<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ending September 30, 1995
OR
/ / TRANSACTION 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
--- ---
1
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P A R T I
ITEM 1
Financial Statements
2
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
Pope Resources
September 30, 1995 and December 31, 1994
(Thousands) 1995 1994
- - --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 468 $ 565
Accounts receivable 556 917
Work in progress 11,967 11,912
Current portion of contracts receivable 717 1,326
Prepaid expenses and other 204 219
-------- -------
Total current assets 13,912 14,939
-------- -------
Properties and equipment at cost:
Land and land improvements 15,217 13,240
Roads and timber (net of
accumulated depletion) 11,865 9,074
Buildings and equipment (net of
accumulated depreciation) 9,305 9,382
-------- -------
36,387 31,696
-------- -------
Other assets:
Contracts receivable, net of current portion 2,870 3,130
Unallocated amenities and project costs 1,025 1,245
Loan fees and other 99 156
-------- -------
3,994 4,531
-------- -------
$ 54,293 $51,166
======== =======
Liabilities and Partners' Capital
Current liabilities:
Accounts payable $ 576 $ 2,645
Accrued liabilities 254 312
Current portion of long-term debt 294 224
Deposits 102 146
-------- -------
Total current liabilities 1,226 3,327
-------- -------
Other long-term liabilities 418 0
Long-term debt, net of current portion 16,782 22,297
Deferred profit on contracts receivable 773 398
Partners' capital 35,094 25,144
-------- -------
$ 54,293 $51,166
======== =======
</TABLE>
See notes to consolidated financial statements.
3
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Pope Resources
Three Months and Nine Months Ended September 30, 1995 and 1994
(Thousands, except per unit data)
- - --------------------------------------------------------------------------------------------------
Three Months Nine Months
Ended Ended
September 30 September 30
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Timberland resources $ 5,731 $ 5,913 $19,834 $13,139
Property development 2,321 3,580 7,025 7,637
Recognition of prior
years' deferred profit 1 2 66
Deferred profit on current
year's contract sales (92) (21) (122)
------- ------- ------- -------
8,053 9,401 26,840 20,720
Cost of sales (3,103) (4,352) (9,603) (9,138)
------- ------- ------- -------
Gross profit 4,950 5,049 17,237 11,582
------- ------- ------- -------
Selling and administration expenses (1,921) (1,716) (5,781) (4,581)
------- ------- ------- -------
Income from operations 3,029 3,333 11,456 7,001
Other (charges) credits:
Interest expense (425) (504) (1,343) (1,399)
Interest income 117 97 292 327
------- ------- ------- -------
Net income $ 2,721 $ 2,926 $10,405 $ 5,929
======= ======= ======= =======
Net income allocable to
general partners $ 27 $ 29 $ 104 $ 59
Net income allocable to
limited partners 2,694 2,897 10,301 5,870
------- ------- ------- -------
$ 2,721 $ 2,926 $10,405 $ 5,929
======= ======= ======= =======
Net income per partnership unit $ 3.01 $ 3.16 $ 11.51 $ 6.40
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
4
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Pope Resources
Nine Months Ended September 30, 1995 and 1994
(Thousands) 1995 1994
- - --------------------------------------------------------------------------------
<S> <C> <C>
Net cash flows from operating activities $12,356 $ 3,763
Cash flows from investing activities:
Capital expenditures (3,249) (1,630)
Proceeds from the sale of equipment 5
------- -------
Net cash used in investing activities (3,249) (1,625)
------- -------
Cash flows from financing activities:
Partnership units repurchased (136) (60)
Repayment of long-term debt (8,603) (1,957)
------- -------
Net cash used in financing activities (8,739) (2,017)
------- -------
Net increase (decrease) in cash and cash equivalents 368 121
Cash and cash equivalents at beginning of year 100 444
------- -------
Cash and cash equivalents at end of quarter $ 468 $ 565
======= =======
</TABLE>
See notes to consolidated financial statements.
5
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POPE RESOURCES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1995
1. The consolidated financial statements have been prepared by the
Partnership without an audit and are subject to year-end adjustments.
