<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ........... TO ............
COMMISSION FILE NUMBER 1-8997
RAYONIER TIMBERLANDS, L.P.
A Delaware Limited Partnership
I.R.S. Employer Identification Number 06-1148227
1177 SUMMER STREET, STAMFORD, CONNECTICUT 06905-5529
(Principal Executive Office)
Telephone Number: (203) 348-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES (X) NO ( )
As of November 3, 1997, 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the Three Months and
Nine Months Ended September 30, 1997 and 1996 1
Balance Sheets as of September 30, 1997 and
December 31, 1996 2
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 3
Notes to Financial Statements 4 - 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 11
Exhibit Index 12
</TABLE>
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 1996 Annual
Report on Form 10-K.
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF INCOME
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
-------- -------- ------ ------
<S> <C> <C> <C> <C>
SALES
Timber sales
Unaffiliated parties $ 27,980 $23,434 $97,111 $ 99,414
Rayonier 791 3,375 5,934 11,709
-------- ------- ------- -------
28,771 26,809 103,045 111,123
Timberland sales 453 201 1,408 1,650
-------- ------- ------- -------
29,224 27,010 104,453 112,773
-------- ------- ------- -------
COSTS AND EXPENSES
Cost of timber sold
Unaffiliated parties 5,882 5,873 17,374 17,328
Rayonier 240 879 1,128 2,150
-------- ------- ------- -------
6,122 6,752 18,502 19,478
Cost of timberland sold 65 - 168 413
Forest management, overhead, and general
and administrative expenses 3,357 3,050 9,036 8,939
-------- ------- ------- -------
9,544 9,802 27,706 28,830
-------- ------- ------- -------
OTHER OPERATING INCOME 212 1,463 1,298 2,415
-------- ------- ------- -------
OPERATING INCOME 19,892 18,671 78,045 86,358
-------- ------- ------- -------
OTHER INCOME AND DEDUCTIONS
Primary Account interest income from Rayonier 1,054 1,010 3,224 2,987
Secondary Account interest expense to Rayonier (4,221) (3,711) (12,350) (10,818)
Minority interest of General Partners in RTOC (167) (159) (689) (785)
-------- ------- ------- -------
(3,334) (2,860) (9,815) (8,616)
-------- ------- ------- -------
PARTNERSHIP INCOME $16,558 $ 15,811 $68,230 $ 77,742
======== ======== ======= ========
INCOME PER CLASS A UNIT* $ 1.00 $ 0.94 $ 3.83 $ 4.21
-------- ------- ------- -------
</TABLE>
* Refer to calculations on page 6.
1
<PAGE> 4
RAYONIER TIMBERLANDS, L.P.
BALANCE SHEETS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 127 $ 88
Receivables, net 8,385 5,304
Inventories 384 588
Prepaid logging roads 3,248 4,291
Primary Account short-term investment notes of Rayonier 43,700 46,800
Trade and intercompany receivables from Rayonier 4,262 4,172
-------- --------
Total current assets 60,106 61,243
PRIMARY ACCOUNT LONG-TERM INVESTMENT NOTES OF RAYONIER 5,000 5,000
FIXED ASSETS, NET 816 1,045
TIMBER, TIMBERLANDS, AND LOGGING ROADS,
LESS DEPLETION AND AMORTIZATION 287,794 283,359
-------- --------
$353,716 $350,647
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Advance deposits $ 6,102 $ 5,965
Accounts payable 1,431 2,149
Accrued liabilities
Taxes 3,131 1,744
All other 2,128 663
Current timber obligations 162 149
Advances from Rayonier 115 98
-------- --------
Total current liabilities 13,069 10,768
SECONDARY ACCOUNT LONG-TERM NOTES
PAYABLE TO RAYONIER 217,400 196,500
LONG-TERM TIMBER OBLIGATIONS 175 337
MINORITY INTEREST OF GENERAL PARTNERS IN RTOC 4,686 4,887
PARTNERS' CAPITAL
General Partners 4,647 4,844
Limited Partners (20,000,000 Class A Depositary
Units and 20,000,000 Class B Depositary Units
issued and outstanding) 113,739 133,311
-------- --------
$353,716 $350,647
======== ========
</TABLE>
2
<PAGE> 5
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Partnership income $ 68,230 $ 77,742
Non-cash items included in income
Depletion, depreciation and amortization 6,893 5,801
Minority interest of General Partners in RTOC 689 785
Increase in receivables (3,081) (118)
