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, 1995
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 1-6780
RAYONIER INC.
Incorporated in the State of North Carolina
I.R.S. Employer Identification Number 13-2607329
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 6, 1995, there were 29,647,278 Common Shares of the Registrant
outstanding.
--------
2
RAYONIER INC.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Consolidated Income for the
Three Months and Nine Months
Ended September 30, 1995 and 1994 1
Consolidated Balance Sheets as of September
30, 1995 and December 31, 1994 2
Statements of Consolidated Cash Flows for the
Nine Months Ended September 30, 1995 and 1994 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 4-6
Item 3. Selected Operating Data 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 6. Exhibits and Reports on Form 8-K 8
Signature 8
Exhibit Index 9
i
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements reflect, in the opinion of Rayonier
Inc. (Rayonier or the Company), 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
Consolidated Financial Statements in the 1994 Annual Report on Form 10-K.
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE INFORMATION)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
----------- ------------ ------------ ------------
SALES $ 333,913 $ 286,006 $ 933,309 $ 794,503
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales 264,558 239,672 740,815 649,026
Selling and general expenses 9,124 7,667 26,937 21,920
Other operating income, net (1,126) (1,408) (4,335) (2,921)
------------ ------------ ------------ ------------
272,556 245,931 763,417 668,025
------------ ------------ ------------ ------------
OPERATING INCOME 61,357 40,075 169,892 126,478
Interest expense (8,746) (8,290) (26,054) (22,881)
Non-recurring gain (See Item 2 - Other Items) 34,763 -- 34,763 --
Interest and miscellaneous income, net 654 418 2,321 1,702
Minority interest (4,467) (7,490) (21,039) (24,861)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 83,561 24,713 159,883 80,438
Income taxes (26,523) (8,308) (51,358) (28,200)
------------ ------------ ------------ ------------
NET INCOME $ 57,038 $ 16,405 $ 108,525 $ 52,238
============ ============ ============ ============
NET INCOME PER COMMON SHARE $ 1.90 $ 0.55 $ 3.62 $ 1.76
============ ============ ============ ============
Weighted average Common Shares
outstanding 30,071,300 29,757,506 29,963,590 29,686,693
============ ============ ============ ============
1
4
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
ASSETS
September 30, December 31,
1995 1994
------------- ------------
CURRENT ASSETS
Cash $ 10,781 $ 9,178
Accounts receivable, net of allowance for
doubtful accounts of $4,367 and $4,358 145,084 103,892
Inventories
Finished goods 66,826 39,929
Work in process 23,204 18,221
Raw materials 49,471 34,022
Manufacturing and maintenance supplies 30,637 27,567
---------- ----------
170,138 119,739
Deferred income taxes 8,146 4,382
Prepaid timber stumpage 49,060 47,338
Other current assets 16,889 12,692
---------- ----------
Total current assets 400,098 297,221
OTHER ASSETS 35,226 29,439
TIMBER STUMPAGE 34,084 36,756
TIMBER, TIMBERLANDS AND LOGGING ROADS,
NET OF DEPLETION AND AMORTIZATION 472,133 476,132
PROPERTY, PLANT AND EQUIPMENT
Land, buildings, machinery and equipment 1,266,770 1,202,484
Less - accumulated depreciation 578,940 530,857
---------- ----------
687,830 671,627
---------- ----------
$1,629,371 $1,511,175
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 93,398 $ 83,658
Bank loans and current maturities of long-term debt 400 302
Accrued taxes 19,550 7,676
Accrued payroll and benefits 24,500 20,043
Other current liabilities 43,172 41,831
Current reserves for dispositions and discontinued operations 17,189 25,370
---------- ----------
Total current liabilities 198,209 178,880
DEFERRED INCOME TAXES 149,466 127,638
LONG-TERM DEBT 483,208 482,920
NONCURRENT RESERVES FOR DISPOSITIONS AND
DISCONTINUED OPERATIONS (Net of discontinued
operations' assets of $12,742 and $13,023) 13,473 20,325
OTHER NONCURRENT LIABILITIES 24,319 23,695
MINORITY INTEREST 17,951 22,516
SHAREHOLDERS' EQUITY
Common Shares, 60 million shares authorized,
29,638,611 and 29,574,807 shares issued and outstanding 158,818 157,581
Retained earnings 583,927 497,620
---------- ----------
Total shareholders' equity 742,745 655,201
---------- ----------
$1,629,371 $1,511,175
========== ==========
2
5
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
Nine Months
Ended September 30,
-------------------
1995 1994
---------- ---------
OPERATING ACTIVITIES
Net income $ 108,525 $ 52,238
Non-cash items included in income:
