Rayonier 2012 10Q 3Q2012
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, 2012
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 No. 13-2607329
1301 RIVERPLACE BOULEVARD
JACKSONVILLE, FL 32207
(Principal Executive Office)
Telephone Number: (904) 357-9100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
| | |
Large accelerated filer x | | Accelerated filer o |
Non-accelerated filer o | | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO x
As of October 18, 2012, there were outstanding 123,205,340 Common Shares of the registrant.
TABLE OF CONTENTS
|
| | | |
Item | | | Page |
| | PART I - FINANCIAL INFORMATION | |
1. | | | |
| | | |
| | | |
| | | |
| | | |
2. | | | |
3. | | | |
4. | | | |
| | PART II - OTHER INFORMATION | |
6. | | | |
| | | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RAYONIER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
SALES | $ | 408,988 |
| | $ | 385,091 |
| | $ | 1,136,694 |
| | $ | 1,100,218 |
|
Costs and Expenses | | | | | | | |
Cost of sales | 278,651 |
| | 266,184 |
| | 794,519 |
| | 786,467 |
|
Selling and general expenses | 15,837 |
| | 15,762 |
| | 51,705 |
| | 48,187 |
|
Other operating expense (income), net (Note 15) | 1,392 |
| | (4,171 | ) | | (5,054 | ) | | (5,580 | ) |
| 295,880 |
| | 277,775 |
| | 841,170 |
| | 829,074 |
|
Equity in income of New Zealand joint venture | 66 |
| | 994 |
| | 250 |
| | 3,817 |
|
OPERATING INCOME | 113,174 |
| | 108,310 |
| | 295,774 |
| | 274,961 |
|
Interest expense | (8,253 | ) | | (12,356 | ) | | (36,133 | ) | | (38,300 | ) |
Interest and miscellaneous income, net | 234 |
| | 331 |
| | 294 |
| | 935 |
|
INCOME BEFORE INCOME TAXES | 105,155 |
| | 96,285 |
| | 259,935 |
| | 237,596 |
|
Income tax (expense) benefit | (24,595 | ) | | 8,624 |
| | (56,859 | ) | | (17,822 | ) |
NET INCOME | 80,560 |
| | 104,909 |
| | 203,076 |
| | 219,774 |
|
OTHER COMPREHENSIVE INCOME (LOSS) | | | | | | | |
Foreign currency translation adjustment | 5,373 |
| | 3,584 |
| | 3,115 |
| | 11,314 |
|
New Zealand joint venture cash flow hedges | 878 |
| | (630 | ) | | 86 |
| | (498 | ) |
Amortization of losses from pension and postretirement plans, net of income tax expense of $1,482, $1,017, $4,332 and $2,871 | 3,401 |
| | 2,261 |
| | 9,943 |
| | 6,449 |
|
Total other comprehensive income | 9,652 |
| | 5,215 |
| | 13,144 |
| | 17,265 |
|
COMPREHENSIVE INCOME | $ | 90,212 |
| | $ | 110,124 |
| | $ | 216,220 |
| | $ | 237,039 |
|
EARNINGS PER COMMON SHARE (Note 2) | | | | | | | |
Basic earnings per share | $ | 0.66 |
| | $ | 0.86 |
| | $ | 1.66 |
| | $ | 1.81 |
|
| | | | | | | |
Diluted earnings per share | $ | 0.62 |
| | $ | 0.84 |
| | $ | 1.58 |
| | $ | 1.75 |
|
| | | | | | | |
Dividends per share | $ | 0.44 |
| | $ | 0.40 |
| | $ | 1.24 |
| | $ | 1.12 |
|
See Notes to Condensed Consolidated Financial Statements.
RAYONIER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
|
| | | | | | | |
| September 30, 2012 | | December 31, 2011 |
ASSETS |
CURRENT ASSETS | | | |
Cash and cash equivalents | $ | 215,475 |
| | $ | 78,603 |
|
Accounts receivable, less allowance for doubtful accounts of $418 and $399 | 109,943 |
| | 95,008 |
|
Inventory | | | |
Finished goods | 95,026 |
| | 96,261 |
|
Work in progress | 6,421 |
| | 5,544 |
|
Raw materials | 17,337 |
| | 18,295 |
|
Manufacturing and maintenance supplies | 2,299 |
| | 1,898 |
|
Total inventory | 121,083 |
| | 121,998 |
|
Prepaid and other current assets | 78,680 |
| | 48,893 |
|
Total current assets | 525,181 |
| | 344,502 |
|
TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION | 1,489,889 |
| | 1,503,711 |
|
PROPERTY, PLANT AND EQUIPMENT | | | |
Land | 29,021 |
| | 26,917 |
|
Buildings | 143,854 |
| | 140,269 |
|
Machinery and equipment | 1,412,283 |
| | 1,355,897 |
|
Construction in progress | 218,365 |
| | 96,097 |
|
Total property, plant and equipment, gross | 1,803,523 |
| | 1,619,180 |
|
Less — accumulated depreciation | (1,173,712 | ) | | (1,157,628 | ) |
Total property, plant and equipment, net | 629,811 |
| | 461,552 |
|
INVESTMENT IN JOINT VENTURE (Note 5) | 70,189 |
| | 69,219 |
|
OTHER ASSETS | 198,798 |
| | 190,364 |
|
TOTAL ASSETS | $ | 2,913,868 |
| | $ | 2,569,348 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
CURRENT LIABILITIES | | | |
Accounts payable | $ | 91,662 |
| | $ | 72,873 |
|
Current maturities of long-term debt | 41,268 |
| | 28,110 |
|
Accrued taxes | 64,722 |
| | 5,223 |
|
Accrued payroll and benefits | 25,066 |
| | 26,846 |
|
Accrued interest | 17,401 |
| | 7,044 |
|
Accrued customer incentives | 9,620 |
| | 10,369 |
|
Other current liabilities | 28,398 |
| | 17,855 |
|
Current liabilities for dispositions and discontinued operations (Note 10) | 8,929 |
| | 9,931 |
|
Total current liabilities | 287,066 |
| | 178,251 |
|
LONG-TERM DEBT | 967,785 |
| | 819,229 |
|
NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS (Note 10) | 75,524 |
| | 80,893 |
|
PENSION AND OTHER POSTRETIREMENT BENEFITS (Note 12) | 140,153 |
| | 140,623 |
|
OTHER NON-CURRENT LIABILITIES | 25,374 |
| | 27,279 |
|
COMMITMENTS AND CONTINGENCIES (Notes 9 and 11) |
| |
|
SHAREHOLDERS’ EQUITY | | | |
Common Shares, 480,000,000 and 240,000,000 shares authorized, 123,189,001 and 122,035,177 shares issued and outstanding | 662,504 |
| | 630,286 |
|
Retained earnings | 855,766 |
| | 806,235 |
|
Accumulated other comprehensive loss | (100,304 | ) | | (113,448 | ) |
TOTAL SHAREHOLDERS' EQUITY | 1,417,966 |
| | 1,323,073 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 2,913,868 |
| | $ | 2,569,348 |
|
See Notes to Condensed Consolidated Financial Statements.
