1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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
1177 SUMMER STREET, STAMFORD, CT. 06905-5529
(Principal Executive Office)
Telephone Number: (203) 348-7000
Securities registered pursuant to Section 12(b) of the Act,
all of which are registered on the New York Stock Exchange:
Common Shares
7.5% Notes, due October 15, 2002
Medium Term Notes, due 1998-1999
Securities registered pursuant to Section 12(g) of the Act: None
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 and (2) has been subject to such filing
requirements for the past 90 days.
YES (x) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the Common Shares of the registrant held by
non-affiliates of the Registrant on March 15, 1994 was approximately $953
million.
As of March 15, 1994, there were outstanding 29,565,392 Common Shares of the
Registrant.
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TABLE OF CONTENTS
ITEM PAGE
PART I
1. Business 1
2. Properties 9
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 10
PART II
5. Market for the Registrant's Common Equity and
Related Stockholder Matters 10
6. Selected Financial Data 11
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
8. Financial Statements and Supplementary Data 19
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 20
PART III
10. Directors and Executive Officers of the Registrant 20
11. Executive Compensation 24
12. Security Ownership of Certain Beneficial Owners and Management 33
13. Certain Relationships and Related Transactions 33
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 35
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INDEX TO FINANCIAL STATEMENTS
Report of Management F-1
Report of Independent Public Accountants F-2
Statements of Consolidated Income for the
Three Years Ended December 31, 1993 F-3
Consolidated Balance Sheets as of
December 31, 1993 and 1992 F-4 to F-5
Statements of Consolidated Retained Earnings
and Statements of Consolidated Common Shares
and Cumulative Preferred Stock for the
Three Years Ended December 31, 1993 F-6
Statements of Consolidated Cash Flows for the
Three Years Ended December 31, 1993 F-7
Notes to Consolidated Financial Statements F-8 to F-19
INDEX TO FINANCIAL STATEMENT SCHEDULES
(All schedules not listed below have been omitted because they are not
applicable, the required matter is not present, the amounts are insignificant
or immaterial, or the information has been otherwise supplied in the financial
statements or the notes thereto.)
Schedule V - Property, Plant and Equipment S-1 to S-2
Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant
and Equipment S-3 to S-4
Schedule X - Supplementary Income Statement Information S-5
Signatures A
Exhibit Index B to C
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PART I
ITEM 1. BUSINESS
GENERAL
Rayonier Inc. (Rayonier or the Company) is a leading international forest
products company primarily engaged in the trading, merchandising and
manufacture of logs, timber and wood products, and in the production and sale
of high value added specialty pulps. In 1993, timber and wood products
accounted for 51 percent of sales and pulp products accounted for 49 percent of
sales. For further data on sales, operating income and identifiable assets by
segment, see Item 7- "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 17 of the accompanying Notes to
Consolidated Financial Statements.
Rayonier traces its origin to the founding of Rainier Pulp and Paper Company in
Shelton, Washington, in 1926. With the consolidation of several pulp companies
in 1937, the Company became "Rayonier Incorporated", a corporation whose stock
was publicly traded on the New York Stock Exchange (NYSE) until Rayonier became
a wholly owned subsidiary of ITT Corporation (ITT) in 1968. On February 28,
1994 (the Distribution Date), Rayonier again became an independent company when
ITT distributed all of the Common Shares of Rayonier to ITT stockholders.
Rayonier shares are publicly traded on the NYSE under the symbol "RYN."
Rayonier owns, leases or controls approximately 1.5 million acres of timberland
in the United States and New Zealand. In addition, the Company operates three
pulp mills and two lumber manufacturing facilities in the United States. In
1992 the Company made two strategic moves to better balance operating assets
between pulp products and its more stable timber and wood products business. In
May 1992, the Company acquired long-term harvest rights to approximately
250,000 acres of timberland in New Zealand, and in the fourth quarter of 1992,
permanently terminated operations at the Grays Harbor Pulp Mill and Vanillin
plant, and the associated Grays Harbor Paper Company (collectively referred to
as the Grays Harbor Complex).
With customers in over 60 countries, more than half of Rayonier's 1993 sales of
$936 million were shipped to customers outside of the United States, with Asian
and Western European customers representing 36 percent and 12 percent of total
sales in 1993, respectively.
Rayonier is a North Carolina corporation with its principal executive offices
at 1177 Summer Street, Stamford, CT 06905- 5529, and its telephone number is
(203) 348-7000.
TIMBER AND WOOD PRODUCTS
Rayonier owns, buys and harvests timber stumpage, and purchases delivered logs,
in North America and New Zealand, for subsequent sale into export markets
(primarily to Japan, Korea and China), as well as to domestic lumber and pulp
mills. Rayonier also produces dimension and specialty lumber products for
residential construction and industrial uses.
Rayonier participates in the worldwide timber and wood products business in
three specific ways:
Log Trading and Merchandising -- The Company harvests logs from Company owned
parcels and from third party parcels on which the Company has acquired cutting
rights, and purchases logs on the open markets. The Company then subsequently
packages and sells these logs throughout the world.
Timberlands Management and Stumpage (Standing Timber) Sales -- The Company
manages owned, leased and otherwise controlled timber properties and, after
scientifically growing and nurturing the trees to their economic peak, sells
the cutting rights to the timber on these properties at market prices through
auction or negotiation.
Wood Products Sales -- The Company manufactures and sells lumber products for
construction and other uses both domestically and in international markets.
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Sales for the last three years by principal line of business are shown below
(in millions of dollars):
Sales
--------------------------------------
Timber and Wood Products 1993 1992 1991
------------------------ ---- ---- ----
Log Trading and Merchandising $365 $301 $294
Timberlands Management and Stumpage
(Standing Timber) Sales 120 123 106
Wood Products Sales 47 33 24
-- -- --
Total Before Intrasegment
Eliminations 532 457 424
Intrasegment Eliminations (16) (14) (22)
--- --- ---
Total $516 $443 $402
=== === ===
LOG TRADING AND MERCHANDISING
Rayonier is a leading supplier and exporter of softwood logs. Rayonier buys and
harvests timber stumpage (cutting rights to standing timber) principally in
Northwest North America from third parties as well as from Company sources on
an arms-length basis, competitively auctioned or negotiated. The Company also
purchases, merchandises and sells purchased logs from New Zealand, both
domestically in New Zealand as well as in export markets. The sale of logs
accounted for approximately 71 percent of the Timber and Wood Products
segment's sales in 1993. In 1993, 64 percent of New Zealand's sales came from
Company-managed timberlands. In North America 8 percent was directly sourced
from Rayonier's timberlands, however, approximately another 2 percent is
purchased as logs from local dealers who had, in turn, purchased their cutting
rights from the Company's timberland stumpage sales.
The logs harvested and purchased are sold into export markets (primarily to
Japan, Korea and China), as well as to pulp and lumber mills in domestic
markets. The Company also trades Canadian and Russian timber. During 1993,
approximately 83 percent of the revenues Rayonier derived from the sale of logs
were from logs sold to export markets.
TIMBERLANDS MANAGEMENT AND STUMPAGE (STANDING TIMBER) SALES
Rayonier manages timberlands, scientifically growing and nurturing tree stands
until their economic peak for specific markets. The average rotation age for
timber destined for export markets from the Northwestern United States is 50
years (primarily hemlock and Douglas fir species). The average rotation age for
timber from the Southeastern United States is 25 years for timber sold to
sawmills and 20 years for pulp wood destined for pulp and paper mills. The
Company manages its timberlands on a sustainable yield basis in conformity with
forest industry practices.
The Company is organized to regularly sell timber stumpage in North America
through auction processes predominately to third parties. By requiring the
Company's other business sectors (e.g., Specialty Pulp Products and Log Trading
and Merchandising) to competitively bid on the stumpage, the Company believes
it can maximize the true economic return on its investment.
Also key to the success of the Company's management of timberlands has been the
extensive application of Rayonier's silvicultural expertise to species
selection for plantations, soil preparation, thinning of timber stands, pruning
of selected species and careful timing of harvest, all designed to maximize
growth and forest yields while responding to environmental needs.
As of December 31, 1993, Rayonier managed approximately 1.5 million acres of
timberlands, with approximately 863,000 acres or 58 percent located in the
Southeastern United States, approximately 379,000 acres or 25 percent located
in the Pacific Northwest (see "Rayonier Timberlands, L.P.") and approximately
253,000 acres or 17 percent located in New Zealand.
The 863,000 acres of Southeastern timberlands are located primarily in Georgia
and Florida. Their proximity to a large number of pulp, paper and lumber mills
results in significant competition for the purchase of Rayonier's timber.
Approximately 726,000 acres are owned in fee and 137,000 acres are held under
long-term leases. The Southeastern timberlands include approximately 554,000
acres of pine plantations, 290,000 acres of hardwood lands and 19,000
non-forest acres (representing main line and access roads and other acreage not
suitable for forest development). Approximately
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60 percent of the timber harvest is pulpwood, which is destined for pulp mills,
with the remaining 40 percent being higher value sawlogs, which are sold to
sawmills. Over the last five years the Company, through advanced silvicultural
practices, has been able to increase the amount of timber volume per acre
available for harvest from its Southeastern timberlands by approximately 2-3
percent per year and expects this trend to continue.
The 379,000 acres of the Company's Northwestern timberlands are located
primarily on the Olympic Peninsula in Washington state, are all owned in fee
and consist almost entirely of second-growth trees. The dramatic reduction of
Northwest federal timber supply due to a shift to preservationist management
has significantly increased demand on all alternative private timber supply,
including that of the Company. These timberlands include approximately 322,000
acres of softwood stands, approximately 70 percent of which is hemlock and 30
percent Douglas fir, western red cedar and white fir. The Northwestern
timberlands also include approximately 19,000 acres of hardwood timber stands,
consisting principally of alder and maple. The remaining 38,000 acres are
classified as non-forest lands.
On May 15, 1992, Rayonier, through its wholly owned New Zealand subsidiary,
purchased for approximately $197 million from the New Zealand government forest
assets consisting primarily of Crown Forest licenses providing the right to
utilize approximately 250,000 acres of New Zealand plantation forests for a
minimum period of 35 years. Most of these timberlands consist of radiata pine
trees, with a planting-to-harvesting time of approximately 27 years,
well-suited for the highest quality lumber and panel products. These trees
typically produce up to twice as much fiber per acre, per year as the most
productive commercial tree species in the United States. Rayonier intends to
grow and harvest the New Zealand timber for both domestic New Zealand uses and
for export primarily to Pacific Rim markets. The Company believes the
acquisition was an important strategic initiative, in that it increased
Rayonier's assets employed in the Timber and Wood Products segment from 29
percent to 40 percent of total assets from 1991 to 1992, further reducing the
effects of the Specialty Pulp Products segment's cyclicality on Rayonier's
earnings and cash flows because of the more stable characteristics of the
timber stumpage business.
Rayonier seeks to maximize timberland value through reforestation and intensive
silvicultural research to improve tree growth and to systematically manage the
timberlands investment cycle by optimizing the economic returns on a species,
site and market driven basis. Management of the Company's forest resources
includes the annual planting of millions of genetically improved seedlings
developed at Rayonier or cooperative nurseries.
WOOD PRODUCTS SALES
Rayonier's two Georgia lumber mills located at Baxley and Swainsboro convert
southern yellow pine timber into dimension and specialty lumber products for
residential construction and industrial uses. The Baxley mill utilizes modern
and technologically advanced equipment, including computer and laser
technology. The other lumber mill (an integrated complex located at Swainsboro
and Lumber City, Georgia) was acquired in October 1993. The mills have a
combined annual capacity of approximately 200 million board feet of lumber and
an annual output of approximately 483,000 tons of wood chips for pulping. The
mills sell their lumber output primarily in Southeastern markets. Their entire
wood chip production, however, is shipped to Rayonier's Jesup, Georgia pulp
facility and accounts for approximately 20 percent of Jesup's pine chip
consumption. The sale of lumber accounted for approximately 9 percent of the
Timber and Wood Products segment's sales in 1993.
Sales of logs and lumber in the Timber and Wood Products segment are made
directly by Rayonier sales personnel to customers, although sales to certain
export locations are made through agents.
SPECIALTY PULP PRODUCTS
Rayonier is a leading specialty manufacturer of chemical cellulose, often
called dissolving pulp, from which customers produce a wide variety of
products, principally textile, industrial and filtration fibers, plastics and
other chemical intermediate industrial products. Rayonier believes that it is
one of the world's largest manufacturers of high grade chemical cellulose.
Rayonier also manufactures fluff pulps that customers use to produce diapers
and other sanitary products, and specialty paper pulps used in the manufacture
of products such as filters and decorative laminates.
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Sales for the last three years, by principal line of business are shown below
(in millions of dollars):
Sales
--------------------------------------
Specialty Pulp Products 1993 1992 1991
----------------------- ---- ---- ----
Chemical Cellulose $279 $307 $325
Fluff and Specialty Paper Pulps 183 218 228
--- --- ---
Total $462 $525 $553
=== === ===
Rayonier manufactures more than 25 different grades of pulp. The Company owns
and operates three wood pulp mills which have an aggregate annual capacity of
approximately 826,000 metric tons. Rayonier's wood pulp production facilities
are able to manufacture a broad mix of products to meet customers' needs. The
Company owns wood pulp production facilities in Jesup, Georgia; Fernandina
Beach, Florida; and Port Angeles, Washington. The Jesup facility, a kraft mill
that began operations in 1954 and was subsequently significantly expanded and
modernized, today accounts for approximately 530,000 metric tons of annual wood
pulp production capacity, or 64 percent of Rayonier's current total. The
Fernandina Beach facility began operations in 1939 and accounts for
approximately 146,000 metric tons of annual wood pulp production capacity, or
18 percent of Rayonier's current total. The Port Angeles facility began
operations in 1929 and accounts for approximately 150,000 metric tons of annual
wood pulp production capacity, or 18 percent of Rayonier's current total.
Rayonier does not convert its pulps into finished products but instead
concentrates on the production of specialty market pulps that are sold to
industrial companies producing a wide variety of products. Rayonier
manufactures its specialty pulp products to customers' specifications.
Approximately half of Rayonier's pulp sales are to export customers, with the
more important overseas markets being Western Europe (23 percent of sales) and
Japan (12 percent of sales). Over 90 percent of specialty pulp sales are made
directly by Rayonier sales personnel. In certain of the Company's export
locations, sales are made with the aid of agents.
CHEMICAL CELLULOSE
Rayonier is one of the world's leading producers of chemical cellulose, often
called dissolving pulp, which is a highly-purified form of pulp. Chemical
cellulose is used in a wide variety of products such as textile fibers, rigid
packaging, photographic film, impact-resistant plastics, high tenacity rayon
yarn for tires and industrial hoses, pharmaceuticals, cosmetics, detergents,
sausage casings, food products, thickeners for oil well drilling muds,
cigarette filters, lacquers, paints, printing inks and explosives. Chemical
cellulose accounted for approximately 60 percent of the Company's Specialty
Pulp Products' sales in 1993.
Within the chemical cellulose industry, Rayonier concentrates on the most
highly valued, technologically demanding end uses, such as cellulose acetate
and high purity cellulose ethers. In each of these markets, Rayonier believes
it is the leading supplier.
FLUFF AND SPECIALTY PAPER PULPS
Rayonier believes it is one of the top five suppliers to the fluff pulp sector.
Fluff pulp is used as an absorbent medium in products such as disposable baby
diapers, personal sanitary napkins, incontinent pads, convalescent bed pads,
industrial towels and wipes and non-woven fabrics. Fluff pulp accounted for
approximately 33 percent of the Company's pulp sales in 1993.
Rayonier is a major producer of specialty paper pulps and produces a small
volume of regular paper pulp. Customers use Rayonier's specialty paper pulps to
manufacture paper for decorative laminates for counter tops, shoe innersoles,
battery separators, circuit boards, air and oil filters and filter media for
the food industry. Specialty paper pulp sales were 5 percent of Rayonier's
total pulp sales in 1993. A small volume of regular paper pulp, less than 2
percent of total Company pulp sales, is used in the manufacture of bond, book
and printing paper.
PULP PRICING
Rayonier believes pulp industry prices are currently at or near a cyclical low.
On an inflation adjusted basis such prices are at or below historical lows.
However, while Rayonier's pricing has been adversely impacted, the Company's
higher value pulps are significantly less cyclical than commodity paper pulp.
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Because Rayonier is a non-integrated market pulp producer, its high value
product mix pricing trends tend to lag (on both the upturn and downturn) pulp
and paper industry trends which are dominated by paper, paperboard and
newsprint products. Over the past ten to twelve years, compared to commodity
paper pulp prices, the Company's price trends for fluff grades have lagged by
one to two quarters and for chemical cellulose by three to four quarters.
FOREIGN SALES AND OPERATIONS
Rayonier relies on foreign markets for its pulp and timber products with
approximately 50 percent of its sales going to foreign customers during the
past five years. In 1993, Asian markets accounted for 30 percent of U.S. sales
and Western Europe 12 percent. Exports, primarily to Asian markets, also
accounted for 78 percent of Rayonier's New Zealand sales. The Company is
therefore reasonably dependent upon strong economic growth in all international
markets including that of the United States. With alternate markets in Latin
America and the Middle East, however, the Company has been able to spread its
geographical risk when specific markets have entered economic recessions.
In recent years, substantially all of Rayonier's operating activities have been
in the United States. In May 1992, the Company purchased timber rights in New
Zealand, significantly increasing its overseas assets. Overseas assets
amounted to 15 percent of total assets as of the end of 1993, and Rayonier's
sales from non-U.S. sources in 1993 were 10 percent of total sales.
The following tables summarize the sales, operating income and identifiable
assets of the Company by geographical operating area for the three years ended
December 31, 1993 (in millions of dollars):
Sales
--------------------------------------
1993 1992 1991
---- ---- ----
United States $839 $ 944 $ 968
New Zealand 93 30 11
All other 4 - -
---- ----- -----
Total $936 $ 974 $ 979
=== ===== =====
Operating Income (Loss) Identifiable Assets
---------------------------- -----------------------------
1993 1992 1991 1993 1992 1991
---- ---- ---- ---- ---- ----
United States $103 $(89) $ 99 $1,24 $1,271 $1,367
New Zealand 27 5 1 226 205 5
All other (3) (3) (3) 1 - -
--- --- --- ----- ----- -----
Total $127 $(87) $ 97 $1,475 $1,476 $1,372
=== === === ===== ===== =====
Reference is also made to Note 17 of the accompanying Notes to Consolidated
Financial Statements.
DISPOSITIONS/DISCONTINUED OPERATIONS
Dispositions/Discontinued Operations includes units and site facilities no
longer considered integral to Rayonier's business strategy. This segment
includes operations of Rayonier's wholly owned subsidiary, Southern Wood
Piedmont Company (SWP), the Grays Harbor Complex and other miscellaneous
operations held for disposition.
Management made a determination effective December 31, 1986, to phase out and
discontinue SWP, its treated wood and preserving business subsidiary,
establishing an after-tax provision for its discontinuation. Increases to the
after-tax provision were recorded in 1988 and 1990, primarily as a result of
revisions in Rayonier's estimate of environmental costs for closure,
post-closure, and corrective action programs at SWP. Rayonier's financial
statements reflect SWP as a discontinued operation.
Rayonier is currently actively involved in implementing cleanup and closure
programs for SWP in compliance with the Resource Conservation and Recovery Act
(RCRA) and is in negotiations with Federal and state environmental agencies on
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such programs. The costs of the corrective action and closure programs at SWP's
nine primary manufacturing locations are affected by many factors, which has
led to increases in the reserves for such programs in the past, and may result
in increases in the future, as the effectiveness of the existing cleanup
programs is measured against applicable standards. Expenditures for such
programs will also depend on new laws, regulations and administrative
interpretations, governmental responses to programs proposed by Rayonier and
changes in environmental control technology. Although considerable progress on
cleanup was made by year-end 1993, in particular at three of SWP's nine
locations where the installation of corrective action facilities has been
completed, there is still uncertainty as to the timing and amount of
expenditures beyond 1993 at these sites and the extent and timing for
completing programs at all sites.
In 1992, Rayonier provided $180 million, pre-tax, for the loss on disposal of
assets along with the costs for severance, demolition and other close down
items associated with the disposition of the Grays Harbor Complex. In August
1993 a portion of the Grays Harbor Complex was sold for cash and notes. The
Company is still completing demolition, personnel termination, environmental
remediation and other closure programs.
As of December 31, 1993 the Company had $76 million reserved for discontinued
operations and units held for disposition. Subject to the uncertainties
discussed above, the Company believes that its reserves established to divest
or close all of these business activities are adequate. The Company further
believes that future change in estimates, if necessary, will not materially
affect the financial condition of the Company.
RAYONIER TIMBERLANDS, L.P.
In the United States, Rayonier manages timberlands and sells timber stumpage
directly through Rayonier Timberlands, L.P. (RTLP), a publicly traded master
limited partnership. Rayonier and Rayonier Forest Resources Company (RFR), a
wholly owned subsidiary, are the general partners of RTLP. Rayonier also owns
74.7 percent of the Class A Limited Partnership Units, the remaining 25.3
percent being publicly held. Class A Units participate principally in the
revenues, expenses and cash flow associated with RTLP's sales of timber through
December 31, 2000 and to a significantly lesser extent in subsequent periods.
RTLP's sales of timber after that date as well as cash flow associated with
land management activities before and after that date are principally allocable
to the Class B Limited Partnership Units, all of which have been retained by
Rayonier. RTLP, through Rayonier Timberlands Operating Company, L.P., owns,
leases and manages timberlands in the Southeastern and Northwestern United
States previously owned or leased by Rayonier, sells timber stumpage from such
timberlands and from time to time purchases and sells timberlands. RTLP's
timberlands provide a major source of wood used in Rayonier's other businesses.
Since RTLP is majority owned by the Company, RTLP is included in the Company's
consolidated financial statements as a consolidated entity. The Company's
investment in RTLP as of December 31, 1993 was $219 million, on the basis of
historical cost.
PATENTS
Rayonier has a large number of patents which relate primarily to its products
and processes. It also has pending a number of patent applications. Although,
overall, Rayonier's patents are of importance in the operation of its business,
Rayonier does not consider any of its patents or group of patents relating to a
particular product or process to be of material importance from the standpoint
of Rayonier's total business.
