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Form 10-Q For Period Date 09/30/2002
Table of Contents

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, 2002

OR

  o 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 12 months and (2) has been subject to such filing requirements for the past 90 days.

YES x NO o

As of November 8, 2002, there were outstanding 27,717,242 Common Shares of the Registrant.


Table of Contents

RAYONIER INC.
FORM 10-Q
SEPTEMBER 30, 2002

TABLE OF CONTENTS

        PAGE
           
PART I.   FINANCIAL INFORMATION  
           
    Item l.   Condensed Consolidated Financial Statements (Unaudited)  
           
        Condensed Statements of Consolidated Income for the Three Months and Nine Months Ended September 30, 2002 and 2001 1
           
        Condensed Consolidated Balance Sheets as of September 30, 2002 and December 3l, 2001 2
           
        Condensed Statements of Consolidated Cash Flows for the Nine Months Ended September 30, 2002 and 2001 3
           
        Notes to Condensed Consolidated Financial Statements 4
           
    Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 8
           
    Item 3.   Quantitative and Qualitative Disclosures About Market Risk 14
           
    Item 4.   Controls and Procedures 15
           
PART II.   OTHER INFORMATION  
           
    Item 1.   Legal Proceedings 15
           
    Item 5.   Other Information 16
           
    Item 6.   Exhibits and Reports on Form 8-K 18

SIGNATURE 18
   
Certifications Under Exchange Act Rule 13a-14 19
   
Exhibit Index 21

 

Table of Contents

PART I.       FINANCIAL INFORMATION

Item I.      Condensed Financial Statements

RAYONIER INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(Thousands of dollars, except per share data)

Three Months Ended
September 30,		 Nine Months Ended
September 30,
2002 2001 2002 2001
                         
SALES   $ 293,105   $ 263,853   $ 831,085   $ 869,853  
                         
COSTS AND EXPENSES                          
   Cost of sales     248,144     234,878     698,195     722,315  
   Selling and general expenses     8,364     7,417     30,180     24,610  
   Other operating expense (income), net     1,348     (203 )   555     (754 )
                         
       257,856     242,092     728,930     746,171  
                         
OPERATING INCOME     35,249     21,761     102,155     123,682  
                         
Interest expense     (14,281 )   (16,431 )   (44,598 )   (52,883 )
Interest and miscellaneous income (expense), net     876     1,012     1,207     1,226  
                         
INCOME FROM CONTINUING OPERATIONS, BEFORE TAX     21,844     6,342     58,764     72,025  
                         
Provision for income taxes     (6,366 )   (344 )   (16,716 )   (22,404 )
                         
INCOME FROM CONTINUING OPERATIONS     15,478     5,998     42,048     49,621  
                         
DISCONTINUED OPERATIONS (Note 5)                          
                         
   Gain (loss) on sale of discontinued operations, net of income tax
       expense of $46, $0, $3,307 and $0		     94     —     (1,649 )   —  
   Income from discontinued operations, net of income tax expense
       of $29, $277, $768 and $664		     66     27     882     119  
                         
INCOME (LOSS) FROM DISCONTINUED OPERATIONS     160     27     (767 )   119  
                         
NET INCOME     15,638     6,025     41,281     49,740  
                         
OTHER COMPREHENSIVE INCOME (LOSS)                          
                         
   Unrealized (loss) gain on hedged transactions, net of income tax
       benefit (expense) of $290, $123, ($184) and $123		     (516 )   (209 )   327     (209 )
                         
COMPREHENSIVE INCOME   $ 15,122   $ 5,816   $ 41,608   $ 49,531  
                         
EARNINGS (LOSS) PER COMMON SHARE                          
                         
   BASIC EARNINGS (LOSS) PER SHARE                          
     Continuing operations   $ 0.55   $ 0.22   $ 1.52   $ 1.83  
     Discontinued operations     0.01     —     (0.03 )   —  
     Net income   $ 0.56   $ 0.22   $ 1.49   $ 1.83  
                         
   DILUTED EARNINGS (LOSS) PER SHARE                          
     Continuing operations   $ 0.55   $ 0.22   $ 1.49   $ 1.80  
     Discontinued operations     0.01     —     (0.03 )   —  
     Net income   $ 0.56   $ 0.22   $ 1.46   $ 1.80  

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these consolidated statements.

1

Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of dollars)

September 30,
2002		 December 31,
2001
ASSETS              
CURRENT ASSETS              
   Cash and cash equivalents   $ 41,294   $ 14,123  
   Accounts receivable, less allowance for doubtful accounts of $2,966 and $3,392     100,395     101,480  
   Inventory              
     Finished goods     56,199     55,530  
     Work in process     7,096     8,570  
     Raw materials     10,330     9,636  
     Manufacturing and maintenance supplies     16,847     17,274  
       Total inventory     90,472     91,010  
   Note receivable     46,500     —  
   Timber purchase agreements     15,532     18,996  
   Other current assets     7,927     9,451  
     Total current assets     302,120     235,060  
OTHER ASSETS     73,683     77,448  
TIMBER, TIMBERLANDS AND LOGGING ROADS, NET OF DEPLETION
    AND AMORTIZATION		     1,032,260     1,131,723  
PROPERTY, PLANT AND EQUIPMENT              
   Land, buildings, machinery and equipment     1,358,389     1,371,550  
   Less - accumulated depreciation     814,663     790,769  
     Total property, plant and equipment, net     543,726     580,781  
TOTAL ASSETS   $ 1,951,789   $ 2,025,012  
LIABILITIES AND SHAREHOLDERS’ EQUITY              
CURRENT LIABILITIES              
   Accounts payable   $ 64,301   $ 65,247  
   Bank loans and current maturities     77,980     7,600  
   Accrued taxes     13,467     13,606  
   Accrued payroll and benefits     15,903     14,471  
   Accrued interest     18,464     6,391  
   Accrued customer incentives     9,137     12,935  
   Other current liabilities     12,401     17,360  
   Current reserves for dispositions     12,065     15,310  
     Total current liabilities     223,718     152,920  
DEFERRED INCOME TAXES     146,942     131,723  
LONG-TERM DEBT     650,843     842,205  
NON-CURRENT RESERVES FOR DISPOSITIONS     150,152     153,394  
OTHER NON-CURRENT LIABILITIES     43,610     35,976  
SHAREHOLDERS’ EQUITY              
   Common Shares, 60,000,000 shares authorized, 27,717,242 and 27,345,395 shares
       issued and outstanding		     75,775     59,721  
   Retained earnings     661,124     649,775  
   Accumulated other comprehensive income (loss)     (375 )   (702 )
       736,524     708,794  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 1,951,789   $ 2,025,012  

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these consolidated statements.

