<PAGE>
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 Second Quarter and Nine Months Ended September 30, 2000
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
-------------- ------------
<PAGE>
P A R T I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
<PAGE>
CONSOLIDATED BALANCE SHEETS
Pope Resources
September 30, 2000 and December 31, 1999
(Thousands)
<TABLE>
<CAPTION>
2000
(Unaudited) 1999
-------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,610 $ 4,922
Accounts receivable 2,659 1,583
Work in progress 11,417 12,033
Current portion of contracts receivable 575 587
Prepaid expenses and other 621 550
-------- -------
Total current assets 23,882 19,675
-------- -------
Properties and equipment at cost:
Land and land improvements 15,604 15,611
Roads and timber (net of
accumulated depletion) 12,345 12,391
Buildings and equipment (net of
accumulated depreciation) 15,265 15,921
-------- -------
43,214 43,923
-------- -------
Other assets:
Contracts receivable, net of current portion 1,346 1,733
Unallocated amenities and project costs 1,393 1,356
Loan fees and other 179 193
-------- -------
2,918 3,282
-------- -------
$70,014 $66,880
======== =======
Liabilities and Partners' Capital
Current liabilities:
Accounts payable $ 774 $ 1,084
Accrued liabilities 2,209 2,099
Current portion of long-term debt 432 406
Minority interest 263 366
-------- -------
Total current liabilities 3,678 3,955
-------- -------
Long-term debt, net of current portion 12,909 13,282
Deferred profit 776 341
Partners' capital 52,651 49,302
-------- -------
$70,014 $66,880
======== =======
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Thousands, except per unit data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 12,119 $ 14,349 $ 39,664 $ 41,143
Cost of sales (4,108) (4,787) (13,200) (12,237)
Operating expenses (4,956) (5,019) (14,612) (14,090)
Selling general and administrative expenses (1,940) (2,222) (6,466) (6,597)
---------- ---------- ---------- ----------
Income from operations 1,115 2,321 5,386 8,219
---------- ---------- ---------- ----------
Other income (expense):
Interest expense (288) (316) (937) (971)
Interest income 160 78 317 165
---------- ---------- ---------- ----------
(128) (238) (620) (806)
Income before income taxes and minority interest 987 2,083 4,766 7,413
Income tax provision (48) 19 64 (221)
---------- ---------- ---------- ----------
Income before minority interest 939 2,102 4,830 7,192
Minority interest (68) (13) (135) (48)
---------- ---------- ---------- ----------
Net income $ 871 $ 2,089 $ 4,695 $ 7,144
========== ========== ========== ==========
Allocable to general partners $ 12 $ 28 $ 62 $ 95
Allocable to limited partners 859 2,061 4,633 7,049
---------- ---------- ---------- ----------
$ 871 $ 2,089 $ 4,695 $ 7,144
========== ========== ========== ==========
Earnings per unit:
Basic $ 0.19 $ 0.46 $ 1.04 $ 1.58
========== ========== ========== ==========
Diluted $ 0.19 $ 0.46 $ 1.04 $ 1.57
========== ========== ========== ==========
Weighted average units outstanding:
Basic 4,528 4,521 4,528 4,521
========== ========== ========== ==========
Diluted 4,528 4,552 4,530 4,545
========== ========== ========== ==========
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Pope Resources
Nine Months Ended September 30, 2000 and 1999
(Thousands)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net cash flows from operating activities $ 7,688 $ 7,830
Cash flows from investing activities:
Capital expenditures (2,105) (3,505)
-------- --------
Net cash used in investing activities (2,105) (3,505)
-------- --------
Cash flows from financing activities:
Cash distributions to unitholders (1,358) (1,357)
Minority interest distrbution (212) (208)
Repayment of long-term debt (325) (393)
Proceeds from exercise of unit options 188
-------- --------
Net cash used in financing activities (1,895) (1,770)
-------- --------
Net increase in cash and cash equivalents 3,688 2,555
Cash and cash equivalents at beginning of year 4,922 2,666
-------- --------
Cash and cash equivalents at end of the nine-month period $ 8,610 $ 5,221
======== ========
</TABLE>
<PAGE>
POPE RESOURCES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2000
1. The consolidated financial statements as of September 30, 2000 and
December 31, 1999 and for the three and nine month periods ended
September 30, 2000 and September 30, 1999 have been prepared by Pope
Resources pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). The financial information for the
three and nine month periods ended September 30, 2000 and September
30, 1999 is unaudited, but, in the opinion of management, reflects all
adjustments (consisting only of normal recurring adjustments and
accruals) necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods. The
financial information as of December 31, 1999, is derived from the
Partnership's audited consolidated financial statements and notes
thereto for the year ended December 31, 1999, and should be read in
conjunction with such financial statements. The results of operations
for the third quarter and nine months ended September 30, 2000 are not
necessarily indicative of the results of operations that may be
achieved for the entire fiscal year ended December 31, 2000.
