<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 Six Months Ended June 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>
PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
<PAGE>
CONSOLIDATED BALANCE SHEETS
Pope Resources
June 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
(Unaudited)
(Thousands) 2000 1999
--------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 7,976 $ 4,922
Accounts receivable 2,146 1,583
Work in progress 12,153 12,033
Current portion of contracts receivable 298 587
Prepaid expenses and other 352 550
------- -------
Total current assets 22,925 19,675
------- -------
Properties and equipment at cost:
Land and land improvements 15,604 15,611
Roads and timber (net of
accumulated depletion) 12,224 12,391
Buildings and equipment (net of
accumulated depreciation) 15,561 15,921
------- -------
43,389 43,923
------- -------
Other assets:
Contracts receivable, net of current portion 1,606 1,733
Unallocated amenities and project costs 1,380 1,356
Intangibles and other 196 193
------- -------
3,182 3,282
------- -------
$69,496 $66,880
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 791 $ 1,084
Accrued liabilities 1,637 2,011
Current portion of long-term debt 423 406
Deposits 616 88
Minority interest 231 366
------- -------
Total current liabilities 3,698 3,955
------- -------
Long-term debt, net of current portion 13,046 13,282
Deferred profit 494 341
Partners' capital 52,258 49,302
------- -------
$69,496 $66,880
======= =======
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Pope Resources
For the Three Months and Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
(Thousands, except per unit data) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 14,096 $ 14,228 $ 27,545 $ 26,794
Cost of sales (5,087) (4,387) (9,092) (7,450)
Operating expenses (4,793) (4,536) (9,418) (8,780)
Selling and administration expenses (2,421) (2,401) (4,764) (4,666)
-------- -------- -------- --------
Income from operations 1,795 2,904 4,271 5,898
-------- -------- -------- --------
Other income (expense):
Interest expense (339) (331) (649) (655)
Interest income 66 57 157 87
-------- -------- -------- --------
(273) (274) (492) (568)
Income before taxes and minority interest 1,522 2,630 3,779 5,330
Income tax provision (1) (124) 112 (240)
-------- -------- -------- --------
Income before minority interest 1,521 2,506 3,891 5,090
Minority interest (64) (18) (67) (35)
-------- -------- -------- --------
Net income $ 1,457 $ 2,488 $ 3,824 $ 5,055
======== ======== ======== ========
Allocable to general partners $ 19 $ 33 $ 51 $ 67
Allocable to limited partners 1,438 2,455 3,773 4,988
-------- -------- -------- --------
$ 1,457 $ 2,488 $ 3,824 $ 5,055
======== ======== ======== ========
Earnings per unit:
Basic $ 0.32 $ 0.55 $ 0.84 $ 1.12
======== ======== ======== ========
Diluted $ 0.32 $ 0.55 $ 0.84 $ 1.11
======== ======== ======== ========
Weighted average units outstanding:
Basic 4,528 4,519 4,528 4,519
======== ======== ======== ========
Diluted 4,529 4,543 4,530 4,549
======== ======== ======== ========
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Pope Resources
Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
(Thousands) 2000 1999
------- -------
<S> <C> <C>
Net cash flows from operating activities $ 5,811 $ 4,451
Cash flows from investing activities:
Capital expenditures (1,443) (2,879)
------- -------
Net cash used in investing activities (1,443) (2,879)
------- -------
Cash flows from financing activities:
Cash distributions to minority interest (211) (208)
Cash distributions to unitholders (906) (904)
Repayment of long-term debt (197) (264)
------- -------
Net cash used in financing activities (1,314) (1,376)
------- -------
Net increase in cash and cash equivalents 3,054 196
Cash and cash equivalents at beginning of period 4,922 2,666
------- -------
Cash and cash equivalents at end of the period $ 7,976 $ 2,862
======= =======
</TABLE>
<PAGE>
POPE RESOURCES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2000
1. The consolidated financial statements as of June 30, 2000 and December 31,
1999 and for the six month periods ended June 30, 2000 and June 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 quarters and six months ended June 30, 2000 and June
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 second quarter and
six months ended June 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 $690,000 and $696,000 for the six months ended June 30, 2000
and 1999, respectively and $365,000 and $353,000 for the three months
ended June 30, 2000 and 1999, respectively.
