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, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ........... TO ............
COMMISSION FILE NUMBER 1-6780
RAYONIER INC.
Incorporated in the State of North Carolina
I.R.S. Employer Identification Number 13-2607329
50 North Laura Street, Jacksonville, FL 32202
(Principal Executive Office)
Telephone Number: (904) 357-9100
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange
Act of l934 during the preceding l2 months and (2) has been subject to
such filing requirements for the past 90 days.
YES (X) NO ( )
As of November 2, 2001, there were outstanding 27,268,878 Common Shares
of the Registrant.
--------------
RAYONIER INC.
FORM 10-Q
SEPTEMBER 30, 2001
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item l. Financial Statements
Statements of Consolidated Income for the
Three Months and Nine Months Ended September 30, 2001, and 2000 1
Consolidated Balance Sheets as of September 30, 2001,
and December 3l, 2000 2
Statements of Consolidated Cash Flows for the
Nine Months Ended September 30, 2001, and 2000 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
Item 5. Selected Operating Data 12
Item 6. Exhibits and Reports on Form 8-K 14
Signature 14
Exhibit Index 15
i
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- -------------------------
2001 2000 2001 2000
--------- ---------- --------- ---------
SALES $ 274,961 $ 269,501 $ 897,810 $ 928,008
--------- ---------- --------- ---------
Costs and Expenses
Cost of sales 245,615 227,887 749,303 742,602
Selling and general expenses 7,417 6,845 24,610 26,197
Other operating (income) expense, net (136) 1,204 (568) 3,725
--------- ---------- --------- ---------
252,896 235,936 773,345 772,524
--------- ---------- --------- ---------
OPERATING INCOME 22,065 33,565 124,465 155,484
Interest expense (16,431) (20,586) (52,883) (64,988)
Interest and miscellaneous income (expense), net 1,012 (2,378) 1,226 (3,001)
--------- ---------- --------- ---------
INCOME BEFORE INCOME TAXES 6,646 10,601 72,808 87,495
Income tax (expense) benefit (621) 1,504 (23,068) (22,486)
--------- ---------- --------- ---------
NET INCOME 6,025 12,105 49,740 65,009
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain (loss) on hedged transactions,
net of tax benefit of $123 (209) - (209) -
--------- ---------- --------- ---------
COMPREHENSIVE INCOME $ 5,816 $ 12,105 $ 49,531 $ 65,009
========= ========== ========= =========
EARNINGS PER COMMON SHARE (EPS)
BASIC EPS $ 0.22 $ 0.45 $ 1.83 $ 2.38
========= ========== ========= =========
DILUTED EPS $ 0.22 $ 0.44 $ 1.80 $ 2.34
========= ========== ========= =========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
1
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
ASSETS
September 30, December 31,
2001 2000
----------- -----------
CURRENT ASSETS
Cash and short-term investments $ 25,627 $ 9,824
Accounts receivable, less allowance for doubtful
accounts of $3,390 and $3,969 102,220 117,114
Inventories
Finished goods 50,175 60,627
Work in process 9,445 9,076
Raw materials 11,172 11,044
Manufacturing and maintenance supplies 17,008 16,359
----------- -----------
Total inventories 87,800 97,106
Timber purchase agreements 20,774 33,775
Other current assets 6,957 12,779
----------- -----------
Total current assets 243,378 270,598
----------- -----------
OTHER ASSETS 56,417 63,129
TIMBER PURCHASE AGREEMENTS 6,183 6,335
TIMBER, TIMBERLANDS AND LOGGING ROADS,
NET OF DEPLETION AND AMORTIZATION 1,138,268 1,192,388
PROPERTY, PLANT AND EQUIPMENT