2. The financial statements in the Partnership's 1999 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. Diluted earnings per unit include the dilutive impact of unit options
outstanding.
4. Supplemental disclosure of cash flow information: Interest paid
amounted to approximately $1,003,000 and $1,055,000 for the nine
months ended September 30, 2000 and 1999, respectively and $324,000
and $349,000 for the three months ended September 30, 2000 and 1999,
respectively.
5. Revenues and operating income by segment for the nine months and three
months ended September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
9 Months Ended September 30 Timberland
(Thousands) Resources Real Estate Administrative Consolidated
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Revenues $ 25,054 $ 14,610 $ - $ 39,664
Income (loss) from operations 10,648 514 (5,776) 5,386
1999
Revenues $ 29,650 $ 11,493 $ - $ 41,143
Income (loss) from operations 14,083 123 (5,987) 8,219
<CAPTION>
3 Months Ended September 30 Timberland Real Estate Administrative Consolidated
(Thousands) Resources
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Revenues $ 6,225 $ 5,894 $ - $ 12,119
Income (loss) from operations 2,150 687 (1,722) 1,115
1999
Revenues $ 8,878 $ 5,471 $ - $ 14,349
Income (loss) from operations 3,807 553 (2,039) 2,321
</TABLE>
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------------------------
Note: Certain information in this report constitutes forward-looking statements
within the meaning of federal securities laws. Forward-looking information is
subject to risks, trends, and uncertainties that could cause actual results to
differ materially from those projected. Those uncertainties include but are not
limited to changes to regulations that affect the Partnership's ability to
harvest timber and develop real estate and changes in economic conditions, which
can have a significant effect on the price the Partnership can obtain for its
timber and real estate.
-------------------------------------------------------------------------------
This discussion should be read in conjunction with the Partnership's unaudited
consolidated financial statements included with this report, and its 10-K annual
report for fiscal year 1999.
RESULTS OF OPERATIONS
The Partnership operates in two primary industry segments: (1)
Timberland Resources and (2) Real Estate. The Partnership's largest segment,
Timberland Resources, encompasses the growing and harvesting of timber from the
Partnership's tree farm and management of tree farms owned by others. This
segment also includes revenue earned through providing forestry consulting
services to owners and managers of timberlands. The Partnership's other primary
segment, Real Estate, consists of residential development and income-producing
properties.
TIMBERLAND RESOURCES
Timberland Resources' revenue sources are as follows: harvest and sale
of logs from the Partnership's 74,000-acre tree farm located in the Hood Canal
area of Washington, management and consulting fees earned from timberland
management, and forestry consulting activities performed for third-party owners
of timberlands.
