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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-6780
RAYONIER INC.
Incorporated in the State of North Carolina
I.R.S. Employer Identification No. 13-2607329
50 NORTH LAURA STREET,
JACKSONVILLE, FL 32202
(Principal Executive Office)
Telephone Number: (904) 357-9100
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 2004
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
statements 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 1, 2002, was approximately
$1,388,000,000.
As of March 1, 2002, there were outstanding 27,547,521 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 16, 2002, is incorporated by reference
in Part III of the Form 10-K.
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TABLE OF CONTENTS
Item Page
---- ----
PART I
1. Business............................................................................. 1
2. Properties........................................................................... 8
3. Legal Proceedings.................................................................... 8
4. Submission of Matters to a Vote of Security Holders.................................. 8
* Executive Officers of Rayonier....................................................... 9
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 16
8. Financial Statements and Supplementary Data.......................................... 26
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 27
PART III
10. Directors and Executive Officers of the Registrant................................... 27
11. Executive Compensation............................................................... 27
12. Security Ownership of Certain Beneficial Owners and Management....................... 27
13. Certain Relationships and Related Transactions....................................... 27
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................... 28
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* Included pursuant to Instruction 3 to Item 401 (b) of Regulation S-K
i
INDEX TO FINANCIAL STATEMENTS
Page
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Report of Management.......................................................................... F-1
Report of Independent Certified Public Accountants............................................ F-1
Statements of Consolidated Income for the Three Years Ended December 31, 2001................. F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000.................................. F-3 to F-4
Statements of Consolidated Cash Flows for the Three Years Ended December 31, 2001............. F-5
Notes to Consolidated Financial Statements.................................................... F-6 to F-24
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts................................................ F-25
All other financial statement schedules have been omitted because they are not applicable, the
required matter is not present, or the required information has been otherwise supplied in the
financial statements or the notes thereto.
Signatures.................................................................................... A
Exhibit Index................................................................................. B to E
ii
PART I
Item 1. BUSINESS
General
Rayonier Inc. (Rayonier or the Company), including its subsidiaries, is a
leading international forest products company primarily engaged in the
production and sale of high value-added performance cellulose fibers and
activities associated with timber and land management, including the sale of
timber and land. Rayonier owns and operates two performance fibers mills in the
United States and owns, leases or controls approximately 2.3 million acres of
timberland located primarily in the United States and New Zealand. In addition,
the Company engages in the trading, merchandising and manufacturing of logs and
wood products, and has lumber manufacturing facilities in the United States and
a medium-density fiberboard plant in New Zealand. In November 2000, the Company
announced that it would focus its corporate strategy on two core business
segments--Performance Fibers and Timber and Land (previously Timberland
Management).
Rayonier traces its origins to the Rainier Pulp & Paper Company founded in
Shelton, WA, in 1926. In 1937, it became "Rayonier Incorporated," a public
company traded on the New York Stock Exchange (NYSE), until 1968, when it
became a wholly-owned subsidiary of ITT Corporation, now known as ITT
Industries, Inc. (ITT). On February 28, 1994, Rayonier again became an
independent public company when ITT distributed all of Rayonier's Common Shares
to ITT stockholders. Rayonier shares are publicly traded on the NYSE under the
symbol RYN. Rayonier is a North Carolina corporation with its executive offices
located at 50 North Laura Street, Jacksonville, FL, 32202. Its telephone number
is (904) 357-9100.
Rayonier operates in three reportable business segments as defined by
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures About
Segments of an Enterprise and Related Information: Performance Fibers, Timber
and Land, and Wood Products and Trading. Performance Fibers includes two
business units, Cellulose Specialties and Absorbent Materials. The Timber and
Land segment includes two business units, Timber and Land. For information 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 3 of the Notes to Consolidated Financial
Statements--Segment and Geographical Information.
Sales
Rayonier's sales (as reclassified) for the three years ended December 31,
2001, were as follows (in millions):
Year Ended December 31
----------------------
2001 2000 1999
------ ------ ------
Performance Fibers
Cellulose Specialties. $ 369 $ 348 $ 331
Absorbent Materials... 178 228 160
------ ------ ------
Total Performance Fibers. 547 576 491
------ ------ ------
Timber and Land
Timber................ 197 210 156
Land.................. 84 70 21
------ ------ ------
Total Timber and Land.... 281 280 177
------ ------ ------
Wood Products and Trading 358 401 462
Intersegment Eliminations (21) (30) (22)
------ ------ ------
Total sales........... $1,165 $1,227 $1,108
====== ====== ======
Rayonier has customers in 56 countries and 44 percent of the Company's 2001
sales of $1.2 billion were made to customers outside the United States.
1
Performance Fibers
Rayonier is a leading manufacturer of high performance cellulose fibers. The
Company owns and operates fiber production facilities in Jesup, GA, and
Fernandina Beach, FL, with a combined annual capacity of approximately 720,000
metric tons. These facilities are able to manufacture more than 25 different
grades of performance fibers to meet customers' needs. The Jesup facility can
produce approximately 570,000 metric tons of performance fibers, or 79 percent
of Rayonier's total capacity. The Fernandina Beach facility can produce
approximately 150,000 metric tons of Performance Fibers, or 21 percent of
Rayonier's total capacity.
Rayonier produces and sells these performance fibers primarily to meet
specific customer orders and specifications throughout the world. The customers
then produce a wide variety of consumer and industrial products. Approximately
two-thirds of Rayonier's Performance Fibers sales are exported to customers,
primarily in Asia, Europe and Latin America. Approximately 85 percent of
Performance Fibers sales are made directly by Rayonier sales personnel, with
the remainder made through independent sales agents primarily to export
locations.
This segment includes two business units - Cellulose Specialties and
Absorbent Materials.
Cellulose Specialties--Rayonier is one of the world's leading producers of
specialty cellulose products; most of which are used in dissolving chemical
applications that require a highly purified form of cellulose. Cellulose
Specialties products are used in a wide variety of end uses such as: acetate
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, explosives
and LCD screens. In addition, Cellulose Specialties include high value
specialty paper applications used for decorative laminates for counter tops,
automotive air and oil filters, shoe innersoles, battery separators, circuit
boards and filter media for the food industry. Rayonier concentrates on and is
a leading producer of the most highly valued, technologically demanding forms
of Cellulose Specialty products, such as cellulose acetate and high-purity
cellulose ethers.
