Pope Resources L.P. : Pope Resources Reports Fourth Quarter Net Income of $2.3 Million
02/08/2012 | 09:10am
Pope Resources (NASDAQ:POPE) reported net income attributable to
unitholders of $2.3 million, or $0.52 per diluted ownership unit, on
revenue of $17.8 million for the fourth quarter ended December 31, 2011.
This compares to net income attributable to unitholders of $1.7 million
or $0.35 per diluted ownership unit, on revenue of $8.5 million for the
comparable period in 2010.
Net income attributable to unitholders for the year ended December 31,
2011 totaled $8.8 million, or $1.94 per diluted ownership unit, on
revenue of $57.3 million. Net income attributable to unitholders for the
corresponding period in 2010 totaled $2.0 million, or $0.43 per diluted
ownership unit, on revenue of $31.2 million. Results for 2010 included a
loss on early debt extinguishment of $1.2 million.
Cash provided by operations for the quarter ended December 31, 2011 was
$7.4 million, compared to $3.5 million for the fourth quarter of 2010.
For the year ended December 31, 2011, cash provided by operations was
$21.7 million, compared to $9.0 million in 2010.
"The big story for 2011 was strong demand from China for logs and
lumber," said David L. Nunes, President and CEO. "We were well
positioned to capitalize on this surge in demand since all of our tree
farms are tributary to export log ports. Based on both new properties
acquired by our second timber fund in 2010 and significant amounts of
deferred harvest volume from 2008-2010, we had a record harvest year in
2011 at 90 million board feet (MMBF). In addition, we enjoyed a 17%
increase in our average realized log price based on both export demand
and greater competition in domestic markets where many of the mills
benefited by the exporting of lumber to China. These factors combined
for a very strong year in terms of cash flow generation."
Fee Timber operating income for the fourth quarter of 2011 was $5.5
million compared to $1.7 million for the fourth quarter of 2010. This
tripling of operating income was due to the combined impact of a 164%
increase in harvest volume, which increased from 11 MMBF in 2010 to 29
MMBF in 2011, and a 17% boost in average realized log price, which
increased from $481 per thousand board feet (MBF) in 2010 to $565 per
MBF in 2011. In recent years, our fourth quarter log production has been
relatively light as a function of the front-loading of annual harvest
volumes into the earlier part of the year. The fourth quarter of 2011
broke significantly from this pattern as a result of incorporating
harvest volume from timber fund properties acquired in 2010, mild
weather, and a decision to dip into deferred harvest volumes from
2008-2010. Over 52% of 2011's fourth quarter harvest came from timber
fund properties versus 39% for the comparable period in 2010.
Notwithstanding the significantly higher per-MBF depletion expense for
the timber fund properties, this additional harvest from the timber fund
properties contributed $1.8 million of operating income to Q4 2011.
Fee Timber operating income for 2011 increased 74% to $16.9 million
compared to $9.7 million in 2010. As with the fourth quarter, the
improved full-year performance was driven by the combined effect of a
70% increase in harvest volume, which increased from 53 MMBF in 2010 to
90 MMBF in 2011, and a 17% improvement in average realized log price,
which increased from $486 per MBF in 2010 to $567 per MBF in 2011. In
response to a surge in demand for logs from buyers in China, we
harvested more timber than initially planned in 2011 and significantly
boosted our export mix, which increased from 33% in 2010 to 45% in 2011.
Robust export markets forced domestic producers to compete aggressively
for logs which contributed to a year-over-year 9% increase in domestic
log prices. With the benefit of including more harvest volume from
timber fund properties acquired in the third quarter of 2010, the mix of
harvest volume from timber fund properties more than doubled from 20% of
2010's total volume to 44% of 2011's total volume. The timber fund
properties contributed $3.3 million of operating income to results for
2011 compared to $130,000 in 2010.
Our Timberland Management & Consulting (TM&C) segment generates revenue
through the management of three private equity timber funds, which are
consolidated into the Partnership's financial statements due to the
Partnership's role as general partner or managing member of the funds.
Consolidating these funds into the Partnership's financial statements
results in the elimination of all management fees charged to the funds,
with a corresponding decrease in operating expenses in the Fee Timber
segment. The first two funds collectively acquired 61,000 acres of
commercial timberlands between 2006 and 2010 for total consideration of
$150 million. Our third fund, with a target size of $100 million, had
its first close in the fourth quarter of 2011 for $51 million. We expect
the final close for this fund by mid-2012.
