<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - K
(Mark One)
/x/ Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required] For the year ended
December 31, 1994
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 Number 1-8997
RAYONIER TIMBERLANDS, L.P.
A Delaware Limited Partnership
I.R.S. Employer Identification No. 06-1148227
1177 SUMMER STREET, STAMFORD, CT 06905-5529
(Principal Executive Office)
Telephone Number: (203) 348-7000
Securities registered pursuant to Section 12 (b) of the Act:
Class A Depositary Units . . . . Registered on the New York Stock Exchange
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 the Form 10-K or any amendment to this
Form 10-K. /x/
The aggregate market value of the Class A Units held by non-affiliates of the
Registrant as of March 10, 1995 was approximately $183,425,000 (For the
purposes of determining the above stated amount only, all directors and
officers of the special general partner and the managing general partner of the
Registrant are presumed to be affiliates.)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
PART I
<S> <C> <C>
1. Business 1 - 11
2. Properties 11
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 11
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters 12
6. Selected Financial Data 12 - 13
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14 - 17
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 17
PART III
10. Directors and Executive Officers of the Registrant 18 - 19
11. Executive Compensation 20
12. Security Ownership of Certain Beneficial Owners and Management 20
13. Certain Relationships and Related Transactions 20
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 20
</TABLE>
i
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Management F-1
Report of Independent Public Accountants F-2
Statements of Income for the Three Years Ended
December 31, 1994 F-3
Balance Sheets as of December 31, 1994 and 1993 F-4
Statements of Cash Flows for the Three Years Ended
December 31, 1994 F-5
Statements of Partners' Capital for the Three Years Ended
December 31, 1994 F-6
Notes to Financial Statements F-7 to F-13
Quarterly Results for 1994 and 1993 F-14
</TABLE>
FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because they are not
applicable, the required matter is not present, the amounts are
insignificant or immaterial, or the information has been otherwise
supplied in the financial statements or the notes thereto.
<TABLE>
<S> <C>
Signatures A
Exhibit Index B to C
</TABLE>
ii
<PAGE> 4
PART I
ITEM 1. BUSINESS
INTRODUCTION
Rayonier Timberlands, L.P. (the Partnership or RTLP) is a Delaware limited
partnership formed by Rayonier Inc. (Rayonier) in October 1985 to succeed to
substantially all of Rayonier's timberlands business. Rayonier Forest Resources
Company (RFR or Managing General Partner), a wholly owned subsidiary of Rayonier
formed in September 1985, is the Managing General Partner of the Partnership and
Rayonier is the Special General Partner.
On November 19, 1985, Rayonier contributed approximately 1.19 million acres
of its timberlands owned in fee or held under long-term leases (the Timberlands)
to the Partnership in exchange for 20,000,000 Class A Depositary Units (Class A
Units) representing Class A limited partners' interests in the Partnership and
20,000,000 Class B Depositary Units (Class B Units) representing Class B limited
partners' interests in the Partnership. Also on such date, in a registered
public offering, Rayonier offered and sold 5,060,000 Class A Units. Therefore,
at all times after such date to and including December 31, 1994, Rayonier has
held 74.7 percent of the Partnership's issued and outstanding Class A Units and
100 percent of the Partnership's issued and outstanding Class B Units.
On February 28, 1994, ITT Corporation (ITT), Rayonier's sole shareholder,
distributed all the Common Shares of Rayonier to ITT's shareholders. In
connection with the distribution, Rayonier changed its name from ITT Rayonier
Incorporated to Rayonier Inc. and became a publicly traded company listed on the
New York Stock Exchange under the symbol RYN. RTLP will continue to be listed
separately and trade under the symbol LOG. Class A unitholders' financial
interests have not been affected in any manner by ITT's distribution of Rayonier
to its shareholders.
DESCRIPTION OF BUSINESS
The Partnership is engaged in the timberlands business, which includes
forestry management, reforestation, timber thinning, and the marketing and sale
of standing timber from the Timberlands. The Partnership will occasionally
purchase, for short term resale, standing timber from other ownerships. The
Partnership's business plan is to operate the Timberlands for sustained
long-range harvest and to satisfy the Partnership's need to generate regular
cash flow in light of its cash distribution policy as determined from time to
time by the Managing General Partner's Board of Directors.
The Partnership operates through Rayonier Timberlands Operating Company,
L.P. (the Operating Partnership or RTOC), a Delaware limited partnership formed
by Rayonier in October 1985, in which the Partnership holds a 99 percent limited
partner's interest. RFR is the Managing General Partner of the Partnership and
the Operating Partnership, and Rayonier is the Special General Partner of both
partnerships. As general partners, Rayonier and RFR hold an aggregate 1 percent
interest in each partnership and, therefore, have an aggregate 1.99 percent
interest in the Partnership and the Operating Partnership on a combined basis.
Unless the context otherwise requires, all references in this Form 10-K to the
Partnership are also references to the Operating Partnership.
The Partnership negotiates and contracts for the sale of standing timber
(stumpage) with buyers who generally cut and pay for the trees during the
contract period. Current contracts usually entail a 20 percent deposit and/or
performance bond and generally have a 12- to 24- month life. The Partnership
conducts, or contracts for third parties to conduct, harvesting operations if
the Managing General Partner believes that the timber cannot be sold as
profitably as stumpage or that the tract in question is particularly
environmentally sensitive. In addition, the Partnership may sell or exchange
portions of the Timberlands and acquire additional timber properties for cash,
additional Units, or other consideration.
Partnership sales to Rayonier for use in Rayonier's specialty pulp products
and timber and wood products businesses are an important contributor to
Partnership results. For further information, see Timber Markets and Sales;
Affiliated Party Transactions.
-1-
<PAGE> 5
Sales to Rayonier were 13 percent, 17 percent, and 15 percent of total
sales in 1994, 1993, and 1992, respectively. Three customers, under common
ownership (not affiliated with the Partnership), accounted for approximately 18
percent, 15 percent, and 34 percent of total revenues in 1994, 1993, and 1992,
respectively. See Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations.
The Partnership and the Operating Partnership have no officers, directors,
or employees; in addition, RFR has no employees. Officers of RFR and officers
and employees of Rayonier perform all management functions for the Partnership.
As of December 31, 1994, Rayonier had approximately 2,700 employees of which
approximately 150 are active in its U.S. Timberlands Management Business.
FORESTRY OPERATIONS
The Partnership's forest management operations and harvesting schedules are
based on biological information, environmental issues, and other data concerning
species, site index, classification of soils, estimates of timber inventory, and
the types, size, and age classification of the timber base. From this
information, the Partnership routinely refines its long-term harvest schedule
based on existing and anticipated economic and market conditions, with a view
toward maximizing the value of its timber and timberland assets.
Particular forestry practices vary by geographic region and depend upon
factors such as soil productivity, tree size, age, and stocking. Forest stands
may be thinned periodically to improve stand quality until they are harvested.
Different areas within a forest may be planted or seeded in successive years to
provide a distribution of age classes within the forest. A distribution of age
classes will tend to provide a regular source of cash flow as the various timber
stands reach harvestable age. The Partnership's forest management practices
include thinning of timber stands, controlled burning, fertilization of timber
plantations, disease and insect control, and reforestation. Reforestation
activities include intensive land preparation and planting. The Partnership has
a fully established tree improvement program in the Southeast which, in
conjunction with its seed orchards and seedling nursery, supplies up to 100
percent of the annual planting requirements with first and second generation
genetically improved planting stock. The Partnership also maintains a genetics
program in the Northwest, but it cannot yet fully supply that region's seedling
needs.
The Partnership's activities include the maintenance and building of roads
as necessary for timber access within the Timberlands. In the Northwest, either
the Partnership or the timber purchaser will build and maintain roads, depending
on contract requirements. In the Southeast, it is typically the obligation of
the landowner. Each of the major regions within the Timberlands has well
established road systems that permit access to substantially the entire area
throughout the year. The Timberlands contain over 4,000 miles of roads that,
together with public roads and roads built by other private landowners, provide
such access.
The timing of harvest of merchantable timber depends in part on the
maturing cycles of timber and on economic conditions. Timber on the
Partnership's 369,000 acres of timberlands in the state of Washington (the
Northwestern Timberlands), consisting predominantly of conifer species, is
currently thinned at approximately 15 years of age and is harvested after
attaining approximately 45-50 years of age. The Partnership's long standing
policy has been to reach a sustainable annual harvest level in the Northwest by
gradually reducing its harvest volume each year. The projected annual harvest in
this region will continue to trend down, with the harvest in the year 2000
approaching 80 percent of the 1994 actual harvest.
Timber on the Partnership's 793,000 acres of timberland in Georgia,
Florida, and South Carolina (the Southeastern Timberlands) typically has a
shorter maturity cycle than timber in the Northwestern United States. Pine
plantations in the Southeastern Timberlands are harvested after they reach
approximately 20-25 years of age. Due to intensive forest and land management as
well as silvicultural investment, pine volume available for harvest on the
Southeastern Timberlands is expected to increase approximately 2 percent
annually. See Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations. By the year 2000,
the annual pine harvest rate in this region is now expected to be nearly 7
percent greater than the 1994 harvest.
See Federal and State Regulation for a description of issues which may
impact Partnership's timber harvest rates.
-2-
<PAGE> 6
DESCRIPTION OF TIMBERLANDS
The Timberlands consist of approximately 1.16 million acres, as of December
31, 1994, located in the state of Washington, primarily on the Olympic
Peninsula, and in Georgia, Florida, and South Carolina. Approximately 1.03
million acres are owned in fee, while approximately 137,000 acres are held under
long-term lease. Each of these regions contains tracts of timber located within
the operating radius of a number of pulp and paper mills, sawmills, plywood
mills, and wood treating plants.
ACREAGE. The following table sets forth, as of December 31, 1994, the
location and type of ownership that the Partnership has with respect to the
Timberlands.
<TABLE>
<CAPTION>
Held Under
Owned in Long-Term
Fee Lease (1) Total
-------- ---------- -----
(thousands of acres)
<S> <C> <C> <C>
Northwestern Timberlands
Olympic Peninsula of Washington 369 - 369
----- --- -----
Southeastern Timberlands
Georgia 490 47 537
Florida 165 90 255
South Carolina 1 - 1
----- --- -----
Total Southeastern 656 137 793
----- --- -----
Total Timberlands 1,025 137 1,162
===== === =====
</TABLE>
(1) The long-term leases permit the Partnership as lessee to manage and harvest
timberlands throughout the term of the lease. These leases typically have
initial terms of approximately 30 to 65 years, with renewal provisions in
some cases. The remaining portions of the initial terms of these leases
averaged 22 years as of December 31, 1994. Annual rentals are paid to the
lessor and, in some cases, the leases provide for payment of a percentage
of stumpage values to the lessor as timber is cut. In addition, the leases
impose certain duties on the lessee regarding management and reforestation
of the leased acres. In general, leased acreage has less value than the
same acreage would have if owned in fee because of the obligations imposed
upon the lessee under the terms of the lease.
Timber Inventory. The Timberlands owned in fee or held under long-term
leases include, as of December 31, 1994, total estimated merchantable timber
inventory of approximately 10.3 million cunits of wood, of which approximately
79 percent is softwood. See definition of Merchantable Timber. A cunit
represents 100 cubic feet of fiber and is the customary common unit of measure
to consolidate regional information based on local commercial measurements such
as board feet or tons. The following table sets forth the volumes of
merchantable timber on the Timberlands by location and type, as of December 31,
1994.
<TABLE>
<CAPTION>
ESTIMATED MERCHANTABLE TIMBER INVENTORY (1)
---------------------------------------
REGION SOFTWOOD HARDWOOD TOTAL
------ -------- -------- -----
(thousands of cunits)
<S> <C> <C> <C>
Northwestern Timberlands 4,876 435 5,311
Southeastern Timberlands 3,301 1,704 5,005
----- ----- ------
Total 8,177 2,139 10,316
===== ===== ======
</TABLE>
(1) The merchantable timber inventory volumes represent estimates by the
Partnership for management purposes based on its continuing inventory
system, which involves periodic statistical sampling of the Timberlands,
with updating adjustments made on the basis of growth estimates and harvest
information. It is not a reflection of the amount of timber that will be
available to cut in any specific period of time as future growth is not
predicted. See Forestry Operations.
-3-
<PAGE> 7
THE NORTHWESTERN TIMBERLANDS. The Northwestern Timberlands are located in
Washington, primarily on the Olympic Peninsula. All of these Timberlands are
owned in fee. The Northwestern Timberlands include approximately 314,000 acres
of conifer (softwood) stands, approximately 74 percent of which is stocked with
hemlock and the remainder of which is stocked with Douglas fir, western red
cedar, and white fir. The Northwestern Timberlands also include approximately
18,000 acres of hardwood timber stands, consisting principally of alder and
maple, with lesser amounts of conifers. The remaining 37,000 acres are
classified as non-forest lands.
Rain, site, and soil conditions typically cause softwood timber in the
Northwest, particularly hemlock, to maintain a relatively high growth rate for a
longer period of time in comparison with softwood timber in other parts of the
United States, resulting in longer rotation cycles. Site indices for conifer
lands in the Northwestern United States generally range from 90 to 145, and
average approximately 105. The average site index of the conifer lands in the
Northwestern Timberlands is also 90 to 145 and averages approximately 110.
The Northwestern Timberlands are near ocean ports and are well-positioned
to serve the Pacific Rim export market. Approximately 70 percent of the timber
sold from the Northwestern Timberlands has been of export quality. Rayonier
operates a pulp mill at Port Angeles. There are also eight pulp and paper mills
and numerous sawmills, plywood plants, and other wood converting facilities in
the region.