Absorbent Materials--Rayonier is a supplier of Performance Fibers for
absorbent hygiene products. These fibers are typically referred to as fluff
fibers and are used as an absorbent medium in products such as disposable baby
diapers, feminine hygiene products, incontinence pads, convalescent bed pads,
industrial towels and wipes and non-woven fabrics.
The Absorbent Materials product line also includes paper applications that
are made as a secondary product to fluff fibers to help match inconsistencies
in demand to capacity. These paper applications represent approximately 5
percent of total Performance Fibers production. These fibers are used in the
manufacture of bond, book and printing paper.
Rayonier also produces and markets an engineered absorbent core material
that goes into thin super-absorbent sanitary napkins and diaper products. A new
12,000 ton per year manufacturing facility in Jesup, GA, was completed in 2001
to bring manufacturing in-house and aid in the continued development of these
products. Although this is a developing business that is currently a very small
percentage of the product line, it is expected to increase its contribution to
segment results.
Timber and Land
Rayonier manages timberlands, sells standing timber to third parties and
sells land for both future harvesting and real estate development. This segment
includes two business units: Timber and Land. In the U.S., the Company manages
the business segment through Rayonier Timberlands Operating Company (RTOC), a
wholly-owned limited partnership.
2
Timber--Rayonier owns, leases or controls approximately 2.3 million acres of
timberlands as of December 31, 2001, as follows (in thousands of acres):
Long-Term
Total Leased
Region Acres % Fee-Owned Acres Acres
------ ----- --- --------------- ---------
Southeast U.S.... 1,682 74 1,430 252
Northwest U.S.... 378 17 378 --
New Zealand...... 207 9 78 129
----- --- ----- ---
Total......... 2,267 100 1,886 381
===== === ===== ===
Excluded above are 103,000 acres managed by Rayonier in Australia, 7,000
acres managed in New Zealand and approximately 67,000 acres of non-productive,
non-harvestable or native vegetation land in New Zealand.
The Company's Southeastern U.S. timberlands consist of approximately 1.7
million acres located primarily in Georgia, Florida and Alabama, and their
proximity to pulp, paper and lumber mills results in significant competition
for the purchase of the timber. Approximately 40-50 percent of the timber
harvest represents high-value wood sold primarily to plywood and lumber mills.
The balance is pulpwood destined for pulp and paper mills. Softwoods are the
predominant species on the Southeastern U. S. timberlands and include loblolly
and slash pine, while hardwoods, the minor species, include red oak, sweet gum,
black gum, red maple, cypress and green ash. On October 25, 1999, Rayonier
acquired approximately 968,000 owned and leased acres of timberland in Georgia,
Florida and Alabama in a business combination accounted for by the purchase
method of accounting.
Through advanced silvicultural practices, the Company has increased volume
per acre of timber available for harvest from its Southeastern U. S.
timberlands. This is a primary factor behind an increasing pine harvest trend
over the past fifteen years that has, on average, increased approximately
35,000 tons each year. These practices are also being utilized by the Company
in the management of the 968,000 acres of timberland acquired in 1999, with an
increasing trend of similar magnitude anticipated.
Northwestern U.S. timberlands consist of approximately 378,000 acres
primarily on the Olympic Peninsula in Western Washington State. All are owned
in fee and consist almost entirely of second growth trees. These timberlands
are primarily softwood stands, with approximately 60-70 percent hemlock and the
remainder Douglas fir, Western red cedar and spruce. Hardwood timber stands
consist principally of alder and maple.
The Company's New Zealand forest assets consist of 78,000 acres of fee-owned
timberland, plus Crown Forest Licenses that provide the right to grow and
harvest timber on approximately 129,000 acres of government owned timberland
for a minimum period of 35 years. Approximately 80-90 percent of these
timberlands consist of radiata pine, well suited for high-quality lumber and
panel products. The balance is Douglas fir and other species. Timber is grown
and sold for both domestic New Zealand uses and for export, primarily to the
Pacific Rim markets. In addition, the Company manages timberlands for others in
New Zealand and Australia.
Rayonier manages timberlands, endeavoring to scientifically develop forests
to their maximum economic value. The average rotation age for timber from the
Southeastern U.S. (primarily Southern pine) is 21 years. The average rotation
age for timber destined for domestic and export markets from the Northwestern
U.S. (primarily hemlock and Douglas fir) is 45 to 50 years. The average
rotation age for timber grown in New Zealand (primarily radiata pine) is
approximately 25 to 28 years.
Rayonier sells timber through a public auction process, predominantly to
third parties. By requiring the Company's other operating units to
competitively bid for their timber and wood requirements, the Company believes
it can maximize the true economic return on its investments. In 2001,
approximately 89 percent of the Company's standing timber sales were made to
third parties. Rayonier's third party timber sales are made on either a
lump-sum or pay-as-cut basis. On a lump-sum basis, a minimum 15% initial
payment is required, title and risk of loss are transferred and installment
payments are made in advance for the volume to be cut. On a pay-
3
as-cut basis, a 10% deposit and 10% performance bond are required. Payments are
made as the timber is cut. In the Northwestern U.S., the majority of sales are
lump sum sales due to large, financially stable customers and market practices.
In the Southeastern U.S., where the majority of customers are smaller,
family-owned businesses, the majority of sales are pay-as-cut sales.
The Company manages its timberlands in conformity with best forest industry
practices. A key to success is the extensive application of Rayonier's
silvicultural expertise to species selection for plantations, soil preparation,
thinning of timber stands, pruning of selected species, fertilization and
careful timing of the harvest, all designed to maximize value, while responding
to environmental needs. The following table sets forth timberland acres (in
thousands) as of December 31, 2001, by region and by timber classification.
Excluded are 7,000 acres managed in New Zealand, 103,000 acres managed by
Rayonier in Australia, and approximately 67,000 acres of unproductive or native
vegetation land in New Zealand that is not harvestable.
Softwood Hardwood
Region Plantation Lands Non-Forest Total
------ ---------- -------- ---------- -----
Southeast U.S. 1,131 516 35 1,682
Northwest U.S. 310 17 51 378
New Zealand... 186 21 -- 207
----- --- -- -----
Total...... 1,627 554 86 2,267
===== === == =====
Merchantable timber inventory is an estimate of the amount of standing
timber at the earliest age that it could be economically harvested. Estimates
are based on an inventory system that continually involves periodic statistical
sampling of the timberlands. Adjustments are made on the basis of growth
estimates, harvest information and market conditions.
