<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ........... TO ............
COMMISSION FILE NUMBER 1-8997
RAYONIER TIMBERLANDS, L.P.
A Delaware Limited Partnership
I.R.S. Employer Identification Number 06-1148227
1177 SUMMER STREET, STAMFORD, CONNECTICUT 06905-5529
(Principal Executive Office)
Telephone Number: (203) 348-7000
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 [ ]
As of November 1, 1996, there were 20,000,000 Class A Depositary Units of the
Partnership outstanding, of which 14,940,000 Class A Depositary Units were owned
by Rayonier.
<PAGE> 2
RAYONIER TIMBERLANDS, L.P.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the Three Months and
Nine Months Ended September 30, 1996 and 1995 1
Balance Sheets as of September 30, 1996 and
December 31, 1995 2
Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 3
Notes to Financial Statements 4 - 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 11
Exhibit Index 12
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements reflect, in the opinion of Rayonier
Forest Resources Company, the managing general partner of Rayonier Timberlands,
L.P., all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the results of operations, the financial
position, and the cash flows for the periods presented. For a full description
of accounting policies, see Notes to Financial Statements in the 1995 Annual
Report on Form 10-K.
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF INCOME
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES
Timber sales
Unaffiliated parties $ 23,434 $ 18,430 $ 99,414 $ 85,479
Rayonier 3,375 6,284 11,709 22,101
--------- --------- --------- ---------
26,809 24,714 111,123 107,580
Timberland sales 201 1,315 1,650 3,869
--------- --------- --------- ---------
27,010 26,029 112,773 111,449
--------- --------- --------- ---------
COSTS AND EXPENSES
Cost of timber sold
Unaffiliated parties 5,873 4,165 17,328 13,885
Rayonier 879 1,417 2,150 3,718
--------- --------- --------- ---------
6,752 5,582 19,478 17,603
Cost of timberland sold -- 368 413 1,048
Forest management, overhead, and general
and administrative expenses 3,050 3,179 8,939 8,965
--------- --------- --------- ---------
9,802 9,129 28,830 27,616
--------- --------- --------- ---------
OTHER OPERATING INCOME 1,463 1,178 2,415 2,143
--------- --------- --------- ---------
OPERATING INCOME 18,671 18,078 86,358 85,976
--------- --------- --------- ---------
OTHER INCOME AND DEDUCTIONS
Primary Account interest income from Rayonier 1,010 1,043 2,987 3,496
Secondary Account interest expense to Rayonier (3,711) (3,318) (10,818) (9,687)
Minority interest of General Partners in RTOC (159) (158) (785) (798)
--------- --------- --------- ---------
(2,860) (2,433) (8,616) (6,989)
--------- --------- --------- ---------
PARTNERSHIP INCOME $ 15,811 $ 15,645 $ 77,742 $ 78,987
========= ========= ========= =========
INCOME PER CLASS A UNIT* $ 0.94 $ 0.88 $ 4.21 $ 4.16
========= ========= ========= =========
</TABLE>
* Refer to calculations on page 6.
1
<PAGE> 4
RAYONIER TIMBERLANDS, L.P.