Land, buildings, machinery and equipment 1,367,999 1,360,296
Less - accumulated depreciation 772,806 730,472
----------- -----------
Total property, plant and equipment, net 595,193 629,824
----------- -----------
TOTAL ASSETS $ 2,039,439 $ 2,162,274
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 62,854 $ 87,401
Bank loans and current maturities 2,600 2,565
Accrued taxes 15,508 10,314
Accrued payroll and benefits 23,964 27,756
Accrued interest 18,435 11,745
Accrued customer incentives 10,546 18,163
Other current liabilities 14,282 22,389
Current reserves for dispositions and discontinued operations 15,329 15,434
----------- -----------
Total current liabilities 163,518 195,767
----------- -----------
DEFERRED INCOME TAXES 134,868 130,333
LONG-TERM DEBT 852,205 970,415
NON-CURRENT RESERVES FOR DISPOSITIONS AND
DISCONTINUED OPERATIONS 154,990 161,465
OTHER NON-CURRENT LIABILITIES 27,668 24,193
SHAREHOLDERS' EQUITY
Common Shares, 60,000,000 shares authorized,
27,263,378 and 27,104,462 shares issued and outstanding 54,659 48,717
Retained earnings 651,740 631,384
Accumulated other comprehensive income (loss) (209) -
----------- -----------
706,190 680,101
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,039,439 $ 2,162,274
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
2
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
Nine Months Ended
September 30
---------------------------
2001 2000
---------- ---------
OPERATING ACTIVITIES
Net income $ 49,740 $ 65,009
Non-cash items included in income:
Depreciation, depletion and amortization 139,550 132,239
Deferred income taxes 2,055 7,634
Non-cash cost of land sales 8,715 10,464
Increase in other non-current liabilities 3,475 6,064
Change in accounts receivable, inventory and accounts payable (459) (9,476)
Decrease (increase) in current timber purchase agreements 13,001 (2,364)
Decrease (increase) in other current assets 5,848 (928)
(Decrease) increase in accrued liabilities (7,841) 10,448
Expenditures for dispositions and discontinued operations,
net of tax benefits of $2,454 and $2,537 (4,126) (4,390)
---------- ---------
CASH FROM OPERATING ACTIVITIES 209,958 214,700
---------- ---------
INVESTING ACTIVITIES
Capital expenditures, net of sales and retirements
of $153 and $1,891 (58,639) (63,269)
Change in timber purchase agreements and other assets 6,101 12,982
---------- ---------
CASH USED FOR INVESTING ACTIVITIES (52,538) (50,287)
---------- ---------
FINANCING ACTIVITIES
Issuance of debt 147,500 70,901
Repayment of debt (265,675) (197,793)
Dividends paid (29,384) (29,394)
Repurchase of common shares (2,031) (17,624)
Issuance of common shares 7,973 1,859
---------- ---------
CASH USED FOR FINANCING ACTIVITIES (141,617) (172,051)
---------- ---------
CASH AND SHORT TERM INVESTMENTS
Increase (decrease) in cash and short-term investments 15,803 (7,638)
Balance, beginning of year 9,824 12,265
---------- ---------
Balance, end of period $ 25,627 $ 4,627
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 44,944 $ 50,852
========== =========
Income taxes $ 17,513 $ 13,621
========== =========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
3
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)
1. BASIS OF PRESENTATION
The unaudited financial statements reflect, in the opinion of Rayonier
Inc. and subsidiaries (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. For a full description of accounting policies,
please refer to the Notes to Consolidated Financial Statements in the 2000
Annual Report on Form 10-K.
