<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1996, or
- ----- Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 [No Fee Required]
For the transition period from________________ to______________
Commission File No. 1-9035
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 91-1313292
(State of Organization) (IRS Employer I.D. No.)
P.O. Box 1780, Poulsbo, WA 98370
(Address of principal executive offices Zip Code)
Registrant's telephone number, including area code: (360) 697-6626
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Depositary Receipts (Units) Pacific Stock Exchange
Depositary Receipts (Units) NASDAQ National Market System
Securities registered pursuant to Section 12(g) of the Act:
None
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [ X ]
Approximate aggregate market value of the voting stock held by
nonaffiliates of the registrant as of February 24, 1997 was $74,419,710.
DOCUMENTS INCORPORATED BY REFERENCE:
SEE ITEM 14
Exhibit Index at page 33.
<PAGE> 2
PART I
Item 1. BUSINESS.
Pope Resources, A Delaware Limited Partnership (the "Partnership"),
including its subsidiaries Ludlow Water Company and Gamble Village Water & Sewer
Company were organized in December, 1985 as a result of a spin-off by Pope &
Talbot, Inc. (P&T) of certain of its assets. The Partnership is a successor to
Pope & Talbot Development, Inc. and other P&T affiliates. P&T acquired its first
timberlands in the Puget Sound area in 1853. The Partnership also formed another
subsidiary, Ludlow Bay Realty in 1993.
FINANCIAL INFORMATION ABOUT SEGMENTS.
The Partnership's operations are classified into two segments: (I)
timberland resources, and (II) property development.
Segment financial information is presented in Note 9 to the
Partnership's Financial Statements included with this report.
NARRATIVE DESCRIPTION OF BUSINESS.
The Partnership's largest segment, timberland resources, encompasses the
growing and harvesting of timber and the leasing of lands for mineral
development and for the siting of communications towers. The Partnership's other
segment, 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 consists of various commercial operations. All of the Partnership's
operations are conducted within a 50-mile radius of Seattle, Washington. The
following is a detailed description of each industry segment.
Timberland Resources.
The Partnership's key asset is its tree farm of approximately 76,000
acres. Its principal operations consist of the growing of timber to its optimal
harvest age, and the subsequent harvesting and marketing of timber and timber
products to both domestic and Pacific Rim markets. The segment produced 66%, 73%
and 63% of the Partnership's consolidated gross revenues in 1996, 1995 and 1994,
respectively.
The dominant timber species on the tree farm is Douglas fir. Douglas
fir is classified as a "softwood" species, though its strength, flexibility and
other physical characteristics make it generally preferable to other softwoods
and hardwoods for the production of construction grade lumber and plywood. As of
December 31, 1996, the Partnership estimates the tree farm's total merchantable
softwood inventory volume to be 470 million board feet. This compares to
inventory volumes of 486 and 474 million board feet at December 31, 1995 and
1994, respectively. Due to Washington State forest practice regulations that
provide for limited clear-cut size, riparian management zones, wildlife leave
trees, wetlands requirements and other harvest restrictions, the Partnership
estimates that between 7 and 10% of the aforementioned volume is not available
for harvest. The merchantable timber volume is accounted for by the
Partnership's standing timber inventory system, which involves periodic
statistical sampling of the timber (cruising) with annual adjustments made for
estimated growth and the depletion of areas harvested.
The Partnership views the tree farm as a core holding and is managing it
accordingly. As such, the Partnership's annual harvest policy is to operate at
harvest levels that are sustainable and consistent with growth. From year to
year, the policy allows for flexibility in response to the external environment.
For instance, when log markets are weak, annual harvest levels might be reduced
whereas in strong log markets, the annual levels may be above the average. The
Partnership's harvesting schedules are based on inventory data that include
species, site index, classification of soils, volume, size and age of the
timber. From this information, the Partnership develops its annual and long-term
harvesting plans predicated on existing and anticipated economic conditions with
the objective of maximizing the long-term returns.
Over the longer term, management anticipates that population and
economic pressures will contribute to the development of increasing portions of
the tree farm. To offset the resulting reductions in the timberland base,
management is actively seeking acquisitions and trades that enhance tree farm
ownership.
Page 2 of 36
<PAGE> 3
The Partnership markets its timber in one of two ways. Generally
speaking, management engages independent logging contractors to harvest the
standing timber and manufacture it into logs which management then sells on the
open market. One of the principal markets served is the Pacific Rim. Logs going
to this destination are generally sold to brokers who in turn sell direct to
offshore destinations. Japan is by far the largest consumer of this segment,
though Korea and China are significant from time to time. The balance of the
logs produced are sold domestically to local sawmills and pulp and paper
operations.
The second method in which timber is sold is through "stumpage" sales,
where standing timber is sold "on the stump" to purchasers that in turn manage
the harvesting and marketing of the wood. These operations are governed by
provisions of the sales contract, and are closely monitored by management to
ensure compliance with all regulatory and logging requirements. Stumpage sales
are generally used in unique situations where returns can be improved through
the involvement of outside parties.
There are many competitors of the Partnership, most of whom are
comparable in size or larger. The principal areas of competition in the timber
business are pricing and the ability to satisfy volume demands for various types
and grades of timber to the competing market. Management believes that its
location, type and grade of timber will enable it to effectively compete in its
markets. However, the Partnership's products are subject to increasing
competition from a variety of non-wood and engineered wood products as well as
competition from foreign sources.
The Partnership's timber operations require forest management which
primarily consists of reforestation, thinning of the timber to achieve optimal
spacing after stands are established, and fertilization. During 1996, the
Partnership planted 658,000 seedlings on 1,440 acres. This compares to 1995 and
1994 in which the Partnership planted 518,000 and 540,000 seedlings on 1,350 and
1,200 acres, respectively. Management's policy is to stay current on its
reforestation program, returning all timberlands to productive status as soon as
economically feasible following harvest.
Risk of loss from fire, while possible on any timberland, is minimized
on Partnership lands for several reasons. First, the Partnership maintains a
well developed road system that allows access and quick response capability to
any fire that may occur. Next, management maintains a fire plan and program that
provides for increased monitoring activities and requires all operators to
maintain adequate fire suppression equipment during fire season. All of
management's activities are supplemented by the State of Washington's Department
of Natural resources, who are ultimately responsible for all fire suppression
activities in the State. Finally, in the unlikely event of a fire, the
Partnership's Douglas fir stands are less susceptible than other species to
economic loss from fire. Salvage operations can recover a substantial portion of
the green timber value from this species.
In the operation and management of the tree farm, the Partnership is
subject to federal, state and local laws which govern land use. Management's
objective is to be in compliance with such laws and regulations at all times.
They anticipate that increasingly strict requirements relating to the
environment, natural resources, forestry operations, health and safety matters,
as well as increasing social concern over environmental issues may result in
additional restrictions on the timber operations of the Partnership. This will
in turn result in increased costs, additional capital expenditures and reduced
operating flexibility. Although the Partnership does not consider current laws
and regulations to be materially burdensome, there can be no assurance that
future legislative, governmental or judicial decisions will not adversely affect
the Partnership operations.