RAYONIER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2012 | | 2011 |
OPERATING ACTIVITIES | | | |
Net income | $ | 203,076 |
| | $ | 219,774 |
|
Adjustments to reconcile net income to cash provided by operating activities: | | | |
Depreciation, depletion and amortization | 102,499 |
| | 101,758 |
|
Non-cash cost of real estate sold | 3,005 |
| | 3,108 |
|
Stock-based incentive compensation expense | 12,212 |
| | 11,793 |
|
Amortization of debt discount/premium | 5,367 |
| | 6,471 |
|
Deferred income taxes | (17,688 | ) | | (5,967 | ) |
Amortization of losses from pension and postretirement plans | 14,275 |
| | 9,320 |
|
Non-cash adjustments to unrecognized tax benefit liability | — |
| | (16,000 | ) |
Other | (2,701 | ) | | (5,177 | ) |
Changes in operating assets and liabilities: | | | |
Receivables | (14,169 | ) | | (24,071 | ) |
Inventories | (646 | ) | | (8,435 | ) |
Accounts payable | (13,326 | ) | | 6,346 |
|
Income tax receivable/payable | 52,189 |
| | 29,483 |
|
All other operating activities | 16,416 |
| | 4,782 |
|
Expenditures for dispositions and discontinued operations | (6,867 | ) | | (6,915 | ) |
CASH PROVIDED BY OPERATING ACTIVITIES | 353,642 |
| | 326,270 |
|
INVESTING ACTIVITIES | | | |
Capital expenditures | (112,015 | ) | | (87,156 | ) |
Purchase of timberlands | (11,632 | ) | | (94,162 | ) |
Jesup mill cellulose specialties expansion (gross purchases of $130,718 and $14,567, net of purchases on account of $25,936 and $6,508) | (104,782 | ) | | (8,059 | ) |
Change in restricted cash | (12,796 | ) | | 8,323 |
|
Other | 4,281 |
| | 513 |
|
CASH USED FOR INVESTING ACTIVITIES | (236,944 | ) | | (180,541 | ) |
FINANCING ACTIVITIES | | | |
Issuance of debt | 355,000 |
| | 180,000 |
|
Repayment of debt | (198,653 | ) | | (180,000 | ) |
Dividends paid | (152,358 | ) | | (136,563 | ) |
Proceeds from the issuance of common shares | 20,732 |
| | 8,248 |
|
Excess tax benefits on stock-based compensation | 7,057 |
| | 4,951 |
|
Debt issuance costs | (3,698 | ) | | (2,027 | ) |
Repurchase of common shares | (7,783 | ) | | (7,909 | ) |
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES | 20,297 |
| | (133,300 | ) |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (123 | ) | | 393 |
|
CASH AND CASH EQUIVALENTS | | | |
Change in cash and cash equivalents | 136,872 |
| | 12,822 |
|
Balance, beginning of year | 78,603 |
| | 349,463 |
|
Balance, end of period | $ | 215,475 |
| | $ | 362,285 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | |
Cash paid during the period: | | | |
Interest | $ | 18,239 |
| | $ | 23,706 |
|
Income taxes | $ | 14,912 |
| | $ | 4,992 |
|
Non-cash investing activity: | | | |
Capital assets purchased on account | $ | 52,727 |
| | $ | 16,504 |
|
See Notes to Condensed Consolidated Financial Statements.
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
Basis of Presentation
The unaudited condensed consolidated financial statements and notes thereto of Rayonier Inc. and its subsidiaries ("Rayonier" or the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, these financial statements and notes reflect all adjustments (all of which are normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. These statements and notes should be read in conjunction with the financial statements and supplementary data included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC.
Subsequent Events
The Company evaluated events and transactions that occurred after the balance sheet date but before financial statements were issued, and two subsequent events were identified that warranted disclosure. See Note 13 — Debt for additional information.
| |
2. | EARNINGS PER COMMON SHARE |
The following table provides details of the calculations of basic and diluted earnings per common share:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Net income | $ | 80,560 |
| | $ | 104,909 |
| | $ | 203,076 |
| | $ | 219,774 |
|
Shares used for determining basic earnings per common share | 122,848,705 |
| | 121,790,059 |
| | 122,552,910 |
| | 121,665,644 |
|
Dilutive effect of: | | | | | | | |
Stock options | 603,761 |
| | 689,643 |
| | 667,960 |
| | 716,095 |
|
Performance and restricted shares | 755,884 |
| | 1,179,047 |
| | 735,653 |
| | 1,121,909 |
|
Assumed conversion of Senior Exchangeable Notes (a) (b) | 3,683,936 |
| | 1,823,600 |
| | 3,148,423 |
| | 1,883,270 |
|
Assumed conversion of warrants (a) (b) | 2,067,380 |
| | 117,260 |
| | 1,443,606 |
| | 143,182 |
|
Shares used for determining diluted earnings per common share | 129,959,666 |
| | 125,599,609 |
| | 128,548,552 |
| | 125,530,100 |
|
Basic earnings per common share | $ | 0.66 |
| | $ | 0.86 |
| | $ | 1.66 |
| | $ | 1.81 |
|
Diluted earnings per common share | $ | 0.62 |
| | $ | 0.84 |
| | $ | 1.58 |
| | $ | 1.75 |
|
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Anti-dilutive shares excluded from the computations of diluted earnings per share: | | | | | | | |
Stock options, performance and restricted shares | 123,217 |
| | 142,135 |
| | 261,759 |
| | 198,594 |
|
Assumed exercise of exchangeable note hedges (a) | 3,683,936 |
| | 1,823,600 |
| | 3,148,423 |
| | 1,883,270 |
|
Total | 3,807,153 |
| | 1,965,735 |
| | 3,410,182 |
| | 2,081,864 |
|
(a) Upon maturity of the Senior Exchangeable Notes (the "Notes"), Rayonier will not issue additional shares for the full difference between the strike price and the market price due to the offsetting exchangeable note hedges (the "hedges"). However, Accounting Standards Codification 260, Earnings Per Share requires the assumed conversion of the Notes to be included in dilutive shares if the average stock price for the period exceeds the strike prices, while the assumed exercise of the hedges are excluded since they are anti-dilutive. Rayonier will distribute additional shares upon maturity of the warrants if the stock price exceeds the strike prices of $41.50 for the Notes due 2012 and $39.58 for the Notes due 2015. For additional information on the potential dilutive impact of the Senior Exchangeable Notes, warrants and exchangeable note hedges, see Note 11 — Debt in the 2011 Annual Report on Form 10-K and Note 13 — Debt of this Form 10-Q.