2. EARNINGS PER COMMON SHARE
The following table provides details of the calculation of basic and
diluted earnings per common share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" for
the three months and nine months ended September 30, 2001, and 2000 (share
amounts actual):
Three Months Ended Nine Months Ended
September 30 September 30
2001 2000 2001 2000
---- ---- ----- ----
Net income $ 6,025 $ 12,105 $ 49,740 $ 65,009
========== ========== ========== ==========
Shares used for determining basic earnings per common share 27,266,368 27,134,430 27,186,767 27,282,984
Dilutive effect of:
Stock options 221,935 140,264 210,930 177,394
Contingent shares 202,000 360,000 202,000 360,000
---------- ---------- ---------- ----------
Shares used for determining diluted earnings per common share 27,690,303 27,634,694 27,599,697 27,820,378
========== ========== ========== ==========
Basic earnings per common share $ .22 $ 0.45 $ 1.83 $ 2.38
========== ========== ========== ==========
Diluted earnings per common share $ .22 $ 0.44 $ 1.80 $ 2.34
========== ========== ========== ==========
3. SHAREHOLDERS' EQUITY
An analysis of shareholders' equity for the nine months ended September 30,
2001, and the year ended December 31, 2000, follows (share amounts actual):
---------- ----------
Shares Amount Income/(Loss) Earnings Equity
---------- ---------- ------------- ----------- -----------
BALANCE, DECEMBER 31, 1999 27,407,094 $ 63,709 $ - $ 592,382 $ 656,091
Net income - - - 78,187 78,187
Dividends paid ($1.44 per share) - - - (39,185) (39,185)
Issuance of shares under incentive stock plans 130,368 2,632 - - 2,632
Repurchase of common shares (433,000) (17,624) - - (17,624)
---------- ---------- ------------- ----------- -----------
BALANCE, DECEMBER 31, 2000 27,104,462 $ 48,717 $ - $ 631,384 $ 680,101
Net income - $ - $ - $ 49,740 $ 49,740
Dividends paid ($1.08 per share) - - - (29,384) (29,384)
Issuance of shares under incentive stock plans 211,816 7,973 - - 7,973
Unrealized gain (loss) on hedged transactions - - (209) - (209)
Repurchase of common shares (52,900) (2,031) - - (2,031)
---------- ---------- ------------- ----------- -----------
BALANCE, SEPTEMBER 30, 2001 27,263,378 $ 54,659 $ (209) $ 651,740 $ 706,190
========== ========== ============= =========== ===========
4
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)
4. IDENTIFIABLE ASSETS
Total assets by segment as of September 30, 2001, and December 31, 2000,
follows (in millions):
IDENTIFIABLE ASSETS
2001 2000
---- ----
Performance Fibers $ 584 $ 643
Timberland Management 1,190 1,243
Wood Products and Trading 214 234
Corporate and other 41 32
Dispositions 10 10
------ -------
Total $ 2,039 $ 2,162
====== =======
See Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for information about segment sales and
operating income.
5. RECLASSIFICATIONS
Certain reclassifications of the prior period amounts have been made to
conform to the current year presentation. Effective December 31, 2000, the
Company changed its method of reporting freight revenue and costs in
compliance with Emerging Issues Task Force (EITF) Issue 00-10, "Accounting
for Shipping and Handling Fees and Costs." Freight costs are now charged
to cost of sales rather than netted against sales. The Company's financial
statements have been reclassified to reflect the increase in sales and
cost of sales of $18.5 million for the three months ended September 30,
2000, and $54.7 million for the nine months ended September 30, 2000.
On November 28, 2000, the Company announced its intention to focus on two
core businesses, Performance Fibers and Timberland Management, and
de-emphasize activities in a third segment, Wood Products and Trading.
Based upon the segment changes and the Company's intention of selling
timberlands on a more regular basis, certain items in the financial
statements have been reclassified. The gain of $23.1 million from the sale
of timberland in the first quarter of 2000 was reclassified to Land
(previously Timberland and Real Estate) and had the effect of increasing
sales by $49.6 million and cost of sales by $26.5 million. The non-cash
expenses relating to the depletion of merchantable and pre-merchantable
timber for land sales are recorded in the "Depreciation, depletion and
amortization" line of the cash flow statement, and the basis in the land
is recorded in the "Non-cash cost of land sales" line. All changes noted
herein had no effect on net income or earnings per share in the prior
period.
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 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.
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended, on January 1, 2001. The adoption did
not have a material impact on the Company's consolidated financial
position or results of operations.
In our New Zealand timber operations and at our New Zealand medium density
fiberboard ("MDF") manufacturing facility, normal operating expenses
include contractor and license fees, care and maintenance of timberlands,
salaries and wages, wood purchases and other production costs incurred in
manufacturing MDF. Rayonier hedges US/New Zealand dollar currency rate
risk with respect to these New Zealand dollar operating expenditures (cash
flow hedging).