THE SOUTHEASTERN TIMBERLANDS. The Southeastern Timberlands are located in
Georgia, Florida, and South Carolina and include approximately 656,000 acres of
timberlands owned in fee and approximately 137,000 acres held under long-term
leases. The Southeastern Timberlands include approximately 510,000 acres of pine
(softwood) lands, approximately 268,000 acres of hardwood lands, and
approximately 15,000 non-forest acres.
The predominant pine species are loblolly and slash pine. Site indices for
pine lands in the Southeastern United States generally range from 55 to 65 and
average approximately 60. The pine lands included in the Southeastern
Timberlands have an average site index of 60. Hardwood lands included in the
Southeastern Timberlands are principally bottomlands. Principal hardwood species
are red oak, sweet gum, black gum, red maple, cypress, and green ash.
The Southeastern region is generally recognized as being the most
competitive timberlands area in the United States. There are 19 pulp and paper
mills and numerous sawmills, plywood plants, and treating plants for poles and
pilings located in the area of the Southeastern Timberlands. Rayonier operates
two sawmills and two pulp mills in this region.
STUMPAGE PRICES AND INDUSTRY CONDITIONS
Stumpage prices vary depending on the market for end-use products that rely
on timber and wood fiber as raw materials. Stumpage values tend to be higher for
larger diameter trees because of higher-value end uses. Larger diameter trees
are used as sawtimber, which is processed into lumber, plywood, and poles, while
smaller diameter trees are used as pulpwood for the manufacture of paper and
pulp. International as well as domestic supply and demand forces (including the
value of the U.S. dollar in foreign exchange markets) also affect U.S. regional
stumpage prices. Local stumpage prices are dependent upon factors such as
geographic location of the property, proximity to a mill or export facility,
logging conditions, accessibility of the timber, size and quality of the timber,
species composition of the stand, and the timber volume per acre.
The Northwest and the Southeast represent major timber growing regions of
the United States. In both areas, timber markets are very competitive, but each
region has different types of timber, markets, and competitive factors.
For further information see Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations - Results of Operations and
Future Operations.
COMPETITION
The Partnership's timberlands are located in two major timber growing
regions of the United States (the Southeast and the Northwest), where timber
markets are fragmented and very competitive. In the Northwest, stumpage sold by
Hancock Insurance Company and from Washington state owned public forests is the
most significant competition. In both the Northwest and Southeast, smaller
forest products companies and private land owners compete with the Partnership.
Price is the principal method of competition in this market.
-4-
<PAGE> 8
TIMBER MARKETS AND SALES; AFFILIATED PARTY TRANSACTIONS
The Partnership sells timber provided by the Timberlands to Rayonier and to
unaffiliated domestic purchasers. See Stumpage Prices and Industry Conditions
for a discussion of end-use markets for the Partnership's timber.
Since the inception of the Partnership, 34 percent of its timber sales in
the Northwest and 14 percent of its timber sales in the Southeast have been to
Rayonier. The following table shows the volumes of timber sold by the
Partnership to Rayonier for the three years ended December 31, 1994. It also
shows the volumes of timber on the Timberlands that were sold to unaffiliated
purchasers for the periods indicated.
<TABLE>
<CAPTION>
TIMBER SOLD BY THE PARTNERSHIP TO RAYONIER
AND STUMPAGE SALES TO UNAFFILIATED PURCHASERS
(In cunits)
Year Ended December 31
------------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------------------------------
Timber Stumpage Timber Stumpage Timber Stumpage
Sold Sales to Sold Sales to Sold Sales to
to Unaffiliated to Unaffiliated to Unaffiliated
Rayonier Purchasers Rayonier Purchasers Rayonier Purchasers
-------- ------------ -------- ------------ -------- ------------
<S <C> <C> <C> <C> <C> <C>
Northwest 83,752 363,471 63,731 264,937 100,283 349,110
Southeast 29,057 505,320 63,869 434,613 45,012 430,771
------- ------- ------- ------- ------- -------
Total 112,809 868,791 127,600 699,550 145,295 779,881
======= ======= ======= ======= ======= =======
</TABLE>
Rayonier continues to rely on the Timberlands as one of its sources of
timber for its pulp mills, sawmill facilities, and its log trading business. For
example, although Rayonier directly purchased only 5 percent of the
Partnership's 1994 Southeast harvest volume, the Partnership estimates that an
additional 13 percent of its pulpwood timber sold in the Southeast in 1994 was
purchased by Rayonier on the open market from Partnership customers. See
Conflicts of Interest. Any shutdowns of plants or curtailments of sales by
customers for Partnership timber, including Rayonier, could adversely affect
future volumes of timber sales by the Partnership or the prices at which such
sales are made.
Rayonier's Timberlands Management business is responsible for management of
the Timberlands for the benefit of the Partnership; its organization is separate
from Rayonier's log trading and wood procurement businesses, which are
responsible for timber procurement by Rayonier. In conducting the activities
described in the following paragraphs with respect to negotiations and other
relationships between the Partnership and Rayonier, employees of Rayonier's
Timberlands Management business act on behalf of the Partnership and employees
of Rayonier's log trading and wood procurement businesses act on behalf of
Rayonier.
The Partnership develops an annual sales plan identifying the specific
tracts to be sold. The Partnership's strategy is to award contracts during those
periods of the year (typically the first and fourth quarters) in which it
expects to receive the best prices. However, under current market conditions,
the Partnership is placing fewer sales out for bid at one time. See Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations.
Before the Partnership offers a tract for sale, it determines whether the
highest price is likely to be achieved through public bid or direct negotiation.
The Partnership considers such factors as timber quality, unusual logging
conditions, number of potential bidders, and general market activity. In 1994,
approximately 91 percent in the Northwest and 74 percent in the Southeast of the
total contract value of contracts entered into by the Partnership were awarded
through public bid; when Rayonier submits a bid, it is treated no differently
than bids from unaffiliated parties. Occasionally, tract and market
circumstances favor a negotiated sale to a target buyer. Of the contract value
awarded through direct negotiation in 1994, approximately 3 percent in the
Northwest and 7 percent in the Southeast were purchased by Rayonier.
-5-
<PAGE> 9
Typically, the Partnership attempts to structure sales contracts with
Rayonier and unaffiliated purchasers as transactions in which the Partnership
retains title to the timber until it is severed and the purchaser assumes
responsibility for delivery. In these cases, the Partnership recognizes income
for both financial statement and tax purposes when and as the timber is cut and
measured. Accordingly, there is a time lag between the signing of a sales
contract and the recognition by the Partnership of income therefrom.
The Partnership's contracts, whether with Rayonier or with unaffiliated
purchasers, generally provide for payment of a fixed price per unit (by species
and volume in the Northwest and by weight in the Southeast), cutting over
periods of up to 24 months in the Northwest and up to 18 months in the
Southeast, an initial deposit, and utilization standards that the buyer must
satisfy when cutting and removing timber from the property. The Partnership's
contracts with unaffiliated purchasers may require a performance bond from the
buyer, whereas the Partnership does not require such a bond from Rayonier. All
contracts between Rayonier and the Partnership are subject to review by the
Conflicts Committee established by RFR's Board of Directors. See Conflicts of
Interest.
For information as to timber sales contracts in effect at December 31,
1994, see Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results of Operations.
CONFLICTS OF INTEREST
Conflicts of interest can arise in selecting, pricing, and scheduling
timber sold to Rayonier. Other conflicts of interest can arise in allocating
revenues and costs between the Class A Units and the Class B Units, in
scheduling timber sales to occur before or after the Initial Term expires, and
in setting the terms of any loans between the Partnership and Rayonier. The
Conflicts Committee of the Board of Directors of RFR, which is comprised of
non-employee directors, reviews these transactions and obtains opinions from
outside consultants as to their fairness.
ENVIRONMENTAL PROTECTION
Management of the Timberlands to protect the environment is a continuing
concern of the Partnership. The Partnership expends considerable efforts to
comply with regulatory requirements for reforestation, protection of streams and
wildlife habitat, use of pesticides, and minimization of stream sedimentation
and soil erosion. From time to time the Partnership volunteers to, or may be
required to, clean up certain dump sites created by the general public. The
Partnership also participates in cooperative projects with environmental
agencies, such as a program with the Georgia Department of Natural Resources to
monitor hairy rattleweed, a threatened species, and another effort with the U.S.
Fish and Wildlife Service to develop an information base on whether Bartram's
Ixia constitutes an endangered species. See Federal and State Regulation.
The costs of environmental compliance by the Partnership have not been
significant and are not expected to be significant in the future. The
Partnership does not project any significant capital expenditures for
environmental protection.
FEDERAL AND STATE REGULATION
In the management and operation of the Timberlands, the Partnership is
subject to various state and federal laws regulating land use. To some degree,
these laws may operate as constraints on the manner in which portions of the
Timberlands are managed and operated and the markets into which the timber from
the Timberlands may be sold.
Regional timber availability continues to be restricted by legislation,
litigation, and pressure from various preservationist groups. Over the past four
years, the harvest of timber from private lands in the state of Washington has
been restricted as a result of the listing of the northern spotted owl as a
threatened species under the Endangered Species Act (ESA). These restrictions
have caused the Partnership to restructure and reschedule some of its harvest
plans. The U.S. Fish and Wildlife Service has developed a proposed rule under
the ESA to redefine protective measures for the northern spotted owl on private
lands. This rule, as currently drafted, would reduce the harvest restrictions on
private lands except within specified special emphasis areas, where restrictions
would be increased. One proposed special emphasis area is on the Olympic
Peninsula, where a significant portion of the Partnership's Washington
timberlands is located. Separately, the state of Washington Forest Practices
Board is in the process of adopting new harvest regulations to protect the
northern spotted owl and the marbled murrelet (also recently listed as a
threatened species). The State Department of Natural Resources draft of this
rule also provides for a special emphasis area to protect the northern spotted
owl on the Olympic Peninsula, which would increase harvest restrictions on the
Partnership's lands. The Partnership is unable at this time to predict the form
in which the federal or state rules will eventually be adopted. However, if
either rule is adopted in the form proposed by the respective agencies, the
result will be some reduction in the volume of Partnership timber available for
harvest.
-6-
<PAGE> 10
The Partnership's operations are subject to laws restricting or regulating
to some extent development and/or logging activity near coastal shorelines. In
addition, land located in areas exposed to flood hazard is subject to
regulations specifying acceptable types of development. The federal government
regulates the use of "wetlands" pursuant to the Clean Water Act, the Rivers and
Harbors Act, and the Federal Water Pollution Control Act. The Timberlands
include property designated as wetlands, and the Partnership is subject to
permit procedures imposed by both federal and state agencies in connection with
any logging or developmental activity on such land. In addition, activity is
regulated on lands adjacent to scenic rivers designated under federal and state
Wild and Scenic Rivers Acts. Reforestation by independent contractor crews is
regulated by the federal Migrant and Seasonal Worker Protection Act, which
imposes upon the landowner the burden of insuring to the federal government
regulatory compliance by the contractor.
Portions of the Timberlands are located within, or adjacent to, National
Forests. Access to such parcels may be obtained generally through road-use
permits subject to the terms and conditions of applicable regulations. Access
across Forest Service land may be restricted where habitat of threatened or
endangered species is involved.
The state of Washington has enacted several laws that regulate or limit
forestry operations. The most comprehensive of these is the Forest Practices
Act, which addresses many growing, harvesting, and processing activities on
forest lands. Among other requirements, the Forest Practices Act imposes certain
reforestation obligations on the owner of forest land. The Act restricts the
size of clear-cut harvests, restricts timber harvest to protect wildlife listed
as threatened or endangered, and requires that timber be left standing in stream
buffers and wildlife management areas. Other Washington state laws regulate
timber slash burning, operations during fire hazard periods, logging activities
affecting or utilizing watercourses or in proximity to certain ocean and inland
shorelines, and some grading and road construction activities.
The states of Georgia and Florida also regulate forestry operations.
Subsequent to July 1, 1993, Georgia statutory law mandates all timber sales to
be by tonnage or actual measured volume, prohibiting sales where payment is
based upon conversion factors from volume to tonnage or vice versa. Florida and
Georgia both regulate slash burns, control burns, and logging activities within
streamside management zones. Florida law and regulation limit activities
allowable or permittable in wetlands, and the state continues to develop
integrated regulations under statutory mandate for ecosystem management.
The Partnership is complying, and intends to comply, with these federal and
state laws regulating its use of the Timberlands and does not expect them, as
currently enacted, to be materially burdensome. There can be no assurance,
however, that future legislative, regulatory or judicial decisions would not
adversely affect the Partnership or its ability to harvest the Timberlands in
the manner otherwise contemplated. In particular, although recently imposed
restrictions on the export of logs from the Northwest have only affected state
lands, political pressure to restrict log exports from the Northwest continues.
If, in the future, restrictions should be imposed on the export of logs from
private lands, the revenue and earnings of the Partnership could be adversely
affected.
PARTNERSHIP'S TITLE; CLAIMS AND INTERESTS OF OTHERS
Rayonier transferred record title of the Timberlands, excluding any oil,
gas or mineral interests, to the Partnership without warranty. The Partnership's
title to the Timberlands is subject to presently existing easements, rights of
way, flowage rights, servitudes, cemeteries, camp sites, hunting and other
leases, licenses, permits, undertakings, and any other existing encumbrances or
title defects. Properties acquired by the Partnership in the future generally
will be acquired and held on record in the Partnership's name, but Rayonier will
have the right to purchase the underlying mineral interests.