Decrease (increase) in prepaid logging roads 1,043 (153)
Increase (decrease) in advance deposits 137 (507)
Increase in accounts payable and accrued liabilities 2,134 257
Other changes 131 233
--------- ---------
Cash provided by operating activities 76,176 84,040
--------- ---------
INVESTING ACTIVITIES
Capital expenditures less sales and retirements
of $337 and $305 in 1997 and 1996 (11,099) (11,582)
Increase in Primary Account investment
notes of Rayonier (138,400) (116,300)
Settlement of Primary Account investment
notes of Rayonier 141,500 108,300
Decrease in long-term receivables -- 1,333
--------- ---------
Cash used for investing activities (7,999) (18,249)
--------- ---------
FINANCING ACTIVITIES
Decrease in timber obligations (149) (137)
Increase in Secondary Account long-term notes
payable to Rayonier 20,900 21,300
Partnership distributions (87,999) (86,106)
Distributions to General Partners of RTOC (890) (870)
--------- ---------
Cash used for financing activities (68,138) (65,813)
--------- ---------
CASH
Increase (decrease) during the period 39 (22)
Balance, beginning of period 88 282
--------- ---------
Balance, end of period $ 127 $ 260
========= =========
Supplemental disclosures of cash flow information
Cash received for interest - Primary Account $ 3,224 $ 2,987
========= =========
Cash paid for interest - Secondary Account $ 12,370 $ 10,851
========= =========
</TABLE>
3
<PAGE> 6
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Rayonier Timberlands, L.P. (RTLP), a Delaware limited partnership, began
operations on November 20, 1985 succeeding to substantially all of the U.S.
timberlands business (the Timberlands) of Rayonier Inc. (Rayonier). Rayonier
Forest Resources Company (RFR), a wholly owned subsidiary of Rayonier, is the
Managing General Partner of RTLP and Rayonier is the Special General Partner of
RTLP.
RTLP operates through Rayonier Timberlands Operating Company, L.P. (RTOC), a
Delaware limited partnership, in which RTLP holds a 99 percent limited partner
interest and RFR and Rayonier together hold a 1 percent general partner
interest. RFR is the Managing General Partner of RTOC and Rayonier is the
Special General Partner of RTOC.
In addition to its General Partners' interests, Rayonier is also a Limited
Partner and owns 74.7 percent of RTLP's issued and outstanding Class A Units and
100 percent of RTLP's issued and outstanding Class B Units.
The officers, directors and employees of Rayonier and RFR perform all management
and business activities for RTLP and RTOC. RTLP and RTOC have no officers,
directors or employees.
ALLOCATIONS OF PARTNERSHIP INTEREST
RTLP records all of its activities in two accounts, the Primary Account and the
Secondary Account. The Class A unitholders, the Class B unitholders and the
General Partners all participate in both accounts, but in different percentages.
The participation in the revenues and expenses of RTLP is as follows:
<TABLE>
<CAPTION>
Primary Secondary
Account Account
------- -------
<S> <C> <C>
Class A unitholders 95% 4%
Class B unitholders 4% 95%
General Partners 1% 1%
---- ----
Total 100% 100%
==== ====
</TABLE>
IN ACCORDANCE WITH RTLP'S PARTNERSHIP AGREEMENT, THE PRIMARY ACCOUNT WILL BE
CLOSED AT THE END OF THE INITIAL TERM ON DECEMBER 31, 2000. SUBSEQUENT TO THAT
DATE, THE CLASS A UNITHOLDERS WILL PARTICIPATE IN 4 PERCENT OF THE REVENUES AND
EXPENSES OF RTLP AND 4 PERCENT OF ITS CASH FLOW AFTER ALL SECONDARY ACCOUNT DEBT
HAS BEEN REPAID.
NATURE OF BUSINESS OPERATIONS
The Partnership is engaged in the timberlands business, which includes forestry
management, reforestation, timber thinning and the marketing and sale of
standing timber and logs from the Timberlands. The Partnership will occasionally
purchase, for short-term resale, standing timber from third parties. The
Partnership's business plan is to operate the Timberlands for sustained
long-range harvest and to satisfy the Partnership's need to generate regular
cash flow to fund its cash distribution policy, as determined from time to time
by the Managing General Partner's Board of Directors.