COMPETITION AND CUSTOMERS
Rayonier has for many years targeted the Pacific Rim as a market for its timber
and wood products. Rayonier has been involved in the marketing of pulp products
in Japan since the 1930's and in Korea and China for over 15 years. With the
acquisition of the New Zealand timberland assets described above, Rayonier
believes it is in a better position to service its existing and future Pacific
Rim customers.
The Company's domestic timberlands are located in two major timber growing
regions of the United States (the Southeast and the Northwest), where timber
markets are fragmented and very competitive. In the Northwest, stumpage sold by
Hancock Insurance Company and from Washington state owned public forests is the
most significant competition. In both the Northwest and Southeast, smaller
forest products companies and private land owners compete with the Company.
Price is the principal method of competition in this market.
Export markets for Rayonier's logs are equally competitive, with logs available
to customers from several countries and from several suppliers within each
country. Within New Zealand, major competitors include Carter Holt Harvey
Limited, Fletcher Challenge Limited and New Zealand Forestry Corporation.
Weyerhaeuser Company, International Paper
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Company and Cavenham Forest Industries, Inc. are the principal competitors to
Rayonier in the log trading business. Log customers may switch species of logs
from those sold by Rayonier to other lower-cost species sourced elsewhere.
Price is the principal method of competition with respect to the acquisition of
logs or stumpage for resale, and price and customer relationships are important
methods of competition in the sale of logs to final customers.
Rayonier's wood products, in particular lumber, compete with the products of
numerous companies, many of which are larger and have greater resources than
Rayonier. Such lumber also competes with alternative construction materials. In
most of the markets in which Rayonier is engaged, competition is primarily
through price, quality, customer relationships and technical service.
Rayonier is a major producer of specialty pulp products, including chemical
cellulose, fluff and specialty paper pulps (for example, pulps for filtration
papers) and is only a minor producer of regular paper making pulp. The
Company's products are marketed worldwide against strong competition from
domestic and foreign producers. Some of Rayonier's major competitors are
Georgia-Pacific Corporation, International Paper Company, Weyerhaeuser Company,
Buckeye Cellulose Corporation and Stora Kopparbergs Bergslags AB. Product
performance, pricing and, to a lesser extent, technical service are the
principal methods of competition.
Rayonier sells its pulp products primarily to a diversified group of major
domestic and foreign companies, with no single customer accounting for more
than 8 percent of total sales. In 1993, 46 percent of pulp product sales were
to North America, 23 percent to Western Europe, 12 percent to Japan and 10
percent to Latin America.
ENVIRONMENTAL MATTERS
Rayonier's current and future operations are closely linked with the
environment. Timber regeneration, wildlife protection, recycling and waste
reduction, energy conservation and compliance with increasingly stringent
environmental standards are significant factors affecting operations. As a
result, Rayonier closely monitors all of its environmental responsibilities,
together with trends in environmental laws.
Historically, Rayonier has invested substantial capital in order to comply with
Federal, state and local environmental laws and regulations. During 1993,
1992, 1991 and 1990, capital expenditures attributable to environmental
compliance amounted to $3 million, $25 million, $43 million and $15 million,
respectively. By making the anticipated expenditures for its ongoing pollution
abatement program, Rayonier believes that it will continue to meet the
environmental standards now applicable to its various facilities. Failure to
meet applicable pollution control standards could result in interruption or
suspension of operations of the affected facilities, or could require
additional capital expenditures at these facilities in the future.
Rayonier believes that the Clean Air Act Amendments of 1990 (the CAAA) will
require substantial capital expenditures by the pulp and paper industry over
the next ten years. In particular, regulations recently proposed by the U.S.
Environmental Protection Agency (the EPA) would require incineration of
volatile pulp mill emissions and scrubbing of similar emissions from bleach
plants. While Rayonier has some of the technology to meet these proposed
regulations in place, it believes that certain parts of this proposal are not
based on sound technology and are outside the authority of the law that the EPA
seeks to apply. During the regulatory comment period, Rayonier expects to file
comments with the EPA documenting this position and seeking to have the EPA
modify these proposed regulations.
Rayonier believes that many provisions of these proposed regulations, if
adopted in their current form, would also require substantial modifications in
the operations of most mills within the industry. Other provisions of the CAAA
will require more stringent monitoring of mill emissions than has previously
been required in order to demonstrate compliance with air permits to be issued
under Title V of the CAAA. These permits will apply emission limitations on a
facility-wide basis to each of Rayonier's mill operations.
The EPA is also revising effluent guidelines applicable to pulp and paper
facilities under the Clean Water Act (the CWA). The proposed regulations, which
are designed to reduce or eliminate the discharge of chlorinated organics, are,
in some cases, based on technological requirements which would prevent Rayonier
from meeting certain product quality specifications for substantially all of
its chemical cellulose products and in other cases will increase the cost of
making such products. Sales of the Company's chemical cellulose products
accounted for approximately 30 percent of the Company's total 1993 sales.
Rayonier expects to file comments with the EPA during the CWA regulatory
comment period to challenge the technical and legal bases of these proposed
regulations and to seek to have the proposals modified by the EPA.
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These proposed regulations would also require a large reduction in the
discharge of conventional pollutants from dissolving sulfite mills (Rayonier's
Port Angeles, Washington and Fernandina Beach, Florida mills are dissolving
sulfite mills). Rayonier expects to submit comments challenging the technical
and legal bases for the proposed regulations.
The proposed regulations under the CAAA and CWA are scheduled to be promulgated
in final form by late 1995, and compliance must be achieved within three years
thereafter. Although these regulations, if not changed, may have a material
effect on Rayonier's operations, it will not be possible for Rayonier to
determine the nature or costs of such effect until the regulations are issued
in final form. The Company recently developed initial order of magnitude
estimates of the costs of complying with these regulations if they are modified
to remove the technological bases that would prevent Rayonier from
manufacturing some of its products. These estimates indicate that with
incremental capital expenditures of approximately $95 million at Jesup, $55
million at Fernandina Beach and $40 million at Port Angeles, the Company could
continue to manufacture its current product line. Such expenditures would most
likely be incurred over several years and not commence before 1995. Rayonier,
however, will continue to argue, both individually and through the industry
trade association, for modifying the proposed operating guidelines further to
eliminate errors it believes the agency has made and Rayonier will continue to
explore new and revised operating and technical process alternatives in lieu of
spending such funds. Rayonier cannot predict, however, whether these efforts
will be successful.
Over the past three years, the harvest of timber from private lands in the
state of Washington has been restricted as a result of the listing of the
northern spotted owl as a threatened species under the Endangered Species Act
(ESA). These restrictions have caused RTLP to restructure and reschedule some
of its harvest plans. The U.S. Fish and Wildlife Service (FWS) is developing a
proposed rule under the ESA to redefine protective measures for the northern
spotted owl on private lands. This rule, as currently drafted, would reduce
the harvest restrictions on private lands except within specified special
emphasis areas, where restrictions would be increased. One proposed special
emphasis area is on the Olympic Peninsula, where a significant portion of
RTLP's Washington timberlands is located. The new rule may also include
guidelines for the protection of the marbled murrelet, also recently listed as
a threatened species. Separately, the state of Washington Forest Practices
Board is in the process of adopting new harvest regulations to protect the
northern spotted owl and the marbled murrelet. The State Department of Natural
Resources draft of this rule also provides for a special emphasis area to
protect the northern spotted owl on the Olympic Peninsula, which would increase
harvest restrictions on the Company's lands. The Company is unable at this
time to predict the form in which the Federal or state rules will eventually be
adopted. However, if either rule is adopted in the form proposed by the
respective agencies, the result will be some reduction in the volume of Company
timber available for harvest.
See Item 3.- "Legal Proceedings".
RAW MATERIALS
Regional timber availability continues to be restricted by legislation,
litigation and pressure from various preservationist groups. While Rayonier's
timber products business has benefited from a significant increase in log and
timber stumpage prices, this has also adversely impacted fiber costs at
Rayonier's Port Angeles pulp manufacturing facility in the Northwest.
Rayonier has pursued, and is continuing to pursue, reductions in costs of other
raw materials, supplies and contract services at the Company's pulp mills.
Lower prices have already been negotiated for caustic/chlorine. Management
foresees no constraints in pricing or availability of its key raw materials,
other than the comments concerning wood fiber above.
RESEARCH AND DEVELOPMENT
Rayonier believes it has one of the preeminent research facilities and staffs
in the forest products industry. Rayonier has been able to utilize this
research resource to enhance the marketing of its products to various
customers. For its pulp business, research and development efforts are directed
primarily at the development of new and improved pulp grades, improved
manufacturing efficiency, reduction of energy needs, product quality and
development of improved environmental controls. Research efforts are
concentrated at the Rayonier Research Center in Shelton, Washington. Research
activities related to Rayonier's forest resources operations include genetic
tree improvement programs as well as applied silviculture programs to identify
management practices that improve returns from the timberland asset. Research
and development expenditures were $7 million in 1993 and $8 million in both
1992 and 1991.
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EMPLOYEE RELATIONS
Rayonier currently employs approximately 2,600 people. Of this number,
approximately 2,500 are employees in the United States, of whom 60 percent are
represented by labor unions. Most hourly employees are represented by labor
unions. Generally, labor relations have been maintained in a normal and
satisfactory manner. The ten labor unions within Rayonier represent
approximately 1,500 employees at the three pulp mills and at the Rayonier
Research Center. Bargaining activity in 1993 resulted in a three-year
extension of the Port Angeles pulp mill's two labor agreements. The Fernandina
pulp mill (approximately 300 covered employees) and the Rayonier Research
Center (approximately 25 covered employees) contracts will expire on April 30,
1994 and August 31, 1994, respectively. During 1995, labor contracts of
Rayonier's Jesup mill will expire, covering approximately 875 employees.
Rayonier has in effect various plans which extend to its employees and retirees
certain group medical, dental and life insurance coverage, pension, and other
benefits. The cost of such benefit plans is borne primarily by Rayonier, with
the exception of health care, for which employees are responsible for
approximately 20 percent of premium costs.
ITEM 2. PROPERTIES
RTLP owns, leases or controls approximately 1.2 million acres of timberlands in
the United States previously owned or leased by Rayonier. See Note 5 of the
accompanying Notes to Consolidated Financial Statements. Rayonier, through its
wholly owned subsidiary, RFR, as managing general partner of RTLP, continues on
behalf of RTLP to manage such properties and sell stumpage therefrom to
Rayonier as well as unaffiliated parties. Rayonier's New Zealand subsidiary
owns or manages the forest assets on approximately 253,000 acres of plantation
forests in New Zealand. Rayonier and its wholly owned subsidiaries own or lease
various other properties used in their operations, including three pulp mills,
two lumber manufacturing facilities, a research facility, various other
timberlands, and Rayonier's executive offices. These facilities (except for the
executive offices in Stamford, Connecticut) are located in the northwestern and
southeastern portions of the United States and in New Zealand.
ITEM 3. LEGAL PROCEEDINGS
The Company and its wholly owned subsidiary, SWP, are named defendants in six
cases arising out of former wood preserving operations at SWP's plant located
in Augusta, Georgia. In general, these cases, five pending in the U.S. District
Court for the Southern District of Georgia and one pending in the Superior
Court of Richmond County, Georgia, seek recovery for property damage and
personal injury or medical monitoring costs based on the alleged exposure to
toxic chemicals used by SWP in its former operations. One case, Ernest Jordan
v. Southern Wood Piedmont Co., et al., seeks certification as a class action
and damages in the amount of $700 million. Counsel for the Company believes
that the Company has meritorious defenses in all these cases. Several previous
lawsuits related to the Augusta facility have been settled for amounts not
material to the Company.
Rayonier has been named as a "Potentially Responsible Party" (PRP) or is a
defendant in actions being brought by a PRP in five proceedings instituted by
the U.S. Environmental Protection Agency (EPA) under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) or by state
agencies under comparable state statutes. In three of these proceedings,
Rayonier is presently considered a de minimis participant. In one proceeding,
the Company is not a de minimis participant because of the limited number of
PRP's, and the Company believes that its share of liability for total cleanup
costs (currently estimated to be between $30 million and $39 million) will be
less than 9 percent of the total. In another proceeding, the Company is not a
de minimis participant based on an analysis of the volume and type of waste
that the Company is alleged to have disposed of at the site, and the Company
believes that its share of liability for total cleanup costs (currently
estimated to be between $25 million and $32 million) will be less than 1.75
percent of the total. In each case, Rayonier has established reserves for its
estimated liability. Rayonier has also received requests for information from
the EPA in connection with two other CERCLA sites, but the Company does not
currently know to what extent, if at all, liability under CERCLA will be
asserted against Rayonier with respect to either site.
There are various other lawsuits pending against or affecting Rayonier and its
subsidiaries, some of which involve claims for substantial amounts. The
ultimate liability with respect to all actions pending against Rayonier and its
subsidiaries is not considered material in relation to the consolidated
financial condition of Rayonier and its subsidiaries.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company was incorporated as "Rayco, Inc." under the laws of North Carolina
on December 3, 1993 and issued 79 Common Shares to ITT Rayonier Incorporated, a
Delaware Corporation (Rayonier Delaware). By written consents effective
December 10, 1993, ITT Corporation as the sole stockholder of Rayonier Delaware
and Rayonier Delaware as the sole shareholder of the Company approved the
merger of Rayonier Delaware into the Company, with the name of the surviving
corporation being "ITT Rayonier Incorporated." As a result of such merger, the
Company's outstanding 79 Common Shares were issued to ITT. By written consents
effective December 13, 1993, ITT as the sole shareholder of the Company (a)
elected ITT executives D. Travis Engen and Robert A. Bowman to join Ronald M.
Gross, Chairman, President and Chief Executive Officer, on the Company's Board
of Directors and (b) approved the Amended and Restated Articles of
Incorporation of the Company.
Subsequent to December 31, 1993, ITT as the sole shareholder of the Company
took three actions by written consent prior to the Distribution. The subject
matter of these consents and their respective effective dates were: (1)
approval of an amendment to the Company's Amended and Restated Articles of
Incorporation changing its name to "Rayonier Inc." (consent effective February
2, 1994; Articles of Amendment were filed on February 17, 1994); (2) approval
of certain compensation plans (consent effective February 28, 1994); and (3)
election as directors of the individuals listed in Item 10 of this Form 10-K
(consent in lieu of the 1994 Annual Meeting of Shareholder effective February
28, 1994).
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On February 28, 1994 ITT Corporation, the Registrant's sole shareholder,
distributed, as a special dividend, all of the common shares of the Registrant.
On March 2, 1994 the common shares of the Registrant began trading on the New
York Stock Exchange. On March 15, 1994 the Company had 29,565,392 Common
Shares outstanding and 59,581 shareholders of record. For the period March 2,
1994 through March 15, 1994 the price of Rayonier Common Shares ranged from
$31.625 to $35.000 per share. In the first quarter of 1994, the Board of
Directors declared a dividend of $.18 per share payable on March 31, 1994 to
holders of record of Rayonier Common Shares on March 10, 1994.
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14
ITEM 6. SELECTED FINANCIAL DATA
The following summary of historical financial data for each of the five years
ended December 31, 1993 are derived from the consolidated financial statements
of the Company. The data should be read in conjunction with the consolidated
financial statements ($ in millions except per share).
Year Ended December 31,
-------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Sales $ 936 $ 974 $ 979 $1,104 $1,082
Operating income before provision for
dispositions 130 102 97 190 224
Provision for dispositions (3) (189) (1) - - 2
Operating income (loss) 127 (87) 97 190 226
Interest expense (23) (21) (14) (12) (18)
Minority interest (23) (23) (20) (21) (19)
Income (loss) from continuing operations 52 (81) 44 109 128
Provision for discontinued operations - - - (43) -
Cumulative effect of accounting changes - (22) (2) - - -
Net income (loss) 52 (103) 44 66 128
DIVIDENDS (3) 122 18 20 61 48
EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations before
cumulative effect of accounting changes $ 1.77 ($2.77) $ 1.50 $ 3.70 $ 4.33
Cumulative effect of accounting changes - (0.74) - - -
Income (loss) from continuing operations 1.77 (3.51) 1.50 3.70 4.33
Discontinued operations - - - (1.47) -
Net Income (loss) 1.77 (3.51) 1.50 2.23 4.33
BALANCE SHEET DATA:
Total assets $1,475 $1,476 $1,372 $1,353 $1,330
Short-term bank debt and current maturities
of long-term debt 182 102 12 32 7
Long-term debt 316 302 193 141 174
Shareholder equity 606 676 797 772 767
CASH FLOW DATA:
Capital expenditures $ 72 $ 97 $ 134 $ 100 $ 80
New Zealand acquisition - 197 - - -
Depreciation, depletion and amortization 78 78 69 64 64
EBITDA (4) 187 156 147 234 271
EBIT (5) 109 78 78 170 207
SELECTED FINANCIAL RATIOS (UNAUDITED)
Operating income before provision for
dispositions as a percentage of sales 13.9% 10.5% 9.9% 17.2% 20.7%
Return on equity 8.2% (14.1)% 5.7% 8.6% 17.6%
Total debt to capitalization 45.1% 37.4% 20.5% 18.3% 19.1%
Total debt to EBITDA - ratio 2.7x 2.6x 1.4x 0.7x 0.7x
EBIT/Interest expense - ratio 4.7x 3.7x 5.6x 13.7x 11.6x
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Year Ended December 31,
-------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
SELECTED OPERATING DATA (UNAUDITED)
Timber and Wood Products Segment
Log Sales:
North America - million board feet 47 435 506 585 629
New Zealand - thousand cubic meters 1,375 682 259 114 57
Other - million board feet 11 - - - -
Timber Harvested:
Northwest U.S. - million board feet 143 195 189 202 270
Southeast U.S. - thousand short green tons 2,001 2,006 2,037 1,838 1,765
New Zealand - thousand cubic meters 918 636 - - -
Lumber sold - million board feet 125 118 103 113 109
Intercompany Sales
Logs - million board feet 15 25 35 31 63
Northwest U.S. Timber Stumpage - million board feet 28 44 68 69 92
Southeast U.S. Timber Stumpage -
thousand short green tons. 299 317 398 114 129
Wood Chips to Jesup pulp mill -
thousand short green tons 319 352 320 356 295
Specialty Pulp Products Segment
Chemical cellulose sales - thousand metric tons 369 399 412 403 436
Fluff and specialty paper sales - thousand metric tons(6) 352 367 409 446 318
Production as a Percentage of Capacity 85% 95% 97% 96% 92%
(1) Represents a charge of $189 million ($121 million after-tax) to provide for
the loss on the disposal of assets along with the costs for severance,
demolition and other closedown items associated with the disposition of
certain facilities; $180 million ($115 million after-tax) of this charge
relates to the Grays Harbor Complex; as defined elsewhere herein.
(2) Represents the cumulative effect of accounting changes due to the adoption
of Statement of Financial Accounting Standards (SFAS) No. 106 "Employers'
Accounting for Postretirement Benefits Other than Pensions," and SFAS No.
112 "Employers' Accounting for Postemployment Benefits." These standards
were adopted as of January 1, 1992 using the immediate recognition method,
and the resulting after-tax charge of $22 million ($33 million pre-tax) is
included in net income (loss) in 1992.
(3) Pursuant to a recapitalization program, Rayonier paid a special dividend to
ITT in the fourth quarter of 1993 of $90 million. Dividends paid by
Rayonier to ITT are not indicative of future dividends. In the first
quarter of 1994, the Board of Directors declared a dividend of $.18 per
share payable on March 31, 1994 to holders of record of Rayonier Common
Shares on March 10, 1994.
(4) EBITDA is defined as earnings (income) from continuing operations before
the cumulative effect of accounting changes, provision for dispositions,
income taxes, interest expense and depreciation, depletion and
amortization.
(5) EBIT is defined as earnings (income) from continuing operations before the
cumulative effect of accounting changes, provision for dispositions, income
taxes and interest expense.
(6) Excludes wood pulp produced by the Grays Harbor pulp mill of 62, 78, 103
and 105 thousands of metric tons for the years ended December 31, 1992,
1991, 1990 and 1989, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On February 28, 1994, ITT Corporation (ITT), Rayonier's sole shareholder,
distributed, as a special dividend, all of the Common Shares of Rayonier to the
holders of ITT Common Stock and Series N Preferred Stock. In connection with
the Distribution, the Company changed its name from ITT Rayonier Incorporated
to Rayonier Inc. and became a publicly traded Company listed on the New York
Stock Exchange under the symbol "RYN." On March 1, 1994, there were
approximately 29.6 million Common Shares of Rayonier outstanding.
SEGMENT INFORMATION
The amounts and relative contributions to sales and operating income
attributable to each of Rayonier's business segments for each of the last three
years ended December 31, 1993 were as follows: ($ in millions)
Sales Year Ended December 31
- ----- --------------------------------------
1993 1992 1991
---- ---- ----
Timber and Wood Products:
Log Trading and Merchandising $ 365 $ 301 $ 294
Timberlands Management and Stumpage
(Standing Timber) Sales 120 123 106
Wood Products Sales 47 33 24
--- --- ---
Total Before Intrasegment Eliminations 532 457 424
Intrasegment Eliminations (16) (14) (22)
---- ---- ----
Total Timber and Wood Products 516 443 402
--- --- ---
Specialty Pulp Products:
Chemical Cellulose 279 307 325
Fluff and Specialty Paper Pulps 183 218 228
--- --- ---
Total Specialty Pulp Products 462 525 553
--- --- ---
Intersegment Eliminations (42) (34) (31)
---- --- ---
Total Before Dispositions 936 934 924
Dispositions -- 40 55
----- ----- -----
Total Sales $ 936 $ 974 $ 979
==== ==== ====
Operating Income (Loss)
- -----------------------
Timber and Wood Products $ 144 $ 100 $ 79
Specialty Pulp Products (4) 16 44
Corporate and Other (8) (10) (9)
Intersegment Eliminations (2) 3 (1)
---- ---- ----
Total before Dispositions 130 109 113
Dispositions (3) (196) (16)
---- ---- ----
Total Operating Income (Loss) $ 127 $ (87) $ 97
==== ===== ====
BUSINESS CONDITIONS
Operating results in the forest products industry are cyclical. Rayonier's
recent operating results for the Timber and Wood Products segment have improved
due to significantly higher selling prices and increased activity resulting
from the Company's May 1992 expansion of its New Zealand operations. However,
Rayonier's recent operating results for the Specialty Pulp Products segment
have been adversely affected by lower selling prices and reduced shipments
resulting from excess capacity in the pulp industry combined with weak domestic
and international markets. As a result, sales for the Company's Specialty Pulp
Products segment declined in the last three fiscal years, affecting total
Company sales results. In 1992 and 1993, increasing Timber and Wood Products
sales have offset the Specialty Pulp Products sales decline. During the most
recent economic downturn, the Company remained profitable, except for the
effect of the pre-tax restructuring charge for the Grays Harbor Complex of $180
million, which resulted in a net loss in 1992 of $103 million.