BALANCE SHEETS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash $ 260 $ 282
Receivables, net 10,857 10,739
Inventories 457 584
Prepaid logging roads 4,099 3,946
Primary Account short-term investment notes of Rayonier 41,300 33,300
Trade and intercompany receivables from Rayonier and affiliates 4,188 4,278
-------- --------
Total current assets 61,161 53,129
LONG-TERM RECEIVABLES -- 1,333
PRIMARY ACCOUNT LONG-TERM INVESTMENT NOTES OF RAYONIER 5,000 5,000
FIXED ASSETS, NET 1,071 924
TIMBER, TIMBERLANDS, AND LOGGING ROADS,
NET OF DEPLETION AND AMORTIZATION 281,728 276,094
-------- --------
$348,960 $336,480
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Advance deposits $ 5,913 $ 6,420
Accounts payable 1,143 2,887
Accrued liabilities
Taxes 3,558 1,738
All other 750 569
Current timber obligations 171 159
Advances from Rayonier 91 75
-------- --------
Total current liabilities 11,626 11,848
SECONDARY ACCOUNT LONG-TERM NOTES
PAYABLE TO RAYONIER 187,700 166,400
LONG-TERM TIMBER OBLIGATIONS 337 486
MINORITY INTEREST OF GENERAL PARTNERS IN RTOC 4,950 5,035
PARTNERS' CAPITAL
General Partners 4,905 4,989
Limited Partners (20,000,000 Class A Depositary
Units and 20,000,000 Class B Depositary Units
issued and outstanding) 139,442 147,722
-------- --------
$348,960 $336,480
======== ========
</TABLE>
2
<PAGE> 5
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF CASH FLOWS
(UNUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Partnership income $ 77,742 $ 78,987
Non-cash items included in income
Depletion, depreciation and amortization 5,801 5,625
Minority interest of General Partners in RTOC 785 798
(Increase) decrease in receivables (118) 596
(Increase) decrease in prepaid logging roads (153) 106
(Decrease) increase in advance deposits (507) 2,798
Increase in accounts payable and accrued liabilities 257 1,293
Other changes 233 (72)
--------- ---------
Cash provided by operating activities 84,040 90,131
--------- ---------
INVESTING ACTIVITIES
Capital expenditures less sales and retirements
of $305 and $937 in 1996 and 1995 (11,582) (9,313)
Increase in Primary Account investment
notes of Rayonier (116,300) (100,600)
Settlement of Primary Account investment
notes of Rayonier 108,300 111,700
Decrease in long-term receivables 1,333 --
--------- ---------
Cash (used for) provided by investing activities (18,249) 1,787
--------- ---------
FINANCING ACTIVITIES
Decrease in timber obligations (137) (126)
Increase in Secondary Account long-term notes
payable to Rayonier 21,300 15,850
Partnership distributions (86,106) (106,526)
Distributions to General Partners of RTOC (870) (1,077)
--------- ---------
Cash used for financing activities (65,813) (91,879)
--------- ---------
CASH
(Decrease) increase during the period (22) 39
Balance, beginning of period 282 150
--------- ---------
Balance, end of period $ 260 $ 189
========= =========
Supplemental disclosures of cash flow information
Cash received for interest - Primary Account $ 2,987 $ 3,496
========= =========
Cash paid for interest - Secondary Account $ 10,851 $ 9,701
========= =========
</TABLE>
3
<PAGE> 6
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Rayonier Timberlands, L.P. (RTLP), a Delaware limited partnership, began
operations on November 20, 1985 succeeding to substantially all of the U.S.
timberlands business (the Timberlands) 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 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%
--- ---
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.
NATURE OF BUSINESS OPERATIONS
The Partnership is engaged in the timberlands business, which includes forestry
management, reforestation, timber thinning and the marketing and sale of
standing timber and logs from the Timberlands. The Partnership will occasionally
purchase, for short-term resale, standing timber from third parties. 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 to fund its cash distribution policy, as determined from time to time
by the Managing General Partner's Board of Directors.
The Partnership negotiates and contracts for the sale of standing timber
(stumpage) at fixed prices 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 and sells logs harvested 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.
4
<PAGE> 7
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
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 is 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 and pre-commercial thinning, 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 l, 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.
PARTNERS' CAPITAL
An analysis of the activity in the Partners' Capital accounts of RTLP for the
nine months ended September 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Limited Partners General Partners Total
<S> <C> <C> <C>
Balance, January 1, 1996 $ 147,722 $ 4,989 $ 152,711
Partnership income 76,965 777 77,742
Partnership distributions (85,245) (861) (86,106)
--------- --------- ---------
Balance, September 30, 1996 $ 139,442 $ 4,905 $ 144,347
========= ========= =========
Balance, January 1, 1995 $ 173,785 $ 5,253 $ 179,038
Partnership income 78,197 790 78,987
Partnership distributions (105,460) (1,066) (106,526)
--------- --------- ---------
Balance, September 30, 1995 $ 146,522 $ 4,977 $ 151,499
========= ========= =========
</TABLE>
In addition to the RTLP distributions, RTOC distributed $870 and $1,077 to its
General Partners during the first nine months of 1996 and 1995, respectively.
