None
(b) There have been no material changes in the procedures for
shareholders of the Partnership's general partner to nominate
directors to the board.
ITEM 6. Exhibits
Exhibits.
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b)
and 18 U.S.C. Section 1350 (furnished with this report in accordance
with SEC Rel. No. 33-8238.
32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b)
and 18 U.S.C. Section 1350 (furnished with this report in accordance
with SEC Rel. No. 33-8238.
33
SIGNATURES
Pursuant to the requirement 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, on November 8, 2005.
POPE RESOURCES,
A Delaware Limited Partnership
By: POPE MGP, Inc.
Managing General Partner
By: /s/ David L. Nunes
-------------------------------------
David L. Nunes
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Thomas M. Ringo
-------------------------------------
Thomas M. Ringo
Vice President and CFO
(Principal Accounting and Financial
Officer)
34