<PAGE> 1
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 Quarter Ending March 31, 1997
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 [ ] No [X]
<PAGE> 2
P A R T I
ITEM 1
Financial Statements
2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS (Unaudited)
Pope Resources
March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
(Thousands) 1997 1996
- - - -----------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 5,565 $ 3,741
Accounts receivable 314 517
Work in progress 10,273 10,522
Current portion of contracts receivable 1,172 1,251
Prepaid expenses and other 357 317
------- -------
Total current assets 17,681 16,348
------- -------
Properties and equipment at cost:
Land and land improvements 15,061 15,047
Roads and timber (net of accumulated depletion) 11,119 11,030
Buildings and equipment (net of accumulated depreciation) 9,942 9,600
------- -------
36,122 35,677
------- -------
Other assets:
Contracts receivable, net of current portion 1,533 1,561
Unallocated amenities and project costs 902 936
Loan fees and other 75 77
------- -------
2,510 2,574
------- -------
$56,313 $54,599
======= =======
Liabilities and Partners' Capital
Current liabilities:
Accounts payable $ 781 $ 692
Accrued liabilities 509 586
Current portion of long-term debt 332 325
Deposits 116 110
Dividends Payable 632 0
------- -------
Total current liabilities 2,370 1,713
------- -------
Deficit in investment in joint venture 394 316
Other long-term liabilities 275 275
Long-term debt, net of current portion 14,329 14,403
Deferred profit on contracts receivable 270 276
Partners' capital 38,675 37,616
------- -------
$56,313 $54,599
======= =======
</TABLE>
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Pope Resources
Three Months Ending March 31, 1997 and 1996
(Thousands, except per unit data)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Revenues $ 7,080 $ 9,139
Cost of sales (2,472) (3,063)
Selling and administration expenses (2,563) (1,732)
------- -------
Income from operations 2,045 4,344
------- -------
Other income (expense):
Interest expense (326) (366)
Interest income 67 60
Equity in losses of joint venture (103) (144)
------- -------
(362) (450)
------- -------
Net income $ 1,683 $ 3,894
======= =======
Allocable to general partners $ 17 $ 39
Allocable to limited partners 1,666 3,855
------- -------
$ 1,683 $ 3,894
======= =======
Net income per partnership unit $ 1.86 $ 4.31
======= =======
</TABLE>
4
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Pope Resources
Three Months Ending March 31, 1997 and 1996
<TABLE>
<CAPTION>
(Thousands) 1997 1996
- - - -----------------------------------------------------------------------------
<S> <C> <C>
Net cash flows from operating activities $ 2,741 $ 5,037
Cash flows from investing activities:
Capital expenditures (825) (667)
Joint venture investment (25)
------- -------
Net cash used in investing activities (850) (667)
------- -------
Cash flows from financing activities:
Repayment of long-term debt (67) (3,040)
------- -------
Net cash used in financing activities (67) (3,040)
------- -------
Net increase (decrease) in cash and cash equivalents 1,824 1,330
Cash and cash equivalents at beginning of year 3,741 987
------- -------
Cash and cash equivalents at end of quarter $ 5,565 $ 2,317
======= =======
</TABLE>
5
<PAGE> 6
POPE RESOURCES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
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 March 31, 1997 and December 31, 1996
and the consolidated statements of income for the three months ending
March 31, 1997 and 1996 and cash flows for the three months ending
March 31, 1997 and 1996 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 1996 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 903,894 units.
4. Supplemental disclosure of cash flow information: Interest paid
amounted to approximately $273,000 and $357,000 for the three months
ended March 31, 1997 and 1996, respectively.
6
<PAGE> 7
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
March 31, 1997
This discussion should be read in conjunction with the Partnership's
consolidated financial statements included with this report.
