POPEZ Pope Resources

Pope Resources (Nasdaq:POPEZ) reported net income of $3.5 million, or 74 cents per diluted ownership unit, on revenues of $15.6 million for the second quarter ended June 30, 2006. This compares to net income of $4.1 million, or 86 cents per diluted ownership unit, on revenues of $16.1 million for the comparable period in 2005. Net income for the six months ended June 30, 2006, totaled $8.8 million, or $1.86 per diluted ownership unit, on revenues of $31.7 million. Net income for the corresponding period in 2005 totaled $8.7 million, or $1.83 per diluted ownership unit, on revenues of $32.8 million. Earnings before interest, taxes, depreciation, depletion, and amortization (EBITDDA) for the quarter ended June 30, 2006, were $6.0 million, compared to $8.4 million for the second quarter of 2005. For the six months ended June 30, 2006, EBITDDA was $14.9 million, compared to $17.9 million for year-to-date 2005 results. "Our second quarter 2006 results were lower based primarily on our planned reduction in harvest volume for 2006, as a result of which we experienced a 26% lower harvest volume compared to last year," said David L. Nunes, President and CEO. "Notwithstanding the impact to earnings from this reduction in harvest volume, second quarter results were buoyed by a 5% increase in log prices over the same period last year, and by $4.4 million of real estate sales which contributed $0.6 million of operating income." For the first six months of 2006 log sales volumes for our Fee Timber segment decreased 15% compared to the same period in 2005, from 45 million board feet (MMBF) in 2005 to 39 MMBF in 2006. This decline is in line with our previously announced reduction in annual harvest volume, from 74 MMBF in 2005 to 57 MMBF for 2006. Comparing the same six-month periods, average log prices were up $28 per thousand board feet (MBF), or 5%, compared to last year. Year-to-date Fee Timber operating income increased slightly in 2006 inasmuch as the 2005 results included a heavier component of harvest from high depletion rate lands acquired in late-2004. Our Timberland Management & Consulting segment posted year-to-date operating income of $1.3 million in 2006, compared to $1.7 million for the first six months of 2005. The decline in operating income from this segment is the result of fewer assets under management in 2006 offset only in part by earned property disposition fees. Operating income for our Real Estate segment declined from $0.8 million for the first six months of 2005 to $0.2 million for the comparable period in 2006 due to higher cost basis in lands sold in 2006 versus 2005. Over the balance of 2006, we anticipate closings from both our Gig Harbor and Bremerton projects that will cause this segment's operating income to exceed 2005 levels. About Pope Resources Pope Resources, a publicly traded limited partnership, and its subsidiaries Olympic Resource Management and Olympic Property Group, own or manage nearly 410,000 acres of timberland and development property in Washington and Oregon. In addition, we provide forestry consulting and timberland investment management services to third-party owners and managers of timberland in Washington, Oregon, and California. The company and its predecessor companies have owned and managed timberlands and development properties for more than 150 years. Additional information on the company can be found at www.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 factors that affect our ability to anticipate and respond adequately to fluctuations in the market prices for our products; factors that affect the amount, timing and certainty of our expected real estate sales; environmental and land use regulations that limit our ability to harvest timber and develop property; labor, equipment and transportation costs that affect our fee timber income; our ability to discover and to accurately estimate liabilities associated with our properties; and economic conditions that affect consumer demand for our products and the prices we receive for them. Other factors are set forth in that part of our Annual Report on Form 10-K entitled "Risk Factors." Other issues that may have an adverse and material impact on our business, operating results, and financial condition include those risks and uncertainties discussed in our other filings with the Securities and Exchange Commission. Forward-looking statements in this release are made only as of the date shown above, and we cannot undertake to update these statements. Management considers earnings (net income or loss) before interest expense, income taxes, depreciation, depletion and amortization (EBITDDA) to be an important measure of operating profitability, particularly when comparing results between different timber-owning companies because there are varying methods of calculating depletion expense under GAAP. With different issuers employing various calculation methodologies, disclosure of EBITDDA can make it easier for the reader to make meaningful comparisons between the operating results and cash-generating capabilities of different timber companies. -0- *T Pope Resources, A Delaware Limited Partnership Unaudited CONSOLIDATED STATEMENTS OF OPERATIONS (all amounts in $000's, except per unit amounts) Three months ended Six months ended June 30, June 30, 2006 2005 2006 2005 Revenues $15,610 $ 16,131 $ 31,693 $ 32,787 Costs and expenses: Cost of sales (8,414) (7,410) (14,839) (15,214) Operating expenses (3,461) (3,626) (6,934) (6,807) ------- -------- -------- -------- Operating income 3,735 5,095 9,920 10,766 Interest, net (217) (635) (526) (1,352) ------- -------- -------- -------- Income