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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, 1994
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 1995-1999
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, 1995 was approximately $839
million.
As of March 15, 1995, there were outstanding 29,611,469 Common Shares of the
Registrant.
The registrant's definitive proxy statement filed or to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A involving the
election of directors at the annual meeting of the shareholders of the
registrant scheduled to be held on May 19, 1995, is incorporated by reference in
Part III of this Form 10-K.
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TABLE OF CONTENTS
ITEM PAGE
PART I
<S> <C> <C>
1. Business 1
2. Properties 9
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 10
* Executive Officers of Rayonier 10
PART II
5. Market for the Registrant's Common Equity and
Related Stockholder Matters 11
6. Selected Financial Data 12
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
8. Financial Statements and Supplementary Data 19
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
10. Directors and Executive Officers of the Registrant 20
11. Executive Compensation 20
12. Security Ownership of Certain Beneficial Owners and Management 20
13. Certain Relationships and Related Transactions 20
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 22
</TABLE>
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K
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<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Report of Management F-1
Report of Independent Public Accountants F-1
Statements of Consolidated Income for the
Three Years Ended December 31, 1994 F-2
Consolidated Balance Sheets as of
December 31, 1994 and 1993 F-3 to F-4
Statements of Consolidated Retained Earnings
and Statements of Consolidated Common Shares
and Cumulative Preferred Stock for the
Three Years Ended December 31, 1994 F-5
Statements of Consolidated Cash Flows for the
Three Years Ended December 31, 1994 F-6
Notes to Consolidated Financial Statements F-7 to F-18
</TABLE>
FINANCIAL STATEMENT SCHEDULES
Financial statement schedules 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.
<TABLE>
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<S> <C>
Signatures A
Exhibit Index B to D
</TABLE>
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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 1994, timber and wood products accounted for 53
percent of sales and pulp products accounted for 47 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 15 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, 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 70 countries, more than half of Rayonier's 1994 sales of
$1.07 billion were shipped to customers outside of the United States, with Asia
Pacific and Western European customers representing 30 percent and 10 percent of
total sales in 1994, 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,
primarily 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 third party
parcels on which the Company has acquired cutting rights and, to a lesser
extent, Company owned parcels and also purchases logs on the open markets. The
Company then packages and sells these logs throughout the world.
Timberlands Management and Stumpage -- 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 -- 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):
<TABLE>
<CAPTION>
Sales
--------------------------------------
Timber and Wood Products 1994 1993 1992
------------------------ ---- ---- ----
<S> <C> <C> <C>
Log trading and merchandising $347 $334 $279
Timberlands management and stumpage 173 120 123
Wood products 79 47 33
Intrasegment eliminations (21) (16) (14)
---- ---- ----
Total $578 $485 $421
==== ==== ====
</TABLE>
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 60 percent of the Timber and Wood Products segment's
sales in 1994. In 1994, 71 percent of New Zealand's sales came from
Company-managed timberlands. In North America 12 percent was directly sourced
from Rayonier's timberlands, however, additional logs were purchased 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 1994,
approximately 70 percent of the revenues Rayonier derived from the sale of logs
were from logs sold to export markets.
TIMBERLANDS MANAGEMENT AND STUMPAGE
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 pulpwood 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, 1994, Rayonier managed approximately 1.5 million acres of
timberlands, with approximately 870,000 acres or 58 percent located in the
Southeastern United States, approximately 378,000 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 870,000 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 752,000 acres are owned in fee and 118,000 acres are held under
long-term leases. The Southeastern timberlands include approximately 560,000
acres of pine plantations, 307,000 acres of hardwood lands and 3,000 non-forest
acres (representing main line and access roads and other acreage not suitable
for forest development). Approximately 48 percent of the timber harvest is
pulpwood, which is destined for pulp mills, with the remaining 52 percent being
higher value sawlogs, which are sold to sawmills. Over the last five years the
Company, through advanced silvicultural practices, has been
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able to increase the amount of timber volume per acre available for harvest from
its Southeastern timberlands by approximately 2 percent per year and expects
this trend to continue.
The 378,000 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 323,000
acres of softwood stands, approximately 74 percent of which is hemlock and 26
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 36,000 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, thereby 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
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 487,000 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 24 percent of Jesup's pine chip consumption. The sale
of lumber accounted for approximately 14 percent of the Timber and Wood Products
segment's sales in 1994.
In 1994, the Company announced that it would construct a medium-density
fiberboard facility in New Zealand with an annual capacity of 120,000 cubic
meters. The Company expects the facility to begin operation in early 1997.
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):
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Sales
--------------------------------------
Specialty Pulp Products 1994 1993 1992
----------------------- ---- ---- ----
<S> <C> <C> <C>
Chemical cellulose $307 $279 $307
Fluff and specialty paper pulps 193 183 218
---- ---- ----
Total $500 $462 $525
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</TABLE>
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. Over half of
Rayonier's pulp sales are to export customers, with the more important overseas
markets being Far East (23 percent of sales) and Western Europe (21 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 61 percent of the Company's Specialty Pulp Products'
sales in 1994.
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 32 percent of the Company's pulp sales in 1994.
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 1994. 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
Pulp industry prices have rebounded considerably from a cyclical low that
bottomed in the fourth quarter of 1993. While Rayonier's pricing had been
adversely impacted during that low, the Company's higher value pulps evidenced
less cyclicality than commodity paper pulps. By the end of 1994, Rayonier's
fourth quarter net realized prices were 13 percent higher than that of a year
ago.
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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 1994, Asian markets accounted for 28 percent of U.S. sales and
Western Europe 11 percent. Exports, primarily to Asian markets, also accounted
for 62 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 1994, and Rayonier's sales from
non-U.S. sources in 1994 were 12 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, 1994 (in millions of dollars):
<TABLE>
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Sales
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1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
United States $ 945 $839 $944
New Zealand 98 93 30
All other 26 4 -
------ ---- ----
Total $1,069 $936 $974
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<CAPTION>
Operating Income (Loss) Identifiable Assets
--------------------------- -------------------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
United States $160 $103 $(89) $1,278 $1,248 $1,271
New Zealand 12 27 5 222 226 205
All other (3) (3) (3) 11 1 -
---- ---- ---- ------ ------ ------
Total $169 $127 $(87) $1,511 $1,475 $1,476
==== ==== ==== ====== ====== ======
</TABLE>
Reference is also made to Note 15 of the accompanying Notes to Consolidated
Financial Statements.
DISPOSITIONS AND DISCONTINUED OPERATIONS
Dispositions and 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.
In the fourth quarter of 1992, Rayonier provided $180 million, pretax, 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. The Company has substantially completed all closure programs except
certain environmental remediation programs relating to the Grays Harbor Complex.
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
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.
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SWP is currently active in monitoring, cleanup, and closure programs at its nine
former manufacturing sites. SWP also is in negotiations with various state and
federal agencies regarding the scope and timing for such programs. The ultimate
cost of corrective action and closure programs is dependent upon the outcome of
such negotiations. The cost may also be affected by new laws, regulations and
administrative interpretations, and changes in environmental control technology.
Although considerable progress on cleanup has been made, there is still
uncertainty as to the timing and amount of future expenditures for completing
programs at all sites. Rayonier currently estimates that expenditures for
environmental remediation at these sites during the 1995-1996 period will
approximate $21 million, pretax.
As of December 31, 1994, Rayonier had reserves of $59 million for dispositions
and discontinued operations. The Company believes that any future changes in
estimates, if necessary, will not materially affect its financial condition or
results of operations.
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. Revenues, expenses, and cash flow associated with
RTLP's normal timber harvesting are allocated 95% to all Class A Units (24% to
the publicly held Class A Units) through December 31, 2000 and 4% to all Class A
Units (1% to the publicly held Class A Units) thereafter. 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
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, 1994 was $162 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 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.
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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 1994, 42 percent of pulp product sales were to the
U.S., 23 percent to the Far East, 21 percent to Western Europe, and 9 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 1994, 1993
and 1992, capital expenditures attributable to environmental compliance amounted
to $1 million, $3 million and $25 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 has filed comments and expects to
file further 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
its products. Sales of the Company's chemical cellulose products accounted for
approximately 29 percent of the Company's total 1994 sales. Rayonier has filed
comments and expects to file further 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.
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 has filed comments and expects to file further comments
challenging the technical and legal bases for the proposed regulations.
- 7 -
<PAGE> 11
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. While these regulations may have a material adverse effect on
operations if not changed, it will not be possible for Rayonier to determine the
nature or costs of such effect until the regulations are issued in final form.
Rayonier has developed order of magnitude estimates of the costs of complying
with these regulations if they are modified to remove the technological
requirements that would prevent the Company from manufacturing some of its
products. These estimates indicate that with incremental capital expenditures
of approximately $115 million at Jesup, $35 million at Fernandina, and $40
million at Port Angeles, it could continue to manufacture the current product
line. Such expenditures would most likely be incurred over several years and
would not commence before 1996. Rayonier will, however, continue to argue, both
individually and through an industry trade association, for modifying the
proposed operating guidelines further to eliminate errors it believes the agency
has made, and the Company will continue to explore new and revised operating and
technical process alternatives in lieu of spending such funds. Rayonier cannot
predict whether these efforts will be successful.
Over the past four 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 has developed 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.
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 (also recently listed as a threatened species). 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.
Rayonier 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 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 and more
recently, fiber costs to its mills in the Southeast.
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.