5. Revenues and operating income by segment for the six months and three
months ended June 30 are as follows:
<TABLE>
<CAPTION>
Timberland
6-Months Ended June 30 (Thousands) Resources Real Estate Administrative Consolidated
----------------------------------------------------------------------------------------------------------------------
2000
<S> <C> <C> <C> <C>
Revenues $18,829 $8,716 $ -- $27,545
Income (loss) from operations 8,498 (173) (4,054) 4,271
1999
Revenues $20,773 $6,021 $ -- $26,794
Income (loss) from operations 10,276 (430) (3,948) 5,898
Timberland
3-Months Ended June 30 (Thousands) Resources Real Estate Administrative Consolidated
----------------------------------------------------------------------------------------------------------------------
2000
Revenues $ 8,670 $5,426 $ -- $14,096
Income (loss) from operations 3,753 79 (2,037) 1,795
1999
Revenues $10,297 $3,931 -- $14,228
Income (loss) from operations 4,906 13 $(2,015) 2,904
</TABLE>
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
June 30, 2000
--------------------------------------------------------------------------------
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
consolidated financial statements included with this report.
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: management and
consulting fees earned from timberland management and forestry consulting
activities performed for third-party owners of timberlands, and harvest and sale
of logs from the Partnership's 74,000-acre tree farm located in the Hood Canal
area of Washington.
Revenues and operating income for the Timberland Resources segment for the
six-months and three-months ended June 30, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
6-Months Ended June 30: Revenues Operating income
-------------------------------------------------------------------------
<S> <C> <C>
June 30, 2000 $18.8 million $ 8.5 million
June 30, 1999 20.8 million 10.3 million
3-Months Ended June 30: Revenues Operating income
-------------------------------------------------------------------------
June 30, 2000 $ 8.7 million $ 3.8 million
June 30, 1999 10.3 million 4.9 million
-------------------------------------------------------------------------
</TABLE>
The decrease in revenues and operating income in 2000 as compared to 1999
resulted primarily from a decrease in acres under management for HTRG and a
slower production schedule for volume harvested from the Partnership's fee
timberlands. Two of HTRG's clients, representing 318,000 acres under management
as of June 30, 1999, decided to change investment managers during 1999. As a
result, new investment managers took over the management of the timberlands for
these two clients in September 1999 and February 2000. In September 1999 there
was a reduction of acres under our management by 94,000 acres.
Olympic Resource Management LLC (ORMLLC), a subsidiary of the Partnership,
is the western regional timberland manager for the Hancock Timber Resource Group
(HTRG). The
<PAGE>
contract covering management services provided in the western United States ends
December 31, 2000. In conjunction with the acquisition of Simons Reid Collins,
ORM Resources Canada Ltd. (a subsidiary of ORMLLC) assumed management of
additional HTRG timberlands in British Columbia. The current British Columbia
contract also ends December 31, 2000. Total acres under management for HTRG are
subject to change as HTRG's client portfolios are adjusted. Acres under
management for the second quarter of 2000 were reduced an additional 224,000
acres. Approximately 236,000 acres are presently under management for HTRG. The
lower economies of scale caused by this reduction in acres under management
reduced the Partnership's operating income from timberland management
activities.
In March 2000, ORMLLC entered into a new contract to manage 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.
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 revenues. Forestry consulting revenues in the first half of
2000 improved as management focused on increased opportunities for consulting
revenues, in contrast to the first half of 1999, in which the focus was directed
to assimilation of the recent acquisition of Simons Reid Collins. Management
believes that its forestry consulting activities in British Columbia will
benefit from an anticipated recovery in the forest products industry in British
Columbia.