5
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)
On September 1, 2001, the Company designated its New Zealand dollar
forward contracts as cash flow hedges of certain forecasted New Zealand
dollar cash outflows. Previous to this date, the Company marked the
contracts to market and recorded the resulting gain or loss in the
Statement of Consolidated Income. After the designation on September 1,
2001, changes in the fair value of the forward contracts were deferred and
recorded as part of "Accumulated other comprehensive income (loss)." When
the forecasted transaction comes to fruition and is recorded in earnings,
these gains or losses will be reclassified to the Statement of
Consolidated Income. The change in the forward instruments' overall fair
value attributable to time value is excluded from the measurement of the
derivatives' effectiveness and those changes are recognized in earnings
throughout the life of the contract. These amounts are recorded on the
line entitled "Interest and miscellaneous income (expense), net" in the
Statement of Consolidated Income.
In the Company's Statement of Consolidated Income for the three and nine
months ended September 30, 2001, a gain of approximately $0.4 million and
a loss of approximately $0.4 million, respectively, was recorded on
foreign currency contracts reflecting primarily mark to market adjustments
prior to designating these instruments as cash flow hedges. Time value
changes are included in these amounts and were negligible for the periods
presented. The Company recorded an after-tax loss of approximately $0.2
million in "Accumulated other comprehensive income (loss)" in the
Consolidated Balance Sheet as of September 30, 2001, as a result of
applying the aforementioned cash flow hedge accounting beginning September
1, 2001. We expect to reclassify this amount into earnings during the next
seven months as the forecasted transactions affect earnings.
At September 30, 2001, the Company held contracts maturing through May
2002 totaling $7.3 million (nominal value). The largest amount of foreign
currency forward contracts outstanding during the first nine months of
2001 totaled $17.7 million (nominal value).
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SEGMENT INFORMATION
Rayonier operates in three major business segments: Performance Fibers,
Timberland Management, and Wood Products and Trading. The Performance Fibers
segment includes two reportable business units, Cellulose Specialties and
Absorbent Materials. The Timberland Management segment includes two reportable
business units, Timber Harvest and Land (previously Timberland and Real
Estate). Prior years' segment information has been reclassified to conform
with the segment information presented in the current year.
The amounts and relative contributions to sales and operating income (loss)
attributable to each of Rayonier's reportable business units for the three
months and nine months ended September 30, 2001, and 2000, were as follows
(thousands of dollars):
Three Months Ended Nine Months Ended
September 30 September 30,
------------------- --------------------
2001 2000 2001 2000
--------- --------- --------- ---------
SALES
Performance Fibers
Cellulose Specialties $ 96,108 $ 82,952 $ 281,993 $ 256,921
Absorbent Materials 40,669 59,717 139,539 170,900
--------- --------- --------- ---------
Total Performance Fibers 136,777 142,669 421,532 427,821
--------- --------- --------- ---------
Timberland Management
Timber Harvest 41,124 40,320 152,787 153,603
Land 7,404 4,926 70,862 61,861
--------- --------- --------- ---------
Total Timberland Management 48,528 45,246 223,649 215,464
--------- --------- --------- ---------
Wood Products and Trading 93,696 85,862 269,787 308,377
Intersegment Eliminations (4,040) (4,276) (17,158) (23,654)
--------- --------- --------- ---------
TOTAL SALES $ 274,961 $ 269,501 $ 897,810 $ 928,008
========= ========= ========= =========
OPERATING INCOME (LOSS)
Performance Fibers $ 4,652 $ 22,853 $ 32,530 $ 61,362
Timberland Management
Timber Harvest 15,817 17,052 72,490 85,699
Land 5,572 3,878 40,756 32,985
--------- --------- --------- ---------
Total Timberland Management 21,389 20,930 113,246 118,684
--------- --------- --------- ---------
Wood Products and Trading (1,042) (7,696) (7,294) (10,358)
Corporate and other (2,934) (2,522) (14,017) (14,204)
--------- --------- --------- ---------
TOTAL OPERATING INCOME $ 22,065 $ 33,565 $ 124,465 $ 155,484
========= ========= ========= =========
Operating income (loss) as stated in the preceding tables and as presented in
the Statement of Consolidated Income is equal to Segment income (loss). The
income (loss) items below "Operating income" in the Statement 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.