However, the recent strength in worldwide economies has caused the prices of
some of the Company's process chemicals to increase above normal inflation.
Management foresees no constraints in pricing or availability of its key raw
materials, other than the comments concerning wood fiber and process chemicals
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 Company's timberland assets. Research and development
expenditures were $7 million in 1994 and 1993 and $8 million in 1992.
- 8 -
<PAGE> 12
EMPLOYEE RELATIONS
Rayonier currently employs approximately 2,700 people. Of this number,
approximately 2,575 are employees in the United States, of which 57 percent are
covered by labor contracts. 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 1,470 employees at
the three pulp mills and at the Rayonier Research Center. Bargaining activity
in 1994 resulted in a three-year labor agreement with the two unions that
represent hourly employees at the Fernandina pulp mill and a four-year agreement
with the union that represents Rayonier Research Center hourly employees. The
Jesup pulp mill (approximately 844 covered employees) labor contracts will
expire on June 30, 1995. Jesup negotiations are expected to be successfully
concluded without incident.
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 4 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
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. In addition, Rayonier and SWP are named
defendants in seven civil cases pending in the U.S. District Court for the
Southern District of Georgia, arising out of former wood preserving operations
at SWP's plant located in Augusta, Georgia. In general, these cases seek
recovery for property damage or personal injury and, in one case, 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 ($200 million in property damage and $500 million in punitive
damages). 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 by a PRP in four 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
considered a de minimis participant. In the other proceeding, the Company is
not a de minimis participant because of the limited number of PRPs, and the
Company believes that its share of liability for total clean-up costs (currently
estimated to be between $30 million and $39 million) will be less than 9
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.
On November 19, 1994, SWP was named one of six PRPs in the Tennessee Products
Site CERCLA action. SWP was included in the action because of coal tar
derivative deposits found in Chattanooga Creek, which is included as part of the
Tennessee Products Site. Counsel for the Company believe that the site is
geographically divisible and that SWP is not responsible for any clean-up costs
upstream of its former plant site. Consequently, it is not yet clear what, if
any, remediation will be required of SWP.
- 9 -
<PAGE> 13
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 expected to
materially impact its consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of Rayonier during the
fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF RAYONIER
RONALD M. GROSS, 61, Chairman of the Board, President and Chief Executive
Officer, Rayonier - He joined Rayonier in March 1978 as President and Chief
Operating Officer and a director. He was elected Chief Executive Officer in
1981 and Chairman in 1984. Mr. Gross serves as President and director of
Rayonier Forest Resources Company ("RFR"), the managing general partner of
Rayonier Timberlands, L.P., a publicly traded master limited partnership
affiliated with the Company. Mr. Gross is also 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). Mr. Gross is a graduate of
Ohio State University and the Harvard Graduate School of Business
Administration.
WALLACE L. NUTTER, 51, 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 and is a graduate of the University of Washington and the
Advanced Management Program at the Harvard Graduate School of Business
Administration.
WILLIAM S. BERRY, 53, 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. He also
serves on the Executive Boards of the American Forest Council and the Center for
Streamside Studies. 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.
KEVIN S. O'BRIEN, 62, 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. He joined Rayonier in 1957. He holds an A.B. in Economics from
Harvard University and an M.B.A. from New York University.
JOHN P. O'GRADY, 49, 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 Advisors 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.
GERALD J. POLLACK, 53, 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. He serves as Chief Financial Officer of RFR. He is a member of the
New York Advisory Board of The Allendale Insurance Co., the financial management
committee of AFPA, and the Financial Executive Institute. Mr. Pollack has a B.S.
degree in Physics from Rensselaer Polytechnic Institute and an M.B.A. in
Accounting and Finance from the Amos Tuck School at Dartmouth.
KENNETH P. JANETTE, 49, Vice President and Corporate Controller - He joined
Rayonier in August 1994 and was elected Vice President and Controller in October
1994. He serves as Vice President and Corporate Controller of RFR. He came to
Rayonier from Sunkyong America, Inc., a Korean international trading
organization, which he joined in 1990 as Corporate Controller. He became a Vice
President in 1992. From 1977 to 1990 he served in various capacities with AMAX
Inc., most
- 10 -
<PAGE> 14
recently as Assistant Corporate Controller and Director of Auditing. He is a
Certified Public Accountant and served with Arthur Andersen & Co. Mr. Janette
received a B.S. in Accounting and an M.B.A. in Finance from the University of
Rochester.
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.
February 18, 1994 was the first trading day for Rayonier Common Shares on a
when-issued basis. Regular trading commenced on March 2, 1994.
RAYONIER COMMON SHARES - MARKET PRICES AND DIVIDENDS (UNAUDITED)
<TABLE>
<CAPTION>
1994
-----------------------------------------------------------
High Low Volume Dividend
---- --- ------ --------
<S> <C> <C> <C> <C>
First Quarter $35.00 $27.50 10,593,400 $.18
Second Quarter 30.50 26.75 6,987,100 .18
Third Quarter 34.63 28.38 3,714,100 .18
Fourth Quarter 32.25 27.00 5,056,800 .18
</TABLE>
The above table reflects the range of market prices of Rayonier Common Shares as
reported in the consolidated transaction reporting system of the New York Stock
Exchange, the only market in which this security is traded, under the trading
symbol RYN.
During the two month period ended February 28, 1995, the high and low reported
market prices of Rayonier Common Shares were $31.88 and $28.25.
On February 17, 1995, Rayonier announced a 7 cent, or 39 percent increase in its
quarterly dividend. The first quarter dividend of 25 cents per share is payable
on March 31, 1995 to shareholders of record on March 10, 1995.
There were approximately 35,500 holders of record of Rayonier Common Shares on
February 28, 1995.
- 11 -
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following summary of historical financial data for each of the five years
ended December 31, 1994 are derived from the consolidated financial statements
of the Company. The data should be read in conjunction with the consolidated
financial statements (dollar amounts in millions, except per share data).
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
OPERATIONS: ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales $1,069 $ 936 $ 974 $ 979 $1,104
Operating income before provision for
dispositions 169 130 102 97 190
Provision for dispositions - (3) (189)(1) - -
Operating income (loss) 169 127 (87) 97 190
Income (loss) from continuing operations 70 52 (81) 44 109
Provision for discontinued operations - - - - (43)
Cumulative effect of accounting changes - - (22)(2) - -
Net income (loss) 70 52 (103) 44 66
EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations
before cumulative effect of accounting changes $2.36 $1.77 $(2.77) $1.50 $3.70
Cumulative effect of accounting changes - - (0.74) - -
Income (loss) from continuing operations 2.36 1.77 (3.51) 1.50 3.70
Discontinued operations - - - - (1.47)
Net income (loss) 2.36 1.77 (3.51) 1.50 2.23
FINANCIAL CONDITION:
Total assets $1,511 $1,475 $1,476 $1,372 $1,353
Total debt 483 498 403 205 173
Shareholders' equity 655 606 676 797 745
CASH FLOW:
Cash flow from operations $190 $118 $133 $132 $193
Capital expenditures 101 72 97 134 100
Depreciation, depletion and amortization 90 78 78 69 64
EBITDA (3) 229 187 156 147 234
EBIT (4) 139 109 78 78 170
Dividends 21 122 (5) 18 20 61
PERFORMANCE RATIOS:
Operating income to sales 16% 14% (9)% 10% 17%
Return on equity 11% 8% (14)% 6% 9%
Return on assets 5% 4% (7)% 3% 5%
Total debt to capitalization 43% 45% 37% 21% 18%
OTHER:
Number of employees 2,700 2,600 2,800 3,000 3,100
Timberland managed, thousands of acres 1,501 1,495 1,496 1,266 1,261
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
SELECTED OPERATING DATA (UNAUDITED) ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Timber and Wood Products
Log sales
North America - million board feet 306 266 435 542 617
New Zealand - thousand cubic meters 1,623 1,375 682 259 114
Other - million board feet 9 11 - - -
Timber Harvested
Northwest U.S. - million board feet 194 143 195 189 202
Southeast U.S. - thousand short green tons 2,184 2,001 2,006 2,037 1,838
New Zealand - thousand cubic meters 1,155 918 636 - -
Lumber sold - million board feet 197 125 118 103 113
Intercompany sales
Logs - million board feet 13 15 20 35 31
Northwest U.S. timber stumpage - million board feet 36 28 44 68 69
Southeast U.S. timber stumpage -
thousand short green tons 199 299 317 398 114
Specialty Pulp Products
Chemical cellulose sales - thousand metric tons 428 369 399 412 403
Fluff and specialty paper pulp sales -
thousand metric tons (6) 362 352 367 381 390
Production as a percentage of capacity 94% 85% 95% 97% 96%
</TABLE>
(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.
(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) EBITDA is defined as earnings from continuing operations before the
cumulative effect of accounting changes, provision for dispositions, income
taxes, interest expense, and depreciation, depletion, and amortization.
(4) EBIT is defined as earnings from continuing operations before the cumulative
effect of accounting changes, provision for dispositions, income taxes, and
interest expense.
(5) Pursuant to a recapitalization program, Rayonier paid a special dividend to
ITT in the fourth quarter of 1993 of $90 million.
(6) Excludes wood pulp sales by the Grays Harbor pulp mill of 62, 77, and 103
thousands of metric tons for the years ended December 31, 1992, 1991, and
1990, respectively.