(b) The higher number of shares in 2012 was primarily due to an increase in the average stock price from $40.93 for the three months ended September 30, 2011 to $48.13 for the three months ended September 30, 2012 and from $41.14 for the nine months
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
ended September 30, 2011 to $45.65 for the nine months ended September 30, 2012.
Rayonier is a real estate investment trust ("REIT"). In general, only the taxable REIT subsidiaries, whose businesses include the Company's non-REIT qualified activities, are subject to corporate income taxes. However, the Company is subject to U.S. federal corporate income tax on built-in gains (the excess of fair market value over tax basis for property held upon REIT election at January 1, 2004) on taxable sales of such property during calendar years 2004 through 2010 and 2012 through 2013. In 2011, the law provided a built-in-gains tax holiday. Accordingly, the provision for corporate income taxes relates principally to current and deferred taxes on taxable REIT subsidiaries' income and certain property sales.
Unrecognized Tax Benefits
During the third quarter of 2011, the Company received a final examination report from the U.S. Internal Revenue Service ("IRS") regarding Rayonier TRS Holdings Inc. ("TRS") 2009 tax return. As a result, the Company reversed the uncertain tax liability recorded in 2009 relating to the taxability of the alternative fuel mixture credit and recognized a $16 million tax benefit in the third quarter of 2011.
Alternative Fuel Mixture Credit ("AFMC") and Cellulosic Biofuel Producer Credit ("CBPC")
The U.S. Internal Revenue Code allowed two credits for taxpayers that produced and used an alternative fuel in the operation of their business through December 31, 2009. The AFMC is a $.50 per gallon refundable, non-taxable excise tax credit, while the CBPC is a $1.01 per gallon credit that is nonrefundable, taxable and has limitations based on an entity's tax liability. Rayonier produces and uses an alternative fuel ("black liquor") at its Jesup, Georgia and Fernandina Beach, Florida Performance Fibers mills, which qualified for both credits. The Company claimed the AFMC on its 2009 tax return.
In the third quarters of 2012 and 2011, management approved the exchange of approximately 22 million gallons and 11 million gallons, respectively, of black liquor previously claimed for the AFMC for the CBPC. The total number of exchange gallons approved year-to-date were 82 million and 41 million for 2012 and 2011, respectively. The third quarter impact of the exchange was $2.6 million and $2.0 million for 2012 and 2011, respectively. The year-to-date impact was $11.7 million and $6.1 million for 2012 and 2011, respectively. For additional information on the AFMC and CBPC, see Note 8 — Income Taxes in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.
During the second quarter 2012, Rayonier recognized $3.4 million of interest expense related to the exchange; however, in August, the IRS released guidance stating interest payments are not required for AFMC funds exchanged for the CBPC, based upon the manner of the Company's original claim. As a result, in the third quarter Rayonier reversed the $3.4 million of interest expense previously recorded.
Effective Tax Rate
The Company's effective tax rate is below the 35 percent U.S. statutory tax rate primarily due to tax benefits associated with being a REIT. The Company's effective tax rates in 2012 were higher than 2011. The change was primarily due to tax benefits received in 2011, including the reversal of the reserve related to the taxability of the AFMC and a $9.3 million benefit associated with the structuring of a transfer of higher and better use properties to the taxable REIT subsidiary from the REIT.
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
The tables below reconcile the U.S. statutory rate to the Company's effective tax rate for each period presented (in millions of dollars).
|
| | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2012 | | 2011 |
Income tax expense at federal statutory rate | $ | 37 |
| | 35.0 | % | | $ | 34 |
| | 35.0 | % |
REIT income not subject to tax | (6 | ) | | (5.7 | )% | | (11 | ) | | (11.3 | )% |
Other | (3 | ) | | (2.9 | )% | | (4 | ) | | (3.7 | )% |
Income tax expense before non-routine items | 28 |
| | 26.4 | % | | 19 |
| | 20.0 | % |
AFMC for CBPC exchange | (3 | ) | | (3.0 | )% | | (2 | ) | | (2.1 | )% |
AFMC reserve reversal | — |
| | — |
| | (16 | ) | | (16.6 | )% |
Installment note prepayment | — |
| | — |
| | (9 | ) | | (9.3 | )% |
Built-in gains tax holiday | — |
| | — |
| | (1 | ) | | (1.0 | )% |
Income tax expense (benefit) as reported | $ | 25 |
| | 23.4 | % | | $ | (9 | ) | | (9.0 | )% |
|
| | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2012 | | 2011 |
Income tax expense at federal statutory rate | $ | 91 |
| | 35.0 | % | | $ | 83 |
| | 35.0 | % |
REIT income not subject to tax | (18 | ) | | (7.0 | )% | | (25 | ) | | (10.6 | )% |
Other | (4 | ) | | (1.6 | )% | | (5 | ) | | (1.9 | )% |
Income tax expense before non-routine items | 69 |
| | 26.4 | % | | 53 |
| | 22.5 | % |
AFMC for CBPC exchange | (12 | ) | | (4.5 | )% | | (6 | ) | | (2.6 | )% |
AFMC reserve reversal | — |
| | — |
| | (16 | ) | | (6.7 | )% |
Installment note prepayment | — |
| | — |
| | (9 | ) | | (3.9 | )% |
Built-in gains tax holiday | — |
| | — |
| | (4 | ) | | (1.8 | )% |
Income tax expense as reported | $ | 57 |
| | 21.9 | % | | $ | 18 |
| | 7.5 | % |
In order to qualify for like-kind exchange ("LKE") treatment, the proceeds from certain real estate sales must be deposited with a qualified third-party intermediary. These proceeds are accounted for as restricted cash until suitable replacement property is acquired. In the event that the LKE purchases are not completed, the proceeds are returned to the Company after 180 days and reclassified as available cash. As of September 30, 2012 and December 31, 2011, the Company had $12.8 million and $0 million, respectively, of proceeds from real estate sales classified as restricted cash in Other Assets, which were deposited with an LKE intermediary.
| |
5. | JOINT VENTURE INVESTMENT |
The Company holds a 26 percent interest in Matariki Forestry Group ("Matariki"), a joint venture ("JV") that owns or leases approximately 0.3 million acres of New Zealand timberlands. In addition to the investment, Rayonier New Zealand Limited ("RNZ"), a wholly-owned subsidiary of Rayonier Inc., serves as the manager of the JV forests and operates a log trading business.