2

Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Thousands of dollars)

Nine Months Ended
September 30,
2002 2001
OPERATING ACTIVITIES              
Income from continuing operations   $ 42,048   $ 49,621  
Non-cash items included in income:              
   Depreciation, depletion and amortization     120,422     134,759  
   Deferred income taxes     8,807     1,391  
   Non-cash cost of land sales     8,239     8,715  
Increase in other non-current liabilities     11,505     3,475  
Change in accounts receivable, inventory and accounts payable     (3,533 )   270  
Decrease in current timber purchase agreements and other current assets     5,198     18,752  
Decrease in other assets     4,896     5,760  
Increase (decrease) in accrued liabilities     8,265     (6,030 )
Expenditures for dispositions, net of tax benefits of $2,337 and $2,454     (4,150 )   (4,126 )
   Cash provided by operating activities of continuing operations     201,697     212,587  
             
INVESTING ACTIVITIES              
Capital expenditures, net of sales and retirements of $245 and $153     (57,106 )   (56,567 )
   Cash used for investing activities of continuing operations     (57,106 )   (56,567 )
             
FINANCING ACTIVITIES              
Issuance of debt     45,110     147,500  
Repayment of debt     (167,710 )   (265,675 )
Dividends paid     (29,932 )   (29,384 )
Repurchase of common shares     (3,144 )   (2,031 )
Issuance of common shares     14,225     6,864  
   Cash used for financing activities of continuing operations     (141,451 )   (142,726 )
             
CASH PROVIDED BY DISCONTINUED OPERATIONS     24,031     2,509  
             
CASH AND CASH EQUIVALENTS              
Increase in cash and cash equivalents     27,171     15,803  
Balance, beginning of period     14,123     9,824  
Balance, end of period   $ 41,294   $ 25,627  
             
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:              
Cash paid during the period for:              
   Interest   $ 30,439   $ 44,944  
   Income taxes   $ 8,596   $ 17,513  
             
NON-CASH INVESTING AND FINANCING ACTIVITIES:              
Note receivable from sale of New Zealand East Coast operations (Note 5)   $ 52,500   $ —  

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these consolidated statements.

3

Table of Contents

RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands unless otherwise stated)

1.       BASIS OF PRESENTATION

  The unaudited condensed consolidated financial statements reflect, in the opinion of Rayonier Inc. and its subsidiaries (collectively “Rayonier” or “the Company”), all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results of operations, the financial position and the cash flows for the periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of certain estimates by management in determining the amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. There are risks inherent in estimating, and therefore, actual results could differ from those estimates. For a full description of the Company’s significant accounting policies, please refer to the Notes to Consolidated Financial Statements in the 2001 Annual Report on Form 10-K.

  New Accounting Standards

  In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement nullifies Emerging Issues Task Force No. 94-3 and requires that a liability for a cost associated with an exit or disposal activity be recognized only when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company will adopt the standard effective January 1, 2003.

  Reclassifications

  Certain items in prior year’s condensed consolidated financial statements have been reclassified to conform to the current year presentation.

2.       EARNINGS PER COMMON SHARE

  The following table provides details of the calculation of basic and diluted earnings per common share (share and earnings per share amounts actual):

Three Months Ended
September 30,		 Nine Months Ended
September 30,
2002 2001 2002 2001
Income from continuing operations   $ 15,478   $ 5,998   $ 42,048   $ 49,621  
Income (loss) from discontinued operations     160     27     (767 )   119  
Net income   $ 15,638   $ 6,025   $ 41,281   $ 49,740  
                         
Shares used for determining basic earnings per
    common share		     27,753,428     27,266,368     27,669,720     27,186,767  
Dilutive effect of:                          
   Stock options     197,858     221,935     283,511     210,930  
   Contingent shares     250,000     202,000     250,000     202,000  
                         
Shares used for determining diluted earnings per
    common share		     28,201,286     27,690,303     28,203,231     27,599,697  
Basic earnings (loss) per common share                          
   Continuing operations   $ 0.55   $ 0.22   $ 1.52   $ 1.83  
   Discontinued operations     0.01     —     (0.03 )   —  
   Net income   $ 0.56   $ 0.22   $ 1.49   $ 1.83  
                         
Diluted earnings (loss) per common share                          
   Continuing operations   $ 0.55   $ 0.22   $ 1.49   $ 1.80  
   Discontinued operations     0.01     —     (0.03 )   —  
   Net income   $ 0.56   $ 0.22   $ 1.46   $ 1.80  

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RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands unless otherwise stated)

3.      SHAREHOLDERS’ EQUITY

  An analysis of shareholders’ equity for the nine months ended September 30, 2002, and the year ended December 31, 2001, follows (share amounts actual):

Accumulated
Other
Comprehensive
Common Shares Retained Shareholders’
Shares Amount Earnings Income/(Loss) Equity
January 1, 2001     27,104,462   $ 48,717   $ 631,384   $ —   $ 680,101  
Net income     —     —     57,598     —     57,598  
Dividends paid ($1.44 per share)     —     —     (39,207 )   —     (39,207 )
Issuance of shares under incentive stock plans     293,833     11,561     —     —     11,561  
Unrealized gain on hedged transactions     —     —     —     7     7  
Minimum pension liability adjustments     —     —     —     (709 )   (709 )
Repurchase of common shares     (52,900 )   (2,031 )   —     —     (2,031 )
Tax benefit on exercise of stock options     —     1,474     —     —     1,474  
December 31, 2001     27,345,395     59,721     649,775     (702 )   708,794  
                               