Revenues and operating income for the Timberland Resources segment for
the nine months and three months ended September 30, 2000 and 1999, are as
follows:
<TABLE>
<CAPTION>
------ ---------------------------------------- ----- ----------------- ---- ------------------------
9 Months Ended September 30: Revenues Operating income
------ ---------------------------------------- ----- ----------------- ---- ------------------------
<S> <C> <C>
September 30, 2000 $ 25.1 million $ 10.6 million
------ ---------------------------------------- ----- ----------------- ---- ------------------------
September 30, 1999 29.7 million 14.1 million
------ ---------------------------------------- ----- ----------------- ---- ------------------------
<CAPTION>
------ ---------------------------------------- ----- ----------------- ---- ------------------------
3 Months Ended September 30: Revenues Operating income
------ ---------------------------------------- ----- ----------------- ---- ------------------------
<S> <C> <C>
September 30, 2000 $ 6.2 million $ 2.2 million
------ ---------------------------------------- ----- ----------------- ---- ------------------------
September 30, 1999 8.9 million 3.8 million
------ ---------------------------------------- ----- ----------------- ---- ------------------------
</TABLE>
The decrease in revenues and operating income in 2000 as compared to
1999 resulted primarily from a decrease in volume harvested from the
Partnership's fee timberlands and, to a lesser extent, to a decrease in
third-party acres under management as described below.
The Partnership harvested the following timber and realized the
following average log prices from its fee timberlands for the nine-month and
three-month periods ended September 30, 2000 and 1999:
<PAGE>
<TABLE>
<CAPTION>
---------------------------- ------------------------ ------------------------ ------------------------
Softwood Pulp and
Year Sawlogs Hardwood Totals
---------------------------- ------------------------ ------------------------ ------------------------
9 Months Ended Volume Price Volume Price Volume Price
September 30: MMBF $/MBF MMBF $/MBF MMBF $/MBF
----------- ------------ ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
2000 23.3 $633 6.9 $282 30.2 $553
1999 29.4 $627 8.6 $252 38.0 $542
---------------------------- ----------- ------------ ----------- ------------ ------------- ----------
3 Months Ended Volume Price Volume Price Volume Price
September 30: MMBF $/MBF MMBF $/MBF MMBF $/MBF
----------- ------------ ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
2000 4.5 $623 1.5 $317 6.0 $547
1999 7.6 $640 3.3 $293 11.0 $534
---------------------------- ----------- ------------ ----------- ------------ ------------- ----------
</TABLE>
MMBF = million board feet
MBF = thousand board feet
The domestic market for logs weakened substantially during the second
and third quarters of 2000. Domestic log volumes decreased to 2.5 MMBF for the
three months ended September 30, 2000 as compared to 5.2 MMBF for the same
period in the prior year. On a year-to-date basis, domestic sawlog volumes were
16.0 MMBF and 19.0 MMBF for the nine months ended September 30, 2000 and 1999,
respectively. During the first quarter of the year, the domestic market was
buoyed by strong demand and prices for export logs. Moving into the second and
third quarters, however, rising interest rates and falling housing starts began
to more than offset the impacts of a continued strong export market. Inventories
at domestic mills built steadily throughout the second quarter, leading to a
dramatic drop in both demand and prices for domestic logs. Average domestic log
prices for the three months ended September 30, 2000 was $538 per MBF as
compared to $616 per MBF for the three months ended September 30, 1999. With the
year-to-date harvest volume more heavily weighted to the first two quarters of
the year, average domestic prices were $589 per MBF and $591 per MBF for the
nine months ended September 30, 2000 and 1999, respectively.
The majority of the Partnership's export log volume is sold through
domestic intermediaries into the Japanese market. Prices realized from the sale
of logs to the export market through domestic intermediaries increased to $731
per MBF in the first nine months of 2000 from $693 per MBF in the same period of
1999. The increase in export pricing was offset by a decrease in volume from
10.4 MMBF in the first nine months of 1999 to 7.3 MMBF in the first nine months
of 2000. The decrease in volume and increase in price is reflective of a shift
in log mix with a higher proportion of the export volume coming from larger
diameter higher valued logs in the first nine months of 2000 relative to the
same period in 1999.
