SEC Filing | Rayonier Inc.

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, 2000 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 50 North Laura Street, Jacksonville, FL 32202 (Principal Executive Office) Telephone Number: (904) 357-9100 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 3, 2000, there were outstanding 27,357,440 Common Shares of the Registrant.

2 RAYONIER INC. FORM 10-Q MARCH 31, 2000 TABLE OF CONTENTS PAGE ---- PART I. FINANCIAL INFORMATION Item l. Financial Statements Statements of Consolidated Income for the Three Months Ended March 31, 2000 and 1999 1 Consolidated Balance Sheets as of March 31, 2000 and December 3l, 1999 2 Statements of Consolidated Cash Flows for the Three Months Ended March 31, 2000 and 1999 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Item 3. Selected Operating Data 8 Selected Supplemental Financial Data 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10 Signature 10 Exhibit Index 11 i

3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following unaudited financial statements reflect, in the opinion of Rayonier Inc. and Subsidiaries (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 the Notes to Consolidated Financial Statements in the 1999 Annual Report on Form l0-K. RAYONIER INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (THOUSANDS OF DOLLARS, EXCEPT PER SHARE INFORMATION) Three Months Ended March 31, --------- 2000 1999 -------- -------- SALES $289,155 $226,396 -------- -------- Costs and expenses Cost of sales 226,140 188,681 Selling and general expenses 9,936 9,465 Other operating expense (income), net 1,573 (1,194) -------- -------- 237,649 196,952 -------- -------- OPERATING INCOME 51,506 29,444 Interest expense (22,790) (7,703) Interest and miscellaneous income, net 167 713 Gains from sale of assets 23,147 - -------- -------- Income before income taxes 52,030 22,454 Income tax expense (16,557) (7,324) -------- -------- NET INCOME $ 35,473 $ 15,130 ======== ======== EARNINGS PER COMMON SHARE Basic $ 1.30 $ 0.54 ======== ======== Diluted $ 1.27 $ 0.54 ======== ======== 1

4 RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (THOUSANDS OF DOLLARS) ASSETS March 31, December 31, 2000 1999 ---------- ------------ CURRENT ASSETS Cash and short-term investments $ 21,742 $ 12,265 Accounts receivable, less allowance for doubtful accounts of $4,863 and $4,859 122,607 103,535 Inventories Finished goods 56,715 52,984 Work in process 12,409 12,478 Raw materials 12,888 17,947 Manufacturing and maintenance supplies 23,343 21,670 ---------- ---------- Total inventories 105,355 105,079 Timber purchase agreements 27,343 30,477 Other current assets 16,215 11,107 Deferred income taxes 8,609 9,143 ---------- ---------- Total current assets 301,871 271,606 OTHER ASSETS 67,204 77,094 TIMBER PURCHASE AGREEMENTS 10,774 7,816 TIMBER, FORESTLANDS AND LOGGING ROADS, NET OF DEPLETION AND AMORTIZATION 1,219,114 1,247,547 PROPERTY, PLANT AND EQUIPMENT, NET Land, buildings, machinery and equipment 1,344,899 1,333,789 Less accumulated depreciation 678,462 657,625 ---------- ---------- Total property, plant and equipment, net 666,437 676,164 ---------- ---------- TOTAL ASSETS $2,265,400 $2,280,227 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 71,627 $ 74,035 Bank loans and current maturities 12,420 3,248 Accrued taxes 30,010 15,148 Accrued payroll and benefits 22,445 22,405 Accrued interest 25,987 11,160 Other current liabilities 43,195 48,895 Current reserves for dispositions and discontinued operations 19,492 18,980 ---------- ---------- Total current liabilities 225,176 193,871 DEFERRED INCOME TAXES 126,243 123,458 LONG-TERM DEBT 1,062,930 1,132,930 NON-CURRENT RESERVES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS 146,307 149,551 OTHER NON-CURRENT LIABILITIES 28,465 27,517 SHAREHOLDERS' EQUITY Common shares, 60,000,000 shares authorized, 27,361,696 and 27,407,094 shares issued and outstanding 58,273 60,518 Retained earnings 618,006 592,382 ---------- ---------- 676,279 652,900 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,265,400 $2,280,227 ========== ========== 2