Net income     —     —     41,281     —     41,281  
Dividends paid ($1.08 per share)     —     —     (29,932 )   —     (29,932 )
Issuance of shares under incentive stock plans     441,847     16,731     —     —     16,731  
Unrealized gain on hedged transactions, net     —     —     —     327     327  
Repurchase of common shares     (70,000 )   (3,144 )   —     —     (3,144 )
Tax benefit on exercise of stock options     —     2,467     —     —     2,467  
September 30, 2002     27,717,242   $ 75,775   $ 661,124   $ (375 ) $ 736,524  

4.      SEGMENT INFORMATION

  Rayonier operates in three reportable segments: Performance Fibers, Timber and Land, and Wood Products and Trading. Total assets by segment including corporate and dispositions were as follows:

September 30,
2002		 December 31,
2001
Performance Fibers   $ 544,695   $ 576,265  
Timber and Land     1,177,831     1,210,676  
Wood Products and Trading     187,971     205,818  
Corporate and other     30,959     21,829  
Dispositions     10,333     10,424  
   Total   $ 1,951,789   $ 2,025,012  

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RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)

  The amounts and relative contributions to sales and operating income (loss) attributable to each of Rayonier’s reportable segments were as follows:

Three Months Ended
September 30,		 Nine Months Ended
September 30,
2002 2001 2002 2001
SALES                          
                         
Performance Fibers   $ 139,076   $ 136,777   $ 392,476   $ 421,532  
Timber and Land     64,075     46,403     183,479     217,849  
Wood Products and Trading     90,858     82,587     263,739     241,831  
Intersegment Eliminations     (904 )   (1,914 )   (8,609 )   (11,359 )
                         
TOTAL SALES   $ 293,105   $ 263,853   $ 831,085   $ 869,853  
                         
OPERATING INCOME (LOSS)                          
                         
Performance Fibers   $ 10,852   $ 4,652   $ 28,134   $ 32,530  
Timber and Land     32,767     21,672     93,722     113,619  
Wood Products and Trading     (4,985 )   (1,643 )   (7,425 )   (8,615 )
Corporate and other     (3,385 )   (2,920 )   (12,276 )   (13,852 )
                         
TOTAL OPERATING INCOME   $ 35,249   $ 21,761   $ 102,155   $ 123,682  

  Operating income (loss) as stated in the preceding tables and as presented in the Condensed Statements of Consolidated Income is equal to Segment income (loss). The income (loss) items below “Operating income” in the Condensed Statements of Consolidated Income are not allocated to segments. These items, which include interest (expense) income, miscellaneous income (expense) and income tax (expense) benefit, are not considered by Company management to be part of segment operations.

5.      DISCONTINUED OPERATIONS

  During the second quarter of 2002, the Company sold its New Zealand East Coast timber operations and associated assets for $64.4 million. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the sale and results of operations were recorded as discontinued operations. The agreement called for an initial down payment with the balance to be paid in monthly installments by December 30, 2002. As of September 30, 2002, the Company received $17.9 million from the sale, while cash flow from the operation totaled $6.1 million for the first nine months of 2002 and $2.5 million for the same period in 2001. The Company recorded an after-tax loss from discontinued operations of approximately $0.8 million or $0.03 per share in the first nine months of 2002, consisting of an after-tax loss of approximately $1.7 million from the sale, net of after-tax income from East Coast operations of $0.9 million. The Condensed Statements of Consolidated Income, Condensed Statements of Consolidated Cash Flows and related Notes have been reclassified to present the East Coast operations as a discontinued operation. The East Coast operations and associated assets were previously reported in the Company’s Timber and Land and Wood Products and Trading segments.

  On October 23, 2002, the purchaser (Huaguang Forests Co. Limited of China, “Huaguang”) of the New Zealand East Coast timber operations prepaid the outstanding $46.5 million note receivable.

6

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RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands unless otherwise stated)

  Operating results of the discontinued operation are summarized below:

Three Months Ended
September 30,		 Nine Months Ended
September 30,
2002 2001 2002 2001
Net sales   $ —   $ 11,107   $ 19,011   $ 27,957  
Operating income $ 95 $ 304 $ 1,650 $ 783
Net income from discontinued operations $ 66 $ 27 $ 882 $ 119

  The Condensed Consolidated Balance Sheets, which have not been reclassified, include assets and liabilities of discontinued operations as follows:

September 30,
2002		 December 31,
2001
             
Current assets   $ 62   $ 4,017  
Long-term assets     —     65,822  
   Total assets     62     69,839  
Current liabilities     161     1,350  
Other liabilities     —     1,366  
   Net (liabilities) assets of discontinued operations   $ (99 ) $ 67,123  

  A provision in the Company’s original agreement to purchase the East Coast property from the New Zealand government requires the Company, in the event of a sale, to guarantee five years of Crown Forest license obligations, estimated at $1.2 million per year. However, Huaguang is the primary obligor and as such, has posted a performance bond with the New Zealand government.

6.       FINANCIAL INSTRUMENTS

  The Company is exposed to various market risks, including changes in commodity prices, interest rates and foreign exchange rates. The Company’s objective is to minimize the economic impact of these market risks. Derivatives are used, as noted below, in accordance with policies and procedures approved by the Finance Committee of the Board of Directors and are managed by a senior executive committee, whose responsibilities include initiating, managing and monitoring resulting exposures. The Company does not enter into such financial instruments for trading purposes.

  In our New Zealand timber operations and at our New Zealand medium density fiberboard (“MDF”) manufacturing facility, certain normal operating expenses, including salaries and wages, wood purchases, contractor and license fees, care and maintenance of timberlands and other production costs incurred in manufacturing MDF, are denominated in New Zealand dollars. Rayonier hedges U.S./New Zealand dollar currency rate-risk with respect to these operating expenditures (cash flow hedging).

  In the Company’s Condensed Statements of Consolidated Income for the three and nine months ended September 30, 2002, gains of approximately $0.6 million and $1.0 million, respectively, were recorded on foreign currency contracts reflecting primarily realized gains on contracts that matured, plus the time value changes for outstanding contracts. The Company had mark to market after-tax gains on foreign currency contracts of approximately $0.3 million in “Accumulated other comprehensive income (loss)” (“AOCI”) in the Condensed Consolidated Balance Sheet recorded as of September 30, 2002. When the forecasted transactions come to fruition and are recorded, the amounts in AOCI are reclassified to the Condensed Statements of Consolidated Income. We expect to reclassify the AOCI amount into earnings during the next ten months.