7
RESULTS OF OPERATIONS
SALES AND OPERATING INCOME
Sales for the third quarter of 2001 were $275 million, $5 million above prior
year primarily due to higher cellulose specialties volume, Northwest U.S.
timber volume and increased wood products sales, partially offset by lower
absorbent materials volume and prices as well as weaker U.S. timber prices and
trading activity. Operating income for the third quarter was $22 million, $11
million below prior year due to the impact of lower fluff pulp prices and
volume and higher manufacturing costs for performance fibers, partially offset
by lower wood products manufacturing costs and higher land sales. Sales for
the nine months ended September 30, 2001, were $898 million, $30 million lower
compared to the same period in 2000 mainly due to weaker trading activity as
well as lower lumber, timber and fluff pulp prices, partially offset by
stronger cellulose specialties volume. Operating income for the nine months
ended September 30, 2001, was $124 million, $31 million lower than prior year
primarily due to lower fluff pulp and timber prices and higher performance
fibers manufacturing cost, partially offset by higher operating income from
land sales.
PERFORMANCE FIBERS
Sales of Performance Fibers products for the third quarter of 2001 were $137
million, $6 million lower than third-quarter 2000, while sales for the nine
months ended September 30, 2001, of $422 million, were lower by $6 million
compared to last year's results. Lower absorbent materials volume and prices
as well as slightly lower cellulose specialties prices contributed to the
decline, partially offset by increased cellulose specialties volume. Operating
income for the three and nine months ended September 30, 2001, was $5 million
and $33 million, respectively, which was $18 million and $29 million lower
compared to the prior year periods. The decline in operating income was due to
a 23 percent and 9 percent decline in average fluff pulp prices for the three
and nine months ended September 30, 2001, respectively, and higher
manufacturing costs, partially offset by higher cellulose specialty sales
volumes.
CELLULOSE SPECIALTIES
Cellulose Specialty sales of $96 million for the third quarter of 2001
were $13 million higher than the third quarter of 2000 and sales of
$282 million for the nine months ended September 30, 2001, were $25
million higher compared to the same period in 2000. The increase from
prior year for the three and nine month periods was primarily due to
16 percent and 11 percent higher sales volumes, respectively, partly
offset by slightly lower prices. Demand for our cellulose specialty
grades was strong during the quarter.
ABSORBENT MATERIALS
Absorbent Material sales of $41 million for the third quarter of 2001
were $19 million lower than the third quarter of 2000, while sales of
$140 million for the nine months ended September 30, 2001, were $31
million lower compared to the same period in 2000. The decrease from
prior year was primarily due to the weakening of fluff pulp prices and
lower sales volumes of 16 percent and 14 percent, respectively, for
the three and nine months ended September 30, 2001.
TIMBERLAND MANAGEMENT
Sales of $49 million were $3 million higher than third-quarter 2000 while
operating income of $21 million was essentially flat at last year's level.
Sales of $224 million for the nine months ended September 30, 2001, were $8
million above prior year, while operating income of $113 million was $5
million lower.
TIMBER HARVEST
Timber Harvest sales for the third quarter of 2001 were $41 million,
$1 million higher than the third quarter of 2000, with operating
income of $16 million, approximately $1 million lower than prior year.
Sales for the nine months ended September 30, 2001 were $153 million,
$1 million lower than the prior year. Operating income for the same
period declined by $13 million to $72 million. The decrease in sales
and operating income was mainly due to lower timber prices resulting
from weak lumber and export markets, partially offset by higher timber
volume.
8
LAND
Land sales of $7 million increased by $2 million over the third
quarter of 2000, while operating income of $6 million increased by $2
million due to higher acreage sold in 2001. Sales for the nine months
ended September 30, 2001 were $71 million, $9 million higher than
prior year, with operating income for the same period improving $8
million to $41 million. The increases were principally due to this
year's Pinhook sale having a higher margin than last year's large land
sale.