The tree farming activities are a year-round operation of the
Partnership and presently employ seven full-time salaried employees, none of
which is a member of a labor union.
Property Development.
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 consists of providing water and sewer services to properties in the
Port Ludlow, Washington area; a marina, golf course, commercial shopping center
and RV park operated by the Partnership; certain parcels leased to Pope &
Talbot, Inc.; a restaurant/lounge and related facilities leased to and operated
by Village Resorts, Inc. The golf, marina, resort and RV park business is
seasonal, with the peak season beginning in May and running through September of
each year. The Partnership holds a 50% interest in a joint venture which
completed construction of a 36-room inn in 1994.
This segment produced 35%, 27%, and 37% of the Partnership's
consolidated gross revenues in 1996, 1995 and 1994, respectively.
Page 3 of 36
<PAGE> 4
The principal activity of residential development consists of building
residential dwellings and developing lots in Port Ludlow. This division's key
asset is approximately 2,000 acres of land located in Western Washington, of
which the focus for development is Port Ludlow. Port Ludlow is an active adult
community on approximately 1,000 acres.
Outside of Port Ludlow the Partnership has developed a 100 lot project
in Port Orchard (Grandridge). The Partnership is also in the planning and
entitlements stages for developments in Bremerton, Gig Harbor and Kingston, all
of which are located in the western Puget Sound region of Washington State.
Kingston is a residential development comprising 750 acres and consisting of 765
units. Kingston awaits entitlements and expansion of the local sewage treatment
facility. The Gig Harbor parcel is part of a larger land area with multiple
owners and has been annexed into the city of Gig Harbor, Washington. Bremerton
will likely be developed primarily as a residential/light-industrial site.
The Partnership's land sales activities are closely associated with the
management of its timber properties. After logging its timberlands, the
Partnership has the option of reforesting the land, developing it for sale as
improved property, or selling it in developed or undeveloped acreage tracts.
Management continually evaluates timber properties in terms of their best
economic use (i.e., whether to continue growing timber or reclassifying the
properties for sale or development). As the Partnership reclassifies timber
properties for sale or development, the Partnership may replace such timber
properties with land purchases in more remote areas. Although the Partnership
believes it has adequate land inventory for future development, additional
properties will be purchased as they become available.
The Partnership competes for property sales with other timber companies
which are as large or larger than the Partnership and have substantial acreage
for sale and development. Management believes location, price and terms of sale
enable the Partnership to compete effectively in these markets.
The property development segment's backlog of sales was approximately
$1,089,000 as of December 31, 1996, all of which are expected to be closed in
1997. This compares to sales backlogs of $2,184,000 and $1,623,000 as of
December 31, 1995 and 1994, respectively.
Property development presently employs 26 full-time salaried employees
and has in the past employed up to an additional 45 seasonal employees. No
employee is a member of a labor union.
Nonclassified assets and operations are composed of the Partnership's
administrative office.
The total number of employees not otherwise classified under a segment
is 10, all of which are full-time salaried employees. No employee is a member of
a labor union.
Item 2. PROPERTIES.
See the discussion of each segment under "Item 1. Business."
Item 3. LEGAL PROCEEDINGS.
None.
Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS .
No matters were submitted to a vote of the Partnership's unitholders
during the quarter ended December 31, 1996
Page 4 of 36
<PAGE> 5
PART II
Item 5. MARKET FOR PARTNERSHIP'S UNITS
AND RELATED SECURITY HOLDER MATTERS.
The units are traded on both the Pacific Stock Exchange, Inc. and
NASDAQ National Market System. The Partnership's units trade under the ticker
symbols "PRP" (Pacific Stock Exchange) and "POPEZ" (NASDAQ). The following table
sets forth the 1996-1995 quarterly range of high and low prices for the
Partnership's units:
<TABLE>
<CAPTION>
1996 1995
------------ ---------------
High Low High Low
------------ ---------------
<S> <C> <C> <C> <C> <C>
First Quarter $117 $101 $ 87 $76-1/4
Second Quarter 115 105 93 80
Third Quarter 115 102 98 84-1/2
Fourth Quarter 107 79 104 91-1/2
</TABLE>
The number of registered holders of record of the Partnership's units
as of January 31, 1997 was 496.
Cash distributions of $2.35 and $1.75 per unit were paid on July 29th
and December 30th to unitholders of record on July 2nd and December 8th, 1996,
respectively. The aggregate distribution totaled $3,706,000. In 1995 a cash
distribution of $5.30 per unit was paid December 29, 1995 totaling $4,790,000.
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 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.
Page 5 of 36
<PAGE> 6
Item 6. SELECTED FINANCIAL DATA.
The financial information set forth below for each of the years ending
December 31, 1992 through 1996 is derived from the Partnership's audited
financial statements. This information should be read in conjunction with the
financial statements and related notes included with this report and previously
filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
(Thousands, except per unit data)
-------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $33,013 $36,162 $30,085 $34,331 $25,473
======= ======= ======= ======= =======
INCOME FROM
OPERATIONS $ 9,818 $14,799 $10,572 $16,576 $ 5,960
======= ======= ======= ======= =======
NET INCOME $ 8,334 $13,090 $ 8,893 $14,825 $ 5,058
======= ======= ======= ======= =======
NET INCOME PER
PARTNERSHIP UNIT $ 9.22 $ 14.48 $ 9.65 $ 15.01 $ 4.30
======= ======= ======= ======= =======
TOTAL ASSETS $54,599 $54,147 $52,759 $48,101 $51,236
======= ======= ======= ======= =======
LONG-TERM DEBT $14,403 $17,717 $25,451 $24,348 $21,720
======= ======= ======= ======= =======
PARTNERS' CAPITAL
$37,616 $32,988 $24,824 $20,875 $27,548
======= ======= ======= ======= =======
CASH DISTRIBUTION
PER UNIT $ 4.10 $ 5.30 $ 3.60 $ 6.00 $ .69
======= ======= ======= ======= =======
</TABLE>
Page 6 of 36
<PAGE> 7
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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>
- ---------------------------------------------------------------------------------------
Year Total Softwood Hardwood Pulp Stumpage
Sawlogs Sawlogs Logs
- ---------------------------------------------------------------------------------------
MMBF $/MBF MMBF $/MBF MMBF $/MBF MMBF $/MBF MMBF $/MBF
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 31.6 664 23.4 808 1.3 477 6.9 209 - -
1995 38.0 682 26.2 848 .8 490 10.2 329 .8 551
1994 29.7 626 20.6 783 .7 444 7.8 269 .6 585
- ---------------------------------------------------------------------------------------
</TABLE>
The decrease in the average log prices per MBF from 1995 to 1996 is
primarily attributable to lower export and pulp prices. The aforementioned
average prices of logs sold reflect variations in stands of timber harvested and
are, therefore, not necessarily indicative of the prices of logs to be sold in
the future.
The Partnership sells its logs into two major markets, namely the
export and domestic markets. Indirect sales to the export market totaled 12.3,
13.1, and 9.5 million board feet of softwood logs for 1996, 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 remained strong in 1996 with prices still at relatively high historical
levels. Management anticipates a moderate decline in export prices in the first
quarter or 1997, continuing through the third quarter. A modest upturn at the
end of 1997 is anticipated.
