<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ........... TO ............
COMMISSION FILE NUMBER 1-8997
RAYONIER TIMBERLANDS, L.P.
A Delaware Limited Partnership
I.R.S. Employer Identification Number 06-1148227
1177 SUMMER STREET, STAMFORD, CONNECTICUT 06905-5529
(Principal Executive Office)
Telephone Number: (203) 348-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES /X/ NO / /
As of August 1, 1996, there were 20,000,000 Class A Depositary Units of the
Partnership outstanding, of which 14,940,000 Class A Depositary Units were owned
by Rayonier.
<PAGE> 2
RAYONIER TIMBERLANDS, L.P.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the Three Months and
Six Months Ended June 30, 1996 and 1995 1
Balance Sheets as of June 30, 1996 and
December 31, 1995 2
Statements of Cash Flows for the Six Months Ended
June 30, 1996 and 1995 3
Notes to Financial Statements 4 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
PART II. OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 11
Exhibit Index 12
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements reflect, in the opinion of Rayonier
Forest Resources Company, the managing general partner of Rayonier Timberlands,
L.P., all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the results of operations, the financial
position and the cash flows for the periods presented. For a full description of
accounting policies, see Notes to Financial Statements in the 1995 Annual Report
on Form 10-K.
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF INCOME
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
------ ------ ------ -----
<S> <C> <C> <C> <C>
SALES
Timber sales
Unaffiliated parties $36,098 $30,207 $75,980 $67,049
Rayonier 2,719 6,575 8,334 15,817
------- ------- ------- -------
38,817 36,782 84,314 82,866
Timberland sales 104 83 1,449 2,554
------- ------- ------- -------
38,921 36,865 85,763 85,420
------- ------ ------ ------
COSTS AND EXPENSES
Cost of timber sold
Unaffiliated parties 5,777 4,678 11,455 9,720
Rayonier 457 1,048 1,271 2,301
------- ------- ------- -------
6,234 5,726 12,726 12,021
Cost of timberland sold 15 41 413 680
Forest management, overhead and general
and administrative expenses 3,006 3,046 5,889 5,786
------- ------- ------- -------
9,255 8,813 19,028 18,487
------- ------- ------- -------
OTHER OPERATING INCOME 608 742 952 965
------- ------- ------- -------
OPERATING INCOME 30,274 28,794 67,687 67,898
------- ------- ------- -------
OTHER INCOME AND DEDUCTIONS
Primary Account interest income from Rayonier 1,026 1,229 1,977 2,453
Secondary Account interest expense to Rayonier (3,604) (3,233) (7,107) (6,369)
Minority interest of General Partners in RTOC (277) (268) (626) (640)
------- ------- ------- -------
(2,855) (2,272) (5,756) (4,556)
------- ------- ------- -------
PARTNERSHIP INCOME $27,419 $26,522 $61,931 $63,342
======= ======= ======= =======
INCOME PER PUBLICLY TRADED CLASS A UNIT* $ 1.49 $ 1.44 $ 3.27 $ 3.28
======= ======= ======= =======
INCOME PER RAYONIER OWNED CLASS A UNIT* $ 1.49 $ 1.44 $ 3.27 $ 3.28
======= ======= ======= =======
</TABLE>
* Refer to calculations on page 6.
1
<PAGE> 4
RAYONIER TIMBERLANDS, L.P.