Pulp and hardwood log volumes were 6.9 MMBF and 8.6 MMBF for the nine
months ended September 30, 2000 and 1999, respectively. The Partnership
benefited from an increase in pulp and hardwood log prices in the first nine
months of 2000. The average price realized was $282 and $252 per MBF on pulp and
hardwood logs for the nine months ended September 30, 2000 and 1999,
respectively.
In the operation and management of its tree farm, the Partnership is
subject to federal, state and local laws that govern land use. Management's
objective is to be in compliance with such laws and regulations at all times.
During the first quarter of 2000, the Washington State Legislature enacted new
"Forests and Fish" legislation. Washington State timber owners had been
operating under a set of draft emergency rules since April of 1999 in
anticipation of these new regulations. The emergency rules were designed to
mimic the anticipated changes and to address salmon protection under the Federal
Endangered Species Act. Both regulations provide for wider riparian management
zones, greater planning requirements for harvesting, road construction and
maintenance operations, and other restrictions on timber management
<PAGE>
activities. The Partnership is currently developing procedures for complying
with these new regulations and evaluating their impact to the Partnership's fee
timberlands.
The risk of loss from fire, while possible on any timberland, is
minimized on Partnership lands by maintaining a well-developed road system, and
an established fire monitoring and suppression plan. The Washington State
Department of Natural Resources is ultimately responsible for all forest fire
suppression activities in the state.
Olympic Resource Management LLC (ORMLLC), a subsidiary of the
Partnership, is the western regional timberland manager for the Hancock Timber
Resource Group (HTRG). The contract covering management services provided in the
western United States and British Columbia ends December 31, 2000. Discussions
with HTRG are currently in progress to extend both management contracts into
2001. Total acres under management for HTRG are subject to change as HTRG's
client portfolios are adjusted. As of September 30, 2000 and 1999 there were
approximately 235,000 and 565,000 acres under management for HTRG, respectively.
In March 2000, ORMLLC entered into a new contract to manage over
360,000 acres of industrial timberland in Washington, Oregon, and California.
Revenues and operating income from the new contract offset a portion of the
decrease in revenues and operating income associated with the reduction in acres
under management for HTRG. ORMLLC is currently conducting a sales program that
will involve most of these managed lands.
Forestry consulting services are currently provided in western Canada,
the United States, Jamaica, and Argentina to both private and public owners of
timberland. During 1999, the forest products industry in British Columbia
experienced a cyclical downturn, thus negatively affecting the Partnership's
forestry consulting operating income into the current year.
<PAGE>
REAL ESTATE
Real Estate segment revenues are earned from residential development
activities and income-producing properties. Residential development consists of
the sale of single-family homes, developed lots, and undeveloped acreage. These
activities span approximately 3,000 acres of the Partnership's ownership and are
concentrated in Port Ludlow, Washington. Income-producing properties consist of
the following properties in Port Ludlow: the 37-room Heron Beach Inn on Ludlow
Bay, a 300-slip saltwater marina, a 27-hole championship golf course, a
commercial center, an RV park, a restaurant/lounge and related facilities, and
the water and sewer utilities serving the area. In addition, the Partnership
manages residential and commercial properties in Port Gamble and Kingston,
Washington.