The Partnership's domestic demand for logs is directly affected by the
level of construction activity on the west coast of the United States. 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 1997 management
anticipates the domestic market to be similar to 1996. Management is concerned
about the declining number of sawmills in its region. As the number of sawmills
declines management must find additional outlets for its domestic timber.
Management does not believe the decline in domestic sawmills will materially
impact its 1997 operations but is nonetheless exploring additional outlets for
its domestic timber.
Page 7 of 36
<PAGE> 8
Property Development
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 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; certain Port Gamble parcels leased to individuals; and a
restaurant/lounge and related facilities leased to and operated by Village
Resorts, Inc. Revenues from property development totaled $11,444,000,
$9,763,000, and $11,002,000 for 1996, 1995, and 1994, respectively.
Revenue from residential development totaled $6,405,000, $5,726,000,
and $7,126,000 for 1996, 1995 and 1994, respectively. The Partnership's largest
development is in Port Ludlow, Washington. During 1996 the Partnership's
development at Port Ludlow generated revenues of $4,946,000 on 8 finished lot
sales, and 17 home sales. This compares to 1995 sales at Port Ludlow of
$4,163,000 on 26 lot sales and 14 home sales and one bulk sale of 27 lots with
preliminary lot approval. In 1994, Port Ludlow generated revenues of $4,850,000
on 30 lot sales and 14 home sales. Excluding the one bulk sale in 1995, lot and
home sales were similar for each of the three years. This was attributable to
similar mixes of inventory combined with similar real estate markets.
At December 31, 1996 the Partnership had in total 210 developed lots
and 14 homes under various stages of completion. This compares to the prior
year's 234 developed lots and 23 homes under various stages of completion. This
inventory consists of a wide variety of subdivisions, encompassing a broad
spectrum of prices.
Revenues from commercial properties and activities totaled $4,530,000,
$4,070,000, and $4,299,000 for 1996, 1995 and 1994, respectively. In 1996, the
lease of certain Port Gamble parcels to Pope and Talbot, Inc. expired, and the
Partnership began leasing property to individuals. The other operations were
generally consistent for each of the three years and management expects future
revenues to be stable.
General
Cost of revenues for the Partnership can fluctuate widely due to the
various methods for selling timber and the basis of the land the Partnership
sells. Cost of timber sales fluctuates depending primarily on the quantity
logged, distance from the logging site to the mill or port, and terrain. Cost of
revenues for property development fluctuates due to basis of land sold, cost of
homes sold, and operating expenses of income-producing properties.
The increase in general and administrative costs in 1996 as compared to
1995 and 1994, primarily related to $593,000 of expenses related to upgrading
internal systems and processes to remain competitive. In addition, this
investment established the platform for moving successfully into business growth
opportunities.
Interest expense has continued to decline from 1994 through 1996 due to
reductions in debt levels plus lower interest rates.
In 1996 interest income declined from amounts earned in 1995 and 1994.
This was attributable to a continuing decline in the contracts receivable
balance outstanding.
Liquidity and Capital Resources
Management has budgeted spending $6.4 million on its real estate
development in 1997. In addition, management has budgeted spending an additional
$1.1 million in capital expenditures for other operations in 1997. 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 December 31, 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 timber cut and thus drive net income and cash flow up or down assuming,
of course, timber prices are stable. Management's current plan is to harvest 23
million board feet of softwood timber in 1997. This harvest level is consistent
with our sustainable management approach. Since harvest plans are based on
demand, price and cash needs, actual harvesting may vary subject to management's
on-going review.
Page 8 of 36
<PAGE> 9
Cash provided by operating activities generated $12,330,000 in 1996,
and was primarily used for debt repayments of $3,289,000, two unitholder
distributions totaling $3,706,000 and capital and land expenditures of
$2,156,000. In 1995, cash provided by operating activities generated
$17,040,000, and was primarily used for debt repayments of $7,663,000, capital
expenditures of $3,424,000, and unitholder distributions totaling $4,790,000. In
1994, cash provided by operating activities generated $7,416,000, and was
primarily used for capital expenditures of $4,017,000, and unitholder
distributions of $3,260,000. Land and timber acquisitions are expected to
continue to be the most significant capital expenditures in 1997.
Cash distributions of $2.35 and $1.75 per unit, respectively, were paid
on July 29th and December 30th to unitholders of record on July 2nd and December
8th, 1996. The aggregate distribution totaled $3,706,000. In 1995 a cash
distribution of $5.30 per unit was paid December 29, 1995 totaling $4,790,000.
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 1996, the Partnership shifted to a
semi-annual payment pattern and expects to make quarterly distributions in 1997.
Proxy Statement
Pope Resources is circulating a Proxy Statement to Limited Partners of
record relating to a meeting of the Partners to be held on Friday, March 14,
1997, in Seattle, Washington. The partners will be asked to consider and vote
upon the approval and adoption of certain amendments to the Limited Partnership
Agreement. The proposed amendments would (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. Further details
relating to the Investor Portfolio Management Business are set forth in the
Proxy Statement.