Certain information and footnote disclosures in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
the rules and regulations of the Securities and Exchange Commission. In
the opinion of the Partnership, the accompanying consolidated balance
sheets as of September 30, 1995 and December 31, 1994 and the
consolidated statements of income for the three months and nine months
ending September 30, 1995 and 1994 and cash flows for the nine months
ending September 30,1995 and 1994 contain all adjustments necessary to
present fairly the financial statements referred to above. The results of
operations for any interim period are not necessarily indicative of the
results to be expected for the full year.
2. The financial statements in the Partnership's 1994 annual report on Form
10-K include a summary of significant accounting policies of the
Partnership and should be read in conjunction with this Form 10-Q.
3. Net income per unit is based on the weighted average of 903,894 and
925,433 units for the three months ending September 30, 1995 and 1994,
respectively. Net income per unit is based on the weighted average of
903,913 and 926,269 units for the nine months ending September 30, 1995
and 1994, respectively.
4. Supplemental disclosure of cash flow information: Interest paid amounted
to approximately $1,361,000 and $1,381,000 for the nine months ended
September 30, 1995 and 1994, respectively.
6
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - September 30, 1995
7
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POPE RESOURCES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
September 30, 1995
This discussion should be read in conjunction with the Partnership's
consolidated financial statements included with this report.
Results of Operations
Timberland Resources
During the first three quarters of 1995 the Partnership logged and sold
approximately 19.5 million board feet of softwood timber at an average price of
$806 per thousand board feet (MBF). In addition, during the first nine months of
1995, the Partnership sold stumpage totaling 837 thousand board feet of softwood
timber at an average price of $544 per MBF. For the corresponding period in
1994, the Partnership logged and sold approximately 14.8 million board feet of
softwood timber at an average price of $755 per MBF. The Partnership had no
stumpage sales in the first three quarters of 1994. The increase in the average
price of timber logged and sold per MBF is primarily attributable to a higher
percentage of export volume sold and higher export log prices received in the
first three quarters of 1995 as compared to 1994. The aforementioned average
price of timber sold reflects various mixes of timber grades and different types
of timber sales and is, therefore, not necessarily indicative of the price of
timber to be sold in the future.
The Partnership sells its timber into two major markets, namely the export and
domestic markets. Direct and indirect log sales to the export market totaled 53%
and 35% of total timber revenues for the nine month periods ending September 30,
1995 and 1994, respectively.
The export demand for logs is directly affected by the demand from Asian
countries. As nearly all of the Partnership's export logs are sold to Japan, the
strength of the Japanese economy and the relative strength of the United States
dollar directly affect the demand for export logs. The export market softened in
the third quarter of 1995 but prices are still at high historical levels. While
the market price of logs can change significantly for a variety of reasons,
management anticipates export prices to increase in the fourth quarter of 1995
due to increased demand.
The domestic demand for logs is directly affected by the level of construction
activity. Changes in general economic and demographic factors have historically
caused fluctuations in housing starts. This in turn affects demand for lumber
and commodity wood prices which drives the demand for logs. For the balance of
1995 management anticipates continued uncertainty regarding the demand for
domestic logs due to fluctuating interest rates and a slower economy. Management
is also concerned about the declining number of domestic sawmills in its region.
As the number of sawmills declines, management must find replacement outlets for
its domestic timber. Management does not believe the decline in domestic
sawmills will materially impact its 1995 operations but is nonetheless exploring
additional outlets for its domestic timber.
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Property Development
Property development consists of residential development, land marketing and
income properties. Residential development consists of the sale of single-family
homes and finished lots. Land marketing is comprised of the development and sale
of both cut-over timberland and land purchased for resale. Income properties
consists of providing water and sewer services to properties in the Port Ludlow
area; a marina, golf course, commercial center and RV park operated by the
Partnership; the Port Gamble townsite and log dumps, which are leased to Pope &
Talbot, Inc.; and a restaurant/lounge and related facilities leased to and
operated by Village Resorts, Inc.
During the first three quarters of 1995 the Partnership's residential
development at Port Ludlow generated revenues of $2,799,000 on 19 finished lot
sales, 7 home sales and one bulk sale of 27 lots with preliminary lot approval.
This compares to the prior year's first three quarters sales at Port Ludlow of
$2,646,000 on 20 finished lot sales and 8 home sales. As in the prior year,
sales activity continues to be disappointing due to the slow real estate market
in the area.
For the first nine months of 1995 the Partnership's residential development at
Grandridge produced revenues of $510,000 on 16 lot sales. For the corresponding
period in 1994, the Partnership generated revenues of $288,000 on 9 lot sales.