The Partnership harvested the following timber and realized the following
average log prices from its fee timberlands for the six-month and three-month
periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Softwood Pulp and
Year Sawlogs Hardwood Totals
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6-Months Ended June 30: Volume Price Volume Price Volume Price
MMBF $/MBF MMBF $/MBF MMBF $/MBF
-----------------------------------------------------------------
2000 18.7 $636 5.4 $272 24.1 $554
1999 21.8 $622 5.3 $226 27.1 $545
---------------------------------------------------------------------------------------------
3-Months Ended June 30: Volume Price Volume Price Volume Price
MMBF $/MBF MMBF $/MBF MMBF $/MBF
-----------------------------------------------------------------
2000 8.6 $620 2.5 $239 11.0 $540
1999 10.6 $630 3.1 $229 13.7 $540
---------------------------------------------------------------------------------------------
</TABLE>
MMBF = million board feet
MBF = thousand board feet
Log revenues from the Partnership's fee timberland ownership are
significantly impacted by export log market conditions. The majority of the
Partnership's export log volume is sold through domestic intermediaries to
Japan. Prices realized from the sale of logs to the export market through
domestic intermediaries increased to $730 per MBF in the first half of 2000 from
$693 per MBF in the first half of 1999. The increase in export pricing was
offset by a decrease in volume from 8.0 MMBF in the first half of 1999 to 5.3
MMBF in the first half of 2000. The decrease in volume and increase in price is
due to a shift in demand in the export market to larger, higher quality logs in
the first half of 2000 relative to the same period in 1999.
The domestic market for logs weakened substantially during the second
quarter of 2000. Domestic log volumes decreased to 6.2 MMBF for the three months
ended June 30, 2000 as
<PAGE>
compared to 7.5MMBF for the same period in the prior year. On a year-to-date
basis, domestic sawlog volumes were 13.4 MMBF and 13.8 MMBF for the six months
ended June 30, 2000 and 1999, respectively. Average domestic log prices were
$599 per MBF and $581 per MBF for the six months ended June 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
quarter, 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 wood. Average domestic log
prices for the three months ended June 30, 2000 was $586 per MBF as compared to
$606 per MBF for the three months ended June 30, 1999.
Pulp and hardwood log volumes were 5.4 MMBF and 5.3 MMBF for the six months
ended June 30, 2000 and 1999, respectively. Harvest activities in the first six
months of 2000 were from timber stands with a higher concentration of pulp and
hardwood logs as compared to the prior year. As a result, while overall harvest
volumes were down 11%, pulp and hardwood volumes were comparable between 2000
and 1999. The Partnership benefited from an increase in pulp and hardwood log
prices in the first half of 2000. The average price realized was $272 and $226
per MBF on pulp and hardwood logs for the six months ended June 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 activities.
The Partnership is currently evaluating the effect of these rules on the
Partnership's fee timberlands, however there can be no assurance that these
rules will not adversely affect the Partnership's business.
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.
<PAGE>
REAL ESTATE
Real Estate segment revenues are derived from residential development 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 (loss) for the Real Estate segment for the
six-month and three-month periods ended June 30, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
6-Months Ended June 30: Revenues Operating loss
-----------------------------------------------------------------------------
<S> <C> <C>
June 30, 2000 $8.7 million $(0.2) million
June 30, 1999 6.0 million (0.4) million
3-Months Ended June 30: Revenues Operating income
-----------------------------------------------------------------------------
June 30, 2000 $5.4 million $0.1 million
June 30, 1999 3.9 million 0.0 million
--------------------------------------------------------------------------------
</TABLE>
The majority of the $2.7 million increase in Real Estate revenues is due to
an increase in homes sold during the first half of the year. In the first six
months of 2000, the Partnership's flagship development at Port Ludlow generated
revenues of $5.1 million through the sale of 16 homes and three developed lots.
This compares to first half 1999 revenues of $1.7 million through the sale of
seven homes and two developed lots. During 1999, the Partnership began to focus
on the sale of homes at Port Ludlow as opposed to lots. The 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 $4.9 million and $4.4 million as of June 30, 2000 and 1999,
respectively. Management expects the majority of the backlog at June 30, 2000 to
translate into sales revenues by the end of 2000. The impact of higher interest
rates is expected to affect 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 six months of 2000
increased 13% to $3.3 million from $3.0 million in the first six 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 in the
first half 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 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
<PAGE>
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.
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.
