<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, 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 August 1, 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
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the Three Months and
Six Months Ended June 30, 1997 and 1996 1
Balance Sheets as of June 30, 1997 and
December 31, 1996 2
Statements of Cash Flows for the Six Months Ended
June 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
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 Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SALES
Timber sales
Unaffiliated parties $ 30,870 $ 36,098 $ 69,131 $ 75,980
Rayonier 2,029 2,719 5,143 8,334
-------- -------- -------- --------
32,899 38,817 74,274 84,314
Timberland sales 542 104 955 1,449
-------- -------- -------- --------
33,441 38,921 75,229 85,763
-------- -------- -------- --------
COSTS AND EXPENSES
Cost of timber sold
Unaffiliated parties 5,683 5,777 11,492 11,455
Rayonier 408 457 888 1,271
-------- -------- -------- --------
6,091 6,234 12,380 12,726
Cost of timberland sold 43 15 103 413
Forest management, overhead and general
and administrative expenses 2,721 3,006 5,679 5,889
-------- -------- -------- --------
8,855 9,255 18,162 19,028
-------- -------- -------- --------
OTHER OPERATING INCOME 617 608 1,086 952
-------- -------- -------- --------
OPERATING INCOME 25,203 30,274 58,153 67,687
-------- -------- -------- --------
OTHER INCOME AND DEDUCTIONS
Primary Account interest income from Rayonier 1,084 1,026 2,170 1,977
Secondary Account interest expense to Rayonier (4,117) (3,604) (8,129) (7,107)
Minority interest of General Partners in RTOC (222) (277) (522) (626)
-------- -------- -------- --------
(3,255) (2,855) (6,481) (5,756)
-------- -------- -------- --------
PARTNERSHIP INCOME $ 21,948 $ 27,419 $ 51,672 $ 61,931
======== ======== ======== ========
INCOME PER CLASS A UNIT* $ 1.23 $ 1.49 $ 2.83 $ 3.27
======== ======== ======== ========
</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,
1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash $ 243 $ 88
Receivables, net 7,607 5,304
Inventories 459 588
Prepaid logging roads 3,096 4,291
Primary Account short-term investment notes of Rayonier 47,800 46,800
Trade and intercompany receivables from Rayonier 4,231 4,172
-------- --------
Total current assets 63,436 61,243
LONG-TERM RECEIVABLES 637 --
PRIMARY ACCOUNT LONG-TERM INVESTMENT NOTES
OF RAYONIER 5,000 5,000
FIXED ASSETS, NET 992 1,045
TIMBER, TIMBERLANDS AND LOGGING ROADS,
LESS DEPLETION AND AMORTIZATION 286,895 283,359
-------- --------
$356,960 $350,647
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Advance deposits $ 8,074 $ 5,965
Accounts payable 1,534 2,149
Accrued liabilities
Taxes 2,432 1,744
All other 657 663
Current timber obligations 163 149
Advances from Rayonier 109 98
-------- --------
Total current liabilities 12,969 10,768
SECONDARY ACCOUNT LONG-TERM NOTES
PAYABLE TO RAYONIER 211,100 196,500
LONG-TERM TIMBER OBLIGATIONS 175 337
MINORITY INTEREST OF GENERAL PARTNERS IN RTOC 4,783 4,887
PARTNERS' CAPITAL
General Partners 4,742 4,844
Limited Partners (20,000,000 Class A Depositary
Units and 20,000,000 Class B Depositary Units
issued and outstanding) 123,191 133,311
-------- --------
$356,960 $350,647
======== ========
</TABLE>
2
<PAGE> 5
RAYONIER TIMBERLANDS, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Partnership income $ 51,672 $ 61,931
Non-cash items included in income
Depletion, depreciation and amortization 4,832 3,970
Minority interest of General Partners in RTOC 522 626
Increase in receivables (2,303) (3,118)
Decrease in prepaid logging roads 1,195 252
Increase in advance deposits 2,109 2,187
Increase (decrease) in accounts payable and accrued liabilities 67 (863)
Other changes 81 422
-------- --------
Cash provided by operating activities 58,175 65,407
-------- --------
INVESTING ACTIVITIES
Capital expenditures less sales and retirements
of $42 and $326 in 1997 and 1996 (8,315) (8,344)
Increase in Primary Account investment
notes of Rayonier (94,700) (75,000)
Settlement of Primary Account investment
notes of Rayonier 93,700 61,800
(Increase) decrease in long-term receivables (637) 98
-------- --------
Cash used for investing activities (9,952) (21,446)
-------- --------
FINANCING ACTIVITIES
Decrease in timber obligations (148) (137)
Increase in Secondary Account long-term notes
payable to Rayonier 14,600 14,800
Partnership distributions (61,894) (58,105)
Distributions to General Partners of RTOC (626) (588)
-------- --------
Cash used for financing activities (48,068) (44,030)
-------- --------
CASH
Net increase (decrease) in cash 155 (69)
Balance, beginning of year 88 282
-------- --------
Balance, end of period $ 243 $ 213
======== ========
Supplemental disclosures of cash flow information
Cash received for interest - Primary Account $ 2,170 $ 1,977