The Partnership owns only the merchantable timber rights (except for 50
trees per acre) on approximately 17,000 acres of real estate owned by Rayonier
and Rayland Company, Inc., a real estate subsidiary of Rayonier.
The state of Florida claims title to lands within Florida that were under
navigable waters in 1845 when Florida became a state. Affected lands include not
only those still under water but lands that are now uplands due to drainage,
fill, or other past activity. The Partnership does not believe that the
encumbrances or defects to which its title is subject, or any possible
reclamation by the state of Florida, would have a material adverse impact on the
Timberlands as a whole.
DESCRIPTION OF PARTNERSHIP
ALLOCATIONS OF PARTNERSHIP INTEREST. The Partnership records all of its
activities in two accounts, the Primary Account and the Secondary Account.
Income and expenses are recorded in the Primary Account if they affect timber
that is expected to be harvested on or before December 31, 2000 (the Initial
Term) and in the Secondary Account if they relate to the Partnership's other
assets (including timber that is not planned to be harvested until after
December 31, 2000). During the
-7-
<PAGE> 11
Initial Term, the Secondary Account is essentially an investment account to
which the expenditures and debt related to longer-term harvests are assigned.
The Class A unitholders, the Class B unitholders, and the General Partners
all participate in both accounts, but in different percentages. The
participation of the partners in the revenues and expenses of the Partnership is
as follows:
<TABLE>
<CAPTION>
Primary Secondary
Account Account
------- ---------
<S> <C> <C>
Class A unitholders 95% 4%
Class B unitholders 4% 95%
General Partners 1% 1%
</TABLE>
When the Partnership makes a sale of timberland that includes timber, the
proceeds are divided between the Primary and Secondary Accounts. Proceeds
arising from trees that would have been harvested prior to December 31, 2000 are
allocated to the Primary Account. The balance of the proceeds, which apply to
the underlying land and timber planned to be harvested beyond the year 2000, are
allocated to the Secondary Account.
TERMS OF THE PARTNERSHIP AGREEMENT. The Partnership Agreement provides that
the Partnership continues in existence until December 31, 2035, but that the
Initial Term of the Partnership will end on December 31, 2000. At the end of the
Initial Term, there will be no distributions of the partners' capital accounts,
but the Primary Account will be closed following distribution of any cash
remaining in that account (after the repayment of all Partnership borrowings
attributed to the Primary Account) concurrently to all partners in accordance
with their respective Primary Account percentage interests as indicated in the
above table. The Managing General Partner expects that most of the cash credited
to the Primary Account (and not used to repay borrowings) will have been
distributed prior to the end of the Initial Term. Therefore, unitholders should
not expect to receive a return of their original investment or any substantial
amount of cash as a result of the end of the Initial Term on December 31, 2000.
After 2000, all unitholders and General Partners will only participate in the
Secondary Account, so that Class A unitholders will then have a 4 percent
interest in all Partnership activities. Through the Initial Term, the Secondary
Account will incur substantial debt attributable to reforestation and the
management of the timber base to be cut after the year 2000. This debt will have
to be repaid from future cash flow beginning in 2001 and will reduce the amount
available for distribution after the end of the Initial Term.
CLASS A UNITHOLDERS SHOULD EXPECT THAT THE MARKET PRICE OF CLASS A UNITS
WILL BEGIN TO DECREASE SUBSTANTIALLY SOMETIME PRIOR TO DECEMBER 31, 2000. AS
INDICATED ABOVE, THEY WILL PROBABLY NOT RECEIVE ANY SIGNIFICANT AMOUNT OF CASH
AS A RESULT OF THE END OF THE INITIAL TERM IN THE YEAR 2000. THE PERCENTAGE OF
CASH AVAILABLE TO THEM FROM PARTNERSHIP HARVESTING ACTIVITIES AFTER THAT YEAR
(AFTER ALLOWING FOR THE REPAYMENT OF SECONDARY ACCOUNT DEBT) WILL DECLINE FROM
95 PERCENT TO 4 PERCENT.
DISTRIBUTIONS. A unitholder (Limited Partner) of Rayonier Timberlands,
L.P., assuming there are sufficient sales and profits, will receive cash
distributions from the Primary Account activity. In accordance with the
Partnership Agreement, the distribution policy is to make quarterly
distributions to Class A unitholders from cash available from operations after
provision for working capital, capital expenditures, asset acquisitions, and
such other reserves as the Managing General Partner's Board of Directors deems
appropriate.
On February 17, 1995, the Board declared a first quarter distribution of
$1.90 per Class A Unit payable on March 31, 1995 to unitholders of record
February 28, 1995. The amount represents operating results and distribution of
excess working capital from fiscal 1994 operations. The previous quarterly
distribution was $1.30. A portion of the distribution represents return of
capital, depending on each unitholder's tax basis. As the Initial Term
approaches its expiration date (December 31, 2000), the Board has determined
that capital needs for reserves, acquisitions, and working capital will be less
and that excess cash will be distributed. Future distributions will approximate
actual Partnership results each year. This will be accomplished by keeping the
distribution relatively constant in the second, third, and fourth quarters and
by making an adjustment in the first quarter of the year following to bring the
cumulative distribution in line with Partnership results. The first quarter 1995
distribution of $1.90 includes this adjustment. It is expected that the second
quarter distribution will be less than the first. The Board indicated that it
would continue to maintain a minimum of cash in working capital to be
distributed following the end of the Initial Term.
-8-
<PAGE> 12
TAXES. Rayonier Timberlands, L.P. is a partnership and is not taxed as a
corporation. Each unitholder is responsible for taxes on his or her
proportionate share of the Partnership's income. Each year, the Managing General
Partner will provide unitholders with the necessary tax information based on the
unitholder's apportioned share of income and expense from the Partnership. The
income reported for each individual unitholder will vary substantially from the
income reported in the financial statements, as the unitholder's income is based
on his or her cost of acquisition (the market price of the unit at the time of
acquisition), and not on the Partnership's historical cost basis as reported in
the financial statements.
To the extent distributions exceed the income reported for a unitholder and
the unitholder has remaining tax basis in the units, such distributions are
treated as a return of capital and are not taxable. As such, the distributions
serve to reduce the unitholder's basis in the units.
Beginning with 1994, only a portion of the Partnership's income will
constitute unrelated business income. Tax-exempt entities (including IRAs and
other retirement plans) may be required to report their income from the
Partnership to the Internal Revenue Service as unrelated business taxable income
and pay taxes on such income.
-9-
<PAGE> 13
GLOSSARY OF FORESTRY TERMS
The terms defined below relate to the timber industry in general.
BOARD FOOT (BF): A unit of measure for sawtimber as well as lumber that is 12
inches square and one inch thick.
BOTTOMLANDS: The flood plains of streams, creeks and rivers that generally
support quality hardwood stands.
CLEAR-CUT: Harvesting all trees in a stand of timber at the same time. Usually
done to prepare for establishing a plantation or for converting the land to
crop, pasture, or other use.
CONTROLLED BURNING: Setting fire to the forest floor to reduce the accumulation
of logging debris, dead and fallen timber, weeds, and underbrush that pose a
wildfire hazard or compete with the trees for water and nutrients.
CORD: A unit of measure equal to a stack of wood 4x4x8 feet, or 128 cubic feet
of wood, bark, and air. A common unit of measure for pricing pulpwood.
CUNIT: A unit of measure for standing timber equal to 100 cubic feet of solid
wood. It is the customary common unit of measure to consolidate regional
information based on local commercial measurements such as board feet or tons. A
cunit equals approximately .43 MBF or 3.8 tons.
CUTTING CONTRACTS: A contractual right to cut certain described timber over a
specified period of time on a specified tract of property.
D.B.H.: The abbreviation means "diameter at breast height," a term frequently
used to describe a tree measurement taken 4 1/2 feet above the average ground
level.
HARDWOODS: Trees that usually have broad leaves and are deciduous (losing leaves
every year).
MBF: One thousand board feet. A common unit of measure for pricing standing
timber as well as lumber.
MERCHANTABLE TIMBER: Minimum size timber for which there might be a commercial
market. In the South, trees as small as five inches D.B.H. can be used by the
industry while in the Northwest trees must be much larger to be usable. For
convenience, the Partnership follows the convention that timber older than 13
years in the Southeast and 40 years in the Northwest is of minimum merchantable
size. It should be recognized that timber of minimum merchantable size has not
yet reached its optimum economic value and the typical harvest cycle is about 25
years in the Southeast and 55 years in the Northwest.
NATURAL REGENERATION: The process of a forest regenerating itself with seeds
from mature trees or sprouts from stumps or roots. Natural regeneration results
in new tree growth without regard to genetic quality of the trees.
NATURAL STAND: A forest stand resulting from natural regeneration.
NON-FOREST LANDS: Lands consisting of or containing roads, water or easements,
such as gas and electric transmission lines, timbered buffers not harvested due
to environmental concerns, currently non-commercially viable acreage, and
certain wastelands.
PLANTATION: A timber stand established by planting seedlings in a prepared
seedbed. Trees in a plantation are of the same age and size, which tends to
simplify harvesting.
POLES: Straight, tall trees suitable for manufacturing telephone poles, wharf
pilings or the like, typically at least eight inches in diameter at the base and
at least 25 feet tall. Trees suitable for use as poles generally command a
superior price.
PRE-MERCHANTABLE TIMBER: Usually young or small size timber for which no
commercial market exists. For example, in the Southeast, pine trees under five
inches D.B.H. and in the Northwest, timber stands less than 40 years of age.
-10-
<PAGE> 14
PULPWOOD: Wood used to produce pulp in the manufacture of paper and other
cellulose products; normally cut from trees that are approximately five to eight
inches D.B.H., or trees over eight inches D.B.H. which are either too small, of
inferior quality, or the wrong species to be used in the manufacture of lumber
or plywood.
SAWTIMBER: Trees containing logs of sufficient size and quality to be suitable
for conversion into lumber or plywood.
SEEDLINGS: Live trees less than one inch in diameter at ground level.
SILVICULTURE: The practice of cultivating forest crops based on the knowledge of
forestry; more particularly, controlling the establishment, composition, and
growth of forests.
SITE INDEX: A measure of forest site quality, which takes into account
topography, soil fertility, moisture, and other factors affecting forest growth
rates. A site index indicates the height (in feet) an average dominant tree of a
given species will attain on that site in a well-stocked stand in a given
period, generally 50 years in the Northwest and 25 years in the Southeast.
SOFTWOODS: Coniferous trees, usually evergreen and having needles or scale-like
leaves, such as Douglas fir, white pine, spruce, and loblolly pine. In the
Pacific Northwest, softwood timber is commonly referred to as conifer.
STAND: An area of trees possessing sufficient uniformity of age, size, and
composition to be distinguishable from adjacent areas so as to form a management
unit. The term is usually applied to forests of commercial value.
STOCKING: An indication of the number of trees in a stand as compared to the
desirable number for best growth and management, such as well-stocked,
over-stocked, or partially stocked.
STUMPAGE VALUE: The value of standing timber (timber as it stands uncut in the
woods).
SUPERIOR SEEDLINGS: Seedlings that are the product of a genetic breeding
program. Superior seedlings produce trees that grow faster, are of higher
quality, and are more disease resistant than their ordinary counterparts.
THINNING: Removal of selected trees, usually to eliminate overcrowding, to
remove diseased trees and to promote more rapid growth of desired trees.
TIMBER DEED: An instrument conveying certain described timber on a specific
tract of property and providing a term during which the timber may be cut and
removed.
TIMBER INVENTORY: As defined under Description of Timberlands - Timber
Inventory.
WOOD FIBER: Generally refers to pulpwood or chips used in the manufacture of
pulp and paper.
ITEM 2. PROPERTIES
See Item 1. Business.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is a party to several legal proceedings incidental to its
business. Neither the Partnership nor its counsel believes that any liability or
costs related to such proceedings will have a material adverse effect on the
financial position or results of operations of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the period
covered by this report.
-11-
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
<TABLE>
<CAPTION>
Class A Units - Market Price (dollars)
------------------------------------------------
1994 1993
------------------------------------------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
QUARTER ENDED
-------------
March 31 $40.00 $27.63 $43.00 $30.75
June 30 37.00 31.75 37.88 32.63
September 30 38.25 34.38 37.63 34.75
December 31 38.13 34.63 36.88 26.00
</TABLE>
The above table reflects the range of market prices of RTLP Class A Units
as reported in the consolidated transaction reporting system of the New York
Stock Exchange, the principal market in which this security is traded, under the
trading symbol LOG.
During the two-month period ended February 28, 1995, the high and low
market prices of RTLP Class A Units were $38.25 and $35.25.
<TABLE>
<CAPTION>
Class A Units - Distributions (dollars)
---------------------------------------
1994 1993
------ -----
<S> <C> <C>
QUARTER ENDED
-------------
March 31 $5.30(a) $1.15
June 30 1.30 1.15
September 30 1.30 1.15
December 31 1.30 1.15
</TABLE>
(a) Includes a $4.00 per Class A Unit special distribution paid on
March 31, 1994.
