<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,
1995
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 11, 1996 was approximately $130,928,000. (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>
1. Business 1
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters 11
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
8. Financial Statements and Supplementary Data 16
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 16
PART III
10. Directors and Executive Officers of the Registrant 17
11. Executive Compensation 19
12. Security Ownership of Certain Beneficial Owners and Management 19
13. Certain Relationships and Related Transactions 19
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 19
</TABLE>
i
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS
Report of Management F-1
Report of Independent Public Accountants F-2
Statements of Income for the Three Years
Ended December 31, 1995 F-3
Balance Sheets as of December 31, 1995 and 1994 F-4
Statements of Cash Flows for the Three Years
Ended December 31, 1995 F-5
Statements of Partners' Capital for the Three Years
Ended December 31, 1995 F-6
Notes to Financial Statements F-7 - F-15
INDEX TO 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.
Signatures A
Exhibit Index B - C
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 U.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, 1995, 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.
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 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-term 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 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) 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 the 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.
Partnership sales to Rayonier for use in Rayonier's specialty pulp products
and timber and wood products businesses, although significantly less than 50
percent of total Partnership sales, are an important contributor to Partnership
results. See Timber Markets and Sales; Affiliated Party Transaction for further
information. Copies of Rayonier's Annual Report and Form 10-K (without exhibits)
as filed with the Securities and Exchange Commission are available without
charge, upon request from the Corporate Secretary, Rayonier Inc., 1177 Summer
Street, Stamford, CT 06905-5529. Telephone: 203-348-7000.
Sales to Rayonier were 17 percent, 13 percent and 17 percent of total timber
sales in 1995, 1994 and 1993, respectively. Three customers under common
ownership (not affiliated with the Partnership) accounted for approximately 10
percent, 18 percent and 15 percent of total timber sales in 1995, 1994 and 1993,
respectively. See Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations.
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<PAGE> 5
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, 1995, Rayonier had approximately 2,900 employees of which
approximately 165 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)
consists 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 to approximately 150 to 160 million board feet per year.
Timber on the Partnership's 784,000 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 per acre 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 12
percent greater than the 1995 harvest.
See Federal and State Regulation for a description of issues that may impact
Partnership's timber harvest rates.
DESCRIPTION OF TIMBERLANDS
The Timberlands consist of approximately 1.15 million acres, as of December 31,
1995, located in the state of Washington, primarily on the Olympic Peninsula,
and in Georgia, Florida, and South Carolina. Approximately 1.02 million acres
are owned in fee, while approximately 130,000 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.
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<PAGE> 6
ACREAGE. The following table sets forth, as of December 31, 1995, the
location and type of ownership that the Partnership has with respect to the
Timberlands.
<TABLE>
<CAPTION>
HELD UNDER
OWNED LONG-TERM
IN FEE LEASE(1) TOTAL
(Thousands of acres)
<S> <C> <C> <C>
Northwestern Timberlands
Olympic Peninsula of Washington 369 -- 369
----- ----- -----
Southeastern Timberlands
Georgia 489 47 536
Florida 164 83 247
South Carolina 1 -- 1
----- ----- -----
Total Southeastern 654 130 784
----- ----- -----
Total Timberlands 1,023 130 1,153
===== ===== =====
</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 21 years as of December 31, 1995. 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, 1995, total estimated merchantable timber inventory
of approximately 10.5 million cunits of wood, of which approximately 79 percent
is softwood. See Glossary of Forestry Terms - 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 estimated volumes of
merchantable timber on the Timberlands by location and type, as of December 31,
1995.
<TABLE>
<CAPTION>
ESTIMATED MERCHANTABLE TIMBER INVENTORY(1)
------------------------------------------
REGION SOFTWOOD HARDWOOD TOTAL
------ -------- -------- -----
(Thousands of cunits)
<S> <C> <C> <C>
Northwestern Timberlands 4,931 462 5,393
Southeastern Timberlands 3,404 1,723 5,127
------ ------ ------
Total 8,335 2,185 10,520
====== ====== ======
</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.
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 73 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.
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<PAGE> 7
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 site indices of the conifer lands in the
Northwestern Timberlands also range from 90 to 145 and average 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, Washington. 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 654,000 acres of
timberlands owned in fee and approximately 130,000 acres held under long-term
leases. The Southeastern Timberlands include approximately 505,000 acres of pine
(softwood) lands, approximately 264,000 acres of hardwood lands and
approximately 15,000 non-forest acres.
The predominant pine species are loblolly and slash. 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 regional
stumpage prices in the U.S. 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 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.
See Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations and Future Operations for further
information.
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 John Hancock
Mutual Life Insurance Co. 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.
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.
- 4 -
<PAGE> 8
Since the inception of the Partnership, 32 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, 1995. It also
shows the volumes of timber on the Timberlands that were sold to unaffiliated
purchasers for the periods indicated.
TIMBER SOLD BY THE PARTNERSHIP TO RAYONIER
AND SALES TO UNAFFILIATED PURCHASERS
(Cunits)
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
----------------------- ---------------------- ------------------------
Timber Sales to Timber Sales to Timber Sales to
Sold to Unaffiliated Sold to Unaffiliated Sold to Unaffiliated
Rayonier Purchasers Rayonier Purchasers Rayonier Purchasers
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Northwest 72,280 327,987 83,752 363,471 63,731 264,937
Southeast 64,694 474,039 29,057 505,320 63,869 434,613
------- ------- ------- ------- ------- -------
Total 136,974 802,026 112,809 868,791 127,600 699,550
======= ======= ======= ======= ======= =======
</TABLE>
Rayonier continues to rely on the Timberlands as one of its sources of timber
for its pulp mills, its sawmill facilities and its log trading business. For
example, although Rayonier directly purchased only 12 percent of the
Partnership's 1995 Southeast harvest volume, the Partnership estimates that an
additional 10 percent of its pulpwood timber sold in the Southeast in 1995 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 and the specific tracts to be harvested by the Partnership. The
Partnership's strategy is to award stumpage sales contracts during those periods
of the year (typically the first and fourth quarters) in which it expects to
receive the best prices. However, under certain market conditions, the
Partnership will reduce the number of stumpage sales placed for bid at any one
time. In the Northwest, the Partnership has also increased its sale of logs from
stepped up commercial thinning activities as well as from Company harvesting
operations on tracts that are environmentally sensitive.