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<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SEGMENT INFORMATION
The amounts and relative contributions to sales and operating income
attributable to each of Rayonier's business segments for each of the last three
years ended December 31, 1994 were as follows: ($ in millions)
<TABLE>
<CAPTION>
Sales Year Ended December 31
- ----- --------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Timber and wood products
Log trading and merchandising $ 347 $334 $ 279
Timberlands management and stumpage 173 120 123
Wood products 79 47 33
Intrasegment eliminations (21) (16) (14)
------ ---- -----
Total timber and wood products 578 485 421
------ ---- -----
Specialty pulp products
Chemical cellulose 307 279 307
Fluff and specialty paper pulps 193 183 218
------ ---- -----
Total specialty pulp products 500 462 525
------ ---- -----
Intersegment eliminations (9) (11) (12)
------ ---- -----
Total before dispositions $1,069 $936 $ 934
Dispositions - - 40
------ ---- -----
Total sales $1,069 $936 $ 974
====== ==== =====
Operating Income (Loss)
Timber and wood products $ 163 $144 $ 100
Specialty pulp products 13 (4) 16
Corporate and other (8) (8) (10)
Intersegment eliminations 1 (2) 3
------ ---- -----
Total before dispositions 169 130 109
Dispositions - (3) (196)
------ ---- -----
Total operating income (loss) $ 169 $127 $ (87)
====== ==== =====
</TABLE>
CHANGE IN OWNERSHIP
On February 28, 1994, ITT Corporation (ITT), in a spin-off, distributed all of
its common shares of Rayonier to the holders of ITT Common and Series N
Preferred Stock.
BUSINESS CONDITIONS
Net income rose 33 percent to $70 million, or $2.36 per common share, in 1994 as
a result of higher sales of Timber and Wood Products and the significant
turnaround in Specialty Pulp Products late in the year. The Company expects
this favorable earnings trend to continue in 1995.
Most of Rayonier's revenues are driven by international economic factors, which
strengthened in 1994. Stronger worldwide demand for the Company's products,
particularly from Europe and the Far East, is expected to put upward pressure on
pricing. In addition, the overall supply of softwood from North America
continued to decline due to environmental restrictions, and is not adequate to
meet expected global demand. Rayonier is well-positioned to take advantage of
these shortages through expansion of its operations in New Zealand and the
Southeast U.S. and strategic acquisition of cutting rights in other parts of the
world, including Russia and Latin America.
- 14 -
<PAGE> 18
The Company's operating results are cyclical, particularly for Specialty Pulp
Products. Over the 1992-1994 period, the Specialty Pulp Products segment was
adversely affected by low selling prices and reduced shipments resulting from
excess capacity in the industry combined with weak domestic and international
markets. The prices of Rayonier's specialty pulp products generally rise toward
the end of the business cycle and they lag commodity pulp price increases by up
to a year. Operating results strengthened in the second half of 1994, when
markets and prices improved. Rayonier increased its pulp prices significantly
in early 1995 and expects the current strength in the market to continue in
1995.
Rayonier plans to increase capital spending through expansion of its New Zealand
operations, acquisitions and growth in the Timber and Wood Products businesses,
and quality and productivity improvements in Specialty Pulp Products. These
investments are expected to help moderate the cyclical effects of the pulp
market cycle, improve bottom-of-the-cycle earnings, and add value to existing
assets. See Liquidity and Capital Resources.
In 1985, Rayonier transferred substantially all of its domestic timberlands
business to Rayonier Timberlands, L.P. (RTLP), a master limited partnership.
Under the terms of the RTLP Partnership Agreement, minority unitholders
currently share approximately 25 percent of the partnership's profits. The
minority interest in RTLP's earnings was $32 million in 1994 and $23 million
both in 1993 and 1992, reducing Rayonier's net income by 69 cents per share in
1994, 48 cents per share in 1993, and 50 cents per share in 1992. Effective
January 1, 2001, the minority participation in the earnings of RTLP will be
reduced from 25 percent to 1 percent and Rayonier's participation will increase
from 75 percent to 99 percent.
In 1992, Rayonier permanently closed its operations at the Grays Harbor,
Washington, pulp and paper complex. The Company's two remaining sulfite pulp
mills in Port Angeles, Washington, and Fernandina Beach, Florida, face margin
pressure. The Port Angeles mill, in particular, incurs significantly higher wood
costs than facilities in other parts of the world. The viability of these
facilities will be dependent upon continued strength in pulp markets, favorable
resolution of environmental issues, and, for the Port Angeles mill, the return
of Northwest wood costs to a more competitive level. If the recent economic
strength subsides, if pending environmental issues are not resolved favorably,
or, in the case of Port Angeles, if wood costs do not become more competitive,
Rayonier may consider other alternatives, including restructuring or closure.
At December 31, 1994, the amounts of net plant and equipment invested in the
Port Angeles and Fernandina facilities were $95 million and $141 million,
respectively.
RESULTS OF OPERATIONS, 1994 VS. 1993
Sales and Operating Income
Sales rose 14 percent to $1.07 billion in 1994, reflecting stronger sales
volumes in each of the business segments. Operating income for the year was
$169 million, up 33 percent from 1993.
Timber and Wood Products
Sales of Timber and Wood Products increased 19 percent to $578 million and
operating income rose 13 percent to $163 million. Sales and income were
higher primarily because of increased stumpage volume and improved prices in
the Northwest U.S., as customers carried over higher priced 1993 timber
sales contracts into the first quarter of 1994.
Log trading and merchandising sales, which include the Company's New Zealand
log sales, increased due to higher volumes in the U.S. and New Zealand.
Strong domestic markets in both countries partially offset a decline in log
exports. Overall, margins were reduced by lower export prices and higher
purchased log costs.
Timberlands management and stumpage sales and income were stronger due to
the high-priced carryover volume in the Northwest U.S. and increased volume
and prices in the Southeast U.S. Wood products sales and operating margins
increased as a result of higher prices and a full year's contribution from
the Swainsboro/Lumber City, Georgia facility acquired late in 1993.
Operating margins also were affected by increased wood costs in the
Southeast U.S.
Specialty Pulp Products
Sales of Specialty Pulp Products increased to $500 million, up 8 percent,
and operating income rose $17 million to $13 million. The gains resulted
from higher sales volume and stronger fluff pulp prices in the second half
of the year. Prices for chemical cellulose, a higher grade pulp, normally
lag commodity grades and are expected to strengthen in 1995.
Other Items
Interest expense increased as a result of additional debt to finance a $90
million special dividend to ITT in late 1993 and to settle intercompany accounts
with ITT prior to the spin-off.
- 15 -
<PAGE> 19
Minority interest in the earnings of RTLP increased $10 million to $32 million
in 1994 due to significantly higher partnership earnings resulting from
increased stumpage volume and prices.
Income Taxes
The 1994 effective tax rate was 35.2 percent, slightly below 1993, which had
been increased by the remeasurement of deferred tax liabilities for the one
percentage point increase in the corporate tax rate in 1993.
RESULTS OF OPERATIONS, 1993 VS. 1992
Sales and Operating Income
Although sales declined 4 percent to $936 million in 1993, operating income
strengthened to $127 million compared with a loss of $87 million in 1992.
Results for 1992 included a provision of $180 million (pretax) relating to the
disposition of the Grays Harbor Complex.
Timber and Wood Products
Timber and Wood Products sales rose 15 percent to $485 million in 1993 and
operating income rose 44 percent to $144 million, reflecting significantly
higher stumpage, log and lumber prices and expanded New Zealand operations.
Prices were substantially higher for timber stumpage and logs due to supply
shortages caused by environmental restrictions in the Northwest U.S., wet
weather conditions in the Southeast U.S., and concerns over the availability
of timber worldwide. Log trading and merchandising sales benefited from the
higher log prices and increased volume resulting from the May 1992 expansion
of the New Zealand operations; however, North American log volumes decreased
in 1993. Timberlands management and stumpage sales were roughly equal to
1992, as increased stumpage prices were offset by lower stumpage sales
volumes in the Northwest, where customers delayed harvesting to 1994 due to
price movements. Results for 1992 included $17 million in timberland parcel
sales.
Stronger lumber prices resulted in higher wood products sales and margins in
1993. Lumber prices benefited from supply constraints attributable to
environmental factors and increased demand from housing starts.
Specialty Pulp Products
Specialty Pulp Products sales totaled $462 million in 1993, down 12 percent,
due to lower selling prices and reduced volume resulting from excess
capacity in the pulp industry combined with weak domestic and international
markets.
Operating income declined $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
Dispositions included the Grays Harbor Complex, closed in 1992, and other
miscellaneous operations. These operations had no sales in 1994 and 1993
versus sales of $40 million in 1992. Operating losses were $3 million in
1993 (representing a provision for disposition of miscellaneous operations)
and $196 million in 1992, which included a provision of $180 million related
to the closure of the Grays Harbor Complex. See Note 7 of the accompanying
Notes to Consolidated Financial Statements for further information.
Other Items
Commission expenses declined $12 million from 1992, which included commissions
under a sales agency agreement with a foreign sales corporation (FSC) owned by
ITT. 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 7 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
acquisition.
Income Taxes
Tax reform legislation enacted August 10, 1993 increased the corporate income
tax rate to 35 percent from 34 percent retroactive to January 1, 1993 and
eliminated tax benefits related to log exports for foreign sales corporations
effective in the third quarter. The 1993 provision for income taxes included a
charge of $2 million to remeasure the Company's deferred tax liability for the
tax rate increase.