  At September 30, 2002, the Company held foreign currency forward contracts maturing through July 2003 totaling a nominal value of $8.0 million. The largest nominal amount of contracts outstanding during the first nine months of 2002 totaled $13.1 million.

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RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands unless otherwise stated)

  In March 2002, the Company entered into an interest rate swap on $50 million of 6.15% fixed rate notes payable maturing in February 2004. The swap converts interest payments from fixed rates to floating rates and matures in February 2004. The interest rate swap qualifies as a fair value hedge under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. As such, the net effect from the interest rate swap is recorded as part of interest expense. The swap agreement settles every May 15, and November 15, until maturity. During the three and nine months ended September 30, 2002, this swap agreement reduced the Company’s interest expense by $0.3 million and $0.5 million, respectively. Based upon current interest rates for similar transactions, the fair value of the interest rate swap agreement resulted in an asset of approximately $1.6 million and a corresponding increase in debt at September 30, 2002.

  On October 15, 2002, the Company paid off the remaining $78 million of outstanding 7.5% notes utilizing $63 million in available cash and $15 million from its credit line. The $78 million was recorded in “Bank loans and current maturities” in the September 30, 2002, Condensed Consolidated Balance Sheet. The Company has subsequently repaid the $15 million in short-term credit line borrowings.

7.       LEGAL PROCEEDINGS

  Between 1985 and 1995, the Company sent contaminated soil excavated in connection with the cleanup of various closed wood processing sites to a third-party processor for recycling. The processing facility closed in 1995 and is the subject of a variety of environmental related charges by the EPA and the Louisiana Department of Environmental Quality. Also in dispute is disposal liability for approximately 150,000 tons of recycled material from Company sites that are still owned and retained by the processor. A consent decree was entered in 1998 approving sale of the processing facility and assumption by the buyer of responsibility for movement of all remaining recycled material to a landfill. The parties have been unable to complete the sale and the consent decree was vacated in May 2002. As a result, the status of the sale of the facility and ultimate responsibility for removal and disposal of the recycled material on-site are now uncertain. There are numerous possible outcomes, including the purchase of the facility by a third-party recycler, that will determine the Company’s ultimate liability, if any. None of these outcomes are considered sufficiently probable at this time to warrant the recognition of a liability in the Company’s financial statements. The Company is unable to formulate a range of possible losses. As such, the final outcome could have a material adverse effect on the Company’s results of operations.

  PART I.     FINANCIAL INFORMATION

  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  Critical Accounting Policies

  The preparation of Rayonier’s consolidated financial statements requires estimates, assumptions and judgements that affect the Company’s assets, liabilities, revenues and expenses. The Company bases these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information it believes are reasonable. Actual results may differ from these estimates under different conditions. For a full description of the Company’s critical accounting policies, see the Management Discussion and Analysis in the 2001 Annual Report on Form 10-K.

  Pension Liabilities

  The severe decline in the U.S. equity markets has reduced the value of the Company’s pension plan assets and lower interest rates have increased the net present value of accumulated benefit obligations. At September 30, 2002, the Company’s plans were underfunded (projected benefit obligation in excess of the fair market value of the plan assets) by approximately $68 million versus $16 million at December 31, 2001. As a result, assuming plan asset values and interest rates remain at September 30, 2002 levels, the Company would be required at year-end to record a non-cash, after-tax charge to Shareholders’ Equity of approximately $30 to $35 million for minimum pension fund liabilities. Under such circumstances, and taking into account expected changes in key pension assumptions, pension expense for 2003 would increase approximately $3 to $4 million from 2002 and 2001 levels of $3.4 million. The required cash contribution for plan year 2003 would then be $10 to $11 million, which can be funded no later than September 15, 2004, although the Company may elect to contribute such amount in 2003. The Company contributed $0.6 million during the first nine months of 2002 and $20.8 million during 2001.

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Segment Information

Rayonier operates in three reportable segments: Performance Fibers, Timber and Land, and Wood Products and Trading. Performance Fibers includes two business units, Cellulose Specialties and Absorbent Materials. The Timber and Land segment includes two business units, Timber and Land.

The amounts and relative contributions to sales and operating income (loss) attributable to each of Rayonier’s reportable business segments were as follows (thousands of dollars):

Three Months Ended
September 30,		 Nine Months Ended
September 30,
2002 2001 2002 2001
                         
SALES                          
                         
Performance Fibers                          
   Cellulose Specialties   $ 97,449   $ 96,108   $ 274,633   $ 281,993  
   Absorbent Materials     41,627     40,669     117,843     139,539  
   Total Performance Fibers     139,076     136,777     392,476     421,532  
                         
Timber and Land                          
   Timber     35,780     39,000     123,528     146,989  
   Land     28,295     7,403     59,951     70,860  
   Total Timber and Land     64,075     46,403     183,479     217,849  
Wood Products and Trading     90,858     82,587     263,739     241,831  
Intersegment Eliminations     (904 )   (1,914 )   (8,609 )   (11,359 )
TOTAL SALES   $ 293,105   $ 263,853   $ 831,085   $ 869,853  
                         
OPERATING INCOME (LOSS)                          
                         
Performance Fibers   $ 10,852   $ 4,652   $ 28,134   $ 32,530  
                         
Timber and Land                          
   Timber     14,175     16,100     55,794     72,862  
   Land     18,592     5,572     37,928     40,757  
   Total Timber and Land     32,767     21,672     93,722     113,619  
Wood Products and Trading     (4,985 )   (1,643 )   (7,425 )   (8,615 )
Corporate and other     (3,385 )   (2,920 )   (12,276 )   (13,852 )
TOTAL OPERATING INCOME   $ 35,249   $ 21,761   $ 102,155   $ 123,682  

Operating income (loss) as stated in the preceding tables and as presented in the Condensed Statements of Consolidated Income is equal to Segment income (loss). The income (loss) items below “Operating income” in the Condensed Statements of Consolidated Income are not allocated to segments. These items, which include interest (expense) income, miscellaneous income (expense) and income tax (expense) benefit, are not considered by Company management to be part of segment operations.