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 1995,
approximately 96 percent in the Northwest and 82 percent in the Southeast of all
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 contracts awarded through direct negotiation in 1995,
approximately 3 percent in the Northwest and 2 percent in the Southeast were
purchased by Rayonier.
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
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<PAGE> 9
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.
See Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations for information as to timber sales
contracts in effect at December 31, 1995.
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, comprising non-employee directors, reviews these
transactions and obtains opinions from outside consultants as to their fairness.
ENVIRONMENTAL PROTECTION
Managing the Timberlands in order 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 five
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.
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 specify-
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<PAGE> 10
ing 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 of 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 Initial Term, the Secondary Account is
essentially an investment account to which the expenditures and debt related to
longer-term harvests are assigned.
- 7 -
<PAGE> 11
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 for
the Partnership to continue 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, the Primary Account, which is used to account for revenues,
expenses and cash flow for the first 15 years of the Partnership, will be
closed; any Primary Account debt will be paid; working capital will be
liquidated and any cash remaining will be distributed to partners. Class A
unitholders will receive approximately 95 percent of these distributions, which
are not expected to be significant. That percentage is the same as their
interest in the Partnership through the year 2000. After that date, Class A
unitholder interest in the Partnership cash flow will decline to 4 percent.
Class B unitholder interest, in turn, will increase to 95 percent.
The partners maintain their accounts throughout the life of the Partnership
(to the year 2035) and there will not be any return of the partners' capital
investment when the Initial Term ends. Only their respective interests in the
Partnership activity will change beginning January 1, 2001. After the year 2000,
it is expected that Class A Units will not retain any significant value as Class
A unitholders will only have a 4 percent interest in the Partnership's revenues,
expenses and cash flow. On a pro forma basis, using 1995 results as an example,
cash allocable per Class A Unit would decline from $6.17 to approximately $0.22.
In addition, on December 31, 2000, the Secondary Account is expected to have
debt (incurred to fund long-term investment in such areas as reforestation and
silvicultural activities including accrued interest) of 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 WILL DECLINE SUBSTANTIALLY AS DECEMBER 31,
2000 APPROACHES.
DISTRIBUTIONS. The Board of Directors of the Managing General Partner
determines the amount of distributions made to Class A unitholders from cash
available from operations after provisions for working capital, capital
expenditures, asset acquisitions and other reserves as required. With the
Initial Term approaching its expiration date of December 31, 2000, the Managing
General Partner has determined that such cash provisions can be kept to minimum
levels. Therefore, distributions are intended to approximate actual Partnership
results each year. This will be accomplished be 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.
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.
Tax-exempt entities (including IRAs and other retirement plans) may be
required to report a portion of their income from the Partnership to the
Internal Revenue Service as unrelated business taxable income and pay taxes on
such income.
RIGHT OF RAYONIER TO CALL IN CLASS A UNITS. Rayonier has the option under the
Partnership Agreement to call in the Class A Units at 125 percent of the
then-current market price.
- 8 -
<PAGE> 12
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 after the land has
been prepared. 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.
- 9 -
<PAGE> 13
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. that 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.
SUSTAINED YIELD: A method of forest management that implies a balance over time
between net growth and harvest.
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.
- 10 -
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
<TABLE>
<CAPTION>
Class A Units - Market Price
------------------------------------------------
1995 1994
---------------------- -------------------
QUARTER ENDED High Low High Low
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
March 31 $38.25 $32.13 $40.00 $27.63
June 30 35.63 33.00 37.00 31.75
September 30 36.00 33.25 38.25 34.38
December 31 35.88 24.88 38.13 34.63
</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 29, 1996, the high and low market
prices of RTLP Class A Units were $30.25 and $26.25, respectively.
<TABLE>
<CAPTION>
Class A Units - Distributions
---------------------------------
QUARTER ENDED 1995 1994
------------- -------- ------
<S> <C> <C>
March 31 $1.90 $5.30(A)
June 30 1.58 1.30
September 30 1.58 1.30
December 31 1.58 1.30
</TABLE>
(A) Includes a $4.00 per Class A Unit special distribution paid on
March 31, 1994.
On February 16, 1996, the Board of Directors of RFR declared a first quarter
1996 distribution of $1.43 per Class A Unit payable on March 29, 1996 to
unitholders of record on February 29, 1996. In keeping with the Board's
previously announced distribution policy, this distribution, when added to the
distributions previously paid in the second, third and fourth quarters of 1995,
makes the total of those four quarterly distributions equal to $6.17, the
Partnership's cash flow per Class A Unit for 1995. In announcing the first
quarter distribution, the Board indicated that Partnership results for 1996 are
not expected to be as strong as 1995. Accordingly, distributions paid in the
second, third and fourth quarters of 1996 and the first quarter of 1997, which
will be based on cash flow per Class A Unit for 1996, are expected to total less
than $6.17. See Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Cash Flow.
