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 MARCH 31, 1998
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 1, 1998, there were 28,286,773 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 Ended March 31, 1998 and 1997 1
Consolidated Balance Sheets as of March 31, 1998
and December 3l, 1997 2
Statements of Consolidated Cash Flows for the
Three Months Ended March 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 5-7
Item 3. Selected Operating Data 8
Selected Supplemental Financial Data 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 10
Exhibit Index 11
i
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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, please refer to Notes to
Consolidated Financial Statements in the l997 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,
1998 1997
--------- ---------
SALES $ 225,414 $ 260,138
--------- ---------
Costs and expenses
Cost of sales 184,179 209,781
Selling and general expenses 8,347 10,505
Other operating income, net (1,269) (621)
--------- ---------
191,257 219,665
--------- ---------
OPERATING INCOME 34,157 40,473
Interest expense (7,912) (5,856)
Interest and miscellaneous income, net 295 397
Minority interest -- (8,079)
--------- ---------
Income before income taxes 26,540 26,935
Provision for income taxes (8,344) (8,539)
--------- ---------
NET INCOME $ 18,196 $ 18,396
========= =========
NET INCOME PER COMMON SHARE
Basic EPS $ 0.64 $ 0.63
========= =========
Diluted EPS $ 0.63 $ 0.62
========= =========
1
4
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
ASSETS
March 31, December 31,
1998 1997
---------- ----------
CURRENT ASSETS
Cash and short-term investments $ 8,457 $ 10,661
Accounts receivable, less allowance for doubtful
accounts of $4,500 and $4,481 106,283 115,704
Inventories
Finished goods 55,979 51,398
Work in process 15,578 17,491
Raw materials 18,509 19,740
Manufacturing and maintenance supplies 25,685 25,519
---------- ----------
Total inventories 115,751 114,148
Timber purchase agreements 30,904 31,758
Other current assets 12,103 13,955
Deferred income taxes 22,791 24,288
---------- ----------
Total current assets 296,289 310,514
OTHER ASSETS 57,674 55,791
TIMBER PURCHASE AGREEMENTS 32,726 28,248
TIMBER, TIMBERLANDS AND LOGGING ROADS,
NET OF DEPLETION AND AMORTIZATION 546,875 497,110
PROPERTY, PLANT AND EQUIPMENT
Land, buildings, machinery and equipment 1,283,663 1,266,431
Less - accumulated depreciation 579,350 562,536
---------- ----------
704,313 703,895
---------- ----------
$1,637,877 $1,595,558
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 68,635 $ 74,269
Bank loans and current maturities 3,703 4,194
Accrued taxes 14,443 10,973
Accrued payroll and benefits 19,088 18,694
Accrued interest 9,381 6,076
Other current liabilities 44,392 66,085
Current reserves for dispositions and discontinued operations 24,828 26,247
---------- ----------
Total current liabilities 184,470 206,538
DEFERRED INCOME TAXES 118,155 113,442
LONG-TERM DEBT 488,419 421,325
NON-CURRENT RESERVES FOR DISPOSITIONS
AND DISCONTINUED OPERATIONS 170,493 172,615
OTHER NON-CURRENT LIABILITIES 35,884 31,997
MINORITY INTEREST -- 16,959
SHAREHOLDERS' EQUITY
Common Shares, 60,000,000 shares authorized, 28,295,655
and 28,283,634 shares issued and outstanding 100,534 102,175
Retained earnings 539,922 530,507
---------- ----------
640,456 632,682
---------- ----------
$1,637,877 $1,595,558
========== ==========
2
5
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
Three Months
Ended March 31,
------------------------------
1998 1997
--------- --------
OPERATING ACTIVITIES
Net income $ 18,196 $ 18,396
Non-cash items included in income
Depreciation, depletion and amortization 22,913 24,800
Deferred income taxes 4,912 7,239
Increase in other non-current liabilities 3,887 172
Change in accounts receivable, inventories
and accounts payable 2,184 (17,358)
Decrease in current timber purchase agreements 854 7,204
Decrease (increase) in other current assets 1,852 (5,440)
Decrease in accrued liabilities (14,524) (10,200)
--------- --------
CASH FROM OPERATING ACTIVITIES 40,274 24,813
--------- --------
INVESTING ACTIVITIES
Capital expenditures, net of sales and retirements
of $677 and $612 (24,275) (39,622)
Acquisition of Rayonier Timberlands, L.P. Class A Units (48,821) --
Expenditures for dispositions and discontinued operations,