Page 9 of 36
<PAGE> 10
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
Page 10 of 36
<PAGE> 11
POPE RESOURCES
A DELAWARE LIMITED PARTNERSHIP
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Page 11 of 36
<PAGE> 12
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent auditors' report ............................... 13
Consolidated financial statements:
Balance sheets......................................14
Statements of income................................15
Statements of cash flows............................16
Notes to financial statements.......................17
</TABLE>
Page 12 of 36
<PAGE> 13
Independent Auditors' Report
To the Board of Directors and Unitholders
Pope Resources, A Delaware Limited Partnership
Poulsbo, Washington
We have audited the accompanying consolidated balance sheets
of Pope Resources, A Delaware Limited Partnership and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Pope Resources, A
Delaware Limited Partnership and subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
January 31, 1997
Page 13 of 36
<PAGE> 14
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
(Thousands)
ASSETS
<TABLE>
<CAPTION>
Current assets: 1996 1995
------- -------
<S> <C> <C>
Cash and cash equivalents $ 3,741 $ 987
Accounts receivable 517 1,047
Work in progress 10,522 11,375
Contracts and construction loans receivable 1,251 739
Prepaid expenses and other 317 164
------- -------
Total current assets 16,348 14,312
------- -------
Properties and equipment, at cost:
Land and land improvements 15,047 15,146
Roads and timber, net of accumulated depletion of $7,528 and $7,031 11,030 11,922
Buildings and equipment, net of accumulated
depreciation of $10,961 and $10,051 9,600 9,040
------- -------
35,677 36,108
------- -------
Other assets:
Contracts receivable, net of current portion,
including related party receivable of $261 in 1996 1,561 2,640
Unallocated amenities and project costs 936 996
Other 77 91
------- -------
2,574 3,727
------- -------
$54,599 $54,147
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 692 $ 1,029
Accrued liabilities 586 521
Current portion of long-term debt 325 300
Deposits 110 165
------- -------
Total current liabilities 1,713 2,015
Deficit in investment in joint venture 316 363
Long-term debt, net of current portion 14,403 17,717
Other long-term liabilities 275 275
Deferred profit on contracts receivable 276 789
Commitments and contingencies (Note 7 and 8)
Partners' capital:
General Partners' capital 506 460
Limited Partners' capital 37,110 32,528
------- -------
Total Partners' capital 37,616 32,988
------- -------
$54,599 $54,147
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 14 of 36
<PAGE> 15
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Thousands, except per unit data)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues including related party sales of 15% in 1994 $ 33,013 $ 36,162 $ 30,085
Cost of revenues (14,269 (13,437) (12,947)
Selling, general and administrative expenses (8,926) (7,926) (6,566)
-------- -------- --------
Income from operations 9,818 14,799 10,572
-------- -------- --------
Other income (expense):
Interest expense (1,388) (1,712) (1,870)
Interest income 282 386 431
Equity in losses of joint venture (378) (383) (240)
-------- -------- --------
(1,484) (1,709) (1,679)
-------- -------- --------
Net income $ 8,334 $ 13,090 $ 8,893
======== ======== ========
Net income:
Allocable to general partners $ 83 $ 131 $ 89
Allocable to limited partners 8,251 12,959 8,804
-------- -------- --------
$ 8,334 $ 13,090 $ 8,893
======== ======== ========
Net income per partnership unit $ 9.22 $ 14.48 $ 9.65
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Page 15 of 36
<PAGE> 16
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Cash received from customers $ 33,523 $ 37,422 $ 30,012
Cash paid to suppliers and employees (20,078) (19,061) (21,241)
Interest received 302 399 494
Interest paid, net of amounts capitalized (1,417) (1,720) (1,849)
-------- -------- --------
Net cash provided by operating activities 12,330 17,040 7,416
Cash flows from investing activities:
Capital expenditures (2,156) (3,424) (4,017)
Joint venture investment (425) (140) (120)
-------- -------- --------
Net cash used in investing activities (2,581) (3,564) (4,137)
-------- -------- --------
Cash flows from financing activities:
Cash distributions to unitholders (3,706) (4,790) (3,260)
Repayments of long-term debt (3,289) (7,663) (678)
Purchase of partnership units (136) (1,684)
Proceeds from issuance of long-term debt 1,879
-------- -------- --------
Net cash used in financing activities (6,995) (12,589) (3,743)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 2,754 887 (344)
Cash and cash equivalents:
Beginning of year 987 100 444
-------- -------- --------
End of year 3,741 987 100
======== ======== ========
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 8,334 $ 13,090 $ 8,893
Adjustments to reconcile net income to
net cash provided by operating activities:
Cost of land and timber sold 1,192 133 1,182
Land resale expenditures (106) (461) (1,238)
Depreciation and depletion 1,458 1,559 1,334
Deferred profit (511) 27 410
Increase (decrease) in cash from changes in
operating accounts:
Loss on equity in joint venture 378 383 240
Accounts receivable 530 125 (357)
Work in progress 912 575 (3,046)
Contracts receivable 566 1,067 944
Accounts payable and accrued liabilities (272) 261 (15)
Deposits (56) 54 (1,009)
Other, net (95) 227 78
-------- -------- --------
Net cash provided by operating activities $ 12,330 $ 17,040 $ 7,416
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Page 16 of 36
<PAGE> 17
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. Summary of significant accounting policies:
General:
Pope Resources, A Delaware Limited Partnership (the "Partnership"), is
a publicly-traded limited partnership engaged principally in tree
farming operations and property development in Western Washington. Tree
farming operations include the sale of logs, and the selling of
standing timber under cutting contracts or other arrangements. Property
development includes the sale of single-family homes, finished lots and
undeveloped acreage, and various commercial operations.
Principles of consolidation:
The consolidated financial statements include the accounts of the
Partnership and its wholly-owned subsidiaries, Ludlow Water Company,
Ludlow Bay Realty and Gamble Village Water and Sewer Company.
Significant intercompany balances and transactions have been eliminated
in consolidation.
Use of estimates in financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Work in progress:
Work in progress consists of land and direct development costs,
including capitalized interest, of residential lots and dwellings which
are completed or are expected to be substantially completed and
available for sale in the upcoming year and are recorded at the lower
of cost or net realizable value.
Contracts receivable:
The Partnership sells land parcels under contracts requiring a minimum
cash down payment of twenty percent and having financing terms of up to
eight years at interest rates of ten percent. The Partnership reduces
credit risk on contracts through collateral on the underlying land and
down payment requirements.
Principal payments on contracts receivable for the next five years are due
as follows:
<TABLE>
<CAPTION>
(Thousands)
<S> <C>
1997 $267
1998 182
1999 211
2000 161
2001 452
</TABLE>
Unallocated amenities and project costs:
Unallocated amenities and project costs represent indirect development
costs for long-term real estate development projects. These costs are
expensed based on anticipated project sales of residential dwellings and
lots over the life of the project.
Page 17 of 36
<PAGE> 18
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. Summary of significant accounting policies (continued):
Properties and equipment:
Depreciation is provided using straight-line methods over the estimated
useful lives of the assets which range from 5 to 39 years. Depletion of
logging roads and costs of fee timber harvested are provided at rates based
on unrecovered costs and estimated recoverable volume of softwood timber.
The carrying value of properties is reviewed periodically for impairment.
If the asset carrying amount is not recoverable, the asset is considered to
be impaired and the value is adjusted to estimated fair value.
Revenue recognition:
Revenue on timber sales is recorded when title and risk of loss passes to
the buyer. Revenue on real estate sales is recorded on the date the sale
closes. The Partnership uses the installment method of accounting for real
estate sales transactions until 25% of the contract sales value has been
collected, at which time the full accrual method of accounting is used.
Income per partnership unit:
Income per partnership unit is computed using the weighted average number
of units outstanding during each year (903,894 units in 1996, 903,913 units
in 1995, 921,097 units in 1994). There were 903,894 units outstanding at
December 31, 1996 and 1995.
Statement of cash flows:
For purposes of the statement of cash flows, the Partnership considers all
highly-liquid debt instruments with a maturity of three months or less when
purchased to be cash equivalents. Non- cash investing activities include a
transfer of $287,000 to work in progress during 1995 and a transfer of
$123,000 from work in progress to land in 1994.
Reclassifications:
Certain reclassifications have been made to the prior years' financial
statements to conform with the current year's presentation.
Page 18 of 36
<PAGE> 19
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. Income taxes:
The Partnership is not subject to income taxes. Instead, each partner is
taxed on their share of the Partnership's taxable income, whether or not
distributed.