As of February 29, 1996, there were approximately 2,400 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
----------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA
(thousands of cunits1)
Timber sold to Rayonier 137.0 112.8 127.6 145.3 253.3
Timber sold to unaffiliated purchasers 802.0 868.8 699.6 779.9 700.9
------ ------ ------ ------ ------
Timber sales volume 939.0 981.6 827.2 925.2 954.2
====== ====== ====== ====== ======
</TABLE>
- 11 -
<PAGE> 15
<TABLE>
<CAPTION>
For The Year Ended
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REGIONAL OPERATING DATA
Northwest(2)
Timber sales
(thousands of dollars) $ 95,168 $ 114,970 $ 70,625 $ 64,998 $ 55,188
=========== =========== =========== =========== ===========
Stumpage (thousands of MBF) 117.1 140.8 108.8 168.8 164.7
Delivered logs
(thousands of MBF) 56.9 53.6 34.1 26.6 21.8
----------- ----------- ----------- ----------- -----------
Total Northwest 174.0 194.4 142.9 195.4 186.5
=========== =========== =========== =========== ===========
Southeast(3)
Timber sales
(thousands of dollars) $ 58,929 $50,231 $ 44,312 $ 33,645 $ 36,016
=========== =========== =========== =========== ===========
Pine (thousands of tons) 1,779.5 1,875.9 1,719.0 1,608.4 1,851.7
Hardwood
(thousands of tons) 267.7 154.7 175.2 199.6 144.1
----------- ----------- ----------- ----------- -----------
Total Southeast 2,047.2 2,030.6 1,894.2 1,808.0 1,995.8
=========== =========== =========== =========== ===========
INCOME DATA
(thousands of dollars)
Total sales $ 160,268 $ 166,521 $ 116,047 $ 116,395 $ 101,223
Total expenses, net 46,806 43,602 33,821 30,809 28,176
Partnership income 113,462 122,919 82,226 85,586 73,047
CLASS A UNIT DATA (dollars)
Income per publicly traded
Class A Unit(4) $ 5.91 $ 6.41 $ 4.45 $ 4.49 $ 3.93
Operating cash flow
allocable to a publicly
traded Class A Unit(4) 6.17 6.64 4.66 4.72 4.22
Cash distributions(5) 6.64 9.20 4.60 3.60 3.60
ASSET, LIABILITY AND CAPITAL DATA
(thousands of dollars)
Timber, timberlands and
logging roads, net $ 276,094 $ 270,656 $ 265,769 $ 259,958 $ 255,123
Total assets 336,480 337,814 387,457 377,413 347,783
Total liabilities 183,769 158,776 137,651 113,950 95,835
Total indebtedness 167,045 144,593 121,831 99,354 81,460
Partners' capital 152,711 179,038 249,806 263,463 251,948
</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 91 percent of which is softwood.
3 The Southeastern Timberlands are in the states of Georgia, Florida and South
Carolina and consist of approximately 784,000 acres owned in fee or held
under long-term leases, and contain approximately 19.5 million tons of wood,
approximately 66 percent of which is pine.
4 See Note 10 and Note 11 of the accompanying Notes to Financial Statements for
the calculations of Income per publicly traded Class A Unit and Operating
cash flow allocable to a publicly traded Class A Unit. 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.
5 Cash distributions in 1994 include a $4.00 per Class A Unit special
distribution paid on March 31, 1994.
- 12 -
<PAGE> 16
ITEM 7. 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>
Years Ended December 31
-------------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
TIMBER SALES
Northwest $ 95,168 $ 114,970 $ 70,625
Southeast 58,929 50,231 44,312
--------- --------- ---------
154,097 165,201 114,937
--------- --------- ---------
TIMBERLAND SALES
Northwest -- 291 109
Southeast 6,171 1,029 1,001
--------- --------- ---------
6,171 1,320 1,110
--------- --------- ---------
TOTAL SALES $ 160,268 $ 166,521 $ 116,047
========= ========= =========
OPERATING INCOME
Northwest $ 73,393 $ 94,576 $ 56,249
Southeast 51,693 39,157 33,457
Corporate and other (1,778) (1,724) (2,308)
--------- --------- ---------
$ 123,308 $ 132,009 $ 87,398
========= ========= =========
PARTNERSHIP INCOME $ 113,462 $ 122,919 $ 82,226
========= ========= =========
SELECTED OPERATING STATISTICS
Northwest harvest volumes
Stumpage (thousands of MBF) 117.1 140.8 108.8
Delivered logs (thousands of MBF) 56.9 53.6 34.1
--------- --------- ---------
174.0 194.4 142.9
========= ========= =========
Southeast harvest volumes
Pine (thousands of tons) 1,779.5 1,875.9 1,719.0
Hardwood (thousands of tons) 267.7 154.7 175.2
--------- --------- ---------
2,047.2 2,030.6 1,894.2
========= ========= =========
</TABLE>
Timber and timberland sales in 1995 of $160.3 million were $6.3 million, or 4
percent, lower than 1994 sales due to weak export markets. Partnership income
decreased $9.5 million, or 50 cents per Class A Unit, from the prior year. Sales
in 1994 of $166.5 million increased $50.5 million from 1993 due to carryover
volume from 1993 and partnership income of $122.9 million increased $40.7
million, or 49 percent, from 1993.
Timber harvest sales in 1995 of $154.1 million represented a decrease of
$11.1 million, or 7 percent, from 1994, following a 44 percent increase in 1994.
The decline in sales in 1995 reflected weak North American export log markets
that resulted in a decline in contract prices and caused customers to delay
harvesting timber under contract in the Partnership's Northwest region. 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.
- 13 -
<PAGE> 17
In 1995, timber sales to Rayonier represented 17 percent of total timber
sales compared to 13 percent and 17 percent in 1994 and 1993, respectively.
Timber sales to three customers under common ownership (not affiliated with the
Partnership) accounted for approximately 10 percent, 18 percent and 15 percent
of total timber sales in 1995, 1994 and 1993, respectively. See Note 4 of the
accompanying Notes to Financial Statements for further information. Timberland
sales in 1995 were $6.2 million, up $4.9 million from 1994, which, in turn, were
$0.2 million above 1993 levels.
Income per publicly traded Class A Unit was $5.91 in 1995, down 50 cents from
1994. Results in 1994 were up $1.96 from 1993. Operating cash flow allocable to
Class A unitholders, after capital expenditures and certain provisions for
working capital, was $123.4 million in 1995, down $9.4 million, or 47 cents per
unit, from 1994. Operating cash flow in 1994 was $40.3 million, or $1.98 per
unit, higher than 1993.
In the Northwest region, full-year volume and prices were lower than the
prior year. North American export log markets were generally weak throughout the
year, resulting in a decline in contract prices and lower customer harvest
activity. The lower volumes also reflect the Partnership's planned program to
gradually reduce its harvest to long-term sustainable yield levels. See Future
Operations. In 1995, the combined stumpage and delivered log volume decreased 10
percent to 174 million board feet while prices decreased 7 percent from the
prior year. As a result, timber sales declined $19.8 million, or 17 percent, to
$95.2 million and operating income decreased $21.2 million, or 22 percent, to
$73.4 million from the prior year. 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 and delivered log prices, which also benefited from
the carryover of high-priced 1993 contracts, increased 20 percent over the prior
year. As a result, 1994 timber sales rose 63 percent to $115.0 million and
operating income rose 68 percent to $94.6 million.