BALANCE SHEETS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 213 $ 282
Receivables, net 13,857 10,739
Inventories 288 584
Prepaid logging roads 3,694 3,946
Primary Account short-term investment notes of Rayonier 46,500 33,300
Trade and intercompany receivables from Rayonier and affiliates 4,182 4,278
-------- --------
Total current assets 68,734 53,129
LONG-TERM RECEIVABLES 1,235 1,333
PRIMARY ACCOUNT LONG-TERM INVESTMENT NOTES
OF RAYONIER 5,000 5,000
FIXED ASSETS, NET 1,079 924
TIMBER, TIMBERLANDS AND LOGGING ROADS,
LESS DEPLETION AND AMORTIZATION 280,313 276,094
-------- --------
$356,361 $336,480
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Advance deposits $ 8,607 $ 6,420
Accounts payable 1,156 2,887
Accrued liabilities
Taxes 2,546 1,738
All other 629 569
Current timber obligations 171 159
Advances from Rayonier 105 75
-------- --------
Total current liabilities 13,214 11,848
SECONDARY ACCOUNT LONG-TERM NOTES
PAYABLE TO RAYONIER 181,200 166,400
LONG-TERM TIMBER OBLIGATIONS 337 486
MINORITY INTEREST OF GENERAL PARTNERS IN RTOC 5,073 5,035
PARTNERS' CAPITAL
General Partners 5,027 4,989
Limited Partners (20,000,000 Class A Depositary
Units and 20,000,000 Class B Depositary Units
issued and outstanding) 151,510 147,722
-------- --------
$356,361 $336,480
======== ========
</TABLE>
2
<PAGE> 5
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------
1996 1995
------ -----
<S> <C> <C>
OPERATING ACTIVITIES
Partnership income $ 61,931 $ 63,342
Non-cash items included in income
Depletion, depreciation and amortization 3,970 4,271
Minority interest of General Partners in RTOC 626 640
Increase in receivables (3,118) (1,999)
Decrease in prepaid logging roads 252 757
Increase in advance deposits 2,187 4,639
(Decrease) increase in accounts payable and accrued liabilities (863) 689
Other changes 422 63
-------- --------
Cash provided by operating activities 65,407 72,402
-------- --------
INVESTING ACTIVITIES
Capital expenditures less sales and retirements
of $326 and $612 in 1996 and 1995 (8,344) (6,726)
Increase in Primary Account investment
notes of Rayonier (75,000) (81,000)
Settlement of Primary Account investment
notes of Rayonier 61,800 78,400
Decrease in long-term receivables 98 --
-------- --------
Cash used for investing activities (21,446) (9,326)
-------- --------
FINANCING ACTIVITIES
Decrease in timber obligations (137) (127)
Increase in Secondary Account long-term notes
payable to Rayonier 14,800 11,050
Partnership distributions (58,105) (73,263)
Distributions to General Partners of RTOC (588) (741)
-------- --------
Cash used for financing activities (44,030) (63,081)
-------- --------
CASH
Net decrease in cash (69) (5)
Balance, beginning of year 282 150
-------- --------
Balance, end of period $ 213 $ 145
======== ========
Supplemental disclosures of cash flow information
Cash received for interest - Primary Account $ 1,977 $ 2,453
======== ========
Cash paid for interest - Secondary Account $ 7,147 $ 6,400
======== ========
</TABLE>
3
<PAGE> 6
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Rayonier Timberlands, L.P. (RTLP), a Delaware limited partnership, began
operations on November 20, 1985 succeeding to substantially all of the U.S.
timberlands business (the Timberlands) of Rayonier Inc. (Rayonier). Rayonier
Forest Resources Company (RFR), a wholly owned subsidiary of Rayonier, is the
Managing General Partner of RTLP and Rayonier is the Special General Partner of
RTLP.
RTLP operates through Rayonier Timberlands Operating Company, L.P. (RTOC), a
Delaware limited partnership, in which RTLP holds a 99 percent limited partner
interest and RFR and Rayonier together hold a 1 percent general partner
interest. RFR is the Managing General Partner of RTOC and Rayonier is the
Special General Partner of RTOC.
In addition to its General Partners' interests, Rayonier is also a Limited
Partner and owns 74.7 percent of RTLP's issued and outstanding Class A Units and
100 percent of RTLP's issued and outstanding Class B Units.
The officers, directors and employees of Rayonier and RFR perform all management
and business activities for RTLP and RTOC. RTLP and RTOC have no officers,
directors or employees.
ALLOCATIONS OF PARTNERSHIP INTEREST
RTLP records all of its activities in two accounts, the Primary Account and the
Secondary Account. The Class A unitholders, the Class B unitholders and the
General Partners all participate in both accounts, but in different percentages.
