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 March 31, 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 1-6780
RAYONIER INC.
Incorporated in the State of North Carolina
I.R.S. Employer Identification Number l3-2607329
l177 Summer Street, Stamford, Connecticut 06905-5529
(Principal Executive Office)
Telephone Number: (203) 348-7000
Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Section l3 or l5(d) of the
Securities Exchange Act of l934 during the preceding l2 months
and (2) has been subject to such filing requirements for the past
90 days.
YES (X) NO ( )
As of May 9, 1996, there were 29,542,283 Common Shares of the
Registrant outstanding.
RAYONIER INC.
TABLE OF CONTENTS
PAGE
PART I.FINANCIAL INFORMATION
Item l.Financial Statements
Statements of Consolidated Income for the
Three Months Ended March 31, 1996 and 1995 1
Consolidated Balance Sheets as of March 31, 1996
and December 3l, 1995 2
Statements of Consolidated Cash Flows for the
Three Months Ended March 31, 1996 and 19953
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
PART I. FINANCIAL INFORMATION
Item l. 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. Certain reclassifications have been made to the prior
year's financial statements to conform to current year presentation. For a
full description of accounting policies, please refer to Notes to
Consolidated Financial Statements in the l995 Annual Report on Form l0-K.
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(unaudited)
(Thousands of dollars, except per share data)
Three Months
Ended March 31,
--------------------
1996 1995
------- -------
Sales $ 293,980 $ 285,832
Costs and expenses ------- -------
Cost of sales 225,674 224,044
Selling and general expenses 8,843 8,387
Other operating income, net (429) (1,443)
------- -------
234,088 230,988
------- -------
Operating income 59,892 54,844
Interest expense (7,146) (8,535)
Interest and miscellaneous income, net 1,488 668
Minority interest (8,988) (9,300)
------- -------
Income before income taxes 45,246 37,677
Provision for income taxes (13,769) (12,528)
------- -------
Net income $ 31,477 $ 25,149
======= =======
Net income per Common Share $ 1.05 $ 0.84
======= =======
Weighted average Common Shares
outstanding 30,089,060 29,847,437
========== ==========
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
ASSETS
March 31, December 31,
1996 1995
-------- -------
CURRENT ASSETS
Cash and short-term investments $ 5,606 $ 10,932
Accounts receivable, less allowance for doubtful
accounts of $4,308 and $4,420 126,175 128,478
Inventories
Finished goods 73,131 71,307
Work in process 25,083 25,681
Raw materials 53,846 44,350
Manufacturing and maintenance supplies 31,279 28,740
------- -------
Total inventories 183,339 170,078
Timber stumpage 42,720 49,464
Other current assets 22,603 15,412
Deferred income taxes 15,031 15,208
------- -------
Total current assets 395,474 389,572
OTHER ASSETS 48,009 47,239
TIMBER STUMPAGE 27,750 29,396
TIMBER, TIMBERLANDS AND LOGGING ROADS,
NET OF DEPLETION AND AMORTIZATION 478,821 476,463
PROPERTY, PLANT AND EQUIPMENT
Land, buildings, machinery and equipment 1,310,325 1,292,059
Less - accumulated depreciation 601,396 586,796
--------- ---------
708,929 705,263
--------- ---------
$1,658,983 $1,647,933
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 86,936 $102,938
Bank loans and current maturities 1,841 3,040
Accrued taxes 24,253 9,941
Accrued payroll and benefits 17,204 26,554
Accrued interest 8,017 5,268
Other current liabilities 36,717 39,943
Current reserves for dispositions 17,100 16,047
------- -------
Total current liabilities 192,068 203,731
DEFERRED INCOME TAXES 162,335 160,574
LONG-TERM DEBT 447,247 446,696
NON-CURRENT RESERVES FOR DISPOSITIONS 20,360 23,542
OTHER NON-CURRENT LIABILITIES 26,438 25,204
MINORITY INTEREST 20,567 18,815
SHAREHOLDERS' EQUITY
Common Shares, 60,000,000 shares authorized, 29,613,278
and 29,653,278 shares issued and outstanding 156,752 159,032