Depreciation, depletion and amortization 72,186 69,610
Deferred income taxes 13,859 11,893
Increase in other noncurrent liabilities 624 1,946
Change in accounts receivable, inventories
and accounts payable (81,851) (25,204)
Increase in prepaid timber stumpage (1,722) (4,133)
Increase (decrease) in accrued taxes 11,874 (871)
Change in reserves for dispositions and discontinued operations (3,733) (2,252)
Other changes 1,601 1,481
--------- ---------
Cash provided by operating activities 121,363 104,708
--------- ---------
INVESTING ACTIVITIES
Capital expenditures (95,590) (67,502)
Sales and retirements of fixed assets, timber and timberlands 11,200 300
Expenditures for dispositions and discontinued operations, net
of tax benefits of $4,205 and $3,229 (7,095) (5,449)
Change in timber stumpage and other assets (3,115) (14,951)
--------- ---------
Cash used for investing activities (94,600) (87,602)
--------- ---------
FINANCING ACTIVITIES
Issuance of debt 50,587 285,403
Repayments of debt (50,201) (267,981)
Dividends (22,218) (15,966)
Issuance of Common Shares 1,237 72
Decrease in minority interest (4,565) (15,113)
--------- ---------
Cash used for financing activities (25,160) (13,585)
--------- ---------
CASH
Net increase in cash 1,603 3,521
Balance at beginning of period 9,178 5,989
--------- ---------
Balance at end of period $ 10,781 $ 9,510
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 22,468 $ 19,958
========= =========
Income taxes, net of refunds $ 26,894 $ 18,815
========= =========
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6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The sales and operating income of Rayonier's business segments for the three
months and nine months ended September 30, 1995 and 1994 were as follows
(thousands of dollars):
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
--------- ---------- --------- ---------
SALES
TIMBER AND WOOD PRODUCTS:
Log Trading and Merchandising $ 108,025 $ 100,348 $ 309,327 $ 261,057
Timberlands Management and Stumpage 29,130 40,038 116,791 130,324
Wood Products 22,548 19,380 57,080 59,763
--------- --------- --------- ---------
Total Before Intrasegment Eliminations 159,703 159,766 483,198 451,144
Intrasegment Eliminations (5,562) (3,511) (15,310) (13,341)
--------- --------- --------- ---------
TOTAL TIMBER AND WOOD PRODUCTS 154,141 156,255 467,888 437,803
--------- --------- --------- ---------
SPECIALTY PULP PRODUCTS:
Chemical Cellulose 103,471 81,398 269,500 226,519
Fluff and Specialty Paper Pulps 82,024 50,671 214,117 134,237
--------- --------- --------- ---------
TOTAL SPECIALTY PULP PRODUCTS 185,495 132,069 483,617 360,756
--------- --------- --------- ---------
Intersegment Eliminations (5,723) (2,318) (18,196) (4,056)
--------- --------- --------- ---------
TOTAL SALES $ 333,913 $ 286,006 $ 933,309 $ 794,503
========= ========= ========= =========
OPERATING INCOME
Timber and Wood Products $ 25,514 $ 39,213 $ 104,015 $ 130,640
Specialty Pulp Products 38,737 3,383 74,384 2,915
Corporate and Other (2,916) (3,153) (8,417) (7,805)
Intersegment Eliminations 22 632 (90) 728
--------- --------- --------- ---------
TOTAL OPERATING INCOME $ 61,357 $ 40,075 $ 169,892 $ 126,478
========= ========= ========= =========
RESULTS OF OPERATIONS
SALES AND OPERATING INCOME
Sales of $334 million for the third quarter of 1995 were $48 million or 17
percent higher than third quarter of 1994 reflecting continued improvement in
pricing for Specialty Pulp Products. Operating income for the quarter of $61
million was $21 million or 53 percent higher than last year's level due to
higher pulp prices, partially offset by lower Timberlands Management and
Stumpage sales volume. Sales for the nine months ended September 30, 1995 of
$933 million were $139 million or 17 percent higher than the prior year, and
operating income of $170 million increased $43 million or 34 percent from the
prior year.
4
7
Timber and Wood Products
Sales of Timber and Wood Products in the third quarter were $154 million, down
$2 million from the third quarter of 1994. Operating income was $26 million,
compared to $39 million in the 1994 third quarter. The decline in operating
results was primarily driven by reduced stumpage harvests in both the Northwest
and Southeast regions of the United States. In the Northwest, customers delayed
harvesting timber under contract due to weak export log markets. In the
Southeast, increased demand from the pulp and paper industry has resulted in
improved stumpage prices. However, dry weather led to improved logging
conditions, increasing the overall timber supply in the Southeast region. As a
result, customers delayed harvesting on Rayonier's typically drier and
higher-priced timber tracts.