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Specialty Pulp Products operating results in 1993 continued to decline from
prior year levels as a result of an extended period of slow economic growth and
overcapacity in the industry. The Company expects that this business segment
will continue to be under pressure in 1994.
Rayonier's results continue to be heavily dependent on the pulp industry cycle,
and the Company continues to look at the strategic value of its facilities in
light of these market conditions. In 1992 the Company permanently closed
operations at the Grays Harbor Pulp Mill and Vanillin plant, and the associated
Grays Harbor Paper Company (collectively referred to as the Grays Harbor
Complex). The Company took a charge of $189 million ($121 million after-tax)
in the year for the write-off of assets and closure costs for certain
facilities; $180 million ($115 million after-tax) of this charge related to the
Grays Harbor Complex.
The Company's two remaining sulfite mills, Port Angeles, Washington, and
Fernandina Beach, Florida, are currently facing severe margin pressure as a
result of many factors including their age and size and possible environmental
compliance costs. The mill in Port Angeles, Washington, in particular, has
faced and will likely continue to face significantly higher wood costs than
facilities in other parts of the country. The viability of these two
particular facilities will be dependent upon a resurgence of economic growth in
Rayonier's markets and, for the Port Angeles mill, the return of Northwest wood
costs to a more competitive level. If the resurgence in economic growth is
delayed, and, in the case of Port Angeles, raw material wood costs do not
become more competitive, the Company may be faced with considering other
alternatives relative to these facilities. Potential options include sale of
the facilities, a restructuring of the operations to make alternative products,
temporary mothball of the facilities, joint-venture arrangements or possible
closure and termination of operations. The net plant and equipment invested in
the Port Angeles and Fernandina pulp facilities was $101 million and $142
million, respectively, at December 31, 1993. The Company's repositioning of
strategic assets into timber and wood markets, such as the expansion of its New
Zealand timber and wood based operations, and its significant timberland
holdings, have allowed it to moderate the affect of the pulp cycle and, except
for the significant write-off of the Grays Harbor Complex in 1992, report
profitable results for the last three fiscal years.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993 COMPARED WITH THE
YEAR ENDED DECEMBER 31, 1992
SALES AND OPERATING INCOME
Sales of $936 million for the year ended December 31, 1993 were $38 million (4
percent) lower than the comparable period of 1992. Operating income of $127
million for the year ended December 31, 1993 increased $214 million over the
comparable 1992 period.
Timber and Wood Products
Sales for the Timber and Wood Products segment were $516 million, an increase
of $73 million (16 percent) over 1992 sales due to significantly higher selling
prices and increased activity resulting from the Company's May 1992 major
expansion of its New Zealand operations, partially offset by lower North
American log and stumpage volume. Prices were substantially higher for
stumpage, logs and lumber products due to supply shortages caused by
environmental restrictions and litigation in the Northwest U.S., wet weather
conditions in the Southeast U.S. in the first quarter, and concerns over the
availability of timber and lumber supplies worldwide. Sales in 1993 were
adversely affected by lower timber harvest volumes in the Northwest as a result
of customers delaying stumpage harvesting due to previously contracted prices
outpacing end use export log values. Sales in 1992 included $17 million in
timberland parcel sales in the Northwest with no comparable sales during 1993.
Timber and Wood Products operating income improved $44 million (44 percent) to
$144 million reflecting significantly improved stumpage, log and lumber prices
and expanded New Zealand operations. The 1992 operating income included $16
million from the Northwest timberland parcel sales. Other operating expenses
in 1992 included several charges for contract settlements and reserves.
Specialty Pulp Products
Sales for the Specialty Pulp Products segment were $462 million, declining $63
million (12 percent) from the prior period. The decrease primarily reflects
lower selling prices and reduced volume resulting from excess capacity in the
pulp industry combined with weak domestic and international markets.
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Operating income for Specialty Pulp Products decreased $20 million to an
operating loss of $4 million, reflecting lower pulp prices, lower sales volume,
temporary market related downtime costs and higher pulpwood costs.
Dispositions
The Dispositions segment includes the results of the Grays Harbor Complex which
was closed in 1992, and other miscellaneous operations that are being held for
disposition. These operations had no sales in 1993 versus sales of $40 million
in 1992. Operating losses of this segment were $3 million in 1993,
representing a provision for disposition of other miscellaneous operations.
Operating losses of the Dispositions segment were $196 million in 1992 which
included a provision for dispositions of $189 million related to the closure of
the Grays Harbor Complex and other miscellaneous facilities. A portion of the
Grays Harbor Complex assets was sold in August 1993 for cash and notes. The
Company is still completing demolition, personnel termination, environmental
remediation and other closure programs. See Note 8 of the accompanying Notes
to Consolidated Financial Statements for further information.
Intersegment sales consist primarily of pulpwood sales by the Timber and Wood
Products segment to the Company's pulp mills.
OTHER ITEMS
Commission expenses for the year ended December 31, 1993 decreased $12 million
from the prior year, as 1992 included external commissions incurred under a
sales agency agreement with ITT Foreign Sales Corporation (FSC). Effective
January 1, 1993, ITT transferred ownership of FSC to Rayonier.
Equity in the net loss of Grays Harbor Paper Company decreased $3 million from
the prior year as this joint venture company ceased operations in late 1992.
See Note 8 of the accompanying Notes to Consolidated Financial Statements for
further information. Interest expense increased $2 million from the prior year
reflecting higher debt levels resulting from the May 1992 New Zealand timber
rights acquisition.
INCOME TAXES
The provision for income taxes was adversely impacted by the effects of tax
reform legislation enacted August 10, 1993. This legislation increased the
corporate income tax rate from 34 percent to 35 percent retroactive to January
1, 1993 and eliminated tax benefits related to log exports for foreign sales
corporations effective in the third quarter. The provision for income taxes
includes a charge of $2 million as a result of the remeasurement of the
Company's deferred tax liability for the 1 percent increase in the corporate
income tax rate. In total, the 1993 tax reform legislation negatively impacted
results by approximately $3 million.
NET INCOME
Net income in 1993 was $52 million compared to a net loss of $103 million in
1992. As noted above, the 1992 net loss includes commission expenses of $12
million, pretax ($8 million after-tax) incurred under a sales agency agreement
with FSC and $190 million, pretax, ($123 million after-tax) of operating
losses, equity losses and closure provision relating to the Grays Harbor
Complex. In addition, in 1992 the Company recorded an after-tax charge of $22
million to reflect the cumulative effect of accounting changes for the adoption
of Statement of Financial Accounting Standards (SFAS) No. 106, Employers'
Accounting for Postretirement Benefits Other than Pensions" and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." Excluding the cumulative
effect of accounting changes, the FSC commission expense and the effect of the
Grays Harbor Complex related expenses recorded in 1992, net income of $52
million in 1993 increased $3 million or 6 percent over last year's comparable
net income of $49 million.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1992 COMPARED WITH THE
YEAR ENDED DECEMBER 31, 1991 SIGNIFICANT ACTIONS DURING 1992
Two significant actions occurred in 1992. In May, the Company acquired rights
to approximately 250,000 acres of timber in New Zealand, the operations of
which are reported in the Timber and Wood Products segment. Second, in the
fourth quarter, the Company permanently terminated operations at the Grays
Harbor Complex. See Notes 4 and 8 of the accompanying Notes to Consolidated
Financial Statements for further information. As a result, the percentage of
Rayonier's total assets employed in the Timber and Wood Products segment
increased from 29 percent at year-end 1991 to 40 percent at December 1992.
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SALES AND OPERATING INCOME
Sales of $974 million for the year ended December 31, 1992 were $5 million less
than the $979 million realized in 1991. The 1992 operating loss of $87 million
represented a decline of $184 million from 1991 operating income of $97
million, primarily due to the Company's 1992 provision for dispositions of $189
million related to the closure of the Grays Harbor Complex and other
miscellaneous facilities.
Timber and Wood Products
Sales of Timber and Wood Products of $443 million in 1992 represented an
increase of $41 million (10 percent) from 1991 sales of $402 million. The
increase primarily resulted from the Company's May 1992 expansion of its New
Zealand operations, the closing of the final two parcels of a previously
contracted timberland sale in the Northwest versus one closing in 1991, and
higher selling prices. Selling prices were higher for stumpage and logs due to
regional supply shortages caused by a decline in the availability of
competitive timber in the Northwest and a continuation of wet weather
conditions in the Southeast. Increased demand for lumber resulted in higher
prices and volume for the Company's lumber operations. Sales improvements were
partially offset by lower export log volume in the Northwest and planned timber
harvest reductions in the Southeast.
Operating income for the Timber and Wood Products segment was $100 million, an
improvement of $21 million (27 percent) from 1991, reflecting the additional
timberland sale in the Northwest region during 1992, expanded New Zealand
operations and strong pricing. These improvements were partially offset by
other 1992 operating expenses relating to contract settlements and reserves.
Specialty Pulp Products
Revenues of the Specialty Pulp Products segment for 1992 declined $28 million
(5 percent) and operating income decreased $28 million (64 percent) from the
1991 period. Most of the decrease in both revenues and operating income
resulted from lower selling prices and volumes for fluff, paper and chemical
cellulose pulp products. Pulp sales volume of 766,000 metric tons in 1992 was
27,000 metric tons or 3 percent below 1991's level. The decrease in prices
reflected excess capacity in the pulp industry combined with weak domestic and
international markets and the strengthening of the U.S. dollar. Pulp
manufacturing costs increased in 1992 primarily due to higher pulpwood costs in
the Northwest as a result of reduced timber availability and in the Southeast
due to exceptionally wet weather.
NET INCOME
The Company's equity share in the losses of a jointly owned company, Grays
Harbor Paper Company, increased $2 million during 1992 primarily as a result of
lower selling prices and volume in its paper products business segment. See
Note 8 of the accompanying Notes to Consolidated Financial Statements for
further information. Interest expense increased $7 million (53 percent) as a
result of higher debt levels resulting from the New Zealand acquisition of
forest assets in May 1992. Minority interest in the results of the Company's
timberlands partnership increased $3 million (14 percent) to $23 million in
1992 as a result of increased earnings attributable to that portion of the
Timber and Wood Products segment.
Continuing operations posted a loss in 1992 of $81 million, representing a $125
million decline from income of $44 million in 1991. The decline in earnings
primarily reflects the after tax effect of the $121 million charge to provide
for the closure of the Grays Harbor Complex and other miscellaneous facilities.
Net loss for 1992 of $103 million also included a charge of $22 million to
record the cumulative effect of accounting changes, reflecting the Company's
adoption of SFAS No. 106 and SFAS No. 112 as of January 1, 1992.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities for 1993 amounted to $129 million, an
increase of $5 million from the prior year. Cash from operating activities and
an increase in debt of $95 million were mainly used for capital expenditures of
$72 million, cash dividends to ITT of $122 million, environmental remediation
and other corrective action programs at
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Rayonier's wholly owned subsidiary, Southern Wood Piedmont Company (SWP), and
various closure costs of units held for disposition of $28 million.
Cash flow from operating activities in 1992 amounted to $124 million, a
decrease of $9 million from the prior year level of $133 million. An increase
in debt of $198 million in 1992 was mainly used for the New Zealand forest
assets acquisition of $197 million. Cash from operating activities (along with
an increase in debt of $32 million in 1991) was mainly utilized for capital
expenditures of $97 million and $134 million in 1992 and 1991, respectively,
cash dividends to ITT of $18 million and $20 million in 1992 and 1991
respectively, and environmental clean-up and other corrective action programs
at SWP of $18 million and $17 million in 1992 and 1991, respectively. Capital
expenditures in 1992 were $37 million less than 1991, when additional capital
spending was required to lower sulfite emissions at the Jesup, Georgia pulp
mill to meet new Federal and State standards while also achieving cost
reductions and increased productive capacity.
The Company's EBITDA, defined as earnings (income) from continuing operations
(before the cumulative effect of accounting changes and any provision for
dispositions) before income taxes, interest expense and depreciation, depletion
and amortization, for 1993 amounted to $187 million, increasing $31 million
from the prior year, due to the higher pre-tax income reported in 1993. EBITDA
for 1992 was $156 million, also increasing from the prior year level of $147
million, but decreasing $78 million and $115 million, respectively, below the
Company's recent cyclical peak levels of $234 million in 1990 and $271 million
in 1989.
During the second quarter of 1992, the Company completed the purchase of forest
assets, primarily Crown forest licenses consisting of long-term rights to
utilize approximately 250,000 acres of plantation forest in New Zealand. These
assets were acquired from the New Zealand government for a cash purchase price
of approximately $197 million. Bridge financing for the acquisition was
partially obtained through the issuance of preferred stock to ITT (which has
been redeemed) and through additional borrowings from banks and ITT. By
October 15, 1992 the Company had completed its external financing program for
this acquisition, as described more fully below.
The forest products industry requires substantial annual capital expenditures
to maintain production facilities at peak operating efficiency and to comply
with environmental standards (see Environmental Regulation).
As of December 31, 1993, the Company had negative working capital of $39
million as compared to working capital of $7 million at December 31, 1992.
Bank loans and current maturities of long-term debt increased $80 million,
primarily to fund a $90 million dividend to ITT and a portion of intercompany
settlements of $21 million related to the Distribution. (The impact on income
for additional debt of $111 million will be approximately $8 million ($5
million, after-tax) on an annual basis, assuming an average incremental
borrowing rate of 7.7 percent). The Company's current assets also increased in
several categories, including accounts receivable by $8 million and prepaid
timber stumpage by $15 million. The Company is working with its lenders on a
program to refinance a portion of its short-term debt with long-term funding
sufficient to return to a positive working capital position. The Company
expects to complete this program in the second quarter of 1994.
The Company had net working capital of $7 million at December 31, 1992 as
compared to $138 million at the end of 1991. The Company increased its
short-term bank loans from $5 million in 1991 to $100 million at the end of
1992, primarily as a result of financing the New Zealand forest asset
acquisition.
Dividends paid by the Company on its stock during 1993 were $122 million.
Pursuant to a previously planned recapitalization program, Rayonier paid a
special dividend to ITT in the fourth quarter of 1993 of $90 million in
addition to the normal dividends on earnings. In addition, in the fourth
quarter of 1993 and the first quarter of 1994 Rayonier made payments to ITT
aggregating approximately $21 million in settlement of certain intercompany
account items. Dividends paid during 1992 and 1991 were $18 million and $20
million respectively. The Board of Directors has declared a dividend of $.18
per Rayonier Common Share for the first quarter of 1994.
The Company believes it has good relations with major regional, national and
international banks. Its interest and cash flow coverage ratios have been well
above the average of the forest products industry. As a capital intensive
company in a cyclical industry, the Company goes through periods of time where
its cash flow after capital investments requires an increase in borrowing. The
borrowings then, generally, are reduced during the business cycle upturn when
cash flows increase. It is expected that the Company will borrow funds in 1994
to support its capital program, but its debt levels will stabilize, absent any
major acquisition or new major capital program, in the 1995-1996 period.
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During the fourth quarter of 1991, Rayonier borrowed $90 million under a term
loan agreement which expires on October 31, 1997. This loan agreement was
amended in 1992 allowing Rayonier to borrow an additional $10 million. The
loan is repayable in three equal annual installments starting in October of
1995 and ending in October of 1997. The proceeds of this loan were primarily
used to retire short-term bank borrowings, pay debt owed to ITT and for other
corporate purposes. The debt bears a variable rate of interest equal to the
London Interbank Offering Rate (LIBOR) plus 62.5 basis points.
The Company established a $140 million Medium Term Note program on April 5,
1993 pursuant to a Registration Statement filed on Form S-3 effective September
29, 1992. The Registration Statement permitted the Company to issue up to $250
million in debt securities through public offerings of which $110 million was
issued in October 1992. The Company used the net proceeds from the sale of the
7.5 percent notes to repay bank debt which was utilized as bridge financing for
the purchase of forest assets in New Zealand. During April 1993, $16 million
of medium term notes, maturing in April 1998 and 1999, were issued under this
program at an average effective cost to the Company of 6.25 percent.
As part of the Company's refinancing program, the Company expects to file with
the SEC prior to March 31, 1994 a new Registration Statement on Form S-3
covering $150 million of new debt securities. This filing will also serve as a
post-effective amendment to the above-referenced Registration Statement filed
in 1992. The Company plans to make an offering of $100 million of debentures
in the second quarter of 1994, and to increase its Medium Term Note program to
$174 million.
The most restrictive long-term debt agreement in effect at December 31, 1993
provides that the ratio of the Company's indebtedness to the sum of such
indebtedness plus consolidated tangible net worth cannot exceed 50 percent. As
of December 31, 1993, this ratio was 45 percent. In addition, at December 31,
1993, a total of $279 million of retained earnings was unrestricted as to the
payment of dividends. Under a lease to the Company of its Baxley, Georgia
sawmill entered into in 1985, the trustee on behalf of the lessor and the loan
participant has the right to require the Company to purchase the sawmill for
approximately $8.4 million because ITT has ceased to own a majority of the
Company's voting stock.
As of December 31, 1993, the Company had $498 million in debt with $317 million
funded in the bank term and public debt markets, and $181 million in the short
term bank debt market. Of the Company's short term debt, $50 million was under
committed lines, the earliest of which expires in June 1994. The remainder of
the short term debt was funded under uncommitted lines. None of the debt was
guaranteed by ITT.
At December 31, 1992 debt of $403 million represented 37 percent of the total
of debt and equity. The ratio increased to 45 percent at year end 1993 after
the Company completed its recapitalization program. The total debt to
capitalization ratio was 21 percent at the end of 1991. The increase in debt
to total capitalization during 1992 was mainly due to the financing related to
the New Zealand forest assets acquisition. The percentage of debt with fixed
interest rates was 44 percent as of December 1993 as compared to 50 percent and
56 percent at year end 1992 and 1991.
As a result of ITT's decision to make the Distribution, Rayonier's senior debt
ratings were placed under review. Moody's Investor Service confirmed the
Company's rating at Baa2 and Standard & Poor's Corporation (S&P) lowered the
Company's rating from A+ to BBB. The earlier S&P rating had carried with it an
implied support from ITT (although ITT did not have any legally enforceable
obligations with respect to Rayonier's debt). It is expected that some of the
Company's borrowing costs may rise as a result of the Distribution, but the
increased interest expense, if any, is not expected to be material.
DISCONTINUED OPERATIONS AND UNITS HELD FOR DISPOSITION
In 1986 the Company discontinued its SWP treated wood business segment. The
Company is currently actively involved in implementing environmental
remediation and closure programs for SWP and is in negotiations with state and
environmental agencies on the scope and timing of such programs. In prior
years, the Company had provided $153 million in pre-tax reserves for
discontinued operations for closure, post-closure and corrective action
programs at SWP. The costs of the corrective action and closure programs at
SWP's nine primary manufacturing locations are affected by many factors, which
has led to increases in the reserves for such programs in the past, and may
result in increases in the future, as the effectiveness of the existing cleanup
programs is measured against applicable standards. Expenditures for such
programs will also depend on, among other things, new laws, regulations and
administrative interpretations, governmental responses to programs proposed by
the Company and changes in environmental control technology.
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Although considerable progress on cleanup was made by year end 1993, in
particular at three of SWP's nine locations where the installation of
corrective action facilities has been completed, there is still uncertainty as
to the timing and amount of expenditures beyond 1993 at these sites and the
extent and timing for completing programs at all sites. The Company currently
estimates that expenditures for environmental remediation and closure costs at
these sites during the two-year period 1994-1995 will approximate $10 million.
In the fourth quarter of 1992, the Company provided $180 million, pre-tax, for
the loss on disposal of assets along with the costs for severance, demolition
and other closedown items associated with the disposition of the Grays Harbor
Complex. A portion of the Grays Harbor Complex assets were sold in August 1993
for cash and notes.
As of December 31, 1993 the Company had $76 million reserved for discontinued
operations and units held for disposition. Subject to the uncertainties
discussed above, the Company believes that its reserves established to divest
or close all of these business activities are adequate. The Company further
believes that any future change in estimates, if necessary, will not materially
affect the financial condition of the Company.
ENVIRONMENTAL REGULATION
The Company has become subject to increasingly stringent environmental
laws and regulations concerning air emission, water discharges and waste
disposal which, in the opinion of management, will require substantial
expenditures over the next ten years. During 1993, 1992, 1991 and 1990 the
Company spent approximately $3 million, $25 million, $43 million and $15
million, respectively, for capital projects related to environmental compliance
for its continuing operations. The Company expects to spend approximately $4
million on such projects for its continuing operations for the two-year period
1994-1995. However, recently proposed Federal environmental regulations
governing air and water discharges may require further expenditures and, if
finally enacted in their proposed form, would prevent Rayonier from meeting
certain product quality specifications for substantially all of its chemical
cellulose products and in other cases will increase the cost of making such
products. Sales of the Company's chemical cellulose products accouted for
approximately 30 percent of the Company's total 1993 sales. While these
regulations may have a material effect on the Company's operations if not
changed, it will not be possible for the Company to determine the nature or
costs of such effect until the regulations are issued in final form. The
Company recently developed initial order of magnitude estimates of the costs of
complying with these regulations if they are modified to remove the
technological bases that would prevent Rayonier from manufacturing some of its
products. These estimates indicate that with incremental capital expenditures
of approximately $95 million at Jesup, $55 million at Fernandina Beach and $40
million at Port Angeles, the Company could continue to manufacture its current
product line. Such expenditures would most likely be incurred over several
years and not commence before 1995. Rayonier, however, will continue to argue,
both individually and through the industry trade association, for modifying the
proposed operating guidelines further to eliminate errors it believes the
agency has made and Rayonier will continue to explore new and revised operating
and technical process alternatives in lieu of spending such funds. Rayonier
cannot predict, however, whether these efforts will be successful.