Rayonier’s investment in the JV is accounted for using the equity method of accounting. Income from the JV is reported in the Forest Resources segment as operating income since the Company manages the forests, and its JV interest is an extension of the Company’s operations. A portion of Rayonier’s equity method investment is recorded at historical cost which generates a difference between the book value of the Company’s investment and its proportionate share of the JV’s net assets. The difference represents the Company’s unrecognized gain from RNZ’s sale of timberlands to the JV in 2005. The deferred gain is recognized on a straight-line basis over the estimated number of years the JV expects to harvest the timberlands.
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
An analysis of shareholders’ equity for the nine months ended September 30, 2012 and the year ended December 31, 2011 is shown below (share amounts not in thousands):
|
| | | | | | | | | | | | | | | | | | |
| Common Shares | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Shareholders’ Equity |
| Shares | | Amount | |
Balance, December 31, 2010 | 121,023,140 |
| | $ | 602,882 |
| | $ | 717,058 |
| | $ | (68,358 | ) | | $ | 1,251,582 |
|
Net income | — |
| | — |
| | 276,005 |
| | — |
| | 276,005 |
|
Dividends ($1.52 per share) | — |
| | — |
| | (186,828 | ) | | — |
| | (186,828 | ) |
Issuance of shares under incentive stock plans | 1,220,731 |
| | 13,451 |
| | — |
| | — |
| | 13,451 |
|
Stock-based compensation | — |
| | 16,181 |
| | — |
| | — |
| | 16,181 |
|
Excess tax benefit on stock-based compensation | — |
| | 5,681 |
| | — |
| | — |
| | 5,681 |
|
Repurchase of common shares | (208,694 | ) | | (7,909 | ) | | — |
| | — |
| | (7,909 | ) |
Net loss from pension and postretirement plans | — |
| | — |
| | — |
| | (46,263 | ) | | (46,263 | ) |
Foreign currency translation adjustment | — |
| | — |
| | — |
| | 3,546 |
| | 3,546 |
|
New Zealand joint venture cash flow hedges | — |
| | — |
| | — |
| | (2,373 | ) | | (2,373 | ) |
Balance, December 31, 2011 | 122,035,177 |
| | $ | 630,286 |
| | $ | 806,235 |
| | $ | (113,448 | ) | | $ | 1,323,073 |
|
Net income | — |
| | — |
| | 203,076 |
| | — |
| | 203,076 |
|
Dividends ($1.24 per share) | — |
| | — |
| | (153,545 | ) | | — |
| | (153,545 | ) |
Issuance of shares under incentive stock plans | 1,323,581 |
| | 20,732 |
| | — |
| | — |
| | 20,732 |
|
Stock-based compensation | — |
| | 12,212 |
| | — |
| | — |
| | 12,212 |
|
Excess tax benefit on stock-based compensation | — |
| | 7,057 |
| | — |
| | — |
| | 7,057 |
|
Repurchase of common shares | (169,757 | ) | | (7,783 | ) | | — |
| | — |
| | (7,783 | ) |
Amortization of losses from pension and postretirement plans | — |
| | — |
| | — |
| | 9,943 |
| | 9,943 |
|
Foreign currency translation adjustment | — |
| | — |
| | — |
| | 3,115 |
| | 3,115 |
|
New Zealand joint venture cash flow hedges | — |
| | — |
| | — |
| | 86 |
| | 86 |
|
Balance, September 30, 2012 | 123,189,001 |
| | $ | 662,504 |
| | $ | 855,766 |
| | $ | (100,304 | ) | | $ | 1,417,966 |
|
| |
7. | SEGMENT AND GEOGRAPHICAL INFORMATION |
Rayonier operates in four reportable business segments: Forest Resources, Real Estate, Performance Fibers and Wood Products. Forest Resources sales include all activities that relate to the harvesting of timber. Real Estate sales include all property sales, including those designated for higher and better use ("HBU"). The assets of the Real Estate segment include HBU property held by the Company’s real estate subsidiary, TerraPointe LLC. The Performance Fibers segment includes two major product lines, cellulose specialties and absorbent materials. The Wood Products segment is comprised of lumber operations. The Company’s remaining operations include harvesting and selling timber acquired from third parties (log trading). These operations are reported in "Other Operations." Sales between operating segments are made based on estimated fair market value, and intercompany sales, purchases and profits (losses) are eliminated in consolidation. The Company evaluates financial performance based on the operating income of the segments.
Operating income (loss) as presented in the Condensed Consolidated Statements of Income and Comprehensive Income is equal to segment income (loss). Certain income (loss) items in the Condensed Consolidated Statements of Income and Comprehensive Income are not allocated to segments. These items, which include gains (losses) from certain asset dispositions, interest income (expense), miscellaneous income (expense) and income tax (expense) benefit, are not considered by management to be part of segment operations.
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
Total assets, sales, operating income (loss) and depreciation, depletion and amortization by segment including Corporate were as follows:
|
| | | | | | | |
| September 30, | | December 31, |
ASSETS | 2012 | | 2011 |
Forest Resources | $ | 1,623,370 |
| | $ | 1,603,515 |
|
Real Estate | 110,582 |
| | 102,682 |
|
Performance Fibers | 840,082 |
| | 646,447 |
|
Wood Products | 18,716 |
| | 21,264 |
|
Other Operations | 23,424 |
| | 24,576 |
|
Corporate and other | 297,694 |
| | 170,864 |
|
Total | $ | 2,913,868 |
| | $ | 2,569,348 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
SALES | 2012 | | 2011 | | 2012 | | 2011 |
Forest Resources | $ | 59,853 |
| | $ | 57,265 |
| | $ | 164,711 |
| | $ | 162,482 |
|
Real Estate | 13,043 |
| | 32,177 |
| | 37,369 |
| | 57,945 |
|
Performance Fibers | 288,221 |
| | 255,457 |
| | 793,586 |
| | 739,426 |
|
Wood Products | 22,825 |
| | 16,492 |
| | 65,864 |
| | 50,239 |
|
Other Operations | 26,293 |
| | 25,950 |
| | 76,702 |
| | 94,869 |
|
Intersegment Eliminations (a) | (1,247 | ) | | (2,250 | ) | | (1,538 | ) | | (4,743 | ) |
Total | $ | 408,988 |
| | $ | 385,091 |
| | $ | 1,136,694 |
| | $ | 1,100,218 |
|
| |
(a) | Intersegment eliminations primarily reflect sales from our Forest Resources segment to our Performance Fibers segment. |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
OPERATING INCOME (LOSS) | 2012 | | 2011 | | 2012 | | 2011 |
Forest Resources | $ | 11,184 |
| | $ | 10,792 |
| | $ | 27,438 |
| | $ | 33,681 |
|
Real Estate | 8,420 |
| | 28,077 |
| | 20,897 |
| | 40,458 |
|
Performance Fibers | 101,455 |
| | 74,897 |
| | 265,812 |
| | 221,709 |
|
Wood Products | 1,618 |
| | (740 | ) | | 6,669 |
| | (1,274 | ) |
Other Operations | (419 | ) | | 1,122 |
| | (201 | ) | | 955 |
|
Corporate and other | (9,084 | ) | | (5,838 | ) | | (24,841 | ) | | (20,568 | ) |
Total | $ | 113,174 |
| | $ | 108,310 |
| | $ | 295,774 |
| | $ | 274,961 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
DEPRECIATION, DEPLETION AND AMORTIZATION | 2012 | | 2011 | | 2012 | | 2011 |
Forest Resources | $ | 18,793 |
| | $ | 16,614 |
| | $ | 52,662 |
| | $ | 47,866 |
|
Real Estate | 1,288 |
| | 5,677 |
| | 4,733 |
| | 10,598 |
|
Performance Fibers | 15,077 |
| | 15,592 |
| | 41,577 |
| | 40,089 |
|
Wood Products | 787 |
| | 689 |
| | 2,369 |
| | 2,344 |
|
Corporate and other | 368 |
| | 323 |
| | 1,158 |
| | 861 |
|
Total | $ | 36,313 |