The Partnership negotiates and contracts for the sale of standing timber
(stumpage) at fixed prices with buyers who generally cut and pay for the trees
during the contract period. Current contracts usually entail a 20-percent
deposit and/or performance bond and generally have a 12- to 24- month life. The
Partnership conducts, or contracts for third parties to conduct, harvesting
operations and sells logs harvested if the Managing General Partner believes
that the timber cannot be sold as profitably as stumpage or that the tract in
question is particularly environmentally sensitive. In addition, the Partnership
may sell or exchange portions of the Timberlands and acquire additional timber
properties for cash, additional Units or other consideration.
4
<PAGE> 7
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
INVESTING AND FINANCING ACTIVITIES
The excess of operating cash flow generated by the Primary Account over amounts
distributed to unitholders is invested with Rayonier in accordance with the
Partnership Agreement and is repayable on demand. Interest is due quarterly and
the stated interest rates are at least equivalent to the rate Rayonier would be
charged by an outside party for equivalent borrowings.
The Partnership has expenditures that relate primarily to timber that will be
harvested after the Initial Term, such as costs of site preparation, planting,
reforestation and pre-commercial thinning, all of which are allocated to the
Secondary Account of the Partnership. Rayonier funds these expenditures on
behalf of the Partnership and, in accordance with the Partnership Agreement,
RTLP incurs obligations to Rayonier that mature on January l, 2001.
Under the terms of the Partnership Agreement, cash credited to the Primary
Account may not be loaned or otherwise used for the benefit of the Secondary
Account. Accordingly, the Partnership is not permitted to use proceeds from the
Primary Account Investment Notes of Rayonier to repay the Secondary Account
Long-Term Notes Payable to Rayonier.
PARTNERS' CAPITAL
An analysis of the activity in the Partners' Capital accounts of RTLP for the
nine months ended September 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Limited Partners General Partners Total
---------------- ---------------- -----
<S> <C> <C> <C>
Balance, January 1, 1997 $ 133,311 $ 4,844 $ 138,155
Partnership income 67,548 682 68,230
Partnership distributions (87,120) (879) (87,999)
--------- ------- ---------
Balance, September 30, 1997 $ 113,739 $ 4,647 $ 118,386
========= ======= =========
Balance, January 1, 1996 $ 147,722 $ 4,989 $ 152,711
Partnership income 76,965 777 77,742
Partnership distributions (85,245) (861) (86,106)
--------- ------- ---------
Balance, September 30, 1996 $ 139,442 $ 4,905 $ 144,347
========= ======= =========
</TABLE>
In addition to the RTLP distributions, RTOC distributed $890 and $870 to its
General Partners during the first nine months of 1997 and 1996, respectively.
5
<PAGE> 8
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
2. COMPUTATION OF INCOME PER CLASS A UNIT
The Partnership Agreement provides for the allocation of Partnership income
among the General and Limited Partners. The following tables present the
computation of income per Class A Unit for the nine months ended September 30,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
Primary Secondary Primary Secondary
Account Account Account Account
------- ------- ------- -------
<S> <C> <C> <C> <C>
Timber and timberland sales $ 103,045 $ 1,408 $ 111,094 $ 1,679
Interest and other income, net 3,770 (11,598) 4,761 (10,177)
Costs and expenses (24,893) (2,813) (25,792) (3,038)
Interest of General Partners in RTOC (819) 130 (900) 115
--------- -------- --------- --------
PARTNERSHIP INCOME $ 81,103 $(12,873) $ 89,163 $(11,421)
========= ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Total for Total for
All A Units All A Units
----------- -----------
<S> <C> <C>
Income for Class A Units
95% of Primary Account $ 77,048 $ 84,704
4% of Secondary Account (515) (457)
------------ ------------
Total income for Class A Units $ 76,533 $ 84,247
============ ============
Units outstanding 20,000,000 20,000,000
============ ============
INCOME PER CLASS A UNIT $ 3.83 $ 4.21
============ ============
</TABLE>
6
<PAGE> 9
RAYONIER TIMBERLANDS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER UNIT INFORMATION)
3. OPERATING CASH FLOW ALLOCABLE TO CLASS A UNITS
Operating cash flow allocable to Class A Units is calculated in accordance with
the Partnership agreement, should not be considered as contradictory to
information provided in the Statements of Cash Flows and is not intended as an
alternative to income per Class A Unit as an indication of performance.
