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, 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 November 7, 1996, there were 29,366,755 Common Shares of the
Registrant outstanding.
-----------------
2
RAYONIER INC.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item l. Financial Statements
Statements of Consolidated Income for the
Three Months and Nine Months
Ended September 30, 1996 and 1995 1
Consolidated Balance Sheets as of September 30, 1996
and December 3l, 1995 2
Statements of Consolidated Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 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 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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
----------- ----------- ----------- ----------
SALES $ 285,104 $ 333,913 $ 875,751 $ 933,309
----------- ----------- ----------- ----------
Costs and expenses
Cost of sales 245,659 264,558 726,120 740,815
Selling and general expenses 9,672 9,124 27,913 26,937
Other operating income, net (1,276) (1,126) (2,172) (4,335)
---------- ----------- ----------- ---------
254,055 272,556 751,861 763,417
----------- ----------- ----------- ----------
OPERATING INCOME 31,049 61,357 123,890 169,892
Interest expense (6,434) (8,746) (20,677) (26,054)
Non-recurring gain (See Item 2 - Other Items) - 34,763 - 34,763
Interest and miscellaneous income, net 2,490 654 5,451 2,321
Minority interest (4,778) (4,467) (21,315) (21,039)
---------- ----------- --------- ---------
Income before income taxes 22,327 83,561 87,349 159,883
Provision for income taxes (6,759) (26,523) (24,900) (51,358)
---------- --------- --------- ---------
NET INCOME $ 15,568 $ 57,038 $ 62,449 $ 108,525
=========== =========== ========== =========
NET INCOME PER COMMON SHARE $ .52 $ 1.90 $ 2.08 $ 3.62
=========== =========== =========== ==========
Weighted average Common Shares
outstanding 29,979,270 30,071,300 30,031,852 29,963,590
=========== =========== =========== ==========
1
4
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
ASSETS
September 30, December 31,
1996 1995
------------- -------------
CURRENT ASSETS
Cash and short-term investments $ 6,784 $ 10,932
Accounts receivable, less allowance for doubtful
accounts of $4,482 and $4,420 124,737 128,478
Inventories
Finished goods 63,808 71,307
Work in process 19,368 25,681
Raw materials 39,595 44,350
Manufacturing and maintenance supplies 30,377 28,740
------------ -------------
Total inventories 153,148 170,078
Timber stumpage 34,596 49,464
Other current assets 26,607 15,412
Deferred income taxes 12,260 15,208
------------ -------------
Total current assets 358,132 389,572
OTHER ASSETS 45,668 47,239
TIMBER STUMPAGE 19,994 29,396
TIMBER, TIMBERLANDS AND LOGGING ROADS,
NET OF DEPLETION AND AMORTIZATION 486,254 476,463
PROPERTY, PLANT AND EQUIPMENT
Land, buildings, machinery and equipment 1,344,134 1,292,059
Less - accumulated depreciation 603,716 586,796
------------ -------------
740,418 705,263
------------ -------------
$ 1,650,466 $ 1,647,933
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 84,386 $ 102,938
Bank loans and current maturities 3,216 3,040
Accrued taxes 24,039 9,941
Accrued payroll and benefits 19,678 26,554
Accrued interest 8,179 5,268
Other current liabilities 37,242 39,943
Current reserves for dispositions 15,534 16,047
------------ -------------
Total current liabilities 192,274 203,731
DEFERRED INCOME TAXES 166,020 160,574
LONG-TERM DEBT 433,417 446,696
NON-CURRENT RESERVES FOR DISPOSITIONS 17,981 23,542
OTHER NON-CURRENT LIABILITIES 25,055 25,204
MINORITY INTEREST 19,434 18,815
SHAREHOLDERS' EQUITY
Common Shares, 60,000,000 shares authorized, 29,416,455
and 29,653,278 shares issued and outstanding 149,193 159,032
Retained earnings 647,092 610,339
------------ -------------
796,285 769,371
------------ -------------
$ 1,650,466 $ 1,647,933
============ =============
2
5
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
Nine Months
Ended September 30,
-------------------
1996 1995
------------- -------------
OPERATING ACTIVITIES
Net income $ 62,449 $ 108,525
Non-cash items included in income
Depreciation, depletion and amortization 71,608 72,186
Deferred income taxes 7,544 13,859
Disposition of New Zealand timber assets - 9,440
Write-off of property, plant and equipment 7,060 -
(Decrease) increase in other non-current liabilities (149) 624
Change in accounts receivable, inventories
and accounts payable 2,119 (81,851)
Decrease (increase) in current timber stumpage 14,868 (1,722)
Increase in other current assets (11,195) (4,197)
Increase in accrued liabilities 7,432 17,672
Change in reserves for dispositions (3,750) (3,733)
------------ -------------
Cash from operating activities 157,986 130,803
------------ -------------
INVESTING ACTIVITIES
Capital expenditures, net of sales and retirements