Over the past three years, the harvest of timber from private lands in the
state of Washington has been restricted as a result of the listing of the
northern spotted owl as a threatened species under the Endangered Species Act
(ESA). These restrictions have caused RTLP to restructure and reschedule some
of its harvest plans. The U.S. Fish and Wildlife Service (FWS) is developing a
proposed rule under the ESA to redefine protective measures for the northern
spotted owl on private lands. This rule, as currently drafted, would reduce
the harvest restrictions on private lands except within specified special
emphasis areas, where restrictions would be increased. One proposed special
emphasis area is on the Olympic Peninsula, where a significant portion of
RTLP's Washington timberlands is located. The new rule may also include
guidelines for the protection of the marbled murrelet, also recently listed as
a threatened species. Separately, the state of Washington Forest Practices
Board is in the process of adopting new harvest regulations to protect the
northern spotted owl and the marbled murrelet. The State Department of Natural
Resources draft of this rule also provides for a special emphasis area to
protect the northern spotted owl on the Olympic Peninsula, which would increase
harvest restrictions on the Company's lands. The Company is unable at this
time to predict the form in which the federal or state rules will eventually be
adopted. However, if either rule is adopted in the form proposed by the
respective agencies, the result will be some reduction in the volume of Company
timber available for harvest.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements" on Page ii.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS
The Rayonier Articles of Incorporation provide that the number of directors
shall be not less than three and not more than twelve, with the exact number to
be fixed by the Rayonier Board of Directors from time to time. Rayonier has a
board of eight directors divided into three classes, with the term of Class I
to expire in 1995, the term of Class II to expire in 1996, and the term of
Class III to expire in 1997. This classification is conditional, however, upon
compliance of such classification with North Carolina law at the time of the
1995 annual meeting. If such classification is not in compliance with North
Carolina law at such time the Board will not be classified and all directors
will be elected annually. It is the intent of the Company that a majority of
the directors comprising the Company's Board not be employees of the Company
and that a majority of the nonemployee directors be individuals who will not be
directors of ITT.
The following table sets forth information as to the directors of the Company,
of each class, and of their original terms.
CLASS I, TERM EXPIRES IN 1995
RONALD M. GROSS, 60, Chairman, President and Chief Executive Officer, Rayonier
- - He joined Rayonier in March 1978 as President and Chief Operating Officer and
a director. He was elected Chairman in 1984. Mr. Gross serves as President and
director of RFR, the managing general partner of RTLP. From 1968 to 1978, he
was with Canadian Cellulose Company Limited of Vancouver, British Columbia,
where he held various senior positions before becoming President and Chief
Executive Officer and director in 1973. Mr. Gross is currently a director of
Lukens Inc. He serves as a member of the Executive Committee of the Board of
Directors of the American Forest and Paper Association (AFPA) and is Vice
Chairman of the AFPA International Business Committee. He is a member of the
Investment Policy Advisory Committee of the United States Trade Representative.
Mr. Gross is a graduate of Ohio State University and the Harvard Graduate
School of Business Administration.
KATHERINE D. ORTEGA, 59, Former Treasurer of the United States - She served as
the 38th Treasurer of the United States from September 1983 through June 1989
and as Alternate Representative of the United States to the United Nations
General Assembly during 1990 to 1991. Prior to these appointments, she served
as a Commissioner of the Copyright Royalty Tribunal and as a member of the
President's Advisory Committee on Small and Minority Business. Before entering
government, Ms. Ortega practiced as a certified public accountant with Peat,
Marwick, Mitchell & Co. in Los Angeles from 1969 to 1972, was Vice President of
the Pan American National Bank of East Los Angeles from 1972 to 1975 and was
President and director of the Santa Ana State Bank from 1975 to 1978. She
currently serves on the Boards of Directors of Diamond Shamrock, Inc., Ralston
Purina Company, The Kroger Co., Long Island Lighting Company, Catalyst, Quest
International and The Paul Revere Corporation and is a member of the
Comptroller General's Consultant Panel. She is a graduate of Eastern New Mexico
University, holds three honorary Doctor of Law Degrees and one honorary Doctor
of Social Science Degree.
BURNELL R. ROBERTS, 66, Chairman, Sweetheart Holdings, Inc. and Sweetheart Cup
Company (producer of plastic and paper disposable food service and food
packaging products) - He served as Chairman of the Board and Chief Executive
Officer of Mead Corporation (an integrated manufacturer of paper and forest
products and provider of electronic publishing services) from April 1982 until
his retirement in May 1992. Previously he was President of Mead from 1981 to
1982 and Senior Vice President from 1979 to 1981. He was a director of Mead
from October 1981 until May 1993. He continues to serve as a director of
National City Corporation, Cleveland, OH; Armco Inc., Pittsburgh, PA; The
Perkin-Elmer Corporation, Norwalk, CT, and DPL Inc., Dayton, OH. He also serves
as a director of the Japan Society, New York. He is a graduate of the
University of Wisconsin and the Harvard Graduate School of Business
Administration.
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CLASS II, TERM EXPIRES IN 1996
WILLIAM J. ALLEY, 64, Chairman of the Board and Chief Executive Officer,
American Brands, Inc. (diversified manufacturing and other businesses) - He
joined The Franklin Life Insurance Company in 1967 and was Chairman, President
and Chief Executive Officer of that organization when it was acquired by
American Brands, Inc. in 1979. He was elected to the Board of Directors of
American Brands in 1979 and subsequently held various senior executive
positions with American Brands before being elected to his present position on
June 15, 1987. He is also a director of RFR (the managing general partner of
RTLP), CIPSCO Incorporated, Bunn-O-Matic Corporation, Moorman Manufacturing
Company, The Business Council of Southwestern Connecticut (SACIA), Co-operation
Ireland, United Way of Tri- State and the Connecticut Business for Education
Coalition, Inc. and on the Advisory Board of Governors of the National Women's
Economic Alliance Foundation. He is a member of the Business Roundtable and is
also a member of The Conference Board, The Board of Overseers of the Executive
Council on Foreign Diplomats, The Ambassadors' Roundtable Advisory Council and
The Economic Club of New York. He is a graduate of Northeastern Oklahoma A&M
College, the University of Oklahoma School of Business and the University of
Oklahoma School of Law.
PAUL G. KIRK, JR., 56, of Counsel to Sullivan & Worcester (law firm) - He
became a partner in the law firm of Sullivan & Worcester in 1977 and is
presently of Counsel to the firm. He served as Chairman of the Democratic
National Committee from 1985 to 1989 and as Treasurer from 1983 to 1985.
Following his graduation from law school, Mr. Kirk became an assistant district
attorney in Massachusetts. In 1969, he went to Washington to serve as assistant
counsel to the Senate Judiciary Committee's Subcommittee on Administrative
Practices and Procedures. In 1971, he left the Subcommittee staff to join
Senator Edward M. Kennedy's U.S. Senate staff as special assistant. Following
his resignation in 1989 as Chairman of the Democratic National Committee, he
returned to Sullivan & Worcester as a partner in general corporate practice at
the firm's Boston and Washington offices. Mr. Kirk is a director of
Kirk-Sheppard & Co., Inc., of which he also is Chairman and Treasurer. He is a
trustee of the Bradley Real Estate Trust and a director of ITT and of Hartford
Fire Insurance Company, a subsidiary of ITT. He is co-chairman of the
Commission on Presidential Debates, Chairman of the John F. Kennedy Library
Foundation Board of Directors, Chairman of the Board of the National Democratic
Institute for International Affairs, and a trustee of Stonehill College and St.
Sebastian's School. He is a graduate of Harvard College and Harvard Law
School.
GORDON I. ULMER, 61, Former Chairman and Chief Executive Officer of Connecticut
Bank and Trust Company and Retired President of Bank of New England Corporation
- - He joined Connecticut Bank and Trust Company (CBT) in 1957 and held numerous
positions before being elected President and director in 1980 and Chairman and
Chief Executive Officer in 1985. In 1988 he was elected President of the Bank
of New England Corporation (BNEC), holding company of CBT. He retired as
President of BNEC in December 1990. In January 1991, BNEC filed a petition
under Chapter 7 of the Bankruptcy Code and CBT commenced insolvency
proceedings. Mr. Ulmer also serves as a director of Hartford Fire Insurance
Company, a subsidiary of ITT, and the Old State House Association. He is a
graduate of Middlebury College, the American Institute of Banking and the
Harvard Graduate School of Business Administration Advanced Management Program
and attended New York University's Graduate School of Engineering.
CLASS III, TERM EXPIRES IN 1997
RAND V. ARASKOG, 62, Chairman, President and Chief Executive Officer, ITT
Corporation - He joined ITT in 1966 and has been Chief Executive of ITT since
1979 and Chairman since 1980. In March 1991, he assumed the title of President.
Mr. Araskog is a director of ITT and of Hartford Fire Insurance Company and ITT
Sheraton Corporation, subsidiaries of ITT, and of Alcatel Alsthom of France, in
which ITT holds a six percent interest. He is also a director of Dow Jones &
Company, Inc.; Dayton-Hudson Corporation; Shell Oil Company and the New York
Stock Exchange. He is a member of The Business Council, The Business
Roundtable, the Council on Foreign Relations and the Trilateral Commission. He
is a trustee of the New York Zoological Society and of the Salk Institute. In
1988, Mr. Araskog was named Officier de la Legion d'Honneur by the President
of the French Republic, Franscois Mitterand; and, in April 1991, he was awarded
the Vermeil Grand Medal of the City of Paris. In May 1991, he was awarded the
Order of Merit of the Republic of Italy in the level of Grand Officer. In 1994,
he received the order Gen. Bernardo O'Higgins (Comendador) Award by the
President of Chile. Mr. Araskog is a graduate of the U.S. Military Academy at
West Point and attended the Harvard Graduate School of Arts and Sciences.
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DONALD W. GRIFFIN, 57, President and Chief Operating Officer, Olin Corporation
(diversified manufacturing corporation) - He joined Olin in 1961 and was part
of its Brass Division marketing organization beginning in 1963. He advanced
through various managerial positions and in 1983 was elected an Olin Corporate
Vice President and appointed President of the Brass Division. He became
President of the Winchester Division of Olin in 1985, was appointed President
of Olin's Defense Systems Group in 1986 and was elected an Executive Vice
President of Olin in 1987. He became a director of Olin in 1990 and was
elected Vice Chairman of the Board for Operations on January 12, 1993. He was
elected President and Chief Operating Officer on February 24, 1994. He is also
a director of RFR (the managing general partner of RTLP), the Sporting Arms and
Ammunition Manufacturers Institute, the Wildlife Management Institute, the
National Shooting Sports Foundation, River Bend Bancshares, Inc. and Illinois
State Bank and Trust in East Alton, Illinois. He is a trustee of the Buffalo
Bill Historical Center, the Olin Charitable Trust and the National Security
Industrial Association. He is a member of the American Society of Metals, the
Association of the U.S. Army and the American Defense Preparedness Association.
He is a life member of the Navy League of the United States and the Surface
Navy Association. He is a graduate of the University of Evansville,
Evansville, Indiana, and has completed the Graduate School for Sales and
Marketing Managers at Syracuse University, Syracuse, N.Y.
DIRECTORS' COMPENSATION
No director who is an employee of the Company is compensated for service as a
member of the Board of Directors or any Committee of the Board of Directors.
Compensation for nonemployee directors consists of an annual retainer of
$20,000, a $1,000 fee for each Board meeting attended, and a $750 fee for each
Committee meeting attended. Directors are reimbursed for travel expenses
incurred on behalf of the Company.
DIRECTORS' RETIREMENT POLICY
The Company's Board of Directors has adopted a retirement policy which provides
(i) that no person may be nominated for election or reelection as a nonemployee
director after reaching age 72 and (ii) that no employee of Rayonier or of any
of its subsidiaries (other than an employee who has served as chief executive
of Rayonier) may be nominated for election or reelection as a director after
reaching age 65, unless there has been a specific waiver by the Board of
Directors of these age requirements.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has four committees: Audit, Compensation and
Management Development, Environmental and Legal Affairs and Nominating
Committees.
AUDIT COMMITTEE. The Audit Committee supports the independence of the
Company's external and internal auditors and the objectivity of the Company's
financial statements. The Audit Committee (1) reviews the Company's principal
policies for accounting, internal control and financial reporting, (2)
recommends to the Company's Board of Directors the engagement or discharge of
the external auditors, (3) reviews with the external auditors the plan, scope
and timing of their audit and (4) reviews the auditors' fees and, after
completion of the audit, reviews with management the external auditors' report.
The Audit Committee also reviews, before publication, the annual financial
statements of the Company, the independence of the external auditors, the
adequacy of the Company's internal accounting control system, and the Company's
policies on business integrity and ethics and conflicts of interest. The Audit
Committee also performs a number of other review functions related to auditing
the financial statements and internal controls. The Audit Committee is
comprised of three or more non-employee directors. The current members are
Messrs. Roberts (Chairman), Kirk and Ulmer.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE. The Compensation and
Management Development Committee (1) reviews and makes recommendations to the
Company's Board of Directors with respect to the direct and indirect
compensation and employee benefits of the Chairman of the Board and other
elected officers of the Company, (2) reviews, administers and makes
recommendations to the Company's Board of Directors with respect to any
incentive plans and bonus plans that include elected officers and (3) reviews
the Company's policies relating to the compensation of senior management and,
generally, other employees. In addition, the Committee reviews management's
long-range planning for executive development and succession, establishes and
periodically reviews policies on management perquisites and performs certain
other review functions relating to management compensation and employee
relations policies. The
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Compensation and Management Development Committee is comprised of three or more
non-employee directors. The current members are Messrs. Alley (Chairman) and
Roberts and Ms. Ortega.
ENVIRONMENTAL AND LEGAL AFFAIRS COMMITTEE. The Environmental and Legal Affairs
Committee (1) reviews and recommends to the Company's Board of Directors
proposed actions on major environmental compliance and regulatory matters which
could have a significant impact on the Company's business and strategic
operating objectives and (2) reviews and considers major claims and litigation,
and legal, regulatory, patent and related governmental policy matters affecting
the Company. In addition, the Committee reviews and approves management
policies and programs relating to compliance with environmental matters, legal
and regulatory requirements and business ethics. The Environmental and Legal
Affairs Committee is comprised of three or more non-employee directors. The
current members are Messrs. Kirk (Chairman), Griffin and Ulmer.
NOMINATING COMMITTEE. The Nominating Committee makes recommendations
concerning the organization, size and composition of the Board of Directors and
its Committees, proposes nominees for election to the Board and its Committees
and considers the qualifications, compensation and retirement of directors. The
Nominating Committee is comprised of three or more non-employee directors. The
current members are Ms. Ortega (Chairman) and Messrs. Alley and Griffin.
EXECUTIVE OFFICERS
Listed below is certain information as to the Company's executive officers.
NAME, POSITION WITH COMPANY, AGE AND BIOGRAPHICAL DATA
RONALD M. GROSS, 60, Chairman, President and Chief Executive Officer - See
information under "Board of Directors."
WALLACE L. NUTTER, 49, Executive Vice President - He was elected Executive Vice
President of Rayonier in 1987 and has overall responsibility for the specialty
pulp, log trading and wood products businesses. He was named Senior Vice
President, Operations, in 1985 and Vice President and Director, Forest Products
Operations, in 1984. He joined Rayonier in 1967 in the Northwest Forest
Operations. Mr. Nutter is a member of the Board of Governors of the National
Council for Air and Stream Improvement. He holds a B.A. in Business
Administration from the University of Washington and has completed the Advanced
Management Program at the Harvard Graduate School of Business Administration.
WILLIAM S. BERRY, 52, Senior Vice President, Forest Resources and Corporate
Development - He was elected Senior Vice President, Forest Resources and
Corporate Development, of Rayonier in January 1994. He was Senior Vice
President, Land and Forest Resources, of Rayonier from January 1986 to January
1994. From October 1981 to January 1986 he was Vice President and Director of
Forest Products Management. Mr. Berry joined Rayonier in 1980 as Director of
Wood Products Management. He serves as Senior Vice President of RFR, the
managing general partner of RTLP. He also serves on the Executive Boards of the
American Forest Council and the Center for Streamside Studies. Prior to joining
Rayonier, Mr. Berry was employed with Champion International and Kimberly-Clark
Corporation. He holds a B.S. in Forestry from the University of California at
Berkeley and an M.S. in Forestry from the University of Michigan.
GERALD J. POLLACK, 52, Senior Vice President and Chief Financial Officer - He
was elected Senior Vice President and Chief Financial Officer of Rayonier in
May 1992. From July 1986 to May 1992, he was Vice President and Chief Financial
Officer. Mr. Pollack joined Rayonier in June 1982 as Vice President and
Controller. Prior to joining Rayonier, Mr. Pollack was employed with Avis, Inc.
where he held a number of positions, including Vice President and Corporate
Comptroller and finally Vice President-Operations, Europe, Africa and Middle
East Divisions in England. He serves as Chief Financial Officer of RFR, the
managing general partner of RTLP. Mr. Pollack has a B.S. degree in Physics from
Rensselaer Polytechnic Institute and an MBA in Accounting and Finance from the
Amos Tuck School at Dartmouth.
KEVIN S. O'BRIEN, 61, Senior Vice President, Pulp Marketing - He was elected
Senior Vice President, Pulp Marketing, for Rayonier in November 1989. From 1982
to 1989, he was Vice President, Strategic Planning and Development. In 1980 he
was elected a Vice President and was appointed Director of Strategic Planning
and Development. Since joining Rayonier in 1957, Mr. O'Brien has held a variety
of assignments in domestic and international sales and marketing, including an
assignment at ITT Corporate Headquarters as Product Line Manager for Natural
Resources from 1977 to 1979. He holds an A.B. in Economics from Harvard
University and an MBA from New York University.
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JOHN P. O'GRADY, 48, Senior Vice President, Human Resources - He was elected
Senior Vice President, Human Resources, of Rayonier in January 1994. He was
Vice President, Administration, of Rayonier from July 1991 to January 1994.
From December 1975 to July 1991, he held a number of human resources positions
at ITT. Prior to joining Rayonier, he was Vice President, Administration, at
ITT Federal Services Corporation from October 1983 through June 1991. Mr.
O'Grady is a Management Trustee for United Paperworkers' Health and Welfare
Trust and serves on the Board of Directors of Trenton State College Business
and Industry Council. He holds a B.S. degree in Labor Economics from the
University of Akron, an M.S. degree in Industrial Relations from Rutgers
University and a Ph.D in Management from California Western University.
ITEM 11. EXECUTIVE COMPENSATION
The following table discloses compensation received by Rayonier's Chief
Executive Officer and the four other most highly paid executive officers for
the fiscal year ended December 31, 1993.
SUMMARY COMPENSATION TABLE (1)
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARD OF
-------------------------------------------
STOCK ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OTHER($) OPTIONS(3)(#) COMPENSATION(4)($)
- --------------------------- --------- -------- -------- ------------- ------------------
Ronald M. Gross
Chairman of the Board, President
and Chief Executive Officer 421,920 185,000 64 (2) 33,000 14,767
Wallace L. Nutter
Executive Vice President 235,631 90,000 - 7,000 8,247
William S. Berry
Senior Vice President,
Forest Resources and
Corporate Development 180,000 60,000 - 4,500 6,300
Kevin S. O'Brien
Senior Vice President,
Pulp Marketing 178,962 35,000 - 2,000 6,264
Gerald J. Pollack
Senior Vice President and
Chief Financial Officer 167,042 60,000 - 4,500 5,846
- ---------------------------
(1) This table does not include columns for Restricted Stock Awards and
Long-Term Incentive Plan Compensation since Rayonier had no amounts to
report for 1993.
(2) Represents tax reimbursement allowances which are intended to offset the
inclusion in taxable income of the value of certain benefits.
(3) The stock options reported are for ITT Common Stock and do not represent
options to acquire Rayonier Common Shares. In connection with the
Distribution, options to purchase ITT Common Stock which were not exercised
were canceled, and options to acquire Rayonier Common Shares have been
granted to replace the canceled ITT options. See "Stock Options
Generally".
(4) All the amounts shown in this column are company contributions under the
ITT Investment and Savings Plan and the ITT Excess Savings Plan, which are
defined contribution plans. ITT makes a matching contribution in an amount
equal to 50 percent of an employee's contribution not to exceed three
percent (3 percent) of such employee's salary. Under these plans, ITT also
makes a non-matching contribution equal to one-half of one percent (0.5
percent) of an employee's salary.
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ANNUAL BONUS PLAN
Eligible executives and key managers of Rayonier participated in an annual
incentive bonus program sponsored by ITT. Under this program, each executive
and key manager was assigned to a salary grade which had a standard bonus
associated with it expressed as a percentage of the executive's year-end base
salary rate (standard bonus). At year end, the aggregate amount of individual
standard bonuses was adjusted in accordance with a pre-established formula to
create a spendable bonus pool for the year. The formula measured actual net
income, return on total capital (ROTC) and operating funds flow (OFF) against
the approved budgeted amounts for the year for each performance measure. Net
income, ROTC and OFF performance was weighted 60 percent, 25 percent and 15
percent, respectively. The maximum spendable pool was 150 percent of the
aggregate standard bonus pool. Individual bonus amounts within the authorized
pool were determined on a discretionary basis taking into account specific
personal contributions during the year.
Bonus awards for Rayonier executive officers were subject to approval by ITT
senior line management. Bonus awards for Messrs. Gross and Nutter were subject
to final approval by the ITT Compensation and Personnel Committee.
During 1993, the standard bonus adjustment factor pursuant to the above formula
was 100 percent. In total, $1,342,000 was authorized for expenditure to 54
executives and seven middle managers, including the amounts indicated in the
Summary Compensation Table for the named executive officers.
The annual bonus program has been carried forward in substantially the same
form under the Rayonier Annual Incentive Bonus Award Plan which is administered
by the Compensation and Management Development Committee of the Rayonier Board
of Directors.