In the Southeast, timber sales for 1995 were $58.9 million, up $8.7 million,
or 17 percent, from 1994 and operating income increased $12.5 million, or 32
percent, to $51.7 million. Increased demand from the pulp and paper industry for
most of the year resulted in improved stumpage prices, with combined pine and
hardwood prices rising 16 percent from 1994. However, overall harvest volume was
relatively flat, in line with harvest planning targets, with lower pine volume
offset by higher hardwood volume. Operating results in 1995 were also favorably
impacted by increased timberland sales of $5.1 million. In 1994, timber sales
increased $5.9 million, or 13 percent, to $50.2 million from the prior year,
reflecting both stronger pricing and increased harvest volumes. Operating income
rose 17 percent to $39.2 million in 1994. In 1994, the combined pine and
hardwood volume increased 7 percent over the prior year to 2.0 million tons and
stumpage prices increased approximately 6 percent, reflecting increased demand
for high-quality sawlogs.
Corporate and other operating income primarily includes general and
administrative expenses not specifically attributable to either the Northwest or
Southeast regions. During 1995, corporate expenses were $1.8 million, up $0.1
million. In 1994, corporate expenses decreased $0.6 million to $1.7 million,
reflecting 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.
Consistent with the historical cutting pattern, harvesting activity was more
concentrated in the first half of the year, with 57 percent of the total 1995
cut of pine and stumpage completed by June 30. In 1994, harvest activity 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. Harvest activity in 1993 also followed the historical cutting pattern with
59 percent of the harvest 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 1996 harvest plan
projects a harvest volume approximately 3 percent lower than 1995 volume. As of
December 31, 1995, contracts representing 48 percent of the projected 1996
harvest volume were outstanding. As of December 31, 1994, outstanding contracts
represented 31 percent of the actual 1995 harvest volume. Three customers under
common ownership (not affiliated with the Partnership) accounted for
approximately 36 percent of the harvest volume under contract as of December 31,
1995. In addition, two other unaffiliated customers accounted for approximately
16 percent and 15 percent, respectively, of the uncut volume under contract at
December 31, 1995. Outstanding Northwest contract prices at December 31, 1995
are 2 percent lower than the average of harvest prices realized in 1995.
- 14 -
<PAGE> 18
The Southeast 1996 harvest plan anticipates a volume increase of
approximately 1 percent from 1995. In the Southeast, the Partnership awarded
contracts for 21 percent of the 1996 harvest plan volume as of December 31,
1995. As of December 31, 1994, outstanding contracts represented 32 percent of
the actual 1995 harvest volume. One customer, not affiliated with the
Partnership, accounted for approximately 12 percent of the harvest volume under
contract as of December 31, 1995. Average prices on uncut contracts at December
31, 1995 are approximately 1 percent lower than those realized for the 1995
actual harvest in the region.
Operating costs and expenses in 1995 were $39.4 million, up $2.3 million from
1994. This increase was due to higher cost of timberland sold of $1.3 million,
as a result of increased land sales in the Southeast region. Cost of timber sold
rose $0.7 million in 1995 primarily due to additional logging costs in the
Northwest region resulting from increased contract logging and commercial
thinning activities. The increase in costs and expenses was partially offset by
lower depletion costs and forest excise taxes resulting from reduced harvest
volume in the Northwest region. In 1994, operating costs and expenses were $37.0
million, up $6.2 million from 1993. Cost of timber sold rose $6.5 million from
1993, due to higher logging costs, forest excise taxes and road costs due to
increased contract logging and higher timber sales in the Northwest. The cost of
timberland sold was $0.4 million in both 1994 and 1993.
Interest income, earned mainly from the Primary Account's investment notes of
Rayonier, increased $1.2 million to $4.4 million in 1995 due to higher average
interest rates but was partially offset by a lower average balance of investment
notes of Rayonier. Interest expense on increased loans and advances to the
Secondary Account by Rayonier rose $2.1 million to $13.1 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
toward a level of 150 to 160 million board feet per year. In the Southeast, due
to intensive forest and land management as well as silvicultural investment,
pine volume per acre available for harvest is expected to increase approximately
2 percent annually.
Recent softness in the pulp and paper industry has reduced demand for the
Partnership's available harvest and first quarter 1996 income and cash flow are
expected to be lower than fourth quarter 1995 levels. With the Partnership's
ongoing program to gradually reduce the Northwest harvest to reach long term
sustainable levels, Northwest volume is expected to be down year over year. As a
result of these two factors, the Partnership anticipates lower Partnership
earnings and cash flows in 1996, based on current market outlook.
Regional timber availability continues to be restricted by legislation,
litigation and pressure from various preservationist groups. Over the past five
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.
- 15 -
<PAGE> 19
LIQUIDITY AND CASH FLOW
As of December 31, 1995, the Partnership was due trade and intercompany
receivables from Rayonier and affiliates of $4.3 million. In addition, the
Primary Account of the Partnership held $33.3 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 can redeem
the investment notes at any time 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 redeemed, 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.
The Secondary Account of the Partnership had total outstanding debt of $167.0
million at December 31, 1995, including long-term notes payable to Rayonier of
$166.4 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 $14.7 million,
$13.1 million and $13.4 million in 1995, 1994 and 1993, respectively. Capital
expenditures are expected to be approximately $16.4 million in 1996. Funding of
future capital requirements is expected to continue from Rayonier.
The Partnership made distributions of $132.8 million ($6.64 per Class A Unit)
in 1995; 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; and
$92.0 million ($4.60 per Class A Unit) in 1993 to all outstanding Class A
unitholders. An additional $7.0 million in 1995, $9.7 million in 1994 and $4.8
million in 1993 was distributed in cash to Class B unitholders and to the
General Partners. Recontributions of $1.0 million were made in 1993 by Rayonier
and the General Partners of RTLP relating to the commission expense paid to a
Rayonier affiliated foreign sales corporation.
