<PAGE>
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, 1999, 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
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(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
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(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) 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 non-voting equity in the form
of units held by nonaffiliates of the registrant as of March 1, 2000 was
$72,430,120.
DOCUMENTS INCORPORATED BY REFERENCE:
SEE ITEM 14
Exhibit Index Item IV.
<PAGE>
PART I
ITEM 1. BUSINESS
Pope Resources, A Delaware Limited Partnership (the "Partnership") was
organized in October, 1985 as a result of a spin-off by Pope & Talbot, Inc.
(P&T) of certain of its assets, and two of its subsidiaries (Ludlow Water
Company and Gamble Village Water & Sewer Company). 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
formed Ludlow Bay Realty, Inc. in 1993.
In March 1997, the Partnership's unitholders authorized management to
expand its timberland business with the Investor Portfolio Management Business
(IPMB). The IPMB has two complementary business strategies: portfolio
development and timberland management. Portfolio development's goal is to build
and manage diversified portfolios of timberlands for third-party investors,
sometimes acting exclusively as an investment manager, while at other times
co-investing as a partner on behalf of Pope Resources. Timberland management's
mandate is to provide management services to third-party owners of timberlands.
ORM, Inc. and Olympic Resource Management LLC (ORMLLC) were formed in 1997 to
facilitate the IPMB activities.
The amendment to the Limited Partnership Agreement authorizing
management to pursue the IPMB business limits cumulative net expenditures to
$5,000,000, including debt guarantees. As of December 31, 1999, cumulative net
expenditures, incurred in pursuit of IPMB opportunities, including guarantees,
totaled approximately $494,000 net of income generated. The amendment further
specifies that income from the IPMB will be split using a sliding scale
allocation method beginning at 80% to ORM, Inc., a subsidiary of Pope Resources
and 20% to Pope MGP, Inc., the managing general partner of the Partnership. The
sliding scale allocation method will evenly divide IPMB income between ORM, Inc.
and Pope MGP, Inc. once such income reaches $7,000,000 in a given fiscal year.
During 1998, the Partnership formed ORM International, Inc. and ORM
Resources Canada Ltd. to facilitate the acquisition of assets comprising Simons
Reid Collins, a division of H.A. Simons Ltd. of Vancouver, British Columbia.
These assets and employees have expanded the Partnership's ability to market
forest management and consulting services globally and expanded its array of
consulting services available to owners and managers of timberlands.
Also during 1998, the Partnership formed the following wholly owned
subsidiaries: Olympic Property Group LLC, Olympic Real Estate Development LLC,
and Olympic Resorts LLC, and changed the name of Ludlow Bay Realty, Inc. to
Olympic Real Estate Management, Inc. and Ludlow Water Company to Olympic Water
and Sewer, Inc. In 1991, Pope Resources became a partner in Ludlow Associates, a
Washington partnership, for the purposes of ownership of the Heron Beach Inn on
Ludlow Bay. In 1998, Ludlow Associates was dissolved and Pope Resources acquired
the entire ownership of the Heron Beach Inn on Ludlow Bay.
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NARRATIVE DESCRIPTION OF BUSINESS
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 segment,
Real Estate, consists of residential development and income-producing
properties. The following is a description of each industry segment.
TIMBERLAND RESOURCES
The Timberland Resources segment's key operation is the management of
timberlands for the Partnership and third party investors. As of December 31,
1999, total acres under management exceeded 500,000 acres, of which the
Partnership's tree farm represented approximately 74,000 acres. 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 Partnership earns revenue from management and
consulting fees received from third-party investors and the sale of timber
products from the Partnership's tree farm. This segment produced 68%, 68% and
65% of the Partnership's consolidated gross revenues in 1999, 1998 and 1997,
respectively.
All of the activities of the IPMB are currently conducted within this
segment. The vehicle for the IPMB is ORMLLC, which seeks investors interested in
developing risk-diversified portfolios of timberland and pursues third party
timberland management opportunities in the United States, Canada, and other
strategic locations globally. ORMLLC generates fee income directly and
indirectly by providing services to large investors in acquiring, managing, and
eventually disposing of timberland investments. In December 1997, ORMLLC entered
into a contract with the Hancock Timber Resource Group (HTRG) following a
competitive bid process to manage timberlands in Washington, Oregon, and
California. As of December 31, 1999, ORMLLC managed 460,000 acres for HTRG in
the Western United States and British Columbia. In addition to the IPMB
activities, ORMLLC also earns revenue by providing forestry consulting services
to third party owners and managers of timberland assets.
With the formation of ORM International, Inc. and ORM Resources Canada
Ltd. in 1998, the Partnership has expanded its presence outside the U.S. ORM
Resources Canada Ltd. provides consulting services in forest inventory, timber
supply analysis, timber sale cruising and forest resource mapping to a broad
range of clients in western Canada. ORM Resources Canada Ltd. also provides
timberland management services on 60,000 acres on Vancouver Island together with
general forestry consulting services for projects in Argentina and Jamaica. The
company has offices throughout western Canada and in Buenos Aires, Argentina.
The resources used to provide consulting and management services for third
parties are also utilized to manage the Partnership's own tree farm near
Seattle, Washington.
The dominant timber species on the Partnership's 74,000-acre tree farm
is Douglas-fir. Douglas-fir is noted for its strength, flexibility and other
physical characteristics that make it generally preferable to other softwoods
and hardwoods for the production of construction grade lumber and plywood. As of
December 31, 1999, the tree farm's total softwood inventory volume was estimated
to be 420 million board feet (MMBF). This compares to inventory volumes of 432
MMBF and 457 December 31, 1998 and 1997, respectively. Due to Washington State
forest practice regulations that provide for limited clear-cut size, expanded
<PAGE>
riparian management zones, wildlife leave trees, wetlands requirements and other
harvest restrictions the Partnership estimates that between 7% and 12% of the
aforementioned volume may not be available for harvest. The Partnership is
currently evaluating the affect of recent regulatory changes to the
Partnership's inventory. The merchantable timber volume is accounted for by the
Partnership's standing timber inventory system, which utilizes periodic
statistical sampling of the timber (cruising) with annual adjustments made for
estimated growth and the depletion of areas harvested.
The Partnership views its tree farm as a core holding and is managing
it accordingly. As such, the Partnership's annual harvest policy is to schedule
harvesting to coincide with a given stand's economic rotation age, consistent
with rate-of-harvest regulations in the State Forest Practices Act. From year to
year, the policy allows for flexibility in response to external market
conditions. 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 both inventory data
and projected growth rates. Inventory data includes 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.
The Partnership markets timber in one of two ways. Management engages
independent logging contractors to harvest the standing timber and manufacture
it into logs which are then sold on the open market. Logs produced are sold both
domestically and internationally. One of the principal international 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 buyer of logs in the Pacific Rim market, though Korea and China are
significant from time to time.
The second method in which timber is sold is through stumpage sales,
where standing timber is sold to purchasers that in turn manage the harvesting
and marketing of the timber. These operations are governed by provisions of the
sales contract, and are closely monitored by management to facilitate sound
forestry and stewardship practices and regulatory compliance. Stumpage sales are
generally used in unique situations when management believes returns can be
improved by selling timber immediately, "on the stump", rather than waiting for
the harvest to be completed and selling manufactured logs.
There are many competitors of the Partnership, most of whom are
comparable in size or larger. Forest product suppliers compete on the basis of
quality, pricing and the ability to satisfy volume demands for various types and
grades of logs to respective markets. Management believes that the location,
type and grade of the Partnership's timber will enable it to effectively compete
in these 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-produced products. The Partnership's timberland
management and forestry consulting businesses compete in a market crowded with
competitors that is affected by changes in the business cycle. The Partnership
believes it is well positioned in this market to capitalize on the on-going
changes in timberland ownership and management.
The Partnership's timberland operations often require management
activities that include reforestation, control of competing brush in young
stands, thinning of the timber to achieve optimal spacing after stands are
established, and fertilization. During 1999, the Partnership planted 1,003,000
seedlings on 2,100 acres of the Partnership's tree farm. This compares to 1998
and 1997 in which the Partnership planted 1,048,000 and 902,000
<PAGE>
seedlings on 2,600 and 2,073 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.