The following schedule reconciles net income reported for financial
statement purposes to consolidated taxable income:
<TABLE>
<CAPTION>
(Thousands)
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Net income per financial statements $ 8,334 $ 13,090 $ 8,893
Difference in reporting depreciation (37) (104) (308)
Cost basis of land, timber and homes sold 175 269 161
Difference in reporting depletion (27) (130) (182)
Deferred profit from differences in the use of 326 315 381
the installment method
Other, net 4 292 115
------- -------- -------
Consolidated taxable income $ 8,775 $ 13,732 $ 9,060
======= ======== =======
</TABLE>
3. Long-term debt:
Long-term debt at December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands)
1996 1995
------- -------
<S> <C> <C>
Note payable to a bank with interest at variable rates $ $ 3,000
Mortgage note payable to an insurance company with interest at 9.65%,
collateralized by timberlands, with a minimum monthly payment of $136,000,
maturing
May 2022 14,212 14,463
Local improvement district assessments, with interest ranging
from 6.5% to 10%, due through 2009 516 554
------- -------
14,728 18,017
Less current portion 325 300
------- -------
$14,403 $17,717
======= =======
</TABLE>
Page 19 of 36
<PAGE> 20
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3. Long-term debt: (Continued)
The note payable to bank represents borrowings on a $20 million
revolving term agreement. The maximum available borrowings are reduced
by $10 million on September 30, 2000 and the agreement expires on
September 30, 2001.
The Partnership debt agreements contain certain financial statement
ratio covenants and have tangible net worth requirements for which the
Partnership is in compliance. As of December 31, 1996 the minimum net
worth requirements for the bank and the insurance company notes were
$31,571,000 each. The net worth requirements increase each year by a
percentage of the current year's net income. The mortgage note payable
also includes debt repayment provisions in the event of timber harvests
in excess of specified amounts.
Principal payments on long-term debt for the next five years are due as
follows:
<TABLE>
<CAPTION>
(Thousands)
-----------
<S> <C>
1997 $ 325
1998 353
1999 384
2000 413
2001 450
</TABLE>
4. Fair value of financial instruments:
The Partnership's financial instruments include cash and cash
equivalents, accounts receivable, contracts receivable, and variable
rate debt, for which the carrying amount of each approximates fair
value. The fair value of contracts receivable was determined based on
current yields for similar contracts. The fair value of fixed rate debt
having a carrying value of $14,728,000 and $15,017,000, has been
estimated based on current interest rates for similar financial
instruments and totals $15,350,000 and $16,848,000 as of December 31,
1996 and 1995, respectively.
5. Partners' capital:
The general partners of the Partnership are Pope MGP, Inc. and Pope EGP,
Inc. Allocations of partner distributions and net income are based on
units held.
Page 20 of 36
<PAGE> 21
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
5. Partners' capital: (Continued)
The following presents the partners' capital account activity for the three
years ended December 31, 1996:
<TABLE>
<CAPTION>
(Thousands)
General Limited
Partners Partners Total
------- -------- --------
<S> <C> <C> <C>
January 1, 1994 $ 346 $ 20,529 $ 20,875
Repurchase of 21,100 units (1,684) (1,684)
Cash distributions (43) (3,217) (3,260)
Net income 89 8,804 8,893
------- -------- --------
December 31, 1994 $ 392 $ 24,432 $ 24,824
Repurchase of 1,700 units (136)
Cash distributions (63) (4,727) (4,790)
Net income 131 12,959 13,090
------- -------- --------
December 31, 1995 $ 460 $ 32,528 $ 32,988
Cash distributions (37) (3,669) (3,706)
Net income 83 8,251 8,334
------- -------- --------
December 31, 1996 $ 506 $ 37,110 $ 37,616
======= ======== ========
</TABLE>
6. Employee benefits:
Full-time salaried employees with one year of service are eligible to
receive benefits under a defined contribution plan. The Partnership is
required to contribute 3% of eligible employee compensation into the plan,
which amounted to $47,000, $48,000, $56,000 for each of the three years in
the period ended December 31, 1996. The Partnership also accrued $181,000
in 1995 and $94,000 in 1994 related to a supplemental retirement plan for a
key employee.
7. Commitments:
In the ordinary course of business, and as part of the entitlement and
development process, the Partnership is required to provide performance
bonds and letters of credit to assure completion of certain public
facilities. At December 31, 1996, the Partnership had performance bonds and
letters of credit outstanding totaling $1,821,000.
Page 21 of 36
<PAGE> 22
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
8. Joint Venture
In 1994, the Partnership entered into a joint venture, as 50% owner, to
develop and manage a real estate investment property. The Partnership's
share of joint venture losses have been accounted for using the equity
method of accounting and, as of December 31, 1996 and 1995, exceed the
Partnership's capital investment. Such excess has been recorded as a
liability as the Partnership is a joint and several guarantor with its
partner of joint venture debt obligations, which amount to $5,750,000 as of
December 31, 1996.
9. Related party and major customer transactions:
Pope MGP, Inc. is the managing general partner of the Partnership and
receives $150,000 per year for this service. Furthermore, one individual
serves as a director of both Pope MGP, Inc. and Pope & Talbot, Inc. (P&T).
During the year ended December 31, 1994, revenues of $3,915,000, were
realized from timber sales to P&T. For an annual fee of $125,000, P&T
managed the townsite of Port Gamble, during 1995 and 1994, under an
agreement between P&T and the Partnership which expired on December 31,
1995. The Partnership leased to P&T a log dump at Port Ludlow together with
a millsite and log dump in Port Gamble and received, in return, annual
payments of $50,000 and $75,000, respectively. The Port Gamble millsite and
log dump lease expires in 2005. The Port Ludlow log dump lease expired at
December 31, 1995.
A former director of Pope MGP, Inc. was a managing director of MRGC and is
its President and Chief Executive Officer and a director of Merrill & Ring,
Inc. MRGC was 50%-owned by Merrill & Ring, Inc. Such individual served as a
director of Pope MGP, Inc. from January 1994 to September 1995. During the
years ended December 31, 1995 and 1994 the Partnership paid $268,000, and
$313,000, respectively for fees and commissions related to export timber
sales through MRGC totaling $4,389,000 and $5,148,000, respectively.
At December 31, 1996 the Partnership has a $261,000 note receivable from
its President and Chief Executive Officer, who is also a director and
officer of Pope MGP, Inc. The note, which bears interest at 6.48% and
requires interest only payments until maturity in 2001, was provided to
finance the sale of a residential home sold by the Partnership in 1996.
Major customers in 1996 include two customers with timber sales of
$6,312,000 and $3,723,000, respectively. Sales to a major customer in 1995
and 1994 were to a related party, as described above.