Retained earnings 633,216 610,339
------- -------
789,968 769,371
--------- ---------
$1,658,983 $1,647,933
========= =========
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(unaudited)
(Thousands of dollars)
Three Months
Ended March 31,
----------------------
1996 1995
------- -------
OPERATING ACTIVITIES
Net income $31,477 $25,149
Non-cash items included in income
Depreciation, depletion and amortization 24,136 24,492
Deferred income taxes 1,617 2,465
Increase in other non-current liabilities 1,234 1,132
Change in accounts receivable, inventories
and accounts payable (26,960) (39,115)
Decrease (increase) in current timber stumpage 6,744 (9,581)
Increase in other current assets (7,191) (401)
Increase in accrued liabilities 4,485 12,189
Change in reserves for dispositions (1,250) (1,274)
------- -------
Cash from operating activities 34,292 15,056
======= =======
INVESTING ACTIVITIES
Capital expenditures, net of sales and retirements
of $543 and $652 (30,160) (30,791)
Expenditures for dispositions, net
of tax benefits of $321 and $732 (558) (1,235)
Change in timber stumpage and other assets 876 (224)
------- -------
Cash used for investing activities (29,842) (32,250)
======= =======
FINANCING ACTIVITIES
Issuance of debt 700 27,444
Repayments of debt (1,348) (126)
Dividends (8,600) (7,402)
(Redemption) issuance of Common Shares (2,280) 682
Increase (decrease) in minority interest 1,752 (314)
------- -------
Cash (used for) provided by financing activities (9,776) 20,284
======= =======
CASH AND SHORT-TERM INVESTMENTS
(Decrease) increase during the period (5,326) 3,090
Balance, beginning of period 10,932 9,178
------ ------
Balance, end of period $ 5,606 $12,268
====== ======
Supplemental disclosures of cash flow information
Cash paid (received) during the period for:
Interest $ 4,830 $ 4,835
====== ======
Income taxes, net of refunds $ (898) $(2,768)
====== ======
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 ended March 31, 1996 and 1995 were as follows (thousands of dollars):
Three Months
Ended March 31,
----------------------
1996 1995
------- -------
Sales
Timber and Wood Products
Log trading and merchandising $ 67,792 $ 80,001
Timberlands management and stumpage 49,749 50,153
Wood products 20,638 15,123
Intrasegment eliminations (5,129) (4,184)
------- -------
Total Timber and Wood Products 133,050 141,093
------- -------
Specialty Pulp Products
Chemical cellulose 104,644 83,606
Fluff and specialty paper pulps 57,882 67,160
------- -------
Total Specialty Pulp Products 162,526 150,766
------- -------
Intersegment eliminations (1,596) (6,027)
------- -------
Total sales $293,980 $285,832
======= =======
Operating Income
Timber and Wood Products $37,183 $42,754
Specialty Pulp Products 25,140 15,273
Corporate and other (2,496) (2,171)
Intersegment eliminations 65 (1,012)
------ ------
Total operating income $59,892 $54,844
====== ======
Results of Operations
Sales and Operating Income
Sales of $294 million for the first quarter of 1996 rose $8 million or 3
percent from the first quarter of 1995. Operating income of $60 million was
$5 million or 9 percent higher than last year's first quarter. Strong
first quarter results reflected higher pricing for the Company's specialty
dissolving pulps, which offset a drop in prices for fluff and paper pulps.
Timber and Wood Products
Timber and Wood Products' sales in the first quarter were $133 million, $8
million lower than the same period of 1995. Operating income for the
quarter of $37 million was down $6 million from the prior year.
Log trading and merchandising sales and operating income, which include the
Company's New Zealand log sales, were down from the 1995 first quarter due
to continuing softness in Asian markets. In North America, both volume and
selling prices were down from 1995 resulting in reduced sales and margins.
In New Zealand, export log volume was up slightly but margins were down due
to lower export selling prices.