| | $ | 38,895 |
| | $ | 102,499 |
| | $ | 101,758 |
|
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
| |
8. | FAIR VALUE MEASUREMENTS |
Fair Value of Financial Instruments
A three-level hierarchy that prioritizes the inputs used to measure fair value was established in the Accounting Standards Codification as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table presents the carrying amount, estimated fair values and categorization under the fair value hierarchy of financial instruments held by the Company at September 30, 2012 and December 31, 2011, using market information and what the Company believes to be appropriate valuation methodologies under generally accepted accounting principles:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2012 | | December 31, 2011 |
Asset (liability) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| | | Level 1 | | Level 2 | | | | Level 1 | | Level 2 |
Cash and cash equivalents | $ | 215,475 |
| | $ | 215,475 |
| | $ | — |
| | $ | 78,603 |
| | $ | 78,603 |
| | $ | — |
|
Restricted cash | 12,796 |
| | 12,796 |
| | — |
| | — |
| | — |
| | — |
|
Current maturities of long-term debt | (41,268 | ) | | — |
| | (57,993 | ) | | (28,110 | ) | | — |
| | (29,319 | ) |
Long-term debt | (967,785 | ) | | — |
| | (1,179,011 | ) | | (819,229 | ) | | — |
| | (994,851 | ) |
Rayonier uses the following methods and assumptions in estimating the fair value of its financial instruments:
Cash and cash equivalents and Restricted cash — The carrying amount is equal to fair market value.
Debt — The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities.
Variable Interest Entity
Rayonier holds a variable interest in a bankruptcy-remote, limited liability subsidiary ("special-purpose entity") which was created in 2004 when Rayonier monetized a $25.0 million installment note and letter of credit received in connection with a timberland sale. The Company contributed the note and a letter of credit to the special-purpose entity and using the installment note and letter of credit as collateral, the special-purpose entity issued $22.6 million of 15-year Senior Secured Notes and remitted cash of $22.6 million to the Company. There are no restrictions that relate to the transferred financial assets. Rayonier maintains a $2.6 million interest in the entity and receives immaterial cash payments equal to the excess of interest received on the installment note over the interest paid on the Senior Secured Notes. The Company's interest is recorded at fair value and is included in "Other Assets" in the Condensed Consolidated Balance Sheets. In addition, the Company calculated and recorded a de minimus guarantee liability to reflect its obligation of up to $2.3 million under a make-whole agreement pursuant to which it guaranteed certain obligations of the entity. This guarantee obligation is also collateralized by the letter of credit. The Company's interest in the entity, together with the make-whole agreement, represents the maximum exposure to loss as a result of the Company's involvement with the special-purpose entity. Upon maturity of the Senior Secured Notes in 2019 and termination of the special-purpose entity, Rayonier will receive the remaining $2.6 million of cash. The Company determined, based upon an analysis under the variable interest entity guidance, that it does not have the power to direct activities that most significantly impact the entity's economic success. Therefore, Rayonier is not the primary beneficiary and is not required to consolidate the entity.
Assets measured at fair value on a recurring basis are summarized below:
|
| | | | | | | | | | | | | | | | |
Asset | | Carrying Value at September 30, 2012 | | Level 2 | | Carrying Value at December 31, 2011 | | Level 2 |
Investment in special-purpose entity | | $ | 2,676 |
| | $ | 2,676 |
| | $ | 2,690 |
| | $ | 2,690 |
|
| | | | | | | | |
The fair value of the investment in the special-purpose entity is determined by summing the discounted value of future principal and interest payments that Rayonier will receive from the special-purpose entity. The interest rate of a similar instrument is used
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
to determine the discounted value of the payments.
The Company provides financial guarantees as required by creditors, insurance programs, and state and foreign governmental agencies. As of September 30, 2012, the following financial guarantees were outstanding:
|
| | | | | | | | |
Financial Commitments | | Maximum Potential Payment | | Carrying Amount of Liability |
Standby letters of credit (a) | $ | 18,955 |
| | $ | 15,000 |
|
Guarantees (b) | | 2,254 |
| | 43 |
|
Surety bonds (c) | | 7,164 |
| | 1,389 |
|
Total financial commitments | $ | 28,373 |
| | $ | 16,432 |
|
| |
(a) | Approximately $15 million of the standby letters of credit serve as credit support for industrial revenue bonds. The remaining letters of credit support various insurance related agreements, primarily workers’ compensation and pollution liability policy requirements. These letters of credit will expire at various dates during 2012 and 2013 and will be renewed as required. |
| |
(b) | In conjunction with a timberland sale and note monetization in the first quarter of 2004, the Company issued a make-whole agreement pursuant to which it guaranteed $2.3 million of obligations of a special-purpose entity that was established to complete the monetization. At September 30, 2012, the Company has a de minimus liability to reflect the fair market value of its obligation to perform under the make-whole agreement. |
| |
(c) | Rayonier issues surety bonds primarily to secure timber harvesting obligations in the State of Washington and to provide collateral for the Company’s workers’ compensation self-insurance program in that state. These surety bonds expire at various dates between 2012 and 2014 and are expected to be renewed as required. |
| |
10. | LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS |
An analysis of the liabilities for dispositions and discontinued operations follows:
|
| | | | | | | | |
| September 30, | | December 31, | |
| 2012 | | 2011 | |
Balance, beginning of period | $ | 90,824 |
| | $ | 93,160 |
| |
Expenditures charged to liabilities | (6,867 | ) | | (9,209 | ) | |
Increase to liabilities | 496 |
| | 6,873 |
| |
Balance, end of period | 84,453 |
| | 90,824 |
| |
Less: Current portion | (8,929 | ) | | (9,931 | ) | |
Non-current portion | $ | 75,524 |
| | $ | 80,893 |
| |
The Company is exposed to the risk of reasonably possible additional losses in excess of the established liabilities. As of September 30, 2012, the estimate of this amount could range up to $29 million, allocable over several of the applicable sites, and arises from uncertainty over the availability, feasibility or effectiveness of certain remediation technologies, additional or different contamination that may be discovered, development of new or more effective environmental remediation technologies and the exercise of discretion in interpretation of applicable law and regulations by governmental agencies.