Revenues and operating income for the Real Estate segment for the
nine-month and three-month periods ended September 30, 2000 and 1999, are as
follows:
<TABLE>
<CAPTION>
------ ---------------------------------------- ----- ----------------- ---- ------------------------
9 Months Ended September 30: Revenues Operating income
------ ---------------------------------------- ----- ----------------- ---- ------------------------
<S> <C> <C>
September 30, 2000 $ 14.6 million $ 0.5 million
------ ---------------------------------------- ----- ----------------- ---- ------------------------
September 30, 1999 11.5 million 0.1 million
------ ---------------------------------------- ----- ----------------- ---- ------------------------
<CAPTION>
------ ---------------------------------------- ----- ----------------- ---- ------------------------
3 Months Ended September 30: Revenues Operating income
------ ---------------------------------------- ----- ----------------- ---- ------------------------
<S> <C> <C>
September 30, 2000 $ 5.9 million $ 0.7 million
------ ---------------------------------------- ----- ----------------- ---- ------------------------
September 30, 1999 5.5 million 0.6 million
------ ---------------------------------------- ----- ----------------- ---- ------------------------
</TABLE>
The $3.1 million increase in Real Estate revenues is due primarily to
an increase in homes sold during the first nine months of 2000 and secondarily
to an increase in revenues generated by commercial properties.
In the first nine months of 2000, the Partnership's flagship
development at Port Ludlow generated revenues of $8.1 million through the sale
of 25 homes and five developed lots. This compares with revenues of $4.4 million
for the comparable period of 1999 through the sale of 17 homes and five
developed lots. During 1999, the Partnership began to focus on the sale of homes
at Port Ludlow as opposed to lots. This change in strategy is expected to build
value in the Partnership's Port Ludlow properties, as the Partnership will have
more control over the quality of homes in the community and additional residents
are expected to positively affect revenues and operating income earned by the
Partnership's income-producing properties.
Prospective home and lot buyers often pay an earnest money deposit in
anticipation of completing the eventual purchase. The Partnership does not
record a sale when earnest money deposits are received, but does track the sales
backlog which is representative of future expected sales. The backlog of sales
was approximately $4.7 million and $5.5 million as of September 30, 2000 and
1999, respectively. Management expects the majority of the backlog at September
30, 2000 to translate into sales by the end of the second quarter 2001. The
impact of higher interest rates is impacting the Port Ludlow real estate market
and the Partnership expects the sales backlog to decline as a result.
Income-producing property revenues in the first nine months of 2000
increased 9% to $6.0 million from $5.5 million in the first nine months of 1999.
The increase in revenues is the result of additional residents moving into the
area and the relatively mild weather experienced by Western Washington during
the second and third quarter of 2000.
Land holdings throughout Washington State are affected by the state's
Growth Management Act ("GMA"), which requires counties to submit comprehensive
plans that identify
<PAGE>
the future direction of growth and stipulate where population densities are to
be concentrated. In May 2000, Jefferson County adopted the Port Ludlow
Development Agreement. The development agreement is essentially a contract
between the Partnership and Jefferson County that locks in Port Ludlow's
comprehensive plan designation as a Master Planned Resort, related zoning, and
other development regulations for a period of 20 years. Jefferson County's
adoption of this agreement represents the culmination of years of hard work and
cooperation between management, residents and the county to plan and obtain
regulatory approval for the future build-out of the Port Ludlow resort and
community. This cooperative effort, known as the Port Ludlow Planning Forum was
recognized with an award from the Washington State Chapter of the American
Planning Association in September 2000.
In July of 2000 a 15-year development agreement was approved and
adopted by the City of Bremerton for the Partnership's West Hills property in
the City of Bremerton, Kitsap County. The West Hills property is a 270-acre
mixed-use development.
As part of its July 1999 Growth Management Act (GMA) plan submission,
Kitsap County designated Port Gamble as a "Rural Historic Town." This
designation, upheld by the GMA Hearings Board, provides for substantial new
commercial, industrial and residential development of the town utilizing
historic land use patterns, densities and architectural character. The
Partnership also initiated a legislative amendment to the GMA, signed into law
in March 2000, that provides additional clarification and opportunities for
designations involving national historic town sites. The Partnership is now in a
position to evaluate potential opportunities and strategies for redevelopment of
the Port Gamble town site.