After eliminating $813,000 of intercompany timber fund management fees,
TM&C had no revenue for the fourth quarter of 2011. In 2010, the fourth
quarter for this segment showed $16,000 of revenue after the elimination
of $501,000 of intercompany fees. Operating losses generated by the TM&C
segment for the quarters ended December 31, 2011 and 2010 totaled
$398,000 and $345,000, respectively, after eliminating revenue earned
from managing the funds. The increase in operating losses is
attributable to added costs related to higher harvest levels from the
two funds, higher personnel related expenses associated with fund
oversight, and costs related to raising capital for the third fund.
TM&C had no revenue for the twelve months ended December 31, 2011 after
eliminating $2.4 million of fees earned from managing the funds. This
compares to $31,000 of revenue for the same period in 2010 after
eliminating $1.5 million of fund management fee revenue. The increase in
the amount of management fee revenue eliminated resulted from additional
fees earned on the management of $58 million of timberland acquired by
our second timber fund at the end of 2010's third quarter. In total we
managed 61,000 acres in two timber funds for the entirety of 2011 versus
36,000 acres for the first nine months and 61,000 for the last three
months of 2010. Operating losses generated by the TM&C segment for the
twelve months ended December 31, 2011 and 2010 totaled $1.5 million and
$1.3 million, respectively, after eliminating revenue earned from
managing the funds. The increase in operating losses for the full year
is attributable to the same set of factors mentioned above in connection
with the quarter-to-quarter comparisons.
Our Real Estate segment completed a $480,000 conservation easement sale
in the fourth quarter of 2011, which contributed to overall segment
revenues of $837,000. However, as a result of a $631,000 charge for
contingent environmental remediation costs, our Real Estate segment
posted an operating loss of $763,000 for the period. This compares to
Real Estate's operating income of $1.3 million reported in 2010's fourth
quarter on revenue of $2.7 million, achieved primarily as a result of a
$2.4 million conservation easement sale. Results for the fourth quarter
of 2010 included a $307,000 charge for contingent environmental
remediation costs.
For the full year 2011, the Real Estate segment posted an operating loss
of $349,000 on revenue of $4.5 million, compared to 2010's operating
loss of $809,000 on revenue of $3.5 million. Accruals for environmental
remediation costs weighed heavily on both the 2010 and 2011 annual
results for our Real Estate operations, with $875,000 accrued in 2010
and $977,000 in 2011. Results for this segment in both years were
bolstered by sales with a conservation "flavor". Conservation
transactions in 2011 totaled nearly $2.5 million including a $2.0
million land sale in the second quarter ($5,065/acre on 386 acres) and a
$480,000 easement sale in the fourth quarter ($1,882/acre on 255 acres).
In 2010 we completed a $2.4 million conservation easement sale in the
fourth quarter ($349/acre on 6,886 acres). While the broader market for
development property remains weak, we saw some signs of life in 2011
with six rural residential lot and residential plat transactions
covering 107 acres for a total value of $901,000 ($8,421/acre). There
were no comparable lot sales in 2010.
General & Administrative expenses for 2011 declined by 11% to $4.2
million, compared to $4.7 million in 2010. This decrease in overhead
costs was driven primarily by implementation of a new long-term
compensation plan in 2010 that required a catch-up accrual in 2010 for
multiple trailing-year performance cycles.
As we look to 2012, export log market demand has cooled from 2011 peak
levels, but we still expect 2012 will be strongly influenced by demand
from Asia, with some log price weakening expected relative to 2011.
Notwithstanding recent signals that the domestic housing market may be
poised for a recovery, the continuing saga of poor housing markets is
expected to remain a drag on both domestic lumber and real estate
markets for the near-term.
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 178,000 acres of timberland and development property in
Washington and Oregon. We also manage, co-invest in, and consolidate
three timberland investment funds that we manage for a fee. In addition,
we offer our forestry consulting and timberland investment management
services to third-party owners and managers of timberland in the U.S.
Pacific Northwest. The company and its predecessor companies have owned
and managed timberlands and development properties for more than 150
years. Additional information on the company can be found at www.poperesources.com.
The contents of our website are not incorporated into this release or
into our filings with the Securities and Exchange Commission.