On February 17, 1995, the Board of Directors of RFR declared a first
quarter distribution of $1.90 per Class A Unit payable on March 31, 1995 to
unitholders of record February 28, 1995. The amount represents operating results
and distribution of excess working capital from fiscal 1994 operations. The
previous quarterly distribution was $1.30. A portion of the distribution
represents return of capital, depending on each unitholder's tax basis. As the
Initial Term approaches its expiration date (December 31, 2000), RFR has
determined that capital needs for reserves, acquisitions, and working capital
will be less and that excess cash will be distributed. Future distributions will
approximate actual Partnership results each year. This will be accomplished by
keeping the distribution relatively constant in the second, third, and fourth
quarters and by making an adjustment in the first quarter of the following year
to bring the cumulative distribution in line with Partnership results. The first
quarter 1995 distribution of $1.90 includes this adjustment. It is expected that
the second quarter distribution will be less than the first. The Board indicated
that it would continue to maintain a minimum of cash in working capital to be
distributed following the end of the Initial Term. See Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Cash Flow.
As of February 28, 1995, there were approximately 2,900 unitholders of
record of Class A Units.
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial information set forth below is derived
from the financial statements of Rayonier Timberlands, L.P. Such selected
historical financial information should be read in conjunction with such
financial statements and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
For The Year Ended
------------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA
(thousands of cunits1)
Timber sold to Rayonier 112.8 127.6 145.3 253.3 188.8
Timber sold to unaffiliated
purchasers 868.8 699.6 779.9 700.9 747.6
----- ----- ----- ----- -----
Timber sales volume 981.6 827.2 925.2 954.2 936.4
===== ===== ===== ===== =====
</TABLE>
-12-
<PAGE> 16
<TABLE>
<CAPTION>
For The Year Ended
---------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
REGIONAL OPERATING DATA
Northwest (2)
Timber sales
(thousands of dollars) $ 114,970 $ 70,625 $ 64,998 $ 55,188 $ 63,634
======= ====== ====== ====== ======
Stumpage (thousands of MBF) 140.8 108.8 168.8 164.7 184.7
Delivered logs
(thousands of MBF) 53.6 34.1 26.6 21.8 17.4
----- ----- ----- ----- -----
Total Northwest 194.4 142.9 195.4 186.5 202.1
===== ===== ===== ===== =====
Southeast (3)
Timber sales
(thousands of dollars) $ 50,231 $ 44,312 $ 33,645 $ 36,016 $ 33,293
====== ====== ====== ====== ======
Pine (thousands of tons) 1,875.9 1,719.0 1,608.4 1,851.7 1,652.5
Hardwood
(thousands of tons) 154.7 175.2 199.6 144.1 140.1
------- ------- ------- ------- -------
Total Southeast 2,030.6 1,894.2 1,808.0 1,995.8 1,792.6
======= ======= ======= ======= =======
INCOME DATA
(thousands of dollars)
Total sales $ 166,521 $ 116,047 $ 116,395 $ 101,223 $ 105,656
Total expenses - net 43,602 33,821 30,809 28,176 26,660
Partnership income 122,919 82,226 85,586 73,047 78,996
CLASS A UNIT DATA (dollars)
Income per publicly traded
Class A Unit $ 6.41 $ 4.45 $ 4.49 $ 3.93 $ 4.24
Operating cash flow
allocable to a publicly
traded Class A Unit 6.64 4.66 4.72 4.22 4.53
Cash distributions (4) 9.20 4.60 3.60 3.60 3.60
ASSET, LIABILITY, AND CAPITAL DATA
(thousands of dollars)
Timber, timberlands, and
logging roads - net $ 270,656 $ 265,769 $ 259,958 $ 255,123 $ 251,264
Total assets 337,814 387,457 377,413 347,783 333,037
Total liabilities 158,776 137,651 113,950 95,835 80,184
Total indebtedness 144,593 121,831 99,354 81,460 63,193
Partners' capital 179,038 249,806 263,463 251,948 252,853
</TABLE>
(1) The consolidated harvest activity is expressed in cunits, a unit of measure
for standing timber equal to 100 cubic feet of solid wood. A cunit is the
customary common unit of measure that is used to consolidate regional
information based on local commercial measurements such as thousand board
feet (MBF) or tons. A cunit equals approximately .43 MBF or 3.8 tons.
(2) The Northwestern Timberlands are in the state of Washington and consist of
approximately 369,000 acres owned in fee, and contain approximately 2.3
million MBF of wood, approximately 92 percent of which is softwood.
Stumpage volumes for 1992, 1991, and 1990 exclude the Quinault timberland
sales.
(3) The Southeastern Timberlands are in the states of Georgia, Florida, and
South Carolina and consist of approximately 793,000 acres owned in fee or
held under long-term leases, and contain approximately 19.0 million tons of
wood, approximately 66 percent of which is pine.
(4) Cash distributions in 1994 include a $4.00 per Class A Unit special
distribution paid on March 31, 1994.
-13-
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Earnings for 1994 improved 49 percent over 1993 reflecting higher stumpage
volume and improved prices in the Partnership's Northwest region as customers
carried over 1993 timber sales contracts into the first quarter of 1994.
The following table summarizes the sales, operating income, partnership
income, and selected operating statistics of the Partnership, for the periods
indicated, by United States geographic region (thousands):
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
TIMBER SALES
Northwest $ 114,970 $ 70,625 $ 64,998
Southeast 50,231 44,312 33,645
------- ------- ------
165,201 114,937 98,643
------- ------- ------
TIMBERLAND SALES
Northwest 291 109 16,987
Southeast 1,029 1,001 765
------- ------- ------
1,320 1,110 17,752
------- ------- ------
TOTAL SALES $ 166,521 $ 116,047 $ 116,395
======= ======= =======
OPERATING INCOME
Northwest $ 94,576 $ 56,249 $ 68,318
Southeast 39,157 33,457 23,608
Corporate and other (1,724) (2,308) (3,279)
------- ------- -------
$ 132,009 $ 87,398 $ 88,647
======= ====== ======
PARTNERSHIP INCOME $ 122,919 $ 82,226 $ 85,586
======= ====== ======
SELECTED OPERATING STATISTICS
Northwest harvest volumes
Stumpage (thousands of MBF) 140.8 108.8 168.8
Delivered logs (thousands of MBF) 53.6 34.1 26.6
----- ----- -----
194.4 142.9 195.4
===== ===== =====
Southeast harvest volumes
Pine (thousands of tons) 1,875.9 1,719.0 1,608.4
Hardwood (thousands of tons) 154.7 175.2 199.6
------- ------- -------
2,030.6 1,894.2 1,808.0
======= ======= =======
</TABLE>
Timber and timberland sales in 1994 were up 43 percent from 1993.
Partnership income was up $40.7 million, or $1.96 per Class A Unit, over 1993
results. Sales in 1993 of $116.0 million, decreased $0.4 million from 1992 and
partnership income of $82.2 million decreased 4 percent from 1992, which
included significant timberland sales.
Timber harvest sales in 1994 were up 44 percent from 1993, following a 17
percent increase in 1993. Higher 1994 sales resulted from higher stumpage volume
and improved prices in the Northwest region as Partnership customers carried
over 1993 timber sales contracts into the first quarter of 1994. In 1993, sales
reflected an overall improvement in prices due to worldwide concern over timber
availability and increased harvest activity in the Southeast region, partially
offset by the reduced harvest volume in the Northwest region.
In 1994, timber sales to Rayonier represented 13 percent of total timber
sales compared to 17 percent in both 1993 and 1992. Timber sales to three
customers under common ownership (not affiliated with the Partnership) accounted
for approximately 18 percent, 15 percent, and 10 percent of total timber sales
in 1994, 1993, and 1992, respectively. In 1992, the
-14-
<PAGE> 18
Partnership also had one other unaffiliated customer who accounted for
approximately 12 percent of timber sales. See Note 4 of the accompanying Notes
to Financial Statements for further information.
Timberland sales in 1994 were $1.3 million, up $0.2 million from 1993,
which, in turn, were $16.7 million lower than 1992 levels. Sales for 1992
included $16.8 million from two major timberland tract sales in the Northwest
region to the Quinault Indian Nation. The tracts sold in 1992 contributed $15.6
million to Partnership income and completed the Partnership's program to divest
land within the Quinault Indian Reservation.
Income per publicly traded Class A Unit was $6.41 in 1994, up $1.96 from
1993. Results in 1993 were down 4 cents from 1992. Excluding the effect of the
1992 Quinault timberland sales, which generated 61 cents of income per publicly
traded Class A Unit, 1993 results improved by 57 cents per unit over the prior
year.
Operating cash flow allocable to Class A unitholders, after capital
expenditures and certain provisions for working capital, was $132.8 million in
1994, up $40.3 million, or $1.98 per unit, from 1993. Operating cash flow in
1993 was $0.4 million, or 6 cents per unit, lower than 1992. In 1992, operating
cash flow allocable to a Class A Unit includes 63 cents from the Quinault
timberland sales.
Most of the timber from Partnership lands in the Northwest is resold by the
Partnership's customers into log export markets, primarily in Japan, Korea, and
China. Unfavorable market conditions in 1993 caused many customers to defer
harvesting until 1994. As a result, the harvest level was unusually low in 1993
and unusually high in 1994, rising 36 percent to 194 million board feet.
Stumpage prices, which also benefited from the carryover of high-priced 1993
contracts, increased 25 percent over the prior year. As a result of increased
volume and prices, 1994 timber sales rose 63 percent to $115.0 million and
operating income rose 68 percent to $94.6 million. Although timber sales in 1993
increased 9 percent to $70.6 million, operating income decreased 18 percent to
$56.2 million reflecting lower 1993 timberland sales. In 1993, average stumpage
prices in the Northwest were 53 percent above 1992 levels as limited timber
availability throughout the Northwest caused contract stumpage prices to rise
steadily late in 1992 and into the second quarter of 1993. During the second
half of 1993, prices declined due to high consumer inventories and a marked
increase in alternative global timber supplies. Total 1993 sales volume in the
Northwest of 143 million board feet represented a decrease of 27 percent from
the 1992 levels as harvesting of contract timber slowed in response to changing
market conditions and the Partnership's continuing program of gradually reducing
the amount of timber offered in the region. See Future Operations.
In the Southeast, pulpwood timber is sold by the Partnership's customers
for the production of pulp and paper with sawlog timber sold to lumber and
plywood manufacturers. Timber sales for 1994 were $50.2 million, up $5.9 million
from 1993 and operating income increased $5.7 million to $39.2 million. In 1994,
harvest volume peaked in the third quarter due to heavy rains and flooding,
which caused customers to accelerate harvesting on drier Partnership lands.
Harvest volume returned to a more normal level in the fourth quarter. Overall,
1994 pine volume increased 9 percent over the prior year to 1.9 million tons.
Pine prices increased approximately 4 percent, reflecting increased demand for
high quality sawlogs. In 1993, timber sales were $44.3 million, up 32 percent
from 1992, reflecting both stronger pricing and increased harvest volumes.
Operating income in the Southeast rose 42 percent to $33.5 million in 1993.
Southeast pine prices were 24 percent higher than 1992 levels, benefiting from
worldwide concern over timber availability and from strong demand for lumber as
a result of the resurgence in U.S. housing. In 1993, Southeast pine volume was
1.7 million tons, increasing 7 percent from 1992.
Corporate and other operating income is comprised of general and
administrative expenses not specifically attributable to either the Northwest or
Southeast regions. Corporate expenses decreased $0.6 million during 1994 to $1.7
million, primarily due to lower commission expenses paid to a foreign sales
corporation affiliated with the Partnership's Special General Partner, Rayonier.
Legislation, enacted effective August 10, 1993, eliminated tax benefits related
to log exports for foreign sales corporations. The Partnership's commission
expense was fully allocated to Rayonier and the General Partners, and therefore
the legislation did not impact the earnings or cash flows of the publicly traded
Class A Units. See Note 1 of the accompanying Notes to Financial Statements for
further information. In 1993, corporate expenses decreased $1.0 million to $2.3
million, reflecting lower commission expenses paid to the foreign sales
corporation.
Harvest activity in 1994 peaked in the first quarter due to the carryover
of 1993 harvest volume in the Northwest and again in the third quarter due to
the unusually wet weather in the Southeast. Overall, 50 percent of the full year
harvest was cut by June 30, 1994. During 1993 and 1992, harvest activity
followed the historical cutting pattern that is more concentrated in the first
half of the year, with 59 percent and 60 percent, respectively, of the total cut
completed by June 30.
The Partnership is continuing its strategy of gradually reducing the amount
of timber offered each year in the Northwest until it reaches a sustainable
harvest level. See Future Operations. In the Northwest, the 1995 harvest plan
contemplates a harvest volume approximately 7 percent lower than the 1994
volume, which included the 1993 carryover volume. As of December 31, 1994,
contracts representing 25 percent of the projected 1995 harvest volume were
outstanding. As of
-15-
<PAGE> 19
December 31, 1993, outstanding contracts represented 30 percent of the
actual 1994 harvest volume. Three customers under common ownership (not
affiliated with the Partnership) accounted for approximately 12 percent of the
harvest volume under contract as of December 31, 1994. In addition, two other
unaffiliated customers accounted for approximately 23 percent and 19 percent,
respectively, of the uncut volume under contract at December 31, 1994.
Outstanding Northwest contract prices at December 31, 1994 are 14 percent lower
than the average of harvest prices realized in 1994. In 1994, realized prices
included the effect of the high-priced 1993 carryover volume.
The Southeast 1995 harvest plan anticipates a volume reduction of
approximately 5 percent from 1994 to balance 1994's higher than planned harvest.
In the Southeast, the Partnership awarded contracts for 32 percent of the 1995
harvest plan volume as of December 31, 1994. As of December 31, 1993,
outstanding contracts represented 15 percent of the actual 1994 harvest volume.