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. This Decision will
enhance the opportunities for the Partnership to proceed with governmental
approval for both projects.
Voters in Washington State recently passed Initiative 695, which replaced
the value-based vehicle license fees in the state with a low flat-rate license
fee. This is expected to have a detrimental impact on state, county and local
government budgets. Significant adverse impacts are also anticipated to the
level of services provided by the Washington State Ferry System and funding of
highway transportation projects. While the impact is unknown at this time, the
reduction of governmental funding in these areas 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 six month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Cost of sales 36 31 33 28
Operating expenses 34 32 34 33
Selling, general, and administrative expenses 17 17 17 17
--------------------------------------------------------
Operating income 13% 20% 16% 22%
========================================================
</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 16 homes in 2000 versus seven 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. Operating expenses as a percentage of revenues
increased in the first half of 2000 relative to 1999. The increase in the
operating expense ratio is due to the decrease in revenue from timberland
management activities without a corresponding decrease in operating expenses.
This is directly linked to the aforementioned lower economies of scale
associated with the reduction in acres under management. The selling, general, &
administrative (SG&A) ratio was consistent for the first half of 2000 relative
to 1999.
Interest income increased $70,000 in the first six months of 2000, as the
Partnership's average short-term investments were higher in the first half of
2000. The Partnership bought its Partner's interest in the Heron Beach Inn and
retired debt associated with the Property, which resulted in a relatively low
balance of cash and short-term investments in the first half of 1999.
The provision for income taxes decreased from an expense of $240,000 in the
first half of 1999 to a tax benefit of $112,000 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 property management
activities in the first half of 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 June 30, 2000, the Partnership had available an unused $20
million bank loan commitment.
Management has considerable discretion to increase or decrease the level of
logs cut which will have a corresponding impact on net income and cash flow,
assuming log prices and demand remain stable. Management's current plan is to
harvest approximately 38 million board
<PAGE>
feet of timber in 2000. Since harvest plans are based on demand and pricing,
actual harvesting may vary subject to management's ongoing review.
For the six months ended June 30, 2000, cash generated by operating
activities was $5.8 million and overall cash and cash equivalents increased $3.1
million. Cash provided by operating activities was used for cash payments to
unitholders of $0.9 million, capital expenditures of $1.4 million, and repayment
of long-term debt of $0.2 million.
On June 9, 2000 the Partnership announced its plan to repurchase up to 5%
of outstanding Partnership units. The repurchases may be made from time to time
in open market transactions at prevailing market prices that the Partnership
deems appropriate. As of the date of this filing no units have been repurchased
under this plan. Unit purchases are expected to begin during the third quarter
of 2000.
The Partnership plans to continue making quarterly partnership
distributions during 2000.
RECENT EVENTS
Gary F. Tucker retired from his position as President, CEO, and Director of
the Partnership effective May 8, 2000. Board members Peter T. Pope and Douglas
E. Norberg have been taking a more active role in day-to-day management while a
search is conducted for Mr. Tucker's replacement.
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. During the
current year the Partnership plans to defer a portion of the second quarter
harvest to the third and fourth quarter. 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 June 30, 2000, the Partnership had $13.4 million of fixed rate debt
outstanding with a fair value of approximately $13.1 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 June 30, 2000:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Long-term debt including Interest
current portion 2000 2001 2002 2003 2004 Thereafter Rate
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage-Principal payments 188 405 446 491 541 11,047 9.65%
Local Improvement
District-Principal Payments 20 38 38 38 38 63 6.5% to 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
<PAGE>
POPE RESOURCES
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POPE RESOURCES,
A Delaware Limited Partnership
Registrant
Date: August 11, 2000 By: POPE MGP, Inc.
Managing General Partner
Date: August 11, 2000 By: /s/ Thomas M. Ringo
-----------------------------------
Thomas M. Ringo
Sr. Vice President Finance & Client Relations
(Duly Authorized Signatory and
Principal Financial Officer)
Date: August 11, 2000 By: /s/ Meredith R. Green
-----------------------------------
Meredith R. Green
Vice President Finance and Treasurer
(Principal Accounting Officer)