5
<PAGE> 8
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
2. 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 nine months ended September 30,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
Primary Secondary Primary Secondary
Account Account Account Account
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Timber and timberland sales $ 111,094 $ 1,679 $ 107,580 $ 3,869
Interest and other income - net 4,761 (10,177) 5,219 (9,267)
Costs and expenses (25,792) (3,038) (24,002) (3,614)
Interest of General Partners in RTOC (900) 115 (888) 90
--------- --------- --------- ---------
PARTNERSHIP INCOME $ 89,163 $ (11,421) $ 87,909 $ (8,922)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Total for Total for
All A Units All A Units
------------ ------------
<S> <C> <C>
Income for Class A Units
95% of Primary Account $ 84,704 $ 83,514
4% of Secondary Account (457) (357)
------------ ------------
Total income for Class A Units $ 84,247 $ 83,157
============ ============
Units outstanding 20,000,000 20,000,000
============ ============
INCOME PER CLASS A UNIT $ 4.21 $ 4.16
============ ============
</TABLE>
6
<PAGE> 9
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
3. OPERATING CASH FLOW ALLOCABLE TO CLASS A UNITS
Operating cash flow allocable to Class A Units is calculated in accordance with
the Partnership agreement, should not be considered as contradictory to
information provided in the Statements of Cash Flows and is not intended as an
alternative to income per Class A Unit as an indication of performance.
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 nine
months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
Primary Secondary Primary Secondary
Account Account Account Account
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Timber and timberland sales $ 111,094 $ 1,679 $ 107,580 $ 3,869
Interest and other income, net 4,761 (10,177) 5,219 (9,267)
Costs and expenses - other than non-cash
items and the General
Partners' interest in RTOC (20,159) (2,565) (18,533) (2,543)
Capital expenditures (1,126) (10,761) (1,135) (9,115)
General Partners' interest in RTOC (946) 218 (931) 171
--------- --------- --------- ---------
OPERATING CASH FLOW $ 93,624 $ (21,606) $ 92,200 $ (16,885)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Total for Total for
All A Units All A Units
------------ ------------
<S> <C> <C>
Cash allocable to Class A Units
95% of Primary Account $ 88,943 $ 87,590
4% of Secondary Account (864) (675)
------------ ------------
OPERATING CASH FLOW ALLOCABLE TO
CLASS A UNITS $ 88,079 $ 86,915
============ ============
Units outstanding 20,000,000 20,000,000
============ ============
Primary Account cash flow per unit $ 4.44 $ 4.38
Secondary Account cash flow per unit (.04) (.03)
------------ ------------
OPERATING CASH FLOW PER CLASS A UNIT $ 4.40 $ 4.35
============ ============
</TABLE>
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Most of the timber harvested from Partnership lands in the Northwest is resold
by the Partnership's customers into log export markets, primarily in Japan,
Korea and China. The Partnership's contracts in this region generally provide
for payment of a fixed price per unit of volume or weight, by species, with
harvesting required to be completed within contract periods of up to 24 months.
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. The Partnership's contracts in this region generally provide for
payment of a fixed price per unit of weight, with harvesting required to be
completed within contract periods of up to 18 months.