Over the longer term, management anticipates that population and
economic pressures will contribute to the development of increasing portions of
its tree farm. To offset the resulting reductions in the timberland base,
management is actively seeking acquisitions and trades that enhance tree farm
ownership. In 1999, the Partnership acquired 500 acres of timberlands adjacent
to its existing tree farm.
Timberland Resources is a year-round operation of the Partnership and
presently employs 117 full-time salaried employees and up to 25 part-time and
seasonal personnel.
REAL ESTATE
The Real Estate segment consists of residential development together
with ownership and management of income-producing properties. The Real Estate
segment produced 32%, 32%, and 35% of the Partnership's consolidated gross
revenues in 1999, 1998, and 1997, respectively.
Residential development consists of the sale of single-family homes,
finished lots and undeveloped acreage. The principal activity of residential
development consists of building residential dwellings and developing lots in
Port Ludlow. Key assets include approximately 3,000 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 2,000 acres of which 1,300
acres are still owned by the Partnership. Work is progressing on five remaining
subdivisions in this community. Progress is being made in activities ranging
from permit approval to actual construction on the final 450 lots of this
development.
The income-producing properties in this segment consist of the
following properties located in Port Ludlow, Washington: the 37-room Heron Beach
Inn on Ludlow Bay, a 300-slip saltwater marina, a 27-hole championship golf
course, a commercial shopping 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.
On December 31, 1998, the Partnership dissolved Ludlow Associates, a
Washington partnership, and acquired the entire ownership interest in all of
Ludlow Associates' assets, including the Heron Beach Inn on Ludlow Bay. Prior to
this event, the Partnership was a 50% joint venture partner in Ludlow
Associates. The acquisition has facilitated promotion of the Inn as part of a
broader destination resort at Port Ludlow. The Inn, golf course, marina, and RV
park business is seasonal, with the peak season beginning in May and running
through September of each year.
Other real estate development properties are located in Bremerton, Gig
Harbor, Kingston, and Hansville. The City of Bremerton approved the request for
a planned development on the Partnership's 270-acre property in Bremerton. The
planned development has a mix of industrial and residential uses. Clearing and
grading for a road to the industrial portion of the development was completed
during 1999.
Gig Harbor, a suburb of Tacoma, is the site of a 320-acre mixed-use
development consisting of 200 acres for residential development; 120 acres for a
business park; and a site
<PAGE>
for a neighborhood commercial center. Preliminary environmental studies were
completed in 1997 and the Partnership continues to work with local officials in
Gig Harbor on the development plans. Efforts in 1999 focused on a successful
agreement to construct an arterial road through the property which in turn
connects to a nearby freeway interchange.
There are two on-going projects in Kitsap County, a 720-acre
residential development in Kingston and a 185-acre residential development in
Hansville. While significant progress has been made in the governmental
entitlement process, final approval was stalled pending the outcome of a court
case, in which the Partnership was not a party. In April 1999, the State Court
of Appeals rendered a favorable decision but the case has been appealed to the
Washington State Supreme Court for further review.
The Partnership's land sales activities are closely associated with the
management of its timberlands. 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 timberlands in terms of their best economic use, whether
it means continuing to grow timber or reclassifying the property for sale or
development. As the Partnership reclassifies timber properties for sale or
development, the Partnership may replace such properties with timberland
purchases in more remote areas. Although the Partnership believes it has
adequate land inventory for future development, additional properties may be
purchased, as they become available.
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 represents the total sales dollars expected to be recorded once
these properties are sold. The residential development division's backlog of
sales was approximately $4,630,000 as of December 31, 1999, all of which are
expected to close in 2000. This compares to sales backlogs of $890,500 and
$926,900 as of December 31, 1998 and 1997, respectively.
Real Estate presently employs 70 full-time salaried employees and has
in the past employed up to an additional 60 part-time and seasonal personnel.
The total number of employees not otherwise classified under a
segment is 43 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 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS
AND RELATED SECURITY HOLDER MATTERS
The units are traded on the Nasdaq National Market System. The
Partnership's units trade under the ticker symbol "POPEZ". The following table
sets forth the 1999-1998 quarterly ranges of high and low prices for the
Partnership's units:
<TABLE>
<CAPTION>
1999 1998
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High Low High Low
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<S> <C> <C> <C> <C>
First Quarter $ 33.38 $ 27.88 $ 29.00 $ 24.06
Second Quarter $ 35.00 $ 29.75 $ 31.00 $ 26.63
Third Quarter $ 34.00 $ 31.63 $ 29.50 $ 27.88
Fourth Quarter $ 34.88 $ 29.25 $ 32.50 $ 27.63
</TABLE>
As of March 2, 2000, there were approximately 907 beneficial holders
and 381 registered holders of 4,528,095 outstanding units.
During 1999, cash distributions totaled $1,810,000, consisting of
quarterly distributions of 10 cents per unit. The fourth quarter distribution of
10 cents per unit was paid on December 15, 1999. During 1998, cash distributions
totaled $1,807,000 consisting of 10 cents per unit each quarter. All cash
distributions are at the discretion of the Partnership's managing general
partner, Pope MGP, Inc.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The financial information set forth below for each of the years ending
December 31, 1995 through 1999 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. Per unit amounts reflected
below have been restated for the 5 for 1 unit split completed in 1997.
<TABLE>
<CAPTION>
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(Dollars in thousands, except per unit data)
- -----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Revenues:
Timberland Resources $ 34,501 $ 29,310 $ 19,486 $ 21,569 $ 26,399
Real Estate 16,352 13,642 10,623 11,444 9,763
Total Revenues 50,853 42,952 30,109 33,013 36,162
Income from Operations:
Timberland Resources 15,057 14,940 10,151 13,650 18,087
Real Estate (95) 2,527 (727) (77) (904)
Administrative (8,282) (7,104) (4,570) (3,755) (2,384)
Total Income from Operations 6,680 10,363 4,854 9,818 14,799
Net Income 5,066 8,792 3,509 8,334 13,090
Earnings per Unit - Diluted 1.11 1.94 0.78 1.84 2.90
Distribution per Unit 0.40 0.40 0.49 0.82 1.06
Total Assets 66,880 62,706 56,319 54,599 54,147
Long-term Debt 13,282 13,818 14,323 14,678 17,992
Partners' Capital 49,302 45,896 38,911 37,616 32,988
Acres Owned/Managed (000) 534 640 74 74 71
Fee Timber Harvested (MMBF) 42.0 38.9 33.2 31.6 37.9
Homes Sold 28 13 14 17 14
Lots Sold 48 39 24 39 46
Employees (FTE) 257 157 88 56 62
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</TABLE>
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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
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 as well as management and consulting fees earned from
timberland management and forestry consulting activities performed for
third-party owners of timberlands. Timberland management fees include fees
earned from the Partnership's role as the western regional timberland manager
for the Hancock Timber Resource Group (HTRG). The majority of forestry
consulting revenue result from the December 1998 acquisition of Simons Reid
Collins, a forestry consulting business headquartered in British Columbia.
Revenues and operating income for the Timberland Resources segment for
the three years ending December 31, 1999, are as follows:
<TABLE>
<CAPTION>
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Year ended Revenues Operating income
- --------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1999 $ 34.5 million $ 15.1 million
December 31, 1998 29.3 million 14.9 million
December 31, 1997 19.5 million 10.1 million
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</TABLE>
The 18% increase in revenues in 1999 as compared to 1998 is the result
of an increase in revenues realized from the sale of logs harvested from the
Partnership's tree farm combined with new revenues earned from the Partnership's
forestry consulting activities. Operating income did not increase in proportion
to the increase in revenues as a result of costs incurred in the integration of
the forestry consulting activities. The 1998 increase in revenues and operating
income as compared to 1997 resulted primarily from timberland management fees
earned from the timberland management activities of Olympic Resource Management
LLC (ORMLLC) partially offset by a decline in revenue earned from logs harvested
from the Partnership's tree farm.