Log trading and merchandising sales, which include the Company's New Zealand log
sales, improved from the 1994 third quarter due to increased export log volume.
However, margins were flat as improved volume and lower log costs were offset by
lower selling prices. Wood products sales in the 1995 quarter were up over 1994
reflecting increased sales volume. Operating margins for wood products were down
from the prior year due to lower sales prices caused by weak domestic lumber
markets and higher log costs.
Sales for the nine month period were $468 million, up $30 million from the same
period of 1994 reflecting increased log export volume and improved timber
stumpage pricing in the Southeast. Operating income declined $27 million to $104
million due to lower stumpage harvest volumes in the Northwest and Southeast
U.S. and lower wood products margins.
Specialty Pulp Products
Third quarter results for Specialty Pulp Products benefited from strong
specialty pulp markets as mid-year price increases for chemical cellulose and
fluff pulps took hold. Sales in the 1995 third quarter were $185 million, $53
million more than last year's third quarter. Operating income rose to $39
million as compared to $3 million in 1994.
Sales for the nine month period increased $123 million to $484 million and
operating income improved from $3 million in 1994 to $74 million in 1995.
Stronger pulp pricing and improved operating rates were partially offset by
higher wood and chemical costs. Pricing for Rayonier's specialty pulps generally
lag commodity paper grades by six to twelve months and further gains in
specialty pulp pricing are expected in 1996.
Intersegment
Nine months intersegment sales of $18 million in 1995 were greater than the
comparable 1994 amount due to higher stumpage sales from the Timber and Wood
Products segment to the Specialty Pulp Products segment.
OTHER ITEMS
In September 1995, the Company completed the sale of a 75 percent interest in a
portion of its New Zealand timber holdings to a timber investment fund. The
transaction resulted in a non-recurring pretax gain of $35 million, $24 million
after-tax or $0.80 per common share. The net proceeds from the sale were used to
reduce debt. Rayonier will manage the joint venture, which involves 23,000 acres
of timber on New Zealand's North Island and accounted for approximately seven
percent of the Company's 1994 New Zealand harvest volume. The timber in the
joint venture is located apart from most of the Company's forests and the
Company believes that it can be better managed as a separate unit.
Interest expense of $26 million for the first nine months of 1995 increased $3
million over 1994 primarily due to higher short term interest rates.
Minority interest in the earnings of Rayonier's subsidiary, Rayonier
Timberlands, L.P. (RTLP), decreased $4 million to $21 million in the first nine
months, due to decreased partnership earnings resulting from reduced stumpage
harvests in both the Northwest and Southeast regions of the United States. The
minority participation in the earnings of RTLP will change from approximately 25
percent to approximately 1 percent effective January 1, 2001.
5
8
INCOME TAXES
The effective income tax rate for the first nine months of 1995 was 32 percent
versus 35 percent during the same period of 1994. This decrease reflects
benefits from tax reorganizations made following the spin-off from ITT as well
as tax benefits on increased pulp export sales.
NET INCOME
Net income for the third quarter was $57 million or $1.90 per common share.
Excluding the one-time gain on the New Zealand timberland sale, net income for
the quarter was $33 million or $1.10 per common share, up $17 million or $.55
per common share from the 1994 level. Net income for the nine months ended
September 30, 1995 was $109 million or $3.62 per common share, compared to $52
million or $1.76 per common share for the 1994 nine month period. Excluding the
New Zealand sale, nine-month net income was $85 million, or $2.82 per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $121 million in the first nine months of
1995. Cash from operating activities financed capital expenditures of $96
million, common dividends of $22 million and environmental remediation and other
costs relating to discontinued operations and units held for disposition.
Rayonier's total debt outstanding was $484 million as of September 30, 1995,
approximately equal to the Company's debt balance at the beginning of the year.
However, the Company's debt/capital ratio improved from 43 percent as of
December 31, 1994 to 39 percent as of September 30, 1995.
EBITDA (defined as earnings before non-recurring items, interest expense, income
taxes and depreciation, depletion and amortization) for the first nine months of
1995 was $223 million, or $7.45 per common share, an increase of $50 million
over the comparable period of 1994.