net of tax benefits of $1,298 and $1,095 (2,243) (1,893)
Change in timber purchase agreements and other assets (6,361) 1,487
--------- --------
CASH USED FOR INVESTING ACTIVITIES (81,700) (40,028)
--------- --------
FINANCING ACTIVITIES
Issuance of debt 143,770 31,734
Repayments of debt (77,167) (149)
Dividends paid (8,781) (8,770)
Repurchase of Common Shares (2,313) (8,167)
Issuance of Common Shares 672 536
Buyout of minority interest (16,959) (523)
--------- --------
CASH PROVIDED BY FINANCING ACTIVITIES 39,222 14,661
--------- --------
CASH AND SHORT-TERM INVESTMENTS
Decrease in cash and short term investments (2,204) (554)
Balance, beginning of period 10,661 3,432
--------- --------
Balance, end of period $ 8,457 $ 2,878
========= ========
Supplemental disclosures of cash flow information
Cash paid (received) during the period for:
Interest $ 4,703 $ 4,228
========= ========
Income taxes, net of refunds $ 3,612 $ (52)
========= ========
3
6
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
EARNINGS PER COMMON SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share." The following table provides details of the
calculation of basic and diluted EPS for the three months ended March 31, 1998
and 1997.
1998 1997
----------- -----------
Net Income $ 18,196 $ 18,396
=========== ===========
Shares used for determining basic EPS 28,311,424 29,231,589
Dilutive effect of:
Stock options 279,187 266,097
Contingent shares 231,084 223,500
----------- -----------
Shares used for determining diluted EPS 28,821,695 29,721,186
=========== ===========
Basic EPS $ 0.64 $ 0.63
=========== ===========
Diluted EPS $ 0.63 $ 0.62
=========== ===========
4
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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
months ended March 31, 1998 and 1997 were as follows (thousands of dollars):
Three Months
Ended March 31,
---------------
1998 1997
--------- ---------
SALES
TIMBER AND WOOD PRODUCTS
Trading and merchandising $ 35,157 $ 56,737
Timberlands management 51,870 49,514
Wood products 29,207 29,663
Intrasegment eliminations (2,598) (6,287)
--------- ---------
Total Timber and Wood Products 113,636 129,627
--------- ---------
SPECIALTY PULP PRODUCTS
Chemical cellulose 67,745 80,216
Fluff and specialty paper pulps 45,114 43,194
--------- ---------
Total Specialty Pulp Products 112,859 123,410
--------- ---------
Intersegment eliminations (1,081) (625)
--------- ---------
Total before dispositions 225,414 252,412
Dispositions -- 7,726
--------- ---------
Total sales $ 225,414 $ 260,138
========= =========
OPERATING INCOME
Timber and Wood Products $ 29,636 $ 33,647
Specialty Pulp Products 7,892 12,387
Corporate and other (3,075) (4,144)
Intersegment eliminations (296) 112
--------- ---------
Total before dispositions 34,157 42,002
Dispositions -- (1,529)
--------- ---------
Total operating income $ 34,157 $ 40,473
========= =========
RESULTS OF OPERATIONS
SALES AND OPERATING INCOME
Sales for the first quarter of 1998 were $225 million, $35 million or 13 percent
lower than the first quarter of 1997. The decline in sales was primarily due to
sharply reduced Asian demand for logs, lower chemical cellulose volume, and the
absence of disposition sales from the Company's Port Angeles pulp mill,
permanently closed in February 1997. Operating income of $34 million was $6
million or 16 percent below the prior year, as a result of losses from the
Company's medium-density fiberboard (MDF) plant and the effects of weather
related wood supply disruptions on the Southeast U.S. pulp and lumber
operations, partially offset by stronger Southeast timber prices.
5
8
TIMBER AND WOOD PRODUCTS
Timber and Wood Products' sales for the first quarter of 1998 were $114 million,
$16 million below last year's results. The decline reflects lower log trading
activity in Asian markets. Operating income for the quarter of $30 million was
$4 million lower than the same period last year due to lower lumber margins and
a $4.7 million loss from the Company's MDF plant in New Zealand, which began
commercial operations October 1, 1997.
Trading and merchandising sales of $35 million were $22 million lower than 1997,
reflecting lower North American and New Zealand export log volumes and selling
prices resulting from weakness in Asian wood markets. Operating income improved
slightly from 1997, resulting from improved margins in the U.S. domestic market.