Operating cash flow allocable to a Class A Unit is calculated by multiplying 99
percent (Limited Partners' interest in RTLP) of operating cash flow allocated to
the Primary and Secondary Accounts by the respective 95 percent and 4 percent
Class A Unit interest in those accounts. In determining operating cash flow,
Partnership results are adjusted for non-cash costs and expenses without the
effects of changes in working capital. The following tables present the
calculations of operating cash flow allocable to Class A Units for the nine
months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
Primary Secondary Primary Secondary
Account Account Account Account
------- ------- ------- -------
<S> <C> <C> <C> <C>
Timber and timberland sales $ 103,045 $ 1,408 $ 111,094 $ 1,679
Interest and other income, net 3,770 (11,598) 4,761 (10,177)
Costs and expenses - other than non-cash
items and the General
Partners' interest in RTOC (18,225) (2,476) (20,159) (2,565)
Capital expenditures (1,740) (9,696) (1,126) (10,761)
General Partners' interest in RTOC (869) 224 (946) 218
--------- -------- --------- --------
OPERATING CASH FLOW $ 85,981 $(22,138) $ 93,624 $(21,606)
========= ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Total for Total for
All A Units All A Units
----------- -----------
<S> <C> <C>
Cash allocable to Class A Units
95% of Primary Account $ 81,682 $ 88,943
4% of Secondary Account (886) (864)
------------ ------------
OPERATING CASH FLOW ALLOCABLE TO
CLASS A UNITS $ 80,796 $ 88,079
============ ============
Units outstanding 20,000,000 20,000,000
============ ============
Primary Account cash flow per unit $ 4.08 $ 4.44
Secondary Account cash flow per unit (.04) (.04)
------------ ------------
OPERATING CASH FLOW PER CLASS A UNIT $ 4.04 $ 4.40
============ ============
</TABLE>
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
More than half 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 chip `n saw and sawlog timber sold to
lumber and plywood manufacturers. The Partnership's contracts in this region
generally provide for payment of a fixed price per unit of weight, with
harvesting required to be completed within contract periods of up to 18 months.
The following table summarizes the sales, operating income, partnership income
and selected operating statistics of the Partnership, for the periods indicated,
by United States geographic region (thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
TIMBER SALES
Northwest $ 16,125 $ 14,487 $ 62,602 $ 72,471
Southeast 12,646 12,322 40,443 38,652
-------- --------- --------- ---------
28,771 26,809 103,045 111,123
-------- --------- --------- ---------
TIMBERLAND SALES
Northwest 158 -- 458 --
Southeast 295 201 950 1,650
-------- --------- --------- ---------
453 201 1,408 1,650
-------- --------- --------- ---------
TOTAL SALES $ 29,224 $ 27,010 $ 104,453 $ 112,773
======== ========= ========= =========
OPERATING INCOME
Northwest $ 10,921 $ 8,507 $ 48,162 $ 55,285
Southeast 9,462 10,655 31,358 32,544
Corporate and other (491) (491) (1,475) (1,471)
-------- --------- --------- ---------
$ 19,892 $ 18,671 $ 78,045 $ 86,358
======== ========= ========= =========
PARTNERSHIP INCOME $ 16,558 $ 15,811 $ 68,230 $ 77,742
======== ========= ========= =========
SELECTED OPERATING STATISTICS
Northwest harvest volumes
Stumpage (thousands of MBF) 24.2 13.8 111.0 96.6
Delivered logs (thousands of MBF) 14.3 21.1 35.6 51.0
-------- --------- --------- ---------
38.5 34.9 146.6 147.6
======== ========= ========= =========
Southeast harvest volumes
Pine (thousands of tons) 453.3 431.9 1,431.0 1,325.2
Hardwoods (thousands of tons) 44.6 64.1 124.7 166.4
-------- --------- --------- ---------
497.9 496.0 1,555.7 1,491.6
======== ========= ========= =========
</TABLE>
Sales for the nine months ended September 30, 1997 were $104.5 million, $8.3
million, or 7 percent, lower than the first nine months of 1996. Timber sales
were $103.0 million, $8.1 million, or 7 percent, below the comparable 1996
period as a result of lower Northwest stumpage prices due to continued weak
export and domestic markets. Timberland sales of $1.4 million decreased $0.2
million from 1996.
Partnership income for the nine month period of 1997 was $68.2 million, or $3.83
per Class A Unit, $9.5 million or 38 cents per Class A Unit below 1996 results.
Operating cash flow allocable to each Class A Unit was $4.04, or 36 cents per
Class A Unit, lower than 1996.
