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Pope Resources Reports Fourth Quarter Loss Of $376,000

POULSBO, Wash., Feb. 12 /PRNewswire-FirstCall/ -- Pope Resources (Nasdaq: POPE) reported a net loss attributable to unitholders of $376,000, or $0.08 per diluted ownership unit, on revenue of $5.2 million for the fourth quarter ended December 31, 2009. This compares to a net loss attributable to unitholders of $1.4 million, or $0.32 per diluted ownership unit, on revenue of $3.2 million for the comparable period in 2008.

Net loss attributable to unitholders for the year ended December 31, 2009 totaled $272,000, or $0.07 per diluted ownership unit, on revenue of $20.5 million. Results for the full year ended December 31, 2009 include a $1.1 million loss on early extinguishment of debt. Net income for the corresponding period in 2008 totaled $1.2 million, or $0.23 per diluted ownership unit, on revenue of $28.2 million.

Cash provided by operations for the quarter ended December 31, 2009 was $853,000, compared to cash used by operations of $1.8 million for the fourth quarter of 2008. For the year ended December 31, 2009, cash provided by operations was $662,000, compared to $4.0 million in 2008.

"While we concluded both the fourth quarter and year with small losses, we are seeing some modest improvements in log pricing relative to earlier in 2009, with a sense that a market bottom may have been reached," said David L. Nunes, President and CEO. "But we expect the home building sector's recovery to be slow based on continuing challenges with high unemployment, a large and growing stock of foreclosed properties, and tight credit. We are entering 2010 with tempered log price expectations and, as with the past two years, plan to harvest less than our long-term sustainable level. We are targeting a harvest of 32 million board feet (MMBF) for 2010, essentially the same as 2009 and nearly 50% below our estimated long-term sustainable harvest level of 60 MMBF."

Fee Timber operating income in the fourth quarter improved to the highest level since the second quarter of 2008. Fourth quarter operating income increased from $136,000 in 2008 to $1.7 million in 2009, driven by harvest volume that increased from 2 MMBF in 2008 to 10 MMBF in 2009, offset in part by a 16% decline in average realized log price, which fell from $494 per thousand board feet (MBF) in 2008 to $415 per MBF in 2009. We also responded to a stronger relative pulpwood market by shifting into some lower quality harvest units that had a higher proportion of pulpwood volume.  While this pushed down our average realized log price, it allowed higher valued log inventory to continue to add volume and value through biological growth.  

Fee Timber operating income for 2009 was $3.7 million compared to $6.3 million for 2008, a drop of 41%. This decline was driven by the combined effect of a 14% drop in harvest volumes, from 38 MMBF in 2008 to 32 MMBF in 2009, and a 19% decrease in average realized log price, which dropped from $506 per MBF in 2008 to $410 per MBF in 2009.

Our Timberland Management & Consulting segment posted an operating loss of $172,000 for the fourth quarter of 2009, higher than the operating loss of $99,000 for the corresponding quarter in 2008 due to the termination of the Cascade Timberlands contract in mid-2009. For the year ended December 31, 2009, this segment's operating loss of $375,000 represented an improvement on 2008's operating loss of $543,000 due in large part to a reduction in expense associated with forming our second timberland investment fund, offset partially by the loss of the Cascade contract.

The operating loss of $398,000 posted by our Real Estate segment for the fourth quarter of 2009 was slightly higher than the operating loss of $344,000 for 2008's fourth quarter. For the year ended December 31, 2009, this segment's operating income of $1.7 million represented a significant reversal of 2008's operating loss of $1.1 million due in large part to a $3.3 million conservation easement sale in the third quarter of 2009.    

General & Administrative expenses for 2009 declined 6% to $3.7 million, compared to $4.0 million in the prior year. This improvement was driven primarily by cost-cutting measures put in place at the end of the first quarter due to our lower harvest level and the uncertainty with respect to the length of the recession, offset partially by legal costs incurred in pursuing our SLARS arbitration case.

A significant contributing factor to our overall loss for 2009 was the decision to refinance one of our two timber mortgages, which resulted in the aforementioned $1.1 million loss on early extinguishment of debt. In an effort to both reduce the future refinancing risk on our two timber mortgages, both due in 2011, and reduce our weighted average interest expense, we decided to refinance the mortgage with the higher interest rate of 9.65%. Our new mortgage reduced our interest rate to 6.4%, extended the term out 10 years, and folded in the debt extinguishment costs as incremental borrowing.

The incremental interest expense from our refinancing largely overshadowed the positive impact of the cost cutting initiative we launched at the end of the first quarter.  In addition to the general and administrative savings described above, this effort lowered our other operating expenses by 25%, or $2.4 million. While not immediately apparent in a year in which we are recording overall losses, we are encouraged by this initiative as it is expected to improve our overall cost competitiveness in the future.

The financial schedules attached to this earnings release provide detail on individual segment results and operating statistics.

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