The Company believes established liabilities are sufficient for probable costs expected to be incurred over the next 20 years with respect to its dispositions and discontinued operations. Remedial actions for these sites vary, but could include on-site (and in certain cases off-site) removal or treatment of contaminated soils and sediments, recovery and treatment/remediation of groundwater, and source remediation and/or control.
Rayonier is engaged in various legal actions, including certain environmental proceedings, and has been named as a defendant in various other lawsuits and claims arising in the normal course of business. While the Company has procured reasonable and customary insurance covering risks normally occurring in connection with its businesses, it has in certain cases retained some risk through the operation of self-insurance, primarily in the areas of workers’ compensation, property insurance and general liability. These other lawsuits and claims, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flow.
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
| |
12. | EMPLOYEE BENEFIT PLANS |
The Company has four qualified non-contributory defined benefit pension plans covering a significant majority of its employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plans. Currently, all qualified plans are closed to new participants. Employee benefit plan liabilities are calculated using actuarial estimates and management assumptions. These estimates are based on historical information, along with certain assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause the estimates to change.
The net pension and postretirement benefit costs that have been recognized during the stated periods are shown in the following tables:
|
| | | | | | | | | | | | | | | |
| Pension | Postretirement |
| Three Months Ended September 30, | | Three Months Ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Components of Net Periodic Benefit Cost | | | | | | | |
Service cost | $ | 2,102 |
| | $ | 1,695 |
| | $ | 227 |
| | $ | 99 |
|
Interest cost | 4,321 |
| | 4,522 |
| | 242 |
| | 257 |
|
Expected return on plan assets | (6,369 | ) | | (6,455 | ) | | — |
| | — |
|
Amortization of prior service cost | 327 |
| | 340 |
| | 6 |
| | 49 |
|
Amortization of losses | 4,394 |
| | 2,593 |
| | 156 |
| | 296 |
|
Net periodic benefit cost | $ | 4,775 |
| | $ | 2,695 |
| | $ | 631 |
| | $ | 701 |
|
|
| | | | | | | | | | | | | | | |
| Pension | | Postretirement |
| Nine Months Ended September 30, | | Nine Months Ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Components of Net Periodic Benefit Cost | | | | | | | |
Service cost | $ | 6,143 |
| | $ | 5,086 |
| | $ | 664 |
| | $ | 463 |
|
Interest cost | 12,630 |
| | 13,566 |
| | 706 |
| | 729 |
|
Expected return on plan assets | (18,618 | ) | | (19,366 | ) | | — |
| | — |
|
Amortization of prior service cost | 956 |
| | 1,020 |
| | 18 |
| | 93 |
|
Amortization of losses | 12,846 |
| | 7,779 |
| | 455 |
| | 428 |
|
Net periodic benefit cost | $ | 13,957 |
| | $ | 8,085 |
| | $ | 1,843 |
| | $ | 1,713 |
|
| | | | | | | |
In 2012, the Company has no mandatory pension contribution requirements and does not expect to make any discretionary contributions.
In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022. Approximately $150 million of the proceeds from these notes were used to repay borrowings outstanding under the Company's revolving credit facility. The Company had $431 million of available borrowing capacity under the revolving credit facility at September 30, 2012.
As of September 30, 2012, the $172.5 million 4.50% Senior Exchangeable Notes due 2015 became exchangeable at the option of the holders for the calendar quarter ending December 31, 2012. Per the indenture, in order for the notes to become exchangeable, the Company's stock price must exceed 130 percent of the exchange price for 20 trading days during a period of 30 consecutive trading days as of the last day of the quarter. Of the $172.5 million principal, $131.2 million remained classified as long-term debt due to the ability and intent of the Company to refinance it on a long-term basis.
An asset sales covenant in the Rayonier Forest Resources, L.P. ("RFR") $112.5 million installment note agreement requires the Company, subject to certain exceptions, to either reinvest cumulative timberland sale proceeds for individual sales greater than $10 million (the "excess proceeds") in timberland-related investments or, once the amount of excess proceeds not reinvested
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
exceeds $50 million, to offer the note holders prepayment of the notes ratably in the amount of the excess proceeds. During April 2012, the excess proceeds exceeded the $50 million limit and as a result, repayment of $59.9 million was offered to the note holders through May 15, 2012, at which time they declined and the excess proceeds were reset to zero.
There were no other significant changes to the Company's outstanding debt as reported in Note 11 — Debt of the Company's 2011 Annual Report on Form 10-K.
Subsequent Events
In October 2012, the Company negotiated amendments to the existing revolving credit facility. The amended and restated facility provides for improved pricing, with the borrowing rate decreasing from LIBOR plus 105 basis points to LIBOR plus 97.5 basis points. The facility fee decreased 5 points from 20 basis points to 15 basis points. The revised agreement also provides additional borrowing capacity through revision of the leverage ratio to permit debt of Rayonier Inc. and its subsidiaries up to 65 percent of consolidated net worth, plus the amount of consolidated debt. Previously, debt was limited to four times EBITDA. In addition, the Company can now transfer assets to any subsidiary, and any subsidiary can now transfer assets to other subsidiaries or to the Company. An additional covenant was added to limit debt at subsidiaries (excluding Rayonier Operating Company LLC and TRS, which are borrowers under the agreement) to 15 percent of Consolidated Net Tangible Assets. Also, the amended and restated credit agreement removed RFR as a borrower, but also eliminated specific negative covenants relating to RFR under this facility. The agreement also eliminated all requirements for subsidiary guarantors, other than cross-guarantees of the borrowers. As a result, these guarantors were also released from the 3.75% Senior Notes due 2022 issued by Rayonier Inc., leaving TRS and Rayonier Operating Company LLC as the remaining guarantors.
The 3.75% Senior Exchangeable Notes due 2012 (the "Notes") matured in October 2012 and the outstanding principal balance of $300 million was paid in cash, financed through borrowings on the Company's revolving credit facility. The exchangeable note hedges also matured and the associated shares were used to pay the excess exchange value of 2,221,056 shares of Rayonier stock. As a result, there was no impact on the number of shares outstanding. The available borrowing capacity under the credit facility immediately after repayment of the Notes was $131 million. The Company expects to refinance this $300 million borrowing on a long-term basis prior to year-end.