The following table sets forth the estimated volumes of merchantable timber
by location and type, as of December 31, 2001:
Equivalent total,
in thousands of
Region Softwood Hardwood Total cubic meters %
------ -------- -------- ------ ----------------- ---
Southeast U.S., in thousands of short green tons 22,911 20,053 42,964 31,448 51
Northwest U.S., in millions of board feet....... 1,746 222 1,968 15,747 25
New Zealand, in thousands of cubic meters....... 13,875 1,045 14,920 14,920 24
------ ---
62,115 100
====== ===
Land--Rayonier invests in timberlands seeking to maximize its returns from a
full cycle of ownership. The end cycle includes selling portions of its land
base to capture the appreciated value of the underlying asset. This program
includes selling general timberland for others to manage and harvest, and
selling higher and better use (HBU) real estate properties more valuable for
commercial development, residential development and conservation purposes.
4
In November 2000, the Company announced that it would routinely sell 2
percent to 4 percent of its land base each year in order to capture its
appreciated value on a more regular basis. Land will be replaced
opportunistically when it can be acquired at a discount to long-term market
trends. Quarterly land sales for the three years ended December 31, 2001, are
summarized in the following table:
Quarter Ended
----------------------------------------- Total
March 31 June 30 September 30 December 31 Year
-------- ------- ------------ -----------
(Thousands of dollars, except acres sold)
2001
Land Sales...... $ 1,234 $62,223 $7,404 $12,996 $83,857
Operating Income 844 34,343 5,571 10,760 51,518
Acres Sold...... 415 57,858 2,678 6,466 67,417
2000
Land Sales...... $53,079 $ 3,859 $4,925 $ 8,338 $70,201
Operating Income 26,017 3,091 3,876 5,232 38,216
Acres Sold...... 57,823 1,334 1,339 2,725 63,221
1999
Land Sales...... $ 2,007 $ 1,560 $5,311 $11,987 $20,865
Operating Income 1,343 916 4,175 8,890 15,324
Acres Sold...... 333 262 2,478 4,057 7,130
Sales associated with transactions in which title to the land was not
transferred (for example, relinquishing lease rights) were $4,823, $393, and
$104, in 2001, 2000, and 1999, respectively.
Wood Products and Trading
The Wood Products and Trading business segment manufactures and sells
dimension and specialty lumber and medium-density-fiberboard (MDF), purchases
and harvests timber primarily from third parties, and sells logs and wood panel
products.
Rayonier operates three lumber manufacturing facilities in the U.S. that
produce Southern pine and specialty lumber for residential construction and
industrial uses. The mills located at Baxley, Eatonton, and Swainsboro, GA,
have a combined annual capacity of approximately 360 million board feet of
lumber, while also producing approximately 715,000 tons of wood chips for
pulping. Lumber sales are primarily to customers in the Southeastern U. S. and
Caribbean markets. Most of the lumber is sold by Rayonier sales personnel,
however sales to certain export locations are made through independent agents.
Substantially all of the wood chip production is sold (at spot market prices)
to Rayonier's Jesup, GA, performance fibers facility, accounting for
approximately 19 percent of that facility's 2001 total wood consumption.
The Company operates a 160,000 cubic meter per year facility in New Zealand
that produces premium grade MDF. The Company's MDF is marketed worldwide by
Rayonier personnel, independent sales agents and a domestic distributor.
Rayonier is a leading exporter and trader of softwood logs, lumber and wood
panel products. Rayonier purchases and harvests timber and purchases lumber and
wood panel products for sale in domestic and export markets. Timber is
purchased from both internal and external sources. In 2001, approximately 64
percent of New Zealand log trading sales volume was sourced from Company
timberlands. In North America, approximately 31 percent of log trading sales
volume was sourced directly from Rayonier's timberlands. Logs were also
purchased from independent local dealers who had, in some cases, purchased
cutting rights to Company timberlands.
5
Dispositions and Discontinued Operations
Dispositions and discontinued operations include Rayonier's Port Angeles,
WA, performance fibers mill, that was closed on February 28, 1997; its interest
in the Grays Harbor, WA, performance fibers and paper complex, which was closed
in 1992; its wholly-owned subsidiary, Southern Wood Piedmont Company (SWP),
which ceased operations in 1986; its Eastern Research Division, which ceased
operations in 1981; and other miscellaneous assets held for disposition. See
Note 12 of the Notes to Consolidated Financial Statements--Dispositions and
Discontinued Operations.
Foreign Sales and Operations
Rayonier's sales for the three years ended December 31, 2001, by
geographical destination are as follows (millions):
Sales by Destination
--------------------------------
2001 % 2000 % 1999 %
------ --- ------ --- ------ ---
United States $ 656 56 $ 662 54 $ 590 54
Europe....... 126 11 107 9 101 9
Japan........ 116 10 135 11 135 12
China........ 81 7 86 7 56 5
Other Asia... 97 8 124 10 125 11
Latin America 45 4 66 5 66 6
Canada....... 34 3 34 3 21 2
All other.... 10 1 13 1 14 1
------ --- ------ --- ------ ---
Total..... $1,165 100 $1,227 100 $1,108 100
====== === ====== === ====== ===
Overseas assets, primarily in New Zealand, were approximately 15 percent of
total assets at the end of 2001 and Rayonier's sales from non-U.S. operations
were approximately 13 percent of total sales. See Note 3 of the Notes to
Consolidated Financial Statements--Segment and Geographical Information.
Patents
Rayonier has a number of patents and pending patent applications that relate
to its proprietary products and processes. The Company intends to take such
steps as are necessary to protect its patents and file applications for future
inventions that are deemed important to its business operations.
Competition and Customers
Performance fibers are marketed worldwide against strong competition from
domestic and foreign producers. Rayonier's major competitors include
International Paper, Weyerhaeuser, Georgia-Pacific and Buckeye Technologies.
Several foreign, low-cost manufacturers of lower-grade pulps are attempting to
produce high-grade acetate pulps. If successful, supply of these performance
fibers grades may increase in the future, and with the overall demand growth
being fairly modest, cellulose specialty margins may be affected. On the other
hand, the Company is developing new products and improving existing products
and processes that could add additional value to the Performance Fibers
business. Pricing, product performance and technical service are principal
methods of competition.
The Company's U.S. timberlands are located in two major timber growing
regions (the Southeast and the Northwest), where timber markets are fragmented
and very competitive. In the Northwest U.S., John Hancock Mutual Life Insurance
Co. and Washington State (Department of Natural Resources) are significant
competitors. In both the Northwest U.S. and Southeast U.S., smaller companies
and private landowners compete with the Company. Price is the principal method
of competition.