Page 22 of 36
<PAGE> 23
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
10. Segment information:
The Partnership's operations are classified into two segments: timberland
resources and property development. Identifiable assets are those used
exclusively in the operations of each industry segment or those allocated
when used jointly. Non-allocable assets of the Partnership include cash,
accounts receivable, certain prepaid expenses and the Partnership's
administra tive office. Details of the Partnership's operations by business
segment for the years ended December 31 were as follows:
(Thousands)
<TABLE>
<CAPTION>
Timberland Property
Resources Development Administrative Consolidated
---------- ----------- -------------- ------------
1996
<S> <C> <C> <C> <C>
Revenues $21,569 $ 11,444 $ 33,013
Income (loss)
from operations 13,650 (77) $ (3,755) 9,818
Depreciation and
depletion 505 800 153 1,458
Identifiable assets 15,947 33,178 5,474 54,599
Capital and land
expenditures 490 1,249 526 2,265
1995
Revenues $26,399 $ 9,763 $ 36,162
Income (loss)
from operations 18,087 (904) $ (2,384) 14,799
Depreciation and
depletion 592 842 125 1,559
Identifiable assets 17,414 32,648 4,085 54,147
Capital and land
expenditures 2,555 1,265 70 3,890
1994
Revenues $19,083 $ 11,002 $ 30,085
Income (loss)
from operations 12,525 (258) $ (1,935) 10,332
Depreciation and
depletion 390 818 126 1,334
Identifiable assets 14,327 35,019 3,413 52,759
Capital and land
expenditures 1,869 3,363 28 5,260
</TABLE>
Page 23 of 36
<PAGE> 24
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
10. Segment Information (Continued)
Direct export sales to Japan for 1996, 1995 and 1994 totaled $4,253,000,
$8,935,000, and $8,080,000, respectively.
11. Quarterly financial information (unaudited):
<TABLE>
<CAPTION>
Income Net Income
(Thousands, except from Net per
per unit data) Revenues Operations Income Partnership Unit
-------- ---------- ------ ----------------
<S> <C> <C> <C> <C>
1996
First quarter $ 9,139 $ 4,344 $ 3,894 $ 4.31
Second quarter 9,282 3,560 3,209 3.55
Third quarter 8,676 2,220 1,916 2.12
Fourth quarter 5,916 (306) (685) (.76)
1995
First quarter $ 7,350 $ 2,818 $ 2,395 $ 2.65
Second quarter 11,437 5,609 5,289 5.85
Third quarter 8,053 3,029 2,722 3.01
Fourth quarter 9,355 2,960 2,684 2.97
1994
First quarter $ 5,193 $ 1,530 $ 1,190 $ 1.28
Second quarter 6,126 2,138 1,813 1.96
Third quarter 9,401 3,333 2,926 3.16
Fourth quarter 9,788 3,331 2,964 3.27
</TABLE>
Page 25 of 36
<PAGE> 25
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Page 25 of 36
<PAGE> 26
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Managing General Partner of the Partnership is Pope MGP, Inc. Its
address is the same as the address of the principal offices of the
Partnership. Pope MGP, Inc. receives $150,000 per year for acting as managing
general partner of the Partnership.
The following table identifies the directors of Pope MGP, Inc. as of
December 31, 1996. The Partnership has no directors. Officers of Pope MGP,
Inc. hold identical offices with the Partnership.
<TABLE>
<CAPTION>
Name Age Position and Background
- ---- --- -----------------------
<S> <C> <C>
Adolphus Andrews, Jr. (1), (2) 74 Director; President of Andrews Associates, Inc.,
1981 to present.
Peter T. Pope (1), (2) 62 Director; President, CEO and Chairman of the
Board of Pope & Talbot, Inc., 1971 to present.
Gary F. Tucker (3)(4) 61 Director; President and CEO of Pope MGP, Inc.
and the Partnership since December 1995;
President of Trees Inc., June 1989 to
December 1995; Vice President Resources
of Plum Creek Timber Company, Inc., March
1984 to May 1989.
Marco F. Vitulli (4) 62 Director; President, Vitulli Ventures
Ltd., 1980 to present.
Douglas E. Norberg (2) 56 Director; President, Wright Runstad &
Company, 1975 to present.
David Cunningham (3) 50 Vice President Public Affairs, since
June 1996, Vice President Land Use
from December 1985 to June 1996 of
Pope MGP, Inc. and the Partnership;
Planning Director, Pope & Talbot
Development, Inc., July 1978 to
December 1985.
Thomas R. Gilkey (3) 50 Senior Vice President
Timberland and Acquisitions
since January 1997 of Pope
MGP, Inc. and the
Partnership. Private
consultant from January 1994
to December 1996. Executive
Vice President, The Campbell
Group 1987 to 1994.
Timberland Division Manager
of Crown Zellerbach 1974 to 1987.
Meredith R. Green (3) 37 Treasurer and Controller since
January 1997 of Pope MGP, Inc. and
the Partnership. Controller of
Trillium Corporation from October
1995 to December 1996; Controller of
Fiberchem/Hanna Resin Distribution
from December 1989 to October 1995;
Emerging Business Consultant with
Ernst and Young from September 1986
to December 1989.
</TABLE>
Page 26 of 36
<PAGE> 27
<TABLE>
<S> <C> <C>
Thomas A. Griffin (3) 39 Vice President Income
Properties from June 1996,
Treasurer and Controller from
November 1991 to June 1996,
and Controller from March
1989 to October 1991, and
Assistant Controller May 1988
to February 1989 of Pope MGP,
Inc. and the Partnership;
Property Manager of Wood
Associates, January 1986 to
April 1988; Controller of
Vestar, January 1984 to
January 1986
Craig L. Jones (3) 42 Senior Vice President General
Counsel and Secretary since
September 1996 of Pope MGP,
Inc. and the Partnership.
Private law practice from
1981 to 1996.
Gregory M. McCarry (3) 47 Senior Vice President Real Estate
since June 1996, Vice President
Development from November 1987 to
June 1996 of Pope MGP, Inc. and the
Partnership; owner of Pace Builders,
1986 to November 1987; Treasurer of
Security Resources, Inc., from 1983
to 1986
Thomas M. Ringo (3) 43 Senior Vice President Finance
and Client Relations since
June 1996, Vice President
Finance from November 1991 to
June 1996, and Treasurer from
March 1989 through October
1991 of Pope MGP, Inc. and
the Partnership; Tax Manager
of Westin Hotel Company, 1985
to March 1989; Tax Consultant
for Price Waterhouse, 1981 to
1985
</TABLE>
(1) Mr. Pope is the first cousin of Emily T. Andrews, Mr. Andrews' wife.
(2) Terms expire December 31, 1998.
(3) Term as an officer expires December 11, 1997
(4) Term as a director expires December 11, 1997.
Page 27 of 36
<PAGE> 28
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth certain information concerning the cash
compensation paid to each of the five most highly compensated executive officers
of the Partnership whose individual aggregate cash compensation exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
======================================================================================
ANNUAL COMPENSATION
======================================================================================
Name and Other Annual All Other
Principal Salary Bonus Compensation Compensation
Position Year ($) ($)(1) ($)(2) ($)(3)
======================================================================================
<S> <C> <C> <C> <C> <C>
Gary F. Tucker
CEO & President(4) 1996 240,000 110,000
- --------------------------------------------------------------------------------------
George H. Folquet 1996 136,048 18,000 25,000
CEO & President(5) 1995 195,600 90,000 54,500
1994 180,400 85,000 54,500
- --------------------------------------------------------------------------------------
Greg McCarry 1996 136,048 50,000 4,363
Sr. V.P. Real Estate 1995 132,400 60,500 4,500
1994 129,850 52,000 4,500
- --------------------------------------------------------------------------------------
David Cunningham 1996 105,136 30,000 3,840
V.P. Public Affairs 1995 101,800 21,000 3,540
1994 97,400 20,000 3,444
- --------------------------------------------------------------------------------------
Thomas M Ringo 1996 107,925 50,000 3,960
Sr. V.P. Finance and 1995 100,850 21,000 3,510
Client Relations 1994 96,500 20,000 3,418
- --------------------------------------------------------------------------------------
Thomas A. Griffin 1996 86,088 26,000 3,126
V.P. Income 1995 82,400 17,000 2,940
Properties 1994 78,850 20,000 2,788
======================================================================================
</TABLE>
(1) Amounts represent bonuses or commissions earned in the year shown but
paid in either the current or following years.