Timberlands management and stumpage sales and margins were slightly below
last year's first quarter. In the Northwest U.S. region, harvest volumes
increased 32 percent from the 1995 first quarter as customers accelerated
harvests amid fears that export markets could weaken further in the second
and third quarters. These gains were offset in the Southeast U.S. where
timber stumpage harvest volume and prices declined as pulp and paper mills
and sawmills took market downtime. Wood products sales increased over the
prior year mainly due to higher volume associated with the second quarter
1995 acquisition of a lumber manufacturing facility in Idaho; however,
operating margins declined due to lower sales prices.
Specialty Pulp Products
Sales of Specialty Pulp Products increased to $163 million, up 8 percent
from last year's first quarter, and operating income rose $10 million to
$25 million. Stable volumes and favorable pricing resulted in continued
strong performance in dissolving grade pulps. Approximately 60 percent of
the Company's pulp business is in specialty dissolving grades. The balance
of the Company's pulp business is primarily fluff pulps, for which prices
fell significantly since reaching record highs late in 1995. Favorable wood
costs helped offset some of the price erosion.
Intersegment
First quarter intersegment sales of $2 million in 1996 were less than the
comparable 1995 amount due to lower stumpage sales from the Timber and Wood
Products segment to the Specialty Pulp Products segment.
Other Items
As previously announced, the Company's results for 1996 are expected to be
below last year's results unless there is a significant rebound in fluff
pulp prices, which is unlikely. Prices for fluff pulps appear to have
bottomed out in the second quarter at approximately 30 percent below
first quarter prices and approximately $50 a ton below recent expectations.
In addition, unless a significant rebound in commodity pulp prices occurs
in the near future, the prices for some of the Company's higher-value pulp
grades will begin to come under price pressure from competitors and
customers. The Company also believes that the current high cost of North
American logs in Japan and high log inventories in Korea will likely result
in lower demand and prices for export logs and timber in the second quarter.
As a result, margins for Timber and Wood Products are expected to decline
approximately 20 percent from first quarter levels.
Interest expense was $7 million for the first quarter of 1996, $1 million
favorable to 1995, reflecting lower interest rates and a lower average debt
level.
Minority interest in the earnings of Rayonier's subsidiary, Rayonier
Timberlands, L.P. (RTLP) was slightly below that of the prior year period,
reflecting lower Southeast U.S. stumpage prices and volume offset to a
great extent by higher Northwest U.S. stumpage volume. The minority
participation in the earnings of RTLP will change from approximately 24
percent to approximately 1 percent effective January 1, 2001.
The effective tax rate for the first quarter of 1996 was 30.4 percent
compared to 33.3 percent in the 1995 first quarter. The change reflects
1996 recognition of a tax asset related to a prior year transaction
following resolution of various uncertainties related to its realization.
Net Income
Net income for the first quarter was $31 million or $1.05 per Common Share,
up $6 million or $0.21 per Common Share from 1995.
Liquidity and Capital Resources
Cash flow from operating activities of $34 million in the first quarter of
1996 increased from $15 million in 1995 as a result of higher earnings and
reduced working capital requirements. EBITDA (defined as earnings from
continuing operations before non-recurring items, interest expense, income
taxes and depreciation, depletion and amortization) for the first quarter
of 1996 of $77 million increased $6 million over the comparable period of
1995. Cash from operations financed capital expenditures of $31 million,
dividends of $9 million and the repurchase of Common Shares of $3 million.
First quarter ending debt of $449 million approximated year-end debt and
the Company's debt-to-total-capital-ratio decreased one percentage point to
36 percent.
During the first quarter of 1996, the Company began a common share
repurchase program to minimize the dilutive effect on earnings per share of
its employee incentive stock plans. The number of shares that may be
repurchased each year is limited to the greater of 1.5 percent of the
Company's outstanding shares or the number of incentive stock shares issued
to employees during the year. The Company expects to repurchase
approximately 300,000 to 450,000 shares in 1996. In the first quarter,
76,100 shares were repurchased at an average cost of $35.19 per share with
a total cost of approximately $3 million.
The Company has unsecured credit facilities totaling $300 million, which
are used for direct borrowings and as support for $115 million of
outstanding commercial paper. As of March 31, 1996, the Company had $185
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, share repurchases, working
capital and other liquidity needs for the foreseeable future.