6
Export log markets are highly competitive. Logs are available from several
countries and numerous suppliers. In New Zealand, major competitors include
Carter Holt Harvey and Fletcher Challenge. In North America, Weyerhaeuser, Sea
Alaska, and Timber West (Canada) are principal competitors. Price and customer
relationships are important methods of competition.
Rayonier's lumber and MDF wood products compete with alternative
construction materials and the products of numerous companies, some of which
are larger and have greater resources than Rayonier. Due to continual
improvement in operations and a shift in focus from weak Australian and
oversupplied European markets to the U.S., Japan and China, the MDF facility's
performance, both operationally and financially, has made steady gains in
2001.
Environmental Matters
See "Environmental Regulation" in Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations and Note 17 of the
Notes to Consolidated Financial Statements--Contingencies.
Raw Materials
In the U.S., timber availability continues to be restricted by legislation,
litigation and pressure from various preservationist groups. Availability is
also subject to cyclical swings in wood products and pulp and paper markets.
Rayonier has pursued, and is continuing to pursue, reductions in usage and
costs of key raw materials, supplies and contract services at its Performance
Fibers and lumber mills. Management foresees no significant constraints from
pricing or availability of its key raw materials.
Research and Development
Rayonier believes it maintains one of the preeminent Performance Fibers
staff and research facilities in the forest products industry. Research and
development efforts are directed primarily at the development of new and
improved cellulose fiber grades and related products, improved manufacturing
efficiency, reduction of energy needs, product quality and development of
improved environmental controls. The research center is adjacent to the
Performance Fibers mill in Jesup, GA.
Research activities related to timber operations include genetic tree
improvement programs as well as applied silviculture programs to identify
management practices that improve financial returns from timber assets.
Research and development annual expenditures were approximately $9 million
in 2001, and $10 million for 2000 and 1999.
Employee Relations
Rayonier currently employs approximately 2,300 people. Of this number,
approximately 2,090 are employees in the United States, of whom 46 percent are
covered by labor contracts. Most hourly employees are represented by one of
several labor unions. Labor relations are maintained in a normal and
satisfactory manner.
In August 2001 and December 2001, Jesup's labor agreements covering
approximately 700 employees, were extended through June 30, 2008. In April
2001, Fernandina's labor contracts covering approximately 250 employees, were
extended through April 30, 2006.
Rayonier has in effect various benefit plans for its employees and retirees,
providing certain group medical, dental and life insurance coverage, pension
and other benefits. The cost of these plans is borne primarily by Rayonier.
7
Item 2. PROPERTIES
Rayonier owns, leases or controls approximately 2.1 million acres of
timberlands in the United States. Rayonier manages these properties and sells
timber to other Company operating units, as well as unaffiliated parties.
Rayonier's New Zealand subsidiary owns or manages the forest assets on
approximately 0.3 million acres of plantation forests in New Zealand and
Australia. Rayonier and its wholly-owned subsidiaries own or lease various
other properties used in their operations. These include two Performance Fibers
mills, three lumber manufacturing facilities, an MDF plant, a research facility
and Rayonier's corporate headquarters. These facilities are located in the
Northwestern and Southeastern portions of the U. S. and in New Zealand.
Additional information on mill volumes is disclosed in Item 6--Selected
Financial Data.
Item 3. LEGAL PROCEEDINGS
Rayonier is engaged in various legal actions, including certain
environmental proceedings that are discussed more fully in Note 17 of the Notes
to Consolidated Financial Statements--Contingencies.
On February 22, 2001, the Company received a notice of proposed disallowance
from the Internal Revenue Service for $28.3 million in tax deficiency and
related penalties for an issue in dispute regarding the Company's 1996 and 1997
Federal tax returns. The Company has been discussing this issue with the IRS
since 1999. As a result, the notice of proposed disallowance was not
unanticipated and the Company has provided adequate book reserves. The Company
has contested this matter and believes that the ultimate outcome will not have
a material adverse impact on the Company's financial position, liquidity, 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 2001.
8
EXECUTIVE OFFICERS OF RAYONIER
W. Lee Nutter, 58, Chairman, President and Chief Executive Officer--Mr.
Nutter joined Rayonier in 1967 in the Northwest Forest Operations and was named
Vice President, Timber and Wood in 1984, Vice President, Forest Products in
1985, Senior Vice President, Operations in 1986 and Executive Vice President in
1987. He was elected President and Chief Operating Officer and a director of
Rayonier in July 1996 and to his current position effective January 1999. Mr.
Nutter serves on the Board of Directors and the Executive Committee of the
American Forest and Paper Association and on the Board of Directors of the
National Council for Air and Stream Improvement. He holds a B.A. degree in
Business Administration from the University of Washington and graduated from
the Harvard University Graduate School of Business Administration Advanced
Management Program.
William S. Berry, 60, Executive Vice President, Forest Resources and Wood
Products--Mr. Berry joined Rayonier in 1980 as Director of Wood Products
Management. He was elected Vice President and Director of Forest Products
Management in 1981, Senior Vice President, Land and Forest Resources in 1986,
Senior Vice President, Forest Resources and Corporate Development in 1994, and
to his current position effective October 1996. He serves on the External
Advisory Board of the Warnell School of Forest Resources, University of Georgia
and is chairman of the National Tree Farm Operating Committee. He holds a B.S.
degree in Forestry from the University of California at Berkeley and an M.S.
degree in Forestry from the University of Michigan. Mr. Berry has announced his
retirement from Rayonier effective March 31, 2002.
Gerald J. Pollack, 60, Senior Vice President and Chief Financial
Officer--Mr. Pollack joined Rayonier in 1982 as Vice President and Controller.
He was elected to the position of Vice President and Chief Financial Officer in
1986 and to his current position in May 1992. He is a member of the New York
Advisory Board of FM Global Insurance Co., the Board of Directors and Finance
Committee of the Jacksonville Symphony Orchestra, and the Board of Directors of
the Northern Florida Chapter of Financial Executives International. Mr. Pollack
has a B.S. degree in Physics from Rensselaer Polytechnic Institute and an
M.B.A. degree in Accounting and Finance from the Amos Tuck School at Dartmouth.
John P. O'Grady, 56, Senior Vice President, Administration--Mr. O'Grady
joined Rayonier in 1991 as Vice President, Administration. He was elected
Senior Vice President, Human Resources in January 1994 and to his current
position effective January 1996. From December 1975 to July 1991, he held a
number of human resources positions at ITT Corporation and its subsidiaries.