Results of Operations

Sales and Operating Income

Sales and operating income for the third quarter of 2002 of $293 million and $35 million were $29 and $13 million, respectively, above the comparable period in the prior year. The sales increase was primarily due to higher land sales and improved trading activity, partly offset by lower performance fibers and lumber prices. Operating income improved mainly due to higher land sales and lower performance fibers manufacturing costs, partly offset by weaker performance fibers and lumber prices.

Sales and operating income of $831 million and $102 million for the nine months ended September 30, 2002 were $39 million and $22 million, respectively, below the same period in the prior year. Sales decreased due to lower performance fibers volume and

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prices, and reduced Southeast U.S. timber volume and land sales. This was partly offset by increased lumber volume and trading activity. Operating income was lower due to weaker performance fibers prices, U.S. timber prices and Southeast U.S. timber volume, partly offset by favorable performance fibers and lumber manufacturing costs.

Performance Fibers

Sales for the third quarter of 2002 were $139 million, $2 million above the prior year third quarter due to higher volumes, partly offset by lower prices. Operating income for the third quarter of 2002 of $11 million was $6 million above the prior year third quarter due to reduced manufacturing costs, partly offset by lower prices. Fluff pulp prices during the third quarter of 2002 were 4 percent below the third quarter of 2001.

Sales for the nine months ended September 30, 2002, were $392 million, $29 million below the same period in the prior year due to lower volumes and absorbent material prices. Operating income for the nine months ended September 30, 2002, was $28 million, $4 million below the same period in the prior year due to lower absorbent materials prices, partly offset by favorable manufacturing costs.

  Cellulose Specialties

  Sales of $97 million for the third quarter of 2002 were $1 million above the prior year third quarter. While prices declined by 2 percent due to a change in product mix, there was a 4 percent increase in volume. Sales of $275 million for the nine months ended September 30, 2002, were $7 million below the same period in the prior year, primarily due to a 1 percent decrease in price and volume. Prices for acetate fibers (our principal cellulose specialties product) remained steady; however, prices for other cellulose based products declined slightly.

  Absorbent Materials

  Sales of $42 million for the third quarter of 2002 were $1 million above the prior year third quarter due to an 8 percent increase in volume, partly offset by a 6 percent decline in average fluff pulp prices. Sales of $118 million for the nine months ended September 30, 2002, were $22 million below the same period in the prior year as prices declined 14 percent and sales volumes declined 3 percent. Fluff pulp prices are impacted by commodity paper pulp prices, which declined during 2001 and have remained at depressed levels during 2002 due to the sluggish global economy.

Timber and Land

Sales of $64 million and operating income of $33 million for the third quarter of 2002 were $18 million and $11 million above the prior year third quarter, respectively, due to higher land sales, partly offset by lower timber sales volume.

Sales and operating income of $183 million and $94 million for the nine months ended September 30, 2002, were $34 million and $20 million, respectively, below the same period in the prior year. These decreases were principally due to lower Southeast U.S. timber volumes and land sales and weaker U.S. timber prices.

  Timber

  Sales for the third quarter of 2002 were $36 million, $3 million below the prior year third quarter due to a 23 percent decrease in timber volume in the Northwest U.S. and a 4 percent reduction in Southeast U.S. pine prices. Operating income of $14 million for the third quarter of 2002 was $2 million below the prior year third quarter primarily due to lower U.S. timber volume and Southeast U.S. timber prices, partly offset by higher New Zealand timber prices and the favorable impact of balance sheet related foreign exchange translation. Sales of $124 million and operating income of $56 million for the nine months ended September 30, 2002, were $23 million and $17 million below the same period in the prior year, respectively. These decreases were due to price declines in the U.S. and an 18 percent decline in Southeast U.S. timber volume, partly offset by an 11 percent increase in New Zealand timber prices.

  Land

  Sales for the third quarter of 2002 of $28 million and operating income of $19 million increased $21 million and $13 million, respectively, from the prior year third quarter primarily due to the timing of sales in 2002. Sales of $60 million for the nine months ended September 30, 2002, were $11 million below the same period in the prior year primarily due to the $59 million major sale that occurred in 2001, partly offset by an increase in higher and better use

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  sales. Operating income of $38 million for the nine months ended September 30, 2002, was $3 million below the same period in the prior year due to lower sales. Sales and operating income can fluctuate materially from period to period due to the unpredictability of the closing process of real estate transactions.

Wood Products and Trading

Sales for the third quarter of 2002 were $91 million compared to $83 million in the prior year third quarter. The operating results for the third quarter of 2002 were a loss of $5 million, compared with a loss of $2 million in the prior year third quarter. Despite improved sales, the operating loss increased as higher trading activity was more than offset by lower lumber prices. The enactment of a countervailing and anti-dumping duty on Canadian imports in the second quarter of 2002 has not resulted in a decline in Canadian lumber imports and U.S. lumber prices continue to be adversely impacted. The Company does not expect any significant, near-term improvement in lumber markets and profitability.

Sales for the nine months ended September 30, 2002, of $264 million were $22 million above the same period in the prior year. The increase was due to a 27 percent increase in lumber volume and higher trading activity, partly offset by a 4 percent decrease in lumber prices. The operating loss of $7 million for the nine months ended September 30, 2002, was a $1 million improvement over the loss in the same period in the prior year. This was due to lower lumber manufacturing costs and improved trading margins partly offset by lower lumber prices.

Corporate and Other

Corporate and Other expenses of $3 million for the third quarter of 2002 were slightly above the third quarter of 2001 due to the unfavorable impact of balance sheet related foreign exchange translation. Corporate and Other expenses for the nine months ended September 30, 2002, were $12 million, $2 million below the same period in the prior year. The decrease primarily resulted from the favorable impact of balance sheet related foreign exchange translation partly offset by higher stock-price based incentive compensation.

Other Income / Expense

Interest expense for the third quarter of 2002 was $14 million, a decrease of $2 million from the prior year third quarter mainly due to lower debt. Interest expense for the nine months ended September 30, 2002, was $45 million compared to $53 million for the same period in the prior year due to lower debt and slightly lower rates.

The effective tax rate for the third quarter of 2002 was 29.1 percent compared to 5.5 percent for the prior year third quarter, which was unusually low primarily due to the positive catch-up effect of re-estimating the annual effective tax rate at that time. The effective tax rate for the nine months ended September 30, 2002, was 28.4 percent compared to 31.1 percent for the same period in the prior year. During the third quarter and the nine months ended September 30, 2002, the Company’s effective tax rate continued to be below the U.S. statutory levels primarily due to lower taxes on foreign operations and research and development tax credits.