This press release contains a number of projections and statements about
our expected financial condition, operating results, business plans and
objectives. These statements reflect management's estimates based on
current goals and its expectations about future developments. Because
these statements describe our goals, objectives, and anticipated
performance, they are inherently uncertain, and some or all of these
statements may not come to pass. Accordingly, they should not be
interpreted as promises of future management actions or financial
performance. Our future actions and actual performance will vary from
current expectations and under various circumstances the results of
these variations may be material and adverse. Some of the factors that
may cause actual operating results and financial condition to fall short
of expectations include conditions in the housing construction and
wood-products markets, both domestically and globally, that affect
demand for our products; factors that affect our ability to anticipate
and respond adequately to fluctuations in the market prices for our
products; environmental and land use regulations that limit our ability
to harvest timber and develop property, including changes in those
regulations; conditions affecting credit markets as they affect the
availability of capital and costs of borrowing; labor, equipment and
transportation costs that affect our net income; the impacts of natural
disasters on our timberlands and on surrounding areas; and our ability
to discover and to accurately estimate liabilities associated with our
properties. Other factors are set forth in that part of our Annual
Report on Form 10-K entitled "Risk Factors." Other issues that may have
an adverse and material impact on our business, operating results, and
financial condition include those risks and uncertainties discussed in
our other filings with the Securities and Exchange Commission.
Forward-looking statements in this release are made only as of the date
shown above, and we cannot undertake to update these statements.
Pope Resources, A Delaware Limited Partnership
Unaudited
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts in $000's, except per unit amounts)
Three months ended December 31,
Twelve months ended December 31,
2011
2010
2011
2010
Revenues
$17,809
$8,546
$57,274
$31,192
Costs and expenses:
Cost of sales
(10,198
)
(3,349
)
(30,564
)
(14,346
)
Operating expenses
(4,220
)
(3,876
)
(15,863
)
(13,933
)
Operating income
3,391
1,321
10,847
2,913
Interest income
10
11
42
102
Interest expense
(484
)
(460
)
(2,158
)
(1,815
)
Capitalized interest
118
109
432
569
Debt extinguishment costs
-
-
-
(1,250
)
Gain on disposition of investments
-
-
-
11
Income before income taxes
3,035
981
9,163
530
Income tax benefit (expense)
(78
)
265
(236
)
290
Net income
2,957
1,246
8,927
820
Net loss (income) attributable to noncontrolling interests
(608
)
417
(173
)
1,218
Net income attributable to Pope Resources' unitholders
$2,349
$1,663
$8,754
$2,038
Average units outstanding - Basic
4,329
4,577
4,323
4,554
Average units outstanding - Diluted
4,331
4,605
4,325
4,578
Basic net income per unit
$0.52
$0.35
$1.94
$0.43
Diluted net income per unit
$0.52
$0.35
$1.94
$0.43
CONDENSED CONSOLIDATING BALANCE SHEETS
(all amounts in $000's)
December 31, 2011
December 31, 2010
ORM
Consolidating
Assets:
Pope
Timber Funds
Entries
Consolidated
Cash and cash equivalents
$249
$2,404
$-
$2,653
$2,423
Other current assets
4,184
546
(666
)
4,064
1,570
Total current assets
4,433
2,950
(666
)
6,717
3,993
Timber and roads, net
36,669
117,567
-
154,236
164,961
Timberlands
15,384
18,746
-
34,130
33,980
Buildings and equipment, net
6,019
-
-
6,019
3,854
Land held for development
28,413
-
-
28,413
27,737
Investment in ORM Timber Funds
26,250
-
(26,250
)
-
-
Other assets
767
126
-
893
1,312
Total
$117,935
$139,389
($26,916
)
$230,408
$235,837
Liabilities and equity:
Current liabilities
$4,405
1,525
($666
)
$5,264
$4,786
Current portion of long-term debt
-
32
-
32
30