Mr. O'Grady serves on the American Forest and Paper Association's employee and
labor relations committee, as a Management Trustee for the Paper,
Allied-Industrial, Chemical and Energy Workers International Union Health and
Welfare Trust, as a member of the Board of Trustees for the Jacksonville museum
of Science and History and as a director for Florida's First Coast YMCA. From
1994 to 1997, he served on the board of advisors of the Business and Industry
Council of the College of New Jersey (formerly Trenton State College). 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.
William A. Kindler, 59, Senior Vice President, Performance Fibers--Mr.
Kindler joined Rayonier in August 1996. He was elected Vice President,
Performance Fibers, in October 1996 and Senior Vice President, Performance
Fibers in March 1998. Prior to coming to Rayonier, he held a number of senior
management positions with James River Corporation (paper and tissue products
manufacturing), most recently as Vice President, Product Supply, Consumer
Products (March 1994 until August 1996). He holds a B.A. degree in Chemistry
from Western Washington University and an M.S. degree and Ph.D. degree in Pulp
and Paper Technology from the Institute of Paper Chemistry. Mr. Kindler retired
from Rayonier effective December 31, 2001.
Timothy H. Brannon, 54, Senior Vice President, Forest Resources and Wood
Products--Mr. Brannon joined Rayonier in 1972 at its Southern Wood Piedmont
subsidiary (SWP). He was named Vice President and Chief Operating Officer of
SWP in 1983 and President of SWP in 1992. Mr. Brannon was elected Rayonier's
9
Vice President and Director, Performance Fibers Marketing and Sales in 1994,
Vice President, Asia Pacific, and Managing Director, Rayonier New Zealand in
1998 and to his current position effective March 1, 2002. He holds a B.A.
degree in psychology from Tulane University and is a graduate of Harvard
University Graduate School of Business Advanced Management Program.
Jill Witter, 47, Vice President and General Counsel--Ms. Witter joined
Rayonier in January 2001 as General Counsel and was elected to her current
position in February 2001. Prior to joining Rayonier, she served as Vice
President, General Counsel and Secretary of Sunglass Hut International (sales
and marketing of sunglasses, watches and accessories), Coral Gables, Florida,
from 1999 to January 2001. She was previously with Angelica Corporation (career
apparel, retail and textile services), St. Louis, Missouri, from 1985 to 1999,
most recently as Vice President, Legal, Human Resources, General Counsel and
Secretary. She holds a B.A. degree and J.D. degree from the University of
Missouri.
Paul G. Boynton, 37, Vice President, Performance Fibers--Mr. Boynton joined
Rayonier in April 1999 as Director of Specialty Pulp Marketing and Sales. He
was elected Vice President, Performance Fibers, Marketing and Sales, in October
1999 and to his current position effective January 2002. Prior to joining
Rayonier, he held positions with 3M Corporation's Home Care Division (global
manufacturer and marketer of cleaning tool products) from 1990 to 1999, most
recently as Global Brand Manager. He holds a B.S. degree in mechanical
engineering from Iowa State University, an M.B.A. degree from the University of
Iowa, and graduated from the Harvard University Graduate School of Business
Advanced Management Program.
Hans E. Vanden Noort, 43, Vice President and Corporate Controller--Mr.
Vanden Noort joined Rayonier as Corporate Controller in November 2001, and was
elected to his current position in December 2001. Prior to coming to Rayonier,
he held a number of senior management positions with Baker Process, a division
of Baker Hughes, Inc. (manufacturer of petroleum-related equipment and
supplies), Houston, Texas, most recently as Vice President of Finance and
Administration. Mr. Vanden Noort holds a B.B.A. in accounting from the
University of Cincinnati, an M.B.A. from the University of Michigan and is a
Certified Public Accountant.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The table below 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 exchange on which this security is listed, under
the trading symbol RYN.
Rayonier Common Shares--Market Prices, Volume and Dividends
Composite
High Low Volume Dividend
------ ------ --------- --------
2001
Fourth Quarter............. $50.98 $38.30 5,308,900 $.36
Third Quarter.............. 47.70 35.80 4,737,100 .36
Second Quarter............. 46.72 38.80 5,198,200 .36
First Quarter.............. 44.00 37.30 6,137,900 .36
2000
Fourth Quarter............. $41.19 $31.25 7,032,700 $.36
Third Quarter.............. 43.50 35.00 4,601,700 .36
Second Quarter............. 48.88 35.38 6,816,200 .36
First Quarter.............. 48.75 35.56 6,042,100 .36
On February 15, 2002, Rayonier announced a first quarter dividend of 36
cents per share payable March 29, 2002, to shareholders of record on March 8,
2002.
There were approximately 15,426 shareholders of record of Rayonier Common
Shares on February 28, 2002.
11
ITEM 6. SELECTED FINANCIAL DATA
The following summary of historical financial data for each of the five
years in the period ended December 31, 2001, is derived from the consolidated
financial statements of the Company. The data should be read in conjunction
with the consolidated financial statements. Effective December 31, 2000, the
Company changed its method of reporting freight revenue and costs in compliance
with Emerging Issues Task Force (EITF) Issue 00-10, "Accounting for Shipping
and Handling Fees and Costs." The financial statements have been reclassified
to reflect the increase in sales and cost of sales (in millions) of $76, $72,
$64 and $91 in 2000, 1999, 1998 and 1997, respectively. Additionally, the sale
of land in the first quarter of 2000 has been reclassified from gain on sale of
assets ($23) to Land sales ($50) and cost of sales ($27). These changes had no
effect on net income or earnings per share. See Note 7 of the Notes to
Consolidated Financial Statements--Major Timberland Acquisition that helps
support fluctuations within the five-year summary below.