- 16 -
<PAGE> 20
Net Income
Net income in 1993 was $52 million compared with a net loss of $103 million in
1992. The 1992 net loss included 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) for operating losses, equity losses, and
closure provision relating to the Grays Harbor Complex.
In addition, in 1992, Rayonier 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 expenses, net income increased 6 percent to $52 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was up 60 percent to $190 million in 1994.
Cash from operating activities financed capital expenditures of $101 million,
increased timber purchases of $24 million, common dividends of $21 million, a
special distribution of $20 million to the minority unitholders of RTLP,
environmental remediation and other expenditures relating to units held for
disposition, and was used to reduce debt by $15 million.
Cash flow from operating activities was down 11 percent to $118 million in 1993.
Cash from operating activities together with an increase in debt of $95 million
financed capital expenditures of $72 million, final cash dividends to ITT of
$122 million, and environmental remediation and other costs relating to units
held for disposition.
EBITDA (defined as earnings from continuing operations before provision for
dispositions, interest expense, income taxes and depreciation, depletion and
amortization) grew to $229 million in 1994, up 22 percent. EBITDA increased to
$187 million in 1993, up 20 percent.
In 1993, Rayonier paid dividends of $122 million, including a special dividend
of $90 million to ITT under a recapitalization program. The special dividend
and $21 million of intercompany settlements paid to ITT in 1993 and 1994 were
funded by short-term borrowings. As a result, at year-end 1993, Rayonier had
negative working capital of $39 million compared with working capital of $7
million at year-end 1992.
In April 1994, Rayonier arranged revolving credit agreements with a group of
banks to provide the Company with unsecured credit facilities totaling $300
million. Rayonier subsequently issued $100 million of commercial paper under a
newly implemented commercial paper program backed by the revolving credit
facilities. Rayonier also borrowed $67 million under the credit facilities. The
proceeds of these borrowings were used to refinance short-term debt. As a
result of these refinancings, the Company's net working capital position
improved to $118 million at year-end 1994.
At December 31, 1994, Rayonier had total debt outstanding of $483 million, a
reduction of $15 million from 1993. The debt to capital ratio strengthened to
43 percent from 45 percent in 1993. At December 31, 1992, debt was $403
million, or 37 percent of total capital. The percentage of debt with fixed
interest rates was 45 percent as of December 31, 1994, compared with 44 percent
in 1993 and 50 percent in 1992.
The most restrictive long-term debt covenant in effect at December 31, 1994
provides that the ratio of total debt to EBITDA not exceed four to one. As of
December 31, 1994, the ratio was two to one and $328 million of retained
earnings was unrestricted as to the payment of dividends.
Rayonier expects to invest approximately $350 million during the two-year period
1995-1996 on capital projects, including an investment of $89 million to
construct a medium-density fiberboard facility in New Zealand. Other planned
capital projects include an expansion of the Swainsboro, Georgia, lumber mill,
improvements to the Jesup, Georgia, pulp mill, and the purchase of a sawmill
complex. As new environmental regulations are promulgated, additional capital
spending may be required to ensure continued compliance with environmental
standards. See Environmental Regulation.
As of December 31, 1994, Rayonier had $133 million of available borrowings under
its revolving credit facilities. In addition, through currently effective shelf
registration statements filed with the Securities and Exchange Commission,
Rayonier may offer up to $174 million of new public debt securities. The
Company believes that internally generated funds, combined with available
external financing, will enable it to fund capital expenditures, working
capital, and other liquidity needs for the foreseeable future.
- 17 -
<PAGE> 21
On February 17, 1995, Rayonier announced a 7 cent, or 39 percent increase in its
quarterly dividend. The first quarter dividend of 25 cents per share is payable
on March 31, 1995 to shareholders of record on March 10, 1995.
DISPOSITIONS
In the fourth quarter of 1992, Rayonier provided $180 million, pretax, 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. The Company has substantially completed all programs, except certain
environmental remediation programs, relating to the Grays Harbor Complex.
In 1986, Rayonier discontinued the Southern Wood Piedmont Company (SWP) treated
wood business. SWP is currently active in monitoring, cleanup, and closure
programs at its nine former manufacturing sites. SWP also is in negotiations
with various state and federal agencies regarding the scope and timing for such
programs. The ultimate cost of corrective action and closure programs is
dependent upon the outcome of such negotiations. The cost may also be affected
by new laws, regulations and administrative interpretations, and changes in
environmental control technology.
Although considerable progress on cleanup has been made, there is still
uncertainty as to the timing and amount of future expenditures for completing
programs at all sites. Rayonier currently estimates that expenditures for
environmental remediation at these sites during the 1995-1996 period will
approximate $21 million, pretax.
As of December 31, 1994, Rayonier had reserves of $59 million for dispositions
and related environmental obligations. The Company believes that any future
changes in estimates, if necessary, will not materially affect its financial
condition or results of operations.
ENVIRONMENTAL REGULATION
Rayonier has become subject to 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 1994, 1993, and 1992, Rayonier spent approximately $1 million, $3
million, and $25 million, respectively, for capital projects related to
environmental compliance for continuing operations. Rayonier expects to spend
approximately $9 million on such projects for the two-year period 1995-1996.
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 the Company from meeting certain product
quality specifications for substantially all of its chemical cellulose products
and will increase the cost of making its remaining pulp products. Sales of
chemical cellulose products accounted for approximately 29 percent of 1994
sales.
While these regulations would have a material adverse effect on operations if
not changed, it will not be possible for Rayonier to determine the nature or
costs of such effect until the regulations are issued in final form. Rayonier
has developed order of magnitude estimates of the costs of complying with these
regulations if they are modified to remove the technological requirements that
would prevent the Company from manufacturing some of its products. These
estimates indicate that with incremental capital expenditures of approximately
$115 million at Jesup, $35 million at Fernandina, and $40 million at Port
Angeles, it could continue to manufacture the current product line. Such
expenditures would most likely be incurred over several years and would not
commence before 1996. Rayonier will, however, continue to argue, both
individually and through an industry trade association, for modifying the
proposed operating guidelines further to eliminate errors it believes the agency
has made, and the Company will continue to explore new and revised operating and
technical process alternatives in lieu of spending such funds. Rayonier cannot
predict whether these efforts will be successful.
Over the past four 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 has developed 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.
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 (also recently listed as a threatened species). The State
Department of
- 18 -
<PAGE> 22
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.
Rayonier 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 timber available for harvest.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements" on Page ii.
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
The information called for by Item 10 with respect to directors is incorporated
herein by reference to the definitive proxy statement involving the election of
directors filed or to be filed by Rayonier with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the end of the
fiscal year covered by this Form 10-K.
The information called for by Item 10 with respect to executive officers is set
forth above in Part I under the caption Executive Officers of Rayonier.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by reference to the
definitive proxy statement referred to above in Item 10.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 in incorporated herein by reference to the
definitive proxy statement referred to above in Item 10.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Rayonier was a wholly owned subsidiary of ITT Corporation (ITT) through February
28, 1994. On February 28, 1994, ITT distributed all of the Common Shares of
Rayonier to the holders of ITT Common and Series N Preferred Stock in a
spin-off. As a result of the spin-off, ITT has no ownership interest in
Rayonier, and Rayonier is an independent public company.
ITT rendered advice and assistance to Rayonier in general engineering, 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 $0.4
million in 1994.
Rayonier and ITT entered into certain agreements, described below, governing
their relationship subsequent to the spin-off and providing for the allocation
of tax and certain other liabilities and obligations arising from periods prior
to the spin-off. Copies of the forms of such agreements were filed as exhibits
to the 1993 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.
- 19 -
<PAGE> 23
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
spin-off. 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 spin-off, ITT and
Rayonier entered into an Administrative Services Agreement pursuant to which,
until December 31, 1995, 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.
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, C, and D for a list of the exhibits
filed or incorporated herein as part of this report.
(b) Reports on Form 8-K:
1. The Company did not file any reports on Form 8-K during 1994.
- 20 -
<PAGE> 24
REPORT OF MANAGEMENT
Rayonier management is responsible for the preparation and integrity of the
information contained in the accompanying financial statements. The statements
were prepared in accordance with generally accepted accounting principles and,
where necessary, include amounts that are based on management's best judgments.
Rayonier's system of internal controls includes accounting controls and an
internal audit program. This system is designed to provide reasonable assurance
that Rayonier's assets are safeguarded, transactions are properly recorded and
executed in accordance with management's authorization, and 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 independent public
accountants, Arthur Andersen LLP, evaluate and test internal controls as part of
their annual audit and make recommendations for improving internal controls.