WOOD PRODUCTS AND TRADING
Third quarter 2001 sales were $94 million compared to $86 million in the third
quarter of 2000, while an operating loss of $1 million compared very favorably
to $8 million in losses last year. The operating loss was lower due to a
reduction in manufacturing costs. Sales for the nine months ended September
30, 2001, declined by $39 million to $270 million from the prior year, however
this year's operating loss of $7 million was $3 million improved over the
prior year. The lower operating loss compared to the prior nine month period
was also due to lower manufacturing costs, partly offset by weaker trading
margins and lower lumber prices.
CORPORATE AND OTHER
Corporate and other expenses for the third quarter and the nine months ended
September 30, 2001, of $3 million and $14 million, respectively, were
essentially flat compared to the prior year.
OTHER INCOME / EXPENSE
Interest expense for the third quarter of 2001 was $16 million, a decrease of
$4 million from the third quarter of 2000 due to lower average debt and lower
interest rates. Similarly, interest expense for the nine months ended
September 30, 2001, declined by $12 million to $53 million versus the prior
year, principally due to lower average debt.
Miscellaneous income (expense) for the third quarter of 2001 was $1 million,
an improvement of $3 million over the prior year's quarter, and $1 million for
the nine months ended September 30, 2001, an improvement of $4 million over
2000. The improvement for both the third quarter of 2001 and the nine months
ended September 30, 2001, was primarily due to favorable variances in the
remeasurement of New Zealand dollar forward contracts and the impact of
designating foreign currency forwards as hedges under SFAS No. 133 as of
September 1, 2001.
The effective tax rate for the third quarter of 2001 was 9.4 percent, while a
tax benefit of $1.5 million was recorded on income of $10.6 million in the
prior year quarter. In the current quarter, a revision was made to the
estimate of the annual effective tax rate for the year. Last year, the Company
reduced its annual effective tax rate following the resolution of certain
outstanding tax issues. These reductions resulted in effective tax rates of
31.7 percent and 25.7 percent for the nine months ended September 30, 2001,
and 2000, respectively. The Company's effective tax rate continues to be below
U.S. statutory rates due to lower tax rates in effect for foreign subsidiaries
and the impact of various tax credits.
NET INCOME
Net income for the third quarter of 2001 was $6 million, or $0.22 per diluted
common share, compared to $12.1 million, or $0.44 per diluted common share,
for the third quarter of 2000, primarily due to lower absorbent materials
prices, higher performance fibers manufacturing cost and a higher effective
tax rate. These were partially offset by higher wood products earnings, lower
interest expense and the favorable translation impact of a stronger New
Zealand dollar. Net income for the nine months ended September 30, 2001, was
$49.7 million, or $1.80 per diluted common share, compared to $65.0 million,
or $2.34 per diluted common share, for the nine months ended September 30,
2000. Net income was lower primarily due to lower timber and performance
fibers prices (mainly fluff pulp), higher performance fibers manufacturing
cost and lower trading activity, partially offset by higher cellulose
specialties and timber volume.
9
OTHER ITEMS
The strong dollar and continuing weak global economy make it difficult to
predict when overall market conditions will improve. As a result, fourth
quarter earnings are likely to be comparable to the third quarter. However,
strong demand for our high-value cellulose specialty products is expected to
continue.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operating activities of $210 million for the first nine
months of 2001 decreased $5 million compared to the first nine months of 2000.
Lower income, partially offset by a decrease in working capital, accounted for
the change. Cash provided by operating activities financed capital
expenditures of $59 million, dividends of $29 million, share repurchases of $2
million and a net debt reduction of $118 million. Cash flow used for investing
activities for the first nine months of 2001 of $53 million was $2 million
higher than 2000 primarily due to a lower decrease in timber purchase
agreements and other assets, partially offset by lower capital expenditures.
Cash flow used for financing activities for the nine months ended September
30, 2001, was $142 million, a decrease of $30 million from 2000. This was due
to lower repurchases of common shares and an increase in the issuance of
common shares in 2001, and higher net debt repayments in 2000.