The Partnership continues to work with officials in Gig Harbor
regarding the development of a 320-acre mixed-use project located within the Gig
Harbor city limits. Efforts in 1999 focused on a successful public/private
partnership agreement to construct an arterial road through the property which
in turn connects to a nearby freeway interchange. Construction of the road began
in the summer of 2000. By the summer of 2001 the property is expected to be
served by road, water, sewer, and power.
The Partnership has two additional ongoing projects in Kitsap County: a
720-acre residential development in Kingston and a 205-acre residential
development in Hansville. Development of these sites has been delayed pending
resolution of a lawsuit (in which the Partnership is not a party) that would
establish the appropriate zoning and development regulations applicable to
projects pending throughout Kitsap County. In April 1999, the State Court of
Appeals rendered a favorable decision, but the case was appealed to the
Washington Supreme Court for further review. In July 2000, the Supreme Court
upheld the favorable decision with regard to the appropriate zoning and
development regulations applicable to pending projects. The Supreme Court is
currently reviewing a request for reconsideration, and is expected to finally
complete its review by the end of 2000. A favorable decision will enhance the
opportunities for the Partnership to proceed with governmental approval for both
projects.
As a result of Initiative 695, value-based vehicle license fees in
Washington State were replaced with a low flat-rate license fee as of January 1,
1999. While the long-term impact is unknown at this time, a reduction of
governmental funding for the Washington State Ferry System may affect the
Partnership's real estate holdings, which are significantly reliant on ferry
service.
<PAGE>
OTHER
The following table sets forth expenses as a percentage of revenues for
the three-month and nine-month periods ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Cost of sales 34 33 33 30
Operating expenses 41 35 37 34
Selling, general, and administrative
expenses 16 16 16 16
------------ ----------- ----------- -----------
Operating income 9% 16% 14% 20%
============ =========== =========== ===========
</TABLE>
Cost of sales includes the cost of purchasing and producing tangible
goods for sale. Cost of sales for the Partnership will fluctuate due to the
various methods for selling and harvesting timber, the basis of the land the
Partnership sells, and the quantity of homes sold. The increase in the
cost-of-sales ratios in 2000 is due to the sale of 25 homes in 2000 versus 17
homes in 1999. Homes have a relatively high cost of sales ratio as compared to
the Partnership's other revenue producing activities.
Operating expenses consist of salary and other costs directly
attributable to a revenue-producing activity. The increase in the operating
expense ratio on a year to date basis is due to the decrease in revenue from
timberland management activities without a corresponding decrease in operating
expenses. This is directly linked to lower economies of scale associated with
the reduction in acres under management. The increase in the operating expense
ratio on a quarter-to-date basis is due to the decline in revenue resulting from
timber harvested from the Partnership's tree farm without a corresponding
decrease in operating expenses.
Interest income increased $152,000 in the first nine months of 2000, as
the Partnership's average short-term investments were higher in the first nine
months of 2000.
The provision for income taxes decreased from an expense of $221,000 in
the first nine months of 1999 to a tax benefit of $64,000 for the same period in
2000. The change in tax expense is due to the decline in taxable earnings
associated with the decrease in income earned from the Partnership's timberland
management activities in 2000 relative to 1999. The Partnership's earnings from
timberland management activities are included in a subsidiary corporation and
are therefore subject to income tax.
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 other capital expenditures. Management may also consider
increasing the Partnership's debt-to-total capitalization ratio to participate
in investments in real property, if the investments meet the Partnership's
requirements of return and provide a good fit with the Partnership's portfolio
of properties. Management considers its capital resources to be adequate for its
current plans. At September 30, 2000, the Partnership had available an unused
$20 million bank loan commitment.
Management has considerable discretion to increase or decrease the
volume of logs cut which has a corresponding impact on net income and cash flow.
Management's current plan is to harvest approximately 36 million board feet of
timber in 2000. Since harvest plans are based on demand and pricing, actual
harvesting may vary subject to management's ongoing review.