8
<PAGE> 11
In the Northwest region, stumpage harvest prices for the nine months ended
September 30, 1997 declined 20 percent from the prior year resulting from weak
demand in both export and domestic log markets. This decline was partially
offset by a 5 percent increase in log prices due to a favorable sales mix. The
combined stumpage and delivered log volume was slightly lower than the same
period in 1996. Primarily as a result of lower overall prices in 1997, timber
sales decreased $9.9 million, or 14 percent, to $62.6 million and operating
income decreased $7.1 million, or 13 percent, to $48.2 million as compared to
the prior year.
In the Southeast region, timber sales for the nine months ended September 30,
1997 increased $1.8 million, or 5 percent, to $40.4 million from the prior year.
Realized prices for pine and hardwoods declined slightly; however sales improved
due to a 4 percent increase in harvest volume, driven by a strong lumber market
and a favorable sales mix of higher priced pine. Operating income declined $1.2
million, or 4 percent, to $31.4 million as the timing of miscellaneous income
and reduced timberland sales more than offset higher pine sales volumes.
Operating costs and expenses for the first nine months of 1997 were $27.7
million, $1.1 million lower than 1996. The decrease was primarily due to lower
logging costs in the Northwest resulting from reduced contract logging
activities. This decline was partially offset by higher timber depletion costs
resulting from increased pine harvest volume in the Southeast.
Interest income, earned mainly from the Primary Account's investment notes of
Rayonier, increased slightly to $3.2 million in 1997 due to a higher average
investment balance partially offset by lower average interest rates. Interest
expense, on increased loans and advances to the Secondary Account by Rayonier,
rose $1.5 million to $12.4 million.
Partnership income was $16.6 million, or $1.00 per Class A Unit, $0.7 million,
or 6 cents per Class A Unit, above the 1996 third quarter. Operating cash flow
for the quarter allocable to each Class A Unit was $1.07, 6 cents per Class A
Unit higher than the prior year. Sales for the third quarter were $29.2 million,
$2.2 million higher than last year's third quarter.
For the third quarter of 1997, the combined stumpage and delivered log volume
for the Northwest region was 10 percent above the prior year, while realized
prices increased slightly from prior year levels due to favorable product mix.
As a result, third quarter sales increased $1.8 million to $16.3 million and
operating income increased $2.4 million to $10.9 million.
Third quarter sales for the Southeast region increased $0.4 million to $12.9
million while operating income decreased $1.2 million to $9.5 million, as the
adverse timing of miscellaneous income more than offset slightly higher sales
prices and volumes.
FUTURE OPERATIONS
For the first nine months of 1997, the harvest levels in the Northwest and the
Southeast represented approximately 79 percent and 74 percent, respectively, of
the current projected full year harvest whereas in the first nine months of 1996
the harvest levels in the Northwest and the Southeast were 77 percent and 71
percent, respectively, of the actual full year harvests.
Contract terms allow customers to harvest their commitments over various time
periods, and therefore, volume currently under contract may not be fully cut
within this fiscal year. As of September 30, 1997 volume representing
approximately 119 percent of the projected 1997 harvest of stumpage and pine in
both regions had been cut or committed under contract. As of September 30, 1996,
118 percent of the final 1996 harvest in both regions had been cut or committed.
In the Northwest and Southeast regions, average prices on outstanding contracts
as of September 30, 1997 were approximately 15 percent and 2 percent,
respectively, below average full year prices realized during 1996. Therefore,
the Partnership does not expect full year 1997 earnings or cash flow from
operations to be as strong as in the prior year.
The Partnership held contracts at September 30, 1997 with Rayonier representing
approximately 4 percent and 2 percent of the uncut harvest volume in the
Northwest and Southeast regions, respectively. In addition, three customers
under common ownership held contracts representing approximately 20 percent of
the uncut volume under contract in the Northwest. Three additional unrelated
customers held contracts representing from 16 percent to 17 percent individually
and 50 percent in total of the uncut Northwest volume under contract. In the
Southeast, one unrelated customer held contracts representing 12 percent of the
uncut volume under contract. These seven customers are not affiliated with the
Partnership.
9
<PAGE> 12
LIQUIDITY AND CASH FLOW
As of September 30, 1997, 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 $43.7 million of short-term investment
notes of Rayonier and an additional $5.0 million of long-term investment notes
of Rayonier resulting from the cumulative net cash flow, since inception, of the
Primary Account after distributions to unitholders. The Partnership may redeem
the investment notes at any time to fund Partnership working capital
requirements, capital expenditures and reserves.