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>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
TIMBER SALES
Northwest $ 14,487 $ 14,670 $ 72,471 $ 64,069
Southeast 12,322 10,044 38,652 43,511
--------- --------- --------- ---------
26,809 24,714 111,123 107,580
--------- --------- --------- ---------
TIMBERLAND SALES
Northwest -- -- -- --
Southeast 201 1,315 1,650 3,869
--------- --------- --------- ---------
201 1,315 1,650 3,869
--------- --------- --------- ---------
TOTAL SALES $ 27,010 $ 26,029 $ 112,773 $ 111,449
========= ========= ========= =========
OPERATING INCOME
Northwest $ 8,507 $ 9,382 $ 55,285 $ 49,185
Southeast 10,655 9,154 32,544 38,173
Corporate and other (491) (458) (1,471) (1,382)
--------- --------- --------- ---------
$ 18,671 $ 18,078 $ 86,358 $ 85,976
========= ========= ========= =========
PARTNERSHIP INCOME $ 15,811 $ 15,645 $ 77,742 $ 78,987
========= ========= ========= =========
SELECTED OPERATING STATISTICS
Northwest harvest volumes
Stumpage (thousands of MBF) 13.8 10.6 96.6 79.0
Delivered logs (thousands of MBF) 21.1 15.8 51.0 35.9
--------- --------- --------- ---------
34.9 26.4 147.6 114.9
========= ========= ========= =========
Southeast harvest volumes
Pine (thousands of tons) 431.9 303.4 1,325.2 1,304.5
Hardwoods (thousands of tons) 64.1 72.5 166.4 163.8
--------- --------- --------- ---------
496.0 375.9 1,491.6 1,468.3
========= ========= ========= =========
</TABLE>
Sales for the nine months ended September 30, 1996 were $112.8 million, $1.3
million or 1 percent higher than the first nine months of 1995. Timber sales
were $111.1 million, up $3.5 million, or 3 percent, from the comparable 1995
period. Timberland sales of $1.7 million were $2.2 million lower than 1995.
Partnership income for the nine month period was $77.7 million, a decrease of
$1.2 million from 1995. However, the decrease was primarily due to higher
Secondary Account interest expense, only 4 percent of which is charged to the
Class A Unitholders.
8
<PAGE> 11
Income per Class A Unit of $4.21 was up 5 cents per Class A Unit from 1995 and
operating cash flow allocable per Class A Unit was $4.40, 5 cents
higher than 1995.
For the nine months ended September 30, 1996, the stumpage and delivered log
volume in the Northwest was 28 percent higher than the prior year as customers
expanded harvesting in recognition of stronger export and domestic log markets.
Also, unfavorable market conditions throughout 1995 caused many customers to
defer harvesting until late 1995 and into 1996. This increase was partially
offset by a 12 percent decline in prices. As a result, sales increased $8.4
million, or 13 percent, to $72.5 million and operating income increased $6.1
million, or 12 percent, to $55.3 million.
In the Southeast, sales for the nine months ended September 30, 1996 declined
$7.1 million, or 15 percent, to $40.3 million from the prior year and operating
income declined $5.6 million, or 15 percent, to $32.5 million. Harvest volume
increased 2 percent, but was more than offset by a 13 percent decline in prices
from 1995. The price decline resulted from softness in demand from the pulp and
paper industry. Operating results in 1996 were also unfavorably impacted by
reduced timberland sales of $2.2 million.
Operating costs and expenses for the first nine months of 1996 were $28.8
million, up $1.2 million from 1995. The increase was primarily due to higher
contract logging costs and commercial thinning activities in the Northwest and
higher depletion resulting from increased harvest volumes in both regions. The
cost of timberland sold was $0.4 million, down $0.6 million from the prior year
due to reduced sales activity in the Southeast.
Interest income, earned mainly from the Primary Account's investment notes of
Rayonier, decreased $0.5 million to $3.0 million in 1996 due to a lower average
balance and lower interest rates. Interest expense, on increased loans and
advances to the Secondary Account by Rayonier, rose $1.1 million to $10.8
million.
Sales for the third quarter were $27.0 million, $1.0 million higher than last
year's third quarter. Partnership income was $15.8 million, or $0.94 per Class A
Unit, $0.2 million, or 6 cents per Class A Unit, above the 1995 third quarter.
Operating cash flow allocable to each Class A Unit was $1.01, 8 cents per Class
A Unit higher than last year.