Warrants sold in conjunction with the issuance of the Notes and hedges remain outstanding and have maturity dates in first quarter 2013. The Company expects to settle the warrants in shares. For information regarding the dilutive effect of the assumed conversion of the warrants, refer to Note 2 — Earnings per Share.
See Note 11 — Debt of the Company's 2011 Annual Report on Form 10-K for additional information on the Notes, hedges and warrants.
| |
14. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
Accumulated Other Comprehensive Loss was comprised of the following:
|
| | | | | | | |
| September 30, 2012 | | December 31, 2011 |
Foreign currency translation adjustments | $ | 37,592 |
| | $ | 34,477 |
|
Joint venture cash flow hedges | (3,755 | ) | | (3,841 | ) |
Unrecognized losses of employee benefit plans, net of tax | (134,141 | ) | | (144,084 | ) |
Total | $ | (100,304 | ) | | $ | (113,448 | ) |
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
| |
15. | OTHER OPERATING (EXPENSE) INCOME, NET |
Other operating (expense) income, net was comprised of the following:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Lease income, primarily for hunting | $ | 1,357 |
| | $ | 1,369 |
| | $ | 6,263 |
| | $ | 4,563 |
|
Other non-timber income | 433 |
| | 567 |
| | 2,324 |
| | 1,551 |
|
Foreign currency (loss) gain | (979 | ) | | 1,017 |
| | (1,165 | ) | | 236 |
|
Loss on sale or disposal of property, plant & equipment | (1,176 | ) | | (270 | ) | | (2,908 | ) | | (1,769 | ) |
Insurance proceeds | — |
| | 1,890 |
| | 2,319 |
| | 1,890 |
|
Miscellaneous income (expense), net | (1,027 | ) | | (402 | ) | | (1,779 | ) | | (891 | ) |
Total | $ | (1,392 | ) | | $ | 4,171 |
| | $ | 5,054 |
| | $ | 5,580 |
|
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
| |
16. | CONSOLIDATING FINANCIAL STATEMENTS |
The consolidating financial information below follows the same accounting policies as described in the consolidated financial statements, except for the use of the equity method of accounting to reflect ownership interests in wholly-owned subsidiaries, which are eliminated upon consolidation, and the allocation of certain expenses of Rayonier Inc. incurred for the benefit of its subsidiaries.
In October 2007, Rayonier TRS Holdings Inc. ("TRS") issued $300 million of 3.75% Senior Exchangeable Notes due 2012, and in August 2009 TRS issued $172.5 million of 4.50% Senior Exchangeable Notes due 2015. The notes for both transactions are fully and unconditionally guaranteed by Rayonier Inc. as the Parent Guarantor and Rayonier Operating Company LLC ("ROC") as the Subsidiary Guarantor. In connection with these exchangeable notes, the Company provides the following condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Three Months Ended September 30, 2012 |
| Rayonier Inc. (Parent Guarantor) | | ROC (Subsidiary Guarantor) | | Rayonier TRS Holdings Inc. (Issuer) | | Subsidiaries of Rayonier TRS Holdings Inc. (Non- guarantors) | | All Other Subsidiaries (Non- guarantors) | | Consolidating Adjustments | | Total Consolidated |
SALES | $ | — |
| | $ | — |
| | $ | — |
| | $ | 381,400 |
| | $ | 43,720 |
| | $ | (16,132 | ) | | $ | 408,988 |
|
Costs and Expenses | | | | | | | | | | | | | |
Cost of sales | — |
| | — |
| | — |
| | 266,987 |
| | 28,282 |
| | (16,618 | ) | | 278,651 |
|
Selling and general expenses | — |
| | 2,762 |
| | — |
| | 12,717 |
| | 358 |
| | — |
| | 15,837 |
|
Other operating expense (income), net | — |
| | 730 |
| | — |
| | 2,335 |
| | (1,681 | ) | | 8 |
| | 1,392 |
|
| — |
| | 3,492 |
| | — |
| | 282,039 |
| | 26,959 |
| | (16,610 | ) | | 295,880 |
|
Equity in income (loss) of New Zealand joint venture | — |
| | — |
| | — |
| | 169 |
| | (103 | ) | | — |
| | 66 |
|
OPERATING (LOSS) INCOME | — |
| | (3,492 | ) | | — |
| | 99,530 |
| | 16,658 |
| | 478 |
| | 113,174 |
|
Interest (expense) income | (3,136 | ) | | (196 | ) | | (10,244 | ) | | 5,587 |
| | (264 | ) | | — |
| | (8,253 | ) |
Interest and miscellaneous income (expense), net | 1,630 |
| | 1,594 |
| | (980 | ) | | (3,872 | ) | | 1,862 |
| | — |
| | 234 |
|
Equity in income from subsidiaries | 82,066 |
| | 85,241 |
| | 73,635 |
| | — |
| | — |
| | (240,942 | ) | | — |
|
INCOME BEFORE INCOME TAXES | 80,560 |
| | 83,147 |
| | 62,411 |
| | 101,245 |
| | 18,256 |
| | (240,464 | ) | | 105,155 |
|
Income tax (expense) benefit | — |
| | (1,081 | ) | | 4,096 |
| | (27,610 | ) | | — |
| | — |
| | (24,595 | ) |
NET INCOME | 80,560 |
| | 82,066 |
| | 66,507 |
| | 73,635 |
| | 18,256 |
| | (240,464 | ) | | 80,560 |
|
OTHER COMPREHENSIVE INCOME | 9,652 |
| | 9,652 |
| | 328 |
| | 328 |
| | 6,143 |
| | (16,451 | ) | | 9,652 |
|
COMPREHENSIVE INCOME | $ | 90,212 |
| | $ | 91,718 |
| | $ | 66,835 |
| | $ | 73,963 |
| | $ | 24,399 |
| | $ | (256,915 | ) | | $ | 90,212 |
|
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Three Months Ended September 30, 2011 |
| Rayonier Inc. (Parent Guarantor) | | ROC (Subsidiary Guarantor) | | Rayonier TRS Holdings Inc. (Issuer) | | Subsidiaries of Rayonier TRS Holdings Inc. (Non- guarantors) | | All Other Subsidiaries (Non- guarantors) | | Consolidating Adjustments | | Total Consolidated |