Average prices on uncut contracts at December 31, 1994 are approximately 11
percent higher than those realized for the 1994 actual harvest in the region.
Operating costs and expenses in 1994 were $37.0 million, up $6.2 million
from 1993, which was up $1.0 million from 1992. Cost of timber sold rose $6.5
million in 1994 primarily due to higher logging costs in the Northwest region
resulting from increased contract logging and commercial thinning activities. In
addition, forest excise taxes and road costs rose due to increased timber sales
in the Northwest. In 1993, cost of timber sold rose $2.7 million from 1992, due
to higher logging costs in the Northwest region. The cost of timberland sold was
$0.4 million in both 1994 and 1993, and was $2.1 million in 1992 due primarily
to the Quinault timberland sales.
Interest income, earned mainly from the Primary Account's investment notes
of Rayonier, decreased $1.9 million to $3.2 million in 1994 due to a lower
average balance of investment notes. Interest expense on increased loans and
advances to the Secondary Account by Rayonier rose $1.6 million to $11.1
million.
FUTURE OPERATIONS
The Partnership's harvesting plans, and therefore its earnings and cash
flow, can be substantially affected by the cyclical nature of timber markets
both in general and on a geographical basis. In addition, various legislative
initiatives, such as major restrictions on timber clear-cutting, export
restrictions on logs sourced from privately owned properties, harvest
restrictions to protect threatened or endangered species, and limitations on
timber harvesting on wetlands, could adversely affect Partnership results.
Moreover, in certain economic situations, Partnership results can be adversely
affected by reductions in the rate at which stumpage is harvested as well as the
failure of buyers to fulfill their contractual obligations.
The Partnership's long standing policy has been to reach a sustainable
annual harvest level in the Northwest by gradually reducing its harvest volume
each year. The projected annual harvest in this region will continue to trend
down, with the harvest in the year 2000 approaching 80 percent of the 1994
actual harvest. In the Southeast, due to intensive forest and land management as
well as silvicultural investment, pine volume available for harvest is expected
to increase approximately 2 percent annually.
Regional timber availability continues to be restricted by legislation,
litigation, and pressure from various preservationist groups. Over the past four
years, the harvest of timber from private lands in the state of Washington has
been restricted as a result of the listing of the northern spotted owl as a
threatened species under the Endangered Species Act (ESA). These restrictions
have caused the Partnership to restructure and reschedule some of its harvest
plans. The U.S. Fish and Wildlife Service has developed a proposed rule under
the ESA to redefine protective measures for the northern spotted owl on private
lands. This rule, as currently drafted, would reduce the harvest restrictions on
private lands except within specified special emphasis areas, where restrictions
would be increased. One proposed special emphasis area is on the Olympic
Peninsula, where a significant portion of the Partnership's Washington
timberlands is located. Separately, the state of Washington Forest Practices
Board is in the process of adopting new harvest regulations to protect the
northern spotted owl and the marbled murrelet (also recently listed as a
threatened species). The State Department of Natural Resources draft of this
rule also provides for a special emphasis area to protect the northern spotted
owl on the Olympic Peninsula, which would increase harvest restrictions on the
Partnership's lands. The Partnership is unable at this time to predict the form
in which the federal or state rules will eventually be adopted. However, if
either rule is adopted in the form proposed by the respective agencies, the
result will be some reduction in the volume of Partnership timber available for
harvest.
LIQUIDITY AND CASH FLOW
As of December 31, 1994, the Partnership held trade and intercompany
receivables from Rayonier and affiliates of $4.2 million. In addition, the
Primary Account of the Partnership held $42.7 million of short-term investment
notes of Rayonier and an additional $5.0 million of long-term investment notes
of Rayonier resulting from the cumulative net cash flow, since inception, of the
Primary Account after distributions to unitholders. The Partnership can call the
investment notes at any time
-16-
<PAGE> 20
to fund Partnership working capital requirements, capital expenditures, and
reserves. See Note 5 of the accompanying Notes to Financial Statements for
further information. At the end of the first quarter of 1994, the Partnership
called, or allowed to mature, $75.0 million of the short-term investment notes
to fund a special distribution of $4.00 per Class A Unit, which was paid on
March 31, 1994. As a result of this transaction, interest income after March 31,
1994 was significantly below the comparable periods of 1993.
The Secondary Account of the Partnership had total outstanding debt of
$144.6 million at December 31, 1994, including long-term notes payable to
Rayonier of $143.8 million that mainly represent the obligations incurred as a
result of Secondary Account advances by Rayonier. See Note 6 of the accompanying
Notes to Financial Statements for further information.
Capital expenditures for reforestation, capitalized lease payments,
property taxes, and other improvements to the land and timber assets were $13.1
million, $13.4 million, and $14.0 million in 1994, 1993, and 1992, respectively.
Capital expenditures are expected to be approximately $14.4 million in 1995.
Funding of future capital requirements is expected to continue from Rayonier.
The Partnership made regular distributions of $104.0 million ($5.20 per
Class A Unit) and a special distribution of $80.0 million ($4.00 per Class A
Unit) in 1994; $92.0 million ($4.60 per Class A Unit) in 1993; and $72.0 million
($3.60 per Class A Unit) in 1992 to all outstanding Class A unitholders. An
additional $9.7 million in 1994, $4.8 million in 1993, and $3.8 million in 1992
was distributed in cash to Class B unitholders and to the General Partners.
Recontributions of $1.0 million and $1.7 million were made in 1993 and 1992,
respectively, by Rayonier and the General Partners of RTLP relating to the
commission expense paid to a Rayonier affiliated foreign sales corporation.
On February 17, 1995, the Board of Directors of Rayonier Forest Resources
Company (RFR) declared a first quarter distribution of $1.90 per Class A Unit
payable on March 31, 1995 to unitholders of record February 28, 1995. The amount
represents operating results and distribution of excess working capital from
fiscal 1994 operations. The previous quarterly distribution was $1.30. A portion
of the distribution represents return of capital, depending on each unitholder's
tax basis. As the Initial Term approaches its expiration date (December 31,
2000), RFR has determined that capital needs for reserves, acquisitions and
working capital will be less and that excess cash will be distributed. Future
distributions will approximate actual Partnership results each year. This will
be accomplished by keeping the distribution relatively constant in the second,
third, and fourth quarters and by making an adjustment in the first quarter of
the following year to bring the cumulative distribution in line with Partnership
results. The first quarter 1995 distribution of $1.90 includes this adjustment.
It is expected that the second quarter distribution will be less than the first.
The Board indicated that it would continue to maintain a minimum of cash in
working capital to be distributed following the end of the Initial Term.
WHEN THE INITIAL TERM ENDS ON DECEMBER 31, 2000, THE PRIMARY ACCOUNT OF THE
PARTNERSHIP WILL BE CLOSED BUT THERE WILL NOT BE ANY REDEMPTION OF THE PARTNERS'
CAPITAL ACCOUNTS. THE INTEREST OF CLASS A UNITHOLDERS IN THE PARTNERSHIP'S
FUTURE REVENUES, EXPENSES, AND CASH FLOWS WILL THEN DECREASE FROM 95 PERCENT TO
4 PERCENT. POSITIVE CASH FLOWS WILL BE SUBSTANTIALLY AFFECTED BY SECONDARY
ACCOUNT DEBT THAT WILL HAVE TO BE REPAID. AS A RESULT, IT IS EXPECTED THAT THE
MARKET PRICE OF CLASS A UNITS SHOULD BEGIN TO DECREASE SUBSTANTIALLY SOMETIME
PRIOR TO DECEMBER 31, 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements" on Page ii.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-17-
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Neither the Partnership nor the Operating Partnership has any directors or
officers. Set forth below is certain information concerning directors and
executive officers of RFR. Presently, all directors and officers of RFR are
elected annually.
<TABLE>
<CAPTION>
Directors and Executive Officers
Served as
Director of
Name Position with RFR RFR Since
----------------- ---------------------- -----------
<S> <C> <C>
Ronald M. Gross President and Director 1985
William J. Alley Director 1994
Macdonald Auguste Treasurer --
William S. Berry Senior Vice President --
John B. Canning Corporate Secretary --
Donald W. Griffin Director 1994
Kenneth P. Janette Vice President and --
Corporate Controller
Thomas W. Keesee, Jr. (1) Director 1994 (2)
Gerald J. Pollack Senior Vice President and
Chief Financial Officer --
DeRoy C. Thomas (1) Director 1994 (3)
</TABLE>
(1) Member of the Conflicts and Audit Committees of RFR's Board of
Directors
(2) Served as a Director of RFR from 1985 to 1991
(3) Served as a Director of RFR from 1987 to 1991
RONALD M. GROSS, 61, is Chairman of the Board, President and Chief
Executive Officer of Rayonier. He joined Rayonier in March 1978 as President and
Chief Operating Officer and a director. He was elected Chief Executive Officer
in 1981 and Chairman in 1984. Mr. Gross is also currently a director of Lukens
Inc. He serves as a member of the Executive Committee of the Board of Directors
of the American Forest and Paper Association (AFPA).
WILLIAM J. ALLEY, 65, is Chairman of the Executive Committee and director
of American Brands, Inc. (global consumer products holding company). He has been
a director of American Brands since 1979 and was Chairman of the Board and Chief
Executive Officer of that corporation from 1987 to 1994. He is also a director
of Rayonier, CIPSCO Incorporated, Central Illinois Public Service Company,
Bunn-O-Matic Corporation, Olin Corporation, and Amsted Industries Incorporated
(a private company). He is a senior member of The Conference Board.
MACDONALD AUGUSTE, 46, was elected Treasurer of Rayonier effective February
27, 1989 and Treasurer of RFR on March 6, 1989. From 1983 to February 1989, he
was Assistant Treasurer of Rayonier, which he joined in April 1975 as Cash and
Financial Planning Coordinator. Previously he was employed by St. Regis Paper
Company.
WILLIAM S. BERRY, 53, is Senior Vice President, Forest Resources and
Corporate Development of Rayonier. He was elected Senior Vice President, Forest
Resources and Corporate Development, of Rayonier in January 1994. He was Senior
Vice President, Land and Forest Resources, of Rayonier from January 1986 to
January 1994. From October 1981 to January 1986 he was Vice President and
Director of Forest Products Management. Mr. Berry joined Rayonier in 1980 as
Director of
-18-
<PAGE> 22
Wood Products Management. Since May 1988 he has served as a Senior Vice
President of RFR after having been Vice President of RFR from September 1985. He
also serves on the Executive Boards of the American Forest Council and the
Center for Streamside Studies.
JOHN B. CANNING, 51, has served as Corporate Secretary and Associate
General Counsel of Rayonier since February 1985 and as Corporate Secretary of
RFR since September 1985. Mr. Canning joined Rayonier in 1977 as Associate
General Counsel - Financial. He is a member of the American Bar Association and
of the Corporate Bar Association of Westchester and Fairfield, Inc.
DONALD W. GRIFFIN, 58, is President and Chief Operating Officer, Olin
Corporation (diversified manufacturing corporation). He joined Olin in 1961 and
was elected an Executive Vice President of Olin in 1987. He became a director of
Olin in 1990, was elected Vice Chairman of the Board for Operations in 1993, and
President and Chief Operating Officer in 1994. He is also a director of
Rayonier, River Bend Bancshares, Inc., and Illinois State Bank and Trust. He is
a trustee of the Buffalo Bill Historical Center, the Olin Charitable Trust, and
the National Security Industrial Association. He is a member of the American
Society of Metals, the Association of the U.S. Army, and the American Defense
Preparedness Association. He is a life member of the Navy League of the United
States and the Surface Navy Association.
KENNETH P. JANETTE, 49, is Vice President and Corporate Controller of
Rayonier. He joined Rayonier in August 1994 and was elected Vice President and
Corporate Controller of Rayonier and RFR in October 1994. He came to Rayonier
from Sunkyong America, Inc., a Korean international trading organization, which
he joined in 1990 as Corporate Controller. He became a Vice President in 1992.
From 1977 to 1990, he served in various capacities with AMAX Inc., most recently
as Assistant Corporate Controller and Director of Auditing. He is a Certified
Public Accountant and served with Arthur Andersen & Co.
THOMAS W. KEESEE, Jr. 80, is a former Director, President and Chief
Executive Officer of Bessemer Securities Corporation and Bessemer Trust Company.
He is a corporate director and financial consultant. He is a director emeritus
of ITT Corporation (ITT) and of Duke University Asset Management Co. He is
former Chairman of the Board of Directors of the National Audubon Society and a
former director of King Ranch Inc. From 1985 to 1991, Mr. Keesee served on the
Board of Directors of RFR.
GERALD J. POLLACK, 53, is Senior Vice President and Chief Financial Officer
of Rayonier. He was elected Senior Vice President and Chief Financial Officer of
Rayonier in May 1992. From July 1986 to May 1992, he was Vice President and
Chief Financial Officer. Mr. Pollack joined Rayonier in June 1982 as Vice
President and Controller. He served as Controller of RFR from September 1985
until August 1986, when he became a Vice President as well. He was elected Chief
Financial Officer of RFR on March 6, 1989 and a Senior Vice President of RFR on
July 27, 1992. He is a member of the New York Advisory Board of The Allendale
Insurance Co., the financial management committee of AFPA, and the Financial
Executive Institute.
DEROY C. THOMAS, 69, is a partner in the law firm of LeBoeuf, Lamb, Greene
& MacRae, a law firm which Rayonier engages from time to time for professional
services unrelated to Partnership matters. He is retired President and Chief
Operating Officer of ITT. Prior to moving to the parent ITT, Mr. Thomas was
Chairman, President and Chief Executive Officer of The Hartford Insurance Group.