The participation in the revenues and expenses of RTLP is as follows:
<TABLE>
<CAPTION>
Primary Secondary
Account Account
------- ---------
<S> <C> <C>
Class A unitholders 95% 4%
Class B unitholders 4% 95%
General Partners 1% 1%
--- ---
Total 100% 100%
=== ===
</TABLE>
IN ACCORDANCE WITH RTLP'S PARTNERSHIP AGREEMENT, THE PRIMARY ACCOUNT WILL BE
CLOSED AT THE END OF THE INITIAL TERM ON DECEMBER 31, 2000. SUBSEQUENT TO THAT
DATE, THE CLASS A UNITHOLDERS WILL PARTICIPATE IN 4 PERCENT OF THE REVENUES AND
EXPENSES OF RTLP AND 4 PERCENT OF ITS CASH FLOW AFTER ALL SECONDARY ACCOUNT DEBT
HAS BEEN REPAID.
NATURE OF BUSINESS OPERATIONS
The Partnership is engaged in the timberlands business, which includes forestry
management, reforestation, timber thinning and the marketing and sale of
standing timber and logs from the Timberlands. The Partnership will occasionally
purchase, for short-term resale, standing timber from third parties. The
Partnership's business plan is to operate the Timberlands for sustained
long-range harvest and to satisfy the Partnership's need to generate regular
cash flow to fund its cash distribution policy, as determined from time to time
by the Managing General Partner's Board of Directors.
The Partnership negotiates and contracts for the sale of standing timber
(stumpage) at fixed prices with buyers who generally cut and pay for the trees
during the contract period. Current contracts usually entail a 20-percent
deposit and/or performance bond and generally have a 12- to 24- month life. The
Partnership conducts, or contracts for third parties to conduct, harvesting
operations and sells logs harvested if the Managing General Partner believes
that the timber cannot be sold as profitably as stumpage or that the tract in
question is particularly environmentally sensitive. In addition, the Partnership
may sell or exchange portions of the Timberlands and acquire additional timber
properties for cash, additional Units or other consideration.
4
<PAGE> 7
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
INVESTING AND FINANCING ACTIVITIES
The excess of operating cash flow generated by the Primary Account over amounts
distributed to unitholders is invested with Rayonier in accordance with the
Partnership Agreement and is repayable on demand. Interest is due quarterly and
the stated interest rates are at least equivalent to the rate Rayonier would be
charged by an outside party for equivalent borrowings.
The Partnership has expenditures that relate primarily to timber that will be
harvested after the Initial Term, such as costs of site preparation, planting,
reforestation and pre-commercial thinning, all of which are allocated to the
Secondary Account of the Partnership. Rayonier funds these expenditures on
behalf of the Partnership and, in accordance with the Partnership Agreement,
RTLP incurs obligations to Rayonier that mature on January l, 2001.
Under the terms of the Partnership Agreement, cash credited to the Primary
Account may not be loaned or otherwise used for the benefit of the Secondary
Account. Accordingly, the Partnership is not permitted to use proceeds from the
Primary Account Investment Notes of Rayonier to repay the Secondary Account
Long-Term Notes Payable to Rayonier.
PARTNERS' CAPITAL
An analysis of the activity in the Partners' Capital accounts of RTLP for the
six months ended June 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Limited Partners General Partners Total
---------------- ---------------- -----
<S> <C> <C> <C>
Balance, January 1, 1996 $147,722 $4,989 $152,711
Partnership income 61,312 619 61,931
Partnership distributions (57,524) (581) (58,105)
-------- ------ -------
Balance, June 30, 1996 $151,510 $5,027 $156,537
======== ====== ========
Balance, January 1, 1995 $173,785 $ 5,253 $179,038
Partnership income 62,709 633 63,342
Partnership distributions (72,530) (733) (73,263)
-------- ----- --------
Balance, June 30, 1995 $163,964 $ 5,153 $169,117
======== ====== ========
</TABLE>
In addition to the RTLP distributions, RTOC distributed $588 and $741 to its
General Partners during the first six months of 1996 and 1995, respectively.