The Secondary Account of the Partnership had total outstanding debt of $217.7
million at September 30, 1997, including long-term notes payable to Rayonier of
$217.4 million. These notes primarily funded Secondary Account expenditures for
costs such as site preparation, reforestation and pre-commercial thinning.
Capital expenditures for the nine months ended September 30, 1997 and 1996
representing reforestation, capitalized lease payments, property taxes and other
improvements to the land and timber assets were $11.4 million and $11.9 million,
respectively. Funding of most of the future capital requirements is expected to
continue from Rayonier.
On September 30, 1997 and 1996, the Partnership made quarterly distributions of
$24.8 million ($1.24 per Unit) and $26.6 million ($1.33 per Unit), respectively,
to all outstanding Class A unitholders. Quarterly distributions of $1.3 million
and $1.4 million were also made to Class B unitholders and to the General
Partners in the third quarter of 1997 and 1996, respectively.
On October 17, 1997, the Board of Directors of the Managing General Partner
announced a fourth quarter distribution of $1.24 per Class A Unit. The
distribution will be paid on December 31, 1997 to unitholders of record on
November 28, 1997. 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. RFR noted when it announced
the March 1997 distribution of $1.70 that it expected Partnership results for
1997 to be lower than in 1996 and that distributions related to 1997 results
will total less than distributions related to 1996 results.
WHEN THE INITIAL TERM OF THE PARTNERSHIP ENDS ON DECEMBER 31, 2000, THE PRIMARY
ACCOUNT OF THE PARTNERSHIP WILL BE CLOSED BUT THE UNITHOLDERS WILL NOT BE
ENTITLED TO HAVE THEIR PARTNERSHIP CAPITAL ACCOUNTS REDEEMED UNTIL THE
PARTNERSHIP FORMALLY ENDS IN THE YEAR 2035. AFTER DECEMBER 31, 2000, THE
INTEREST OF CLASS A UNITHOLDERS IN THE PARTNERSHIP'S FUTURE REVENUES, EXPENSES
AND CASH FLOWS WILL DECREASE FROM 95 PERCENT TO 4 PERCENT. ON A PRO FORMA BASIS,
USING 1996 RESULTS AS AN EXAMPLE, CASH FLOW ALLOCABLE PER CLASS A UNIT WOULD
DECLINE FROM $5.69 TO APPROXIMATELY $0.24. 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 EXCEED $350
MILLION, MORE THAN THREE TIMES 1996'S NET OPERATING CASH FLOW. IN ACCORDANCE
WITH THE PARTNERSHIP AGREEMENT, ALL SECONDARY ACCOUNT DEBT MUST BE REPAID BEFORE
ANY DISTRIBUTION OF PARTNERSHIP CASH FLOW RESUMES. AS A RESULT, IT IS EXPECTED
THAT THE MARKET PRICE OF CLASS A UNITS SHOULD BE DECREASING SUBSTANTIALLY AS
DECEMBER 31, 2000 APPROACHES.
10
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index
(b) Rayonier Timberlands, L.P. did not file any Report on Form 8-K
during the quarter covered by this report.
SIGNATURE
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
RAYONIER TIMBERLANDS, L.P.
(A Delaware Limited Partnership)
By: RAYONIER FOREST RESOURCES
COMPANY
Managing General Partner
By KENNETH P. JANETTE
---------------------------------------------
Kenneth P. Janette
Vice President and Corporate Controller
(Chief Accounting Officer)
November 12, 1997
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 apmendments
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 None
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 127
<SECURITIES> 0
<RECEIVABLES> 8,385
<ALLOWANCES> 0
<INVENTORY> 384
<CURRENT-ASSETS> 60,106
<PP&E> 1,903
<DEPRECIATION> 1,087
<TOTAL-ASSETS> 353,716
<CURRENT-LIABILITIES> 13,069
<BONDS> 217,400
0
0
<COMMON> 0
<OTHER-SE> 118,386
<TOTAL-LIABILITY-AND-EQUITY> 353,716
<SALES> 104,453
<TOTAL-REVENUES> 104,453
<CGS> 18,670
<TOTAL-COSTS> 18,670
<OTHER-EXPENSES> 8,427
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,126
<INCOME-PRETAX> 68,230
<INCOME-TAX> 0
<INCOME-CONTINUING> 68,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,230
<EPS-PRIMARY> 3.83
<EPS-DILUTED> 3.83
</TABLE>