On February 16, 1996, the Board of Directors of RFR declared a first quarter
1996 distribution of $1.43 per Class A Unit payable on March 29, 1996 to
unitholders of record on February 29, 1996. In keeping with the Board's
previously announced distribution policy, this distribution, when added to the
distributions previously paid in the second, third and fourth quarters of 1995,
makes the total of those four quarterly distributions equal to $6.17, the
Partnership's cash flow per Class A Unit for 1995. In announcing the first
quarter distribution, the Board indicated that Partnership results for 1996 are
not expected to be as strong as 1995. Accordingly, distributions to be paid in
the second, third and fourth quarters of 1996 and the first quarter of 1997,
which will be based on cash flow per Class A Unit for 1996, are expected to
total less than $6.17.
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. ON A PRO FORMA BASIS, USING 1995 RESULTS AS AN EXAMPLE, CASH ALLOCABLE
PER CLASS A UNIT WOULD DECLINE FROM $6.17 TO APPROXIMATELY $0.22. 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 BEGIN TO DECLINE 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.
- 16 -
<PAGE> 20
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.
DIRECTORS AND EXECUTIVE OFFICERS
Served as
Director of
Name Position with RFR RFR Since
- - ---- ----------------- ---------
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)
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, 62, is Chairman of the Board, President and Chief Executive
Officer of Rayonier. After joining 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. He has served as President of RFR since 1985. He also
serves as a director of Lukens Inc. and The Pittston Company.
WILLIAM J. ALLEY, 66, is a Director and member of the Executive Committee 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 and
Olin Corporation. He is also a senior member of The Conference Board and The
Economic Club of New York.
MACDONALD AUGUSTE, 47, 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.
- 17 -
<PAGE> 21
WILLIAM S. BERRY, 54, is Senior Vice President, Forest Resources and
Corporate Development of Rayonier, a position he has held since 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 Wood Products Management. Since May 1988 he has served as a Senior
Vice President of RFR after having been Vice President of RFR since September
1985. He also serves on the Executive Board of the Center for Streamside
Studies.
JOHN B. CANNING, 52, 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, the Corporate Bar
Association of Westchester and Fairfield, Inc. and the American Society of
Corporate Secretaries.
DONALD W. GRIFFIN, 59, is President and Chief Executive Officer, Olin
Corporation (diversified manufacturing corporation). He joined Olin in 1961 and
was elected an Executive Vice President in 1987, a director in 1990, Vice
Chairman of the Board for Operations in 1993, President and Chief Operating
Officer in 1994 and President and Chief Executive Officer effective January 1,
1996. He is also a director of Rayonier, River Bend Bancshares, Inc., Illinois
State Bank and Trust, the Chemical Manufacturers Association, the National
Shooting Sports Foundation, the Small Arms and Ammunition Manufacturers
Association and the Wildlife Management Institute. He is a trustee of the
Buffalo Bill Historical Center and the Olin Charitable Trust. He is a member of
the Business Roundtable, 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, 50, 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. From 1990 to 1994, he
was Vice President and Corporate Controller of Sunkyong America, Inc., an
international trading company. He was with AMAX Inc. from 1977 to 1990 and
previously with Arthur Andersen LLP. He is a Certified Public Accountant and a
member of the Financial Executives Institute, the American Institute of
Certified Public Accountants and the Institute of Management Accountants.
THOMAS W. KEESEE, JR., 81, is a former Director, President and Chief
Executive Officer of Bessemer Securities Corporation and Bessemer Trust Company.
He is a Director Emeritus of ITT Corporation (ITT) and of Duke University Asset
Management Co. and Trustee Emeritus of Duke University. Mr. Keesee is a former
director of the United States subsidiaries of Zurich Insurance Company and of
King Ranch, Inc. He was a director of National Audubon Society from 1972 to 1979
and chairman of its Board of Directors from 1979 to 1983, and was re-elected a
director in 1994. Mr. Keesee previously served on the Board of Directors of RFR
from 1985 to 1991.
GERALD J. POLLACK, 54, is Senior Vice President and Chief Financial Officer
of Rayonier. He was elected to this position in May 1992 after serving as Vice
President and Chief Financial Officer from July 1986 to May 1992. 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 in 1989 and a
Senior Vice President in 1992. He is a member of the New York Advisory Board of
The Allendale Insurance Co., the financial management committee of the American
Forest & Paper Association and the Financial Executive Institute.
DEROY C. THOMAS, 70, was from 1991 through 1994 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 was
President, Chief Operating Officer and Director of ITT Corporation (now ITT
Industries, Inc.) from 1988 to 1991, and from 1983 to 1988 he was Vice Chairman
and Chief Operating Officer, ITT Diversified Services, and Chairman and Chief
Executive Officer of The Hartford Insurance Group. Mr. Thomas serves on the
board of directors of ITT Hartford Group, Inc., Houghton Mifflin Company,
Connecticut Natural Gas Corporation and Med. Span Inc. He is Chairman of CT
Health System and the Old State House Association and President of the Goodspeed
Opera House. Mr. Thomas previously served on the Board of Directors of RFR from
1987 to 1991.
- 18 -
<PAGE> 22
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 are paid by RFR and charged to the Partnership.
During 1995, the Partnership was charged for compensation paid to 13 officers
and directors of RFR in an amount totaling $210,000. 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 15, 1996.
<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.
1177 Summer Street 14,940,000 Class A Units 74.7
Stamford, Connecticut 06905-5529 20,000,000 Class B Units 100.0
Directors and officers of RFR No Units ` --
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 pages 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.
- 19 -
<PAGE> 23
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, comprising 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, comprising non-employee directors, reviews these transactions
and obtains opinions from outside consultants as to their fairness.