5
<PAGE> 8
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
2. COMPUTATION OF INCOME PER CLASS A UNIT
The Partnership Agreement provides for the allocation of Partnership income
among the General and Limited Partners. The following tables present the
computation of income per Class A Unit for the six months ended June 30, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------- --------------------------
Primary Secondary Primary Secondary
Account Account Account Account
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Timber and timberland sales $84,285 $ 1,478 $82,866 $ 2,554
Interest and other income - net 2,475 (6,653) 3,130 (6,081)
Costs and expenses (16,953) (2,075) (16,100) (2,387)
Interest of General Partners in RTOC (698) 72 (699) 59
------- ------- ------- -------
PARTNERSHIP INCOME $69,109 $(7,178) $69,197 $(5,855)
======= ======= ======= =======
Publicly Rayonier Publicly Rayonier
Traded Owned Traded Owned
A Units A Units A Units A Units
-------- -------- -------- --------
Income for Class A Units
95% of Primary Account $16,610 $49,044 $16,631 $49,106
4% of Secondary Account (73) (214) (59) (175)
------- ------- ------- -------
Total income for Class A Units $16,537 $48,830 $16,572 $48,931
======= ======= ======= =======
Units outstanding 5,060,000 14,940,000 5,060,000 14,940,000
========= ========== ========= ==========
INCOME PER CLASS A UNIT $ 3.27 $ 3.27 $ 3.28 $ 3.28
======= ======= ======= =======
</TABLE>
6
<PAGE> 9
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
3. OPERATING CASH FLOW ALLOCABLE TO CLASS A UNITS
Operating cash flow allocable to Class A Units is calculated in accordance with
the Partnership agreement, should not be considered as contradictory to
information provided in the Statements of Cash Flows and is not intended as an
alternative to income per Class A Unit as an indication of performance.
Operating cash flow allocable to a Class A Unit is calculated by multiplying 99
percent (Limited Partners' interest in RTLP) of operating cash flow allocated to
the Primary and Secondary Accounts by the respective 95 percent and 4 percent
Class A Unit interest in those accounts. In determining operating cash flow,
Partnership results are adjusted for non-cash costs and expenses without the
effects of changes in working capital. The following tables present the
calculations of operating cash flow allocable to Class A Units for the six
months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------ -------------------------
Primary Secondary Primary Secondary
Account Account Account Account
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Timber and timberland sales $ 84,285 $ 1,478 $ 82,866 $ 2,554
Interest and other income, net 2,475 (6,653) 3,130 (6,081)
Costs and expenses - other than non-cash
items and the General
Partners' interest in RTOC (13,088) (1,639) (11,930) (1,681)
Capital expenditures (878) (7,792) (857) (6,481)
General Partners' interest in RTOC (728) 146 (732) 117
---------- ----------- ---------- -----------
OPERATING CASH FLOW $ 72,066 $ (14,460) $ 72,477 $ (11,572)
========== =========== ========== ===========
Publicly Rayonier Publicly Rayonier
Traded Owned Traded Owned
A Units A Units A Units A Units
---------- ----------- ---------- -----------
Cash allocable to Class A Units
95% of Primary Account $ 17,321 $ 51,142 $ 17,420 $ 51,433
4% of Secondary Account (146) (432) (117) (346)
---------- ----------- ---------- -----------
OPERATING CASH FLOW ALLOCABLE TO
CLASS A UNITS $ 17,175 $ 50,710 $ 17,303 $ 51,087
========= ========== ========= ==========
Units outstanding 5,060,000 14,940,000 5,060,000 14,940,000
========= ========== ========= ==========
Primary Account cash flow per unit $ 3.42 $ 3.42 $ 3.44 $ 3.44
Secondary Account cash flow per unit (.03) (.03) (.02) (.02)
---------- ----------- ---------- -----------
OPERATING CASH FLOW PER CLASS A UNIT $ 3.39 $ 3.39 $ 3.42 $ 3.42
========== =========== ========== ===========
</TABLE>
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Most of the timber harvested from Partnership lands in the Northwest is resold
by the Partnership's customers into log export markets, primarily in Japan,
Korea and China. The Partnership's contracts in this region generally provide
for payment of a fixed price per unit of volume or weight, by species, with
harvesting required to be completed within contract periods of up to 24 months.
In the Southeast, pulpwood timber is sold by the Partnership's customers for the
production of pulp and paper with sawlog timber sold to lumber and plywood
manufacturers. The Partnership's contracts in this region generally provide for
payment of a fixed price per unit of weight, with harvesting required to be
completed within contract periods of up to 18 months.