For the third quarter of 1996, the stumpage and delivered log volume for the
Northwest region was 32 percent higher than the prior year as customers expanded
harvesting in recognition of stronger export and domestic log markets. The
volume increase was offset by a 25 percent decline in prices from the prior year
levels, reflective of weak export and domestic log markets at the time the
contracts were initiated. As a result, third quarter sales decreased $0.2
million to $14.5 million and operating income declined $0.9 million to $8.5
million.
Third quarter sales for the Southeast region increased $1.2 million to $12.5
million and operating income rose $1.5 million to $10.7 million from the prior
year, reflecting higher volume partially offset by lower prices. The pine volume
for the Southeast was 42 percent higher than the prior year as customers
accelerated harvesting on expiring contracts. Also, dry weather in 1995
increased the regions available timber supply, causing customers to delay
harvesting on typically drier higher priced Partnership timber tracts. However,
pine prices declined 12 percent from the prior year due to contracts previously
entered into during weak pulp and paper markets.
FUTURE OPERATIONS
For the first nine months of 1996, the harvest levels in the Northwest and the
Southeast represented approximately 80 percent and 72 percent, respectively, of
the current projection of the 1996 harvests whereas in the first nine months of
1995 the harvest levels in the Northwest and the Southeast were 66 percent and
72 percent, respectively, of the actual full year harvests.
Contract terms allow customers to harvest their commitments over various time
periods, and therefore, volume currently under contract may not be fully cut
within this fiscal year. As of September 30, 1996, volume representing
approximately 118 percent of the projected 1996 harvest had been cut or
committed under contract, a level similar to that which existed at September 30,
1995. In the Northwest and Southeast regions, average prices on outstanding
contracts as of September 30, 1996 were approximately 25 percent and 5 percent,
respectively, below average prices realized during 1995. Therefore, the
Partnership does not expect fourth quarter or full year 1996 earnings or cash
flow from operations to be as strong as in the prior year on both an aggregate
basis and on a per Class A Unit basis.
The Partnership held contracts at September 30, 1996 with Rayonier representing
approximately 3 percent and 7 percent of the uncut harvest volume in the
Northwest and Southeast regions, respectively. In addition, three customers
under common ownership held contracts representing approximately 27 percent of
the uncut volume under contract in the Northwest. Four additional unrelated
customers held contracts representing from 10 percent to 20 percent individually
and 52 percent in total of the uncut Northwest volume under contract. These
seven customers are not affiliated with the Partnership.
9
<PAGE> 12
LIQUIDITY AND CASH FLOW
As of September 30, 1996, the Partnership was due trade and intercompany
receivables from Rayonier and affiliates of $4.2 million. In addition, the
Primary Account of the Partnership held $41.3 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 may redeem
the investment notes at any time to fund Partnership working capital
requirements, capital expenditures and reserves.
The Secondary Account of the Partnership had total outstanding debt of $188.2
million at September 30, 1996, including long-term notes payable to Rayonier of
$187.7 million. These notes primarily funded Secondary Account expenditures for
costs such as site preparation, reforestation and pre-commercial thinning.
Capital expenditures for the nine months ended September 30, 1996 and 1995
representing reforestation, capitalized lease payments, property taxes and other
improvements to the land and timber assets were $11.9 million and $10.3 million,
respectively. Funding of future capital requirements is expected to continue
from Rayonier.
On September 30, 1996 and 1995, the Partnership made quarterly distributions of
$26.6 million ($1.33 per Unit) and $31.6 million ($1.58 per Unit), respectively,
to all outstanding Class A unitholders. Quarterly distributions of $1.4 million
and $1.7 million were also made to Class B unitholders and to the General
Partners in the third quarter of 1996 and 1995, respectively.
On October 18, 1996, the Board of Directors of the Managing General Partner
announced a fourth quarter distribution of $1.33 per Class A Unit. The
distribution will be paid on December 31, 1996 to unitholders of record on
November 29, 1996. The Board determines the amount of quarterly distributions
that are made to Class A unitholders from cash available from operations after
provision for working capital, capital expenditures, asset acquisitions and
other reserves. The Board intends to have distributions approximate actual
Partnership results each year 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. Since actual Partnership results vary each year, the level
of total distributions in each year will also vary. Because the Partnership does
not expect full year 1996 earnings or cash flow from operations to be as strong
as in the prior year, distributions for the last three quarters of 1996 and the
first quarter of 1997 are expected to total less than $6.17, which was the
Partnership's cash flow per Class A Unit in 1995.