The following table reconciles the Company’s income tax provision at the U.S. statutory tax rate to the reported provision and effective tax rate for the first nine months of 2002 and 2001 (in millions):

Nine months ended September 30,
2002 % 2001 %
Income tax provision from continuing operations at U.S. statutory rate   $ 20.6     35.0   $ 25.2     35.0  
State and local taxes, net of foreign tax benefit     0.5     0.8     0.8     1.1  
Foreign operations     (0.8 )   (1.3 )   (0.8 )   (1.1 )
Foreign sales corporations     (1.9 )   (3.3 )   (2.3 )   (3.2 )
Permanent differences     —     —     0.1     0.2  
Research and development tax credits, net     (2.1 )   (3.6 )   (0.9 )   (1.3 )
Other     0.4     0.8     0.3     0.4  
Income tax provision from continuing operations as reported   $ 16.7     28.4   $ 22.4     31.1  

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Income from Continuing Operations

Income from continuing operations for the third quarter of 2002 was $15 million, or $0.55 per diluted common share, compared to $6 million, or $0.22 per diluted common share, for the prior year third quarter. The increase is primarily due to higher land sales, reduced performance fibers manufacturing costs and interest expense, partly offset by lower lumber and performance fibers prices. Income from continuing operations of $42 million, or $1.49 per diluted common share, for the nine months ended September 30, 2002, was $8 million, or $0.31 per share, below the same period in the prior year. The decrease was due to lower performance fibers and timber prices, and reduced timber harvest volume, partly offset by a decline in interest expense.

Income (loss) from Discontinued Operations

The Company had income of $0.2 million or $0.01 per share from discontinued operations in the third quarter of 2002, due to post-closing adjustments related to the second quarter sale of the New Zealand East Coast timber operations. For the nine months ended September 30, 2002, the loss from discontinued operations was $0.8 million or $0.03 per share.

Other Items

The Company expects fourth quarter 2002 earnings to be lower than third quarter primarily due to the timing of land sales and higher chemical, fuel and other manufacturing costs in our performance fibers segment.

Liquidity and Capital Resources

Cash Flow

Cash flow provided by operating activities from continuing operations of $202 million for the nine months ended September 30, 2002, was $11 million below the same period in the prior year, primarily due to lower income and higher working capital requirements. Cash provided by operating activities from continuing operations for the nine months ended September 30, 2002, financed almost all of the Company’s capital expenditures of $57 million, dividends of $30 million and debt payments of $123 million (net). Cash flow used for financing activities for the nine months ended September 30, 2002, was slightly less than the prior year period as a result of additional new capital from the exercise of stock options, partly offset by higher debt repayments (net) and share repurchases. The Company repurchased 70,000 of its common shares during the nine months ended September 30, 2002, for $3 million compared to 52,900 shares repurchased for $2 million in the first nine months of 2001. Cash from discontinued operations provided an additional $24 million during the first nine months of 2002 versus $3 million from the same period in the prior year. On September 30, 2002, the Company had cash investments of $35 million, an increase of $28 million from year-end. The cash investments consisted of marketable securities with maturities at date of acquisition of 90 days or less.

On October 23, 2002, the purchaser (Huaguang Forests Co. Limited of China, “Huaguang”) of the New Zealand East Coast timber operations prepaid the outstanding $46.5 million note receivable.

The discussion below is presented to enhance the reader’s understanding of Rayonier’s ability to generate cash, its liquidity and its ability to satisfy rating agency and creditor requirements. This information includes two measures of financial results: EBITDA and Free Cash Flow. EBITDA is 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. Free Cash Flow is defined as cash provided by operating activities of continuing operations less net custodial capital spending, dividends at prior year level and the tax benefit on the exercise of stock options. This definition has been modified from prior periods to exclude the change in cash and cash equivalents. These two measures are not defined by Generally Accepted Accounting Principles (“GAAP”). The discussion of EBITDA and Free Cash Flow is not intended to conflict with or change any of the GAAP disclosures described above, but to provide supplementary information that management deems to be relevant to analysts, investors and creditors. EBITDA and Free Cash Flow as defined may not be comparable to similarly titled measures reported by other companies.

EBITDA for the third quarter of 2002 was $81 million, $20 million above the prior year third quarter. The increase was primarily due to higher land sales and lower performance fibers manufacturing costs. EBITDA for the nine months ended September 30, 2002, was $232 million, $36 million below the same period in the prior year primarily due to lower land sales, a decline in performance fibers prices and a decrease in U.S. timber volume and prices, partly offset by a reduction in performance fibers manufacturing costs.

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Below is a reconciliation of Income from Continuing Operations to EBITDA for the respective periods (in millions except diluted per share amounts):

Three months ended September 30,
2002 Per Share 2001 Per Share
Income from Continuing Operations   $ 15.6     0.55   $ 6.0     0.22  
Add: Income tax expense     6.3     0.22     0.4     0.01  
        Interest expense     14.3     0.51     16.4     0.59  
        Depreciation, depletion and amortization     40.2     1.44     38.0     1.36  
        Non-cash cost of land sales     4.9     0.17     0.5     0.02  
EBITDA   $ 81.3     2.89   $ 61.3     2.20  

Nine months ended September 30,
2002 Per Share 2001 Per Share
Income from Continuing Operations   $ 42.1     1.49   $ 49.6     1.80  
Add: Income tax expense     16.7     0.59     22.4     0.81  
        Interest expense     44.6     1.58     52.9     1.92  
        Depreciation, depletion and amortization     120.4     4.28     134.8     4.87  
        Non-cash cost of land sales     8.2     0.29     8.7     0.32  
EBITDA   $ 232.0     8.23   $ 268.4     9.72  

Free Cash Flow for the nine months ended September 30, 2002, was $120 million, $18 million below the same period in the prior year. The decrease resulted from lower income and higher working capital requirements.