F-1
<PAGE> 24
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, 1995 and 1994, and the related
statements of income, cash flows, and partners' capital for each of the three
years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
January 22, 1996
F-2
<PAGE> 25
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(Thousands of dollars, except per unit information)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
SALES
Timber sales
Unaffiliated parties $ 127,895 $ 43,266 $ 95,008
Rayonier 26,202 21,935 19,929
--------- --------- ---------
154,097 165,201 114,937
Timberland sales 6,171 1,320 1,110
--------- --------- ---------
160,268 166,521 116,047
--------- --------- ---------
COSTS AND EXPENSES
Cost of timber sold
Unaffiliated parties 21,005 21,460 15,064
Rayonier 4,402 3,223 3,139
--------- --------- ---------
25,407 24,683 18,203
Cost of timberland sold 1,673 363 362
Forest management, overhead and general
and administrative expenses 12,289 11,893 11,615
Commission expense paid to affiliate -- 86 692
--------- --------- ---------
39,369 37,025 30,872
--------- --------- ---------
OTHER OPERATING INCOME 2,409 2,513 2,223
--------- --------- ---------
OPERATING INCOME 123,308 132,009 87,398
--------- --------- ---------
OTHER INCOME AND DEDUCTIONS
Primary Account interest income from Rayonier 4,439 3,240 5,111
Secondary Account interest expense to Rayonier (13,139) (11,088) (9,452)
Minority interest of General Partners in RTOC (1,146) (1,242) (831)
--------- --------- ---------
(9,846) (9,090) (5,172)
--------- --------- ---------
PARTNERSHIP INCOME $ 113,462 $ 122,919 $ 82,226
========= ========= =========
INCOME PER PUBLICLY TRADED CLASS A UNIT $ 5.91 $ 6.41 $ 4.45
========= ========= =========
INCOME PER RAYONIER-OWNED CLASS A UNIT $ 5.91 $ 6.40 $ 4.40
========= ========= =========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-3
<PAGE> 26
RAYONIER TIMBERLANDS, L.P.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(Thousands of dollars)
ASSETS
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash $ 282 $ 150
Receivables, net 10,739 9,942
Inventories 584 322
Prepaid logging roads 3,946 3,919
Primary Account short-term investment notes of Rayonier 33,300 42,700
Trade and intercompany receivables from Rayonier and affiliates 4,278 4,211
-------- --------
Total current assets 53,129 61,244
LONG-TERM RECEIVABLES 1,333 --
PRIMARY ACCOUNT LONG-TERM INVESTMENT NOTES
OF RAYONIER 5,000 5,000
FIXED ASSETS, NET 924 914
TIMBER, TIMBERLANDS AND LOGGING ROADS,
LESS DEPLETION AND AMORTIZATION 276,094 270,656
-------- --------
$336,480 $337,814
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Advance deposits $ 6,420 $ 5,061
Accounts payable 2,887 1,674
Accrued liabilities
Taxes 1,738 1,527
All other 569 553
Current timber obligations 159 148
Advances from Rayonier 75 66
-------- --------
Total current liabilities 11,848 9,029
SECONDARY ACCOUNT LONG-TERM NOTES
PAYABLE TO RAYONIER 166,400 143,800
LONG-TERM TIMBER OBLIGATIONS 486 645
MINORITY INTEREST OF GENERAL PARTNERS IN RTOC 5,035 5,302
PARTNERS' CAPITAL
General Partners 4,989 5,253
Limited Partners (20,000,000 Class A Depositary Units and
20,000,000 Class B Depositary Units issued and outstanding) 147,722 173,785
-------- --------
$336,480 $337,814
======== ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part
of these financial statements.
F-4
<PAGE> 27
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(Thousands of dollars)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Partnership income $ 113,462 $ 122,919 $ 82,226
Non-cash items included in income
Depletion, depreciation and amortization 7,800 7,922 7,064
Minority interest of General Partners in RTOC 1,146 1,242 831
Increase in receivables (797) (5,144) (2,567)
(Increase) decrease in prepaid logging roads (27) 141 (555)
Increase (decrease) in advance deposits 1,359 (221) 1,831
Increase (decrease) in accounts payable and
accrued liabilities 1,440 (694) (457)
Other changes (320) (32) (143)
--------- --------- ---------
Cash provided by operating activities 124,063 126,133 88,230
--------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures less sales and retirements of $1,433,
$394 and $374 in 1995, 1994 and 1993, respectively (13,248) (12,740) (12,979)
Increase in Primary Account investment notes
of Rayonier (121,900) (54,600) (106,200)
Settlement of Primary Account investment notes
of Rayonier 131,300 113,100 106,200
(Increase) decrease in long-term receivables (1,333) 1,123 (1,123)
--------- --------- ---------
Cash (used for) provided by investing activities (5,181) 46,883 (14,102)
--------- --------- ---------
FINANCING ACTIVITIES
Decrease in timber obligations (148) (138) (323)
Increase in Secondary Account long-term notes
payable to Rayonier 22,600 22,900 22,800
Partnership distributions (139,789) (193,687) (96,842)
Distributions to General Partners of RTOC, net (1,413) (1,957) (969)
Recontributions by Rayonier and General
Partners of RTLP -- -- 959
--------- --------- ---------
Cash used for financing activities (118,750) (172,882) (74,375)
--------- --------- ---------
CASH
Net increase (decrease) in cash 132 134 (247)
Balance, beginning of year 150 16 263
--------- --------- ---------
Balance, end of year $ 282 $ 150 $ 16
========= ========= =========
Supplemental disclosures of cash flow information
Cash received for interest - Primary Account $ 4,439 $ 3,240 $ 5,113
========= ========= =========
Cash paid for interest - Secondary Account $ 13,139 $ 11,092 $ 9,471
========= ========= =========
</TABLE>
The accompanying Notes to Financial Statements are an integral part
of these financial statements.
F-5
<PAGE> 28
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(Thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
--------- --------- ---------
<S> <C> <C> <C>
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
Partnership income 112,328 1,134 113,462
Partnership distributions, net (138,391) (1,398) (139,789)
--------- --------- ---------
Balance, December 31, 1995 $ 147,722 $ 4,989 $ 152,711
========= ========= =========
</TABLE>
The accompanying Notes to Financial Statements are an integral part
of these financial statements.
F-6
<PAGE> 29
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Thousands of dollars, 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 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.
F-7
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
See Notes 5 and 6 for further information.
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 reduced Rayonier's and RFR's income from RTLP and
RTOC and the cash flow attributed to their Partnership interests. The special
allocations did 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 did not incur foreign sales commission expense for sales made after
August 10, 1993. However, during the second quarter of 1994, the Partnership
recorded commission expense 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 combined 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's presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of certain estimates by management (e.g.,
useful economic lives of assets) in determining the reported amount of assets
and
F-8
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
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.
