1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ........... TO ............
COMMISSION FILE NUMBER 1-6780
RAYONIER INC.
Incorporated in the State of North Carolina
I.R.S. Employer Identification Number l3-2607329
l177 Summer Street, Stamford, Connecticut 06905-5529
(Principal Executive Office)
Telephone Number: (203) 348-7000
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange
Act of l934 during the preceding l2 months and (2) has been subject to
such filing requirements for the past 90 days.
YES (X) NO ( )
As of May 5, 1997, there were 28,959,528 Common Shares of the
Registrant outstanding.
----------
2
RAYONIER INC.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item l. Financial Statements
Statements of Consolidated Income for the
Three Months Ended March 31, 1997 and 1996 1
Consolidated Balance Sheets as of March 31, 1997
and December 3l, 1996 2
Statements of Consolidated Cash Flows for the
Three Months Ended March 31, 1997 and 1996 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 4-6
Item 3. Selected Operating Data 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signature 8
Exhibit Index 9
i
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements reflect, in the opinion of Rayonier
Inc. (Rayonier or the Company), all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the results of
operations, the financial position and the cash flows for the periods presented.
Certain reclassifications have been made to the prior year's financial
statements to conform to current year presentation. For a full description of
accounting policies, please refer to Notes to Consolidated Financial Statements
in the l996 Annual Report on Form l0-K.
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Three Months
Ended March 31,
---------------
1997 1996
------------ ------------
SALES $ 260,138 $ 293,980
------------ ------------
Costs and expenses
Cost of sales 209,781 225,674
Selling and general expenses 10,505 8,843
Other operating income, net (621) (429)
------------ ------------
219,665 234,088
------------ ------------
OPERATING INCOME 40,473 59,892
Interest expense (5,856) (7,146)
Interest and miscellaneous income, net 397 1,488
Minority interest (8,079) (8,988)
------------ ------------
Income before income taxes 26,935 45,246
Provision for income taxes (8,539) (13,769)
------------ ------------
NET INCOME $ 18,396 $ 31,477
============ ============
NET INCOME PER COMMON SHARE $ 0.62 $ 1.05
============ ============
Weighted average Common Shares
outstanding 29,721,186 30,089,060
============ ============
1
4
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
ASSETS
March 31, December 31,
1997 1996
--------- ------------
CURRENT ASSETS
Cash and short-term investments $ 2,878 $ 3,432
Accounts receivable, less allowance for doubtful
accounts of $4,739 and $4,674 112,953 123,435
Inventories
Finished goods 78,450 68,441
Work in process 22,749 20,128
Raw materials 36,495 39,650
Manufacturing and maintenance supplies 25,738 26,695
---------- ----------
Total inventories 163,432 154,914
Timber stumpage purchases 24,212 31,416
Other current assets 18,663 13,223
Deferred income taxes 21,900 23,168
---------- ----------
Total current assets 344,038 349,588
OTHER ASSETS 49,772 50,026
TIMBER STUMPAGE PURCHASES 22,108 23,341
TIMBER, TIMBERLANDS AND LOGGING ROADS,
NET OF DEPLETION AND AMORTIZATION 494,806 490,298
PROPERTY, PLANT AND EQUIPMENT
Land, buildings, machinery and equipment 1,219,239 1,190,786
Less - accumulated depreciation 524,447 506,308
---------- ----------
694,792 684,478
---------- ----------
$1,605,516 $1,597,731
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 68,287 $ 87,609
Bank loans and current maturities 3,128 2,243
Accrued taxes 13,069 11,497
Accrued payroll and benefits 10,327 18,340
Accrued interest 8,110 5,154
Other current liabilities 49,261 55,976
Current reserves for dispositions and discontinued operations 41,120 40,003
---------- ----------
Total current liabilities 193,302 220,822
DEFERRED INCOME TAXES 96,550 89,484
LONG-TERM DEBT 461,367 430,667
NON-CURRENT RESERVES FOR DISPOSITIONS
AND DISCONTINUED OPERATIONS 179,870 183,975
OTHER NON-CURRENT LIABILITIES 30,701 30,529
MINORITY INTEREST 18,341 18,864