Timberlands management sales of $52 million were $2 million above last year.
Operating income improved $3 million from 1997 as a result of increased
Northwest U.S. timber harvest volume and higher Southeast U.S. timber prices.
The increased Northwest volume was driven by a strong domestic housing market,
while Southeast timber price improvements were due to unusually wet weather that
led to difficult logging conditions and restricted supply.
Wood products sales were in line with the 1997 first quarter. Operating income
declined $8 million from 1997 as a result of losses from the MDF plant, as it
developed markets and increased production of its Patinna(TM) brand, and lower
lumber margins due to lower lumber sales prices and higher log costs as
abnormally wet weather in the Southeast U.S. interrupted wood supply and forced
mill downtime.
SPECIALTY PULP PRODUCTS
Sales of Specialty Pulp Products were $113 million compared to $123 million for
last year's first quarter. The decline was primarily due to weak fluff pulp
markets and lower chemical cellulose production volume caused by wet weather
conditions in the Southeast U.S. that interrupted wood supply. Operating income
was $8 million, $5 million below the 1997 first quarter due to lower chemical
cellulose prices and volumes, higher wood costs and mill downtime.
OTHER INCOME / EXPENSE
Interest expense was $8 million for the first quarter of 1998, $2 million higher
than 1997, reflecting lower capitalized interest following start up of the MDF
plant and interest expense associated with the $66 million purchase of the
publicly traded Class A Units of the Company's U.S. timberlands partnership.
Elimination of the minority interest expense in the partnership contributed $7
million, pretax, to first quarter results.
NET INCOME
Net income for the first quarter was $18.2 million or $0.63 per Common Share,
compared to $18.4 million, or $0.62 cents per Common Share in 1997. The increase
in earnings per share on slightly lower net income resulted from fewer shares
outstanding in 1998 due to the Company's share repurchase program.
Second quarter earnings are expected to be slightly higher than the first
quarter because of higher pulp and lumber volumes and lower wood costs as
weather conditions improve in the Southeast.
OTHER ITEMS
In January 1998, Rayonier acquired all of the publicly traded Class A Units of
its master limited partnership, Rayonier Timberlands, L.P., for a cash purchase
price of $13.00 per unit. The acquisition was accounted for under the purchase
method and was financed by the utilization of existing credit facilities.
6
9
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities of $40 million for the first three months of
1998 increased $15 million from 1997 as a result of reduced working capital
requirements. EBITDA (defined as earnings from continuing operations before
significant non-recurring items, provision for dispositions, interest expense,
income taxes and depreciation, depletion and amortization) for the first quarter
of 1998 of $57 million approximated 1997 first quarter results. Cash from
operating activities financed capital expenditures of $25 million, dividends of
$9 million and the repurchase of Common Shares for $2 million. The Company also
increased its borrowings to finance the $66 million acquisition of the
outstanding publicly traded Class A Unit minority interest in Rayonier
Timberlands, L.P.
The Company repurchased 52,080 of its own shares during the first three months
of 1998 at an average cost of $44.42. Over the same period in 1997, in
connection with an expanded one-year repurchase program, the Company repurchased
214,000 shares at an average cost of $38.16 per share for $8 million. First
quarter ending debt was $492 million and the debt-to-capital-ratio was 43.5
percent compared to 40.2 percent at December 31, 1997.
The Company has unsecured credit facilities totaling $300 million, which were
used for direct borrowings of $10 million and as support for $150 million of
outstanding commercial paper. As of March 31, 1998, the Company had $140 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 $100 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.
SAFE HARBOR
Except for the information about past operations and results, the comments in
this report are forward-looking and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Changes in
the following important factors, among others, could cause actual results to
differ materially from those expressed in the forward-looking statements:
competitive products and pricing, as well as fluctuations in demand,
particularly for specialty fluff pulps and for export and domestic logs and wood
products, including MDF; the impact of such market factors on the Company's
timber sales in the U.S. and New Zealand; the impact of Asia market conditions
on prices and volumes; abnormal weather conditions; production costs for MDF and
for specialty pulps, particularly for raw materials and chemicals; governmental
policies and regulations affecting the environment, import and export controls
and taxes; and interest rate and currency movements.