The Company repurchased 52,900 of its common shares during the third quarter
and the nine months ended September 30, 2001, at an average price of $38.39 or
a total cost of $2 million. The Company repurchased 204,500 of its shares
during the third quarter of 2000 at an average price of $40.41 or a total cost
of $8 million, and 433,000 shares during the nine months ended September 30,
2000, at an average cost of $40.70 or a total cost of $18 million.
At September 30, 2001, debt was $855 million, a reduction of $118 million from
December 31, 2000, and the debt-to-capital ratio was 54.8 percent compared to
58.9 percent at December 31, 2000. As of September 30, 2001, Rayonier had $375
million available under its revolving credit facilities. The Company is
currently re-negotiating one of these facilities and intends to lower the
total amount available under these facilities to $300 million.
In addition, the Company has on file with the Securities and Exchange
Commission shelf registration statements to offer $150 million of new public
debt securities. The Company believes that internally generated funds,
combined with available external financing, will enable Rayonier to fund
capital expenditures, share repurchases, working capital and other liquidity
needs for the foreseeable future.
OTHER DATA
EBITDA (defined as earnings from continuing operations before significant
non-recurring items, provision for dispositions, interest expense, income
taxes, depreciation, depletion, amortization and the non-cash cost of land
sales) for the first nine months of 2001 was $274 million, $21 million lower
than the first nine months of 2000. The decrease in EBITDA was primarily due
to lower absorbent materials and timber prices partly offset by higher
cellulose specialties and timber volumes in 2001. Free cash flow (defined as
EBITDA plus significant non-recurring items, less income taxes, interest
expense, change in working capital, long-term assets and liabilities,
custodial capital spending and prior-year dividend levels) decreased $28
million, to $131 million for the first nine months of 2001, when compared to
the same period last year.
ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and
Statement No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
addresses financial and reporting issues for business combinations. SFAS No.
142 addresses how intangible assets should be accounted for in financial
statements upon their acquisition. The adoption of SFAS No. 141 in the third
quarter of 2001 did not have an impact on the Company's financial statements
and the adoption of SFAS No. 142 on January 1, 2002, is not expected to have
an impact either.
Also in July 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." This statement requires entities to record a legal
obligation associated with the retirement of a tangible long-lived asset in
the period in which it is incurred. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The Company will adopt the standard effective
January 1, 2003, and is currently assessing the impact on its operations.
10
In September 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-lived Assets." SFAS No. 144 supersedes SFAS No. 121 and APB
Opinion No. 30, but retains their fundamental provisions. The statement is
effective for fiscal years beginning after December 15, 2001, and the Company
will adopt it effective January 1, 2002. The adoption is not expected to
have an impact on the Company's financial statements.
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,
as noted above, in accordance with policies and procedures approved by 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 also Note 6, "Financial Instruments" included in this Form 10-Q.
Circumstances surrounding the Company's exchange rate risk, commodity price
risk and interest rate risk remain unchanged from December 31, 2000. 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 2000 Annual Report on Form 10-K.
SAFE HARBOR
Comments about market trends, anticipated earnings, expected pricing levels
and future activities, such as land sales and timber harvest and production
levels, 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 that could impact customer
demand; interest rate and currency movements; fluctuations in demand for
cellulose specialties and absorbent materials, export and domestic logs, and
wood products; the impact of such market factors on the company's timber sales
in the U.S. and New Zealand; adverse weather conditions; production costs for
wood products and for performance fibers, particularly for raw materials such
as wood, energy and chemicals; and 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
most recent Form 10-K on file with the Securities and Exchange Commission.