(2) Perquisites and other personal benefits paid to each named executive
officer in each instance aggregated less than 10% of the total annual
salary and bonus for each officer and accordingly were omitted from the
table as permitted by the rules of the Securities and Exchange
Commission (SEC).
(3) Amounts represent contributions to the Partnerships 401(k) plan or a
deferred compensation plan.
(4) Mr. Tucker was hired as the Partnership's CEO and President effective
January 1, 1996.
(5) Mr. Folquet served as the Partnership's CEO and President through
December 31, 1995, but received transitional compensation for the first
three months of 1996.
COMPENSATION OF DIRECTORS.
Compensation of the directors of Pope MGP, Inc. consisted of a monthly
fee of $1,500 plus a $1,000 per day fee for each board meeting attended.
Page 28 of 36
<PAGE> 29
EMPLOYEE BENEFIT PLANS.
Full-time salaried employees with one year of service are eligible to
receive benefits under a defined contribution plan. The Partnership is required
to contribute 3% of eligible employee compensation into the plan, which amounted
to $47,000, $48,000 and 56,000 for each of the three years in the period ended
December 31, 1996. Employees become fully vested over a six year period in the
Partnership's contribution.
The Partnership has a supplemental retirement plan for a key employee. The
plan provides for a retirement income of 70% of the employee's base salary at
retirement after taking into account both 401(k) and social security benefits.
The Partnership accrued $181,000 for this benefit in 1995.
Page 29 of 36
<PAGE> 30
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL UNITHOLDERS.
As of December 31, 1996, the following persons were known or believed by
the Partnership to be the beneficial owners of more than five percent (5%) of
the outstanding Partnership units:
<TABLE>
<CAPTION>
Title of Name and Address of Amount and Nature of Percent
Class Beneficial Owner Beneficial Ownership (1) of Class
- ------ -------------------------------- ------------------------ -----------------
<S> <C> <C> <C>
Units Private Capital Management, Inc. 255,518 (2) 26.7
3003 Tamiami Trail North
Naples, FL 33940
Units Emily T. Andrews 111,420 (3) 12.3
600 Montgomery Street
35th Floor
San Francisco, CA 94111
Units Peter T. Pope 62,869 (4) 7.0
1500 S.W. 1st Avenue
Portland, OR 97201
Units Peter B. Cannell & Co., Inc. 46,775 (5) 5.5
919 Third Avenue
New York, NY 10022
</TABLE>
(1) Each beneficial owner has sole voting and investment power unless
otherwise indicated.
(2) Private Capital Management, Inc. is an investment adviser shown
registered under the Investors Advisers Act of 1940. Units are held in
various accounts managed by Private Capital Management, Inc. which
shares dispositive powers as to those units.
(3) Includes 218 units owned by her husband, Adolphus Andrews, Jr. as to
which she disclaims beneficial ownership. Also includes a total of
12,000 units held by Pope MGP, Inc. and Pope EGP, Inc., as to which she
shares voting and investment power.
(4) Includes 10,684 units held in trust for his children. Also includes a
total of 12,000 units held by Pope MGP, Inc., and Pope EGP, Inc., as to
which he shares investment and voting power.
(5) Peter B. Cannell & Co., Inc. is an investment adviser registered under
the Investment Advisers Act of 1940. Peter B. Cannell & Co., Inc. is a
wholly- owned subsidiary of Eberstadt Fleming, Inc., a broker-dealer
registered under the Securities Exchange Act of 1934.
Page 30 of 36
<PAGE> 31
MANAGEMENT.
As of December 31, 1996, the beneficial ownership of the Partnership units
of (I) the general partners, (II) the directors of the Partnership's general
partners, and (III) the Partnership's general partners, directors and officers
of the Partnership as a group was as follows:
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name Position and Offices Beneficial Ownership (1) Class
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Adolphus Andrews, Jr. Director, Pope MGP, Inc. 111,420 (2) 12.3
and Pope EGP, Inc. (3)
Peter T. Pope Director, Pope MGP, Inc. 62,869 (4) 6.9
and Pope EGP, Inc. (5)
Pope EGP, Inc. Equity General Partner 10,800 1.2
Pope MGP, Inc. Managing General Partner 1,200 *
Marco Vitulli Director, Pope MGP, Inc. 200 0
Douglas Norberg Director, Pope MGP, Inc. 200 *
Thomas M. Ringo Senior Vice President 100 *
Finance, Pope MGP, Inc.
and the Partnership
All general partners, directors and (6) 18.0
officers of general partners, and officers
of the Partnership as a group (10
individuals and 2 partners)
</TABLE>
* Less than 1%
(1) Each beneficial owner has sole voting and investment power
unless otherwise indicated.
(2) Includes 99,202 units as to which he shares investment and
voting power. Also includes units owned by Pope MGP, Inc. or
Pope EGP, Inc., as to all of which he disclaims beneficial
ownership. See footnote (3) under "Principal Unitholders."
(3) Mr. Andrews is also Vice President of Pope EGP, Inc.
(4) See footnote (4) under "Principal Unitholders."
(5) Mr. Pope is also President of Pope EGP, Inc.
(6) The 12,000 units held by Pope MGP, Inc. and Pope EGP, Inc. are
excluded from units beneficially owned by Mr. Pope and Mr.
Andrews. All of the outstanding stock of Pope MGP, Inc. and Pope
EGP, Inc. is owned by Mr. Pope and Mr. Andrews' wife, Emily T.
Andrews.
Page 31 of 36
<PAGE> 32
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Peter T. Pope serves as a director of Pope MGP, Inc., managing general
partner of the Partnership. Mr. Pope also serves on the board of directors of
P&T. P&T did not purchase any timber sold by the Partnership during 1996,
however, since it could purchase timber in 1997, a conflict of interest could
arise.
The Partnership Agreement provides that it is a complete defense to any
challenge to an agreement or transaction between the Partnership and a general
partner, or related person, due to a conflict of interest if, after full
disclosure of the material facts as to the agreement or transaction and the
interest of the general partner or related person, (1) the transaction is
authorized, approved or ratified by a majority of the disinterested directors of
the managing general partner, Pope MGP, Inc., or (2) the transaction is
authorized by partners of record holding more than fifty percent (50%) of the
units held by all partners.
At December 31, 1996, the Partnership has a $261,000 note receivable from
Gary Tucker, its President and Chief Executive Officer, who is also a director
and officer of Pope MGP, Inc. The note, which bears interest at 6.48% and
requires interest-only payments until maturity in 2001, was provided to finance
the sale of a residential home sold by the Partnership in 1996.