SHAREHOLDERS' EQUITY
Common Shares, 60,000,000 shares authorized, 29,128,823
and 29,282,455 shares issued and outstanding 138,048 145,679
Retained earnings 487,337 477,711
---------- ----------
625,385 623,390
---------- ----------
$1,605,516 $1,597,731
========== ==========
2
5
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
Three Months
Ended March 31,
---------------
1997 1996
-------- --------
OPERATING ACTIVITIES
Net income $ 18,396 $ 31,477
Non-cash items included in income
Depreciation, depletion and amortization 24,800 24,136
Deferred income taxes 7,239 1,617
Increase in other non-current liabilities 172 1,234
Change in accounts receivable, inventories
and accounts payable (17,358) (26,960)
Decrease in current timber stumpage purchases 7,204 6,744
Increase in other current assets (5,440) (7,191)
(Decrease) increase in accrued liabilities (10,200) 4,485
Reduction in reserves for dispositions -- (1,250)
-------- --------
CASH FROM OPERATING ACTIVITIES 24,813 34,292
======== ========
INVESTING ACTIVITIES
Capital expenditures, net of sales and retirements
of $612 and $543 (39,622) (30,160)
Expenditures for dispositions and discontinued operations,
net of tax benefits of $1,095 and $321 (1,893) (558)
Change in timber stumpage purchases and other assets 1,487 876
-------- --------
CASH USED FOR INVESTING ACTIVITIES (40,028) (29,842)
======== ========
FINANCING ACTIVITIES
Issuance of debt 31,734 700
Repayments of debt (149) (1,348)
Dividends paid (8,770) (8,600)
Repurchase of Common Shares (8,167) (2,678)
Issuance of Common Shares 536 398
(Decrease) increase in minority interest (523) 1,752
-------- --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 14,661 (9,776)
======== ========
CASH AND SHORT-TERM INVESTMENTS
Decrease in cash and short-term
investments during the period (554) (5,326)
Balance, beginning of period 3,432 10,932
-------- --------
Balance, end of period $ 2,878 $ 5,606
======== ========
Supplemental disclosures of cash flow information
Cash paid (received) during the period for:
Interest $ 4,228 $ 4,830
======== ========
Income taxes, net of refunds $ (52) $ (898)
======== ========
3
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The sales and operating income of Rayonier's business segments for the three
months ended March 31, 1997 and 1996 were as follows (thousands of dollars):
Three Months
Ended March 31,
---------------
1997 1996
--------- ---------
SALES
TIMBER AND WOOD PRODUCTS
Log trading and merchandising $ 56,737 $ 65,760
Timberlands management and stumpage 49,514 58,124
Wood products 29,663 20,638
Intrasegment eliminations (6,287) (11,472)
--------- ---------
Total Timber and Wood Products 129,627 133,050
--------- ---------
SPECIALTY PULP PRODUCTS
Chemical cellulose 80,216 75,617
Fluff and specialty paper pulps 43,194 56,038
--------- ---------
Total Specialty Pulp Products 123,410 131,655
--------- ---------
Intersegment eliminations (625) (1,596)
--------- ---------
Total before dispositions 252,412 263,109
Dispositions 7,726 30,871
--------- ---------
Total sales $ 260,138 $ 293,980
========= =========
OPERATING INCOME
Timber and Wood Products $ 33,647 $ 37,183
Specialty Pulp Products 12,387 25,566
Corporate and other (4,144) (2,496)
Intersegment eliminations 112 65
--------- ---------
Total before dispositions 42,002 60,318
Dispositions (1,529) (426)
--------- ---------
Total operating income $ 40,473 $ 59,892
========= =========
RESULTS OF OPERATIONS
SALES AND OPERATING INCOME
Sales of $260 million for the first quarter of 1997 were $34 million or 12
percent lower than the first quarter of 1996 due to the closure of the Port
Angeles, WA pulp mill on February 28, 1997 and lower pulp prices. Operating
income of $40 million was $19 million or 32 percent less than last year's first
quarter as a result of the lower pulp pricing and weaker Asian log markets.
4
7
Timber and Wood Products
Timber and Wood Products' sales in the first quarter were $130 million compared
to $133 million for the same period of 1996. Operating income for the quarter of
$34 million decreased $4 million from the prior year, reflecting lower stumpage
pricing partially offset by stronger lumber prices and volumes.