The Partnership benefited from an improvement in log prices realized
during 1999 and an increase in timber harvested. The increase in harvest volume
resulted from the January 1999 acquisition of 500 acres and subsequent logging
of a portion of the acquired tract. The Partnership harvested the following
timber over the past three years:
<TABLE>
<CAPTION>
- ---------- ------------------------ ------------------------ ------------------------
Softwood
Year Sawlogs Pulp, Hardwood, and Totals
Other
- ---------- ------------------------ ------------------------ ------------------------
Volume Price Volume Price Volume Price
MMBF $/MBF MMBF $/MBF MMBF $/MBF
----------- ------------ ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
1999 32.1 $628 9.9 $255 42.0 $542
1998 28.6 583 10.3 268 38.9 500
1997 24.7 698 8.5 252 33.2 584
- ---------- ----------- ------------ ----------- ------------- ------------ ----------
</TABLE>
<PAGE>
MMBF = million board feet
MBF = thousand board feet
Log revenues from the Partnership's timberland ownership are
significantly affected by export log market conditions. Sales to the export
market totaled 22%, 20%, and 42% of segment revenues for 1999, 1998, and 1997,
respectively. The majority of the Partnership's export log volume is sold to
Japan. Indirect sales to the export market totaled 11.1 MMBF, 8.6 MMBF, and 10.3
MMBF of softwood logs for 1999, 1998, and 1997, respectively. The average price
per MBF realized for export logs sold was $694, $681, and $794 for 1999, 1998,
and 1997, respectively. The Japanese economy showed some signs of recovery in
1999, resulting in the improvement in log prices realized and increased volume
sold to the export market. The decline in export log volumes and prices in 1998
as compared to 1997 reflected the weakening Japanese economy and strengthening
U.S. dollar experienced during that time period.
Domestic sawlog volumes were 21.0 MMBF, 20.0 MMBF, and 14.4 MMBF in
1999, 1998, and 1997, respectively. The increase in domestic log volume in 1999
reflects the increased timber harvest resulting from the Partnership's
aforementioned timberland acquisition. Average domestic log prices per MBF were
$593, $541, and $630 for 1999, 1998, and 1997, respectively. The increase in
domestic log prices is the indirect result of improved export market conditions.
As log prices improve in the export market, log volume is diverted from the
domestic to the export market, which tends to improve prices. In 1998 domestic
log prices weakened as log volume was diverted from the export to the domestic
market.
Pulp log volumes were 8.7 MMBF, 9.5 MMBF, and 7.0 MMBF, for 1999, 1998,
and 1997, respectively. Pulp log volumes decreased in 1999, as the Partnership
did not harvest as many lower quality timber stands that tend to generate a
larger proportion of pulp logs. The increase in pulp log volume between 1997 and
1998 was due to both an increase in overall timber harvested and the
Partnership's harvest of a higher proportion of timber stands that had not been
previously thinned. These stands generally contain a higher proportion of lower
quality pulp logs than stands that have been previously thinned. Pulp log prices
were $222, $251, and $217 per MBF for 1999, 1998, and 1997, respectively.
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 half of the year when the
supply of logs tends to be lower. Towards the end of September or October,
harvest activities taper off as the Partnership reaches the planned annual
harvest volume. Other activities in the Timberland Resource segment are not
significantly seasonal.
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.
They anticipate that increasingly strict requirements relating to the
environment, threatened and endangered species, natural resources, forestry
operations, and 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
management 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's operations.
Risk of loss from fire, while possible on any timberland, is minimized
on Partnership
<PAGE>
lands for several reasons. First, the Partnership maintains a well-developed
road system that allows access and quick response to any fire that may occur.
Second, 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. The Washington State Department of
Natural Resources is ultimately responsible for all fire suppression activities
in the state.
ORMLLC is the western regional timberland manager for HTRG. The
contract covering management services provided in the western United States runs
for three years and commenced on January 1, 1998. 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 ends December 31, 2000. As of December 31,
1999, ORMLLC (together with its subsidiary) was managing 460,000 acres of HTRG
timberland in Washington, Oregon, California, and British Columbia. Total acres
under management for HTRG is subject to change as HTRG's client portfolios are
adjusted.
In September 1999, the State Teachers Retirement System of Ohio (STRSO)
switched its investment management account away from HTRG to a new investment
manager. In addition, effective February 2000 the California Public Employees
Retirement System (CalPERS) changed investment managers for its western
timberland portfolio. ORMLLC managed 319,000 acres of timberlands on behalf of
HTRG for STRSO and CalPERS during most of 1999. Following these transfers,
ORMLLC manages 242,000 acres of timberlands on behalf of HTRG. The decrease in
acres under management will reduce the revenues generated from the HTRG contract
in 2000.
As part of its strategy to expand service offerings to third-party
owners of timberlands, management worked throughout 1999 to market its
timberland management services. In March 2000, management signed a major new
contract to manage an additional 365,000 acres in California, Oregon, and
Washington. The revenues from this contract are expected to offset a portion of
the revenue lost in the transfer of the STRSO and CalPERS timberlands.
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. Management believes that its forestry consulting
activities in British Columbia will benefit from the anticipated recovery in the
forest products industry in British Columbia.
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.
<PAGE>
Revenues and operating income/(loss) for the Real Estate segment for
the three years ending December 31, 1999, are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended Revenues Operating income/(loss)
- --------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1999 $ 16.4 million $ (0.1) million
December 31, 1998 13.6 million 2.5 million
December 31, 1997 10.6 million (0.7) million
- --------------------------------------------------------------------------------
</TABLE>
The majority of the 21% increase in Real Estate segment revenues in
1999 compared to 1998 was the result of the Partnership's purchase of the
remaining interest in the Heron Beach Inn in December of 1998, which resulted in
the Partnership consolidating the Inn's revenues and expenses. The 28% increase
in revenues in 1998 from 1997 is due to the sale of a 980-acre property for $2.8
million, which resulted in a gain of $2.6 million to the Real Estate segment.
Residential development revenues increased 9% to $9.4 million for the
year ended December 31,1999, as a result of a shift to focusing on the sale of
completed homes as opposed to improved lots at the Partnership's flagship
development in Port Ludlow. The increase in revenues from the sale of homes was
partially offset by a decrease in revenue from the sale of undeveloped acreage.
The primary source of increased residential development revenue in 1998 as
compared to 1997 was an increase in undeveloped acreage sales from $0.5 million
in 1997 to $3.6 million in 1998. The majority of this increase is attributable
to the aforementioned sale of a 980-acre property in 1998.
In 1999, Port Ludlow, the Partnership's largest development, generated
revenues of $7.2 million through the sale of six lots and 28 homes. This
compares to 1998 sales of $4.6 million through the sale of 21 developed lots and
13 homes, and 1997 sales of $4.7 million for 17 developed lots and 14 homes.
During 1999, the Partnership began to focus more 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 attributable to the Partnership's
income-producing properties.
Income-producing property revenues in 1999 increased 40% to $7.0
million due to the Partnership's purchase of the remaining interest in the
37-room Heron Beach Inn on Ludlow Bay in December of 1998. Prior to 1998 the
Partnership participated in a joint venture to own and operate the Inn. As a
joint venture partner, only the Partnership's share of profit from the joint
venture was included in non-operating income/loss. On December 31, 1998, the
joint venture was dissolved and the Partnership acquired the entire interest in
the Inn, and has subsequently included the Inn's revenues and expenses in
operating income during 1999.
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 Jefferson County, where Port
Ludlow is located, the GMA Hearings Board approved the County's Comprehensive
Plan. In this plan, Port Ludlow was granted status as a Master Planned Resort
facilitating future build-out and development of the resort. In July 1999, the
Partnership successfully completed a mediation process with local residents that
resulted in a proposed zoning ordinance necessary for completion and build-out
of the resort. In October 1999, the Jefferson County Commissioners approved the
zoning ordinance.