Below is a reconciliation of Cash Provided by Operating Activities of Continuing Operations to Free Cash Flow for the respective periods (in millions except diluted per share amounts):

Nine months ended September 30,
2002 2001
Cash provided by Operating Activities of              
   Continuing Operations   $ 201.7   $ 212.6  
   Custodial capital spending, net     (49.6 )   (45.5 )
   Dividends at prior year level     (29.9 )   (29.4 )
   Tax benefit on exercise of stock options     (2.5 )   —  
Free Cash Flow   $ 119.7   $ 137.7  
Free Cash Flow per share   $ 4.24   $ 4.99  

Debt

At September 30, 2002, debt was $729 million, representing a reduction of $121 million from December 31, 2001. The debt-to-capital ratio was 49.7 percent compared with 54.5 percent at December 31, 2001, while net debt, defined as debt less cash invested, of $694 million at September 30, 2002, resulted in a net debt-to-capital ratio of 48.5 percent. Although net debt is not a measure defined by GAAP, it is provided as supplementary information relevant to analysts, investors and creditors.

On October 15, 2002, the Company paid off the remaining $78 million of outstanding 7.5% notes utilizing $63 million in available cash and $15 million from its credit lines. The $78 million was recorded in “Bank loans and current maturities” in the September 30, 2002, Condensed Consolidated Balance Sheet. The Company subsequently repaid the $15 million in short-term credit line borrowings. At September 30, 2002, Rayonier had $275 million available under its committed revolving credit facilities. The Company plans to reduce its revolving credit facilities from $300 million to $245 million effective November 18, 2002.

In conjunction with the Company’s long-term debt, certain covenant restrictions are required on the ratio of EBITDA to interest expense and EBITDA to total debt. In addition, there are covenant requirements in effect for Rayonier Timberlands Operating Company, L.P. (“RTOC”) on the ratio of cash flow available for fixed charges to fixed charges and the ratio of debt to cash flow available for fixed charges. The covenants listed below are calculated on a trailing 12-month basis.

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The most restrictive long-term debt covenants in effect for Rayonier as of September 30, 2002, were as follows:

Covenant
Requirement		 Actual ratio at
September 30, 2002
             
EBITDA to consolidated interest expense should not be less than     2.50 to 1          4.83 to 1          
Total debt to EBITDA should not exceed     4.00 to 1          2.61 to 1          
Consolidated cash flow available for fixed charges to consolidated fixed
    charges should not be less than		     1.65 to 1          2.25 to 1          
Consolidated debt to consolidated cash flow available for fixed charges may
    not exceed		     4.25 to 1          3.16 to 1          

In addition to the covenants listed above, the credit agreements include customary covenants that limit the incurrence of debt, the disposition of assets and the making of certain payments between RTOC and Rayonier. The Company is currently in compliance with all of these covenants.

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.

During the second quarter of 2002, the Company guaranteed five years of Crown forest timberland lease obligations estimated at $1.2 million per year in conjunction with the sale of its New Zealand East Coast operations. See Note 5 “Discontinued Operations” in the Notes to the Condensed Consolidated Financial Statements for additional information regarding the guarantee. No other material changes in guarantees or financial instruments such as letters of credit and surety bonds occurred during the first nine months of 2002.

New Accounting Standards

In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement nullifies Emerging Issues Task Force No. 94-3 and requires that a liability for a cost associated with an exit or disposal activity be recognized only when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company will adopt the standard effective January 1, 2003.

PART I.      FINANCIAL INFORMATION

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Market Risk

The Company is exposed to various market risks, including changes in commodity prices, foreign exchange rates and interest rates. The Company’s objective is to minimize the economic impact of these market risks. Derivatives are used in accordance with policies and procedures approved by the Finance Committee of the Board of Directors and are managed by a senior executive committee whose responsibilities include initiating, managing and monitoring resulting exposures. The Company does not enter into financial instruments for trading purposes. See Note 6 “Financial Instruments” included in this Form 10-Q.

The fair market value of long-term fixed interest rate debt is subject to interest rate risk; however, Rayonier intends to hold most of its debt until maturity. During the first quarter of 2002, the Company entered into an interest rate swap in order to achieve a desired ratio of fixed and floating interest rates in its portfolio. As of September 30, 2002, the interest rate swap’s fair market value resulted in an asset of $1.6 million and a comparable increase in debt. Generally, the fair market value of fixed-interest rate debt will increase as interest rates fall and decrease as interest rates rise.

Circumstances surrounding the Company’s exchange rate risk, commodity price risk and interest rate risk remain unchanged from December 31, 2001. For a full description of the Company’s market risk, please refer to Item 7, Management Discussion and Analysis of Financial Condition and Results of Operations, in the 2001 Annual Report on Form 10-K.

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Safe Harbor

Comments about market trends; anticipated earnings, manufacturing costs, pension expenses and funding, timing of land sales and repayment of borrowings are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 and world events; interest rate and currency movements; changes in capital markets; fluctuations in demand for cellulose specialties, absorbent materials, timber and wood products; adverse weather conditions; changes in production costs for wood products and performance fibers, particularly for raw materials such as wood, energy and chemicals; unexpected delays in the closing of land sale transactions; and implementation or revision of governmental policies and regulations affecting the environment, import and export controls and taxes. For additional factors that could impact future results, please see the Company’s 2001 Annual Report on Form 10-K on file with the Securities and Exchange Commission.

Item 4.    Controls and Procedures

On November 4, 2002, the Company’s disclosure committee met with the Chief Executive Officer and the Chief Financial Officer (the “certifying officers”) to evaluate the Company’s disclosure controls and procedures. Based on such evaluation, the certifying officers concluded that the Company’s disclosure controls and procedures are well designed and effective in seeing that material information regarding the Company is promptly made available to senior management, including the certifying officers, in order to allow the Company to meet its reporting requirements under the Securities Exchange Act of 1934 in a timely manner. The Company’s disclosure committee met with the Chief Executive Officer and the Chief Financial Officer again on November 13, 2002, to finalize disclosure in this Form 10-Q.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their most recent evaluation.

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

Please refer to this Item in the Company’s Form 10-Q for the quarterly period ended June 30, 2002.