5 RAYONIER INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (THOUSANDS OF DOLLARS) Three Months Ended March 31, --------- 2000 1999 -------- -------- OPERATING ACTIVITIES Net income $ 35,473 $ 15,130 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion and amortization 37,434 26,696 Deferred income taxes 2,319 2,848 Gains from sale of assets (23,147) - Non-cash cost of land sales 808 2,572 Increase in other non-current liabilities 948 450 Change in accounts receivable, inventories and accounts payable (22,564) (3,401) Decrease (increase) in current timber purchase agreements 3,134 (572) Increase in other current assets (5,108) (3,189) Increase in accrued liabilities 24,029 9,974 -------- -------- CASH PROVIDED BY OPERATING ACTIVITIES 53,326 50,508 -------- -------- INVESTING ACTIVITIES Capital expenditures (23,149) (13,736) Sales, retirements and reclassifications of property, plant and equipment, net (2,381) 24 Expenditures for dispositions and discontinued operations, net of tax benefits of $1,000 and $1,178 (1,732) (2,039) Proceeds from sale of assets, net of cash costs 49,403 - Change in timber purchase agreements and other assets 6,932 1,350 -------- -------- CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 29,073 (14,401) -------- -------- FINANCING ACTIVITIES Issuance of debt 15,000 59,853 Repayments of debt (75,828) (87,675) Dividends paid (9,849) (8,627) Repurchase of common shares (3,543) (1,523) Issuance of common shares 1,298 892 -------- -------- CASH USED FOR FINANCING ACTIVITIES (72,922) (37,080) -------- -------- CASH AND SHORT-TERM INVESTMENTS Increase (decrease) in cash and short-term investments 9,477 (973) Balance at beginning of period 12,265 6,635 -------- -------- Balance at end of period $ 21,742 $ 5,662 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 7,963 $ 3,694 ======== ======== Income taxes $ 799 $ 216 ======== ======== 3

6 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1. EARNINGS PER COMMON SHARE The following table provides details of the calculation of basic and diluted earnings per common share in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," for the three months ended March 31, 2000 and 1999. 2000 1999 ---- ---- Net Income $ 35,473 $ 15,130 =========== =========== Shares used for determining basic earnings per common share 27,390,362 27,806,659 Dilutive effect of Stock options 186,588 230,249 Contingent shares 360,000 240,000 ----------- ----------- Shares used for determining diluted earnings per common share 27,936,950 28,276,908 =========== =========== Basic earnings per common share $ 1.30 $ 0.54 =========== =========== Diluted earnings per common share $ 1.27 $ 0.54 =========== =========== 2. GAINS FROM SALE OF ASSETS From time to time, Rayonier opportunistically sells non-strategic assets to monetize portions of its asset base. In March 2000, Rayonier sold approximately 57,000 acres of Southeastern United States forestland to various third parties for $49.6 million, resulting in a pre-tax gain of $23.1 million ($14.4 million after tax, or $0.51 per diluted common share). The proceeds of these sales were used to reduce debt. 3. RECLASSIFICATIONS Certain reclassifications of the prior year amounts have been made to conform with the current year presentation. 4