Management takes appropriate action in response to each recommendation. The
Board of Directors and the officers of Rayonier monitor the administration of
Rayonier's policies and procedures and the preparation of financial reports.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rayonier Inc.:
We have audited the accompanying consolidated financial statements of Rayonier
Inc. (a North Carolina corporation) and subsidiaries as of December 31, 1994 and
1993, and for each of the three years in the period ended December 31, 1994, as
described in the Index to Financial Statements. These financial statements are
the responsibility of Rayonier's management. Our responsibility is to express
an opinion on these financial statements 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, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in the accompanying notes to financial statements, in 1992,
Rayonier adopted two new accounting standards promulgated by the Financial
Accounting Standards Board, changing its methods of accounting for
postretirement benefits other than pensions and postemployment benefits.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
January 31, 1995
F-1
<PAGE> 25
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
For the Three Years Ended December 31, 1994
(Thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Sales $1,069,494 $936,310 $ 973,673
---------- -------- ---------
Costs and expenses
Cost of sales 877,439 780,831 821,571
Selling and general expenses 27,676 27,390 32,228
Commission expenses 1,021 885 13,115
Other operating (income) expenses, net (5,989) (2,641) 4,639
Provision for dispositions - 2,679 188,724
---------- -------- ---------
900,147 809,144 1,060,277
---------- -------- ---------
Operating income (loss) 169,347 127,166 (86,604)
Equity in net loss of
Grays Harbor Paper Company - - (3,257)
Interest expense (31,065) (23,368) (21,327)
Interest and miscellaneous income, net 2,207 1,608 2,004
Minority interest (32,419) (22,508) (22,702)
---------- -------- ---------
Income (loss) before income taxes 108,070 82,898 (131,886)
Income tax (expense) benefit (38,038) (30,432) 50,366
---------- -------- ---------
Income (loss) before cumulative effect
of accounting changes 70,032 52,466 (81,520)
Cumulative effect of accounting changes (SFAS No. 106
and SFAS No. 112) net of tax benefit of $11,310 - - (21,956)
---------- -------- ---------
Net income (loss) $ 70,032 $ 52,466 $(103,476)
========== ======== =========
Earnings (loss) per Common Share:
Income (loss) before cumulative effect
of accounting changes $2.36 $1.77 $(2.77)
===== ===== ======
Cumulative effect of accounting changes $ - $ - $(0.74)
===== ===== ======
Net income (loss) $2.36 $1.77 $(3.51)
===== ===== ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
F-2
<PAGE> 26
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1994 and 1993
(Thousands of dollars)
ASSETS
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 9,178 $ 5,989
Accounts receivable, less allowance for doubtful
accounts of $4,358 and $4,268 103,892 82,696
Inventories
Finished goods 39,929 46,516
Work in process 18,221 16,235
Raw materials 34,022 44,057
Manufacturing and maintenance supplies 27,567 26,751
---------- -----------
119,739 133,559
Deferred income taxes 4,382 10,498
Prepaid timber stumpage 47,338 55,770
Other current assets 12,692 10,752
---------- -----------
Total current assets 297,221 299,264
OTHER ASSETS 29,439 24,025
TIMBER STUMPAGE 36,756 12,480
TIMBER, TIMBERLANDS, AND LOGGING ROADS,
NET OF DEPLETION AND AMORTIZATION 476,132 470,077
PROPERTY, PLANT, AND EQUIPMENT
Land, buildings, machinery, and equipment 1,202,484 1,149,447
Less - accumulated depreciation 530,857 480,518
---------- -----------
671,627 668,929
---------- -----------
$1,511,175 $ 1,474,775
========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
F-3
<PAGE> 27
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1994 and 1993
(Thousands of dollars)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 83,658 $ 67,783
Bank loans 84 180,800
Current maturities of long-term debt 218 1,203
Accrued taxes 7,676 2,480
Accrued payroll and benefits 20,043 18,525
Accrued interest 4,515 4,446
Other current liabilities 37,316 35,330
Current reserves for dispositions and
discontinued operations 25,370 27,280
---------- ----------
Total current liabilities 178,880 337,847
DEFERRED INCOME TAXES 127,638 126,176
LONG-TERM DEBT 482,920 316,138
NONCURRENT RESERVES FOR DISPOSITIONS AND
DISCONTINUED OPERATIONS (Net of discontinued
operations' assets of $13,023 and $12,986) 20,325 35,920
OTHER NONCURRENT LIABILITIES 23,695 15,741
MINORITY INTEREST 22,516 36,649
SHAREHOLDERS' EQUITY
Common Shares, 60 million shares authorized,
29,574,807 and 29,565,392 shares issued
and outstanding 157,581 157,426
Retained earnings 497,620 448,878
---------- ----------
655,201 606,304
---------- ----------
$1,511,175 $1,474,775
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
F-4
<PAGE> 28
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
For the Three Years Ended December 31, 1994
(Thousands of dollars)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $448,878 $518,252 $639,258
Net income (loss) 70,032 52,466 (103,476)
Cash dividends to shareholders (21,290) - -
Cash dividends to ITT Corporation - (121,840) (17,530)
-------- -------- --------
Balance, end of year $497,620 $448,878 $518,252
======== ======== ========
</TABLE>
STATEMENTS OF CONSOLIDATED COMMON SHARES
AND CUMULATIVE PREFERRED STOCK
For the Three Years Ended December 31, 1994
(Thousands of dollars, except for shares)
<TABLE>
<CAPTION>
Cumulative
Common Shares Preferred Stock
------------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, January 1, 1992 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 - -
Common Shares issued
under stock option plans 9,415 155 - -
---------- -------- ------- -------
Balance, December 31, 1994 29,574,807 $157,581 - $ -
========== ======== ======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
F-5
<PAGE> 29
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Three Years Ended December 31, 1994
(Thousands of dollars)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 70,032 $ 52,466 $(103,476)
Cumulative effect of accounting changes - - 21,956
--------- --------- ---------
Income (loss) before cumulative effect of accounting changes 70,032 52,466 (81,520)
Non-cash items included in income
Depreciation, depletion, and amortization 90,200 78,272 77,885
Deferred income taxes 3,007 37,291 (56,938)
Equity in undistributed losses of Grays Harbor Paper Company - - 3,257
Write-down of property, plant, and equipment - - 81,804
Increase (decrease) in other noncurrent liabilities 7,954 (10,284) (1,387)
Change in accounts receivable, inventories, and accounts payable 8,499 (5,887) (13,711)
Decrease (increase) in prepaid timber stumpage 8,432 (15,226) 2,391
Change in reserves for dispositions and discontinued operations (5,221) 2,679 106,920
Other changes in working capital 6,829 (21,002) 14,354
--------- --------- ---------
Cash from operating activities 189,732 118,309 133,055
--------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures, net of sales, retirements,
and reclassifications of $1,678, $167, and $755 (98,953) (71,589) (96,289)
New Zealand forest assets acquisition - - (196,500)
Expenditures for dispositions and discontinued operations, net
of tax benefits (payments) of $4,571, $10,318, and ($8,933) (7,713) (17,412) (27,146)
Change in timber stumpage and other assets (29,690) (6,179) (1,394)
--------- --------- ---------
Cash used for investing activities (136,356) (95,180) (321,329)
--------- --------- ---------
FINANCING ACTIVITIES
Increase in indebtedness to ITT Corporation - - 167,000
Repayments of indebtedness to ITT Corporation - - (167,000)
Issuance of debt 267,084 112,435 249,700
Repayments of debt (282,003) (17,698) (51,402)
Issuance of preferred stock - - 30,000
Redemption of preferred stock - - (30,000)
Cash dividends to ITT Corporation - (121,840) (17,530)
Cash dividends to shareholders (21,290) - -
Issuance of Common Shares 155 - -
(Decrease) increase in minority interest (14,133) (768) 4,486
--------- --------- ---------
Cash (used for) from financing activities (50,187) (27,871) 185,254
--------- --------- ---------
CASH AND SHORT-TERM INVESTMENTS
Increase (decrease) in cash and short-term investments 3,189 (4,742) (3,020)
Balance at beginning of year 5,989 10,731 13,751
--------- --------- ---------
Balance at end of year $ 9,178 $ 5,989 $ 10,731
========= ========= =========
Supplemental disclosures of cash flow information
Cash paid (received) during the year for:
Interest $ 30,996 $ 24,289 $ 22,562
========= ========= =========
Income taxes, net of refunds $ 23,705 $ (18,193) $ 13,835
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
F-6
<PAGE> 30
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands unless otherwise stated)
1. 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
non-controlled 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 expensed as incurred. Research and development expenditures amounted to
$7,477, $7,302, and $8,267 in 1994, 1993, and 1992, 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 and 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
trading, 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 cost, net of timber
cost depletion, or market value.
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.
F-7
<PAGE> 31
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
$194 and $893 during 1994 and 1992, 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 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 through February 28, 1994 and for 1993 and 1992
were computed, after deducting preferred dividends paid in 1992, based on the
number of Rayonier Common Shares that were outstanding on February 28, 1994, the
date of Rayonier's spin- off from ITT Corporation (ITT). Earnings per Common
Share for February 28, 1994 through December 31, 1994 were determined based on
the weighted average number of Common Shares and dilutive Common Shares
outstanding during the period. Common stock equivalents were excluded from the
1993 and 1992 computations due to immateriality. The number of Common Shares
used in earnings (loss) per Common Share computations was 29,697,054 for 1994
and 29,565,392 for 1993 and 1992. See Notes 5 and 10.
Foreign Currency Translation and Exposure
For significant foreign operations, the U.S. dollar is the functional currency.
Monetary assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at current exchange rates. Nonmonetary assets such as inventories and
property, plant, and equipment are translated at historical rates. Income and
expense items are translated at average exchange rates prevailing during the
year, except that inventories and depreciation charged to operations are
translated at historical rates. Exchange gains and losses arising from
translation are included in current income.
Rayonier enters into forward exchange contracts to hedge the short-term impact
of foreign currency fluctuations on operations. The gains and losses on these
contracts are included in income based on current market values. As of December
31, 1994, the Company had no outstanding forward exchange contracts.