Year Ended December 31
---------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(dollar amounts in millions, except per share data)
Operations:
Sales............................................. $ 1,165 $ 1,227 $ 1,108 $ 1,073 $ 1,196
Operating income before provision for dispositions 150 205 136 124 166
Provision for dispositions(1)..................... -- (15) -- -- --
Operating income.................................. 150 190 136 124 166
Income from continuing operations................. 58 78 69 64 87
Net income........................................ 58 78 69 64 87
Per Common Share:
Income from continuing operations................. $ 2.09 $ 2.82 $ 2.44 $ 2.22 $ 2.97
Net income--Diluted............................... 2.09 2.82 2.44 2.22 2.97
--Basic................................. 2.12 2.87 2.48 2.26 3.03
EBITDA(2)......................................... 12.27 14.19 8.98 8.21 8.14
Free Cash Flow(5)................................. 5.02 7.39 4.30 2.31 4.15
Dividends paid.................................... 1.44 1.44 1.29 1.24 1.20
Book value........................................ 25.92 25.09 23.94 23.01 22.37
Financial Condition:
Total assets...................................... $ 2,025 $ 2,162 $ 2,280 $ 1,601 $ 1,596
Total debt........................................ 850 973 1,136 490 426
Book value........................................ 709 680 656 639 633
Cash Flow:
Cash flow from operations......................... $ 241 $ 279 $ 213 $ 154 $ 238
Custodial capital spending(3)..................... 64 70 69 58 72
Total capital expenditures........................ 77 90 95 95 137
Depreciation, depletion and amortization.......... 177 177 105 101 99
EBITDA(2)......................................... 339 393 253 235 240
EBIT(4)........................................... 152 202 141 125 138
Free Cash Flow(5)................................. 139 205 121 66 122
Dividends paid.................................... 39 39 36 35 35
Share repurchases................................. 2 18 24 27 48
Performance Ratios (%):
Operating income to sales(6)...................... 13 17 12 12 14
Return on equity(7)............................... 8 12 11 10 14
Return on capital(7).............................. 6.3 7.7 6.5 7.8 9.8
Debt to capital................................... 55 59 63 43 40
Debt to EBITDA(2)................................. 2.6 to 1 2.5 to 1 4.7 to 1 2.3 to 1 1.9 to 1
Other:
Number of employees............................... 2,300 2,300 2,300 2,300 2,500
Timberlands--in thousands of acres................ 2,267 2,331 2,422 1,447 1,452
12
Year Ended December 31
----------------------------------------
2001 2000 1999 1998 1997
------- ------- ------ ------ ------
Selected Operating Data (unaudited):
Performance Fibers
Sales volume
Cellulose Specialties--in thousands of metric tons(8)........ 423 396 364 369 410
Absorbent Materials--in thousands of metric tons(9).......... 284 329 297 324 315
Sales as a percent of capacity................................... 97% 101% 95% 97% 100%
Timber and Land
Timber volume
Northwest U.S.--in millions of board feet.................... 251 239 204 212 190
Southeast U.S.--in thousands of short green tons(10)......... 5,395 4,920 2,574 2,360 2,421
New Zealand--in thousands of cubic meters.................... 1,412 1,320 1,249 1,003 1,111
Intercompany Timber volume......................................
Northwest U.S.--in millions of board feet.................... 48 59 24 12 14
Southeast U.S.--in thousands of short green tons............. 43 41 40 70 92
New Zealand--in thousands of cubic meters.................... 704 634 580 385 589
Land--acreage................................................... 67,417 63,221 7,130 3,376 2,837
Wood Products and Trading
Lumber sales volume--in millions of board feet(11).............. 279 235 255 310 325
Medium-density fiberboard sales volume--in thousands of cubic
meters......................................................... 161 157 129 91 16
Log trading sales volume
North America--in millions of board feet........................ 151 220 205 173 224
New Zealand--in thousands of cubic meters....................... 999 1,254 1,246 851 1,113
Other--in thousands of cubic meters............................. 331 335 611 206 277
Selected Supplemental Financial Data
Financial Results Excluding Impact of Special Items(12)
Sales............................................................ $ 1,165 $ 1,227 $1,101 $1,080 $1,183
Operating income................................................. 150 205 135 134 166
Net income....................................................... 58 83 65 70 82
Net income per diluted Common Share.............................. 2.09 3.00 2.32 2.44 2.78
EBITDA(4)........................................................ 339 393 250 244 240
Return on equity (%)............................................. 8 12 10 11 13
Geographical Data (Non-U.S.)
Sales
New Zealand.................................................. $ 113 $ 115 $ 106 $ 79 $ 111
Other........................................................ 40 49 56 25 34
------- ------- ------ ------ ------
Total..................................................... $ 153 $ 164 $ 162 $ 104 $ 145
======= ======= ====== ====== ======
Operating Income (Loss)
New Zealand.................................................. $ 5 $ (1) $ (7) $ (14) $ 8
Other........................................................ -- 2 (1) (3) (5)
------- ------- ------ ------ ------
Total..................................................... $ 5 $ 1 $ (8) $ (17) $ 3
======= ======= ====== ====== ======
13
Year Ended December 31
--------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
EBITDA per Share..................
Performance Fibers............ $ 4.04 $ 5.75 $ 3.78 $ 3.51 $ 4.20
Timber and Land............... 8.80 9.05 5.25 5.19 4.91
Wood Products and Trading..... 0.14 0.02 0.42 0.05 0.45
Corporate and other........... (0.71) (0.63) (0.47) (0.55) (1.42)
------ ------ ------ ------ ------
Total Rayonier............... $12.27 $14.19 $ 8.98 $ 8.20 $ 8.14
====== ====== ====== ====== ======
Timber and Land...................
Sales.........................
Northwest U.S................ $ 68 $ 82 $ 73 $ 81 $ 81
Southeast U.S................ 181 173 79 77 70
New Zealand.................. 32 25 25 24 33
------ ------ ------ ------ ------
Total...................... $ 281 $ 280 $ 177 $ 182 $ 184
====== ====== ====== ====== ======
Operating Income..............
Northwest U.S................ $ 49 $ 65 $ 52 $ 59 $ 58
Southeast U.S................ 89 81 58 54 51
New Zealand.................. 7 6 6 8 8
------ ------ ------ ------ ------
Total...................... $ 145 $ 152 $ 116 $ 121 $ 117
====== ====== ====== ====== ======
--------
(1) Primarily related to closure reserves for the Port Angeles Performance
Fibers mill.
(2) EBITDA is defined as earnings from continuing operations before
significant non-recurring items, provision for dispositions, interest
expense, income taxes, depreciation, depletion, amortization and the
non-cash cost of land sales. See table in Item 7-Management's Discussion
and Analysis, reconciling EBITDA to Net Income.
(3) Custodial capital spending is defined as capital expenditures to maintain
current earnings level over the cycle and to keep facilities and equipment
in safe and reliable condition, and in compliance with regulatory
requirements.
(4) EBIT is defined as earnings from continuing operations before significant
non-recurring items, provision for dispositions, interest expense and
income taxes.