Item 3. Selected Operating Data
Three Months
Ended March 31,
---------------
1996 1995
---- ----
Timber and Wood Products
Log sales
North America - millions of board feet 51 60
New Zealand - thousands of cubic meters 429 387
Other - millions of board feet 6 2
Timber harvest
Northwest U.S. - millions of board feet 61 46
Southeast U.S. - thousands of short green tons 570 673
New Zealand - thousands of cubic meters 257 280
Lumber sold - millions of board feet 61 41
Intercompany sales
Logs - millions of board feet 2 1
Northwest U.S. timber stumpage
- millions of board feet 9 7
Southeast U.S. timber stumpage
- thousands of short green tons 48 165
Specialty Pulp Products
Pulp sales
Chemical cellulose sales - thousands of metric tons 111 105
Fluff and specialty paper pulp sales - thousands
of metric tons 82 93
Production as a percent of capacity 93% 100%
Selected Supplemental Information (thousands of dollars)
New Zealand - Sales $25,296 $24,282
====== ======
New Zealand - Operating Income $ 1,420 $ 3,693
====== ======
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 18, 1996 the United States Court of Appeals for the
Fifth Circuit reversed and remanded for a new trial a jury
verdict in favor of Rayonier's wholly-owned subsidiary, Southern
Wood Piedmont Company ("SWP"), an intervenor in an action brought
by the U.S. Environmental Protection Agency ("EPA") against
Marine Shale Processors, Inc. ("MSP"). SWP had shipped over
170,000 tons of materials containing hazardous waste for thermal
processing by MSP. The verdict, among other things, found that
MSP had produced a product consistent with certain regulations
under the Resource Conservation and Recovery Act with material
received from SWP so long as that material remained unmixed with
material received from other MSP customers. Because such a
product cannot be considered a hazardous waste, the verdict
helped to limit SWP's potential liability for material sent to
MSP under the Comprehensive Environmental Response Compensation
and Liability Act ("CERCLA"). The outcome of the new trial may
result in a potential CERCLA liability related to this material
for SWP.
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 l934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
RAYONIER INC. (Registrant)
BY /S/ KENNETH P. JANETTE
-----------------------
Kenneth P. Janette
Vice President and
Corporate Controller
May 10, 1996 (Chief Accounting Officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
---------- ----------- --------
2 Plan of acquisition, None
reorganization, arrangement,
liquidation or succession
3.1 Amended and restated articles No Amendments
of incorporation
3.2 By-laws No amendments
4 Instruments defining the rights Not required to
of security holders, including be filed. The
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 Not required to
per share earnings be filed
12 Statement re computation of ratios Filed herewith
15 Letter re unaudited interim None
financial information
18 Letter re change in accounting None
principles
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
5
1,000
3-MOS
DEC-31-1996
JAN-01-1996
MAR-31-1996
5,606
0
130,483
4,308
183,339
395,474
1,310,325
601,396
1,658,983
192,068
447,247
156,752
0
0
633,216
1,658,983
293,980
293,980
225,674
225,674
15,914
0
7,146
45,246
13,769
31,477
0
0
0
31,477
1.05
1.05
EXHIBIT 12
RAYONIER INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
(Thousands of dollars)
Three Months
Ended March 31,
--------------------
1996 1995
------ ------
Earnings:
Net Income $ 31,477 $ 25,149
Add:
Income Taxes 13,769 12,528
Minority Interest 8,988 9,300
Amortization of Capitalized Interest 491 411
------ ------
54,725 47,388
Adjustments to Earnings for Fixed Charges:
Interest and Other Financial Charges 7,146 8,535
Interest Factor Attributable to Rentals 361 369
------ ------
7,507 8,904
------ ------
Earnings as Adjusted $ 62,232 $ 56,292
====== ======
Fixed Charges:
Fixed Charges above $ 7,507 $ 8,904
Capitalized Interest 433 190
------ ------
Total Fixed Charges $ 7,940 $ 9,094
====== ======
Ratio of Earnings as Adjusted to
Total Fixed Charges 7.84 6.19
====== ======