2. CHANGES IN ACCOUNTING PRINCIPLES
Statement of Financial Accounting Standards No. 106 - Adopted with a One-Time
Cumulative Adjustment to Net Income
In 1992, Rayonier adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," using the immediate recognition
method. The standard requires accrual of postretirement health care and life
insurance benefit costs during the years that an employee provides services to
the Company. Accordingly, a cumulative adjustment (through December 31, 1991)
of $31,916 pretax was recognized at January 1, 1992.
Statement of Financial Accounting Standards No. 112 - Adopted with a One-Time
Cumulative Adjustment to Net Income
In 1992, Rayonier adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," using the immediate recognition method. The 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 composed 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 was
recognized at January 1, 1992.
F-8
<PAGE> 32
3. 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. The Company harvests timber for export to Pacific
Rim markets and sale locally in New Zealand.
4. 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. The
Partnership Agreement provides that RTLP continues in existence until December
31, 2035, but that the Initial Term of the Partnership will end on December 31,
2000. Class A Units participate principally in the revenues and costs
associated with RTLP's sales of timber through the Initial Term 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.
RTLP is majority owned by Rayonier and is included in these consolidated
financial statements. The following table summarizes the sales and operating
income of RTLP, for the three years ended December 31, 1994, by region.
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
SALES
Northwest $ 115,261 $ 70,734 $ 81,985
Southeast 51,260 45,313 34,410
--------- -------- --------
$ 166,521 $116,047 $116,395
========= ======== ========
OPERATING INCOME
Northwest $ 94,576 $ 56,249 $ 68,318
Southeast 39,157 33,457 23,608
Corporate and other (1,724) (2,308) (3,279)
--------- -------- --------
$ 132,009 $ 87,398 $ 88,647
========= ======== ========
</TABLE>
The minority interest in RTLP's earnings was $32,419, $22,508, and $22,702 in
1994, 1993, and 1992, respectively. This reduced Rayonier's net income by
$20,586, $14,293, and $14,643 in 1994, 1993, and 1992, respectively. Effective
January 1, 2001, the minority participation in the earnings of RTLP will be
reduced from approximately 25 percent to approximately 1 percent, and Rayonier's
participation will increase from 75 percent to 99 percent.
5. TRANSACTIONS BETWEEN ITT AND RAYONIER
Rayonier was a wholly owned subsidiary of ITT Corporation (ITT) through February
28, 1994. On February 28, 1994, ITT distributed all of the Common Shares of
Rayonier to the holders of ITT Common and Series N Preferred Stock in a
spin-off. As a result of the spin-off, 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
spin-off and providing for the allocation of tax and certain other liabilities
and obligations arising from periods prior to the spin-off.
ITT rendered advice and assistance to Rayonier in general engineering, 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 $354,
$2,326, and $2,413 in 1994, 1993, and 1992, respectively.
In 1992, Rayonier paid sales commissions of $12,362 to a foreign sales
corporation (FSC) owned by ITT. 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.
Interest expense paid to ITT amounted to $2,092 in 1992.
F-9
<PAGE> 33
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 11.
6. INCOME TAXES
Prior to the spin-off, 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 1993 provision for income
taxes included a charge of $1,583 as a result of the remeasurement of the
Company's deferred tax liability for the increase in the corporate income tax
rate.
U.S. income taxes have not been provided on approximately $13,400 of
undistributed foreign earnings as the Company intends to permanently reinvest
such earnings in expanding foreign operations. Repatriation taxes on such
earnings would not be significant.
Income tax data before the cumulative effect of accounting changes are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Provision (benefit) for income tax
Current
U.S. federal $30,018 $ (18,530) $ 1,199
State and local 2,157 (1,216) 117
Foreign (1,715) 2,569 -
------- --------- --------
30,460 (17,177) 1,316
------- --------- --------
Deferred
U.S. federal 6,288 39,713 (47,795)
State and local 318 3,292 (3,268)
Foreign 972 4,604 (619)
------- --------- --------
7,578 47,609 (51,682)
------- --------- --------
$38,038 $ 30,432 $(50,366)
======= ========= ========
</TABLE>
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) included the following
at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Accelerated depreciation $(126,663) $(122,544)
Reserves for dispositions
and discontinued operations 16,700 23,212
Other (13,293) (16,346)
--------- ---------
$(123,256) $(115,678)
========= =========
</TABLE>
F-10
<PAGE> 34
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:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at U.S. statutory rate $37,825 $29,014 $(44,841)
Benefit of foreign sales corporations (608) (1,500) (3,089)
Effect of remeasurement of deferred tax liability - 1,583 -
State and local taxes, net of federal tax benefit 1,609 1,349 (2,080)
All other, net (788) (14) (356)
------- ------- --------
Provision (benefit) for income tax $38,038 $30,432 $(50,366)
======= ======= ========
</TABLE>
"All other, net" represents tax provision adjustments for permanent differences,
tax credits, foreign tax rates, and other items which are not individually
significant.
7. DISPOSITIONS
In the fourth quarter of 1992, Rayonier provided $180 million, pretax, 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. The Company has substantially completed all programs except certain
environmental remediation programs relating to the Grays Harbor Complex.
In 1986, Rayonier discontinued the Southern Wood Piedmont Company (SWP) treated
wood business. SWP is currently active in monitoring, cleanup, and closure
programs at its nine former manufacturing sites. SWP also is in negotiations
with various state and federal agencies regarding the scope and timing for such
programs. The ultimate cost of corrective action and closure programs is
dependent upon the outcome of such negotiations. The cost may also be affected
by new laws, regulations and administrative interpretations, and changes in
environmental control technology.
Although considerable progress on cleanup has been made, there is still
uncertainty as to the timing and amount of future expenditures for completing
programs at all sites. Rayonier currently estimates that expenditures for
environmental remediation at these sites during the 1995-1996 period will
approximate $21 million, pretax.
As of December 31, 1994, Rayonier had reserves of $58,718 for dispositions and
related environmental obligations. The Company believes that any future changes
in estimates, if necessary, will not materially affect its financial condition
or results of operations.
The reserve for dispositions as of December 31, 1994 and 1993, as presented in
the balance sheet, is net of $11,401 for receivables from insurance claims. Such
receivables represent the Company's claim for reimbursements in connection with
property damage settlements relating to SWP's discontinued wood preserving
operations.
F-11
<PAGE> 35
8. DEBT
Rayonier's debt included the following at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Short-term bank loans $ 84 $180,800
Commercial paper, at interest rates of 5.95% to 6.30% 100,000 -
Variable rate revolving credit agreement - due 1999 67,000 -
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 16,000
Medium-term notes due 1995-1997 at variable interest rates 100,000 -
Variable rate term loan agreement - 100,000
Pollution control and industrial revenue bonds -
due 1995-2015 at interest rates of 4.75% to 8.0% 89,345 90,410
All other 793 931
-------- --------
Total debt 483,222 498,141
Less:
Short-term bank loans 84 180,800
Current maturities 218 1,203
-------- --------
Long-term debt $482,920 $316,138
======== ========
</TABLE>
In April 1994, Rayonier arranged revolving credit agreements with a group of
banks to provide the Company with unsecured credit facilities totaling $300
million. Rayonier subsequently issued $100 million of commercial paper under a
newly implemented commercial paper program backed by the revolving credit
facilities. Rayonier also had borrowings of $67 million outstanding under the
credit facilities as of December 31, 1994, at an average interest rate of 5.92
percent. The proceeds of these borrowings were used to retire short-term bank
loans.
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, which permitted 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. 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 1998 and 1999, were issued under this
program.
On March 29, 1994, the Company filed a shelf registration statement with the
Securities and Exchange Commission on Form S-3 covering $150 million of new debt
securities. The registration statement also served as a post-effective
amendment to the 1992 registration statement, which as amended permits Rayonier
to offer up to $174 million of medium-term notes. On August 18, 1994, Rayonier
issued $100 million of variable rate medium-term notes. The notes mature in
1995, 1996, and 1997 and bear interest at a variable rate of LIBOR plus 1.5 to
3.5 percent. As of December 31, 1994, the interest rates on the variable rate
medium-term notes ranged from 5.96 to 6.63 percent. The proceeds of these
notes were used to retire a variable rate term loan.
As of December 31, 1994, Rayonier had $133 million of available borrowings under
its revolving credit facilities. In addition, through currently effective shelf
registration statements filed with the Securities and Exchange Commission,
Rayonier may offer up to $174 million of new public debt securities.
Required repayment of principal for debt is as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 33,302
1996 33,524
1997 36,229
1998 3,342
1999 184,475
2000-2015 192,350
----------
$ 483,222
==========
</TABLE>
F-12
<PAGE> 36
Variable rate medium term notes totaling $33 million are scheduled to mature in
1995. However, the Company intends and has the ability to refinance such debt
with long-term borrowings. Accordingly, the notes have been classified as
long-term on the December 31, 1994 balance sheet.
The carrying value of Rayonier's debt as of December 31, 1994 exceeds its
estimated fair value by approximately $9,500.
The most restrictive long-term debt covenant in effect at December 31, 1994
provides that the ratio of total debt to EBITDA not exceed four to one. As of
December 31, 1994, the ratio was two to one and $328 million of retained
earnings was unrestricted as to the payment of dividends.
9. SHAREHOLDERS' 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 that
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 spin-off. All
share and per share information has 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 1994, 1993, and 1992
were $21,290, $121,840, and $17,530, 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.
10. INCENTIVE STOCK PLANS
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.