As of September 30, 1995, the Company had $150 million of available borrowings
under its revolving credit facilities. In addition, through currently effective
shelf registration statements filed with the Securities and Exchange Commission,
the Company may offer up to $141 million of new public debt securities. The
Company believes that internally generated funds combined with available
external financing will enable Rayonier to fund capital expenditures, working
capital and other liquidity needs for the foreseeable future.
6
9
ITEM 3. SELECTED OPERATING DATA
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
TIMBER AND WOOD PRODUCTS
Log Sales Volume
North America - millions of board feet 107 94 273 219
New Zealand - thousands of cubic meters 403 405 1,255 1,232
Other - millions of board feet 6 2 15 7
Timber Harvest Volume
Northwest U.S. - millions of board feet 27 39 115 143
Southeast U.S. - thousands of short green tons 449 726 1,597 1,679
New Zealand - thousands of cubic meters 312 277 916 844
Lumber Sold - millions of board feet 63 50 157 147
Intercompany Sales
Logs - millions of board feet 10 7 21 8
Northwest U.S. Timber Stumpage
- millions of board feet 10 8 26 22
Southeast U.S. Timber Stumpage
- thousands of short green tons 34 27 236 73
SPECIALTY PULP PRODUCTS
Pulp Sales Volume
Chemical Cellulose - thousands of metric tons 115 116 323 320
Fluff and Specialty Paper Pulps - thousands of metric tons 93 93 267 269
Production as a Percentage of Capacity 103% 100% 98% 94%
SELECTED SUPPLEMENTAL INFORMATION (thousands of dollars)
New Zealand - Sales $26,261 $ 24,945 $79,337 $ 75.793
======= ========= ======= =========
New Zealand - Operating Income $ 3,901 $ 2,751 $11,308 $ 9,928
======= ========= ======= =========
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's Form 10-K for 1994 reported seven civil cases pending in
the U.S. District Court for the Southern District of Georgia against
the Company and its wholly owned subsidiary, Southern Wood Piedmont
Company ("SWP"). The Company's Form 10-Q for the second quarter of 1995
reported the settlement of one of these cases and the consolidation of
two others into one action. On September 29, 1995, the Court granted
summary judgment in favor of the Company and SWP in two of the
remaining cases; one of these decisions is being appealed by the
plaintiffs to the U.S. Court of Appeals for the 11th Circuit. Three
actions (including the Ernest Jordan case specifically referred to in
the 1994 10-K) remain pending in the District Court.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index.
(b) Rayonier Inc. did not file a 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 INC. (Registrant)
------------- ------------
By KENNETH P. JANETTE
------------------
Kenneth P. Janette
Vice President and Corporate Controller
November 13, 1995 (Chief Accounting Officer)
8
11
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
2 Plan of acquisition, reorganization, None
arrangement, liquidation or succession
3.1 Amended and restated articles of incorporation No amendments
3.2 By-laws No amendments
4 Instruments defining the rights of security Not required to be filed. The
holders, including indentures Registrant hereby agrees to file
with the Commission a copy of any
instrument defining the rights of
holders of the Registrant's
long-term debt upon request of
the Commission.
10 Material contracts None
11 Statement re computation of per share earnings Not required
12 Statement re computation of ratios Filed herewith
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 None
submitted 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
9
1
EXHIBIT 12
RAYONIER INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(THOUSANDS OF DOLLARS)
Nine Months
Ended September 30,
-------------------
1995 1994
-------- --------
Earnings:
Net Income $108,525 $ 52,238
Add:
Income Taxes 51,358 28,200
Minority Interest 21,039 24,861
Amortization of Capitalized Interest 1,233 1,059
-------- --------
182,155 106,358
Adjustments to Earnings for Fixed Charges:
Interest and Other Financial Charges 26,054 22,881
Interest Factor Attributable to Rentals 1,107 1,320
-------- --------
27,161 24,201
-------- --------
EARNINGS AS ADJUSTED $209,316 $130,559
======== ========
Fixed Charges:
Fixed Charges above $ 27,161 $ 24,201
Capitalized Interest 857 33
-------- --------
TOTAL FIXED CHARGES $ 28,018 $ 24,234
======== ========
RATIO OF EARNINGS AS ADJUSTED TO
TOTAL FIXED CHARGES 7.47 5.39
==== ====
5
1,000
9-MOS
DEC-31-1995
JAN-01-1995
SEP-30-1995
10,781
0
149,451
4,367
170,138
400,098
1,266,770
578,940
1,629,371
198,209
483,208
158,818
0
0
583,927
1,629,371
933,309
933,309
740,815
740,815
6,557
0
26,054
159,883
51,358
108,525
0
0
0
108,525
3.62
3.62