7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SEGMENT INFORMATION Rayonier operates in two major business segments, Timber and Wood Products and Specialty Pulp Products. The Timber and Wood Products segment includes two reportable business units: Forest Resources and Trading, and Wood Products. Chemical Cellulose, and Fluff and Specialty Paper Pulps are product lines within the Specialty Pulp Products segment. The amounts and relative contributions to sales and operating income attributable to each of Rayonier's reportable business units for the three months ended March 31, 2000 and 1999 were as follows (thousands of dollars): Three Months Ended March 31, --------- 2000 1999 --------- --------- SALES - ----- Timber and Wood Products Forest Resources and Trading $ 124,569 $ 100,042 Wood Products 31,639 24,628 --------- --------- Total Timber and Wood Products 156,208 124,670 --------- --------- Specialty Pulp Products Chemical Cellulose 74,779 62,840 Fluff and Specialty Paper Pulps 58,363 39,029 --------- --------- Total Specialty Pulp Products 133,142 101,869 --------- --------- Intersegment eliminations (195) (143) --------- --------- Total sales $ 289,155 $ 226,396 ========= ========= OPERATING INCOME (LOSS) - ----------------------- Timber and Wood Products Forest Resources and Trading $ 41,665 $ 28,517 Wood Products (1,397) (901) --------- --------- Total Timber and Wood Products 40,268 27,616 Specialty Pulp Products 17,501 5,866 Corporate and other (6,263) (4,038) --------- --------- Total operating income $ 51,506 $ 29,444 ========= ========= RESULTS OF OPERATIONS SALES AND OPERATING INCOME Sales for the first quarter of 2000 were $289 million, $63 million above the first quarter of 1999. The sales improvement was due to increased log trading activity and timber harvesting in the Northwest U. S., higher volumes in the Southeast U. S. resulting from the acquisition of the Smurfit forestlands, higher pulp shipments, and higher fluff pulp pricing. Operating income of $52 million was $22 million higher than the first quarter of 1999, primarily related to the stronger U.S. timber results and fluff pulp pricing. 5

8 TIMBER AND WOOD PRODUCTS Sales and operating income for first quarter 2000 were higher than first quarter 1999 by $32 million and $13 million, respectively. FOREST RESOURCES AND TRADING Forest Resources and Trading sales for the first quarter of 2000 were $125 million, $25 million higher than last year's first quarter. Operating income of $42 million was $13 million higher than prior year. The sales improvement was the result of unusually strong Northwest U.S. timber volumes and prices, increased volumes in the Southeast U.S. resulting from the Smurfit forestlands acquisition, and higher log trading activity in Asian and U.S. markets. Domestic timber sales remained strong due to a robust U.S. economy, while export demand for timber benefited from the continuing Asian recovery. These improvements in sales were partially offset by lower prices in the Southeast U.S. and reduced log trading volumes in New Zealand. Operating income improved primarily as the result of the strong Northwest U.S. timber sales activity in first quarter 2000. WOOD PRODUCTS Wood Products sales of $32 million for this year's first quarter were $7 million higher than last year, due to increased lumber and medium-density-fiberboard (MDF) sales volumes, while the operating loss of $1 million, excluding $0.5 million in foreign exchange losses, was essentially flat compared to the prior year. Favorable operating and price improvements at the Company's MDF plant in New Zealand were offset by unfavorable log costs at the Company's Southeast U.S. lumber mills. SPECIALTY PULP PRODUCTS Sales of Specialty Pulp Products for the first quarter of 2000 were $133 million, $31 million higher than first quarter 1999. Operating income for first quarter 2000 of $18 million was $12 million higher than the prior year. Fluff and specialty paper pulp prices increased 22 percent, while overall volumes for chemical cellulose, fluff and paper pulps increased 21 percent. Pulp markets continued to trend upward with tighter inventories, and fluff pulp price increases matching or exceeding those for commodity grades. CORPORATE AND OTHER Corporate and other costs for the first quarter of 2000 were greater than 1999 principally as a result of costs associated with the headquarters relocation from Stamford, CT to Jacksonville, FL. OTHER INCOME / EXPENSE Interest expense of $23 million for the first quarter of 2000 was $15 million higher than first quarter 1999, reflecting higher debt levels associated with the Smurfit forestland acquisition and slightly higher interest rates. In March 2000, Rayonier sold approximately 57,000 acres of non-strategic Southeast U.S. forestland to various third parties for $49.6 million, resulting in a pre-tax gain of $23.1 million ($14.4 million after tax, or $0.51 per diluted common share). The proceeds of these sales were used to reduce debt. The effective tax rate of 31.8 percent for the first quarter of 2000 was slightly below the 32.6 percent rate in first quarter 1999. The effective tax rates continue to be below U.S. statutory rates, resulting from the lower tax rates in effect for foreign subsidiaries and various tax credits. NET INCOME Net income for the first quarter of 2000 was $35.5 million, or $1.27 per diluted common share, compared to $15.1 million, or $0.54 per diluted common share, for the first quarter of 1999. First quarter 2000 included $14.4 million, or $0.51 per diluted common share, on gains from the sale of non-strategic forestland. 6

