<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, 1996
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)
Pope Resources
September 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
(Thousands) 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 5,119 $ 987
Accounts receivable 562 1,047
Work in progress 11,165 11,375
Current portion of contracts receivable 1,250 739
Prepaid expenses and other 446 164
------- -------
Total current assets 18,542 14,312
------- -------
Properties and equipment at cost:
Land and land improvements 14,988 15,146
Roads and timber (net of
accumulated depletion) 11,162 11,922
Buildings and equipment (net of
accumulated depreciation) 9,562 9,040
------- -------
35,712 36,108
------- -------
Other assets:
Contracts receivable, net of current portion 1,468 2,640
Unallocated amenities and project costs 973 996
Loan fees and other 78 91
------- -------
2,519 3,727
------- -------
$56,773 $54,147
======= =======
Liabilities and Partners' Capital
Current liabilities:
Accounts payable $ 687 $ 1,029
Accrued liabilities 446 521
Current portion of long-term debt 319 300
Deposits 113 165
Other liabilities 297 363
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Total current liabilities 1,863 2,378
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Other long-term liabilities 275 275
Long-term debt, net of current portion 14,474 17,717
Deferred profit on contracts receivable 278 789
Partners' capital 39,883 32,988
------- -------
$56,773 $54,147
======= =======
</TABLE>
See notes to consolidated financial statements
3
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CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Pope Resources
Three Months and Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Thousands, except per unit data) September 30 September 30
------------------ -----------------
1996 1995 1996 1995
---------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Timberland resources $ 5,776 $ 5,731 $ 18,795 $19,834
Property development 2,900 2,321 7,856 7,025
----------------- ------------------
8,676 8,052 26,651 26,859
Cost of sales (4,082) (3,103) (10,967) (9,603)
Selling and administration expenses (2,349) (1,895) (6,067) (5,506)
Deferred profit on current year's contract sales (25) (37) (21)
Recognition of prior years' deferred profit 0 1 544 2
----------------- ------------------
Income from operations 2,220 3,055 10,124 11,731
Other income (expenses):
Interest expense (338) (425) (1,052) (1,343)
Interest income 62 117 206 292
Joint venture loss (28) (25) (259) (275)
----------------- ------------------
(304) (333) (1,105) (1,326)
----------------- ------------------
Net income $ 1,916 $ 2,722 $ 9,019 $10,405
================= ==================
Allocable to general partners $ 19 $ 27 $ 90 $ 104
Allocable to limited partners 1,897 2,695 8,929 10,301
----------------- ------------------
$ 1,916 $ 2,722 $ 9,019 $10,405
================= ==================
Net income per partnership unit $ 2.12 $ 3.01 $ 9.98 $ 11.51
================= ==================
</TABLE>
See notes to consolidated financial statements
4
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Pope Resources
Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
(Thousands) 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Net cash flows from operating activities $10,359 $12,356
Cash flows from investing activities:
Capital expenditures (960) (3,249)
Proceeds from the sale of equipment 81
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Net cash used in investing activities (879) (3,249)
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Cash flows from financing activities:
Partnership units repurchased (136)
Cash distributions to unitholders (2,124)
Repayment of long-term debt (3,224) (8,603)
------- -------
Net cash used in financing activities (5,348) (8,739)
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Net increase (decrease) in cash and cash equivalents 4,132 368
Cash and cash equivalents at beginning of year 987 100
------- -------
Cash and cash equivalents at end of quarter $ 5,119 $ 468
======= =======
</TABLE>
See notes to consolidated financial statements
5
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POPE RESOURCES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
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, 1996 and December 31, 1995 and the
consolidated statements of income for the three months and nine months
ending September 30, 1996 and 1995 and cash flows for the nine months
ending September 30, 1996 and 1995 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 1995 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 units for
the three months ending September 30, 1996 and 1995, respectively. Net
income per unit is based on the weighted average of 903,894 and 903,913
units for the nine months ending September 30, 1996 and 1995,
respectively.
4. Supplemental disclosure of cash flow information: Interest paid amounted
to approximately $1,080,000 and $1,361,000 for the nine months ended
September 30, 1996 and 1995, respectively.
6
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - September 30, 1996
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POPE RESOURCES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
September 30, 1996
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 1996 the Partnership logged and sold
approximately 20.6 million board feet of softwood logs at an average price of
$804 per thousand board feet (MBF). The Partnership had no stumpage sales in the
first three quarters of 1996. Stumpage sales are cutting contracts for the
removal of trees off of a specific tract for a limited period of time (e.g. 12
months). For the corresponding period in 1995, the Partnership logged and sold
approximately 19.5 million board feet of softwood timber at an average price of
$832 per 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. The decrease in the average price per MBF is primarily
attributable to weaker pulp log prices in the first three quarters of 1996 as
compared to 1995. The average price of logs sold reflects various mixes of log
grades and different types of stumpage sales and is, therefore, not necessarily
indicative of future prices.
The Partnership sells its logs and trees into two major markets, namely the
export and domestic markets. Direct and indirect softwood log sales to the
export market totaled 60% and 55% of total timber revenues for the nine month
periods ending September 30, 1996 and 1995, respectively. The export demand for
logs is directly affected by the demand from Asian countries. Since the
Partnership's export logs are sold into a log market primarily going 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
strengthened in the third quarter. While the market price of logs can change
significantly for a variety of reasons, management anticipates export prices to
continue to increase in the fourth quarter of 1996.