of $11,488 and $1,760 (123,614) (93,830)
Expenditures for dispositions, net
of tax benefits of $850 and $4,205 (1,474) (7,095)
Change in timber stumpage and other assets 10,973 (3,115)
------------ -------------
Cash used for investing activities (114,115) (104,040)
------------ -------------
FINANCING ACTIVITIES
Issuance of debt 17,472 50,587
Repayments of debt (30,575) (50,201)
Dividends (25,696) (22,218)
(Repurchase) issuance of Common Shares (9,839) 1,237
Increase (decrease) in minority interest 619 (4,565)
------------ -------------
Cash used for financing activities (48,019) (25,160)
------------ -------------
CASH AND SHORT-TERM INVESTMENTS
(Decrease) increase during the period (4,148) 1,603
Balance, beginning of period 10,932 9,178
------------ -------------
Balance, end of period $ 6,784 $ 10,781
============ =============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 19,760 $ 22,468
============ =============
Income taxes, net of refunds $ 7,865 $ 26,894
============ =============
3
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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
and nine months ended September 30, 1996 and 1995 were as follows (thousands of
dollars):
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
----------- ----------- ----------- ----------
SALES
- -----
TIMBER AND WOOD PRODUCTS
Log trading and merchandising $ 84,747 $ 108,025 $ 245,504 $ 309,327
Timberlands management and stumpage 28,608 29,130 119,549 116,791
Wood products 27,769 22,548 75,536 57,080
Intrasegment eliminations (2,779) (5,562) (11,066) (15,310)
---------- ---------- ----------- ----------
Total Timber and Wood Products 138,345 154,141 429,523 467,888
----------- ---------- ----------- ----------
SPECIALTY PULP PRODUCTS
Chemical cellulose 103,195 103,471 303,338 269,500
Fluff and specialty paper pulps 45,246 82,024 146,984 214,117
----------- ---------- ----------- ----------
Total Specialty Pulp Products 148,441 185,495 450,322 483,617
----------- ---------- ----------- ----------
Intersegment eliminations (1,682) (5,723) (4,094) (18,196)
----------- ---------- ----------- ----------
Total sales $ 285,104 $ 333,913 $ 875,751 $ 933,309
=========== ========== =========== ==========
OPERATING INCOME
- ----------------
Timber and Wood Products $ 26,354 $ 25,514 $ 96,003 $ 104,015
Specialty Pulp Products 8,736 38,737 37,911 74,384
Corporate and other (3,947) (2,916) (10,136) (8,417)
Intersegment eliminations (94) 22 112 (90)
----------- ---------- ----------- ----------
Total operating income $ 31,049 $ 61,357 $ 123,890 $ 169,892
=========== ========== =========== ==========
RESULTS OF OPERATIONS
SALES AND OPERATING INCOME
Sales of $285 million for the third quarter of 1996 were $49 million or 15
percent lower than the third quarter of 1995 primarily due to lower fluff pulp
pricing and lower log trading and merchandising sales to the Pacific Rim.
Operating income of $31 million was $30 million or 49 percent lower than last
year's third quarter as a result of the lower fluff pulp pricing. Sales for
the nine months ended September 30, 1996 of $876 million were $58 million or 6
percent lower than the prior year, and operating income of $124 million
decreased $46 million or 27 percent from the prior year.
4
7
Timber and Wood Products
Timber and Wood Products' sales in the third quarter were $138 million, down
$16 million from the 1995 third quarter. Operating income for the quarter of
$26 million was slightly above the prior year, reflecting stronger lumber
prices and volumes and increases in timber harvesting, partially offset by
lower U.S. stumpage pricing and weak log export markets. Sales for the nine
month period were $430 million, down $38 million from the same period of 1995,
with operating income of $96 million down $8 million from the prior year. The
declines were due to lower log volumes and margins compared to 1995.
Log trading and merchandising sales and operating income, which include the
Company's New Zealand log sales, declined from the 1995 third quarter due to
continued weakness in Asian wood markets. In particular, New Zealand volume
and pricing were adversely affected by soft Korean export markets.
Timberlands management and stumpage sales and operating income were even with
the third quarter of 1995. Stumpage volume increases in both the Northwest and
Southeast regions were offset by lower prices, reflective of weak markets at
the time the contracts were initiated. Wood products results improved
significantly from a year ago due to improved lumber prices and lower log
costs.
Specialty Pulp Products
Sales of Specialty Pulp Products were $148 million, down $37 million from last
year's third quarter, and operating income declined $30 million as a result of
significantly lower fluff pulp pricing.