Before going to The Hartford, Mr. Thomas was assistant general counsel of the
Association of Casualty and Surety Companies in New York City and was an
associate professor of law at Fordham School of Law. Mr. Thomas serves on the
board of directors of ITT Hartford, as well as Connecticut Natural Gas
Corporation and Houghton Mifflin Company. He also serves as Chairman of the Old
State House, Hartford, CT; Chairman of the Connecticut Health System, Inc.,
Hartford, CT; Director, Goodspeed Opera House; Trustee, Fordham University;
Trustee Emeritus, University of Hartford and as a member of the Advisory Board
of Iona College. From 1987 to 1991, Mr. Thomas served on the Board of Directors
of RFR.
-19-
<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION
Neither Rayonier nor RFR receive any compensation as general partners of
the Partnership and the Operating Partnership in the form of promotional
interests, management fees, acquisition fees, incentive compensation, or
otherwise. The Partnership and the Operating Partnership reimburse Rayonier and
RFR for all direct costs incurred in organizing and managing such partnerships
and indirect costs (principally general and administrative and overhead costs)
reasonably allocable to such partnerships. The allocations of direct and
indirect costs incurred by Rayonier between the Partnership and Rayonier's other
activities will be made solely by Rayonier.
Neither the Partnership nor the Operating Partnership has any officers or
directors. No officers or directors of Rayonier or RFR are compensated by the
Partnership or the Operating Partnership. The allocable share of Rayonier's and
RFR's general and administrative overhead expenses charged to the Partnership
includes a portion of the compensation paid by Rayonier and RFR to their
officers and directors. The two directors of RFR who are not also directors or
employees of Rayonier receive an annual retainer of $12,000 and a $1,000 fee for
each Board or Committee meeting attended. The two directors of RFR who are
directors but not employees of Rayonier receive a $750 fee for each Board
meeting attended. These fees were paid by RFR and charged to the Partnership.
During 1994, the Partnership was charged for compensation paid to 13 officers
and directors of RFR in an amount totaling $241,000. The Partnership was not
charged for cash compensation to any officer or director of RFR in excess of
$100,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All references to beneficial ownership in this Item 12 are as of March 14, 1995.
<TABLE>
<CAPTION>
Name and address Number of Partnership Units and Percent
of beneficial owner nature of beneficial ownership of class
------------------- ------------------------------ --------
<S> <C> <C>
Rayonier Inc. 14,940,000 Class A Units 74.7
1177 Summer Street
Stamford, Connecticut 06905-5529 20,000,000 Class B Units 100
Directors and officers No Units 0
of RFR who perform
policymaking functions
for the Partnership (13)
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 1. Business for a description of transactions between the
Partnership and Rayonier. There are no other transactions or relationships to
be reported in response to this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. See Index to Financial Statements on page ii for a list of the
financial statements filed as part of this report.
2. See Index to Financial Statement Schedules on page ii for a list of
the financial statement schedules filed as a part of this report.
3. See Exhibit Index on page B and C for a list of the exhibits filed
or incorporated herein as a part of this report.
(b) No report on Form 8-K was filed by the registrant during the period
covered by this report.
-20-
<PAGE> 24
REPORT OF MANAGEMENT
Rayonier Timberlands, L.P. (RTLP), through the management of both Rayonier Inc.
(Rayonier) (the Special General Partner) and Rayonier Forest Resources Company
(RFR) (the Managing General Partner), is responsible for the preparation and
integrity of the information contained in the accompanying financial statements
and other sections of the Annual Report. The financial statements are prepared
in accordance with generally accepted accounting principles, and, where
necessary, include amounts that are based on management's informed judgments and
estimates. Other information in the Annual Report is consistent with the
financial statements.
RTLP's financial statements are audited by Arthur Andersen LLP, independent
public accountants. Management has made available to Arthur Andersen LLP RTLP's
financial records and related data and believes that the representations made to
the independent public accountants are valid and complete.
A system of internal controls is a major element in management's responsibility
for the fair presentation of the financial statements. These internal controls,
including accounting controls and the internal auditing program, are designed to
provide reasonable assurance that the assets are safeguarded, that transactions
are executed in accordance with management's authorization and are properly
recorded, and that fraudulent financial reporting is prevented or detected. An
important part of the internal controls system is the involvement of the General
Partners who provide all required services to ensure the adequacy of internal
controls. Procedures also exist to assess compliance with the terms of the
Partnership Agreement and to identify and resolve any business issues arising
between the Partnership and the General Partners.
Internal controls provide for the careful selection and training of personnel
and for appropriate division of responsibility. The controls are documented in
written codes of conduct, policies and procedures that are communicated to
employees of Rayonier and RFR. Management continually monitors the system of
internal controls for compliance. Internal auditors independently assess the
effectiveness of internal controls and make recommendations for improvement.
Arthur Andersen LLP also evaluate internal controls and perform tests of
procedures and accounting records to enable them to express their opinion on
RTLP's financial statements. They also make recommendations for improving
internal controls, policies and practices. Management takes appropriate action
in response to each recommendation from the internal auditors and the
independent public accountants.
The Board of Directors of RFR monitors management's administration of the
Partnership's financial and accounting policies and practices and the
preparation of financial reports.
The Audit Committee of the Board of Directors of RFR, which is comprised of
non-employee directors, meets periodically with management and with the internal
and external auditors to evaluate the effectiveness of the work performed by
them in discharging their respective responsibilities and to assure their
independent and free access to the Committee.
Rayonier controls RFR, and depends partially on the Partnership timberlands for
timber for use in Rayonier's mills and log trading business. Conflicts of
interest can arise in selecting, pricing and scheduling timber sold to Rayonier.
Other conflicts of interest can arise in allocating revenues and costs between
the Class A Units and the Class B Units, in scheduling timber sales to occur
before or after the Initial Term expires, and in setting the terms of any loans
between the Partnership and Rayonier. The Conflicts Committee of the Board of
Directors of RFR, which is comprised of non-employee directors, reviews these
transactions and obtains opinions from outside consultants as to their fairness.
F-1
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rayonier Timberlands, L.P.:
We have audited the accompanying balance sheets of Rayonier Timberlands, L.P. (a
Delaware limited partnership) as of December 31, 1994 and 1993, and the related
statements of income, cash flows, and partners' capital for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of Rayonier Timberlands, L.P., through the management of both
Rayonier Inc., the Special General Partner, and Rayonier Forest Resources
Company, the Managing General Partner of the Partnership. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Rayonier Timberlands, L.P. as
of December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
January 31, 1995
F-2
<PAGE> 26
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Thousands, except per unit information
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ------
<S> <C> <C>
SALES
Timber sales
Unaffiliated parties $143,266 $ 95,008 $ 81,661
Rayonier 21,935 19,929 16,982
-------- -------- --------
165,201 114,937 98,643
Timberland sales 1,320 1,110 17,752
-------- -------- --------
166,521 116,047 116,395
-------- -------- --------
COSTS AND EXPENSES
Cost of timber sold
Unaffiliated parties 21,460 15,064 12,980
Rayonier 3,223 3,139 2,512
-------- -------- --------
24,683 18,203 15,492
Cost of timberland sold 363 362 2,085
Forest management, overhead, and general
and administrative expenses 11,893 11,615 10,584
Commission expense paid to affiliate 86 692 1,680
-------- -------- --------
37,025 30,872 29,841
-------- -------- --------
OTHER OPERATING INCOME 2,513 2,223 2,093
-------- -------- --------
OPERATING INCOME 132,009 87,398 88,647
-------- -------- --------
OTHER INCOME AND DEDUCTIONS
Primary Account interest income from Rayonier 3,240 5,111 5,911
Secondary Account interest expense to Rayonier (11,088) (9,452) (8,108)
Minority interest of General Partners in RTOC (1,242) (831) (864)
-------- -------- --------
(9,090) (5,172) (3,061)
-------- -------- --------
PARTNERSHIP INCOME $122,919 $ 82,226 $ 85,586
======== ======== ========
Income per publicly traded Class A Unit $ 6.41 $ 4.45 $ 4.49
======== ======== ========
Income per Rayonier owned Class A Unit $ 6.40 $ 4.40 $ 4.38
======== ======== ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-3
<PAGE> 27
RAYONIER TIMBERLANDS, L.P.
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
Thousands
ASSETS
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash $ 150 $ 16
Receivables - net 9,942 4,798
Inventories 322 362
Prepaid logging roads 3,918 3,948
Primary Account short-term investment notes of Rayonier 42,700 106,200
Trade and intercompany receivables from Rayonier and affiliates 4,211 4,146
-------- --------
Total current assets 61,243 119,470
LONG-TERM RECEIVABLES -- 1,123
PRIMARY ACCOUNT LONG-TERM INVESTMENT NOTES
OF RAYONIER 5,000 --
OTHER ASSETS 1 112
FIXED ASSETS - NET 914 983
TIMBER, TIMBERLANDS AND LOGGING ROADS,
LESS DEPLETION AND AMORTIZATION 270,656 265,769
-------- --------
$337,814 $387,457
======== ========
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Advance deposits $ 5,061 $ 5,282
Accounts payable 1,674 2,257
Accrued liabilities
Taxes 1,527 1,580
All other 553 611
Current timber obligations 148 138
Advances from Rayonier 66 73
-------- --------
Total current liabilities 9,029 9,941
SECONDARY ACCOUNT LONG-TERM NOTES
PAYABLE TO RAYONIER 143,800 120,900
LONG-TERM TIMBER OBLIGATIONS 645 793
MINORITY INTEREST OF GENERAL PARTNERS IN RTOC 5,302 6,017
PARTNERS' CAPITAL
General Partners 5,253 5,962
Limited Partners (20,000,000 Class A Depositary
Units and 20,000,000 Class B Depositary
Units issued and outstanding) 173,785 243,844
-------- --------
$337,814 $387,457
======== ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-4
<PAGE> 28
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Thousands
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Partnership income $ 122,919 $ 82,226 $ 85,586
Non-cash items included in income
Depletion, depreciation and amortization 7,922 7,064 7,753
Minority interest of General Partners in RTOC 1,242 831 864
(Increase) decrease in receivables (5,144) (2,567) 1,702
Decrease (increase) in prepaid logging roads 30 (557) (824)
(Decrease) increase in advance deposits (221) 1,831 (1,430)
(Decrease) increase in accounts payable and
accrued liabilities (694) (457) 1,554
Other changes in working capital (32) (143) 197
--------- --------- ---------
Cash provided by operating activities 126,022 88,228 95,402
--------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures less sales and retirements of $394,
$374, and $1,561 in 1994, 1993, and 1992 (12,740) (12,979) (12,459)
Increase in Primary Account investment notes
of Rayonier (54,600) (106,200) (135,700)
Settlement of Primary Account investment
notes of Rayonier 113,100 106,200 109,300
Decrease (increase) in long-term receivables 1,123 (1,123) ---
Decrease in other assets 111 2 174
--------- --------- ---------
Cash provided by (used for) investing activities 46,994 (14,100) (38,685)
--------- --------- ---------
FINANCING ACTIVITIES
Decrease in timber obligations (138) (323) (106)
Increase in Secondary Account long-term notes
payable to Rayonier 22,900 22,800 18,000
Partnership distributions (193,687) (96,842) (75,788)
Distributions to General Partners of RTOC - net (1,957) (969) (747)
Recontributions by Rayonier and General Partners
of RTLP -- 959 1,717
--------- --------- ---------
Cash used for financing activities (172,882) (74,375) (56,924)
--------- --------- ---------
CASH
Net increase (decrease) in cash 134 (247) (207)
Balance at beginning of year 16 263 470
--------- --------- ---------
Balance at end of year $ 150 $ 16 $ 263
========= ========= =========
Supplemental disclosures of cash flow information
Cash received for interest - Primary Account $ 3,240 $ 5,113 $ 5,911
========= ========= =========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-5
<PAGE> 29
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Thousands
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
---------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1991 $ 245,969 $ 5,979 $ 251,948
Partnership income 84,730 856 85,586
Partnership distributions - net (73,333) (738) (74,071)
---------- -------- ----------
Balance, December 31, 1992 257,366 6,097 263,463
Partnership income 81,403 823 82,226
Partnership distributions - net (94,925) (958) (95,883)
---------- -------- ----------
Balance, December 31, 1993 243,844 5,962 249,806
Partnership income 121,690 1,229 122,919
Partnership distributions - net (191,749) (1,938) (193,687)
---------- -------- ----------
Balance, December 31, 1994 $ 173,785 $ 5,253 $ 179,038
========== ======== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-6
<PAGE> 30
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per unit information)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CONTROL
Rayonier Timberlands, L.P. (RTLP), a Delaware limited partnership, began
operations on November 20, 1985 succeeding to substantially all of the
timberlands business of Rayonier Inc. (Rayonier). Rayonier Forest Resources
Company (RFR), a wholly owned subsidiary of Rayonier, is the Managing General
Partner of RTLP and Rayonier is the Special General Partner of RTLP.
RTLP operates through Rayonier Timberlands Operating Company, L.P. (RTOC), a
Delaware limited partnership, in which RTLP holds a 99 percent limited partner
interest, and RFR and Rayonier together hold a 1 percent general partner
interest. RFR is the Managing General Partner of RTOC and Rayonier is the
Special General Partner of RTOC.