7
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ITEM 3. SELECTED OPERATING DATA
Three Months
Ended March 31,
---------------
1998 1997
---- ---
TIMBER AND WOOD PRODUCTS
Trading volume
North America logs, in millions of board feet 33 45
New Zealand logs, in thousands of cubic meters 151 237
Other logs, in thousands of cubic meters 38 133
Timber sales volume
Northwest U.S., in millions of board feet 67 59
Southeast U.S., in thousands of short green tons 609 610
New Zealand, in thousands of cubic meters 126 211
Lumber sales volume, in millions of board feet 74 74
Medium-density fiberboard sales volume,
in thousands of cubic meters 13 --
Intercompany sales volume
Northwest U.S. timber,
in millions of board feet 2 6
Southeast U.S. timber,
in thousands of short green tons 32 25
New Zealand timber,
in thousands of cubic meters 60 130
SPECIALTY PULP PRODUCTS
Pulp sales volume (a)
Chemical cellulose, in thousands of metric tons 77 89
Fluff and specialty paper pulp, in thousands of
metric tons 86 81
Production as a percent of capacity 98.4% 97.9%
(a) Excludes Port Angeles statistics reflected below:
Chemical cellulose sales, in thousands of metric tons -- 9
Fluff and specialty paper pulp sales, in thousands of metric tons -- 4
8
11
SELECTED SUPPLEMENTAL FINANCIAL DATA (thousands of dollars, except per share
data)
Three Months
Ended March 31,
---------------
GEOGRAPHICAL DATA (NON-U.S.) 1998 1997
-------- --------
Sales
New Zealand $ 11,066 $ 17,151
Other 3,136 8,531
-------- --------
Total $ 14,202 $ 25,682
======== ========
Operating Income
New Zealand $ (5,280) $ 211
Other (1,249) (1,017)
-------- --------
Total $ (6,529) $ (806)
======== ========
TIMBERLANDS MANAGEMENT
Sales
Northwest U.S. $ 26,834 $ 26,370
Southeast U.S. 21,580 17,190
New Zealand 3,456 5,954
-------- --------
Total $ 51,870 $ 49,514
======== ========
Operating Income
Northwest U.S. $ 20,982 $ 21,560
Southeast U.S. 16,377 11,843
New Zealand 655 1,200
-------- --------
Total $ 38,014 $ 34,603
======== ========
EBITDA per Share
Northwest U.S. $ 0.75 $ 0.74
Southeast U.S. 0.64 0.49
New Zealand 0.08 0.12
-------- --------
Total $ 1.47 $ 1.35
======== ========
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 20, 1998, the U.S. District Court for the Southern District of
Georgia granted summary judgment in favor of Rayonier in the action
brought by Powell Duffryn Terminals, Inc. which was reported in
Rayonier's 10-K for 1997. The plaintiff filed a Motion for Relief from
Judgment with the trial court on April 30, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index.
(b) Reports on Form 8-K:
Rayonier Inc. filed a Current Report on Form 8-K on January 16, 1998
announcing its election to purchase all of the 5,060,000 outstanding
Class A Depositary Units of Rayonier Timberlands, L.P. in January
1998 for a cash purchase price of $13.00 per unit.
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
May 13, 1998 (Chief Accounting Officer)
10
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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
11
1
EXHIBIT 12
RAYONIER INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(THOUSANDS OF DOLLARS)
Three Months
Ended March 31,
--------------------------
1998 1997
------- -------
Earnings:
Net Income $18,196 $18,396
Add:
Income Taxes 8,344 8,539
Minority Interest -- 8,079
Amortization of Capitalized Interest 566 268
------- -------
27,106 35,282
Adjustments to Earnings for Fixed Charges:
Interest and Other Financial Charges 7,912 5,856
Interest Factor Attributable to Rentals 494 547
------- -------
8,406 6,403
------- -------
EARNINGS AS ADJUSTED $35,512 $41,685
======= =======
Fixed Charges:
Fixed Charges above $ 8,406 $ 6,403
Capitalized Interest 96 1,328
------- -------
TOTAL FIXED CHARGES $ 8,502 $ 7,731
======= =======
RATIO OF EARNINGS AS ADJUSTED TO
TOTAL FIXED CHARGES 4.18 5.39
======= =======
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
8,457
0
110,783
4,500
115,751
296,289
1,283,663
579,350
1,637,877
184,470
488,419
0
0
100,534
539,922
1,637,877
225,414
225,414
184,179
184,179
6,783
0
7,912
26,540
8,344
18,196
0
0
0
18,196
0.64
0.63