Richard E. Stroble, a former director, was a managing director of MRGC.
MRGC was 50%- owned by Merrill & Ring, Inc. Richard E. Stroble is a director of
Merrill & Ring, Inc. In addition, he is the President and CEO of Merrill & Ring,
Inc. Because MRGC purchased 17% of the timber sold by the Partnership during
1995, a conflict of interest could have arisen when he was a director of the
Partnership. During this period Mr. Stroble disassociated himself from any
day-to-day management decisions between MRGC and the Partnership.
In addition, it is a complete defense to any challenge to such an agreement
or transaction based upon a conflict of interest if the agreement or transaction
was fair to the Partnership at the time it was authorized, approved or ratified
by the managing general partner, Pope MGP, Inc. Approval may be before or at the
time of the transaction, or at any later time.
Page 32 of 36
<PAGE> 33
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) Financial Statements. Page
<S> <C>
Financial Statements:............................................11
Independent auditor's report.............................13
Consolidated Balance Sheets..............................14
Consolidated Statements of Income........................15
Consolidated Statements of Cash Flows....................16
Notes to Consolidated Financial Statements..........17 - 24
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
fiscal year ended December 31, 1995.
(c) Exhibits.
3.1 Partnership's Certificate of Limited Partnership.(1)
3.2 Partnership's Limited Partnership Agreement, dated
as of November 7, 1985.(1)
3.3 Amendment to Partnership's Limited Partnership
Agreement dated December 16, 1986.(2)
4.1 Specimen Depositary Receipt of Registrant.(1)
4.2 Partnership's Limited Partnership Agreement dated as of
November 7, 1985 and amended December 16, 1986 (see
Exhibits 3.1 and 3.3).
9.1 Shareholders Agreement entered into by and among
Pope MGP, Inc., Pope EGP, Inc., Peter T. Pope,
Emily T. Andrews, P&T, present and future directors
of Pope MGP, Inc. and the Partnership, dated as of
November 7, 1985 included as Appendix C to the P&T
Notice and Proxy Statement filed with the
Securities and Exchange Commission on November 12,
1985, a copy of which was filed as Exhibit 28.1 to
the Partnership's registration on Form 10
identified in footnote (1) below. (1)
10.1 Transfer and Indemnity Agreement between the Partnership
and P&T dated as of December 5, 1985.(1)
10.2 Management Agreement between the Partnership and
P&T dated as of December 5, 1985.(1)
10.3 Ground Leases between the Partnership as Lessor and
P&T as Lessee dated December 3, 1985.(1)
22.1 Subsidiaries of the Partnership.(3)
28.1 Certificate of Incorporation of Pope MGP, Inc.(1)
28.2 Amendment to Certificate of Incorporation of Pope
MGP, Inc.(3)
28.3 Bylaws of Pope MGP, Inc.(1)
28.4 Certificate of Incorporation of Pope EGP, Inc.(1)
28.5 Amendment to Certificate of Incorporation of Pope
EGP, Inc.(3)
28.6 Bylaws of Pope EGP, Inc.(1)
Page 33 of 36
<PAGE> 34
(1) Incorporated by reference from the Partnership's
registration on Form 10 filed under File No. 1-9035 and
declared effective on December 5, 1985.
(2) Incorporated by reference from the Partnership's annual
report on Form 10-K for the fiscal year ended December 31,
1987.
(3) Incorporated by reference from the Partnership's annual
report on Form 10-K for the fiscal year ended December 31,
1988.
Page 34 of 36
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By POPE MGP, INC.
Managing General Partner
Date: March 14, 1997 By_______________________________
GARY F. TUCKER,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Date: March 14, 1997 By_______________________________
GARY F. TUCKER,
President, Chief Executive Officer
(principal executive officer),
Partnership and Pope MGP, Inc.;
Director, Pope MGP, Inc.
Date: March 14, 1997 By_______________________________
THOMAS M. RINGO
Senior Vice President Finance and
Client Relations (principal financial
officer), Partnership and Pope MGP,
Inc
Date: March 14, 1997 By_______________________________
MEREDITH R. GREEN
Treasurer and Controller (principal
accounting officer),Partnership
and Pope MGP, Inc.
Page 35 of 36
<PAGE> 36
Date: March 14, 1997 By_______________________________
ADOLPHUS ANDREWS, JR.
Director, Pope MGP, Inc.
Date: March 14, 1997 By_______________________________
PETER T. POPE
Director, Pope MGP, Inc.
Date: March 14, 1997 By_______________________________
MARCO F. VITULLI
Director, Pope MGP, Inc.
Date: March 14, 1997 By_______________________________
DOUGLAS E. NORBERG
Director, Pope MGP, Inc.
Page 36 of 36
<PAGE> 37
EXHIBIT INDEX
3.1 Partnership's Certificate of Limited Partnership.(1)
3.2 Partnership's Limited Partnership Agreement, dated
as of November 7, 1985.(1)
3.3 Amendment to Partnership's Limited Partnership
Agreement dated December 16, 1986.(2)
4.1 Specimen Depositary Receipt of Registrant.(1)
4.2 Partnership's Limited Partnership Agreement dated as of
November 7, 1985 and amended December 16, 1986 (see
Exhibits 3.1 and 3.3).
9.1 Shareholders Agreement entered into by and among
Pope MGP, Inc., Pope EGP, Inc., Peter T. Pope,
Emily T. Andrews, P&T, present and future directors
of Pope MGP, Inc. and the Partnership, dated as of
November 7, 1985 included as Appendix C to the P&T
Notice and Proxy Statement filed with the
Securities and Exchange Commission on November 12,
1985, a copy of which was filed as Exhibit 28.1 to
the Partnership's registration on Form 10
identified in footnote (1) below.(1)
10.1 Transfer and Indemnity Agreement between the Partnership
and P&T dated as of December 5, 1985.(1)
10.2 Management Agreement between the Partnership and
P&T dated as of December 5, 1985.(1)
10.3 Ground Leases between the Partnership as Lessor and
P&T as Lessee dated December 3, 1985.(1)
22.1 Subsidiaries of the Partnership.(3)
28.1 Certificate of Incorporation of Pope MGP, Inc.(1)
28.2 Amendment to Certificate of Incorporation of Pope
MGP, Inc.(3)
28.3 Bylaws of Pope MGP, Inc.(1)
28.4 Certificate of Incorporation of Pope EGP, Inc.(1)
28.5 Amendment to Certificate of Incorporation of Pope
EGP, Inc.(3)
28.6 Bylaws of Pope EGP, Inc.(1)
<PAGE> 38
(1) Incorporated by reference from the Partnership's
registration on Form 10 filed under File No. 1-9035 and
declared effective on December 5, 1985.
(2) Incorporated by reference from the Partnership's annual
report on Form 10-K for the fiscal year ended December 31,
1987.
(3) Incorporated by reference from the Partnership's annual
report on Form 10-K for the fiscal year ended December 31,
1988.
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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0
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