In 1994, prior to the spin-off, 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. In 1994, 350,000 options were
granted under this Plan at exercise prices of $28.88 to $31.00 per share. On
May 20, 1994, the Company granted contingent performance share awards under the
1994 Plan. A total of 88,500 Common Shares was reserved for this purpose, the
issuance of which is dependent upon the Company's Total Shareholder Return, as
defined, compared to a competitive peer group of 12 companies within the forest
products industry, for the period from May 20, 1994 to December 31, 1996. In
1994, the Company recognized compensation expense of $311 related to the 1994
Plan.
F-13
<PAGE> 37
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Outstanding - December 31, 1993 ---
Granted:
Substitute Stock Option Plan 382,434
1994 Plan 350,000
Exercised (9,415)
Canceled (2,000)
-------
Outstanding - December 31, 1994 721,019
=======
Exercisable - December 31, 1994 191,465
=======
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Pension Plans
Rayonier has pension plans covering substantially all of its employees. The
cost of these plans is borne by Rayonier. Certain plans are subject to union
negotiation. Prior to March 1, 1994, Rayonier also participated 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 was no change in the status of the Rayonier benefit
plans for hourly paid employees.
The following table discloses periodic pension cost for Rayonier plans and total
Rayonier pension expense for the three years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Defined Benefit Plans
Service cost $4,152 $1,567 $1,668
Interest cost 5,666 5,573 5,707
Return on assets (4,409) (13,138) (5,325)
Net amortization and deferral (2,576) 6,276 (1,451)
------ ------- ------
Net periodic pension cost of Rayonier plans 2,653 278 599
Other Pension Cost
Rayonier portion of ITT Salaried
Retirement Plan 530 2,581 2,938
Multi-employer plans 335 165 -
Defined contribution plans 1,246 1,294 1,329
------ ------ ------
Total pension expense $4,764 $4,318 $4,866
====== ====== ======
</TABLE>
The following table sets forth the funded status of the Rayonier pension plans
(for hourly paid employees only in 1993), the amounts recognized in the balance
sheets of the Company at December 31, 1994 and 1993 and the principal weighted
average assumptions inherent in their determination:
F-14
<PAGE> 38
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $69,842 $73,017
======= =======
Accumulated benefit obligation $73,569 $76,979
======= =======
Projected benefit obligation $73,993 $76,979
Plan assets at fair value 81,597 83,373
Plan assets in excess of ------- -------
projected benefit obligation 7,604 6,394
Unrecognized net loss 1,676 10,223
Unrecognized past service cost 5,139 4,601
Curtailment effects and termination benefits - (3,550)
Unrecognized net assets at
January 1, 1994 and 1993 (5,695) (6,382)
Prepaid pension asset recognized ------- -------
in the balance sheets $8,724 $11,286
======= =======
Actuarial assumptions:
Discount rate 8 .50% 7.50%
Rate of return on invested assets 9 .75% 9.75%
Salary increase assumption 5 .00% 5.00%
</TABLE>
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 7. 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."
Postretirement Health and Life
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 for employees retiring prior to
March 1, 1994 and, other than for the amount of the expense recorded for the
period, all asset and liability accounts are maintained by ITT. A reserve
balance of $3,924 was transferred from ITT to Rayonier in 1994, to cover the
postretirement benefit obligation for currently active employees as of March 1,
1994. 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.
The following table discloses postretirement health care and life insurance
benefits expense (excluding the cumulative catch-up adjustment in 1992) for the
three years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost $ 618 $ 260 $ 239
Interest cost 1,642 766 721
Net amortization and deferral 448 - -
Net periodic expense of Rayonier plans 2,708 1,026 960
Rayonier portion of expense for -------- -------- --------
ITT Plans for salaried employees 212 1,146 1,653
-------- -------- --------
Total postretirement benefits expense $ 2,920 $ 2,172 $ 2,613
======== ======== ========
</TABLE>
F-15
<PAGE> 39
The following table sets forth the status of the postretirement benefit plans
other than pensions (for hourly paid employees only in 1993), the amounts
recognized in Rayonier's balance sheets at December 31, 1994 and 1993 and the
principal weighted average assumptions inherent in their determination:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation $22,364 $10,623
Unrecognized net loss (7,214) (832)
------- -------
Liability recognized in the balance sheet $15,150 $ 9,791
======= =======
Actuarial assumptions:
Discount rate 8.5% 7.5%
Ultimate health care trend rate 6.0% 6.0%
</TABLE>
The assumed rate of future increases in the per capita cost of health care (the
health care trend rate) was 12.1 percent for 1994, 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 $2,305 and the annual expense by $264. 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.
12. LEASES AND RENTALS
As of December 31, 1994, minimum rental commitments under operating leases were
$4,624, $4,368, $4,012, $1,312, and $1,302 for 1995, 1996, 1997, 1998, and 1999,
respectively . For the remaining years, such commitments amounted to $5,166,
aggregating total minimum lease payments of $20,784.
Operating lease commitments at December 31, 1994, include the 1985 sale and
leaseback of Rayonier's Baxley, Georgia, sawmill assets amounting to
approximately $6.2 million, the lease on Rayonier's executive offices, which was
renegotiated and renewed in 1991, of approximately $8.1 million, and the 1992
lease of New Zealand office space of $1.9 million.
Total rental expense for operating leases amounted to $6,068, $5,587, and $6,485
in 1994, 1993, and 1992, respectively.
13. 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 7. In addition, Rayonier and SWP
are named defendants in seven civil cases pending in the U.S. District Court for
the Southern District of Georgia, arising out of former wood preserving
operations at SWP's plant located in Augusta, Georgia. In general, these cases
seek recovery for property damage or personal injury and, in one case, 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 ($200 million in property damage and $500 million in punitive
damages). 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 by a PRP in four 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
considered a de minimis participant. In the other proceeding, the Company is
not a de minimis participant because of the limited number of PRPs, and the
Company believes that its share of liability for total clean-up costs (currently
estimated to be between $30 million and $39 million) will be less than 9
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.
On November 19, 1994, SWP was named one of six PRPs in the Tennessee Products
Site CERCLA action. SWP was included in the action because of coal tar
derivative deposits found in Chattanooga Creek, which is included as part of the
Tennessee Products Site. Counsel for the Company believe that the site is
geographically divisible and that SWP is not
F-16
<PAGE> 40
responsible for any clean-up costs upstream of its former plant site.
Consequently, it is not yet clear what, if any, remediation will be required of
SWP.
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 expected to
materially impact its consolidated financial position or results of operations.
14. ENVIRONMENTAL MATTERS
Rayonier has become subject to stringent environmental laws and regulations
concerning air emission, water discharges, and waste disposal that, 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, would prevent the Company from meeting certain product
quality specifications for substantially all of its chemical cellulose products,
and will increase the cost of making its remaining pulp products. Sales of
chemical cellulose products accounted for approximately 29 percent of 1994
sales. While these regulations would have a material adverse effect on
operations if not changed, it will not be possible for Rayonier to determine the
nature or costs of such effect until the regulations are issued in final form.
Over the past four 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 has developed 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.
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 (also recently listed as a threatened species). 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.
Rayonier 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 timber available for harvest
15. SEGMENT INFORMATION
Rayonier operates in two major industry segments. Timber and Wood Products
includes the management of timberlands and the trading, merchandising, and
manufacture of logs, timber, and wood products; Specialty Pulp Products accounts
for the production and sale of high-value-added specialty pulps.
Please refer to Item 6 and Item 7, where information regarding business segment
sales, operating income, and business conditions is provided. Additional
segment information for the three years ended December 31 was as follows
(millions of dollars):
<TABLE>
<CAPTION>
Depreciation,
Gross Plant Additions Depletion & Amortization Identifiable Assets
--------------------- ------------------------ ---------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Timber and
Wood Products $ 42 $ 30 $ 23 $ 25 $ 21 $ 17 $ 787 $ 649 $ 591
Specialty Pulp Products 58 41 71 64 56 54 685 794 822
Corporate and other 1 1 1 1 1 1 37 31 51
Dispositions - - 2 - - 6 2 1 12
---- ---- ---- ----- ---- ---- ------ ------ ------
Total $101 $ 72 $ 97 $ 90 $ 78 $ 78 $1,511 $1,475 $1,476
==== ==== ==== ===== ==== ==== ====== ====== ======
</TABLE>
F-17
<PAGE> 41
Geographical Operating Information - All Segments (millions of dollars)
<TABLE>
<CAPTION>
Sales Operating Income (Loss) Identifiable Assets
----------------------- ----------------------- -----------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $945 $839 $944 $160 $103 $ (89) $1,278 $1,248 $1,271
New Zealand 98 93 30 12 27 5 222 226 205
All other 26 4 - (3) (3) (3) 11 1 -
------ ---- ---- ---- ---- ------- ------ ------ ------
Total $1,069 $936 $974 $169 $127 $ (87) $1,511 $1,475 $1,476
====== ==== ==== ==== ==== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
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 1994 1993 1992
- ---------- ----------- ---- ---- ----
<S> <C> <C> <C> <C>
United States Asia Pacific $266 $282 $303
Western Europe 108 109 146
All other 68 62 63
---- ---- ----
442 453 512
---- ---- ----
New Zealand Asia Pacific 54 67 19
Western Europe - 4 -
All other 7 2 -
---- ---- ----
61 73 19
---- ---- ----
All other 20 4 -
---- ---- ----
Total $523 $530 $531
==== ==== ====
</TABLE>
16. QUARTERLY RESULTS FOR 1994 AND 1993 (UNAUDITED)
(thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------- Total
March 31 June 30 Sept. 30 Dec. 31 Year
-------- ------- -------- ------- -----
1994
----
<S> <C> <C> <C> <C> <C>
Sales $ 257,727 $ 250,770 $ 286,006 $274,991 $1,069,494
========= ========= ========= ======== ==========
Operating income $ 51,172 $ 35,231 $ 40,075 $ 42,869 $ 169,347
========= ========= ========= ======== ==========
Net income $ 21,719 $ 14,114 $ 16,405 $ 17,794 $ 70,032
========= ========= ========= ======== ==========
Earnings per Common Share $.73 $.48 $.55 $.60 $2.36
==== ==== ==== ==== =====
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
==== ==== ==== ==== =====
</TABLE>
F-18
<PAGE> 42
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 KENNETH P. JANETTE
-----------------------------------------
Kenneth P. Janette
March 23, 1995 Vice President and 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board,
- ------------------------------------ President, Chief Executive
Ronald M. Gross Officer and Director
(Principal Executive Officer)
GERALD J. POLLACK Senior Vice President and March 23, 1995
- ------------------------------------ Chief Financial Officer
Gerald J. Pollack
(Principal Financial Officer)
KENNETH P. JANETTE Vice President and March 23, 1995
- ------------------------------------ Corporate Controller
Kenneth P. Janette
(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 23, 1995
---------------------------------
Attorney-In-Fact
</TABLE>
A
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
2.1 Distribution agreement between Incorporated by reference to Exhibit 2.1 to
ITT Corporation and Rayonier Inc. the Registrant's December 31, 1993 Form 10-K.