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ITEM 5(a).       SELECTED OPERATING INFORMATION*

Three Months Ended
September 30,		 Nine Months Ended
September 30,
2002 2001 2002 2001
Performance Fibers                          
   Sales Volume                          
     Cellulose specialties, in thousands of metric tons     114     110     319     323  
     Absorbent materials, in thousands of metric tons     75     69     211     216  
   Production as a percent of capacity     98.3 %   88.2 %   98.2 %   96.4 %
                         
Timber and Land                          
   Sales volume - Timber                          
     Northwest U.S., in millions of board feet     36     48     186     185  
     Southeast U.S., in thousands of short green tons     1,165     1,184     3,597     4,370  
     New Zealand, in thousands of metric tons **     243     213     532     551  
                         
Timber sales volume - Intercompany                          
   Northwest U.S., in millions of board feet     2     9     36     44  
   Southeast U.S., in thousands of short green tons     13     2     21     32  
   New Zealand, in thousands of metric tons **     16     9     39     34  
                         
   Acres sold     14,657     2,678     37,552     60,951  
                         
Wood Products and Trading                          
   Lumber sales volume, in millions of board feet     87     79     252     199  
   Medium-density fiberboard sales volume, in thousands of cubic
       meters		     40     37     117     113  
                         
   Log trading sales volume                          
     North America, in millions of board feet     32     42     91     128  
     New Zealand, in thousands of metric tons     91     55     251     217  
     Other, in thousands of cubic meters     46     31     250     263  

    *   Prior period amounts were reclassified to reflect the New Zealand East Coast operations as discontinued operations.

    **   2001 volume restated from cubic meters to metric tons.

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ITEM 5 (a). SELECTED OPERATING DATA * (millions of dollars, except per share data)

Three Months Ended
September 30,		 Nine Months Ended
September 30,
2002 2001 2002 2001
Geographical Data (Non-U.S.)                          
   Sales                          
     New Zealand   $ 20.2   $ 17.5   $ 57.5   $ 50.9  
     Other     8.5     5.0     33.3     30.2  
       Total   $ 28.7   $ 22.5   $ 90.8   $ 81.1  
                         
   Operating income (loss)                          
     New Zealand   $ 2.0   $ 1.3   $ 3.9   $ 1.4  
     Other     0.1     (0.8 )   (0.9 )   (1.6 )
       Total   $ 2.1   $ 0.5   $ 3.0   $ (0.2 )
                         
Timber and Land                          
   Sales                          
     Northwest U.S.   $ 9.7   $ 11.3   $ 48.3   $ 49.5  
     Southeast U.S.     48.1     28.4     116.7     152.3  
     New Zealand     6.3     6.7     18.5     16.0  
       Total   $ 64.1   $ 46.4   $ 183.5   $ 217.8  
                         
   Operating income (loss)                          
     Northwest U.S.   $ 4.8   $ 6.7   $ 33.2   $ 35.5  
     Southeast U.S.     23.7     12.4     56.9     72.3  
     New Zealand     4.3     2.6     3.6     5.8  
       Total   $ 32.8   $ 21.7   $ 93.7   $ 113.6  
                         
EBITDA per Share                          
   Performance Fibers   $ 1.02   $ 0.82   $ 2.92   $ 3.22  
   Timber and Land     2.02     1.38     5.60     6.94  
   Wood Products and Trading     (0.03 )   0.08     0.15     0.08  
   Corporate and other     (0.12 )   (0.08 )   (0.44 )   (0.52 )
       Total   $ 2.89   $ 2.20   $ 8.23   $ 9.72  

    *   Prior period amounts were reclassified to reflect the New Zealand East Coast operations as discontinued operations.

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Table of Contents
Item 6. Exhibits and Reports on Form 8-K

         (a)     See Exhibit Index

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: 
/s/ HANS E. VANDEN NOORT
November 13, 2002     Hans E. Vanden Noort
Vice President and
Corporate Controller


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CERTIFICATIONS UNDER EXCHANGE ACT RULE 13a-14

I, W. L. Nutter, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Rayonier Inc.;
     
2.   Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
     
3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
     
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

  a.   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
     
  b.   evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
     
  c.   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

  a.   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
     
  b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.   The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002      

   
/s/ W. L. NUTTER
      W. L. Nutter
Chairman, President and Chief Executive Officer, Rayonier Inc.


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I, Gerald J. Pollack, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Rayonier Inc.;
     
2.   Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
     
3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
     
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

  a.   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
     
  b.   evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
     
  c.   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

  a.   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
     
  b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.   The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002      

   
/s/ GERALD J. POLLACK
      Gerald J. Pollack
Senior Vice President and Chief Financial Officer, Rayonier Inc.


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EXHIBIT INDEX

EXHIBIT NO.   DESCRIPTION   LOCATION  
           
2   Plan of acquisition, reorganization, arrangement, liquidation or succession   None  
           
3.1   Amended and restated articles of incorporation   No amendments  
           
3.2   By-laws   No amendments  
           
4   Instruments defining the rights of security holders, including indentures   Not required to be filed. The 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 submitted to vote of security holders   None  
           
23   Consents of experts and counsel   None  
           
24   Power of attorney   None  
           
99   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   Filed herewith  


21
Ratio of Earnings to Fixed Charges

EXHIBIT 12

RAYONIER INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(Thousands of dollars)

Nine Months Ended
September 30,
2002 2001
Earnings:              
Income from continuing operations   $ 42,048   $ 49,621  
Add:              
     Income taxes     16,716     22,404  
     Amortization of capitalized interest     1,946     1,933  
    60,710     73,958  
     Adjustments to earnings for fixed charges:              
     Interest and other financial charges     44,598     52,883  
     Interest attributable to rentals     1,225     1,295  
    45,823     54,178  
             
Earnings as Adjusted   $ 106,533   $ 128,136  
             
Total Fixed Charges Above   $ 45,823   $ 54,178  
             
Ratio of Earnings as Adjusted to              
     Total Fixed Charges     2.32     2.37  

 
 
Certification

EXHIBIT 99

CERTIFICATION OF PERIODIC FINANCIAL REPORTS UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certify that this Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained herein fairly presents, in all material respects, the financial condition and results of operations of Rayonier Inc.

     
 
/s/ W. L. NUTTER		    
/s/ GERALD J. POLLACK
W. L. Nutter
Chairman, President and
Chief Executive Officer		     Gerald J. Pollack
Senior Vice President and
Chief Financial Officer

November 13, 2002