WHEN THE INITIAL TERM ENDS ON DECEMBER 31, 2000, THE PRIMARY ACCOUNT OF THE
PARTNERSHIP WILL BE CLOSED BUT UNITHOLDERS WILL NOT BE ENTITLED TO HAVE THEIR
PARTNERSHIP CAPITAL ACCOUNTS REDEEMED UNTIL THE PARTNERSHIP FORMALLY ENDS IN
THE YEAR 2035. 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. ON A PRO FORMA BASIS, USING 1995 RESULTS AS AN EXAMPLE, CASH FLOW
ALLOCABLE PER CLASS A UNIT WOULD DECLINE FROM $6.17 TO APPROXIMATELY 22 CENTS.
IN ADDITION, THERE WILL BE SUBSTANTIAL SECONDARY ACCOUNT DEBT THAT WILL MATURE
ON JANUARY 1, 2001. THIS DEBT (INCURRED TO FUND LONG-TERM INVESTMENT IN SUCH
AREAS AS REFORESTATION AND SILVICULTURAL ACTIVITIES INCLUDING ACCRUED INTEREST)
IS EXPECTED TO AMOUNT TO OVER $350 MILLION, MORE THAN THREE TIMES 1995'S NET
OPERATING CASH FLOW. IN ACCORDANCE WITH THE PARTNERSHIP AGREEMENT, ALL
SECONDARY ACCOUNT DEBT MUST BE REPAID BEFORE ANY DISTRIBUTION OF PARTNERSHIP
CASH FLOW RESUMES. AS A RESULT, IT IS EXPECTED THAT THE MARKET PRICE OF CLASS A
UNITS SHOULD BE DECREASING SUBSTANTIALLY AS DECEMBER 31, 2000 APPROACHES.
10
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index
(b) Rayonier Timberlands, L.P. did not file any Report on Form 8-K during
the quarter covered by this report.
SIGNATURE
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
(Chief Accounting Officer)
November 13, 1996
11
<PAGE> 14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
2 Plan of acquisition, reorganization, arrangement, None
liquidation, or succession
3(a) Partnership Agreement of the Partnership No amendments
3(b) Forms of Class A Certificate of Limited Partnership No amendments
and Class B Certificate of Limited Partnership
of the Partnership
3(c) Partnership Agreement of Operating Partnership No amendments
3(d) Forms of Class A Certificate of Limited Partnership No amendments
and Class B Certificate of Limited Partnership
of the Operating Partnership
4 Instruments defining the rights of security holders, None
including indentures
10 Material contracts None
11 Statement re computation of per share earnings Not applicable
15 Letter re unaudited interim financial information None
18 Letter re change in accounting principles Not applicable
19 Report furnished to security holders None
22 Published report regarding matters submitted None
to vote of security holders
23 Consents of experts and counsel None
24 Power of attorney None
27 Financial data schedule Filed herewith
99 Additional exhibits None
12
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 260
<SECURITIES> 0
<RECEIVABLES> 10857
<ALLOWANCES> 0
<INVENTORY> 457
<CURRENT-ASSETS> 61161
<PP&E> 2063
<DEPRECIATION> 992
<TOTAL-ASSETS> 348960
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<BONDS> 187700
0
0
<COMMON> 0
<OTHER-SE> 144347
<TOTAL-LIABILITY-AND-EQUITY> 348960
<SALES> 112773
<TOTAL-REVENUES> 112773
<CGS> 19891
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<INCOME-PRETAX> 77742
<INCOME-TAX> 0
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<CHANGES> 0
<NET-INCOME> 77742
<EPS-PRIMARY> 4.21
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