======== ========
Cash paid for interest - Secondary Account $ 8,157 $ 7,147
======== ========
</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, 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 51,155 517 51,672
Partnership distributions (61,275) (619) (61,894)
--------- --------- ---------
Balance, June 30, 1997 $ 123,191 $ 4,742 $ 127,933
========= ========= =========
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
========= ========= =========
</TABLE>
In addition to the RTLP distributions, RTOC distributed $626 and $588 to its
General Partners during the first six 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 six months ended June 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 $ 74,273 $ 956 $ 84,285 $ 1,478
Interest and other income, net 2,665 (7,538) 2,475 (6,653)
Costs and expenses (16,393) (1,769) (16,953) (2,075)
Interest of General Partners in RTOC (606) 84 (698) 72
-------- -------- -------- --------
PARTNERSHIP INCOME $ 59,939 $ (8,267) $ 69,109 $ (7,178)
======== ======== ======== ========
<CAPTION>
Total for Total for
All A Units All A Units
----------- -----------
<S> <C> <C>
Income for Class A Units
95% of Primary Account $ 56,942 $ 65,654
4% of Secondary Account (331) (287)
------------ ------------
Total income for Class A Units $ 56,611 $ 65,367
============ ============
Units outstanding 20,000,000 20,000,000
============ ============
INCOME PER CLASS A UNIT $ 2.83 $ 3.27
============ ============
</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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
Primary Secondary Primary Secondary
Account Account Account Account
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Timber and timberland sales $ 74,273 $ 956 $ 84,285 $ 1,478
Interest and other income, net 2,665 (7,538) 2,475 (6,653)
Costs and expenses - other than non-cash
items and the General
Partners' interest in RTOC (11,725) (1,556) (13,088) (1,639)
Capital expenditures (1,353) (7,004) (878) (7,792)
General Partners' interest in RTOC (639) 151 (728) 146
-------- -------- -------- --------
OPERATING CASH FLOW $ 63,221 $(14,991) $ 72,066 $(14,460)
======== ======== ======== ========
<CAPTION>
Total for Total for
All A Units All A Units
----------- -----------
<S> <C> <C>
Cash allocable to Class A Units
95% of Primary Account $ 60,060 $ 68,463
4% of Secondary Account (600) (578)
------------ ------------
OPERATING CASH FLOW ALLOCABLE TO
CLASS A UNITS $ 59,460 $ 67,885
============ ============
Units outstanding 20,000,000 20,000,000
============ ============
Primary Account cash flow per unit $ 3.00 $ 3.42
Secondary Account cash flow per unit (.03) (.03)
------------ ------------
OPERATING CASH FLOW PER CLASS A UNIT $ 2.97 $ 3.39
============ ============
</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 Six Months
Ended June 30, Ended June 30,
-------------- --------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
TIMBER SALES
Northwest $ 20,151 $ 26,367 $ 46,477 $ 57,984
Southeast 12,748 12,450 27,797 26,330
-------- -------- -------- --------
32,899 38,817 74,274 84,314
-------- -------- -------- --------
TIMBERLAND SALES
Northwest 300 -- 300 --
Southeast 242 104 655 1,449
-------- -------- -------- --------
542 104 955 1,449
-------- -------- -------- --------
TOTAL SALES $ 33,441 $ 38,921 $ 75,229 $ 85,763
======== ======== ======== ========
OPERATING INCOME
Northwest $ 15,266 $ 20,910 $ 37,241 $ 46,778
Southeast 10,232 9,853 21,896 21,889
Corporate and other (295) (489) (984) (980)
-------- -------- -------- --------
$ 25,203 $ 30,274 $ 58,153 $ 67,687
======== ======== ======== ========
PARTNERSHIP INCOME $ 21,948 $ 27,419 $ 51,672 $ 61,931
======== ======== ======== ========
SELECTED OPERATING STATISTICS
Northwest harvest volumes
Stumpage (thousands of MBF) 37.2 37.7 86.8 82.8
Delivered logs (thousands of MBF) 11.9 14.7 21.3 29.9
-------- -------- -------- --------
49.1 52.4 108.1 112.7
======== ======== ======== ========
Southeast harvest volumes
Pine (thousands of tons) 446.4 436.7 977.7 893.3
Hardwoods (thousands of tons) 50.3 46.3 80.1 102.3
-------- -------- -------- --------
496.7 483.0 1,057.8 995.6
======== ======== ======== ========
</TABLE>
Sales for the six months ended June 30, 1997 were $75.2 million, $10.5 million
lower than the first six months of 1996. Timber sales were $74.3 million, $10.0
million or 12 percent, below the comparable 1996 period mainly as a result of
reduced prices caused by weak export and domestic log markets.
Timberland sales of $1.0 million decreased $0.5 million from 1996.
Partnership income for the six month period of 1997 was $51.7 million, or $2.83
per Class A Unit, $10.3 million or 44 cents per Class A Unit, below 1996
results. Operating cash flow allocable to each Class A Unit was $2.97, or 42
cents per Class A Unit below the prior year.