In addition to its General Partners' interests, Rayonier is also a Limited
Partner and owns 74.7 percent of RTLP's issued and outstanding Class A Units and
100 percent of RTLP's issued and outstanding Class B Units.
The officers, directors, and employees of Rayonier and RFR perform all
management and business activities for RTLP and RTOC. RTLP and RTOC have no
officers, directors, or employees.
ALLOCATIONS OF PARTNERSHIP INTEREST
RTLP records all of its activities in two accounts, the Primary Account and the
Secondary Account. The Class A unitholders, the Class B unitholders, and the
General Partners all participate in both accounts, but in different percentages.
The participation in the revenues and expenses of RTLP follows:
<TABLE>
<CAPTION>
Primary Secondary
Account Account
------- ---------
<S> <C> <C>
Class A unitholders 95% 4%
Class B unitholders 4% 95%
General Partners 1% 1%
---- ----
Total 100% 100%
==== ====
</TABLE>
IN ACCORDANCE WITH RTLP'S PARTNERSHIP AGREEMENT, THE PRIMARY ACCOUNT WILL BE
CLOSED AT THE END OF THE INITIAL TERM ON DECEMBER 31, 2000. SUBSEQUENT TO THAT
DATE, THE CLASS A UNITHOLDERS WILL PARTICIPATE IN 4 PERCENT OF THE REVENUES AND
EXPENSES OF RTLP AND 4 PERCENT OF ITS CASH FLOW AFTER ALL SECONDARY ACCOUNT DEBT
HAS BEEN REPAID.
INVESTING AND FINANCING ACTIVITIES
The excess of operating cash flow generated by the Primary Account over amounts
distributed to unitholders is invested with Rayonier in accordance with the
Partnership Agreement and are repayable on demand. Interest is due quarterly and
the stated interest rates are at least equivalent to the rate Rayonier would be
charged by an outside party for equivalent borrowings.
The Partnership has expenditures that relate primarily to timber that will be
harvested after the Initial Term, such as costs of site preparation, planting,
reforestation, pre-commercial thinning, and similar activities, all of which are
allocated to the Secondary Account of the Partnership. Rayonier funds these
expenditures on behalf of the Partnership and, in accordance with the
Partnership Agreement, RTLP incurs obligations to Rayonier that mature on
January 1, 2001.
Under the terms of the Partnership Agreement, cash credited to the Primary
Account may not be loaned or otherwise used for the benefit of the Secondary
Account. Accordingly, the Partnership is not permitted to use proceeds from the
Primary Account Investment Notes of Rayonier to repay the Secondary Account
Long-Term Notes Payable to Rayonier.
See Notes 5 and 6 for further information.
F-7
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SPECIAL ALLOCATIONS
In 1989, the Partnership Agreements of RTLP and RTOC were amended to provide for
the special allocation of certain costs to Rayonier's and RFR's interests as
General Partners of both Partnerships and to Rayonier's interest as a Limited
Partner of RTLP. These costs reduce Rayonier's and RFR's income from RTLP and
RTOC and the cash flow attributed to their Partnership interests. The special
allocations do not impact the interest of publicly traded Class A Units nor
their cash distributions.
On January 1, 1989, RTOC entered into a sales agency agreement with a
Rayonier-affiliated foreign sales corporation. The affiliate, RayFor Foreign
Sales Corporation (FSC), acted as a commission agent in selling Rayonier's
interest in stumpage that was eventually exported from the United States. As a
result, Rayonier gained certain tax benefits that were only available to
tax-paying corporations.
Effective with the first quarter of 1989, a commission expense was paid by RTOC
to FSC. The Board of Directors of the Managing General Partner approved
amendments to the Partnership Agreements of both RTLP and RTOC that allowed for
the allocation of FSC commission expense and associated administrative expenses
only to Rayonier and RFR, as General Partners of RTOC and RTLP, and to Rayonier
as a Limited Partner of RTLP, and did not affect the earnings or cash flow of
publicly traded Class A Units.
Effective August 10, 1993, legislation was enacted eliminating tax benefits
related to log exports for foreign sales corporations. Accordingly, the
Partnership will not incur foreign sales commission expense for sales made after
August 10, 1993. However, during the second quarter of 1994, the Partnership
recorded commission expenses of $86 to adjust its final accrual for commissions
on sales made prior to the legislation's effective date. Since the Partnership's
commission expense had been fully allocated to Rayonier and the General
Partners, the legislation did not impact the earnings or cash flows of publicly
traded Class A Units.
CONSOLIDATION
The financial statements consolidate the accounts of RTLP and RTOC. Intercompany
transactions have been eliminated. The Rayonier and RFR 1 percent general
partner interest in RTOC is presented as minority interest in these financial
statements.
Certain reclassifications have been made to prior years' financial statements to
conform to current year presentation.
REVENUE RECOGNITION
Timber sales are generally recognized when legal ownership and the risk of loss
passes to the purchaser and the quantity sold is determinable. This generally
occurs when the purchaser severs and measures the timber.
Revenues have been based on actual harvest volumes multiplied by contractually
agreed upon prices awarded in sealed-bid auctions or negotiated at arm's length
with the purchasers, including Rayonier. These prices are periodically and
independently tested for reasonableness to market prices in comparable
geographic areas.
Bulk timber sales are generally recognized when legal ownership and the risk of
loss passes to the purchaser and the amount of profit is determinable.
Timberland and land sales are recognized when legal ownership passes, the amount
of profit is determinable, and specified levels of down payment are received.
TIMBER AND TIMBERLANDS
The acquisition cost of land, timber, real estate taxes, lease payments, site
preparation, and other costs relating to the planting and growing of timber are
capitalized. Such costs attributed to merchantable timber are charged against
revenue at the time the timber is harvested based on the relationship of
harvested timber to the estimated volume of currently recoverable timber. Timber
and timberlands are stated at the lower of cost, net of timber cost depletion or
market value. The timber originally contributed by Rayonier is stated at
Rayonier's historical cost.
F-8
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LOGGING ROADS
Logging roads, including bridges, are stated at cost, less accumulated
amortization. The costs of roads developed for reforestation activities are
amortized using the straight-line method over their useful lives estimated at 40
years for roads and 20 years for bridges. Road costs associated with harvestable
timber access are charged to a prepaid account and amortized as the related
timber is sold, generally within two years.
PARTNERS' CAPITAL
The partners' capital accounts have been included on a historical cost basis as
determined by the cash and net book value of assets originally contributed to
RTLP by Rayonier and RFR. These accounts have been adjusted for the allocation
of revenues and costs in accordance with the Partnership Agreement, for
distributions made to partners, and for recontributions made by Rayonier and
RFR. Revenues and costs are allocated to Primary and Secondary Accounts based
upon their relationship to the harvest plan of the Initial Term (through
December 31, 2000) or to the harvest plan subsequently (2001 and thereafter).
The partners' capital accounts were adjusted for RTLP distributions and for
recontributions to RTLP by Rayonier and RFR as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Distributions to Limited Partners $191,749 $95,874 $75,032
Distributions to General Partners 1,938 968 756
Recontributions by Rayonier and RFR -- (959) (1,717)
-------- ------- -------
Total $193,687 $95,883 $74,071
======== ======= =======
</TABLE>
The amount recontributed by Rayonier and RFR is equal to the foreign sales
commission expense paid by the Partnership during the year, which was fully
allocated to Rayonier and the General Partners. See Special Allocations.
In addition to the RTLP distributions, RTOC distributed $1,242, $978, and $764,
in 1994, 1993, and 1992, respectively, to its General Partners. Recontributions
were also made to RTOC by the General Partners for their interest in the
commission expense paid.
2. INCOME AND OTHER TAXES
RTLP is not a separate taxable entity for federal or state income tax purposes.
Any taxable income or loss is reported by the partners in accordance with the
Partnership Agreement. Accrued taxes relating to obligations of RTLP as of
December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Property taxes $ 853 $1,086
Excise taxes 674 494
------ ------
Total $1,527 $1,580
====== ======
</TABLE>
3. RELATED PARTY TRANSACTIONS
RTLP is a supplier of timber to Rayonier for use in its log trading business and
pulp and lumber manufacturing facilities. Timber sales to Rayonier for the years
ended December 31, 1994, 1993, and 1992 totaled $21,935, $19,929, and $16,982,
respectively. RTLP's related-party revenues represent the fair market value of
timber sold to Rayonier.
RTLP engages in various transactions with Rayonier and its affiliates that are
characteristic of a consolidated group under common control. Receipts,
disbursements, and net cash position are currently managed by Rayonier through
an RTLP centralized treasury system. Accordingly, cash generated by and cash
requirements of RTLP flow through intercompany accounts. Any loans to or
borrowings from Rayonier are made at an interest rate equivalent to that which
would be charged Rayonier by an unrelated third party for a comparable loan for
the same period.
F-9
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The balances in the current RTLP intercompany accounts with Rayonier as of
December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Primary Account receivable $4,211 $4,146
Secondary Account payable (66) (73)
------ ------
Total due from Rayonier $4,145 $4,073
====== ======
</TABLE>
Interest income received from Rayonier on the Primary Intercompany Account
balance was $197 and $147 in 1994 and 1993 on an average outstanding receivable
of $4,163 and $4,185, respectively. Interest expense paid to Rayonier on the
Secondary Intercompany Account was $492 and $334 in 1994 and 1993 on an average
outstanding payable of $12,447 and $11,740, respectively.
RTLP is charged by Rayonier with direct costs and expenses associated with
RTLP's operations. In addition, indirect costs were allocated to RTLP for forest
management, overhead, and general and administrative expenses related to RTLP's
operations. Such allocated costs totaled $6,799, $6,850, and $6,031 in 1994,
1993, and 1992, respectively.
4. MAJOR UNAFFILIATED CUSTOMERS
Sales for 1994, 1993, and 1992 include timber stumpage sales of $29,300,
$16,900, and $10,200, respectively, to three customers affiliated with the
Quinault Indian Nation. In addition, sales for 1992 include $16,800 from two
major timberland tract sales in the Northwest to the Quinault Indian Nation.
5. INVESTMENT NOTES OF RAYONIER
Cash balances, including the excess of operating cash flow generated by the
Primary Account over amounts distributed to unitholders, are being invested in
Rayonier as short-term and long-term investment notes. These funds are invested
in accordance with the Partnership Agreement and are repayable on demand.
Interest is due quarterly and the interest rates are at least equivalent to the
rate Rayonier would be charged by an outside party for equivalent borrowings. At
December 31, 1994 and 1993, the RTLP Primary Account included investment notes
of Rayonier of $47,700 and $106,200, respectively. The notes bear fixed interest
rates that range from 6.8 to 8.1 percent, as of December 31, 1994, and 3.9 to
4.2 percent, as of December 31, 1993. The fair value of the investment notes of
Rayonier approximates its carrying value.
The weighted average interest rate, based on the principal amount, was 6.9
percent as of December 31, 1994 and 4.1 percent as of December 31, 1993.
Interest income earned by the Primary Account on the investment notes of
Rayonier was $3,043, $4,964, and $5,718 in 1994, 1993, and 1992, respectively.
6. LONG-TERM NOTES PAYABLE TO RAYONIER
The Partnership has expenditures that relate primarily to timber that will be
harvested after the Initial Term, such as costs of site preparation, planting,
reforestation, pre-commercial thinning, and similar activities, all of which are
allocated to the Secondary Account of the Partnership. Rayonier funds these
expenditures on behalf of the Partnership and, in accordance with the
Partnership Agreement, RTLP incurs obligations to Rayonier that mature on
January 1, 2001. Advances made by Rayonier to the Secondary Account in any year
bear interest through December 31 of that year at the actual average rate of
Rayonier's revolving credit borrowings. On each such December 31, advances made
in that year, including interest, are converted into a note bearing interest
through January 1, 2001. The fixed interest rate, which is determined as of that
December 31, is equal to an appropriate spread over the yield on U.S. Government
Notes having a maturity date in early 2001. Interest is due quarterly, and all
or any part of the unpaid principal may be prepaid at any time without penalty
or premium. The long-term notes payable to Rayonier amounted to $143,800 and
$120,900 as of December 31, 1994 and 1993, respectively. Based on the spread
over the current rates of U.S. Government Notes having a maturity date in early
2001, the fair value of the long-term notes payable to Rayonier is $143,500.
At both December 31, 1994 and 1993, interest rates on the individual notes range
from 6.5 to 10.6 percent, with a weighted average interest rate of 8.7 percent.
Interest expense incurred by the Secondary Account on the notes payable to
Rayonier was $10,596, $9,118, and $7,737 in 1994, 1993, and 1992, respectively.
F-10
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM TIMBER OBLIGATIONS
As of December 31, 1994 and 1993, total timber obligations amounted to $793 and
$931, respectively. Interest rates ranged from 6.0 to 8.6 percent, with a
weighted average interest rate of 8.4 percent at both December 31, 1994 and
1993.
The obligations are payable as follows: 1995 - $148; 1996 - $159; 1997 - $149;
1998 - $162; and 1999 - $175.
8. ENVIRONMENTAL MATTERS
Over the past four years, the harvest of timber from private lands in the state
of Washington has been restricted as a result of the listing of the northern
spotted owl as a threatened species under the Endangered Species Act (ESA).