Results of Operations
Timberland Resources
The Partnership harvested the following timber:
<TABLE>
<CAPTION>
Softwood Hardwood
Year Total Sawlogs Sawlogs Pulp Logs
MMBF $/MBF MMBF $/MBF MMBF $/MBF MMBF $/MBF
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jan - Mar 1997 7.4 681 6.4 757 .02 412 1 205
Jan - Mar 1996 9.9 663 7.2 825 .2 517 2.5 222
</TABLE>
Timber revenue for the quarters ended March 31, 1997 and 1996 were $5,082,000
and $6,599,000, respectively. 1997's mix to date of more higher priced softwood
sawlogs and fewer hardwood sawlogs and pulp logs resulted in a higher average
price per board foot than experienced in 1996.
During the first quarter of 1997 the export log market experienced an
uncharacteristic price decline. By the end of the quarter, however, export log
prices had stabilized at a level 10% below where the year started. We held back
on log production and produced 20% less timber than the first quarter of 1996 to
allow for export markets to firm up. Domestic log prices during the first
quarter of 1997 were very similar to those realized in early 1996. Pulp and
hardwood log prices, however, softened considerably since the end of 1996.
The Partnership sells its logs and trees into two major markets: export and
domestic markets. Indirect sales to the export market totaled 40% and 50% of
total timber revenues for the three month periods ending March 31, 1997 and
1996, 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 weakened in the first quarter. While the market
price of logs can change significantly for a variety of reasons, management
anticipates export prices to stabilize in the second quarter of 1997.
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. 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.
7
<PAGE> 8
Property Development
Property development revenues for the periods ended March 31, 1997 and 1996,
were $1,998,000 and $2,540,000, respectively. Property development consists of
residential development and income-producing properties. Residential development
consists of the sale of single-family homes, finished lots and undeveloped
acreage. Income-producing properties consist 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; certain Port Gamble
parcels leased to individuals; and a restaurant/lounge and related facilities
leased to and operated by Village Resorts, Inc.
Revenue from residential development totaled $979,000 and $1,595,000 for the
quarter ended March 31, 1997 and 1996, respectively. Recognition of deferred
revenue of $446,000 was included in the quarter ended March 31, 1996. The
Partnership's largest development is in Port Ludlow, Washington. During the
first quarter of 1997 the Partnership's development at Port Ludlow generated
revenues of $689,000 on 6 finished lot sales and 1 home sale. This compares to
the prior year=s comparable period sales of $776,000 on 1 finished lot sale, and
1 home sale. The revenue per sale depends on the quality and size of the home,
the subdivision, and the location of the lot. 1997's sales to date have been
buoyed by the continuing strength in the Puget Sound economy and favorable
interest rate environment.
The Partnership's inventory consists of a wide variety of subdivisions
encompassing a broad spectrum of prices in several locales. The Partnership
continues in the planning and entitlement stages for several developments
located in the West Puget Sound region. The Partnership applied for preliminary
planned unit development status on a 270 acre property located in Bremerton.
Additionally, a rezoning was requested to increase the industrial portion to 60
acres. The Partnership expects a decision on these applications perhaps as early
as June, 1997. The Partnership's Peacock Hill parcel was recently annexed into
the city of Gig Harbor, and the Partnership is working with city officials to
identify the process under which future development will occur. Kingston is a
residential development consisting of 750 acres and 765 units which awaits
entitlements and expansion of the local sewage treatment facility.
Revenue from Income-producing properties totaled $1,019,000 and $938,000 for the
periods ending March 31, 1997 and 1996, respectively. Operations were fairly
consistent for the periods ending March 31, 1997 and 1996 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 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 quarter of 1997 the inn showed an increase in
occupancy over the first quarter of 1996. Management of the joint venture is
working hard to create innovative ways to increase occupancy and revenues. The
Partnership's share of joint venture losses were $103,000 and $144,000 for the
first quarter of 1997 and 1996, respectively.
Selling, general and administrative expenses were $2,563,000 and $1,732,000 for
the three months ending March 31, 1997 and 1996, respectively. The increase in
expenses primarily relates to increases in payroll to enhance our internal
systems to remain competitive, expenses related to the proxy statement and
unitholder holder vote held on March 14, 1997, and professional services
associated with the strategic initiative described below.