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 to the
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 Incorporated by reference to Exhibit 4.1 to
between the Company and Bankers the Registrant's December 31, 1993 Form 10-K.
Trust Company, as Trustee, with respect
to certain debt securities of the Company.
4.2 First Supplemental Indenture dated as of Incorporated by reference to Exhibit 4.2 to
December 13, 1993 the Registrant's December 31, 1993 Form 10-K.
4.3 $100 million 364 day Revolving Credit Incorporated by reference to Exhibit 4.1 to
Agreement dated as of April 21, 1994 among the Registrant's March 31, 1994 Form 10-Q.
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
4.4 $200 million Revolving Credit Agreement Incorporated by reference to Exhibit 4.2 to
dated as of April 21, 1994 among the Registrant's March 31, 1994 Form 10-Q.
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
4.5 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 Administration Services Agreement Incorporated by reference to Exhibit 10.1 to
between ITT Corporation and Rayonier Inc. the Registrant's December 31, 1993 Form 10-K.
10.2 Employee Benefits Agreement between Incorporated by reference to Exhibit 10.2 to
ITT Corporation and Rayonier Inc. the Registrant's December 31, 1993 Form 10-K.
</TABLE>
B
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
10.3 Tax Allocation Agreement between Incorporated by reference to Exhibit 10.3 to
ITT Corporation and Rayonier Inc. the Registrant's December 31, 1993 Form 10-K.
10.4 Canadian Assets Purchase Agreement Incorporated by reference to Exhibit 10.4 to
between ITT Corporation and the Registrant's December 31, 1993 Form 10-K.
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 Severance 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).
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 Incorporated by reference to Exhibit 10.9 to
between Rayonier Inc. and its the Registrant's December 31, 1993 Form 10-K.
Directors and Officers
10.10 Rayonier Inc. Excess Benefit Plan Incorporated by reference to Exhibit 10.10 to
the Registrant's December 31, 1993 Form 10-K.
10.11 Rayonier Inc. Excess Savings Plan Incorporated by reference to Exhibit 10.11 to
the Registrant's December 31, 1993 Form 10-K.
10.12 Agreement for Transfer of Crown Forestry Incorporated by reference to Exhibit to the
Licenses among Her Majesty, the Queen, 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 Form of Indemnification Agreement Incorporated by reference to Exhibit 10.1 to the
between Registrant and directors of Registrant's March 31, 1994 Form 10-Q.
Rayonier Forest Resources Company,
its wholly owned subsidiary which is
Managing General Partner of Rayonier
Timberlands, L.P., who are not also
directors of Registrant
10.14 Description of Rayonier 1994 Incentive Stock Incorporated by reference to Exhibit 10.1 to the
plan Contingent Performance Share Awards Registrant's June 30, 1994 Form 10-Q
10.15 Split-Dollar Life Insurance Agreement dated Incorporated by reference to Exhibit 10.2 to the
June 22, 1994 between Rayonier Inc. and Registrant's June 30, 1994 Form 10-Q
Ronald M. Gross
</TABLE>
C
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
10.16 Deferred Compensation/Supplemental Incorporated by reference to Exhibit 10.3 to the
Retirement Agreement dated June 28, 1994 Registrant's June 30, 1994 Form 10-Q
between Rayonier Inc. and Ronald M. Gross
10.17 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 Incorporated by reference to Exhibit 21 to
the Registrant's December 31, 1993 Form 10-K.
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
27 Financial data schedule Filed herewith
28 Information from reports furnished to Not applicable
state insurance regulatory authorities
99 Additional exhibits None
</TABLE>
D
<PAGE> 1
EXHIBIT 12
RAYONIER INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited, thousands of dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Income (Loss) from Continuing Operations
before Cumulative Effect of
Accounting Changes $ 70,032 $ 52,466 $ (81,520) $ 44,337 $109,274
Add (Deduct):
Undistributed Equity (Income) Loss - - 3,257 1,587 1,536
Income Tax 38,038 30,432 (50,366) 19,557 48,121
Minority Interest 32,419 22,508 22,702 19,884 21,451
Amortization of Capitalized Interest 1,644 1,411 1,486 1,134 1,061
-------- -------- --------- -------- --------
142,133 106,817 (104,441) 86,499 181,443
Adjustments to Earnings for Fixed Charges:
Interest and Other Financial Charges 31,065 23,368 21,327 13,942 12,394
Interest Factor Attributable to Rentals 1,474 1,760 1,870 1,902 2,184
-------- -------- --------- -------- --------
32,539 25,128 23,197 15,844 14,578
-------- -------- --------- -------- --------
Earnings as Adjusted $174,672 $131,945 $ (81,244) $102,343 $196,021
======== ======== ========= ======== ========
Fixed Charges:
Fixed Charges above $ 32,539 $ 25,128 $ 23,197 $ 15,844 $ 14,578
Capitalized Interest 194 - 893 3,214 460
-------- -------- --------- -------- --------
Total Fixed Charges 32,733 25,128 24,090 19,058 15,038
-------- -------- --------- -------- --------
Dividends on Preferred Stock (Pre-tax
income basis) - - 714 - -
-------- -------- --------- -------- --------
Total Fixed Charges and Preferred
Dividend Requirement $ 32,733 $ 25,128 $ 24,804 $ 19,058 $ 15,038
======== ======== ========= ======== ========
Ratio of Earnings as Adjusted to Total Fixed
Charges and Preferred Dividend Requirement 5.34 5.25 * 5.37 13.04
======== ======== ========= ======== ========
Effective Tax Rate 35% 37% (38%) 31% 31%
======== ======== ========= ======== ========
</TABLE>
* Earnings are inadequate to cover total fixed charges and preferred dividend
requirement by $106,048.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rayonier Inc.:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-3 (File Nos. 33-51972 and 33-52855).
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
March 23, 1995
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints GERALD J. POLLACK and JOHN B. CANNING his or her true
and lawful attorneys-in-fact, with full power in each to act without the other
and with full power of substitution and resubstitution to sign in the name of
such person and in each of his or her offices and capacities in Rayonier Inc.
(the "Company") the Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 of the Company, and to file the same, and any amendments
thereto, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission.
Dated: March 17, 1995
<TABLE>
<S> <C>
RONALD M. GROSS Chairman of the Board,
- ----------------------------- President, Chief Executive
Ronald M. Gross Officer and Director
WILLIAM J. ALLEY Director
- -----------------------------
William J. Alley
RAND V. ARASKOG Director
- -----------------------------
Rand V. Araskog
DONALD W. GRIFFEN Director
- -----------------------------
Donald W. Griffin
PAUL G. KIRK JR. Director
- -----------------------------
Paul G. Kirk, Jr.
KATHERINE D. ORTEGA Director
- -----------------------------
Katherine D. Ortega
BURNELL R. ROBERTS Director
- -----------------------------
Burnell R. Roberts
GORDON I. ULMER Director
- -----------------------------
Gordon I. Ulmer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 9,178
<SECURITIES> 0
<RECEIVABLES> 108,250
<ALLOWANCES> 4,358
<INVENTORY> 119,739
<CURRENT-ASSETS> 297,221
<PP&E> 1,202,484
<DEPRECIATION> 530,857
<TOTAL-ASSETS> 1,511,175
<CURRENT-LIABILITIES> 178,880
<BONDS> 482,920
<COMMON> 157,581
0
0
<OTHER-SE> 497,620
<TOTAL-LIABILITY-AND-EQUITY> 1,511,175
<SALES> 1,069,494
<TOTAL-REVENUES> 1,069,494
<CGS> 877,439
<TOTAL-COSTS> 877,439
<OTHER-EXPENSES> 52,920
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,065
<INCOME-PRETAX> 108,070
<INCOME-TAX> 38,038
<INCOME-CONTINUING> 70,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,032
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.36
</TABLE>