STOCK OPTIONS GENERALLY
The employees of Rayonier held as of December 31, 1993 unexercised options to
acquire 149,887 shares of ITT Common Stock, of which six executive officers
held 105,001 such unexercised options. To the extent those ITT options were not
exercised prior to the Distribution Date, Rayonier has granted to the named
executive officers substitute options to acquire Rayonier Common Shares in
substitution for the canceled options on ITT Common Stock. The substitution of
options maintained the economic value of each option, and the total number of
Rayonier options granted was determined so that the aggregate spread between
the exercise price and the fair market value with respect to the Rayonier
options equaled such aggregate spread with respect to the ITT options. As of
February 28, 1994, there were 130,319 outstanding unexercised ITT options of
which 100,667 were awarded to the six named executive officers. Under
conversion, options to acquire 382,434 Rayonier Common Shares were granted to
the employees of Rayonier in substitution for the ITT options which were
canceled. The six named executive officers were granted 295,416 of such
options to acquire Rayonier Common Shares.
Replacement of the canceled ITT options is believed to be beneficial to
Rayonier and its shareholders, since it will allow Rayonier to restore
meaningful compensation incentives to key employees.
OPTION GRANTS ON ITT COMMON STOCK TO RAYONIER EXECUTIVES IN LAST FISCAL YEAR
The following table provides information on fiscal year 1993 grants of options
to the named Rayonier executives to purchase shares of ITT Common Stock.
Except as indicated above with respect to substitute stock options granted in
1994, no options to acquire Rayonier Common Shares have been granted or are
outstanding. Under the provisions of the Rayonier Substitute Stock Option
Plan, outstanding unexercised ITT options, including 1993 grants to purchase
ITT Common Stock, have been converted and carried over to Rayonier with the
same terms and conditions as were applicable under the former ITT Option Plans.
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INDIVIDUAL GRANTS TO PURCHASE ITT COMMON STOCK
---------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(4)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------
NAME GRANTED(1)(#) 1993(2) PRICE($/SHARE)(3) DATE 5 PERCENT 10 PERCENT
- ---- ------------- ------- ----------------- ---- --------- ----------
Ronald M. Gross 33,000 1.6% $92.00 10/16/2003 $1,909,324 $4,838,602
Wallace L. Nutter 7,000 0.3% 92.00 10/16/2003 405,008 1,026,370
William S. Berry 4,500 0.2% 92.00 10/16/2003 260,362 659,809
Kevin S. O'Brien 2,000 0.1% 92.00 10/16/2003 115,717 293,249
Gerald J. Pollack 4,500 0.2% 92.00 10/16/2003 260,362 659,809
- -----------------
(1) The numbers on this column represent the options to purchase ITT Common
Stock.
(2) Percentages are based on a total of 2,070,900 options granted to 677 ITT
employees during 1993.
(3) The exercise price per share is 100 percent of the fair market value of ITT
Common Stock on the date of grant, which was October 14, 1993. The exercise
price may be paid in cash or in shares of ITT Common Stock valued at their
fair market value on the date of exercise.
Options granted to Messrs. Gross and Nutter are not exercisable until the
trading price of ITT Common Stock equals or exceeds $115 per share for 10
consecutive trading days at which time two-thirds of the options will be
exercisable; when the trading price equals or exceeds $128.80 per share for
10 consecutive trading days, the options will be fully exercisable.
Notwithstanding the above, the options will be fully exercisable on October
16, 2002. (Converted Rayonier option grants are not exercisable until
target trading price levels of $39.19 and $43.89 per common share are
achieved as outlined herein.)
Options granted to the other three named officers will be exercisable as to
one-third on the first anniversary date of grant; two-thirds on the second
anniversary date of the grant and in full on the third anniversary of the
grant date.
(4) At the end of the term of the options granted on October 14, 1993, the
projected price of a share of ITT Common Stock would be $149.86 at an
assumed annual appreciation rate of 5 percent and $238.62 at an assumed
annual appreciation rate of 10 percent. Gains to ITT Common stockholders
at those assumed annual appreciation rates would exceed $6.8 billion and
$17.4 billion, respectively, over the term of the options.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUE
The following table provides information on option exercises in 1993 by the
named Rayonier executives and the value of each such executive's unexercised
options to acquire ITT Common Stock at December 31, 1993.
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
OPTIONS EXERCISED DURING 1993 UNEXERCISED IN-THE-MONEY OPTIONS
---------------------------------- OPTIONS AT 12/31/93 HELD AT 12/31/93(1)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- -------------- -------------- ------------- -------------
Ronald M. Gross 54,500 $1,849,605 12,000/33,000 $ 511,440/-0-
Wallace L. Nutter 5,000 158,750 32,500/ 7,000 1,228,625/-0-
William S. Berry 8,333 227,408 1,667/ 4,500 71,048/-0-
Kevin S. O'Brien 2,500 100,800 2,500/ 2,000 100,625/-0-
Gerald J. Pollack 3,500 100,500 1,834/ 4,500 75,795/-0-
- -----------------
(1) The values reported in this column are based on the New York Stock Exchange
consolidated trading closing price of ITT Common Stock of $91.25 at
December 31, 1993.
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ITT LONG-TERM PERFORMANCE PLAN
Under the ITT Long-Term Performance Plan, target contingent cash awards were
made on December 12, 1991 (the 1992 Class Awards) to ITT executives including
the executive officers of Rayonier. With respect to Rayonier executive
officers, under the 1992 Class Awards, the ultimate payment value of a target
award, if any, will be based upon Rayonier's return on equity (ROE) performance
during the three-year period 1993 through 1995 as measured against
predetermined ROE goals for each year. Each year of the performance period has
been assigned a specific weighting: 15 percent, 35 percent and 50 percent for
1993, 1994 and 1995, respectively. If the actual weighted average ROE
performance is less than 90 percent of the ROE goals, no payment is earned.
1992 Class Awards for the five most highly compensated executive officers of
Rayonier are listed in the table below:
PERFORMANCE
OR OTHER
PERIOD UNTIL 1992 CLASS 1992 CLASS 1992 CLASS
CONTINGENT TARGET MATURATION OR AWARD AWARD AWARD
NAME AWARDS PAYOUT THRESHOLD(1) TARGET(2) MAXIMUM(3)
- ---- ------ ------ ------------ --------- ----------
Ronald M. Gross $ 700,000 12/31/95 $233,333 $ 700,000 $1,400,000
Wallace L. Nutter 300,000 12/31/95 100,000 300,000 600,000
William S. Berry 200,000 12/31/95 66,667 200,000 400,000
Kevin S. O'Brien 200,000 12/31/95 66,667 200,000 400,000
Gerald J. Pollack 180,000 12/31/95 60,000 180,000 360,000
- -----------------
(1) Based upon a weighted average ROE goal achievement of 90 percent, resulting
in payment of 33 1/3 percent of the target award in the first quarter of
1996.
(2) Based upon a weighted average ROE goal achievement of 100 percent,
resulting in payment of 100 percent of the target award in the first
quarter of 1996.
(3) Based upon a weighted average ROE goal achievement of 130 percent or more,
resulting in payment of 200 percent of the target award in the first
quarter of 1996.
For all 18 Rayonier participants as of December 31, 1993, an aggregate 1992
Class Award target amount of $2,790,000 is outstanding. Reserves for these
awards are maintained on the books of Rayonier. These awards are being
continued and the program is administered by the Compensation and Management
Development Committee of the Rayonier Board of Directors in accordance with the
provisions of the Long-Term Performance Plan.
The Plan provides that in the event of material changes in accounting
practices, principles, or their application, the Committee may make such
adjustments as it deems appropriate in Performance Goals and/or target values
so that the performance measurement for all purposes of this Plan with respect
to awards may be made as nearly as practicable on the same accounting basis.
In addition, the Committee may make such other adjustments as it deems
appropriate in Performance Goals and/or target values for material acquisitions
or dispositions of stock or property or for other circumstances specified by
the Committee in order to limit or avoid distortion in the operation of the
Plan that may result from such circumstances.
It is contemplated that any modification of the pre-established ROE goals
pursuant to the above provision will be disclosed to and, if required under
Federal income tax or other laws, approved by Rayonier's shareholders.
The following is a description of the compensation, benefit and retirement
plans adopted by the Company.
1994 RAYONIER INCENTIVE STOCK PLAN
Rayonier desires to provide meaningful long-term incentives for its executives
and other key employees, directly related to their individual and collective
performance in enhancing shareholder value. Market-based incentives based on
Rayonier stock performance will allow Rayonier to provide significant
incentives to the key employees of Rayonier to a degree not previously
available under ITT's compensation programs. Awards of stock options and other
market-based incentives will permit key employees to profit proportionately as
shareholder value is enhanced (as evidenced by the market price for
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Rayonier Common Shares), and will also give Rayonier an effective tool to
encourage key employees to continue in the employ of Rayonier.
In order to achieve these objectives, effective prior to the Distribution, the
Board of Directors of Rayonier adopted, and ITT as its sole shareholder
approved, the 1994 Rayonier Incentive Stock Plan (the 1994 Plan). The 1994 Plan
will be administered by the Compensation and Management Development Committee
of the Rayonier Board of Directors (the Committee).
The 1994 Plan provides for the grant of incentive stock options (qualifying
under Section 422 of the Internal Revenue Code of 1986, as amended),
non-qualified stock options, stock appreciation rights (Rights), performance
shares and restricted stock, or any combination of the foregoing, as the
Committee may determine (collectively, Awards). The 1994 Plan will expire on
December 31, 2003.
The 1994 Plan contains a formula for establishing an annual limit on the number
of shares which may be awarded (or with respect to which non-stock Awards may
be made) in any given calendar year (the Annual Limit). The Annual Limit
formula is expressed as a percentage of Rayonier's total issued Common Shares
as of the year end immediately preceding the year of awards (Plan Year). Under
the Annual Limit formula, the maximum number of shares of Rayonier Common
Shares for which Awards may be granted under the Plan in each Plan Year shall
be 1.5 percent of the total of the issued and outstanding shares of Rayonier
Common Shares as reported in the Annual Report on Form 10-K of the Corporation
for the fiscal year ending immediately prior to any Plan Year. Any unused
portion of the Annual Limit for any Plan Year shall be carried forward and be
made available for awards in succeeding Plan Years.
In addition to the foregoing, in no event shall more than one million
(1,000,000) Rayonier Common Shares be cumulatively available for Awards of
incentive stock options under the 1994 Plan, and provided further, that no more
than twenty percent (20 percent) of the total number of shares available on a
cumulative basis shall be available for restricted stock and performance share
awards. For any Plan Year, no individual employee may receive stock options for
more than ten percent (10 percent) of the Annual Limit applicable to that Plan
Year.
Subject to the above limitations, Rayonier Common Shares to be issued under the
1994 Plan may be made available from the authorized but unissued Rayonier
Common Shares. In the event of a stock split or stock dividend, reorganization,
recapitalization, or other similar event affecting the price of Rayonier Common
Shares, the number of shares subject to the 1994 Plan, the number of shares
then subject to Awards and the price per share payable on exercise of options
may be appropriately adjusted by the Committee. Other than the above
adjustments, it is the Rayonier Board's policy that no options will be canceled
and reissued at a lower price unless the shareholders approve such action. For
the purpose of computing the total number of shares available for Awards under
the 1994 Plan, there shall be counted against the foregoing limitations the
number of Rayonier Common Shares subject to issuance upon exercise or
settlement of Awards and the number of Rayonier Common Shares which equal the
value of Performance Share Awards, in each case determined as at the dates on
which such Awards are granted. If any Awards under the 1994 Plan are forfeited,
terminated, expire unexercised, are settled in cash in lieu of Rayonier Common
Shares or are exchanged for other Awards, the shares which were theretofore
subject to such Awards shall again be available for Awards under the 1994 Plan
to the extent of such forfeiture or expiration of such Awards. Further, any
shares that are exchanged (either actually or constructively) by optionees as
full or partial payment to the Company of the purchase price of shares being
acquired through the exercise of a stock option granted under the 1994 Plan may
be available for subsequent Awards, provided, however, that such shares may be
awarded only to those participants who are not directors or executive officers
(as that term is defined in the rules and regulations under Section 16 of the
Exchange Act).
At the Distribution Date, 29,565,392 Rayonier Common Shares were issued and
outstanding. The Annual Limit applicable to 1994 for Awards under the 1994 Plan
is 1.5 percent thereof or 443,481 shares.
Reference is made to the "Individual Grants to Purchase ITT Common Stock" table
which sets forth information concerning the grant of ITT stock options made
effective on October 14, 1993 to Rayonier's chief executive officer and the
other named executive officers in 1993.
The Committee, made up entirely of outside directors, none of whose members may
receive any Award under the 1994 Plan, will administer the 1994 Plan,
including, but not limited to, making determinations with respect to the
designation of those employees who shall receive Awards, the number of shares
to be covered by options, Rights and restricted stock awards, the exercise
price of options (which may not be less than 100 percent of the fair market
value of Rayonier Common Shares on the date of grant), other option terms and
conditions, and the number of performance shares to be
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granted and the applicable performance objectives. The Committee may impose
such additional terms and conditions on an Award as it deems advisable. The
Committee's decisions in the administration of the 1994 Plan shall be binding
on all persons for all purposes.
The Committee may in its sole discretion delegate such administrative powers as
it may deem appropriate to the chief executive officer or other members of
senior management, except that Awards to executive officers shall be made
solely by the Committee and subject to compliance with Rule 16b-3 of the
Exchange Act.
Awards will be made, in the discretion of the Committee, to employees of
Rayonier and any of its subsidiaries (including officers and members of the
Board of Directors who are also employees) whose responsibilities and decisions
directly affect the performance of Rayonier and its subsidiaries. No final
determination has yet been made as to the number of recipients or the number of
shares to be granted during the 1994 and later plan years. During 1993, 22
employees of Rayonier, including the named officers, were awarded options under
an ITT employee stock option plan to purchase 74,300 shares of ITT Common
Stock. There were no awards to employees of Rayonier of Rights, performance
shares or restricted stock during 1993.
STOCK OPTIONS AND RELATED RIGHTS. Incentive stock options and related Rights
under the 1994 Plan must expire within ten years after grant; non-qualified
stock options and related Rights will expire not more than ten years and two
days after grant. No Right may be exercised until at least six months after it
is granted. The exercise price for options and Rights must be at least equal to
the fair market value of the Rayonier Common Shares on the date of grant. The
exercise price for options must be paid to Rayonier at the time of exercise
and, at the discretion of the Committee, may be paid in the form of cash or
already-owned Rayonier Common Shares or a combination thereof. During the
lifetime of an employee, an option must be exercised only by the individual (or
his or her estate or designated beneficiary) but no later than three months
after his or her termination of employment (or for longer periods as determined
by the Committee if termination is caused by retirement, disability or death,
but in no event later than the expiration of the original term of the option).
If an optionee voluntarily resigns or is terminated for cause, the options and
Rights are canceled immediately.
PERFORMANCE SHARES. Performance shares under the 1994 Plan are contingent
rights to receive future payments based on the achievement of individual or
Company performance objectives as prescribed by the Committee. The amounts
paid, which may be subject to a prescribed maximum, will be based on actual
performance over a period from two to five years, as determined by the
Committee, using such objective criteria as it deems appropriate including, but
not limited to, earnings per share and return on equity of Rayonier. Payments
may be made in the form of Rayonier Common Shares, cash or a combination of
Rayonier Common Shares and cash. The ultimate payments are determined by the
number of shares earned out and the price of a Rayonier Common Share at the end
of the performance period. In the event an employee terminates employment
during such a performance period, the employee will forfeit any right to
payment. However, in the case of retirement, permanent total disability, death
or cases of special circumstances, the employee may, at the discretion of the
Committee, be entitled to an award prorated for the portion of the performance
period during which he was employed by Rayonier.
RESTRICTED SHARES. Restricted Rayonier Common Shares awarded under the 1994
Plan shall be issued subject to a restriction period set by the Committee
during which time the shares may not be sold, transferred, assigned or pledged.
In the event an employee terminates employment during a restriction period, all
such shares still subject to restrictions will be forfeited by the employee and
reacquired by Rayonier. The Committee may provide for the lapse of restrictions
in installments where deemed appropriate and it may also require the
achievement of predetermined performance objectives in order for such shares to
vest. The recipient, as owner of the awarded shares, shall have all other
rights of a shareholder, including the right to vote the shares and receive
dividends and other distributions during the restriction period. The
restrictions may be waived, in the discretion of the Committee, in the event of
the awardee's retirement, permanent total disability, death or in cases of
special circumstances.
COMPENSATION UPON CHANGE OF CONTROL. The 1994 Plan provides for the automatic
protection of intended economic benefits by key employees in the event of a
change in control of Rayonier (i.e., upon the occurrence of an Acceleration
Event as defined in the 1994 Plan). Notwithstanding any other provisions of the
1994 Plan, upon the occurrence of an Acceleration Event (a) all options and
Rights will generally become immediately exercisable for a period of 60
calendar days; (b) options and Rights will continue to be exercisable for a
period of seven months in the case of an employee whose employment is
terminated other than for cause or who voluntarily terminates employment
because of a good faith belief that such employee will not be able to discharge
his or her duties; (c) Rights exercised during the 60-day period will be
settled fully in cash based on a formula price generally reflecting the highest
price paid for a Rayonier Common Share during the 60-day period preceding the
date such Right is exercised; (d) "limited stock appreciation rights" shall
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automatically be granted on all outstanding options not otherwise covered by a
Right, which shall generally be immediately exercisable in full and which shall
entitle the holders to the same exercise period and formula price referred to
in (a), (b) and (c) above; (e) outstanding performance share awards shall
automatically vest, with the valuation of such performance shares based on the
formula price; and (f) restrictions applicable to awards of restricted shares
shall be automatically waived.
Options, Rights, performance shares or restricted shares which are granted,
accelerated or enhanced upon the occurrence of a takeover (i.e., an
Acceleration Event as defined in the 1994 Plan) may give rise, in whole or in
part, to "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code and, to such extent, will be nondeductible by Rayonier
and subject to a 20 percent excise tax to the awardee.
The Board may amend or discontinue the 1994 Plan at any time and, specifically,
may make such modifications to the Plan as it deems necessary to avoid the
application of Section 162(m) of the Internal Revenue Code of 1986, as amended,
and the Treasury regulations issued thereunder. However, shareholder approval
is required for certain amendments, including any amendment which may (i)
increase the number of shares reserved for awards (except as provided in the
1994 Plan with respect to stock splits or other similar changes), (ii)
materially change the group of employees eligible for Awards, (iii) materially
increase the benefits accruing to participants under the 1994 Plan or (iv)
permit Awards after December 31, 2003.
RAYONIER SENIOR EXECUTIVE SEVERANCE PAY PLAN
The Rayonier Senior Executive Severance Pay Plan applies to eight Rayonier
senior executives who are United States citizens or who are employed in the
United States, including all executive officers. Under the Plan, if a
participant's employment is terminated by Rayonier, other than for cause or as
a result of other occurrences specified in the Plan, the participant is
entitled to severance pay in an amount up to 24 months' base salary depending
upon his or her length of service, but in no event more than the amount of base
salary for the number of months remaining between the termination of employment
and the participant's normal retirement date or two times the participant's
total annual compensation during the year immediately preceding such
termination.
Based upon their length of service, each of the aforementioned executive
officers is entitled to severance pay under the Plan in an amount of 24 months'
base salary, subject to the above-mentioned limitation in the event of an
earlier retirement date. The Plan includes offset provisions for other
compensation from Rayonier and requirements on the part of executives with
respect to non- competition and compliance with the Rayonier Code of Corporate
Conduct. While under the Plan severance payments would ordinarily be made
monthly over the scheduled term of such payments, Rayonier has the option to
make such payments in the form of a single lump- sum payment discounted to
present value.
If within two years after a change in corporate control (as defined in the
Plan), a participant terminates employment or is terminated, he or she will
have the option to receive severance pay in a single discounted lump-sum
payment. The current aggregate amount of the annual base salaries of such eight
senior officers is approximately $1.6 million. The annual salaries of Messrs.
Gross, Nutter, Berry, O'Brien and Pollack as of December 31, 1993 were
$430,000, $236,000, $180,000, $180,000 and $174,000, respectively.
RAYONIER INVESTMENT AND SAVINGS PLAN
Many of the Company's salaried employees were participants in the ITT
Investment and Savings Plan for Salaried Employees. Effective on the
Distribution Date the Company and its participating subsidiaries adopted a
substantially similar Rayonier Investment and Savings Plan for Salaried
Employees, with a transfer of the account balances of each Company employee
participating in the ITT Investment and Savings Plan to an account for such
employee in the Rayonier Investment and Savings Plan.
Salaried employees of Rayonier and certain of its subsidiaries who become
members of the Rayonier Investment and Savings Plan may elect to make
contributions to a trust fund, through payroll deductions, of 2 percent to 16
percent of their salary up to the allowable compensation maximum for qualified
plans. The contributions of highly compensated salaried employees are limited
to lesser amounts. The employing company makes a matching contribution in an
amount equal to 50 percent of the employee's contribution, not to exceed 3
percent of each employee's salary. In addition, Rayonier makes a non-matching
contribution equal to one-half of one percent (.5 percent) of an employee's
salary. Such amounts are invested in accordance with the provisions of the
Plan. A before-tax savings feature of the Plan permits employees to have their
salaries reduced by up to the aforementioned percentages, but not in excess of
limits prescribed by
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tax law, and have such amounts contributed to the trust fund under the Plan for
their benefit. Matching company contributions become vested at the rate of 20
percent after the first year of employment and another 20 percent after each
additional year of employment, with full vesting after five years of
employment; however, full vesting takes place immediately upon the attainment
of age 65, retirement, disability, death, termination of the Plan or complete
discontinuance of company contributions. The non-matched company contribution
is fully vested immediately.
Federal legislation limits the annual contributions which an employee may make
to the Investment and Savings Plan, a tax-qualified retirement Plan.
Accordingly, Rayonier has adopted the Rayonier Excess Savings Plan which
enables an employee who is precluded by these limitations from contributing 6
percent of salary to the tax-qualified plan to make up the shortfall through
salary deferrals and thereby receive the 3 percent maximum matching company
contribution and one-half of one percent non-matching company contribution
otherwise allowable under the tax-qualified plan. Salary deferrals, company
contributions and investment earnings are entered into a book reserve account
maintained by the Company for each participant.
RAYONIER RETIREMENT PROGRAM
Most of the Company's salaried employees were participants in the ITT
Retirement Plan for Salaried Employees. Effective on the Distribution Date,
the Company and its participating subsidiaries adopted an identical
"mirror-image" Rayonier Salaried Employees Retirement Plan.
The Company's Retirement Plan covers substantially all eligible salaried
employees of the Company, including senior executive officers and other
Rayonier executives. The cost of the retirement program is borne entirely by
the Company.