These restrictions have caused the Partnership to restructure and reschedule
some of its harvest plans. The U.S. Fish and Wildlife Service has developed a
proposed rule under the ESA to redefine protective measures for the northern
spotted owl on private lands. This rule, as currently drafted, would reduce the
harvest restrictions on private lands except within specified special emphasis
areas, where restrictions would be increased. One proposed special emphasis area
is on the Olympic Peninsula, where a significant portion of the Partnership's
Washington timberlands is located. Separately, the state of Washington Forest
Practices Board is in the process of adopting new harvest regulations to protect
the northern spotted owl and the marbled murrelet (also recently listed as a
threatened species). The State Department of Natural Resources draft of this
rule also provides for a special emphasis area to protect the northern spotted
owl on the Olympic Peninsula, which would increase harvest restrictions on the
Partnership's lands. The Partnership is unable at this time to predict the form
in which the federal or state rules will eventually be adopted. However, if
either rule is adopted in the form proposed by the respective agencies, the
result will be some reduction in the volume of Partnership timber available for
harvest.
F-11
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMPUTATION OF INCOME PER CLASS A UNIT
The Partnership Agreement provides for the allocation of Partnership income
among the General and Limited Partners. The following tables present the
computation of income per Class A Unit for the three years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------- --------------------------- ---------------------------
Primary Secondary Primary Secondary Primary Secondary
Account Account Account Account Account Account
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Timber and timberland sales $ 165,201 $ 1,320 $ 114,912 $ 1,135 $ 112,199 $ 4,196
Interest and other income - net 5,105 (10,441) 6,891 (9,009) 7,631 (7,735)
Costs and expenses (33,533) (3,406) (26,734) (3,446) (24,103) (4,058)
Interest of General Partners in RTOC (1,367) 125 (951) 113 (957) 76
---------- ----------- ---------- ----------- ---------- -----------
Partnership income
before commission expense 135,406 (12,402) 94,118 (11,207) 94,770 (7,521)
Commission expense - net of 1%
General Partner interest (85) -- (685) -- (1,663) --
---------- ----------- ---------- ----------- ---------- -----------
PARTNERSHIP INCOME $ 135,321 $ (12,402) $ 93,433 $ (11,207) $ 93,107 $ (7,521)
========== =========== ========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION> Publicly Rayonier Publicly Rayonier Publicly Rayonier
Traded Owned Traded Owned Traded Owned
A Units A Units A Units A Units A Units A Units
--------------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income for Class A Units before
commission expense
95% of Primary Account $ 32,545 $ 96,091 $ 22,621 $ 66,791 $ 22,778 $ 67,254
4% of Secondary Account (125) (371) (113) (335) (76) (225)
---------- ----------- ---------- ----------- ---------- -----------
32,420 95,720 22,508 66,456 22,702 67,029
Commission expense -- (81) -- (651) -- (1,580)
---------- ----------- ---------- ----------- ---------- -----------
Total income for Class A Units $ 32,420 $ 95,639 $ 22,508 $ 65,805 $ 22,702 $ 65,449
========== =========== ========== =========== ========== ===========
Units outstanding 5,060,000 14,940,000 5,060,000 14,940,000 5,060,000 14,940,000
========== =========== ========== =========== ========== ===========
INCOME PER CLASS A UNIT $ 6.41 $ 6.40 $ 4.45 $ 4.40 $ 4.49 $ 4.38
========== =========== ========== =========== ========== ===========
</TABLE>
F-12
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. OPERATING CASH FLOW ALLOCABLE TO CLASS A UNITS
Operating cash flow allocable to a Class A Unit is calculated by multiplying 99
percent (Limited Partners' interest in RTLP) of operating cash flow allocated to
the Primary and Secondary Accounts by the respective 95 percent and 4 percent
Class A Unit interest in those accounts. In determining operating cash flow,
Partnership results are adjusted for non-cash costs and expenses without the
effects of changes in working capital. The following tables present the
calculations of operating cash flow allocable to Class A Units for the three
years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------- -------------------------- -------------------------
Primary Secondary Primary Secondary Primary Secondary
Account Account Account Account Account Account
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Timber and timberland sales $ 165,201 $ 1,320 $ 114,912 $ 1,135 $ 112,199 $ 4,196
Interest and other income - net 5,105 (10,441) 6,891 (9,009) 7,631 (7,735)
Costs and expenses - other than non-cash
items, commissions, and the General
Partners' interest in RTOC (25,798) (2,925) (19,867) (2,967) (16,546) (2,380)
Capital expenditures (2,240) (10,894) (1,911) (11,442) (2,074) (11,948)
General Partners' interest in RTOC (1,423) 229 (1,000) 223 (1,012) 179
---------- ----------- ---------- ----------- ---------- -----------
Operating cash flow before
commission expense 140,845 (22,711) 99,025 (22,060) 100,198 (17,688)
Commission expense - net
of 1% General Partner interest (85) -- (685) -- (1,663) --
---------- ----------- ---------- ----------- ---------- -----------
OPERATING CASH FLOW $ 140,760 $ (22,711) $ 98,340 $ (22,060) $ 98,535 $ (17,688)
========== =========== ========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION> Publicly Rayonier Publicly Rayonier Publicly Rayonier
Traded Owned Traded Owned Traded Owned
A Units A Units A Units A Units A Units A Units
--------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash allocable to Class A Units
before commission expense
95% of Primary Account $ 33,852 $ 99,951 $ 23,801 $ 70,273 $ 24,083 $ 71,105
4% of Secondary Account (230) (678) (223) (659) (179) (529)
---------- ----------- ---------- ----------- ---------- -----------
33,622 99,273 23,578 69,614 23,904 70,576
Commission expense -- (81) -- (651) -- (1,580)
---------- ----------- ---------- ----------- ---------- -----------
OPERATING CASH FLOW ALLOCABLE TO
CLASS A UNITS $ 33,622 $ 99,192 $ 23,578 $ 68,963 $ 23,904 $ 68,996
========== =========== ========== =========== ========== ===========
Units outstanding 5,060,000 14,940,000 5,060,000 14,940,000 5,060,000 14,940,000
========== =========== ========== =========== ========== ===========
Primary Account cash flow per unit $ 6.69 $ 6.69 $ 4.70 $ 4.66 $ 4.76 $ 4.66
Secondary Account cash flow per unit (.05) (.05) (.04) (.04) (.04) (.04)
---------- ----------- ---------- ----------- ---------- -----------
OPERATING CASH FLOW PER
CLASS A UNIT $ 6.64 $ 6.64 $ 4.66 $ 4.62 $ 4.72 $ 4.62
========== =========== ========== =========== ========== ==========
</TABLE>
F-13
<PAGE> 37
QUARTERLY RESULTS FOR 1994 AND 1993 (unaudited):
(Thousands, except per unit information)
<TABLE>
<CAPTION>
1994 Quarter Ended
------- -------------------------------------------------------------
March June September December Total
31 30 30 31 Year
-------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales $ 54,211 $ 33,007 $ 38,565 $ 40,738 $ 166,521
Operating income 45,004 25,490 30,479 31,036 132,009
Partnership income 43,193 23,116 28,013 28,597 122,919
Income per publicly traded
Class A Unit 2.19 1.24 1.48 1.50 6.41
Operating cash flow allocable
to a publicly traded
Class A Unit 2.23 1.30 1.57 1.54 6.64
Distributions per publicly traded
Class A Unit 5.30 (a) 1.30 1.30 1.30 9.20
</TABLE>
<TABLE>
<CAPTION>
1993 Quarter Ended
------- -------------------------------------------------------------
March June September December Total
31 30 30 31 Year
-------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales $ 31,209 $ 30,372 $ 15,246 $ 39,220 $ 116,047
Operating income 24,223 23,599 9,687 29,889 87,398
Partnership income 23,014 22,322 8,461 28,429 82,226
Income per publicly traded
Class A Unit 1.23 1.19 .55 1.48 4.45
Operating cash flow allocable
to a publicly traded
Class A Unit 1.30 1.24 .57 1.55 4.66
Distributions per publicly traded
Class A Unit 1.15 1.15 1.15 1.15 4.60
</TABLE>
(a) Includes a $4.00 per Class A Unit special distribution paid on March 31,
1994.
F-14
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 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.
RAYONIER TIMBERLANDS, L.P.
(A Delaware Limited Partnership)
By: RAYONIER FOREST RESOURCES COMPANY
Managing General Partner
By: KENNETH P. JANETTE
---------------------------
Kenneth P. Janette
Vice President and Corporate Controller
March 24, 1995
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 dates indicated.
RAYONIER FOREST RESOURCES COMPANY
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President and Director
-----------------------------------
Ronald M. Gross
(Principal Executive Officer)
GERALD J. POLLACK Senior Vice President and March 24, 1995
----------------------------------- Chief Financial Officer
Gerald J. Pollack
(Principal Financial Officer)
KENNETH P. JANETTE Vice President and March 24, 1995
------------------------------------ Corporate Controller
Kenneth P. Janette
(Principal Accounting Officer)
Director
-----------------------------------
William J. Alley
* Director
-----------------------------------
Donald W. Griffin
* Director
-----------------------------------
Thomas W. Keesee, Jr.
* Director
-----------------------------------
DeRoy C. Thomas
* By: GERALD J. POLLACK March 24, 1995
------------------------------
Attorney-in-fact
</TABLE>
-A-
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
NO. ----------- --------
-------
<S> <C> <C>
3(a) Partnership Agreement of the Incorporated by
Partnership reference to
Exhibit No. 3(a)
to Registrant's
Form 10K for
1988
3(b) Forms of Class A Certificate Incorporated by
of Limited Partnership and Class B reference to
Certificate of Limited Partnership Exhibit No. 3.2 to
of the Partnership Registration State-
ment on Form S-l,
(Reg. No. 33-587)
3(c) Partnership Agreement of Operating Incorporated by
Partnership reference to
Exhibit No. 3(c)
to Registrant's
Form 10K for
1988
3(d) Forms of Class A Certificate Incorporated by
of Limited Partnership and Class B reference to
Certificate of Limited Partnership Exhibit No. 3.4 to
of the Operating Partnership Registration State-
ment on Form S-l,
(Reg. No. 33-587)
4(a) Deposit Agreement among the Incorporated by
Partnership, Manufacturers Hanover reference to
Trust Co. as Depositary, Rayonier Exhibit No. 4.1 to
Forest Resources Company (RFR), as Registration State-
attorney-in-fact of limited partners ment on Form S-l,
in the Partnership, and all holders of (Reg. No. 33-587)
Depositary Receipts
4(b) Specimen Class A Depositary Receipt Incorporated by
reference to
Exhibit No. 4.1 to
Registration State-
ment on Form S-l,
(Reg. No. 33-587)
4(c) Specimen Secondary Account Incorporated by
Note Payable to ITT Rayonier reference to
Exhibit No. 4(c) to
Registrant's Form 10K
for 1992
9 Voting Trust Agreement None
</TABLE>
- B -
<PAGE> 40
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
NO. ----------- --------
-------
<S> <C> <C>
10 Conveyance Agreement among Incorporated by
Rayonier, RFR, the Partnership and reference to
the Operating Partnership Exhibit No.10.l to
Registration State-
ment on Form S-l,
(Reg. No. 33-587)
11 Statement re computation of per Not Applicable
share earnings
12 Statement re computation of ratios Not Applicable
13 Annual Report to security holders, Not Applicable
Form l0-Q or quarterly report to
security holders
16 Letter re change in certifying Not Applicable
accountant
18 Letter re change in accounting Not Applicable
principles
19 Previously unfiled documents None
21 Subsidiaries of the registrant *
22 Published report regarding matters None
submitted to vote of security holders
23 Consents of experts and counsel None
24 Powers of attorney Filed herewith
27 Financial data schedule Filed herewith
28 Information from reports furnished Not Applicable
to state insurance regulatory
authorities
99 Additional exhibits None
</TABLE>
* Registrant's only subsidiary is Rayonier Timberlands Operating Company,
L.P., a Delaware limited partnership in which Registrant holds a 99%
limited partner's interest. See Item 1 - "Business - Description of
Business."
- C -
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints GERALD J. POLLACK and JOHN B. CANNING his or her true
and lawful attorneys-in-fact, with full power in each to act without the other
and with full power of substitution and resubstitution to sign in the name of
such person and in each of his or her offices and capacities in Rayonier Forest
Resources Company, the Managing General Partner of Rayonier Timberlands, L.P.
(the "Partnership") the Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 of the Partnership, and to file the same, and any amendments
thereto, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission.
Dated: March 17, 1995
<TABLE>
<CAPTION>
<S> <C>
RONALD M. GROSS President and Director
---------------------
Ronald M. Gross
DONALD W. GRIFFIN Director
---------------------
Donald W. Griffin
THOMAS W. KEESEE, JR. Director
---------------------
Thomas W. Keesee, Jr.
DEROY C. THOMAS Director
---------------------
DeRoy C. Thomas
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 150
<SECURITIES> 0
<RECEIVABLES> 9,942
<ALLOWANCES> 0
<INVENTORY> 322
<CURRENT-ASSETS> 61,243
<PP&E> 1,778
<DEPRECIATION> 864
<TOTAL-ASSETS> 337,814
<CURRENT-LIABILITIES> 9,029
<BONDS> 143,800
<COMMON> 0
0
0
<OTHER-SE> 179,038
<TOTAL-LIABILITY-AND-EQUITY> 337,814
<SALES> 166,521
<TOTAL-REVENUES> 166,521
<CGS> 25,046
<TOTAL-COSTS> 25,046
<OTHER-EXPENSES> 10,708
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,848
<INCOME-PRETAX> 122,919
<INCOME-TAX> 0
<INCOME-CONTINUING> 122,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,919
<EPS-PRIMARY> 6.41
<EPS-DILUTED> 6.41
</TABLE>