The following table summarizes the sales, operating income, partnership income
and selected operating statistics of the Partnership, for the periods indicated,
by United States geographic region (thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
TIMBER SALES
Northwest $26,367 $23,714 $57,984 $49,399
Southeast 12,450 13,068 26,330 33,467
------- ------- ------- -------
38,817 36,782 84,314 82,866
------- ------- ------- -------
TIMBERLAND SALES
Northwest -- -- -- --
Southeast 104 83 1,449 2,554
------- ------- ------- -------
104 83 1,449 2,554
------- ------- ------- -------
TOTAL SALES $38,921 $36,865 $85,763 $85,420
======= ======= ======= =======
OPERATING INCOME
Northwest $20,910 $18,554 $46,778 $39,803
Southeast 9,853 10,741 21,889 29,019
Corporate and other (489) (501) (980) (924)
------- ------- ------- -------
$30,274 $28,794 $67,687 $67,898
======= ======= ======= =======
PARTNERSHIP INCOME $27,419 $26,522 $61,931 $63,342
======= ======= ======= =======
SELECTED OPERATING STATISTICS
Northwest harvest volumes
Stumpage (thousands of MBF) 37.7 30.8 82.8 68.4
Delivered logs (thousands of MBF) 14.7 11.6 29.9 20.1
------- ------- ------- -------
52.4 42.4 112.7 88.5
======= ======= ======= =======
Southeast harvest volumes
Pine (thousands of tons) 436.7 410.8 893.3 1,001.1
Hardwoods (thousands of tons) 46.3 50.3 102.3 91.3
------- ------- ------- -------
483.0 461.1 995.6 1,092.4
======= ======= ======= =======
</TABLE>
Sales for the six months ended June 30, 1996 were $85.8 million, $0.3 million
higher than the first six months of 1995. Timber sales were $84.3 million, up
$1.4 million, or 2 percent, from the comparable 1995 period. Timberland sales of
$1.4 million were down $1.1 million from 1995.
Partnership income for the six month period of 1996 was $61.9 million, or $3.27
per Class A Unit, down $1.4 million, or 1 cent per Class A Unit, from 1995
results. Operating cash flow allocable to each Class A Unit was $3.39, down 3
cents per Class A Unit.
8
<PAGE> 11
In the Northwest region, unfavorable market conditions throughout 1995 caused
many customers to defer harvesting until late 1995 and into 1996. For the six
months ended June 30, 1996, the combined stumpage and delivered log volume was
27 percent above the prior year. However, this increase was partially offset by
an 8 percent decline in prices. As a result, sales increased $8.6 million, or 17
percent, to $58.0 million and operating income increased $7.0 million, or 18
percent, to $46.8 million.
In the Southeast region, sales for the six months ended June 30, 1996 declined
$8.2 million, or 23 percent, to $27.8 million from the prior year and operating
income declined $7.1 million, or 25 percent, to $21.9 million, reflecting lower
volume and prices. Overall harvest volume declined 9 percent and prices declined
14 percent from 1995. The declines were due to soft demand from the pulp and
paper industry as mills took market downtime.
Operating costs and expenses for the first half of 1996 were $19.0 million, up
$0.5 million from 1995. The increase was primarily due to higher logging costs
in the Northwest region resulting from increased contract logging activities.
The increase in costs and expenses was partially offset by lower depletion costs
resulting from reduced harvest volume in the Southeast region.
Interest income, earned mainly from the Primary Account's investment notes of
Rayonier, decreased $0.5 million to $2.0 million in 1996 due to an overall lower
average balance of investment notes of Rayonier and lower average interest
rates. Interest expense, on increased loans and advances to the Secondary
Account by Rayonier, rose $0.7 million to $7.1 million.
Partnership income for the second quarter was $27.4 million, or $1.49 per Class
A Unit, which is $0.9 million, or 5 cents per Class A Unit, above the 1995
second quarter. Operating cash flow allocable to each Class A Unit was $1.56, up
6 cents per Class A Unit over last year. Sales for the second quarter were $38.9
million, $2.1 million higher than last year's second quarter.