The annual pension amounts to two percent of a member's average final
compensation (as defined below) for each of the first 25 years of benefit
services, plus one and one-half percent of a member's average final
compensation for each of the next 15 years of benefit service, reduced by one
and one-quarter percent of the member's primary Social Security benefit for
each year of benefit service to a maximum of 40 years; provided that no more
than one-half of the member's primary Social Security benefit is used for such
reduction. A member's average final compensation (including salary plus
approved bonus payments) is defined under the Plan as the total of (i) a
member's average annual base salary for the five calendar years of the last 120
consecutive calendar months of eligibility service affording the highest such
average plus (ii) a member's average annual compensation not including base
salary for the five calendar years of the member's last 120 consecutive
calendar months of eligibility service affording the highest such average. The
Plan also provides for undiscounted early retirement pensions for members who
retire at or after age 60 following completion of 15 years of eligibility
service. A member is vested in benefits accrued under the Plan upon completion
of five years of eligibility service.
Applicable Federal legislation limits the amount of benefits that can be paid
and compensation which may be recognized under a tax- qualified retirement
plan. The Company has adopted a non-qualified unfunded retirement plan ("Excess
Plan") for payment of those benefits at retirement that cannot be paid from the
qualified Retirement Plan. The practical effect of the Excess Plan is to
continue calculation of retirement benefits to all employees on a uniform
basis. Benefits under the Excess Plan will generally be paid directly by the
Company.
Based on various assumptions as to remuneration and years of service, before
Social Security reductions, the following table illustrates the estimated
annual benefits payable from the Retirement Program at retirement at age 65
that are paid for by the Company.
PENSION PLAN TABLE
AVERAGE YEARS OF SERVICE
FINAL -----------------
COMPENSATION 20 25 30 35 40
------------ -- -- -- -- --
$50,000 $ 20,000 $ 25,000 $ 28,750 $ 32,500 $ 36,250
100,000 40,000 50,000 57,500 65,000 72,500
300,000 120,000 150,000 172,500 195,000 217,500
500,000 200,000 250,000 287,500 325,000 362,500
750,000 300,000 375,000 431,250 487,500 543,750
1,000,000 400,000 500,000 575,000 650,000 725,000
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35
The amounts shown under "Salary" and "Bonus" opposite the names of the
individuals in the Summary Compensation Table comprise their compensation which
is used for purposes of determining "average final compensation" under the
plan. The plan will recognize their service with ITT for eligibility and
vesting purposes which, as of December 31, 1993, are as follows: Mr. Gross,
15.83 years; Mr. Nutter, 26.55 years; Mr. Berry, 13.58 years; Mr. O'Brien,
34.29 years; and Mr. Pollack, 11.58 years.
RAYONIER EMPLOYEE WELFARE BENEFITS
Effective on the Distribution Date, the Company and its participating
subsidiaries adopted a broad-based employee welfare benefits program which
"mirror images" the various ITT welfare benefit programs previously available
to salaried employees. Rayonier executives will participate in the Company's
comprehensive benefits program which will include group medical and dental
coverage, group life insurance and other benefit plans, in addition to the
pension program and investment and savings plan described previously. In
addition to the coverage available generally to salaried employees under the
Rayonier welfare benefits plans, Mr. Gross has Company-provided death benefits
equal to his annual salary during active employment and reduced coverage after
retirement.
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36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning Rayonier Common Shares
beneficially owned effective February 28, 1994 by (a) each of the Company's
directors and executive officers and (b) all directors and executive officers
as a group. None of the directors or executive officers, individually, nor all
the directors and executive officers as a group, beneficially owns as much as 1
percent of the outstanding Rayonier Common Shares after the Distribution. All
Common Shares are owned directly by the individual unless otherwise indicated.
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP
------------------------ --------------------
Rand V. Araskog 101,452
4,258(a)
Ronald M. Gross 21,701
697(b)
William J. Alley 1,000
Donald W. Griffin -
Paul G. Kirk, Jr. 252
Katherine D. Ortega -
Burnell R. Roberts 1,000
Gordon I. Ulmer 3,000
Wallace L. Nutter 184
1,708(c)
William S. Berry 169
149(b)
Gerald J. Pollack 458
86(b)
Kevin S. O'Brien -
John P. O'Grady 14
11(b)
------------
Directors and executive
officers as a group 136,139
=======
- --------------------------------
(a) Indicates Common Shares held under the ITT Investment and Saving Plan.
(b) Includes Common Shares held under the Rayonier Investment and Savings Plan.
(c) Includes 1,264 Common Shares owned by a corporation of which Mr. Nutter and
his spouse are the sole stockholders. All other Common Shares in this total are
held under the Rayonier Investment and Savings Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Rayonier was a wholly owned subsidiary of ITT through February 28, 1994, ("the
Distribution Date"). Prior to the Distribution Date ITT rendered advice and
assistance to Rayonier in general engineering, plants, traffic, operating,
accounting, commercial, financial and other matters. The fee for such services
was approximately 1/4 of 1 percent of Rayonier's annual sales. The total fee
paid by Rayonier to ITT for these services amounted to $2.3 million in 1993.
As a result of the Distribution, ITT has no ownership interest in Rayonier, and
Rayonier is an independent public company. Rayonier and ITT entered into
certain agreements, described below, governing their relationship subsequent to
the Distribution and providing for the allocation of tax and certain other
liabilities and obligations arising from periods prior to the Distribution.
Copies of the forms of such agreements are filed as exhibits to this Form 10-K,
Annual Report. The following description summarizes the material terms of such
agreements, but is qualified by reference to the texts of such agreements,
which are incorporated herein by reference.
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37
DISTRIBUTION AGREEMENT
ITT and Rayonier entered into the Distribution Agreement providing for, among
other things, the principal corporate transactions required to effect the
Distribution and other arrangements between Rayonier and ITT related to the
Distribution.
The Distribution Agreement provides for the retention by ITT of all liabilities
relating to the business conducted by ITT or any subsidiary of ITT (excluding
Rayonier and its subsidiaries) and the indemnification of Rayonier with respect
to such liabilities.
The Distribution Agreement also provides for the retention by Rayonier of all
liabilities relating to the business conducted by Rayonier and its subsidiaries
(including environmental liabilities) and the indemnification of ITT with
respect to such liabilities.
The Distribution Agreement provides that neither ITT nor Rayonier will take any
action that would jeopardize the intended tax consequences of the transaction.
Specifically, each of ITT and Rayonier will maintain its status as a company
engaged in the active conduct of a trade or business, as defined in Section
355(b) of the Internal Revenue Code of 1986, as amended, until February 28,
1996.
TAX ALLOCATION AGREEMENT
ITT and Rayonier entered into a Tax Allocation Agreement (the Tax Allocation
Agreement) providing that Rayonier will pay its share of ITT's consolidated tax
liability for the tax years Rayonier is included in ITT's consolidated Federal
income tax return. The Agreement also provides for sharing of pre-closing
state taxes where appropriate as well as certain other matters.
EMPLOYEE BENEFITS AGREEMENT
ITT and Rayonier entered into an Employee Benefit Services and Liability
Agreement providing for the allocation of retirement, medical, disability and
other employee welfare benefit plans between ITT and Rayonier.
ADMINISTRATIVE SERVICES AGREEMENT
For the purpose of an orderly transition following the Distribution Date, ITT
and Rayonier entered into an Administrative Services Agreement pursuant to
which, until December 31, 1994, ITT will provide to Rayonier such corporate
administrative services as Rayonier may request, and Rayonier will provide to
ITT similar services with respect to particular ITT subsidiaries which were
formerly the management responsibility of Rayonier (the Administrative Services
Agreement). The party which provides any such services will be compensated by
the other party.
CANADIAN ASSETS PURCHASE AGREEMENT
A subsidiary of ITT and a subsidiary of Rayonier entered into a Canadian Assets
Purchase Agreement pursuant to which on February 28, 1994 the ITT subsidiary
sold to the Rayonier subsidiary certain assets located in Canada and owned by
the ITT subsidiary which are used in the Canadian operations of Rayonier. The
purchase price was equal to the net book value of the assets purchased, which
approximated $3.2 million.
DIRECTORS
Two current ITT Directors, Messrs. Rand V. Araskog and Paul G. Kirk, Jr. are
also serving on the Board of Directors of Rayonier.
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38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM 8-K
(a) Documents filed as a part of this report:
1. See Index to Financial Statements on page ii for a list of the
financial statements filed as part of this report.
2. See Index to Financial Statement Schedules on page ii for a list of
the financial statement schedules filed as a part of this report.
3. See Exhibit Index on pages B and C for a list of the exhibits filed or
incorporated herein as part of this report.
(b) Reports on Form 8-K:
1. The Company filed, on December 10, 1993, a Form 8-K related to the
announcement by ITT Corporation, the Registrant's sole shareholder, of
its intentions to distribute, as a special dividend, all of the common
shares of the Registrant to holders of ITT Common Stock and Series N
Preferred Stock.
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39
REPORT OF MANAGEMENT
The management of Rayonier Inc. is responsible for the preparation and
integrity of the information contained in the accompanying financial
statements and other sections of the Annual Report. The financial statements
are prepared in accordance with generally accepted accounting principles and,
where necessary, include amounts that are based on management's informed
judgments and estimates. Other information in the Annual Report is consistent
with the financial statements.
Rayonier's financial statements are audited by Arthur Andersen & Co.,
independent public accountants. Management has made Rayonier's financial
records and related data available to Arthur Andersen & Co., and believes that
the representations made to the independent public accountants are valid and
complete.
Rayonier's system of internal controls is a major element in management's
responsibility for the fair presentation of the financial statements. The
system includes both accounting controls and the internal auditing program,
which are designed to provide reasonable assurance that Rayonier's assets are
safeguarded, that transactions are properly recorded and executed in accordance
with management's authorization, and that fraudulent financial reporting is
prevented or detected.
Rayonier's internal controls provide for the careful selection and training of
personnel and for appropriate divisions of responsibility. The controls are
documented in written codes of conduct, policies and procedures that are
communicated to Rayonier's employees. Management continually monitors the
system of internal controls for compliance. Rayonier's internal auditors
independently assess the effectiveness of internal controls and make
recommendations for improvement on a regular basis. The independent public
accountants also evaluate internal controls and perform tests of procedures and
accounting records to enable them to express their opinion on Rayonier's
financial statements. They also make recommendations for improving internal
controls, policies and practices. Management takes appropriate action in
response to each recommendation from the internal auditors and the independent
public accountants.
The Board of Directors and the officers of Rayonier monitor management's
administration of Rayonier's financial and accounting policies and practices
and the preparation of financial reports.
40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rayonier Inc.:
We have audited the accompanying consolidated financial statements of Rayonier
Inc. (a North Carolina corporation and a wholly owned subsidiary of ITT
Corporation through February 28, 1994) and subsidiaries as of December 31, 1993
and 1992, and for each of the three years in the period ended December 31,
1993, as described in the Index to Financial Statements. These financial
statements and the schedules referred to below are the responsibility of
Rayonier's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rayonier Inc. and subsidiaries
as of December 31, 1993 and 1992, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1993 in
conformity with generally accepted accounting principles.
As discussed in the accompanying notes to financial statements, in 1992,
Rayonier adopted three new accounting standards promulgated by the Financial
Accounting Standards Board, changing its methods of accounting for income
taxes, postretirement benefits other than pensions and postemployment benefits.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the Index to
Financial Statement Schedules are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN & CO.
Stamford, Connecticut
March 1, 1994
F-2
41
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
For the Three Years Ended December 31, 1993
(Thousands of dollars, except per share data)
1993 1992 1991
---- ---- ----
Sales $936,310 $973,673 $978,950
------- ------- -------
Costs and expenses
Cost of sales 780,831 821,571 846,246
Selling and general expenses 27,390 32,228 29,550
Commission expenses 885 13,115 14,707
Other operating (income) expenses, net (2,641) 4,639 (8,298)
Provision for dispositions 2,679 188,724
------- ------- ------
809,144 1,060,277 882,20
------- --------- ------
Operating income (loss) 127,166 (86,604) 96,745
Equity in net loss of
Grays Harbor Paper Company - (3,257) (1,587)
------- -------- --------
127,166 (89,861) 95,158
Interest expense (23,368) (21,327) (13,942)
Interest and miscellaneous income, net 1,608 2,004 2,562
Minority interest (22,508) (22,702) (19,884)
------- ------- -------
Income (loss) before income taxes 82,898 (131,886) 63,894
Income tax (expense) benefit (30,432) 50,366 (19,557)
------- ------- -------
Income (loss) before cumulative effect
of accounting changes 52,466 (81,520) 44,337
Cumulative effect of accounting changes (SFAS No. 106
and SFAS No. 112) net of tax benefit $11,310 - (21,956) -
------- -------- -------
Net income (loss) $ 52,466 $(103,476) $ 44,337
======= ======== =======
Earnings (loss) per common share:
Income (loss) before cumulative effect
of accounting changes $1.77 $(2.77) $1.50
==== ===== ====
Cumulative effect of accounting changes $ - $(0.74) $ -
==== ===== ====
Net income (loss) $1.77 $(3.51) $1.50
==== ===== ====
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
F-3
42
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1993 and 1992
(Thousands of dollars)
ASSETS
1993 1992
---- ----
CURRENT ASSETS
Cash $ 5,989 $ 5,731
Short-term investments - 5,000
Accounts receivable, less allowance for doubtful
accounts of $4,268 and $4,049 82,696 74,249
Inventories
Finished goods 46,516 57,457
Work in process 16,235 16,945
Raw materials 44,057 39,552
Manufacturing and maintenance supplies 26,751 26,026
--------- ---------
133,559 139,980
Deferred income taxes 10,498 18,409
Prepaid timber stumpage 55,770 40,544
Other current assets 10,752 7,624
--------- ---------
Total current assets 299,264 291,537
OTHER ASSETS 24,025 31,337
TIMBER STUMPAGE 12,480 7,881
TIMBER, TIMBERLANDS AND LOGGING ROADS,
NET OF DEPLETION AND AMORTIZATION 470,077 464,123
PROPERTY, PLANT AND EQUIPMENT
Land, buildings, machinery and equipment 1,149,447 1,129,209
Less - accumulated depreciation 480,518 447,643
--------- ---------
668,929 681,566
--------- ---------
$1,474,775 $1,476,444
========= =========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
F-4
43
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1993 and 1992
(Thousands of dollars)
LIABILITIES AND SHAREHOLDER EQUITY
1993 1992
---- ----
CURRENT LIABILITIES
Accounts payable $ 67,783 $ 72,321
Bank loans 180,800 100,000
Current maturities of long-term debt 1,203 1,770
Accrued taxes 2,480 5,363
Accrued payroll and benefits 18,525 17,689
Accrued interest 4,446 5,367
Due to ITT Corporation and affiliated companies, net 2,673 10,106
Other current liabilities 32,657 40,926
Current reserves for dispositions and
discontinued operations 27,280 31,231
------- -------
Total current liabilities 337,847 284,773
DEFERRED INCOME TAXES 126,176 86,478
LONG-TERM DEBT 316,138 301,634
NONCURRENT RESERVES FOR DISPOSITIONS AND
DISCONTINUED OPERATIONS (Net of discontinued
operations' assets of $12,986 and $11,003) 35,920 64,439
OTHER NONCURRENT LIABILITIES 15,741 26,025
MINORITY INTEREST 36,649 37,417
SHAREHOLDER EQUITY
Common shares, 60 million shares authorized,
29,565,392 shares issued and outstanding 157,426 157,426
Retained earnings 448,878 518,252
------- -------
606,304 675,678
------- -------
$1,474,775 $1,476,444
======== ========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
F-5
44
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
For the Three Years Ended December 31, 1993
(Thousands of dollars)
1993 1992 1991
---- ---- ----
Balance, beginning of year $518,252 $639,258 $614,534
Net income (loss) 52,466 (103,476) 44,337
Cash dividends to ITT Corporation (121,840) (17,530) (19,613)
------- ------- -------
Balance, end of year $448,878 $518,252 $639,258
======= ======= =======
STATEMENTS OF CONSOLIDATED COMMON SHARES
AND CUMULATIVE PREFERRED STOCK
For the Three Years Ended December 31, 1993
(Thousands of dollars, except for shares)
Cumulative
Common Shares Preferred Stock
------------------------- ------------------------
Shares Amount Shares Amount
------ ------ ------ ------
Balance, January 1, 1991 29,565,392 $157,426 - $ -
---------- ------- ---------- ------
Balance, December 31, 1991 29,565,392 157,426 - -
Issuance of Cumulative
Preferred Stock - - 30,000 30,000
Redemption of Cumulative
Preferred Stock - - (30,000) (30,000)
---------- ------- ------ ------
Balance, December 31, 1992 29,565,392 157,426 - -
---------- ------- ----- -----
Balance, December 31, 1993 29,565,392 $157,426 - -
========== ======= ===== =====
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
F-6
45
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Three Years Ended December 31, 1993
(Thousands of dollars)
1993 1992 1991
---- ---- ----
OPERATING ACTIVITIES
Net income (loss) $ 52,466 $(103,476) $ 44,337
Cumulative effect of accounting changes - 21,956 -
------- -------- -------
Income (loss) before cumulative effect of accounting changes 52,466 (81,520) 44,337
Non-cash items included in income
Depreciation, depletion and amortization 78,272 77,885 69,270
Deferred income taxes 47,609 (65,871) 6,865
Equity in undistributed losses of Grays Harbor Paper Company - 3,257 1,587
Write-down of property, plant and equipment - 81,804 -
Reserves for dispositions 2,679 106,920 -
Decrease in other noncurrent liabilities (10,284) (1,387) (4,239)
Change in accounts receivable, inventories and accounts payable (5,887) (13,711) (31,083)
(Increase) decrease in prepaid timber stumpage (15,226) 2,391 29,684
Change in due to ITT Corporation and affiliated companies, net (7,433) 1,927 15,823
Other changes in working capital (13,569) 12,427 924
-------- ------- --------
Cash from operating activities 128,627 124,122 133,168
======== ======= ========
INVESTING ACTIVITIES
Capital expenditures, net of sales, retirements
and reclassifications of $167, $755 and $1,554 71,589) (96,289) (132,002)
New Zealand forest assets acquisition - (196,500) -
Expenditures for dispositions and discontinued operations (27,730) (18,213) (16,962)
Change in investments, other assets and timber stumpage (6,179) (1,394) 5,679
-------- -------- --------
Cash used for investing activities (105,498) (312,396) (143,285)
======== ======== ========
FINANCING ACTIVITIES
Increase in indebtedness to ITT Corporation - 167,000 30,800
Repayments of indebtedness to ITT Corporation - (167,000) (71,100)
Issuance of debt 290,435 424,700 99,439
Repayments of debt (195,698) (226,402) (26,788)
Issuance of preferred stock - 30,000 -
Redemption of preferred stock - (30,000) -
Cash dividends to ITT Corporation (121,840) (17,530) (19,613)
(Decrease) increase in minority interest (768) 4,486 1,813
-------- -------- --------
Cash from (used for) financing activities (27,871) 185,254 14,551
======== ======== ========
CASH AND SHORT-TERM INVESTMENTS
(Decrease) increase in cash and short-term investments (4,742) (3,020) 4,434
Balance at beginning of year 10,731 13,751 9,317
------- -------- --------
Balance at end of year $ 5,989 $ 10,731 $ 13,751
======= ======== ========
Supplemental disclosures of cash flow information
Cash paid (received) during the year for
Interest $ 16,915 $ 22,562 $ 15,879
======== ======== ========
Income taxes, net of refunds $ (18,193) $ 13,835 $ (6,863)
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
F-7
46
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands unless otherwise stated)
1. THE COMPANY
On February 28, 1994, (the Distribution Date), ITT Corporation (ITT), Rayonier
Inc.'s sole shareholder, distributed, as a special dividend, all of the Common
Shares of Rayonier to the holders of ITT Common Stock and Series N Preferred
Stock (the Distribution). In connection with the Distribution, the Company
changed its name from ITT Rayonier Incorporated to Rayonier Inc. and became a
publicly traded company listed on the New York Stock Exchange under the symbol
"RYN." On March 1, 1994 there were approximately 29.6 million Common Shares of
Rayonier outstanding.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Rayonier Inc. and
its subsidiaries. Minority interest represents public unitholders'
proportionate share of the partners' capital of Rayonier's consolidated
subsidiary, Rayonier Timberlands, L.P. (RTLP). All significant intercompany
balances and transactions are eliminated. Rayonier's investments in
noncontrolled companies are included on the equity basis.
Certain reclassifications have been made to prior years' financial statements
to conform to current year presentation.
Research and Development
Significant costs are incurred each year for research and development programs
expected to contribute to the profitability of future operations. Such costs
are charged to income as incurred. Research and development expenditures
amounted to $7,302, $8,267 and $7,651 in 1993, 1992 and 1991, respectively.
Inventories
Inventories are valued at the lower of cost or market. The cost of pulp
products is determined on the first-in, first-out (FIFO) basis. Timber and
wood products are generally valued on an average cost basis. Inventory costs
include material, labor and manufacturing overhead. Physical counts of
inventories are made at least annually. Potential losses from obsolete, excess
or slow- moving inventories are provided for currently.
Prepaid Timber Stumpage/Timber Stumpage
Rayonier purchases timber stumpage from RTLP and other private and public
owners of timberlands. The timber stumpage is harvested by Rayonier for use in
its log export, pulp and wood products businesses. Timber stumpage is
classified as a current asset, Prepaid Timber Stumpage, based upon the amount
of harvest expected to occur within one year of the balance sheet date. The
remainder is classified as a noncurrent asset, Timber Stumpage.
Timber Cutting Contracts
Rayonier evaluates the realizability of its future timber harvests in the
northwestern and southeastern portions of the United States and in New Zealand
based on the estimated aggregate cost, including the cost of fee timber, timber
stumpage and timber available under cutting contracts, of such harvests and the
market sales values to be realized at the anticipated time of harvesting that
timber. Losses are recorded in the period that a determination is made that
the aggregate harvest costs in a major operating area will not be recoverable.
Timber and Timberlands
The acquisition cost of land, timber, real estate taxes, lease payments, site
preparation and other costs relating to the planting and growing of timber are
capitalized. Such costs attributed to merchantable timber are charged against
revenue at the time the timber is harvested based on the relationship of
harvested timber to the estimated volume of currently recoverable timber.