<PAGE>
The Partnership continues to be in the planning and entitlement phases
for several developments located in the West Puget Sound region. In July 1999,
Kitsap County designated Port Gamble as a "Rural Historic Town." This
designation provides for substantial new commercial, industrial and residential
development of the town utilizing historic land use patterns, densities and
architectural character. The designation has been appealed to the State GMA
Hearings Board and is scheduled for review in the first half of 2000. The
Partnership has initiated a legislative amendment to GMA that will provide
additional clarification and authorization for designations involving national
historic town sites and bolster the Partnership's position on appeal. It is
anticipated that the legislation will be adopted during the first quarter of
2000.
The City of Bremerton approved the request for a planned development on
the Partnership's 270-acre property in Bremerton. The planned development has a
mix of industrial and residential uses. Clearing and grading for a road to the
industrial portion of the development was completed during 1999.
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. Preliminary environmental studies were completed in 1997 and
the Partnership continues to work with local officials in Gig Harbor on the
development plans. Efforts in 1999 focused on a successful agreement to
construct an arterial road through the property which in turn connects to a
nearby freeway interchange.
The Partnership has two additional ongoing projects in Kitsap County: a
720-acre residential development in Kingston and a 185-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 will
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 has been appealed to the
Washington Supreme Court for further review.
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. The reduction of governmental funding in
these areas may affect the Partnership's real estate holdings, which are
significantly reliant on ferry service, but the impact is unknown at this time.
OTHER
The following table sets forth expenses as a percentage of revenues for
the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ---------------- ---------------
<S> <C> <C> <C>
Revenues 100% 100% 100%
Cost of sales 31 28 36
Operating expenses 37 28 25
Selling, general, and administrative expenses 19 20 23
============= ================ ===============
Operating income 13% 24% 16%
============= ================ ===============
</TABLE>
<PAGE>
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 and the basis of the land the
Partnership sells. In 1999 cost of sales as a percentage of revenues increased
3% from 1998. In 1998 the cost-of-sales ratio was positively affected by the
sale of a 980-acre parcel of undeveloped land for $2.8 million. The
cost-of-sales ratio in 1999 is 5% below the ratio in 1997 due to the increase in
revenues earned from timberland management and forestry consulting activities,
which do not have cost of sales associated with the revenue.
Operating expenses consist of salary and other costs directly
attributable to a revenue-producing activity. The 9% increase in the operating
expense ratio between 1998 and 1999 is due to an increase in payroll and
facility expenses associated with the December 1998 acquisition of the forestry
consulting business and purchase and subsequent consolidation of the Heron Beach
Inn. The 3% increase in the operating expense ratio between 1997 and 1998
reflects the increase in operating expenses associated with timberland
management activities.
The selling, general, & administrative (SG&A) ratio decreased 1% from
1998 to 1999 as compared to a 3% decrease from 1998 to 1997. The decline in the
SG&A ratio in 1999 is due to a proportionally greater increase in revenues from
the Heron Beach Inn and timberland consulting activities. The decrease between
1997 and 1998 is due to the increase in revenues from timberland management
activities.
Interest income decreased in 1999, as the Partnership's average
short-term investments declined as a result of the acquisition and debt
retirement for the Heron Beach Inn. The increase in interest income in 1998 is
the result of higher average short-term investment balances.
The Partnership was a 50% joint venture partner in Ludlow Associates,
which owned the 37-room Heron Beach Inn on Ludlow Bay. The Partnership's share
of joint venture losses was $217,000 and $337,000 for the years 1998 and 1997,
respectively. The results for the Heron Beach Inn improved in 1999 as a result
of a reduction in outstanding debt. These results have been consolidated with
the Partnership.
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 December 31, 1999, the Partnership had available an unused $20
million bank loan commitment.
Management has considerable discretion to increase or decrease the
level of logs cut and thereby may increase or decrease net income and cash flow,
assuming log prices and demand remain stable. Management's current plan is to
harvest approximately 38 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 year ending December 31, 1999, cash provided by operating
activities was $8.3 million and overall cash and cash equivalents increased $2.3
million. Cash provided by operating activities in 1999 was used for cash
payments to unitholders of $1.8 million, capital expenditures of $3.8 million,
and repayment of long-term debt of $0.5 million. Capital expenditures in 1999
included $1.3 million for the acquisition of 500 acres of timberland.
In 1998, cash provided by operating activities was $9.2 million and
overall cash and cash equivalents decreased by $1.3 million. The cash generated
from operations was primarily used for cash payments to unitholders of $2.3
million, $0.5 million of which was accrued on December 31, 1997; repayments of
long-term debt of $2.6 million; and capital expenditures related to real
property, equipment, roads, and reforestation of $5.0 million. Repayments of
long-term debt in 1998 included debt retirement associated with the Heron Beach
Inn on Ludlow Bay.
The Partnership plans to continue making quarterly partnership distributions
during 2000.
YEAR 2000 (Y2K)
The Partnership budgeted $250,000 to identify and remediate Y2K issues.
Actual costs incurred were $220,000 and no significant interruptions to the
Partnership's business or systems were experienced. The Y2K project included the
development of contingency plans that are applicable to events other than Y2K
that have the potential to cause an interruption to the Partnership's business.
FORWARD-LOOKING STATEMENTS
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.
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 10 to the
Partnership's Financial Statements included with this report.
<PAGE>
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
As of December 31, 1999, the Partnership had $13.5 million of fixed
rate debt outstanding with a fair value of approximately $14.1 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 December 31,
1999:
<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 368 405 446 491 541 11,047 9.65%
Local Improvement 6.5% to
District-Principal Payments 38 38 38 38 38 63 8%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
POPE RESOURCES
A DELAWARE LIMITED PARTNERSHIP
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<PAGE>
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent auditors' report 17
Consolidated financial statements:
Balance sheets 18
Statements of income 19
Statements of cash flows 20
Notes to financial statements 21
</TABLE>
<PAGE>
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, 1999 and 1998, and the related consolidated statements of income,
partners' capital and cash flows for each of the three years in the period
ended December 31, 1999. 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
February 11, 2000
<PAGE>
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
(Thousands) 1999 1998
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,922 $ 2,666
Accounts receivable 1,583 639
Work in progress 12,033 11,199
Current portion of contracts receivable 587 611
Prepaid expenses and other 550 368
------- -------
Total current assets 19,675 15,483
------- -------
PROPERTIES AND EQUIPMENT:
Land and land improvements 15,611 16,701
Roads and timber, net of accumulated depletion
of $10,024 and $8,868 12,391 11,272
Buildings and equipment, net of accumulated
depreciation of $14,358 and $12,910 15,921 16,028
------- -------
43,923 44,001
------- -------
OTHER ASSETS:
Contracts receivable (net of current portion) 1,733 1,780
Unallocated amenities and project costs 1,356 1,073
Other 193 369
------- -------
3,282 3,222
------- -------
Total assets $66,880 $62,706
======= =======
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 1,084 $ 777
Accrued liabilities 2,099 1,383
Current portion of long-term debt 406 382
Minority interest 366 256
------- -------
Total current liabilities 3,955 2,798
Long-term debt 13,282 13,818
Deferred profit 341 194
Commitments and contingencies (Notes 2 and 8)
Partners' capital (units outstanding: 4,528 and 4,519) 49,302 45,896
------- -------