The domestic demand for logs is directly affected by the level of new home
construction and repair and remodel business 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 fourth quarter, management anticipates
continued uncertainty regarding the demand for domestic logs due to fluctuating
interest rates and a slower economy. There continues to be a declining number of
domestic sawmills in the company's operating region. As the number of sawmills
has declined, management has thus far been successful in finding replacement
outlets for its domestic logs. Management does not believe the decline in
domestic sawmills will materially impact its near-term operations but
nonetheless is continuing to explore additional outlets for its domestic logs.
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Property Development
Property development consists of residential development and income properties.
Residential development consists of the sale of single-family homes, finished
lots and undeveloped acreage. 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; commercial and
residential property rentals in Port Gamble; certain Port Gamble parcels leased
to Pope & Talbot, Inc.; a restaurant/lounge and related facilities leased to and
operated by Village Resorts, Inc.
Revenue from residential development totaled $4,209,000 and $3,610,000 for 1996
and 1995, respectively. The Partnership's largest development is in Port Ludlow,
Washington. During the first three quarters of 1996 the Partnership's
development at Port Ludlow generated revenues of $3,164,000 on 6 finished lot
sales and 10 home sales. This compares to the prior year's comparable period
sales of $2,799,000 on 19 finished lot sales, 7 home sales and one bulk sale of
27 lots with preliminary lot approval. The decrease in lot sales is attributable
to a lack of single-family view lots available for sale. The lack of this
inventory was caused by permit delays resulting from Washington State growth
management regulations and an unseasonably wet winter. The Partnership is
aggressively pursuing entitlements to increase this inventory and will have a
much larger inventory ready for sale in the fourth quarter of 1996.
At September 30, 1996 the Partnership had 213 developed lots and 19 homes under
various stages of completion. This inventory consists of a wide variety of
subdivisions encompassing a broad spectrum of prices in several locales. As for
properties in Bremerton, Kingston, and Gig Harbor that are progressing through
the entitlement process - each is moving more slowly than anticipated. Both
Bremerton and Gig Harbor are expected to gain key municipal approvals in late
1996. Detailed project applications will follow in early 1997. Entitlements for
Kingston are complicated and delayed by issues related to the State's Growth
Management Act.
Income properties revenues totaled $3,646,000 and $3,244,000 for the periods
ending September 30, 1996 and 1995, respectively. Operations were fairly
consistent for the periods ending September 30, 1996 and 1995 and management
expects future revenues to continue to increase. As of January 1, 1996 the
Partnership assumed responsibility for management of the Port Gamble townsite
from Pope & Talbot, Inc. A year-long planning process is underway to determine
how best to optimize the values inherent in both Port Gamble's historic core and
its attendant acreage.
Other
The Partnership is a joint venture partner in a 36-room inn at Port Ludlow. The
expected occupancy level has not been achieved and the inn has thus performed
below expectations. For the first three quarters of 1996 the inn showed an
occupancy percentage of 39% compared to 31% for the first three quarters of
1995. Management of the joint venture is working hard to create innovative ways
to increase revenues. The Partnership's share of joint venture losses were
$259,000 and $275,000 for the first three quarters of 1996 and 1995,
respectively.
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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-term and
on a long-term basis. At September 30, 1996, the Partnership had available an
unused $20 million loan commitment from a bank.
Management has considerable discretion to increase or decrease the level of logs
cut and thus drive net income and cash flow up or down assuming, of course, log
prices and demand remain stable. Management's current plan is to harvest
approximately 22 million board feet of softwood logs and trees in 1996 which
compares to 27 million board feet 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 $10,359,000 in the first three
quarters of 1996, and overall cash and cash equivalents increased by $4,132,000.
The cash generated was primarily used for repayments of long-term debt totaling
$3,224,000, a unitholder distribution of $2,124,000 and capital expenditures of
$960,000.
The Partnership has declared a cash distribution of $2.35 per unit payable on
July 29, 1996 to unitholders of record as of July 8, 1996. The cash distribution
is expected to be followed by a second distribution in late 1996. Together the
two distributions relate to income expected to be realized in 1996 and are
intended to assist the unitholders in meeting their federal and state income tax
liabilities attributable to such income. All cash distributions are at the
discretion of the Partnership's managing general partner, Pope MGP, Inc.
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 30, 1996 By: POPE MGP, Inc.
----------------------------------
Managing General Partner
Date: October 30, 1996 By:
----------------------------------
Gary F. Tucker
President and Chief Executive Officer
Date: October 30, 1996 By:
----------------------------------
Thomas M. Ringo
Vice President-Finance
(Principal Financial Officer)
Date: October 30, 1996 By:
----------------------------------
Thomas A. Griffin
Treasurer/Controller
(Principal Accounting Officer)
12
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,119
<SECURITIES> 0
<RECEIVABLES> 562
<ALLOWANCES> 0
<INVENTORY> 11,165
<CURRENT-ASSETS> 18,542
<PP&E> 53,896
<DEPRECIATION> 18,184
<TOTAL-ASSETS> 56,773
<CURRENT-LIABILITIES> 1,863
<BONDS> 14,749
0
0
<COMMON> 0
<OTHER-SE> 39,883
<TOTAL-LIABILITY-AND-EQUITY> 56,773
<SALES> 26,651
<TOTAL-REVENUES> 26,651
<CGS> 10,967
<TOTAL-COSTS> 16,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,052
<INCOME-PRETAX> 9,019
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,019
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,019
<EPS-PRIMARY> 9.98
<EPS-DILUTED> 9.98
</TABLE>