Timber and timberlands are stated at the lower of original acquisition cost,
net of timber cost depletion, or market value.
F-8
47
Logging Roads
Logging roads, including bridges, are stated at cost, less accumulated
amortization. The costs of roads developed for reforestation activities are
amortized using the straight-line method over their useful economic lives
estimated at 40 years for roads and 20 years for bridges. Road costs
associated with harvestable timber access are charged to a prepaid account and
amortized as the related timber is sold, generally within two years.
Property, Plant and Equipment
Property, plant and equipment additions are recorded at cost which includes
applicable freight, taxes, interest, construction and installation costs.
Interest capitalized in connection with major construction projects amounted to
$893 and $3,214 during 1992 and 1991, respectively. No interest costs were
capitalized during 1993. Upon ordinary retirement or sale of property,
accumulated depreciation is charged with the cost of the property removed and
credited with the proceeds of salvage value and no gain or loss is recognized.
Gains and losses with respect to any significant and unusual retirements of
assets are included in operating income.
Depreciation
Pulp manufacturing facilities are generally depreciated using the units of
production method. Depreciation on other buildings and equipment is provided
on a straight-line basis over the useful economic lives of the assets involved.
Rayonier normally claims the maximum depreciation deduction allowable for tax
purposes.
Earnings (Loss) Per Common Share
Earnings (loss) per common share have been computed, in 1992 after deducting
preferred dividends, based on the number of Rayonier Common Shares that were
outstanding on the Distribution Date. Common stock equivalents in the form of
Rayonier stock options were granted to certain Rayonier employees in
substitution for surrendered ITT options. However, these common stock
equivalents have been excluded from earnings (loss) per common share
computations due to immateriality. The number of common shares used in
earnings (loss) per common share computations was 29,565,392 for 1993, 1992 and
1991. See Notes 1, 11 and 12.
3. CHANGES IN ACCOUNTING PRINCIPLES
Statement of Financial Accounting Standards No. 109 - Adopted by Restatement of
Prior Periods
During the second quarter of 1992, Rayonier adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," by
restating financial statements of prior periods. The new standard requires,
among other things, that an asset and liability approach be applied in
accounting for income taxes. The significant effects of the adoption of SFAS
No. 109 on the balance sheet were to increase shareholder equity by $26,812 and
to adjust deferred tax assets and deferred tax liabilities by a corresponding
amount. The adoption of SFAS No. 109 had no effect on net income.
Statement of Financial Accounting Standards No. 106 - Adopted with a one-time
Cumulative Adjustment to Net Income
Effective January 1, 1992, Rayonier adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," using the
immediate recognition method. The new standard requires accrual of
postretirement health care and life insurance benefit costs during the years
that an employee provides services to the Company rather than on the
pay-as-you-go basis generally in effect. Accordingly, a cumulative adjustment
(through December 31, 1991) of $31,916 pretax has been recognized at January 1,
1992.
Statement of Financial Accounting Standards No. 112 - Adopted with a one-time
Cumulative Adjustment to Net Income
Effective January 1, 1992, Rayonier adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," using the immediate recognition
method. The new standard requires current recognition of costs associated with
benefits provided to former or inactive employees after employment but before
retirement. These postemployment benefits are primarily comprised of
obligations to provide medical and life insurance to employees on long-term
disability. Accordingly, a cumulative adjustment (through December 31, 1991)
of $1,350 pretax has been recognized at January 1,
F-9
48
1992. Except for the one-time cumulative adjustment, the adoption of SFAS No.
112 was not material to Rayonier's results of operations.
Rayonier's cash flows were not impacted by these changes in accounting
principles.
4. NEW ZEALAND ACQUISITION
During the second quarter of 1992, the Company completed the purchase of forest
assets, primarily Crown forest licenses consisting of long-term rights to
utilize approximately 250,000 acres of plantation forest in New Zealand. These
assets were acquired from the New Zealand government for a cash purchase price
of approximately $197 million. Bridge financing for the acquisition was
obtained through the issuance of preferred stock to ITT and through additional
borrowings from banks and ITT. By October 15, 1992, the Company had completed
its financing program for this acquisition. See Notes 6, 10 and 11. The
Company harvests timber for export to Pacific Rim markets and sale locally in
New Zealand. Substantially all of the assets were purchased by, and
substantially all operations are conducted through Rayonier New Zealand
Limited, an indirect subsidiary of Rayonier.
5. RAYONIER TIMBERLANDS, L.P.
In 1985, Rayonier transferred substantially all of its timberlands business to
Rayonier Timberlands, L.P., a master limited partnership, in exchange for 20
million Class A and 20 million Class B Depositary Units. Thereafter, Rayonier
offered and sold 5.06 million Class A Units (25.3 percent) to the public.
Class A Units participate principally in the revenues and costs associated with
RTLP's sales of timber through December 31, 2000 and to a significantly lesser
extent in subsequent periods. RTLP's sales of timber after that date as well
as cash flow associated with land management activities before and after that
date are principally allocable to the Class B units, all of which have been
retained by Rayonier. Rayonier and a subsidiary, as general partners, plan to
operate and manage RTLP throughout its existence. RTLP is majority owned by
Rayonier and is included in these consolidated financial statements.
6. TRANSACTIONS BETWEEN ITT AND RAYONIER
Rayonier was a wholly owned subsidiary of ITT through February 28, 1994. See
Notes 1 and 11. ITT rendered advice and assistance to Rayonier in general
engineering, plants, traffic, operating, accounting, commercial, financial and
other matters. The fee for such services was approximately 1/4 of 1 percent of
Rayonier's annual sales. The total fee paid by Rayonier to ITT for these
services amounted to $2,326, $2,413 and $2,450 in 1993, 1992 and 1991,
respectively.
Rayonier paid sales commissions to ITT Foreign Sales Corporation (FSC)
amounting to $12,362, and $13,727 in 1992 and 1991, respectively, under a sales
agency agreement initiated in August 1988. Dividends paid to ITT were reduced
by the after tax cost of the foreign sales commissions so as not to impact the
financial condition of Rayonier due to this arrangement. Effective January 1,
1993, ITT transferred ownership of FSC to Rayonier.
On May 14, 1992, Rayonier borrowed $167 million from ITT, the proceeds of which
were utilized as bridge financing in the New Zealand acquisition. On July 28,
1992, all outstanding borrowings from ITT were replaced by bank borrowings at
variable interest rates. During 1991, Rayonier repaid $40,300 of a variable
rate loan from ITT which was borrowed in 1988 and used primarily to retire
commercial paper. The loan balance was repaid primarily with funds borrowed
from banks. See Note 10. There were no outstanding borrowings from ITT as of
December 31, 1993 and 1992. Interest expense paid to ITT amounted to $2,092
and $1,817 in 1992 and 1991, respectively. No interest expense was paid to ITT
in 1993.
Rayonier was one of several affiliates participating in the ITT Salaried
Retirement Plan as well as health care and life insurance programs for salaried
employees sponsored by ITT. See Note 13.
As a result of the Distribution, ITT has no ownership interest in Rayonier, and
Rayonier is an independent public company. Rayonier and ITT entered into
certain agreements governing their relationship subsequent to the Distribution
and providing for the allocation of tax and certain other liabilities and
obligations arising from periods prior to the Distribution.
A subsidiary of ITT and a subsidiary of Rayonier entered into a Canadian Assets
Purchase Agreement pursuant to which on February 28, 1994 the ITT subsidiary
sold to the Rayonier subsidiary certain assets located in Canada and owned by
the ITT subsidiary which are used in the Canadian operations of Rayonier. The
purchase price was equal to the net book value of the assets purchased which
approximated $3.2 million.
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7. INCOME TAXES
Prior to the Distribution Date, Rayonier and its U.S. subsidiaries were
included in ITT's consolidated U.S. Federal income tax returns, and Rayonier
remitted to ITT its current income tax liability. Rayonier computed its tax
provision in accordance with tax- sharing arrangements with ITT that prior to
1993, included the use by Rayonier of tax benefits realized by ITT as a result
of a foreign sales agency agreement between FSC and Rayonier.
The provision for income taxes was adversely impacted in 1993 by the effects of
tax reform legislation enacted August 10, 1993. This legislation increased the
corporate income tax rate from 34 percent to 35 percent retroactive to January
1, 1993 and eliminated tax benefits related to log exports for foreign sales
corporations effective in the third quarter. The provision for income taxes
includes a charge of $1,583 as a result of the remeasurement of the Company's
deferred tax liability for the 1 percent increase in the corporate income tax
rate. In total, the 1993 tax reform legislation negatively impacted results by
approximately $3 million.
Income tax data before the cumulative effect of accounting changes are as
follows:
1993 1992 1991
---- ---- ----
Provision (benefit) for income tax
Current
U.S. federal $(18,530) $ 1,199 $ 6,781
State and local (1,216) 117 932
Foreign 2,569 - -
-------- ---------- ---------
(17,177) 1,316 7,713
------- ------ ------
Deferred
U.S. federal 39,713 (47,795) 10,870
State and local 3,292 (3,268) 974
Foreign 4,604 (619) -
------- -------- ----------
47,609 (51,682) 11,844
------ ------- ------
$ 30,432 $(50,366) $ 19,557
======= ======= =======
Deferred income tax provision (benefit) represents the tax effect related to
recording revenues and expenses in different periods for financial reporting
and tax return purposes. Deferred tax assets (liabilities) include the
following at December 31, 1993 and 1992:
1993 1992
---- ----
Accelerated depreciation $(122,544) $(110,748)
Reserves for dispositions
and discontinued operations 23,212 52,224
Other (16,346) (9,545)
--------- ---------
$(115,678) $ (68,069)
======== ==========
F-11
50
A reconciliation of the tax provision (benefit) at the U.S. statutory rate to
the provision (benefit) for income tax as reported is as follows:
1993 1992 1991
---- ---- ----
Tax (benefit) provision at U.S. statutory rate $29,014 $(44,841) $21,724
Benefit of foreign sales corporations (1,500) (3,089) (3,631)
Effect of remeasurement of deferred tax liability 1,583 - -
State and local taxes, net of federal tax benefit 1,349 (2,080) 1,258
All other, net (14) (356) 206
----- ------- ------
Provision (benefit) for income tax $30,432 $(50,366) $19,557
====== ======= ======
"All other, net" represents tax provision adjustments for permanent
differences, tax credits, foreign tax rates and other items which are not
individually significant.
8. DISCONTINUED OPERATIONS AND UNITS HELD FOR DISPOSITION
In 1986 the Company discontinued its Southern Wood Piedmont Company (SWP)
treated wood business segment. The Company is currently actively involved in
implementing cleanup and closure programs for SWP and is in negotiations with
state and environmental agencies on the scope and timing of such programs. In
prior years, the Company had provided $153 million in pre-tax reserves for
discontinued operations for closure, post-closure and corrective action
programs at SWP. The costs of the corrective action and closure programs at
SWP's nine primary manufacturing locations are affected by many factors, which
has led to increases in the reserves for such programs in the past, and may
result in increases in the future, as the effectiveness of the existing cleanup
programs is measured against applicable standards. Expenditures for such
programs will also depend on, among other things, new laws, regulations and
administrative interpretations, governmental responses to programs proposed by
the Company and changes in environmental control technology. Although
considerable progress on cleanup was made by year end 1993, in particular at
three of SWP's nine locations where the installation of corrective action
facilities has been completed, there is still uncertainty as to the timing and
amount of expenditures beyond 1993 at these sites and the extent and timing for
completing programs at all sites. The Company currently estimates that
expenditures for environmental remediation and closure costs at these sites
during the two year period 1994-1995 will approximate $10 million.
Net assets of discontinued operations as of December 31, 1993 and 1992 include
$11.5 million for receivables from insurance claims. Such receivables
represent the Company's claim for reimbursements in connection with property
damage settlements relating to SWP's former wood preserving operations.
In the fourth quarter of 1992, the Company provided $180 million, pre-tax, for
the loss on disposal of assets along with the costs for severance, demolition
and other closedown items associated with the disposition of the Grays Harbor
Pulp Mill and Vanillin plant, and the associated Grays Harbor Paper Company
(collectively referred to as the Grays Harbor Complex). In August 1993 a
portion of the Grays Harbor Complex was sold for cash and notes. The Company
is still completing demolition, personnel termination, environmental
remediation and other closure programs.
As of December 31, 1993, the Company had $76.2 million reserved for
discontinued operations and units held for disposition. Subject to the
uncertainties discussed above, the Company believes that its reserves
established to divest or close all of these business activities are adequate.
The Company further believes that any future change in estimates, if necessary,
will not materially affect the financial condition of the Company.
9. BANK LOANS
At December 31, 1993, the Company had short-term loans payable to various banks
totaling $180.8 million at interest rates ranging from 3.46 percent to 3.86
percent. At December 31, 1992, the Company's short-term loans payable to banks
totaled $100 million at interest rates ranging from 3.75 percent to 4.44
percent.
The fair value of Rayonier's short-term bank loans approximates carrying value
at December 31, 1993.
F-12
51
10. LONG-TERM DEBT
As of December 31, 1993 and 1992 Rayonier's long-term debt at various interest
rates included the following:
Debt Issue 1993 1992
---------- ---- ----
7.5% Notes - due 2002 $110,000 $110,000
Medium Term Notes due 1998-1999 at interest rates
of 5.84% to 6.16% 16,000 -
Variable rate Term Loan Agreement - due 1995-1997 100,000 100,000
Pollution control and industrial revenue bonds -
due 1994-2015 at interest rates of 4.75% to 9.0% 90,410 91,345
All other 931 2,059
------- -------
317,341 303,404
Less: Current maturities 1,203 1,770
-------- --------
Long-term debt $316,138 $301,634
------- -------
On October 15, 1992 Rayonier issued $110 million of 7.5 percent notes due
October 15, 2002 (the Notes). The Notes were issued pursuant to a Registration
Statement, filed on Form S-3 effective September 29, 1992 (the Registration
Statement), which permits the Company to issue up to $250 million in debt
securities through public offerings. The Company used the net proceeds from
the sale of the Notes to repay bank debt which was utilized as bridge financing
for the purchase of forest assets in New Zealand. See Note 4.
On April 5, 1993 the Company established a $140 million Medium Term Note
program pursuant to the Registration Statement. During April 1993, $16 million
of medium term notes, maturing in April 1998 and 1999, were issued under this
program at an average effective cost to the Company of 6.25 percent.
During the fourth quarter of 1991, Rayonier borrowed $90 million under a term
loan agreement which expires on October 31, 1997. This loan agreement was
amended in 1992 allowing Rayonier to borrow an additional $10 million. The
loan is repayable in three equal annual installments starting in October of
1995 and ending in October of 1997. The proceeds of this loan were primarily
used to retire short-term bank borrowings, pay off debt to ITT and for other
corporate purposes. The debt bears a variable rate of interest equal to the
London Interbank Offering Rate (LIBOR) plus 62.5 basis points. At December 31,
1993, the rate of interest on this loan was 3.75 percent.
Required repayment of principal for long-term debt is as follows:
1994 $ 1,203
1995 33,552
1996 33,857
1997 35,562
1998 3,342
1999-2015 209,825
-------
$ 317,341
-------
The estimated fair value of long-term debt as of December 31, 1993 exceeds the
carrying value of such debt by approximately $15.5 million.
The most restrictive long-term debt agreement in effect at December 31, 1993
provides that the ratio of Rayonier's indebtedness to the sum of such
indebtedness plus consolidated tangible net worth shall not exceed 50 percent.
As of December 31, 1993, this ratio was 45 percent. In addition, at December
31, 1993 a total of $279 million of retained earnings was unrestricted as to
the payment of dividends.
F-13
52
11. SHAREHOLDER EQUITY
On December 13, 1993, Rayonier changed its state of incorporation from Delaware
to North Carolina by merging into a wholly owned North Carolina subsidiary
which was renamed "ITT Rayonier Incorporated." Under the terms of the merger,
the 79 issued and outstanding shares of Common Stock, $100 par value, of the
Delaware corporation (all of which were held by ITT) were reconstituted as 79
Common Shares of the North Carolina corporation. Rayonier filed Amended and
Restated Articles of Incorporation on December 14, 1993 which increased its
authorized capitalization to 60,000,000 Common Shares and 15,000,000 Preferred
Shares. In addition, on February 17, 1994 Rayonier filed Articles of Amendment
changing its name to "Rayonier Inc." ITT continued to own all of the 79 issued
and outstanding Common Shares of Rayonier until February 28, 1994, when
Rayonier issued additional Common Shares to ITT as a stock dividend sufficient
to increase its total issued and outstanding Common Shares to approximately
29.6 million; all of these Common Shares were then distributed to holders of
ITT's Common Stock and Series N Preferred Stock, in connection with the
Distribution. All share and per share information have been retroactively
restated to reflect the stock dividend similar to a stock split.
On May 15, 1992, Rayonier issued 30,000 shares of its Cumulative Preferred
Stock $77.50 Series A to ITT for $30 million in cash to fund a portion of the
cost of the New Zealand acquisition. The shares were redeemed by the Company
on July 28, 1992 with the proceeds of short-term bank borrowings.
Dividends paid by Rayonier on its classes of stock during 1993, 1992, and 1991
were $121,840, $17,530 and $19,613, respectively. The 1993 amount includes a
fourth quarter special dividend of $90 million that was paid to ITT pursuant to
a planned recapitalization program. Dividends in 1992 include $471 paid on the
Series A Preferred Stock.
12. INCENTIVE STOCK PLANS
In 1994, prior to the Distribution, the Board of Directors adopted and ITT, as
the Company's sole shareholder, approved the 1994 Rayonier Incentive Stock Plan
(the "1994 Plan"). The 1994 Plan provides for the grant of incentive stock
options, nonqualified stock options, stock appreciation rights, performance
shares and restricted stock for up to one million shares, subject to certain
limitations. The 1994 Plan will expire on December 31, 2003. No options have
been issued under this Plan.
In the first quarter of 1994, the Company implemented a Substitute Stock Option
Plan under which options to acquire 382,434 Common Shares of Rayonier were
granted in substitution for canceled ITT options. The Rayonier options were
granted at exercise prices of $16.57 to $31.35 per share to maintain the same
economic value to the option holders that they would have had under ITT's stock
option plan. Of these shares, 168,794 are immediately exercisable.
13. EMPLOYEE BENEFIT PLANS
Rayonier has several pension plans covering substantially all of its employees.
The entire cost of these plans is borne by Rayonier. Certain plans are subject
to union negotiation. Rayonier is also one of several affiliates participating
in the ITT Salaried Retirement Plan.
Effective March 1, 1994, Rayonier established the Rayonier Investment and
Savings Plan for Salaried Employees and the Rayonier Salaried Employees
Retirement Plan. These plans, as well as health care, life insurance and other
employee welfare benefits programs which represent "mirror-image" plans to the
various ITT welfare benefit programs previously available to salaried
employees, are being sponsored by Rayonier for the benefit of all salaried
active employees as of March 1, 1994. There has been no change in the status
of the Rayonier benefit plans for hourly paid employees as a result of the
Distribution.
F-14
53
The following table discloses periodic pension cost for Rayonier plans and
total Rayonier pension expense for the three years ended December 31, 1993:
1993 1992 1991
---- ---- ----
Defined Benefit Plans
Service cost $1,567 $1,668 $1,574
Interest cost 5,573 5,707 5,562
Return on assets (13,138) (5,325) (6,320)
Net amortization and deferral 6,276 (1,451) (73)
------ ------ ------
Net periodic pension cost of Rayonier plans 278 599 743
Other Pension Costs
Rayonier portion of ITT Salaried
Retirement Plan 2,581 2,938 2,460
Multi-employer plans 165 - 24
Defined contribution (savings) plans 1,294 1,329 1,267
------ ----- -----
Total Pension Expense $4,318 $4,866 $4,494
===== ===== =====
The following table sets forth the funded status of the Rayonier pension plans
for hourly paid employees, the amounts recognized in the balance sheets of the
Company at December 31, 1993 and 1992 and the principal weighted average
assumptions inherent in their determinations:
1993 1992
---- ----
Actuarial present value of benefit obligations -
Vested benefit obligation $73,017 $67,340
====== ======
Accumulated benefit obligation $76,979 $71,175
====== ======
Projected benefit obligation $76,979 $71,448
Plan assets at fair value 83,373 77,303
------ ------
Plan assets in excess of
projected benefit obligation 6,394 5,855
Unrecognized net loss 10,223 6,491
Unrecognized past service cost 4,601 5,059
Curtailment effects and termination benefits (3,550) -
Unrecognized net assets at
January 1, 1993 and 1992 (6,382) (6,959)
------ ------
Prepaid pension asset recognized
in the balance sheets $11,286 $10,446
====== ======
Actuarial Assumptions -
Discount rate 7 .50% 8.50%
Rate of return on invested assets 9 .75% 9.75%
Salary increase assumption 5 .00% 5.00%
The table for 1993 reflects the costs of curtailment and special termination
benefits of certain hourly Rayonier pension plans as a result of the closure of
the Grays Harbor Complex. See Note 8. The costs of $3,550 were recorded as
part of the 1992 charge of $180 million related to the Grays Harbor Complex
closure, and were accounted for in accordance with SFAS No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits."
Rayonier provides health care and life insurance benefits for certain eligible
retired employees. Benefits under these plans covering salaried retirees are
maintained through the applicable plans of ITT and, other than for the amount
of the expense recorded for the period, all asset and liability accounts are
maintained by ITT. Effective January 1, 1992, Rayonier adopted SFAS No. 106,
using the immediate recognition method for all benefits accumulated to date.
Accordingly, an expense was recorded as of that date of $23,223 for salaried
retirees and $8,693 for hourly paid retirees which is included in the
adjustment to record the cumulative effect of accounting changes. The Company
is not currently funding this obligation; however, it may pre-fund some
portions if it can be accomplished on a tax-effective basis.
F-15
54
Postretirement health care and life insurance benefits expense (excluding the
cumulative catch up adjustment) was comprised of the following in 1993 and
1992:
1993 1992
---- ----
Service Cost $ 260 $ 239
Interest Cost 766 721
------ ------
Net periodic expense for hourly plans 1,026 960
Rayonier portion of expense for
ITT Plans for salaried employees 1,146 1,653
------ ------
Total Postretirement expense $ 2,172 $ 2,613
====== ======
For 1991 the aggregate costs amounted to $2,232 under the prior accounting
method.