Total liabilities and partners' capital $66,880 $62,706
======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
(Thousands, except per unit information) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues $ 50,853 $ 42,952 $ 30,109
Cost of sales (15,799) (12,120) (10,937)
Operating expenses (18,737) (12,004) (7,445)
Selling, general, and administrative (9,637) (8,465) (6,873)
-------- -------- --------
Income from operations 6,680 10,363 4,854
OTHER INCOME (EXPENSE):
Interest expense (1,298) (1,406) (1,421)
Interest income 259 618 413
Equity in losses of joint venture -- (217) (337)
-------- -------- --------
(1,039) (1,005) (1,345)
Income before income taxes and minority interest 5,641 9,358 3,509
Income tax provision (259) (310) --
-------- -------- --------
Income before minority interest 5,382 9,048 3,509
Minority interest (316) (256) --
-------- -------- --------
Net income $ 5,066 $ 8,792 $ 3,509
======== ======== ========
NET INCOME:
Allocable to general partners $ 67 $ 117 $ 47
Allocable to limited partners 4,999 8,675 3,462
-------- -------- --------
Net income 5,066 8,792 3,509
======== ======== ========
EARNINGS PER UNIT:
Basic $ 1.12 $ 1.95 $ 0.78
======== ======== ========
Diluted $ 1.11 $ 1.94 $ 0.78
======== ======== ========
WEIGHTED AVERAGE UNITS OUTSTANDING:
Basic 4,523 4,519 4,519
======== ======== ========
Diluted 4,548 4,534 4,526
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
(Thousands) -------- -------- --------
<S> <C> <C> <C>
January 1, 1997 $ 522 $ 37,094 $ 37,616
Net Income (comprehensive income) 47 3,462 3,509
Distributions (30) (2,184) (2,214)
-------- -------- --------
December 31, 1997 $ 539 $ 38,372 $ 38,911
Net Income 117 8,675 8,792
Distributions (24) (1,783) (1,807)
-------- -------- --------
December 31, 1998 $ 632 $ 45,264 $ 45,896
Net Income 67 4,999 5,066
Translation loss (1) (37) (38)
-------- -------- --------
Comprehensive income 66 4,962 5,028
-------- -------- --------
Issuance of Partnership units 188 188
Distributions (24) (1,786) (1,810)
December 31, 1999 $ 674 $ 48,628 $ 49,302
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
(Thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 50,055 $ 41,294 $ 29,371
Cash paid to suppliers and employees (40,006) (30,693) (22,575)
Interest received 234 609 428
Interest paid, net of amounts capitalized (1,394) (1,663) (1,404)
Income taxes paid (542) (395) --
-------- -------- --------
Net cash provided by operating activities 8,347 9,152 5,820
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,764) (2,496) (3,023)
Business combinations -- (2,476) --
Joint venture investment -- (610) (492)
-------- -------- --------
Net cash used for investing activities (3,764) (5,582) (3,515)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to unitholders (1,810) (2,260) (1,763)
Repayment of long-term debt (497) (2,594) (333)
Issuance of Partnership units 188 -- --
Minority interest distribution (208) -- --
-------- -------- --------
Net cash used for financing activities (2,327) (4,854) (2,096)
Net increase (decrease) in cash and cash
equivalents 2,256 (1,284) 209
CASH AND CASH EQUIVALENTS:
Beginning of year 2,666 3,950 3,741
-------- -------- --------
End of year $ 4,922 $ 2,666 $ 3,950
======== ======== ========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 5,066 $ 8,792 $ 3,509
Land sold through tax-deferred exchange -- (2,677) --
Cost of land and timber sold 1,200 946 306
Minority interest 316 256 --
Land resale expenditures (7) (66) (288)
Depreciation and depletion 2,686 2,053 1,647
Loss on equity in joint venture -- 217 337
Deferred profit (147) (48) (34)
INCREASE (DECREASE) IN CASH FROM CHANGES IN
OPERATING ACCOUNTS:
Accounts receivable (944) 41 (163)
Work in progress (834) (1,353) 539
Contracts receivable 71 919 (498)
Accounts payable and accrued liabilities 1,007 280 493
Other long-term liabilities (20) (118) --
Other, net (47) (90) (28)
-------- -------- --------
Net cash provided by operating activities $ 8,347 $ 9,152 $ 5,820
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS:
Pope Resources, A Delaware Limited Partnership (the "Partnership"),
is a publicly traded limited partnership engaged principally in
managing timber resources on its own properties as well as those
owned by others, and real estate development activities in the
northwest region of the United States. The managing general partner
is Pope MGP, Inc. Timberland Resources activities include the sale of
logs and fees earned providing timberland consulting and management
services on tree farms owned by others. Real Estate includes the sale
of single-family homes, finished lots and undeveloped acreage, and
various commercial property operations.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Partnership and its subsidiaries. Significant intercompany balances
and transactions have been eliminated in consolidation.
MINORITY INTEREST:
Minority interest represents Pope MGP, Inc.'s interest in the
Investor Portfolio Management Business (see Note 9) and has been
classified as a current liability as the minority interest's share in
income is generally distributed on an annual basis.
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.
CONTRACTS RECEIVABLE:
The Partnership sells land parcels under contracts requiring a
minimum cash down payment of 20% and having financing terms of up to
eight years at interest rates of 10%. The Partnership reduces credit
risk on contracts through collateral on the underlying land and down
payment requirements.
<PAGE>
Principal payments on contracts receivable for the next five years
are due as follows:
<TABLE>
<S> <C>
2000 587
2001 445
2002 228
2003 259
2004 147
</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.
PROPERTIES AND EQUIPMENT:
Depreciation is provided using the straight-line method 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.
When facts and circumstances indicate the carrying value of
properties may be impaired, an evaluation of recoverability is
performed by comparing the carrying value of the property to the
projected future cash flows. Upon indication that the carrying value
of such assets may not be recoverable, the Partnership would
recognize an impairment loss by a charge against current operations.
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 20% to 25% of the
contract sales value has been collected, at which time the full
accrual method of accounting is used. Management fees and consulting
service revenues are accrued as the services are provided. Accounts
receivable at December 31, 1999, include $527 of earned but unbilled
services.
INCOME PER PARTNERSHIP UNIT:
Basic income per partnership unit is computed using the weighted
average number of units outstanding during each year. Diluted income
per unit is calculated using the weighted average units outstanding
during the year, plus the dilutive impact of unit options
outstanding.
<PAGE>
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. Noncash investing activities in 1998 include $2,677 of
proceeds from land sales received by tax-deferred exchange
facilitators and utilized to purchase other real property on behalf
of the Partnership and the assumption of $2,239 in debt for the
acquisition of real property.
RECLASSIFICATIONS:
Certain reclassifications have been made to the prior years'
financial statements to conform with the current year's presentation.
2. BUSINESS COMBINATIONS AND JOINT VENTURE
The Partnership and its subsidiaries completed two acquisitions at the end
of December 1998. One of those acquisitions was the purchase of assets
comprising the forestry consulting and timberland management business of
H.A. Simons Ltd. and is part of operations for the Timberland Resources
segment in 1999. This acquisition was structured primarily as an "earnout,"
where the Partnership is required to make contingent payments over five
years provided the acquired operation meets or exceeds specified
profitability levels from business outside of the United States. The
Partnership was not required to make a payment on the earnout agreement
based on results of operations in 1999.
The second acquisition involved assets of a joint venture that the
Partnership participated in to own and operate the 37-room Heron Beach Inn
on Ludlow Bay in western Washington, which is part of operations for the
Real Estate segment in 1999. As a result of this acquisition the
Partnership owns 100% of the Inn and the Inn's operations have been
included in the consolidated financial statements for 1999. Prior to the
acquisition, the Partnership owned 50% of the joint venture and losses from
the joint venture were recorded on the equity method. The purchase price
and the Partnership's basis in the dissolved joint venture were allocated
to assets and liabilities acquired.
3. INCOME TAXES
The Partnership is not subject to income taxes. Instead, partners are taxed
on their share of the Partnership's taxable income, whether or not cash
distributions are paid. The provision for income taxes relating to taxable
subsidiaries of the Partnership consists of $263 in current and $(4) in
deferred taxes in 1999 and $278 in current and $32 in deferred taxes in
1998.