Log trading and merchandising sales of $57 million declined $9 million or 14
percent from the 1996 first quarter. The decrease in sales was due to lower New
Zealand export log volumes, resulting from continued weakness in Asian wood
markets. In North America, both selling prices and volume declined from 1996
resulting in reduced margins.
Timberlands management and stumpage sales and operating income were below last
year's first quarter as a result of lower stumpage prices in the U.S. Northwest.
In the U.S. Southeast, weak demand from pulp and paper producers resulted in a
decline in pine pulpwood prices, which was partially offset by increased
harvest activity for chip'n saw and sawlog timber, driven by a strong lumber
market.
Wood products showed continued improvement due to increased capacity and
productivity along with higher lumber prices resulting from a strong housing
market.
Specialty Pulp Products
Sales of Specialty Pulp Products (from the Company's ongoing Jesup and
Fernandina mills) were $123 million for the quarter compared to $132 million for
the prior year's first quarter, and operating income declined $13 million to $12
million. Results were below the prior year when fluff pulp and chemical
cellulose prices were starting to decline from their cyclical peaks. Pulp sales
volumes and product mix strengthened. Production costs continued to improve due
to lower chemical and other costs, declining $25 per ton from first quarter
1996.
Dispositions
Dispositions reflect results of the Company's Port Angeles mill (whose
disposition was announced in October 1996) which were unfavorable to last year's
first quarter due to lower pulp volumes and prices.
OTHER INCOME / EXPENSE
Interest expense was $6 million for the first quarter of 1997, $1 million
favorable to 1996, reflecting lower interest rates and higher capitalized
interest in connection with the Company's New Zealand MDF facility currently
under construction.
Interest and miscellaneous income, net declined $1 million from the prior year
which included mark-to-market gains on forward exchange contracts. The Company
uses these forward contracts to mitigate the impact of New Zealand/U.S dollar
exchange rate fluctuations on New Zealand operating expenses.
Minority interest in the earnings of Rayonier's subsidiary, Rayonier
Timberlands, L.P. (RTLP) was slightly below that of the prior year period,
reflecting lower Northwest U.S. stumpage prices. The minority participation in
the earnings of RTLP will change from approximately 24 percent to approximately
1 percent effective January 1, 2001.
NET INCOME
Net income for the first quarter was $18 million or $0.62 per Common Share,
compared to $31 million or $1.05 per Common Share in 1996.
OTHER ITEMS
In April the Company announced that a strategic assessment of its specialty pulp
business had been completed. The Company indicated that the comprehensive study,
performed with the assistance of a leading consulting firm, confirmed that
existing strategies were sound and that it is taking appropriate steps to
increase the pulp business' contribution to shareholder value. The report also
reaffirmed that the closure of the Port Angeles pulp mill would significantly
strengthen the competitiveness and long-term value of both the Jesup, GA and
Fernandina Beach, FL mills. The Company indicated that actions are already
underway to implement several significant cost-reduction opportunities that were
identified. The study also indicated that Rayonier's excellence in technical
research provides a competitive advantage and it helped clarify the relative
priorities of several product development and quality enhancement programs
designed to further strengthen the Company's market position. In addition, the
study concluded that the balance and
5
8
flexibility of Rayonier's specialty pulp product mix - producing both chemical
cellulose and fluff pulps - provide the greatest opportunity to maximize value.
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share
(EPS), which establishes standards for computing and presenting EPS, is
effective for both interim and annual periods ending after December 15, 1997.
SFAS No. 128 does not permit early application of its provisions. The statement
replaces the presentation of primary EPS with a presentation of basic EPS, as
defined. The Company's pro forma basic EPS determined in accordance with SFAS
No. 128 was $0.63 and $1.06 for the three months ended March 31, 1997 and 1996,
respectively. Pro forma diluted EPS would be unchanged from the reported income
per Common share.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities of $25 million in the first quarter of 1997
decreased $9 million from 1996 as a result of lower earnings and an increase in
working capital. EBITDA (defined as earnings from continuing operations before
significant non-recurring items, provision for dispositions, interest expense,
income taxes and depreciation, depletion and amortization) for the first quarter
of 1997 was $58 million compared to $77 million for the same period of 1996.