SALES | $ | — |
| | $ | — |
| | $ | — |
| | $ | 342,937 |
| | $ | 61,463 |
| | $ | (19,309 | ) | | $ | 385,091 |
|
Costs and Expenses | | | | | | | | | | | | | |
Cost of sales | — |
| | — |
| | — |
| | 254,969 |
| | 32,376 |
| | (21,161 | ) | | 266,184 |
|
Selling and general expenses | — |
| | 2,566 |
| | — |
| | 12,584 |
| | 612 |
| | — |
| | 15,762 |
|
Other operating expense (income), net | — |
| | 45 |
| | — |
| | (2,606 | ) | | (1,610 | ) | | — |
| | (4,171 | ) |
| — |
| | 2,611 |
| | — |
| | 264,947 |
| | 31,378 |
| | (21,161 | ) | | 277,775 |
|
Equity in income of New Zealand joint venture | — |
| | — |
| | — |
| | 200 |
| | 794 |
| | — |
| | 994 |
|
OPERATING (LOSS) INCOME | — |
| | (2,611 | ) | | — |
| | 78,190 |
| | 30,879 |
| | 1,852 |
| | 108,310 |
|
Interest (expense) income | — |
| | (440 | ) | | (12,139 | ) | | 328 |
| | (105 | ) | | — |
| | (12,356 | ) |
Interest and miscellaneous income (expense), net | — |
| | 1,332 |
| | (1,121 | ) | | (5,053 | ) | | 5,173 |
| | — |
| | 331 |
|
Equity in income from subsidiaries | 104,909 |
| | 106,350 |
| | 76,971 |
| | — |
| | — |
| | (288,230 | ) | | — |
|
INCOME BEFORE INCOME TAXES | 104,909 |
| | 104,631 |
| | 63,711 |
| | 73,465 |
| | 35,947 |
| | (286,378 | ) | | 96,285 |
|
Income tax benefit | — |
| | 278 |
| | 4,840 |
| | 3,506 |
| | — |
| | — |
| | 8,624 |
|
NET INCOME | 104,909 |
| | 104,909 |
| | 68,551 |
| | 76,971 |
| | 35,947 |
| | (286,378 | ) | | 104,909 |
|
OTHER COMPREHENSIVE INCOME | 5,215 |
| | 5,215 |
| | 15 |
| | 15 |
| | 3,090 |
| | (8,335 | ) | | 5,215 |
|
COMPREHENSIVE INCOME | $ | 110,124 |
| | $ | 110,124 |
| | $ | 68,566 |
| | $ | 76,986 |
| | $ | 39,037 |
| | $ | (294,713 | ) | | $ | 110,124 |
|
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Nine Months Ended September 30, 2012 |
| Rayonier Inc. (Parent Guarantor) | | ROC (Subsidiary Guarantor) | | Rayonier TRS Holdings Inc. (Issuer) | | Subsidiaries of Rayonier TRS Holdings Inc. (Non- guarantors) | | All Other Subsidiaries (Non- guarantors) | | Consolidating Adjustments | | Total Consolidated |
SALES | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,062,065 |
| | $ | 125,475 |
| | $ | (50,846 | ) | | $ | 1,136,694 |
|
Costs and Expenses |
| |
| |
| |
| |
| | | | |
Cost of sales | — |
| | — |
| | — |
| | 764,886 |
| | 81,816 |
| | (52,183 | ) | | 794,519 |
|
Selling and general expenses | — |
| | 7,977 |
| | — |
| | 41,296 |
| | 2,432 |
| | — |
| | 51,705 |
|
Other operating expense (income), net | — |
| | 742 |
| | — |
| | 1,517 |
| | (8,473 | ) | | 1,160 |
| | (5,054 | ) |
| — |
| | 8,719 |
| | — |
| | 807,699 |
| | 75,775 |
| | (51,023 | ) | | 841,170 |
|
Equity in income (loss) of New Zealand joint venture | — |
| | — |
| | — |
| | 507 |
| | (257 | ) | | — |
| | 250 |
|
OPERATING (LOSS) INCOME | — |
| | (8,719 | ) | | — |
| | 254,873 |
| | 49,443 |
| | 177 |
| | 295,774 |
|
Interest (expense) income | (7,502 | ) | | (646 | ) | | (30,713 | ) | | 4,639 |
| | (1,911 | ) | | — |
| | (36,133 | ) |
Interest and miscellaneous income (expense), net | 5,086 |
| | 4,580 |
| | (3,022 | ) | | (11,911 | ) | | 5,561 |
| | — |
| | 294 |
|
Equity in income from subsidiaries | 205,492 |
| | 211,635 |
| | 179,787 |
| | — |
| | — |
| | (596,914 | ) | | — |
|
INCOME BEFORE INCOME TAXES | 203,076 |
| | 206,850 |
| | 146,052 |
| | 247,601 |
| | 53,093 |
| | (596,737 | ) | | 259,935 |
|
Income tax (expense) benefit | — |
| | (1,358 | ) | | 12,313 |
| | (67,814 | ) | | — |
| | — |
| | (56,859 | ) |
NET INCOME | 203,076 |
| | 205,492 |
| | 158,365 |
| | 179,787 |
| | 53,093 |
| | (596,737 | ) | | 203,076 |
|
OTHER COMPREHENSIVE INCOME | $ | 13,144 |
| | $ | 13,144 |
| | $ | 1,128 |
| | $ | 1,128 |
| | $ | 2,719 |
| | $ | (18,119 | ) | | $ | 13,144 |
|
COMPREHENSIVE INCOME | $ | 216,220 |
| | $ | 218,636 |
| | $ | 159,493 |
| | $ | 180,915 |
| | $ | 55,812 |
| | $ | (614,856 | ) | | $ | 216,220 |
|
| | | | | | | | | | | | | |
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Nine Months Ended September 30, 2011 |
| Rayonier Inc. (Parent Guarantor) | | ROC (Subsidiary Guarantor) | | Rayonier TRS Holdings Inc. (Issuer) | | Subsidiaries of Rayonier TRS Holdings Inc. (Non- guarantors) | | All Other Subsidiaries (Non- guarantors) | | Consolidating Adjustments | | Total Consolidated |
SALES | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,002,015 |
| | $ | 147,884 |
| | $ | (49,681 | ) | | $ | 1,100,218 |
|
Costs and Expenses | | | | | | | | | | | | | |
Cost of sales | — |
| | — |
| | — |
| | 750,375 |
| | 90,630 |
| | (54,538 | ) | | 786,467 |
|
Selling and general expenses | — |
| | 7,497 |
| | — |
| | 38,639 |
| | 2,051 |
| | — |
| | 48,187 |
|
Other operating expense (income), net | — |
| | 130 |
| | — |
| | (406 | ) | | (5,304 | ) | | — |
| | (5,580 | ) |
| — |
| | 7,627 |
| | — |
| | 788,608 |
| | 87,377 |
| | (54,538 | ) | | 829,074 |
|
Equity in income of New Zealand joint venture | — |
| | — |
| | — |
| | 561 |
| | 3,256 |
| | — |
| | 3,817 |
|
OPERATING (LOSS) INCOME | — |
| | (7,627 | ) | | — |
| | 213,968 |
| | 63,763 |
| | 4,857 |
| | 274,961 |
|
Interest (expense) income | — | |