before income taxes and minority interest 3,518 4,460 9,394 9,414 Income tax provision 8 (263) (437) (510) ------- -------- -------- -------- Income before minority interest 3,526 4,197 8,957 8,904 Minority interest 14 (128) (119) (229) ------- -------- -------- -------- Net income $ 3,540 $ 4,069 $ 8,838 $ 8,675 ======= ======== ======== ======== Average units outstanding -- Basic 4,641 4,596 4,638 4,578 ======= ======== ======== ======== Average units outstanding -- Diluted 4,753 4,757 4,750 4,740 ======= ======== ======== ======== Basic net income per unit $ 0.76 $ 0.89 $ 1.91 $ 1.89 ======= ======== ======== ======== Diluted net income per unit $ 0.74 $ 0.86 $ 1.86 $ 1.83 ======= ======== ======== ======== CONSOLIDATED BALANCE SHEETS (all amounts in $000's) June 30, 2006 2005 -------- -------- Assets: Cash $ 2,679 $ 1,574 Short term investments 20,000 8,007 Other current assets 6,948 4,517 Roads and timber 48,714 57,977 Properties and equipment 30,559 26,981 Other assets 1,124 989 -------- -------- Total $110,024 $100,045 ======== ======== Liabilities and partners' capital: Current liabilities $ 5,404 $ 3,976 Long-term debt, excluding current portion 30,919 32,497 Other long-term liabilities 321 211 Total liabilities 36,644 36,684 Partners' capital 73,380 63,361 -------- -------- Total $110,024 $100,045 ======== ======== RECONCILIATION BETWEEN NET INCOME AND EBITDDA (all amounts in $000's) Three months ended Six months ended June 30, June 30, 2006 2005 2006 2005 Net income $ 3,540 $ 4,069 $ 8,838 $ 8,675 Added back: Interest, net 217 635 526 1,352 Depletion 2,119 3,223 4,692 7,066 Depreciation and amortization 175 167 359 319 Income tax expense (8) 263 437 510 ------- ------- ------- ------- EBITDDA $ 6,043 $ 8,357 $14,852 $17,922 ======= ======= ======= ======= RECONCILIATION BETWEEN CASH FROM OPERATIONS AND EBITDDA (all amounts in $000's) Three months ended Six months ended June 30, June 30, 2006 2005 2006 2005 Cash from operations $ 7,858 $ 5,921 $12,313 $12,814 Added back: Change in working capital 1,522 734 5,682 2,727 Interest 217 635 526 1,352 Deferred profit - 837 - 685 Minority interest 13 - - - Deferred taxes 36 - 19 - Income tax provision - 263 437 510 Less: Deferred profit (666) - (941) - Cost of land sold (2,856) (32) (2,869) (166) Equity based compensation (72) - (195) - Minority interest - - (120) - Income tax provision (8) (1) - - Other (1) - - - ------- ------- ------- -------- EBITDDA $ 6,043 $ 8,357 $14,852 $17,922 ======= ======= ======= ======= SEGMENT INFORMATION (all amounts in $000's) Three months ended Six months ended June 30, June 30, 2006 2005 2006 2005 Revenues: Fee Timber $10,449 $13,220 $24,173 $26,883 Timberland Management & Consulting (TM&C) 544 1,843 2,568 3,457 Real Estate 4,617 1,068 4,952 2,447 ------- ------- ------- ------- Total 15,610 16,131 31,693 32,787 EBITDDA: Fee Timber 6,195 8,090 15,071 17,001 TM&C 71 719 1,250 1,481 Real Estate 629 330 324 1,001 General & administrative (852) (782) (1,793) (1,561) ------- ------- ------- ------- Total 6,043 8,357 14,852 17,922 Depreciation, depletion and amortization: Fee Timber 2,181 3,160 4,825 7,029 TM&C 20 27 36 48 Real Estate 43 138 77 174 General & administrative 50 65 113 134 ------- ------- ------- ------- Total 2,294 3,390 5,051 7,385 Operating income/(loss): Fee Timber 4,014 4,930 10,246 9,972 TM&C 37 820 1,333 1,662 Real Estate 586 192 247 827 General & administrative (902) (847) (1,906) (1,695) ------- ------- ------- ------- Total $ 3,735 $ 5,095 $ 9,920 $10,766 ======= ======= ======= ======= SELECTED STATISTICS Three months ended Six months ended 30-Jun-06 30-Jun-05 30-Jun-06 30-Jun-05 Log sale volumes (thousand board feet): Sawlogs Douglas-fir 11,842 12,195 28,282 25,876 Whitewood 1,149 4,113 3,145 7,528 Cedar 227 1,730 586 3,208 Hardwood 1,144 1,299 1,706 2,788 Pulp All species 2,288 3,026 4,964 5,963 -------- -------- -------- -------- Total 16,650 22,363 38,683 45,363 ======== ======== ======== ======== Average price realizations (per thousand board feet): Sawlogs Douglas-fir 665 644 675 644 Whitewood 452 487 410 480 Cedar 1,182 981 993 943 Hardwood 670 563 646 597 Pulp All species 260 205 255 212 Overall 603 577 606 578 Owned timber acres 114,440 115,103 114,440 115,103 Acres under management 291,925 527,316 291,925 527,316 Capital expenditures ($000's) $ 2,713 $ 744 $ 4,148 $ 1,691 Depletion ($000's) $ 2,119 $ 3,223 $ 4,692 $ 7,066 Depreciation ($000's) $ 175 $ 167 $ 359 $ 319 Debt to total capitalization 31% 35% 31% 35% QUARTER TO QUARTER COMPARISONS (Amounts in $000's except per unit data) Q2 2006 Q2 2006 vs. vs. Q2 2005 Q1 2006 Total Total Net income: 2nd Quarter 2006 $ 3,540 $ 3,540 1st Quarter 2006 5,298 2nd Quarter 2005 4,069 ------- -------- Variance $ (529) $(1,758) Detail of earnings variance: Fee Timber Log price realizations (A) $ 433 $ (83) Log volumes (B) (3,296) (3,273) Depletion 1,005 454 Production costs 862 579 Other Fee Timber 80 105 Timberland Management & Consulting Management fee changes (673) (314) Disposition fee changes - (1,343) Other Timberland Mgmnt & Consulting (110) 398 Real Estate Environmental remediation liability 108 - Land sales 707 1,274 Depletion 99 - Other Real Estate (520) (349) General & administrative costs (55) 102 Interest expense 240 59 Other (taxes, minority int., interest inc.) 591 633 ------- ------- Total change in earnings $ (529) $(1,758) ======= ======= (A) Price variance calculated by extending the change in average realized price by current period volume. (B) Volume variance calculated by extending change in sales volume by the average log sales price for the comparison period. *T