(5) Free Cash Flow is defined as EBITDA plus or minus significant
non-recurring items, changes in working capital and long-term assets and
liabilities, plus proceeds from the exercise of employee stock options,
less income taxes, interest expense, custodial capital spending,
prior-year dividend levels and the non-cash cost of land sales. See table
in Item 7 - Management's Discussion and Analysis, reconciling Free Cash
Flow to Cash Provided by Operating Activities.
(6) Based on operating income before provision for dispositions.
(7) Based on income from continuing operations.
(8) Excludes sales volumes of the Port Angeles, WA, Performance Fibers mill,
which ceased operations on February 28, 1997, of 35,000 metric tons for
the year 1997.
(9) Excludes sales volumes of the Port Angeles, WA, Performance Fibers mill of
7,000 metric tons for 1997.
(10) Includes salvage timber sales in 1998 of $2.3 million on volume of 279
thousand short green tons resulting from the Southeast U.S. forest fires.
(11) Includes sales volumes of the Plummer, ID, lumber mill, which closed in
July 1998 after fire damaged the facility, of 51 and 77 million board feet
for the years 1998 and 1997, respectively.
14
(12) The following table identifies special items for the years 1997 through
2001:
2001 2000 1999 1998 1997
----- ----- ----- ----- -----
(in millions)
Net income as reported............ $57.6 $78.2 $68.7 $63.6 $87.3
Disposition reserve............ -- 9.4 -- -- --
Southeast land sale............ -- -- (3.2) -- --
Restructuring/relocation....... -- -- 2.6 -- --
Contract dispute............... -- -- 2.9 -- --
Asset sale..................... -- -- (5.8) -- --
Southeast U.S. forest fires.... -- -- -- 6.2 --
New Zealand Joint Venture sale. -- (4.5) -- -- --
Non-strategic land sale........ -- * -- -- (5.6)
----- ----- ----- ----- -----
Net income excluding special items $57.6 $83.1 $65.2 $69.8 $81.7
===== ===== ===== ===== =====
--------
* Reported as a special item in 2000 ($14.4 million). Subsequently,
reclassified as an operating activity consistent with the Company's strategy
to annually sell 2 to 4 percent of its timberland holdings.
15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Segment Information (in millions)
Year Ended December 31
----------------------
2001 2000 1999
------ ------ ------
Sales
Performance Fibers
Cellulose Specialties............ $ 369 $ 348 $ 331
Absorbent Materials.............. 178 228 160
------ ------ ------
Total Performance Fibers..... 547 576 491
------ ------ ------
Timber and Land
Timber........................... 197 210 156
Land............................. 84 70 21
------ ------ ------
Total Timber and Land........ 281 280 177
------ ------ ------
Wood Products and Trading........... 358 401 462
Intersegment Eliminations........... (21) (30) (22)
------ ------ ------
Total sales.................. $1,165 $1,227 $1,108
====== ====== ======
Operating Income (Loss)
Performance Fibers.................. $ 35 $ 83 $ 40
Timber and Land
Timber........................... 93 114 100
Land............................. 52 38 16
------ ------ ------
Total Timber and Land........ 145 152 116
------ ------ ------
Wood Products and Trading........... (11) (17) (3)
Provision for dispositions.......... -- (15) --
Corporate and other................. (19) (13) (17)
------ ------ ------
Total operating income....... $ 150 $ 190 $ 136
====== ====== ======
Summary of Business Conditions
Rayonier's net income in 2001 was $58 million or $2.09 per share, compared
to $78 million or $2.82 per share in 2000. Excluding the effect of two special
items in 2000, net income was $83 million or $3.00 per share (See Item 6,
Selected Financial Data, footnote 12). During 2000, the Company sold its
interest in a New Zealand timberland joint venture that contributed a gain of
$7.6 million or 16 cents per share after tax, and it increased a disposition
reserve that resulted in a charge of $15.0 million or 34 cents per share after
tax.
Lower demand for many of Rayonier's products, which began in the second half
of 2000, continued into 2001. The reduced demand was attributable to a
considerably weak global economy and a strong U.S. dollar. In the Performance
Fibers segment, the Absorbent Materials business, which principally consists of
commodity fluff pulp, had lower demand and prices. Fluff pulp prices declined
steadily during the year but now appear to have stabilized. Conversely, the
high-value Cellulose Specialties business had stronger demand and steady prices.
In Rayonier's Timber and Land segment (previously Timberland Management),
timber volumes increased in the Northwest and Southeast U.S., and New Zealand,
while prices declined. The segment's lower operating income in 2001 compared to
2000 resulted from lower timber prices partly offset by higher timber volume
and stronger land sales. Land sales provided strong income contributions in
both 2001 and 2000. The Company sold a
16
large tract of land in the second quarter of 2001 for $60 million following
another large tract of land in the first quarter of 2000 for $50 million. These
sales were part of the Company's ongoing strategic land sales program to
realize the appreciation of its timberland values on a more regular basis and
to lower debt levels.
In Rayonier's Wood Products and Trading segment, lumber results improved in
2001 principally due to lower manufacturing costs. At the Company's
medium-density fiberboard (MDF) plant in New Zealand, results also improved in
2001 compared to 2000 due to higher volume and prices and lower costs.
In 2001, Rayonier continued to focus its capital spending on cost reduction,
quality and productivity improvements in its Performance Fibers segment, and on
investment in reforestation of its timberlands. These investments are expected
to help moderate the cyclical effects of the Performance Fibers business,
improve bottom-of-the-cycle earnings and add value to existing assets. See also
Liquidity and Capital Resources.
Rayonier's results continue to be adversely affected by the recessionary
global economy, a strong U.S. dollar and generally low, but stable, product
prices. The Company continues to experience strength in its high-value
Cellulose Specialties business and its land sales program. First quarter 2002
earnings are expected to be lower than fourth quarter 2001 earnings due to the
weaker global economy, although there is some potential improvement in first
quarter 2002 earnings if one or two major land sales close; however, the timing
of these sales is difficult to predict. Meaningful earnings improvement over
current levels is not expected until the economy begins to recover.
Results of Operations, 2001 vs. 2000
Sales and Operating Income
Sales of $1.165 billion in 2001 were $62 million below 2000 sales, while
operating income declined $40 million to $150 million from $190 million in
2000. Lower sales and operating income in 2001 were a result of lower absorbent
materials volume and prices, weaker timber and lumber prices, and lower trading
activity. These negative items were partially offset by higher cellulose
specialties, lumber and timber volumes.