<PAGE>
For the nine months ended September 30, 2000, cash generated by
operating activities was $7.7 million and overall cash and cash equivalents
increased $3.7 million. Cash provided by operating activities was used for cash
payments to unitholders of $1.4 million, capital expenditures of $2.1 million,
and repayment of long-term debt of $0.3 million.
On November 10, 2000, the Partnership decided to suspend the previously
announced plan to repurchase up to 5% of outstanding Partnership units. The
Partnership has been advised that regulatory compliance issues preclude the
Partnership from implementing such a repurchase program. As such, the
Partnership has opted to withdraw the repurchase program until the regulatory
issues can be adequately resolved. No units were repurchased under this plan
prior to its suspension.
The Partnership plans to continue making quarterly partnership
distributions during 2000.
RECENT EVENTS
Allen E. Symington was appointed to the position of Chairman and CEO of
Pope Resources and David L. Nunes was appointed to the position of President and
COO of Pope Resources in August of 2000. Mr. Symington serves as Vice Chairman
of the Washington State Employees Retirement Board and has held vice president
positions with Simpson Timber Co. and Simpson Investment Co. Mr. Nunes is being
promoted from within Pope Resources where he has served as Senior Vice President
Acquisitions and Portfolio Management.
SEASONALITY
TIMBERLAND RESOURCES: The Partnership's tree farm is located in the
Hood Canal region of Washington state. Most of the tree farm acreage owned by
the Partnership is at a relatively low elevation where harvest activities are
possible year around. As a result of this competitive advantage, the Partnership
tends to harvest and sell a greater portion of the annual harvest in the first
quarter of the year when the supply of logs tends to be lower. Other activities
in the Timberland Resource segment are not significantly seasonal.
REAL ESTATE: The Partnership's real estate income producing operations
tend to be highly seasonal. The income producing properties include a golf
course, marina, and Inn located in Port Ludlow, Washington. The majority of the
revenues from these activities are earned between June and September. The
majority of the Partnership's overall real estate development revenues have also
historically been generated during the summer months.
COMMITMENTS AND CONTINGENCIES
The Partnership's commitments consist of performance bonds, letters of
credit and operating leases entered in the normal course of business. The
Partnership may from time-to-time be a defendant in lawsuits arising in the
ordinary course of business. Management believes that loss to the Partnership,
if any, will not have a material adverse effect to the Partnership's financial
condition or results of operations.
FINANCIAL INFORMATION ABOUT SEGMENTS
Segment financial information is presented in Note 5 to the
Partnership's Financial Statements included with this report.
<PAGE>
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
As of September 30, 2000, the Partnership had $13.2 million of fixed
rate debt outstanding with a fair value of approximately $13.8 million. Since
the debt bears interest at a fixed rate the fair value of the debt is affected
by changes in market interest rates. The following table presents principal cash
payments (in thousands) for the fixed rate debt outstanding at September 30,
2000:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Long-term debt including current Interest
portion 2000 2001 2002 2003 2004 Thereafter Rate
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage-Principal payments 81 405 446 491 541 11,047 9.65%
Local Improvement 6.5% to
District-Principal Payments - 38 38 38 38 63 8%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART II
ITEM 1: LEGAL PROCEEDINGS
From time to time, the Partnership may be subject to legal proceedings
and claims which may have a material adverse impact on its business. Management
is not aware of any current legal proceedings or claims that will have,
individually or in the aggregate, a material adverse impact on its business,
prospects, financial condition or results of operations.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K: None.
EXHIBITS
27 Financial Data Schedule
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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: November 13, 2000 By: POPE MGP, Inc.
Managing General Partner
Date: November 13, 2000 By: /s/ Allen E. Symington
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Allen E. Symington
Chairman & Chief Executive Officer
Date: November 13, 2000 By: /s/ Thomas M. Ringo
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Thomas M. Ringo
Sr. Vice President Finance
(Principal Financial Officer)