Cash from operating activities together with an increase in debt of $32 million
financed capital expenditures of $40 million, dividends of $9 million and the
repurchase of Common Shares of $8 million. In connection with the previously
announced one-year increase in the Company's share repurchase program to $50
million for 1997, the Company repurchased 214,000 shares during the first
quarter at an average cost of $38.16 for $8 million. Over the same period of
1996, the Company purchased 76,100 shares at an average cost of $35.19 per share
for $3 million. First quarter ending debt was $464 million and the
debt-to-capital-ratio was 42.6 percent compared to 41.0 percent at December 31,
1996.
The Company has unsecured credit facilities totaling $300 million, which are
used for direct borrowings and as support for $135 million of outstanding
commercial paper. As of March 31, 1997, the Company had $165 million of
available borrowings under its revolving credit facilities. In addition, through
currently effective shelf registration statements filed with the Securities and
Exchange Commission, the Company may offer up to $141 million of new public debt
securities. The Company believes that internally generated funds combined with
available external financing will enable Rayonier to fund capital expenditures,
share repurchases, working capital and other liquidity needs for the foreseeable
future.
6
9
ITEM 3. SELECTED OPERATING DATA
Three Months
Ended March 31,
---------------
1997 1996
-------- --------
TIMBER AND WOOD PRODUCTS
Log sales
North America - million board feet 45 51
New Zealand - thousand cubic meters 237 370
Other - thousand cubic meters 133 34
Timber sales
Northwest U.S. - million board feet 59 61
Southeast U.S. - thousand short green tons 610 570
New Zealand - thousand cubic meters 211 257
Lumber sold - million board feet 74 61
Intercompany sales
Logs - million board feet 1 2
Northwest U.S. timber stumpage
- million board feet 6 9
Southeast U.S. timber stumpage
- thousand short green tons 25 48
New Zealand, thousand cubic meters 130 198
SPECIALTY PULP PRODUCTS
Pulp sales (a)
Chemical cellulose sales - thousand metric tons 89 79
Fluff and specialty paper pulp sales - thousand
metric tons 81 79
Production as a percent of capacity 97.9% 99.3%
SELECTED SUPPLEMENTAL INFORMATION (thousands of dollars)
New Zealand - Sales $17,151 $25,296
======= =======
New Zealand - Operating Income $ 211 $ 1,420
======= =======
(a) Excludes Port Angeles statistics reflected below:
Chemical cellulose sales - thousand metric tons 9 32
Fluff and specialty paper pulp sales - thousand
metric tons 4 3
7
10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index.
(b) Rayonier Inc. did not file a report on Form 8-K during the
quarter covered by this report.
SIGNATURE
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of l934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
RAYONIER INC. (Registrant)
---------------------------
BY KENNETH P. JANETTE
------------------
Kenneth P. Janette
Vice President and Corporate
Controller
May 12, 1997 (Chief Accounting Officer)
8
11
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
2 Plan of acquisition, reorganization, None
arrangement, liquidation or succession
3.1 Amended and restated articles of incorporation No amendments
3.2 By-laws No amendments
4.1 Amended and Restated Revolving Credit Agreement Filed herewith
dated as of April 11, 1997, for the $200 million
Revolving Credit Agreement dated as of April 14, 1995
as amended as of June 16, 1995 and as of April 12, 1996
among Rayonier Inc. as Borrower and the banks named
therein as Banks, Citibank, N.A. as Administrative Agent
and Citicorp Securities, Inc. and the Toronto-Dominion
Bank as Arrangers
4.2 Other instruments defining the rights of security holders, Not required to be filed. The
including indentures Registrant hereby agrees to file
with the Commission a copy of
any instrument defining the rights
of holders of the Registrant's
long-term debt upon request of
the Commission.
10 Material contracts None
11 Statement re computation of per share earnings Not required to be filed
12 Statement re computation of ratios Filed herewith
15 Letter re unaudited interim financial information None
18 Letter re change in accounting principles None
19 Report furnished to security holders None
22 Published report regarding matters None
submitted to vote of security holders
23 Consents of experts and counsel None
24 Power of attorney None
27 Financial data schedule Filed herewith
99 Additional exhibits None
9