8
<PAGE> 11
In the Northwest region, harvest prices for the six months ended June 30, 1997
declined 17 percent from the prior year reflecting the residual effect of
declining export and domestic log markets existing when the related stumpage
contracts were signed. The combined stumpage and delivered log volume was 4
percent below the prior year. As a result, sales decreased $11.2 million, or 19
percent, to $46.8 million and operating income decreased $9.5 million, or 20
percent, to $37.2 million.
In the Southeast region, sales for the six months ended June 30, 1997 increased
$0.7 million, or 2 percent, to $28.4 million from the prior year and operating
income rose slightly to $21.9 million, reflecting higher volume offset by lower
prices. Overall harvest volume increased 6 percent, driven by a strong lumber
market, and pine prices declined 3 percent from 1996.
Operating costs and expenses for the first half of 1997 were $18.2 million, $0.9
million lower than 1996. The decline was primarily due to lower logging costs in
the Northwest resulting from reduced contract logging activities. This decrease
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 in notes of
Rayonier, increased slightly to $2.2 million in 1997 due to an overall 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 $1.0 million to $8.1 million.
Partnership income for the second quarter was $21.9 million, or $1.23 per Class
A Unit, $5.5 million or 26 cents per Class A Unit, below the 1996 second
quarter. Operating cash flow allocable to each Class A Unit was $1.30, or 26
cents per Class A Unit lower than the prior year. Sales for the second quarter
were $33.4 million, $5.5 million lower than last year's second quarter.
For the second quarter of 1997, realized prices in the Northwest region declined
18 percent from prior year levels reflecting the effect of declining export and
domestic log markets at the time the related stumpage contracts were initiated.
Combined stumpage and delivered log volume was 6 percent below the prior year.
As a result, second quarter sales decreased $5.9 million to $20.5 million and
operating income declined $5.6 million to $15.3 million.
Second quarter sales for the Southeast region rose $0.4 million to $13.0 million
and operating income increased $0.4 million to $10.2 million, reflecting a 3
percent increase in harvest volume partially offset by slightly lower prices.
FUTURE OPERATIONS
For the first six months of 1997, the harvest levels in the Northwest and the
Southeast represented approximately 59 percent and 50 percent, respectively, of
the current projection of the full year harvest whereas in the first six months
of 1996 the harvest levels in the Northwest and the Southeast were 59 percent
and 48 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, 1997, volume representing approximately
112 percent of the projected 1997 harvest of stumpage and pine in both regions
had been cut or committed under contract. As of June 30, 1996, 108 percent of
the final 1996 harvest in both regions had been cut or committed. In the
Northwest and Southeast regions, average prices on outstanding stumpage and pine
contracts as of June 30, 1997 were approximately 18 percent and 2 percent,
respectively, below average full year prices realized during 1996. 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 June 30, 1997 with Rayonier representing
approximately 3 percent and 9 percent of the uncut volume under contract in the
Northwest and Southeast regions, respectively. In addition, three customers
under common ownership held contracts representing approximately 26 percent of
the uncut volume under contract in the Northwest. Three additional unrelated
customers held contracts representing from 16 percent to 18 percent individually
and 51 percent in total of the uncut Northwest volume under contract. In the
Southeast, one unrelated customer held contracts representing approximately 12
percent of the uncut volume under contract. These seven customers are not
affiliated with the Partnership.
LIQUIDITY AND CASH FLOW
As of June 30, 1997, 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 $47.8 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 of the Primary Account, since
inception, 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 $211.4
million at June 30, 1997, including long-term notes payable to Rayonier of
$211.1 million that mainly represent obligations incurred as a result of
Secondary Account expenditures for costs such as site preparation, reforestation
and pre-commercial thinning.
Capital expenditures for the six months ended June 30, 1997 and 1996
representing reforestation, capitalized lease payments, property taxes and other
improvements to the land and timber assets were $8.4 million and $8.7 million,
respectively. Funding of most of the future capital requirements is expected to
continue from Rayonier.
On June 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 second quarter of 1997 and 1996, respectively.
On July 18, 1997, the Board of Directors of the Managing General Partner
announced a third quarter distribution of $1.24 per Class A Unit. The
distribution will be paid on September 30, 1997 to unitholders of record on
August 29, 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)
August 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 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 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 243
<SECURITIES> 0
<RECEIVABLES> 7,607
<ALLOWANCES> 0
<INVENTORY> 459
<CURRENT-ASSETS> 63,436
<PP&E> 2,064
<DEPRECIATION> 1,072
<TOTAL-ASSETS> 356,960
<CURRENT-LIABILITIES> 12,969
<BONDS> 211,100
0
0
<COMMON> 0
<OTHER-SE> 127,933
<TOTAL-LIABILITY-AND-EQUITY> 356,960
<SALES> 75,229
<TOTAL-REVENUES> 75,229
<CGS> 12,483
<TOTAL-COSTS> 12,483
<OTHER-EXPENSES> 5,115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,959
<INCOME-PRETAX> 51,672
<INCOME-TAX> 0
<INCOME-CONTINUING> 51,672
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,672
<EPS-PRIMARY> 2.83
<EPS-DILUTED> 2.83
</TABLE>
