Pope Resources Reports Fourth Quarter Net Income of $6.3 Million

Business Wire, Feb 6, 2008

POULSBO, Wash. -- Pope Resources (NasdaqGSM:POPEZ) reported net income of $6.3 million, or $1.30 per diluted ownership unit, on revenues of $17.6 million for the quarter ended December 31, 2007. This compares to net income of $7.8 million, or $1.63 per diluted ownership unit, on revenues of $16.5 million for the quarter ended December 31, 2006. The $6.3 million net income amount for 2007 is after a $1.9 million fourth quarter charge to earnings for adding to an environmental remediation liability that is described in more detail below.

Net income for the year ended December 31, 2007 totaled $15.5 million, or $3.21 per diluted ownership unit, on revenues of $51.9 million. For the corresponding period in 2006, net income totaled $24.9 million, or $5.23 per diluted ownership unit, on revenues of $66.3 million.

Cash flow from operations for the quarter ended December 31, 2007 was $10.0 million, compared to $15.1 million for the fourth quarter of 2006. For the year ended December 31, 2007, cash flow from operations was $22.0 million, compared to $43.5 million in 2006.

"We had a tough act to follow after our record performance in 2006, but 2007 still compares very favorably relative to all other years in the company's history," said David L. Nunes, President and CEO. "By shifting more of our planned log harvest volume to earlier in the year, our log sale revenues held up better than would have otherwise been the case given the softer log markets late in the year that were a function of a stagnant national real estate market. In addition, our Real Estate segment had a solid year, helped significantly by the delayed revenue recognition of two sales that closed in 2006."

Fourth quarter results for our Fee Timber segment, driven by harvest volume of 7.3 million board feet (MMBF) compared to 3.7 MMBF in last year's fourth quarter, increased 108% as operating income went from $0.8 million in 2006 to $1.6 million in 2007. Somewhat offsetting this positive volume impact was a 6% decline in realized log prices from $620 per thousand board feet (MBF) in the fourth quarter of 2006 to $585 per MBF in 2007. Fee Timber operating income for the full year was $15.2 million, representing a 4% increase over 2006 results of $14.6 million. At 55.2 MMBF, log harvest volume increased 1% in 2007 over 2006's harvest of 54.5 MMBF. Harvest volume in 2007 includes 5.3 MMBF of volume harvested from tree farms acquired in late 2006 by ORM Timber Fund I, LP. Offsetting this volume increase, our average realized log price dropped 1% from $611 per MBF in 2006 to $607 per MBF in 2007. The primary reason 2007 operating income for Fee Timber is higher than 2006 is due to a decline in the depletion rate.

Our Real Estate segment generated fourth quarter 2007 operating income of $5.6 million on revenues of $12.5 million, compared to $7.9 million of operating income on $13.0 million of revenue in the last quarter of 2006. Nearly $5.3 million of the 2007 income related to deferred revenue on two sales that closed in 2006, one a 6-acre commercial site in Gig Harbor and the other residual to the sale of a 200-acre residential property in Bremerton. In each case, some or all of the revenue recognition was deferred to 2007 pending the construction of certain infrastructure improvements, for which the Partnership fulfilled its obligations in 2007's fourth quarter. Another $3.0 million of operating income was generated through four additional land sale transactions. Full year 2007 results for the Real Estate segment reflect operating income of $5.2 million on revenues of $15.0 million, compared to $13.9 million of operating income on revenues of $27.3 million for 2006.

Since early in this decade, we have been addressing environmental remediation issues in the town of Port Gamble, Washington, with an agreement for apportioning the cleanup costs with the prior owner, Pope & Talbot, Inc. ("P&T"). P&T filed for bankruptcy in late 2007 and as that case has unfolded we have determined there is a low probability that P&T will be in a position to fund its agreed-upon share of anticipated cleanup costs. As a result, we have taken a $1.9 million charge to earnings in the current quarter to accrue for estimated future environmental cleanup liabilities in Port Gamble.

Fourth quarter results for our Timberland Management & Consulting segment declined from a $0.1 million operating loss in 2006 to a loss of $0.3 million in 2007. For the full year, this segment posted an operating loss of $0.9 million compared to operating income of $1.3 million in 2006. The decline in operating results from this segment is attributable to fewer assets under management in 2007 and a timberland disposition fee earned in 2006 that was not repeated in 2007.

As announced previously, we will be reducing our 2008 timber harvest volume by 36% from our long-term sustainable level in response to expected soft prices for logs in the coming year since the slowdown in housing starts has curtailed demand for solid wood products. Our planned timber harvest for 2008 is 37 MMBF, which is 33% below the 55 MMBF we harvested in 2007.