For the second quarter of 1996, the combined stumpage and delivered log volume
for the Northwest region was 24 percent higher than the prior year as customers
expedited harvesting on expiring stumpage contracts. However, this increase was
partially offset by a 10 percent decline in prices caused by weak export and
domestic log markets. As a result, second quarter sales increased $2.7 million
to $26.4 million and operating income rose $2.4 million to $20.9 million.
Second quarter sales for the Southeast region declined $0.6 million to $12.6
million and operating income declined $0.9 million to $9.9 million, reflecting
lower prices. Pine prices declined 10 percent from the prior year due to weak
pulp and paper markets.
FUTURE OPERATIONS
For the first six months of 1996, the harvest levels in the Northwest and the
Southeast represented approximately 67 percent and 48 percent, respectively, of
the current projection of the full year harvest whereas in the first six months
of 1995 the harvest levels in the Northwest and the Southeast were 51 percent
and 53 percent, respectively, of the actual full year harvest.
Contract terms allow customers to harvest their commitments over various time
periods, and therefore, volume currently under contract may not be fully cut
within this fiscal year. As of June 30, 1996, volume representing approximately
111 percent of the projected 1996 harvest of stumpage and pine in both regions
had been cut or committed under contract. As of June 30, 1995, 116 percent of
the final 1995 harvest in both regions had been cut or committed. In the
Northwest and Southeast regions, average prices on outstanding contracts as of
June 30, 1996 were approximately 25 percent and 3 percent, respectively, below
average prices realized during 1995. Therefore, the Partnership does not expect
full year 1996 earnings or cash flow from operations to be as strong as in the
prior year.
At June 30, 1996, Rayonier held contracts representing approximately 4 percent
and 2 percent of the uncut volume under contract in the Northwest and Southeast
regions, respectively. In addition, three customers under common ownership and
two additional unrelated customer held contracts representing approximately 27
percent, 17 percent and 16 percent, respectively, of the uncut volume under
contract in the Northwest. One unrelated customer held contracts representing
approximately 10 percent of the uncut volume under contract in the Southeast.
These six customers are not affiliated with the Partnership.
LIQUIDITY AND CASH FLOW
As of June 30, 1996, the Partnership was due trade and intercompany receivables
from Rayonier and affiliates of $4.2 million. In addition, the Primary Account
of the Partnership held $46.5 million of short-term investment notes of Rayonier
and an additional $5.0 million of long-term investment notes of Rayonier
resulting from the cumulative net cash flow, since inception, of the Primary
Account after distributions to unitholders. The Partnership may redeem the
investment notes at any time to fund Partnership working capital requirements,
capital expenditures and reserves.
9
<PAGE> 12
The Secondary Account of the Partnership had total outstanding debt of $181.7
million at June 30, 1996, including long-term notes payable to Rayonier of
$181.2 million that mainly represent the obligations incurred as a result of
Secondary Account advances by Rayonier.
Capital expenditures for the six months ended June 30, 1996 and 1995
representing reforestation, capitalized lease payments, property taxes and other
improvements to the land and timber assets were $8.7 million and $7.3 million,
respectively. Funding of future capital requirements is expected to continue
from Rayonier.
On June 30, 1996 and 1995, the Partnership made quarterly distributions of $26.6
million ($1.33 per Unit) and $31.6 million ($1.58 per Unit), respectively, to
all outstanding Class A unitholders. Quarterly distributions of $1.4 million and
$1.7 million were also made to Class B unitholders and to the General Partners
in the second quarter of 1996 and 1995, respectively.
On July 19, 1996, the Board of Directors of the Managing General Partner
announced a third quarter distribution of $1.33 per Class A Unit. The
distribution will be paid on September 30, 1996 to unitholders of record on
August 30, 1996. The Board determines the amount of quarterly distributions that
are made to Class A unitholders from cash available from operations after
provision for working capital, capital expenditures, asset acquisitions and
other reserves. The Board intends to have distributions approximate actual
Partnership results each year by keeping the distribution relatively constant in
the second, third and fourth quarters and by making an adjustment in the first
quarter of the following year to bring the cumulative distribution in line with
Partnership results. Since actual Partnership results vary each year, the level
of total distributions in each year will also vary. Because the Partnership does
not expect full year 1996 earnings or cash flow from operations to be as strong
as in the prior year, distributions for the remainder of the year and the first
quarter of 1997 are expected to total less than $6.17, which was the
Partnership's cash flow per Class A Unit in 1995.