The following table sets forth the status of the postretirement benefit plans
other than pensions for hourly paid employees, the amounts recognized in
Rayonier's balance sheets at December 31, 1993 and 1992 and the principal
weighted average assumptions inherent in their determination:
1993 1992
---- ----
Accumulated postretirement benefit obligation $10,623 $ 9,228
Unrecognized net loss (832) -
----- --------
Liability recognized in the balance sheet $9,791 $ 9,228
----- -----
Actuarial assumptions -
Discount rate 7.5% 8.5%
Ultimate health care trend rate 6.0% 6.6%
The assumed rate of future increases in the per capita cost of health care (the
health care trend rate) was 12.1 percent for 1993, decreasing ratably to 6.0
percent in the year 2001. Increasing the table of health care trend rates by
one percent per year would have the effect of increasing the accumulated
postretirement benefit obligation by $1,100 and annual expense by $100. To the
extent that the actual experience differs from the inherent assumptions, the
effect will be amortized over the average future service of the covered active
employees.
14. LEASES AND RENTALS
As of December 31, 1993, minimum rental commitments under operating leases were
$5,142, $5,133, $4,298, $3,306 and $1,213 for 1994, 1995, 1996, 1997 and 1998.
For the remaining years, such commitments amounted to $5,881, aggregating total
minimum lease payments of $24,973.
Operating lease commitments at December 31, 1993 include the 1985 sale and
leaseback of Rayonier's Baxley, Georgia sawmill assets amounting to
approximately $8.3 million, the lease on Rayonier's executive offices, which
was renegotiated and renewed in 1991, of approximately $9.0 million, the fixed
portions of the 1985 lease of equipment under a master lease agreement through
ITT of approximately $2.7 million and the 1992 lease of New Zealand office
space of $1.9 million.
Total rental expense for operating leases amounted to $5,587, $6,485 and $6,301
in 1993, 1992 and 1991, respectively.
15. LEGAL PROCEEDINGS
A wholly owned subsidiary of the Company, Southern Wood Piedmont Company (SWP),
which has been a discontinued operation since 1986, was formerly in the wood
preserving business and continues to incur substantial expenditures in cleaning
up its former wood preserving sites. See Note 8. In addition, Rayonier and
SWP are named defendants in six cases arising out of former wood preserving
operations at SWP's plant located in Augusta, Georgia. In general, these
cases, five pending in the U.S. District Court for the Southern District of
Georgia and one pending in the Superior Court of Richmond County, seek recovery
for property damage and personal injury or medical monitoring costs based on
the alleged exposure to toxic chemicals used by SWP in its former operations.
One case, Ernest Jordan v. Southern Wood
F-16
55
Piedmont Co., et al, seeks certification as a class action and damages in the
amount of $700 million. Counsel for the Company believes that the Company has
meritorious defenses in all these cases. Several previous lawsuits related to
the Augusta facility have been settled for amounts not material to the Company.
Rayonier has been named a "Potentially Responsible Party" (PRP) or is a
defendant in actions being brought a PRP in five proceedings instituted by
the U.S. Environmental Protection Agency (EPA) under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) or state
agencies under comparable state statutes. In three of these proceedings,
Rayonier is presently considered a de minimis participant. In one proceeding,
the Company is not a de minimis participant because of the limited number of
PRP's, and the Company believes that its share of liability for total cleanup
costs (currently estimated to be between $30 million and $39 million) will be
less than 9 percent. In another proceeding, the Company is not a de minimis
participant based on an analysis of the volume and type of waste that the
Company is alleged to have disposed of at the site, and the Company believes
that its share of liability for total cleanup costs (currently estimated to be
between $25 million and $32 million) will be less than 1.75 percent. In each
case, Rayonier has established reserves for its estimated liability. Rayonier
has also received requests for information from the EPA in connection with two
other CERCLA sites, but the Company does not currently know to what extent, if
at all, liability under CERCLA will be asserted against Rayonier with respect
to either site.
There are various other lawsuits pending against or affecting Rayonier and its
subsidiaries, some of which involve claims for substantial sums. Rayonier's
ultimate liability with respect to all pending actions is not considered
material to its consolidated financial position.
16. ENVIRONMENTAL MATTERS
Rayonier has become subject to increasingly stringent environmental laws and
regulations concerning air emission, water discharge and waste disposal which,
in the opinion of management, will require substantial expenditures over the
next ten years. Recently proposed Federal environmental regulations governing
air and water discharges may require further expenditures and, if finally
enacted in their proposed form, may prevent Rayonier from meeting certain
product quality specifications for substantially all of its chemical cellulose
products and in other cases will increase the cost of making such products.
Sales of the Company's chemical cellulose products accounted for approximately
30 percent of the Company's total 1993 sales. While these regulations may have
a material effect on Rayonier's operations if not changed, it will not be
possible for Rayonier to determine the nature or costs of these proposals until
the regulations are issued in detail form.
Over the past three years, the harvest of timber from private lands in the
state of Washington has been restricted as a result of the listing of the
northern spotted owl as a threatened species under the Endangered Species Act
(ESA). These restrictions have caused RTLP to restructure and reschedule some
of its harvest plans. The U.S. Fish and Wildlife Service (FWS) is developing a
proposed rule under the ESA to redefine protective measures for the northern
spotted owl on private lands. This rule, as currently drafted, would reduce
the harvest restrictions on private lands except within specified special
emphasis areas, where restrictions would be increased. One proposed special
emphasis area is on the Olympic Peninsula, where a significant portion of
RTLP's Washington timberlands is located. The new rule may also include
guidelines for the protection of the marbled murrelet, also recently listed as
a threatened species. Separately, the state of Washington Forest Practices
Board is in the process of adopting new harvest regulations to protect the
northern spotted owl and the marbled murrelet. The State Department of Natural
Resources draft of this rule also provides for a special emphasis area to
protect the northern spotted owl on the Olympic Peninsula, which would increase
harvest restrictions on the Company's lands. The Company is unable at this
time to predict the form in which the Federal or state rules will eventually be
adopted. However, if either rule is adopted in the form proposed by the
respective agencies, the result will be some reduction in the volume of Company
timber available for harvest.
17. SEGMENT INFORMATION
Rayonier operates in two major industry segments. The Timber and Wood Products
segment manages timberlands and is engaged in the trading, merchandising and
manufacture of logs, timber and wood products while the Specialty Pulp Products
segment is engaged in the production and sale of high value added specialty
pulps.
F-17
56
Please refer to Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations where business conditions and segment sales
and operating income information are provided. Additional segment information
for the three years ended December 31, 1993 was as follows (millions of
dollars):
Depreciation
Gross Plant Additions Depletion & Amortization Identifiable Assets
--------------------- ------------------------ ---------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ---- ----
Timber and
Wood Products $ 30 $ 23 $ 20 $ 21 $ 17 $ 12 $ 649 $ 591 $ 400
Specialty Pulp Products 41 71 108 56 54 48 794 822 791
Corporate and Other 1 1 1 1 1 1 31 51 50
Dispositions - 2 5 - 6 8 1 12 131
---- ---- ---- ----- ---- ---- ------- ------- ------
Total $ 72 $ 97 $134 $ 78 $ 78 $ 69 $1,475 $1,476 $1,372
=== === === === === === ===== ===== =====
Geographical Operating Information - All Segments (millions of dollars)
Sales Operating Income (Loss) Identifiable Assets
--------------------- ----------------------- ---------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ---- ----
United States $839 $944 $968 $103 $ (89) $ 99 $1,248 $1,271 $1,367
New Zealand 93 30 11 27 5 1 226 205 5
All Other 4 - - (3) (3) (3) 1 - -
---- ---- ---- ---- ----- ---- ------ ----- -----
Total $936 $974 $979 $127 $ (87) $ 97 $1,475 $1,476 $1,372
=== === === === === === ===== ===== =====
Export Sales - All Segments (millions of dollars)
Sales of products produced in various countries for export to other countries
consisted of the following:
Operating Sales
Location Destination 1993 1992 1991
- ----------- ----------- ---- ---- ----
United States Asia Pacific $282 $303 $291
Western Europe 109 146 160
All Other 62 63 62
--- --- ---
453 512 513
--- --- ---
New Zealand Asia Pacific 67 19 11
Western Europe 4 - -
All Other 2 - -
--- --- ---
73 19 11
--- --- ---
All Other 4 - -
--- --- ---
Total $530 $531 $524
=== === ===
F-18
57
18. QUARTERLY RESULTS FOR 1993 AND 1992 (UNAUDITED):
Quarter Ended
--------------------------------------------------------- Total
March 31 June 30 Sept. 30 Dec. 31 Year
-------- ------- -------- ------- ----
1993
----
Sales $216,320 $256,575 $226,445 $236,970 $936,310
======= ======= ======= ======= =======
Operating Income $ 36,649 $ 48,750 $ 24,245 $ 17,522 $127,166
======= ======= ======= ======= =======
Net Income $ 16,820 $ 24,790 $ 7,733 $ 3,123 $ 52,466
======= ======= ======= ======= =======
Earnings Per Common Share $.57 $.84 $.26 $.10 $1.77
=== === === === ====
1992
----
Sales $232,390 $235,218 $265,579 $ 240,486 $ 973,673
======= ======= ======= ======= =======
Operating Income (Loss) $ 31,944 $ 22,987 $ 31,962 $(173,497) (b) $ (86,604)
======= ======= ======= ======= =======
Net Income (Loss) $ (8,287) (a) $ 6,996 $ 12,754 $(114,939)(b) $(103,476) (a)
======= ======= ======= ======= =======
Earnings (Loss) Per Common
Share $(.28) (a) $.23 $.43 $(3.89) $(3.51) (a)
===== === === ===== =====
(a) The first quarter of 1992 includes an after tax adjustment of $22.0
million to record the cumulative effect of changes in accounting
principles due to the adoption of SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions and SFAS No. 112, Employers'
Accounting for Postemployment Benefits. The cumulative effect of
accounting changes negatively impacted earnings by $.74 per common share
for the first quarter and full year 1992. Excluding the cumulative
effect of accounting changes, earnings (loss) per common share was $0.46
and $(2.77) for the first quarter and full year 1992, respectively.
(b) The fourth quarter of 1992 includes an after tax charge of $115 million
to provide for the loss on disposal of assets along with the costs for
severance, demolition and other closedown items associated with the
disposition of the Grays Harbor Complex.
F-19
58
RAYONIER INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(Thousands of dollars)
Balance at Balance
Beginning Additions Retirements Other at End
Classification of Year at Cost or Sales Changes of Year
- -------------------------------------------- ------- ------- -------- ------- -------
Year Ended December 31, 1993
Land and land improvements $ 7,181 $ 657 $ 44 $ 177 $ 7,971
Construction in progress 28,001 (6,504) - (731) 20,766
Buildings and permanent fixtures 88,035 4,598 2,059 47 90,621
Furniture and fixtures 20,838 2,634 1,653 607 22,426
Machinery, logging, transportation
and automotive equipment 985,154 47,955 25,621 175 1,007,663
--------- ------- ------- --------- ---------
1,129,209 49,340 29,377 275 (a) 1,149,447
Timber, net 416,636 19,343 254 (15,615)(b) 420,110
Timberlands 41,847 13 175 - 41,685
Logging Roads 6,449 3,060 - - 9,509
----------- ------- --------- --------- ---------
$ 1,594,141 $ 71,756 $ 29,806 $ (15,340) $1,620,751
=========== ======= ========= ========= =========
Balance at Balance
Beginning Additions Retirements Other at End
Classification of Year at Cost or Sales Changes of Year
- -------------------------------------------- ------- ------- -------- ------- -------
Year Ended December 31, 1992
Land and land improvements $ 8,542 $ 61 $ 601 $ (821) $ 7,181
Construction in progress 58,742 (27,873) 61 (2,807) 28,001
Buildings and permanent fixtures 107,608 4,259 23,740 (92) 88,035
Furniture and fixtures 20,522 1,720 2,700 1,296 20,838
Machinery, logging, transportation
and automotive equipment 1,033,993 101,229 149,844 (224) 985,154
----------- ------- --------- --------- ---------
1,229,407 79,396 176,946 (2,648)(a) 1,129,209
Timber, net 218,994 212,041 1,387 (13,012)(b) 416,636
Timberlands 42,038 25 172 (44) 41,847
Logging Roads 5,110 1,340 1 - 6,449
----------- ------- --------- --------- ---------
$ 1,495,549 $292,802(c) $ 178,506(d) $ (15,704) $1,594,141
=========== ======= ========= ========= =========
S-1
59
RAYONIER INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(Thousands of dollars)
Balance at Balance
Beginning Additions Retirements Other at End
Classification of Year at Cost or Sales Changes of Year
- -------------------------------------------- ------- ------- -------- ------- -------
Year Ended December 31, 1991
Land and land improvements $ 8,743 $ 151 $ 27 $ (325) $ 8,542
Construction in progress 66,059 (7,021) - (296) 58,742
Buildings and permanent fixtures 103,931 5,803 1,381 (745) 107,608
Furniture and fixtures 18,505 3,167 1,348 198 20,522
Machinery, logging, transportation
and automotive equipment 946,331 114,206 27,042 498 1,033,993
Assets held on capital leases 15 - - (15) -
---------- -------- ------- ------- ----------
1,143,584 116,306 29,798 (685)(a) 1,229,407
Timber, net 213,163 14,499 632 (8,036)(b) 218,994
Timberlands 39,696 2,747 1,067 662 42,038
Logging Roads 5,110 4 4 - 5,110
---------- -------- ------- ------- ----------
$1,401,553 $133,556 $31,501 $(8,059) $1,495,549
========== ======== ======= ======= ==========
(a) Primarily reclassifications and transfers between affiliated companies.
(b) Includes timber depletion charged to income and applied directly against
the asset accounts of $16,499, $13,051 and $8,283 in 1993, 1992 and 1991,
respectively.
(c) Additions in 1992 include the acquisition of New Zealand forest assets.
(d) Retirements in 1992 include the writedown of Grays Harbor Complex
property, plant, and equipment.
S-2
60
RAYONIER INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(Thousands of dollars)
Additions
Balance at Charged to Balance
Beginning Costs and Other at End
Classification of Year Expenses Retirements Changes of Year
- -------------------------------------------- ---------- --------- ----------- ------- -------
Year Ended December 31, 1993
Land improvements $ 1,757 $ 299 $ 64 $ - $ 1,992
Buildings and permanent
fixtures 43,831 3,467 1,586 - 45,712
Furniture and fixtures 12,542 2,889 1,674 185 13,942
Machinery, logging, transportation
and automotive equipment 389,513 54,700 25,842 501 418,872
------- ------ ------ ------ -------
447,643 61,355 29,166 686 480,518
Logging Roads 809 418 - - 1,227
------- ------ ------ ------ -------
$448,452 $61,773 $29,166 $ 686(a) $481,745
======= ====== ====== ===== =======
Additions
Balance at Charged to Balance
Beginning Costs and Other at End
Classification of Year Expenses Retirements Changes of Year
- -------------------------------------------- --------- --------- ----------- ------- -------
Year Ended December 31, 1992
Land improvements $ 2,120 $ 284 $ 28 $ (619) $ 1,757
Buildings and permanent
fixtures 53,372 4,005 12,829 (717) 43,831
Furniture and fixtures 12,111 2,657 2,199 (27) 12,542
Machinery, logging, transportation
and automotive equipment 408,318 57,768 76,347 (226) 389,513
------- ------ ------ ------ -------
475,921 64,714 91,403 (1,589) 447,643
Logging Roads 689 120 - - 809
------- ------ ------ ------ -------
$476,610 $64,834 $91,403(b) $(1,589)(a) $448,452
======= ====== ====== ====== =======
S-3
61
RAYONIER INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(Thousands of dollars)
Additions
Balance at Charged to Balance
Beginning Costs and Other at End
Classification of Year Expenses Retirements Changes of Year
- -------------------------------------------- ---------- --------- ----------- ------- -------
Year Ended December 31, 1991
Land improvements $ 1,837 $ 283 $ - $ - $ 2,120
Buildings and permanent
fixtures 50,577 4,316 1,101 (420) 53,372
Furniture and fixtures 10,478 2,970 1,348 11 12,111
Machinery, logging, transportation
and automotive equipment 381,873 53,295 26,924 74 408,318
Assets held on capital leases 15 - - (15) -
------- ------ ------ ----- -------
444,780 60,864 29,373 (350) 475,921
Logging Roads 566 123 - - 689
------- ------ ------ ----- -------
$445,346 $60,987 $29,373 $ (350)(a) $476,610
======= ====== ====== ===== =======
Depreciation has been provided, using straight line methods based
upon estimated useful lives except for pulp manufacturing
facilities which are depreciated under the units of production
method. These depreciation rates are as follows:
Building and permanent fixtures 10-50 years
Furniture and fixtures 5-17 years
Machinery and equipment 5-25 years
Logging equipment, including roads 5-40 years
Transportation and automotive equipment 5-10 years
(a) Primarily reclassifications and transfers between affiliated
companies.
(b) Retirements in 1992 include accumulated depreciation related to
the Grays Harbor Complex.
S-4
62
RAYONIER INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Thousands of dollars)
1993 1992 1991
---- ---- ----
Taxes other than payroll and income taxes $10,950 $13,258 $14,569
====== ====== ======
Maintenance and repairs $50,233 $65,778 $66,047
====== ====== ======
Royalty costs, advertising costs and amortization of intangible assets
are not set forth inasmuch as such items do not exceed one percent of
total sales as shown in the related consolidated statement of income.
S-5
63
SIGNATURES
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.
By GEORGE S. ARESON
------------------------------
George S. Areson
March 24, 1994 Acting Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
---------- ----- ----
RONALD M. GROSS Chairman of the Board, March 24, 1994
- ----------------------------------
Ronald M. Gross President, Chief Executive
(Principal Executive Officer) Officer and Director
GERALD J. POLLACK Senior Vice President and March 24, 1994
- ----------------------------------
Gerald J. Pollack Chief Financial Officer
(Principal Financial Officer)
GEORGE S. ARESON Acting Corporate Controller March 24, 1994
- ----------------------------------
George S. Areson
(Principal Accounting Officer)
* Director
- ----------------------------------
William J. Alley
* Director
- ----------------------------------
Rand V. Araskog
* Director
- ----------------------------------
Donald W. Griffin
* Director
- ----------------------------------
Paul G. Kirk, Jr.
* Director
- ----------------------------------
Katherine D. Ortega
* Director
- ----------------------------------
Burnell R. Roberts
* Director
- ----------------------------------
Gordon I. Ulmer
*By GERALD J. POLLACK March 24, 1994
------------------------------
Attorney-In-Fact
A
64
EXHIBIT INDEX
Exhibit No. Description Location
- ----------- ----------- --------
2.1 Distribution agreement between Filed herewith
ITT Corporation and Rayonier Inc.
3.1 Amended and Restated Articles of Incorporated by reference to Exhibit 4(a)
Incorporation to the Registrant's Registration Statement on
Form S-8 (Registration No. 33-52437).
3.2 By-Laws Incorporated by reference to Exhibit 3.2 of
Registrant's Registration Statement on
Form 8-A dated December 15, 1993
(the Form 8-A).
4.1 Indenture dated as of September 1, 1992 Filed herewith
between the Company and Bankers
Trust Company, as Trustee, with respect
to certain debt securities of the Company.
4.2 First Supplemental Indenture dated as of Filed herewith
December 13, 1993
4.3 Other instruments defining the rights Not required to be filed. The Registrant
of security holders, including indentures hereby agrees to file with the Commission a
copy of any other instrument defining the
rights of holders of the Registrant's long-term
debt upon request of the Commission.
9 Voting trust agreement None
10.1 Administrative Services Agreement Filed herewith as Exhibit A to the Distribution
between ITT Corporation and Rayonier Inc. Agreement filed as Exhibit 2.1 hereto.
10.2 Employee Benefits Agreement between Filed herewith as Exhibit B to the Distribution
ITT Corporation and Rayonier Inc. Agreement filed as Exhibit 2.1 hereto.
10.3 Tax Allocation Agreement between Filed herewith as Exhibit C to the Distribution
ITT Corporation and Rayonier Inc. Agreement filed as Exhibit 2.1 hereto.
10.4 Canadian Assets Purchase Agreement Filed herewith as Exhibit D to the Distribution
between ITT Corporation and Agreement field as Exhibit 2.1 hereto.
Rayonier Inc.
10.5 Rayonier Incentive Stock Plan Incorporated by reference to Exhibit 4(c) to
the Registrant's Registration Statement on
Form S-8 (File No. 33-52445).
10.6 Rayonier Senior Executive Severence Incorporated by reference to Exhibit 10.6 to
Pay Plan the Form 8-A.
10.7 Rayonier Investment and Savings Plan Incorporated by reference to Exhibit 4(c) to
for Salaried Employees the Registrant's Registration Statement on
Form S-8 (File No. 33-52437).
B
65
EXHIBIT INDEX
Exhibit No. Description Location
- ----------- ----------- --------
10.8 Rayonier Salaried Employees Incorporated by reference to Exhibit 10.8
Retirement Plan to the Form 8-A.
10.9 Form of Indemnification Agreement Filed herewith
between Rayonier Inc. and its
Directors and Officers
10.10 Rayonier Inc. Excess Benefit Plan Filed herewith
10.11 Rayonier Inc. Excess Savings Plan Filed herewith
10.12 Agreement for Transfer of Crown Forestry Incorporated by reference to Exhibit
Licenses among Her Majesty, the Queen, to Registrant's Form 8-K dated May 15, 1992.
as vendor, and Rayonier New Zealand
Limited, as purchaser, and Rayonier Inc.,
as guarantor
10.13 Other material contracts None
11 Statement re computation of share Not required to be filed
earnings
12 Statements re computation of ratios Filed herewith
13 Annual report to security holders, Not applicable
Form 10-Q or quarterly report to security holders
16 Letter re change in certifying accountant Not applicable
18 Letter re change in accounting principles Not applicable
19 Previously unfiled documents None
21 Subsidiaries of the Registrant Filed herewith
22 Published report regarding matters None
submitted to vote of security holders
23 Consents of experts and counsel Filed herewith
24 Powers of attorney Filed herewith
28 Information from reports furnished to Not applicable
state insurance regulatory authorities
99.1 Annual report on Form 11-K To be filed by amendment
99.2 Other additional exhibits None
C