9 OTHER ITEMS The Company believes that the Northwest U.S. harvest levels achieved in first quarter 2000 were atypically high and will not be sustained over the rest of the year. Fluff pulp prices are expected to continue to increase and will further improve Specialty Pulp Products results over the next several quarters. Overall, the Company believes that, with the improving strength in many of its markets, anticipated 2000 earnings will exceed 1999 levels. LIQUIDITY AND CAPITAL RESOURCES Cash flow provided by operating activities of $53 million for the first three months of 2000 increased $3 million from 1999, primarily as a result of the improvements in net income. Cash flow provided by investing activities for the first three months of 2000 was $29 million, primarily as a result of monetizing certain non-strategic forestlands. EBITDA (defined as earnings from continuing operations before significant non-recurring items, provision for dispositions, interest expense, income taxes, depreciation, depletion, amortization and the non-cash cost of land sales) for first quarter 2000 amounted to $90 million, $31 million higher than first quarter 1999 results. Cash provided by operating activities along with cash from investing activities helped to finance capital expenditures of $23 million, dividends of $10 million, the repurchase of common shares for $3.5 million, and allowed for the repayment of $61 million of debt. Free cash flow (defined as income from continuing operations plus depreciation, depletion and amortization, deferred income taxes and changes in working capital, less custodial capital spending and prior-year dividend levels) increased $38 million to $71 million in first quarter 2000, primarily as a result of higher net income and working capital changes. The Company repurchased 85,600 of its shares during the first quarter of 2000 at an average cost of $41.39, for a total of $3.5 million. During the first quarter of 1999, the Company repurchased 37,400 shares at an average cost of $40.52 for a total of $1.5 million. At March 31, 2000, debt was $1.075 billion and the debt-to-capital ratio was 61.4 percent, compared to debt of $1.136 billion and a debt-to-capital ratio of 63.5 percent at December 31, 1999. Excluding U.S. timberland external debt, corporate debt was $360 million, a reduction of $59 million from December 31, 1999 and $102 million from March 31, 1999. The Company has unsecured credit facilities totaling $300 million, which were used as support for $52 million of outstanding commercial paper. As of March 31, 2000, Rayonier had $248 million available under its revolving credit facilities. In connection with the financing of the Smurfit forestland acquisition, Rayonier Timberlands Operating Company, L.P. (RTOC), a wholly-owned limited partnership, issued notes totaling $485 million, and entered into an agreement with a group of banks that provided RTOC with an unsecured term loan of $200 million and revolving credit facilities totaling $75 million, which expire in 2004. As of March 31, 2000 and December 31, 1999, RTOC's outstanding external debt was $715 million and $717 million, respectively. RTOC had $45 million of available borrowings under its revolving credit facilities as of March 31, 2000. In addition, the Company has on file with the Securities and Exchange Commission shelf registration statements to offer $150 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 Comments about market trends, anticipated earnings and future activities in 2000 and beyond, 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: changes in global market trends; interest rate and currency movements; fluctuations in demand for specialty chemical cellulose and fluff pulps, export and domestic logs, and wood products; the impact of such market factors on the Company's timber sales in the U.S. and New Zealand; production costs for wood products and for specialty pulps, particularly for raw materials such as wood and chemicals; governmental policies and regulations affecting the environment, import and export controls, and taxes. 7