WHEN THE INITIAL TERM ENDS ON DECEMBER 31, 2000, THE PRIMARY ACCOUNT OF THE
PARTNERSHIP WILL BE CLOSED BUT 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 FLOW
ALLOCABLE PER CLASS A UNIT WOULD DECLINE FROM $6.17 TO APPROXIMATELY 22 CENTS.
IN ADDITION, THERE WILL BE SUBSTANTIAL SECONDARY ACCOUNT DEBT THAT WILL MATURE
ON JANUARY 1, 2001. THIS DEBT (INCURRED TO FUND LONG-TERM INVESTMENT IN SUCH
AREAS AS REFORESTATION AND SILVICULTURAL ACTIVITIES INCLUDING ACCRUED INTEREST)
IS EXPECTED TO AMOUNT TO OVER $350 MILLION, MORE THAN THREE TIMES 1995'S NET
OPERATING CASH FLOW. IN ACCORDANCE WITH THE PARTNERSHIP AGREEMENT, ALL SECONDARY
ACCOUNT DEBT MUST BE REPAID BEFORE ANY DISTRIBUTION OF PARTNERSHIP CASH FLOW
RESUMES. AS A RESULT, IT IS EXPECTED THAT THE MARKET PRICE OF CLASS A UNITS
SHOULD BEGIN TO DECLINE SUBSTANTIALLY SOMETIME PRIOR TO DECEMBER 31, 2000.
10
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
William J. Alley, a director of Rayonier Forest Resources Company, managing
general partner of the Partnership, died on July 26, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index
(b) Rayonier Timberlands, L.P. did not file any Report on Form 8-K during
the quarter covered by this report.
SIGNATURE
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
RAYONIER TIMBERLANDS, L.P.
(A Delaware Limited Partnership)
By: RAYONIER FOREST RESOURCES
COMPANY
Managing General Partner
By KENNETH P. JANETTE
----------------------------------
Kenneth P. Janette
Vice President and Corporate Controller
(Chief Accounting Officer)
August 13, 1996
11
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<S> <C> <C>
2 Plan of acquisition, reorganization, arrangement, None
liquidation, or succession
3(a) Partnership Agreement of the Partnership No amendments
3(b) Forms of Class A Certificate of Limited Partnership No amendments
and Class B Certificate of Limited Partnership
of the Partnership
3(c) Partnership Agreement of Operating Partnership No amendments
3(d) Forms of Class A Certificate of Limited Partnership No amendments
and Class B Certificate of Limited Partnership
of the Operating Partnership
4 Instruments defining the rights of security holders, None
including indentures
10 Material contracts None
11 Statement re computation of per share earnings Not applicable
15 Letter re unaudited interim financial information None
18 Letter re change in accounting principles Not applicable
19 Report furnished to security holders None
22 Published report regarding matters submitted None
to vote of security holders
23 Consents of experts and counsel None
24 Power of attorney None
27 Financial data schedule Filed herewith
99 Additional exhibits None
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 213
<SECURITIES> 0
<RECEIVABLES> 13,857
<ALLOWANCES> 0
<INVENTORY> 288
<CURRENT-ASSETS> 68,734
<PP&E> 2,045
<DEPRECIATION> 966
<TOTAL-ASSETS> 356,361
<CURRENT-LIABILITIES> 13,214
<BONDS> 181,200
0
0
<COMMON> 0
<OTHER-SE> 156,537
<TOTAL-LIABILITY-AND-EQUITY> 356,361
<SALES> 85,763
<TOTAL-REVENUES> 85,763
<CGS> 13,139
<TOTAL-COSTS> 13,139
<OTHER-EXPENSES> 5,563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,130
<INCOME-PRETAX> 61,931
<INCOME-TAX> 0
<INCOME-CONTINUING> 61,931
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,931
<EPS-PRIMARY> 3.27
<EPS-DILUTED> 3.27
</TABLE>