The following schedule reconciles net income reported for financial
statement purposes to consolidated taxable income:
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per financial statements $ 5,066 $ 8,792 $ 3,509
Undistributed subsidiary corporation (income)/loss 371 (1,226) --
Difference in reporting depreciation and depletion (40) (326) (279)
Cost basis of land, timber and homes sold 139 316 29
Deferred profit on real property sold 224 (177) (128)
Other 108
Deferred gain from land exchange -- (2,771) --
-----------------------------
Taxable income $ 5,868 $ 4,608 $ 3,131
=============================
</TABLE>
4. LONG-TERM DEBT
Long-term debt at December 31 consists of:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------
<S> <C> <C>
Mortgage note payable to an insurance company,
with interest at 9.65%, collateralized by timberlands,
with a minimum monthly payment of $136 and
maturing May 2022
$13,298 $13,632
Local improvement district assessments, with interest
ranging from 6.5% to 8%, due through 2009 253 411
Other 137 157
-----------------
13,688 14,200
Less current portion 406 382
-----------------
Total long-term debt $13,282 $13,818
=================
</TABLE>
The Partnership has a $20 million revolving term loan agreement. There
was no balance outstanding on the agreement as of December 31, 1999 and
1998. The maximum available borrowings are reduced by $10 million on
September 30, 2000 and the agreement expires on September 30, 2001.
<PAGE>
The Partnership debt agreements contain certain financial statement
ratio covenants and have tangible net worth requirements. The minimum
net worth requirements for the bank and the insurance company notes
were $27,888 as of December 31, 1999. 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 that timber harvests exceed specified levels. The Partnership
was in compliance with these covenants as of December 31, 1999.
Principal payments on long-term debt for the next five years are due as
follows:
<TABLE>
<S> <C>
2000 406
2001 443
2002 484
2003 529
2004 579
</TABLE>
5. 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 $13,551 and $14,043 has been estimated based
on current interest rates for similar financial instruments and totals
$14,113 and $15,796 as of December 31, 1999 and 1998, respectively.
6. UNIT OPTION PLAN
The Partnership's 1997 Unit Option Plan authorized the granting of
nonqualified unit options to employees, officers, and directors of the
Partnership. A total of 300,000 units have been reserved for issuance
under the plan. Unit options are granted at prices not less than the
fair value of the limited partnership units on the date of the grant.
The options generally become exercisable annually over a four-year
period and have a maximum term of ten years. Unit options vested were
28,250 and 10,625 at December 31, 1999 and 1998, respectively. Unit
options outstanding were as follows:
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Number of units Weighted average
(in Thousands) strike price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1, 1997 - -
Granted 42.5 20.00
Exercised - -
---------------------- --------------------------------
Balance, December 31, 1997 42.5 20.00
Granted 50.0 26.50
Exercised - -
---------------------- --------------------------------
Balance, December 31,1998 92.5 23.51
Granted 57.5 27.88
Exercised (8.6) 21.79
---------------------- --------------------------------
Balance, December 31,1999 141.4 25.39
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Partnership accounts for unit-based compensation in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees.
Accordingly, compensation cost for unit options is measured as the
excess, if any, of the fair value of the Partnership's units at the
date of grant over the amount an employee must pay to acquire the unit.
No compensation expense has been recognized on original grants of unit
options, which have all had an exercise price not less than the fair
value of the Partnership's unit price on the date of the grant. Had
compensation expense for unit option grants been recognized based on
the fair value at the grant date consistent with the method described
in SFAS No. 123, Accounting for Stock-Based Compensation, the
Partnership's net income would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ---- ----
<S> <C> <C> <C>
Net income as reported $5,066 $8,792 $3,509
Pro forma net income under SFAS No. 123 4,957 8,653 3,393
</TABLE>
The fair value of options was calculated using the Black-Scholes
option-pricing model, with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected life 5 years 5 years 5 years
Risk-free interest rate 6.0% 5.0% 5.1%
Dividend yield 1.4% 1.4% 2.1%
Volatility .12 .14 .18
</TABLE>
<PAGE>
7. EMPLOYEE BENEFITS
Employees with six months 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 $308, $230, and $60 for December 31, 1999, 1998, and 1997,
respectively.
8. COMMITMENTS AND CONTINGENCIES
Performance bonds and letters of credit: 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 ensure completion of certain public facilities. The
Partnership had performance bonds and letters of credit totaling $610
and $685 outstanding at December 31, 1999 and 1998, respectively.
Operating leases: The Partnership has non-cancelable operating leases
for office and computer equipment. The lease terms are from 12 to 36
months. Rent expense under the operating leases totaled $490, $340, and
$27 for the years ending December 31, 1999, 1998, and 1997,
respectively.
Future minimum rental payments required under non-cancelable operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
2000 557
2001 87
2002 10
2002 6
</TABLE>
Contingencies: The Partnership may from time to time be a defendant in
various 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.
9. RELATED PARTY TRANSACTIONS AND MINORITY INTEREST
Pope MGP, Inc., is the managing general partner of the Partnership and
receives an annual fee of $150.
The minority interest represents Pope MGP, Inc.'s interest in the IPMB.
The amendment to the Limited Partnership Agreement authorizing
management to pursue the IPMB specifies that net income from the IPMB
will be split using a sliding scale allocation method, commencing with
80% to ORM, Inc., a subsidiary of Pope Resources, and 20% to Pope MGP,
Inc. The sliding scale allocation method will allocate income evenly
between ORM, Inc. and Pope MGP, Inc. once net income from the IPMB
reaches $7,000 in a fiscal year. The aforementioned amendment
authorizing pursuit of the IPMB limits cumulative net expenditures to
$5,000, including debt guarantees. The Partnership has incurred
approximately $494 of net expenditures and debt guarantees through
December 31, 1999.
<PAGE>
A director of Pope MGP, Inc., is also a director of Pope & Talbot, Inc.
(P&T). In 1999, 1998, and 1997, the Partnership received lease payments
of $75 from P&T for lease of a log sorting and storage site at Port
Gamble, Washington.
The Partnership sold one of its residential homes at Port Ludlow,
Washington, to the Director, President, and CEO of the Partnership in
connection with his relocation and employment. The Partnership holds
the promissory note for a portion of the purchase price with a balance
of $271 at December 31, 1999, 1998 and 1997. The note bears interest at
6.48% and requires interest-only payments until maturity in 2001.
The Partnership contracts with a relative of the President and CEO to
direct the Partnership's outreach efforts, which involves the location
of potential timberland properties to be included in investor
portfolios and opportunities to sell timberland management services.
The Partnership paid $120, $121, and $102 to the individual during
1999, 1998, and 1997, respectively.
10. SEGMENT AND MAJOR CUSTOMER INFORMATION
The Partnership's operations are classified into two segments:
Timberland Resources and Real Estate. The Timberland Resources segment
manages over 500 acres of timberland properties for third parties and
the Partnership's own tree farm in Washington State. Timberlands under
management are in Washington, Oregon, California and British Columbia.
Revenues are generated through management fees earned and the sale of
timber harvested from the Partnership's tree farm. Major customers
include two customers with 17% and 11%; 21% and 9%; and 15% and 9%; of
total revenues for 1999, 1998, and 1997, respectively.
The Real Estate segment builds and sells homes and lots and manages
several commercial properties including marina, golf course, sewer and
water facilities and other commercial properties. All of the
Partnership's real estate development activities are in Washington
State.