Specialty Pulp Products' sales for the first nine months of 1996 were $450
million, down $33 million from the prior period reflecting lower overall pulp
prices and volumes. Operating income declined $36 million to $38 million in
1996 reflecting lower fluff pulp prices offset somewhat by higher chemical
cellulose prices that were realized mostly during the first half of the year,
as well as by lower costs. The improvement in fluff pulp prices in the third
quarter followed a sharp inventory correction that began in late 1995 but
abated, somewhat, by mid-year 1996. The fluff pulp price increase in the third
quarter was offset by slightly lower prices for chemical cellulose pulps, which
tend to lag commodity paper pulp grades in the cycle.
The Company announced on October 21 that it intends to close its Port Angeles,
WA pulp mill by mid-1997. The Company has been studying the long-term
strategies to enhance the profitability and reduce the cyclicality of its
specialty pulp business. The initial results of its ongoing strategic study of
its pulp business confirmed that the mill is not competitive in world markets
because of high wood costs due to federal environmental restrictions on
Northwest timber harvests, viscose pulp capacity additions in lower cost
regions of the world, and anticipated capital expenditures for new
environmental regulations. The Company will take a fourth quarter charge of
$79 million after-tax, or $2.63 per share, related to the disposition. The
liquidation of working capital and tax benefits associated with the closure are
expected to offset the cash closure costs.
Intersegment
Nine month intersegment sales of $4 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 INCOME / EXPENSE
Interest expense was $21 million for the first nine months of 1996, $5 million
favorable to 1995, reflecting a lower average debt level, lower interest rates
and higher capitalized interest expense.
The prior year non-recurring gain relates to the sale of a 75 percent interest
in a portion of the Company's 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.
Rayonier enters into forward exchange contracts to mitigate the impact of New
Zealand/U.S. dollar exchange fluctuations. The net gain on these contracts,
which is included in Interest and Miscellaneous Income, was $4 million and $1
million for the nine months ended September 30, 1996 and 1995, respectively.
5
8
Minority interest in the earnings of Rayonier's subsidiary, Rayonier
Timberlands, L.P. (RTLP) was relatively flat compared to 1995, reflecting
higher stumpage volume offset by lower prices in both the Northwest and
Southeast regions. 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 nine months of 1996 was 28.5 percent
compared to 32.1 percent for the comparable period in 1995. 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 third quarter was $16 million or $0.52 per Common Share,
down $18 million or $0.58 per Common Share from the 1995 third quarter
excluding the non-recurring gain on the New Zealand timber sale. Net income
for the nine months ended September 30, 1996 was $62 million or $2.08 per
Common Share, down $22 million or $0.74 per Common Share, excluding the
non-recurring gain.
OTHER ITEMS
The Company announced on October 9 that it would take an after-tax
charge to discontinued operations of $80 to $100 million, or $2.67 to
$3.33 per share, in the fourth quarter to comply with the American Institute of
Certified Public Accountants' Statement of Position 96-1, "Environmental
Remediation Liabilities." Rayonier will accrue the cost of future monitoring
and administration costs expected to be incurred over the next 25 to 30 years
at its Southern Wood Piedmont wood treating operations (discontinued in 1986).
The annual monitoring costs were being expensed. Over the last three years
those costs were approximately $4 million pretax or 8 cents per share annually.
Total non-recurring charges in the fourth quarter for the accounting change,
mill closure (see the Specialty Pulp Products discussion) and approximately $5
million after-tax for write-downs of other non-strategic assets, will be
between $159 and $179 million after-tax, or $5.30 to $5.96 per share. The book
charges will increase the Company's debt-to-capital ratio by about 6 percentage
points.
The Company's Form 10-K for 1995 referred to Federal environmental regulations
governing air and water discharges that were proposed in 1993. In July 1996,
the U.S. Environmental Protection Agency announced that it anticipates that
technologies other than those which formed the basis of the proposed water
regulations will be used to establish the final regulations for dissolving pulp
mills. The agency said that it would await the results of studies being
undertaken by the Company and other manufacturers of chemical cellulose pulps
before proposing final regulations. The Company now expects that its costs to
comply with these regulations will probably be less than previously estimated
with implementation required at later dates than originally projected.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities of $158 million for the first nine months
of 1996 increased from $131 million in 1995 as a result of reduced working
capital partially offset by lower net income. EBITDA (defined as earnings from
continuing operations before non-recurring items, interest expense, income
taxes and depreciation, depletion and amortization) for the first nine months
of 1996 of $180 million decreased $44 million from the comparable period of
1995. Cash from operations helped to finance capital expenditures of $135
million, dividends of $26 million and the repurchase of Common Shares of $11
million. Third quarter ending debt of $437 million was $13 million less than
prior year-end debt. The Company's debt-to-total-capital-ratio at September
30, 1996 was 35 percent, down 2 percentage points from December 31, 1995.