11
ITEM 5. SELECTED OPERATING DATA
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ------------ ------------ -----------
PERFORMANCE FIBERS
Pulp Sales Volume
Cellulose specialties, in thousands of metric tons 111 95 324 291
Absorbent materials, in thousands of metric tons 69 82 216 250
Production as a percent of capacity 88.2% 103.4% 96.4% 102.9%
TIMBERLAND MANAGEMENT
Timber sales volume
Northwest U.S., in millions of board feet 48 26 185 180
Southeast U.S., in thousands of short green tons 1,184 1,237 4,430 3,373
New Zealand, in thousands of cubic meters 380 370 983 912
Intercompany timber sales volume
Northwest U.S., in millions of board feet 10 6 45 45
Southeast U.S., in thousands of short green tons 2 4 32 27
New Zealand, in thousands of cubic meters 186 177 494 440
WOOD PRODUCTS AND TRADING
Lumber sales volume, in millions of board feet 79 51 199 186
Medium-density fiberboard sales volume,
in thousands of cubic meters 37 37 113 113
Log trading sales volume
North America, in millions of board feet 42 42 128 166
New Zealand, in thousands of cubic meters 250 348 713 897
Other, in thousands of cubic meters 31 41 263 246
12
SELECTED SUPPLEMENTAL FINANCIAL DATA (MILLIONS OF DOLLARS, EXCEPT PER SHARE
DATA)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2001 2000 2001 2000
------------ ------------ ----------- -----------
GEOGRAPHICAL DATA (NON-U.S.)
Sales
New Zealand $ 28.6 $ 30.7 $ 78.8 $ 82.6
Other 5.0 8.0 30.2 37.5
------------ ------------ ----------- -----------
Total $ 33.6 $ 38.7 $ 109.0 $ 120.1
============ ============ =========== ===========
Operating Income (Loss)
New Zealand $ 1.6 $ (0.4) $ 2.2 $ (1.9)
Other (0.8) (0.5) (1.6) (0.2)
------------ ------------ ----------- -----------
Total $ 0.8 $ (0.9) $ 0.6 $ (2.1)
============ ============ =========== ===========
TIMBERLAND MANAGEMENT
Sales
Northwest U.S. $ 11.4 $ 8.4 $ 49.6 $ 64.4
Southeast U.S. 28.4 29.5 152.3 133.6
New Zealand 8.8 7.3 21.8 17.5
------------ ------------ ----------- -----------
Total $ 48.6 $ 45.2 $ 223.7 $ 215.5
============ ============ =========== ===========
Operating Income
Northwest U.S. $ 6.7 $ 5.3 $ 35.5 $ 52.3
Southeast U.S. 12.4 12.7 72.3 60.7
New Zealand 2.3 2.9 5.5 5.7
------------ ------------ ----------- -----------
Total $ 21.4 $ 20.9 $ 113.3 $ 118.7
============ ============ =========== ===========
EBITDA PER SHARE
Performance Fibers $ 0.83 $ 1.52 $ 3.23 $ 4.23
Timberland Management 1.45 1.40 7.11 6.96
Wood Products and Trading 0.10 (0.09) 0.13 0.07
Corporate and other (0.08) (0.18) (0.53) (0.65)
------------ ------------ ----------- -----------
Total $ 2.30 $ 2.65 $ 9.94 $ 10.61
============ ============ =========== ===========
13
PART II. OTHER INFORMATION
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:GERALD J. POLLACK
-----------------
Gerald J. Pollack
Senior Vice President and
Chief Financial Officer
(Chief Accounting Officer)
November 13, 2001
14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
- ---------- ----------- --------
2 Plan of acquisition, reorganization, None
arrangement, liquidation or succession
3.1 Amended and restated articles of incorporation No amendments
3.2 By-laws No amendments
4 Instruments defining the rights of security holders, Not required to be filed. The
including indentures Registrant hereby agrees to file
with the Commission a copy of
any instrument defining the
rights of holders of the
Registrant's long-term debt upon
request of the Commission.
10.23 Change in control agreement for W. Lee Nutter Filed herewith
11 Statement re: computation of per share earnings Not required to be filed
12 Statement re: computation of ratios Filed herewith
15 Letter re: unaudited interim financial information None
18 Letter re: change in accounting principles None
19 Report furnished to security holders None
22 Published report regarding matters None
submitted to vote of security holders
23 Consents of experts and counsel None
24 Power of attorney None
99 Additional exhibits None
15
EXHIBITS