Identifiable assets are those used exclusively in the operations of
each industry segment or those allocated when used jointly. The
Partnership does not allocate cash, accounts receivable, certain
prepaid expenses or the Partnership's administrative office for
purposes of evaluating segment performance. Details of the
Partnership's operations by business segment for the years ended
December 31 were as follows:
<PAGE>
<TABLE>
<CAPTION>
Timberland
Resources Real Estate Administrative Consolidated
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenues $ 34,501 $ 16,352 $ -- $ 50,853
Income (loss) from operations 15,057 (95) (8,282) 6,680
Depreciation and depletion 1,401 799 483 2,683
Identifiable assets 19,793 36,862 10,225 66,880
Capital and land expenditures 2,919 424 421 3,764
1998
Revenues $ 29,310 $ 13,642 $ -- $ 42,952
Income (loss) from operations 14,940 2,527 (7,104) 10,363
Depreciation and depletion 862 731 460 2,053
Identifiable assets 16,976 36,461 9,269 62,706
Capital and land expenditures 1,314 5,613 697 7,624
1997
Revenues $ 19,486 $ 10,623 $ 30,109
Income (loss) from operations 10,151 (727) $ (4,570) 4,854
Depreciation and depletion 573 763 311 1,647
Identifiable assets 16,015 33,515 6,789 56,319
Capital and land expenditures 719 769 1,884 3,372
</TABLE>
Revenues by product line for the years ending December 31, 1999, 1998, and 1997
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Sales of forest products:
Domestic $15,108 $14,547 $11,337
Export, indirect 7,688 5,857 8,149
Sales of homes, lots, and
undeveloped acreage 9,254 8,631 5,819
Fees for service 18,803 13,917 4,804
------- ------- -------
Total revenues $50,853 $42,952 $30,109
======= ======= =======
</TABLE>
<PAGE>
11. Quarterly financial information (unaudited)
<TABLE>
<CAPTION>
Income/(loss) Net Income/(loss)
Revenues from Net Income/(loss) per Partnership
operations unit, diluted
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
First quarter $12,566 $ 2,994 $ 2,567 $ .57
Second quarter 14,228 2,904 2,488 .55
Third quarter 14,349 2,321 2,089 .46
Fourth quarter 9,710 (1,539) (2,078) (.47)
1998
First quarter $ 9,948 $ 2,791 $ 2,337 $ .52
Second quarter 14,313 5,011 4,547 1.01
Third quarter 12,574 3,395 2,941 .65
Fourth quarter 6,117 (834) (1,033) (.24)
1997
First quarter $ 7,080 $ 2,045 $ 1,683 $ .37
Second quarter 7,526 1,086 739 .16
Third quarter 8,591 2,017 1,761 .39
Fourth quarter 6,912 (294) (674) (.14)
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
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 officers and directors of Pope MGP,
Inc. as of December 31, 1999. 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>
Roberta Farris (1) 43 Vice President Corporate Affairs since March 1999 of
Pope MGP, Inc. and the Partnership; Attorney,
Special Projects and Government Affairs, Trillium
Corporation from 1995 to 1998.
Thomas R. Gilkey (1) 53 Senior Vice President Timberlands since November
1998, Senior Vice President Timberland and
Acquisitions from January 1997 to October 1998 of
Pope MGP, Inc. 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.
Charles Goodbrand (1) 49 Senior Vice President and General Manager, since
January of ORM Resources Canada, Ltd.; Vice President
and General Manager, Simons Reid Collins from 1996 to
December 1998.
Meredith R. Green (1) 40 Vice President Finance and Treasurer since December
1997, Controller and Treasurer from January 1997 to
December 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.
Thomas A. Griffin (1) 42 Vice President Income Properties from June 1996,
Treasurer and Controller from November 1991 to June
1996, and
<PAGE>
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 (1) 45 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 (1) 50 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.
Wesley E. Nicholson (1) 49 Vice President Operational Planning and Analysis
since November 1998. Director Operational Planning
and Analysis from January 1998 to October 1998.
President of Taiga Ltd., a one person forestry
consulting firm, since January 1995. Director
Resource Planning, The Campbell Group from March
1988 to December 1994.
Douglas E. Norberg (2) 59 Director; President, Wright Runstad & Company, 1975
to his retirement in 1999.
David L. Nunes (1) 38 Senior Vice President Acquisitions & Portfolio
Development since November 1998; Vice President
Portfolio Development from December 1997 to October
1998; Director of Portfolio Development from April
1997 to December 1997 of Pope MGP, Inc. and the
Partnership; Strategic Planning Director of
Weyerhaeuser Company from June 1988 to April 1997.
Peter T. Pope (1) 65 Director; Chairman of the Board of Pope & Talbot,
Inc., 1971 to 1999. Mr. Pope retired as CEO of Pope
& Talbot in 1999.
Thomas M. Ringo (1) 46 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
<PAGE>
Partnership; Tax Manager of Westin Hotel Company,
1985 to March 1989; Tax Consultant for Price
Waterhouse, 1981 to 1985.
Marsha Royer (1) 48 Vice President Human Resources since March 1999,
Director of Human Resources from January 1997 to
February 1999 of Pope MGP, Inc. and the Partnership;
Director of People Corporate People Development and
International People Development, AT&T Wireless
(formerly McCaw Communications, Inc.) from April 1991
to December 1996.
Joseph 0. Tobin II (2) 46 Director; private investor.
Gary F. Tucker (1)(3) 64 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 (3) 65 Director; President, Vitulli Ventures Ltd., 1980 to
present.
</TABLE>
(1) Term as an officer expires December 31, 2000.
(2) Term as a director expires December 31, 2000.
(3) Term as director expires December 31, 2001
<PAGE>
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------- ---------------------
Annual Compensation Long-term
Compensation
- ------------------------------------------------------------------------------------------------------------- ---------------------
Name and Other Annual All Other LTIP
Principal Salary Bonus Compensation Compensation Payments
Position Year ($) ($)(1) ($)(2) ($)(3) ($)(4)
- ------------------------- ----------- ------------- ------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Gary F. Tucker 1999 266,910 124,047 4,800 7,812
CEO & President 1998 258,300 116,000 4,800 -
1997 252,000 100,000 4,800 -
- ------------------------- ----------- ------------- ------------- --------------------- --------------------- ---------------------
Greg McCarry 1999 153,136 54,472 4,800 2,604
Sr. V.P. Real Estate 1998 148,196 52,000 4,800 -
1997 144,581 44,400 4,800 -
- ------------------------- ----------- ------------- ------------- --------------------- --------------------- ---------------------
Craig Jones 1999 150,137 67,986 4,800 2,604
Sr. V.P. General Counsel 1998 145,294 65,000 4,800 -
1997 141,750 80,500 4,800 -
- ------------------------- ----------- ------------- ------------- --------------------- --------------------- ---------------------
Thomas M Ringo 1999 137,692 49,241 4,800 2,604
Sr. V.P. Finance and 1998 133,250 47,000 4,800 -
Client Relations 1997 130,000 45,600 4,800 -
- ------------------------- ----------- ------------- ------------- --------------------- --------------------- ---------------------
Thomas Gilkey 1999 137,692 62,566 4,800 2,604
Sr. V.P. Timberlands 1998 133,250 60,000 4,800 -
1997 130,000 73,700 4,800 -
========================= =========== ============= ============= ===================== ===================== =====================
</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.
(4) The LTIP payments are made from Pope MGP's share of the IPMB.
<PAGE>
COMPENSATION PURSUANT TO UNIT OPTIONS
During 1999 unit options were issued at the unit market value as follows:
<TABLE>
<CAPTION>
Potential realizable
value at assumed
annual rates of stock
price appreciation for
Individual Grants term of option
- -------------------------------------------------------------------------------- ----------------------------------------------
Number of
securities Percent of total
underlying options granted
Options to employees in Exercise Expiration
Name Granted fiscal year Price date 5% 10%
- -------------------------- --------------- ------------------ ----------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gary Tucker 15,000 35% 27.88 03/09/09 $263,004 $666,503
CEO & President
Greg McCarry 4,000 9% 27.88 03/09/09 $70,134 $177,734
Sr. V.P. Real Estate
Craig Jones 4,000 9% 27.88 03/09/09 $70,134 $177,734
Sr. V.P. GeneralCounsel
Thomas M. Ringo 4,000 9% 27.88 03/09/09 $70,134 $177,734
Sr. V.P. Finance and
Client Relations
Thomas Gilkey 4,000 9% 27.88 03/09/09 $70,134 $177,734
Sr. V.P. Timberlands
</TABLE>
<PAGE>
The following table provides information on option exercises in fiscal 1999 by
the named executive officers and the value of exercisable and unexercisable unit
options at December 31, 1999.