Long-term debt
34,757
11,036
-
45,793
50,468
Other long-term liabilities
2,161
-
-
2,161
1,746
Total liabilities
41,323
12,593
(666
)
53,250
57,030
Partners' capital
76,612
126,796
(127,649
)
75,759
70,990
Noncontrolling interests
-
-
101,399
101,399
107,817
Total
$117,935
$139,389
($26,916
)
$230,408
$235,837
RECONCILIATION BETWEEN NET INCOME AND CASH FLOWS FROM OPERATIONS
(all amounts in $000's)
Three months ended December 31,
Twelve months ended December 31,
2011
2010
2011
2010
Net income
2,957
$1,246
$8,927
$820
Added back:
Depletion
4,290
1,260
11,908
5,169
Gain on investments
-
-
-
(11
)
Depreciation and amortization
175
157
701
642
Equity-based compensation
162
144
900
712
Capitalized development activities, net of reimbursements
(150
)
(332
)
(893
)
(1,075
)
Deferred taxes
100
(69
)
57
(252
)
Excess tax benefit from equity-based compensation
(96
)
-
(96
)
-
Cost of land sold
2
-
112
67
Write-off debt issuance costs
-
-
-
32
Change in operating accounts
(50
)
1,134
44
2,846
Cash provided by operations
$7,390
$3,540
$21,660
$8,950
SEGMENT INFORMATION
(all amounts in $000's)
Three months ended December 31,
Twelve months ended December 31,
2011
2010
2011
2010
Revenues:
Partnership Fee Timber
$8,396
$3,908
$30,980
$22,304
Funds Fee Timber
8,576
1,943
21,749
5,370
Total Fee Timber
16,972
5,851
52,729
27,674
Timberland Management & Consulting (TM&C)
-
16
-
31
Real Estate
837
2,679
4,545
3,487
Total
17,809
8,546
57,274
31,192
Operating income (loss):
Fee Timber
5,548
1,689
16,899
9,703
TM&C
(398
)
(345
)
(1,515
)
(1,250
)
Real Estate
(763
)
1,311
(349
)
(809
)
General & administrative
(996
)
(1,334
)
(4,188
)
(4,731
)
Total
$3,391
$1,321
$10,847
$2,913
SELECTED STATISTICS
Three months ended December 31,
Twelve months ended December 31,
2011
2010
2011
2010
Log sale volumes by species (million board feet):
Sawlogs
Douglas-fir
20.0
4.4
55.2
35.0
Whitewood
3.8
3.8
18.0
7.1
Cedar
0.4
0.4
1.4
0.9
Hardwood
0.5
0.4
2.4
0.9
Pulpwood
All species
4.5
2.1
13.2
9.1
Total
29.2
11.1
90.2
53.0
Log sale volumes by sort (million board feet):
Export
8.5
5.3
40.6
17.7
Domestic
15.7
3.3
34.0
25.3
Pulpwood
4.5
2.1
13.2
9.1
Hardwood
0.5
0.4
2.4
0.9
Total
29.2
11.1
90.2
53.0
Average price realizations by species (per thousand board feet):
Sawlogs
Douglas-fir
603
537
609
528
Whitewood
534
446
546
446
Cedar
799
895
923
917
Hardwood
623
513
573
502
Pulpwood
All species
398
340
383
311
Overall
565
481
567
486
Average price realizations by sort (per thousand board feet):
Export
642
517
628
526
Domestic
570
511
565
520
Pulpwood
398
340
383
311
Hardwood
623
513
573
502
Overall
565
481
567
486
Owned timber acres
114,000
114,000
114,000
114,000
Acres owned by Funds
61,000
61,000
61,000
61,000
Capital and development expenditures ($000's)
1,328
695
6,013
2,012
Depletion ($000's)
4,290
1,260
11,908
5,169
Depreciation and amortization ($000's)
175
157
701
642
QUARTER TO QUARTER COMPARISONS
(Amounts in $000's except per unit data)
Q4 2011 vs.
Q4 2011 vs.
Q4 2010
Q3 2011
Net income (loss) attributable to Pope Resources' unitholders:
4th Quarter 2011
$2,349
$2,349
3rd Quarter 2011
-
(562
)
4th Quarter 2010
1,663
-
Variance
$686
$2,911
Detail of earnings variance:
Fee Timber
Log volumes (A)
$8,738
$9,676
Log price realizations (B)
2,457
292
Production costs
(3,878
)
(3,014
)
Depletion
(3,030
)
(2,719
)
Other Fee Timber
(428
)
403
Timberland Management & Consulting
Other Timberland Mgmt. & Consulting
(53
)
(65
)
Real Estate
Land and conservation easement sales
(1,849
)
345
Other Real Estate
99
(86
)
Environmental remediation costs
(324
)
(629
)
General & administrative costs
338
(46
)
Net interest expense
(16
)
85
Other (taxes, noncontrolling int., investment gain)
(1,368
)
(1,331
)
Total variance
$686
$2,911
(A) Volume variance calculated by extending change in sales volume
by the average log sales price for the comparison period.
(B) Price variance calculated by extending the change in average
realized price by current period volume.
Pope Resources Tom Ringo, VP & CFO, 360-697-6626 Fax:
360-697-1156