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>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Distributions to Limited Partners $138,391 $191,749 $ 95,874
Distributions to General Partners 1,398 1,938 968
Recontributions by Rayonier and RFR -- -- (959)
-------- -------- --------
Total $139,789 $193,687 $ 95,883
======== ======== ========
</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 $1,413, $1,957 and
$978, in 1995, 1994 and 1993, respectively, to its General Partners.
Recontributions were also made in 1993 to RTOC by the General Partners for their
interest in the commission expense paid.
F-9
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
1995 1994
------ ------
<S> <C> <C>
Property taxes $ 975 $ 853
Excise taxes 763 674
------ ------
Total $1,738 $1,527
====== ======
</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, 1995, 1994 and 1993 totaled $26,202, $21,935 and $19,929,
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.
Copies of Rayonier's Annual Report and Form 10-K (without exhibits) as filed
with the Securities and Exchange Commission are available without charge, from
the Corporate Secretary, Rayonier Inc., 1177 Summer Street, Stamford, CT
06905-5529. Telephone: 203-348-7000.
The balances in the current RTLP intercompany accounts with Rayonier as of
December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Primary Account receivable $ 4,278 $ 4,211
Secondary Account payable (75) (66)
------- -------
Total due from Rayonier $ 4,203 $ 4,145
======= =======
</TABLE>
Interest income received from Rayonier on the Primary Intercompany Account
balance was $258 and $197 in 1995 and 1994 on an average outstanding receivable
of $4,206 and $4,163, respectively. Interest expense paid to Rayonier on the
Secondary Intercompany Account was $550 and $492 in 1995 and 1994 on an average
outstanding payable of $11,917 and $12,447, 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 $6,865, $6,799 and $6,850 in 1995, 1994
and 1993, respectively.
4. MAJOR UNAFFILIATED CUSTOMERS
Sales for 1995, 1994 and 1993 include timber stumpage sales of $14,652, $29,300
and $16,900, respectively, to three customers under common ownership (not
affiliated with the Partnership).
F-10
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1995 and 1994, the RTLP Primary Account included investment notes
of Rayonier of $38,300 and $47,700, respectively. The notes bear fixed interest
rates that range from 5.9 to 8.1 percent, as of December 31, 1995, and 6.8 to
8.1 percent, as of December 31, 1994.
The weighted average interest rate, based on the principal amount, was 6.5
percent as of December 31, 1995 and 6.9 percent as of December 31, 1994.
Interest income earned by the Primary Account on the investment notes of
Rayonier was $4,181, $3,043 and $4,964 in 1995, 1994 and 1993, 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 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 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 $166,400 and $143,800 as of
December 31, 1995 and 1994, respectively.
As of December 31, 1995, interest rates on the individual notes range from 6.2
to 10.6 percent, with a weighted average interest rate of 8.4 percent. As of
December 31, 1994, the range of interest rates on the individual notes was 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
$12,589, $10,596 and $9,118 in 1995, 1994 and 1993, respectively.
7. TIMBER OBLIGATIONS
As of December 31, 1995 and 1994, total timber obligations amounted to $645 and
$793, respectively. Interest rates ranged from 6.0 to 8.6 percent, with a
weighted average interest rate of 8.5 and 8.4 percent at December 31, 1995 and
1994, respectively.
The obligations are payable as follows: 1996 - $159; 1997 - $149; 1998 -
$162; and 1999 - $175.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1995 and 1994, the estimated fair values of the Partnership's
financial instruments were as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash $ 282 $ 282 $ 150 $ 150
Primary Account investment notes of Rayonier 38,300 38,590 47,700 47,700
Timber obligations 645 692 793 796
Secondary Account long-term notes
payable to Rayonier 166,400 181,800 143,800 143,500
</TABLE>
F-11
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Partnership uses the following methods and assumptions in estimating the
fair value of its financial instruments:
Cash
The carrying amount is equal to fair market value.
Primary Account Investment Notes of Rayonier
The Partnership's short-term investment notes of Rayonier approximate fair
value. The fair value of the long-term investment notes of Rayonier is based
upon market rates of Rayonier's publicly traded debt as of December 31, 1995.
Timber Obligations
The fair value of the fixed-rate obligations is based upon market prices for
these or similar issues currently available to the Partnership for obligations
with similar terms and maturities.
Secondary Account Long-Term Notes Payable to Rayonier
The fair value of long-term notes is based on the spread over the current rates
of U.S. Government Notes having a maturity date in early 2001.