<TABLE>
<CAPTION>
Number of Number of
securities underlying securities underlying
unexercised options unexercised options
at year-end (#) at year-end ($)
Units Acquired Value
Name on exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-------------------- ----------------- -------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary Tucker - - 11,250 33,750 $79,688 $250,293
President and CEO
Greg McCarry - - 2,875 8,875 $20,094 $25,594
Sr. V.P. Real Estate
Craig Jones 2,875 28,359 - 8,875 $0 $25,594
Sr. V.P. General
Counsel
Thomas M. Ringo 2,875 28,000 - 8,875 $0 $25,594
Sr. V.P. Finance and
Client Relations
Thomas Gilkey 1,875 21,797 1,000 9,875 $2,750 $25,594
Sr. V.P. Timberlands
</TABLE>
<PAGE>
During 1999 the following awards were made from the Long Term Incentive Plan
based upon 1999 operating results for the IPMB:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Long Term Incentive Plans-Awards in Last Fiscal Year
- -------------------------------------------------------------------------------
Name and Award Performance
Principal Position ($) (1) Period (2)
<S> <C> <C>
Gary F. Tucker 20,776 1/1/2000 to 12/31/2002
CEO & President
Greg McCarry 6,939 1/1/2000 to 12/31/2002
Sr. V.P. Real Estate
Craig Jones 6,939 1/1/2000 to 12/31/2002
Sr. V.P. General Counsel
Thomas M. Ringo 6,939 1/1/2000 to 12/31/2002
Sr. V.P. Finance and Client
Relations
Thomas Gilkey 6,939 1/1/2000 to 12/31/2002
Sr. V.P. Timberlands
- -------------------------------------------------------------------------------
</TABLE>
(1) Awards from the LTIP are made based upon performance of the Investor
Portfolio Management Business (IPMB) during 1999. LTIP payments are made
from Pope MGP's share of the IPMB.
(2) Awards made from the LTIP are paid in three equal annual payments starting
with the year subsequent to the award.
COMPENSATION OF DIRECTORS
Compensation of the outside 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
or $500 for participation in a board meeting via telephone. Two outside
directors were granted 3,000 unit options each at a strike price of $27.88,
3,000 unit options each at a strike price of $26.50, and 1,250 units each with a
strike price of $20 in 1999 and 1998 and 1997, respectively. The option grants
were made pursuant to the Partnership's 1997 Unit Option Plan for their service
as directors of Pope MGP, Inc.
EMPLOYEE BENEFIT PLANS.
Employees with six months 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 $308,000,
$230,000, and $60,000, for each of the three years ended December 31, 1999,
1998, and 1997, respectively. Employees become fully vested over a six-year
period in the Partnership's contribution.
The Partnership has a supplemental retirement plan for a retired key
employee. The plan provides for a retirement income of 70% of the employee's
base salary at retirement after taking into
<PAGE>
account both 401(k) and social security benefits. The Partnership accrued
$181,000 for this benefit in 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL UNITHOLDERS
As of December 31, 1999, 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
Class Beneficial Owner Beneficial Ownership Percent
(1) of Class
- -------------- --------------------------------- ------------------------- --------
<S> <C> <C> <C>
Units Private Capital Management, Inc. 1,740,073 (2) 38.4
3003 Tamiami Trail North
Naples, FL 33940
Units Emily T. Andrews 557,100 (3) 12.3
600 Montgomery Street
35th Floor
San Francisco, CA 94111
Units Peter T. Pope 325,415 (4) 7.0
1500 S.W. 1st Avenue
Portland, OR 97201
</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 Investment 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 1,090 units owned by her husband, Adolphus Andrews, Jr. as to which
she disclaims beneficial ownership. Also includes a total of 60,000 units held
by Pope MGP, Inc. and Pope EGP, Inc., as to which she shares voting and
investment power.
(4) Includes 53,420 units held in trust for his children. Also includes a total
of 60,000 units held by Pope MGP, Inc., and Pope EGP, Inc., as to which he
shares investment and voting power.
<PAGE>
MANAGEMENT
As of December 31, 1999, 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 of Class
(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Adolphus Andrews, Jr. Retired Director, Pope MGP, Inc. 557,100 (2) 12.3
and Director of Pope EGP, Inc. (3)
Joseph O. Tobin II Director, Pope MGP, Inc. 79,324 1.8
Peter T. Pope Director, Pope MGP, Inc. and Pope 325,415 (4) 7.0
EGP, Inc. (5)
Pope EGP, Inc. Equity General Partner 54,000 1.2
Pope MGP, Inc. Managing General Partner 6,000 *
Marco Vitulli Director, Pope MGP, Inc. 1,000 *
Douglas Norberg Director, Pope MGP, Inc. 3,250 *
Thomas M. Ringo Senior Vice President Finance, Pope 500 *
MGP, Inc. and the Partnership
All general partners, directors and officers of general partners, 906,589 (6) 20.0
and officers of the Partnership as a group (11 individuals and 2
partners)
</TABLE>
* Less than 1%
(1) Each beneficial owner has sole voting and investment power unless otherwise
indicated.
(2) Includes 497,100 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 a Vice President of Pope EGP, Inc.
(4) See footnote (4) under "Principal Unitholders."
(5) Mr. Pope is also President of Pope EGP, Inc.
(6) For this computation, the 60,000 units held by Pope MGP, Inc. and Pope EGP,
Inc. are excluded from units beneficially owned by Mr. Pope and Mr.
Andrews. Mr. Pope and Mr. Andrews' wife, Emily T. Andrews, owns all of the
outstanding stock of POPE MGP, INC. and POPE EGP, INC.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
In 1996, the Partnership sold one of its residential homes at Port Ludlow,
Washington to Gary F. Tucker, a Director, President and CEO of Pope MGP, Inc. in
connection with his relocation and employment by Pope MGP, Inc. The Partnership
holds Mr. Tucker's promissory note for a portion of the purchase price which has
a balance of $271,000, bears interest at 6.48% per annum, requires interest-only
payments and matures in 2001.
The Partnership contracts with a relative of the President and CEO to
direct the Partnership's outreach efforts, which involves the location of
potential timberland properties to be included in investor portfolios and
opportunities to sell timberland management services. During the last fiscal
year, the Partnership paid fees totaling $120,000 for services provided by this
individual.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS Page
Financial Statements:............................................
Independent Auditors' Report..............................
Consolidated Balance Sheets...............................
Consolidated Statements of Income.........................
Consolidated Statements of Cash Flows.....................
Notes to Consolidated Financial Statements................
(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, 1999.
(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)
3.4 Amendment to Partnership's Limited Partnership Agreement
dated March 14, 1997. (4)
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)
<PAGE>
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) and (4)
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)
(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.
(4) Incorporated by reference from the Partnership's Proxy
Statement filed on February 14, 1997.
<PAGE>
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 22, 2000 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 22, 2000 By /s/ Gary F.Tucker
-----------------------------------------------
GARY F. TUCKER,
President and Chief Executive Officer
(principal executive officer),
Partnership and Pope MGP, Inc.;
Director, Pope MGP, Inc.
Date: March 22, 2000 By /s/ Thomas M. Ringo
-----------------------------------------------
THOMAS M. RINGO
Senior Vice President Finance and Client
Relations (principal financial officer),
Partnership and Pope MGP, Inc.
Date: March 22, 2000 By /s/ Meredith R. Green
-----------------------------------------------
MEREDITH R. GREEN
Vice President Finance & Treasurer
(principal accounting officer),
Partnership and Pope MGP, Inc.
<PAGE>
Date: March 22, 2000 By /s/ JOSEPH O. TOBIN
-----------------------------------------------
JOSEPH O. TOBIN II
Director, Pope MGP, Inc.
Date: March 22, 2000 By /s/ PETER T. POPE
-----------------------------------------------
PETER T. POPE
Director, Pope MGP, Inc.
Date: March 22, 2000 By /s/ MARCO F. VITULLI
-----------------------------------------------
MARCO F. VITULLI
Director, Pope MGP, Inc.
Date: March 22, 2000 By /s/ DOUGLAS E. NORBERG
-----------------------------------------------
DOUGLAS E. NORBERG
Director, Pope MGP, Inc.
<TABLE> <S> <C>
<PAGE>
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0
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