While the 1995 sales were higher than 1994, they were much slower than
anticipated due to regulatory interference and the loss of one of the two home
builders.
At September 30, 1995 the Partnership had 219 developed lots and 26 homes under
various stages of completion. This inventory consists of a wide variety of
subdivisions encompassing a broad spectrum of prices.
Land marketing sold 5 acres in the first three quarters of 1995 and generated
revenues of $257,000. This compares to sales of $1,247,000 in the corresponding
period for 1994 consisting of 40 acres. Average prices per acre totaled $7,900
and $31,200 for 1995 and 1994, respectively. The decrease in the average price
per acre sold is mainly due to sale of two commercial parcels of land in 1994.
The decrease in acres sold is mainly attributable to a lack of inventory for
sale. The Partnership has entitlements for 74 lots on 185 acres which should be
available for sale in the fourth quarter of 1995.
Income properties revenues totaled $3,244,000 and $3,296,000 for the periods
ending September 30, 1995 and 1994, respectively. Operations were consistent for
the periods ending September 30, 1995 and 1994 and management expects future
revenues to be stable.
General
General and administrative costs increased in the first nine months of 1995 as
compared to 1994 due to three factors: increased property taxes on the
Partnership's land, increased road maintenance and silviculture expenses in
timberland resources due to timberland acquisitions, and increased costs related
to the Partnership's Ludlow Bay development in Port Ludlow.
Interest income declined from amounts earned at September 30, 1995 as compared
to 1994. This was attributable to the decline in contracts receivable.
9
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Liquidity and Capital Resources
Funds generated internally through operations and externally through financing
will provide the required resources for the Partnership's real estate
development and capital expenditures. Management considers its capital resources
to be adequate for its real estate development plans, both in the near future
and on a long-term basis. At September 30, 1995, the Partnership had available
an unused $18 million loan commitment from a bank.
Management has considerable discretion to increase or decrease the level of
timber cut and thus drive net income and cash flow up or down assuming, of
course, timber prices and demand remain stable. Management's current plan is to
harvest 27 million board feet of softwood timber in 1995. Since harvest plans
are based on demand, price and cash needs, actual harvesting may vary subject to
management's on-going review.
Cash provided by operating activities generated $12,536,000 in the third quarter
of 1995, while overall cash and cash equivalents increased by only $368,000. The
cash generated was primarily used for repayments of long-term debt totaling
$8,739,000 and capital expenditures of $3,249,000.
The Partnership has not declared a cash distribution in 1995. All cash
distributions are at the discretion of the Partnership's managing general
partner, Pope MGP, Inc. The practice of the Partnership has been to make cash
distributions only for the purpose of defraying the estimated tax liability of
unitholders on their flow-through share of Partnership net income and as
approved from time to time by the managing general partner.
10
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PART II
ITEM 6
Exhibits and Reports on Form 8-K
None.
11
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POPE RESOURCES
SIGNATURE
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.
POPE RESOURCES,
A Delaware Limited Partnership
-------------------------------------
Registrant
Date: October 20, 1995 By: POPE MGP, Inc.
--------------------------------
Managing General Partner
Date: October 20, 1995 By:
--------------------------------
George H. Folquet
President and Chief Executive Officer
Date: October 20, 1995 By:
--------------------------------
Thomas M. Ringo
Vice President-Finance
(Principal Financial Officer)
Date: October 20, 1995 By:
--------------------------------
Thomas A. Griffin
Treasurer/Controller
(Principal Accounting Officer)
12
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 468
<SECURITIES> 0
<RECEIVABLES> 556
<ALLOWANCES> 0
<INVENTORY> 11,967
<CURRENT-ASSETS> 13,912
<PP&E> 53,407
<DEPRECIATION> 17,020
<TOTAL-ASSETS> 54,293
<CURRENT-LIABILITIES> 1,226
<BONDS> 17,076
<COMMON> 0
0
0
<OTHER-SE> 35,094
<TOTAL-LIABILITY-AND-EQUITY> 54,293
<SALES> 26,840
<TOTAL-REVENUES> 26,840
<CGS> 9,603
<TOTAL-COSTS> 15,384
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,343
<INCOME-PRETAX> 10,405
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,405
<EPS-PRIMARY> 11.51
<EPS-DILUTED> 11.51
</TABLE>