9. ENVIRONMENTAL MATTERS
Over the past five 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-12
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. 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>
1995 1994 1993
--------------------------- --------------------------- --------------------------
Primary Secondary Primary Secondary Primary Secondary
Account Account Account Account Account Account
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Timber and
timberland sales $ 153,970 $ 6,298 $ 165,201 $ 1,320 $ 114,912 $ 1,135
Interest and other
income, net 6,320 (12,611) 5,105 (10,441) 6,891 (9,009)
Costs and expenses (34,159) (5,210) (33,533) (3,406) (26,734) (3,446)
Interest of General
Partners in RTOC (1,261) 115 (1,367) 125 (951) 113
--------- --------- --------- --------- --------- ---------
Partnership income
before commission
expense 124,870 (11,408) 135,406 (12,402) 94,118 (11,207)
Commission expense,
net of 1% General
Partner interest -- -- (85) -- (685) --
--------- --------- --------- --------- --------- ---------
PARTNERSHIP INCOME $ 124,870 $ (11,408) $ 135,321 $ (12,402) $ 93,433 $ (11,207)
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Publicly Traded Rayonier Owned Publicly Traded Rayonier Owned Publicly Traded Rayonier 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 $ 30,013 $ 88,614 $ 32,545 $ 96,091 $ 22,621 $ 66,791
4% of Secondary Account (115) (341) (125) (371) (113) (335)
------------ ------------ ------------ ------------ ------------ ------------
29,898 88,273 32,420 95,720 22,508 66,456
Commission expense -- -- -- (81) -- (651)
------------ ------------ ------------ ------------ ------------ ------------
Total income for Class A Units $ 29,898 $ 88,273 $ 32,420 $ 95,639 $ 22,508 $ 65,805
============ ============ ============ ============ ============ ============
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 $ 5.91 $ 5.91 $ 6.41 $ 6.40 $ 4.45 $ 4.40
============ ============ ============ ============ ============ ============
</TABLE>
F-13
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. 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 three years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------ ----------------------- ------------------------
Primary Secondary Primary Secondary Primary Secondary
Account Account Account Account Account Account
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Timber and timberland sales $ 153,970 $ 6,298 $ 165,201 $ 1,320 $ 114,912 $ 1,135
Interest and other income, net 6,320 (12,611) 5,105 (10,441) 6,891 (9,009)
Costs and expenses - other than non-cash
items, commissions and the General
Partners' interest in RTOC (26,577) (3,578) (25,798) (2,925) (19,867) (2,967)
Capital expenditures (1,549) (13,132) (2,240) (10,894) (1,911) (11,442)
General Partners' interest in RTOC (1,322) 230 (1,423) 229 (1,000) 223
--------- --------- --------- --------- --------- ---------
Operating cash flow before
commission expense 130,842 (22,793) 140,845 (22,711) 99,025 (22,060)
Commission expense, net
of 1% General Partner interest -- -- (85) -- (685) --
--------- --------- --------- --------- --------- ---------
OPERATING CASH FLOW $ 130,842 $ (22,793) $ 140,760 $ (22,711) $ 98,340 $ (22,060)
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Publicly Traded Rayonier Owned Publicly Traded Rayonier Owned Publicly Traded Rayonier 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 $ 31,448 $ 92,852 $ 33,852 $ 99,951 $ 23,801 $ 70,273
4% of Secondary Account (231) (681) (230) (678) (223) (659)
------------ ------------ ------------ ------------ ------------ ------------
31,217 92,171 33,622 99,273 23,578 69,614
Commission expense -- -- -- (81) -- (651)
------------ ------------ ------------ ------------ ------------ ------------
OPERATING CASH FLOW ALLOCABLE TO
CLASS A UNITS $ 31,217 $ 92,171 $ 33,622 $ 99,192 $ 23,578 $ 68,963
============ ============ ============ ============ ============ ============
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 $ 6.22 $ 6.22 $ 6.69 $ 6.69 $ 4.70 $ 4.66
Secondary Account
cash flow per unit (.05) (.05) (.05) (.05) (.04) (.04)
------------ ------------ ------------ ------------ ------------ ------------
OPERATING CASH FLOW PER
CLASS A UNIT $ 6.17 $ 6.17 $ 6.64 $ 6.64 $ 4.66 $ 4.62
============ ============ ============ ============ ============ ============
</TABLE>
F-14
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. QUARTERLY RESULTS FOR 1995 AND 1994 (unaudited):
(Thousands, except per unit information)
<TABLE>
<CAPTION>
1995 Quarter Ended
- - ------- -------------------------------------------
March June September December Total
31 30 30 31 Year
------- ------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Sales $48,555 $36,865 $26,029 $48,819 $160,268
Operating income 39,104 28,794 18,078 37,332 123,308
Partnership income 36,820 26,522 15,645 34,475 113,462
Income per publicly traded
Class A Unit 1.84 1.44 .88 1.75 5.91
Operating cash flow allocable
to a publicly traded
Class A Unit 1.92 1.50 .93 1.82 6.17
Distributions per publicly traded
Class A Unit 1.90 1.58 1.58 1.58 6.64
</TABLE>
<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>
(a) Includes a $4.00 per Class A Unit special distribution paid on March 31,
1994.
F-15
<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 22, 1996
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 22, 1996
- - ------------------------------------
Gerald J. Pollack Chief Financial Officer
(Principal Financial Officer)
KENNETH P. JANETTE Vice President and March 22, 1996
- - ------------------------------------
Kenneth P. Janette Corporate Controller
(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 22, 1996
-------------------------------
Attorney-in-fact
</TABLE>
-A-
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
----------- --------
NO.
-------
<S> <C> <C>
2 Plan of acquisition, reorganization, None
arrangement, liquidation or succession
3(a) Partnership Agreement of the Incorporated by
Partnership reference to
Exhibit No. 3(a)
to Registrant's
Form 10-K 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 10-K 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. (now known as Chemical Exhibit No. 4.1 to
Mellon Shareholder Services) as Registration State-
Depositary, Rayonier Forest Resources ment on Form S-l
Company (RFR), as attorney-in-fact of (Reg. No. 33-587)
limited partners in the Partnership,
and all holders of 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)
</TABLE>
- B -
<PAGE> 40
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION LOCATION
NO. ----------- --------
<S> <C> <C>
4(c) Specimen Secondary Account Incorporated by
Note Payable to Rayonier reference to
Exhibit No. 4(c) to
Registrant's Form 10-K
for 1992
9 Voting Trust Agreement None
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 10-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
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 percent 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, 1995 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 15, 1996
RONALD M. GROSS President and Director
- - ------------------------
Ronald M. Gross
WILLIAM J. ALLEY Director
- - ------------------------
William J. Alley
DONALD W. GRIFFIN Director
- - ------------------------
Donald W. Griffin
THOMAS W. KEESEE, JR. Director
- - ------------------------
Thomas W. Keesee, Jr.
DEROY C. THOMAS Director
- - ------------------------
DeRoy C. Thomas
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 282
<SECURITIES> 0
<RECEIVABLES> 10,739
<ALLOWANCES> 0
<INVENTORY> 584
<CURRENT-ASSETS> 53,129
<PP&E> 1,848
<DEPRECIATION> 924
<TOTAL-ASSETS> 336,480
<CURRENT-LIABILITIES> 11,848
<BONDS> 166,400
0
0
<COMMON> 0
<OTHER-SE> 152,711
<TOTAL-LIABILITY-AND-EQUITY> 336,480
<SALES> 160,268
<TOTAL-REVENUES> 160,268
<CGS> 27,080
<TOTAL-COSTS> 27,080
<OTHER-EXPENSES> 11,026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,700
<INCOME-PRETAX> 113,462
<INCOME-TAX> 0
<INCOME-CONTINUING> 113,462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,462
<EPS-PRIMARY> 5.91
<EPS-DILUTED> 5.91
</TABLE>