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 450,000 shares in 1996. In the
first nine months, 303,000 shares were repurchased at an average cost of $37.04
per share with a total cost of approximately $11 million.
The Company has unsecured credit facilities totaling $300 million, which are
used for direct borrowings and as support for $93 million of outstanding
commercial paper. As of September 30, 1996, the Company had $207 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.
6
9
ITEM 3. SELECTED OPERATING DATA
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
TIMBER AND WOOD PRODUCTS
Log sales
North America - millions of board feet 72 107 206 273
New Zealand - thousands of cubic meters 370 403 1,226 1,255
Other - millions of board feet 4 6 13 15
Timber harvest
Northwest U.S. - millions of board feet 34 27 148 115
Southeast U.S. - thousands of short green tons 532 449 1,639 1,597
New Zealand - thousands of cubic meters 277 312 825 916
Lumber sold - millions of board feet 71 63 205 157
Intercompany sales
Logs - millions of board feet 2 10 6 21
Northwest U.S. timber stumpage
- millions of board feet 6 10 19 26
Southeast U.S. timber stumpage
- thousands of short green tons 40 34 116 236
SPECIALTY PULP PRODUCTS
Pulp sales
Chemical cellulose sales - thousands of metric tons 114 115 325 323
Fluff and specialty paper pulp sales - thousands of metric tons 85 93 258 267
Production as a percent of capacity 100.5% 102.7% 93.2% 97.7%
SELECTED SUPPLEMENTAL INFORMATION (thousands of dollars)
New Zealand - Sales $ 21,466 $ 26,261 $72,471 $79,337
======= ======= ====== ======
New Zealand - Operating Income $ 1,521 $ 3,901 $ 4,925 $11,308
======= ======= ====== ======
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Rayonier's Form 10-K for 1995 reported four pending civil
cases in which Rayonier and its wholly-owned subsidiary, Southern Wood
Piedmont Company ("SWP"), were named as defendants, including an
action in the U.S. District Court for the Southern District of Georgia
seeking damages in the amount of $700 million. The plaintiffs in that
particular action have since amended their complaint to eliminate any
reference to specific monetary damages. Another of these actions,
which was pending in the U.S. District Court for the Middle District
of Georgia and related to SWP's plant in Macon, Georgia, has since
been dismissed. Counsel for Rayonier and SWP continue to believe that
there are meritorious defenses in all of the remaining cases and that
the ultimate disposition of these cases will not be material to the
Company.
Reference is made to the Rayonier Inc. Form 10-Q Quarterly
Report for the quarter ended March 31, 1996 for a description of
matters reported during that period.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index.
(b) Rayonier Inc. filed a Current Report on Form 8-K on October 9,
1996, announcing that it will adopt the American Institute of
Certified Public Accountants Statement of Position (SOP) on accounting
for environmental remediation and monitoring liabilities.
Rayonier Inc. filed a Current Report on Form 8-K on October
21, 1996, announcing its intention to close its Port Angeles, WA, pulp
mill by mid-1997.
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 KENNETH P. JANETTE
------------------
Kenneth P. Janette
Vice President and Corporate Controller
November 13, 1996 (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 holders, Not required to be filed. The
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 to be filed
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,
---------------------
1996 1995
-------- ---------
Earnings:
Net Income $ 62,449 $ 108,525
Add:
Income Taxes 24,900 51,358
Minority Interest 21,315 21,039
Amortization of Capitalized Interest 1,473 1,233
-------- --------
110,137 182,155
Adjustments to Earnings for Fixed Charges:
Interest and Other Financial Charges 20,677 26,054
Interest Factor Attributable to Rentals 1,083 1,107
-------- --------
21,760 27,161
-------- --------
EARNINGS AS ADJUSTED $ 131,897 $ 209,316
========= ========
Fixed Charges:
Fixed Charges above $ 21,760 $ 27,161
Capitalized Interest 1,994 857
-------- --------
TOTAL FIXED CHARGES $ 23,754 $ 28,018
========= ========
RATIO OF EARNINGS AS ADJUSTED TO
TOTAL FIXED CHARGES 5.55 7.47
==== ====
5
1,000
9-MOS
DEC-31-1996
JAN-01-1996
SEP-30-1996
6,784
0
129,220
4,482
153,148
358,132
1,344,134
603,716
1,650,466
192,274
433,417
149,194
0
0
647,091
1,650,466
875,751
875,751
726,120
726,120
41,605
0
20,677
87,349
24,900
62,449
0
0
0
62,449
2.08
2.08