On March 14, 1997 Pope Resources marked a watershed event in conjunction with a
meeting of our unitholders. In an overwhelming show of support, the partners
authorized the company's launch of a new strategic initiative called the
Investor Portfolio Management Business. The vehicle for this initiative will be
Olympic Resource Management, LLC which will seek out investors interested in
developing risk-diversified portfolios of timber and land. We will generate fee
income from our investor clients as we acquire properties to place into these
portfolios as well as by managing the acquired assets. We expect considerable
progress to be made this year in proving out the Investor Portfolio Management
Business (IPMB) strategy.
8
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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 March 31, 1997, the Partnership had available an unused
$20 million bank loan commitment.
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 32 million board feet of timber in 1997 which compares to 32
million board feet in 1996. 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 $2,741,000 in the first quarter
of 1997, and overall cash and cash equivalents increased by $1,824,000. The cash
generated was primarily used for capital expenditures of $825,000, and
repayments of long-term debt of $67,000.
The Partnership declared a cash distribution of $.70 per unit payable on April
15, 1997 to unitholders of record as of March 31, 1997. The practice of the
Partnership has been to make annual cash distributions only for the purpose of
defraying the federal and state 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. In 1997, the Partnership expects to make
quarterly distributions which coincide with tax payment due dates.
9
<PAGE> 10
PART II
ITEM 4
Submission of Matters to a Vote of Security Holders
On March 14, 1997, the Partnership held a special unitholder meeting to discuss
and vote on a waiver on a provision and an amendment to the Partnership
Agreement.
The Partners approved the waiver on a provision which limits eligibility for
membership on the MGP Board to persons who are not in excess of 75 years of age,
so as to permit an existing member of the MGP Board, Adolphus Andrews, Jr., to
continue to serve on the MGP Board for two (2) years beyond the mandatory
retirement age of 75 years. 589,735 votes were cast for, 23,955 votes were cast
against, and 249,372 votes were withheld. There were 40,832 abstentions or
broker non-votes.
The Partners approved an amendment to (1) permit Pope Resources to engage in a
new business enterprise involving the location, acquisition, management and/or
development of land, and related resources, primarily for the account of
individuals and/or entities who are not otherwise Affiliates of Pope Resources
("Investor Portfolio Management Business"); and (2) authorize an incremental
allocation of net-income derived from the Investor Portfolio Management Business
between Pope Resources and the Managing General Partner. 612,670 votes were cast
for, 31,625 votes were cast against, and 249,372 votes were withheld. There were
10,227 abstentions or broker non-votes.
ITEM 5
Other Information
Each officer (as defined) of the Company is required to report to the Securities
and Exchange Commission, by a specified date, his or her initial statement or
beneficial ownership of securities, even if no securities are beneficially
owned. Mr. Craig L. Jones was appointed as Senior Vice President and Secretary
on September 1, 1996, and through an administrative error did not file his
initial statement of beneficial ownership of securities. This error was
rectified on January 21, 1997. To the Partnership's knowledge, the Partnership
has complied with all other filing requirements.
ITEM 6
Exhibits and Reports on Form 8-K
None.
10
<PAGE> 11
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: May 12, 1997 By: POPE MGP, Inc.
--------------------------------------
Managing General Partner
Date: May 12, 1997 By: /s/ Gary F. Tucker
--------------------------------------
Gary F. Tucker
President and Chief Executive Officer
Date: May 12, 1997 By: /s/ Thomas M. Ringo
--------------------------------------
Thomas M. Ringo
Sr. Vice President-Finance & Client
Relations Principal Financial Officer)
Date: May 12, 1997 By: /s/ Meredith R. Green
--------------------------------------
Meredith R. Green
Treasurer/Controller
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,565
<SECURITIES> 0
<RECEIVABLES> 314
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,681
<PP&E> 54,680
<DEPRECIATION> 18,557
<TOTAL-ASSETS> 56,313
<CURRENT-LIABILITIES> 2,370
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 38,675
<TOTAL-LIABILITY-AND-EQUITY> 56,313
<SALES> 7,080
<TOTAL-REVENUES> 7,080
<CGS> 2,472
<TOTAL-COSTS> 2,472
<OTHER-EXPENSES> 2,563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,045
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,683
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,683
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.86
</TABLE>