10 ITEM 3. SELECTED OPERATING DATA Three Months Ended March 31, --------- 2000 1999 ---- ---- TIMBER AND WOOD PRODUCTS Log trading sales volume North America, in millions of board feet 62 30 New Zealand, in thousands of cubic meters 244 272 Other, in thousands of cubic meters 119 110 Timber sales volume Northwest U.S., in millions of board feet 90 65 Southeast U.S., in thousands of short green tons 999 533 New Zealand, in thousands of cubic meters 253 270 Lumber sales volume, in millions of board feet 65 56 Medium-density-fiberboard sales volume, in thousands of cubic meters 37 27 Intercompany timber sales volume Northwest U.S., in millions of board feet 20 10 Southeast U.S., in thousands of short green tons 12 7 New Zealand, in thousands of cubic meters 109 121 SPECIALTY PULP PRODUCTS Pulp sales volume Chemical cellulose, in thousands of metric tons 89 74 Fluff and specialty paper pulp, in thousands of metric tons 94 77 Production as a percent of capacity 104.0% 100.6% 8

11 SELECTED SUPPLEMENTAL FINANCIAL DATA (thousands of dollars, except per share data) Three Months Ended March 31, --------- 2000 1999 ---- ---- GEOGRAPHICAL DATA (NON-U.S.) Sales New Zealand $ 19,294 $ 18,284 Other 11,138 9,982 -------- -------- Total $ 30,432 $ 28,266 ======== ======== Operating Loss New Zealand $ (1,109) $ (1,635) Other (40) (306) -------- -------- Total $ (1,149) $ (1,941) ======== ======== FOREST RESOURCES Sales Northwest U.S. $ 34,298 $ 23,866 Southeast U.S. 27,342 16,942 New Zealand 4,558 5,362 -------- -------- Total $ 66,198 $ 46,170 ======== ======== Operating Income Northwest U.S. $ 29,629 $ 18,566 Southeast U.S. 12,885 12,463 New Zealand 1,122 998 -------- -------- Total $ 43,636 $ 32,027 ======== ======== EBITDA per share Northwest U.S. $ 1.11 $ 0.69 Southeast U.S. 0.86 0.54 New Zealand 0.14 0.14 -------- -------- Total $ 2.11 $ 1.37 ======== ======== 9

12 PART II. OTHER INFORMATION 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: GEORGE C. KAY ------------- George C. Kay Vice President and Corporate Controller (Chief Accounting Officer) May 15, 2000 10

13 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, --------- 2000 1999 --------- ------- Earnings: Net income $ 35,473 $ 15,130 ---------- ---------- Add: Income taxes 16,557 7,324 Amortization of capitalized interest 577 584 ---------- ---------- Additions to net income 17,134 7,908 ---------- ---------- Adjustments to Earnings for Fixed Charges: Interest and other financial charges 22,790 7,703 Interest factor attributable to rentals 342 438 ---------- ---------- Adjustments for fixed charges 23,132 8,141 ---------- ---------- EARNINGS AS ADJUSTED $ 75,739 $ 31,179 ========== ========== Fixed Charges: Fixed charges above $ 23,132 $ 8,141 Capitalized interest - 53 ---------- ---------- TOTAL FIXED CHARGES $ 23,132 $ 8,194 ========== ========== RATIO OF EARNINGS AS ADJUSTED TO TOTAL FIXED CHARGES 3.27 3.81 ==== ==== 12

5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 21,742 0 127,470 4,863 105,355 301,871 1,344,899 678,462 2,265,400 225,176 1,062,930 0 0 58,273 618,006 2,265,400 289,155 289,155 226,140 226,140 (11,805) 0 22,790 52,030 16,557 35,473 0 0 0 35,473 1.30 1.27