Performance Fibers
Performance Fibers sales of $547 million were $29 million below the prior
year, principally due to lower absorbent materials prices and volume, and
slightly lower cellulose specialties prices partly offset by higher cellulose
specialties volume. Average fluff pulp prices declined 25 percent and 14
percent for the fourth quarter and full year, respectively, compared to the
same periods in 2000. Average absorbent materials prices, which include fluff
pulp prices, declined 9 percent compared to 2000. Average cellulose specialties
prices were 1 percent lower in 2001, while volumes increased 7 percent. Fluff
pulp prices are significantly impacted by the cyclical nature of commodity
market paper pulp prices, which declined during 2001, as the sluggish economy
caused demand to fall in that market. However, due to the Company's high-value
product mix, prices for the Performance Fibers segment tend to lag commodity
paper pulp prices and its upturns and downturns are not as pronounced. Since
1999, the Company has improved its mix of cellulose specialties/absorbent
materials from a 55/45 ratio to 60/40 in 2001. Operating income of $35 million
for the segment was $48 million below 2000, as a result of the lower prices and
higher manufacturing costs, partially offset by the higher cellulose
specialties volume.
Timber and Land (previously Timberland Management)
Timber and Land sales of $281 million were $1 million above prior year,
while operating income of $145 million was below the prior year by $7 million.
17
Timber (previously Timber Harvest)
Timber sales of $197 million and operating income of $93 million in 2001,
were $13 million and $21 million below prior year, respectively. Sales declined
due to lower timber prices in all of the Company's operating regions. In the
Northwest U.S., average prices declined 23 percent compared to 2000, while in
the Southeast U.S. average prices declined 13 percent, and in New Zealand,
average prices declined 5 percent. These price declines were partly offset by
higher volumes.
Land (previously Timberland and Real Estate)
Land sales of $84 million and operating income of $52 million were above
2000 results by $14 million in both sales and operating income. The operating
income improvement essentially results from a higher margin on a major land
sale in the second quarter of 2001 compared to a first quarter 2000 major land
sale, as well as an additional significant land sale in the fourth quarter of
2001. In 2000, Rayonier announced a program to routinely sell between 2 percent
to 4 percent of its land base each year in order to capture the appreciated
value of its timberlands on a more regular basis. In 2001, the Company sold
approximately 67,000 acres, or 2.9 percent of its timberland base. In 2000, it
sold approximately 63,000 acres, or 2.6 percent of its timberland base.
Wood Products and Trading
Sales of $358 million were $43 million below the prior year while an
operating loss of $11 million was favorable to 2000 by $6 million. Lumber
results improved from the prior year due to lower manufacturing costs and a 19
percent increase in volume. These improvements were partly offset by lower
average lumber prices, which declined 11 percent. Poor lumber market
conditions, which deteriorated significantly during 2000, carried over into
2001, causing prices to decline in 2001. In December 2001, the Company
temporarily closed its Swainsboro lumber mill for two weeks due to market
conditions. The Company does not anticipate any temporary closings in 2002. MDF
results improved in 2001 compared to the prior year due to slightly higher
prices and volume and lower manufacturing costs. Also in 2001, the Company's
log trading business results declined compared to 2000, due to lower volume and
slightly lower prices.
Corporate and other
Corporate and other costs of $19 million for 2001 were $6 million higher
than 2000 principally due to higher stock-price based incentive compensation
and reorganization costs associated with the retirement of two senior
executives.
Other Income/Expense
Interest expense of $69 million was $17 million below the prior year
principally due to lower debt. During 2001, Rayonier reduced debt by $123
million.
Other income in 2001, primarily interest income, was $2 million compared to
$5 million in 2000. The prior year amount includes a pre-tax gain of $7.6
million due to the sale of the Company's interest in a New Zealand joint
venture partially offset by a negative impact from the mark-to-market loss on
foreign currency forward contracts.
Rayonier purchases foreign currency forward contracts to offset the impact
of New Zealand/U.S. dollar exchange fluctuations on operating results. On
September 1, 2001, the Company designated its New Zealand dollar forward
contracts as cash flow hedges of certain forecasted New Zealand
dollar-denominated cash outflows. Since that time, changes in the fair value of
the forward contracts are deferred and recorded as part of "Accumulated other
comprehensive income (loss)." When the forecasted transaction comes to fruition
and is recorded in earnings, the gains or losses on the contracts are
reclassified to the Statements of Consolidated Income on the line entitled
"Interest and miscellaneous income (expense), net." In 2001, the Company
recorded a pre-tax loss of $0.6 million relating to the contracts versus $3.2
million in 2000. In 2001, the New Zealand/U.S. dollar exchange rate declined
from 0.44 on January 1, 2001, to 0.42 on December 31, 2001.
18
Income Taxes
The effective tax rate for 2001 was 30 percent compared to 28 percent in
2000. The effective tax rates are below U.S. statutory rates, primarily due to
the lower rates in effect for foreign subsidiaries, research and development
tax credits and a 2001 year-end foreign currency related tax benefit
adjustment. The 2000 rate was below this year's rate due to the reversal of tax
provisions for items resolved as a result of the completion of several tax
audits.
Results of Operations, 2000 vs. 1999
Sales and Operating Income
Sales of $1.227 billion in 2000 were $119 million above 1999 sales,
reflecting higher Performance Fibers prices and volume, and higher Timber and
Land sales activity. These improvements were partially offset by lower Wood
Products and Trading activity. Operating income of $190 million was $54 million
higher than 1999, principally due to higher Performance Fibers, timber, and
land sales contributions, partly offset by lower lumber results.
Performance Fibers
Performance Fibers sales of $576 million were $85 million above the prior
year, principally due to higher absorbent materials prices and overall fiber
sales volume resulting from improved demand. Operating income of $83 million
was $44 million above 1999, primarily as a result of the higher absorbent
materials prices, stronger overall volume, and slightly lower manufacturing
costs. These favorable factors were partially offset by lower cellulose
specialty prices.
Timber and Land (previously Timberland Management)
Timber and Land sales of $280 million and operating income of $152 million
were above the prior year by $103 million and $36 million, respectively.
Timber (previously Timber Harvest)
Timber sales of $210 million in 2000 were $54 million above 1999, and
operating income of $114 million exceeded prior year results by $14 million.
Sales improved due to higher timber harvests in operating regions, principally
driven by volume from the major fourth quarter 1999 Southeast U.S. timberland
acquisition, along with higher volume in the Northwest U.S. and New Zealand.
The favorable impact of the higher volume was partially offset by lower timber
prices.
Operating income improved as a result of the higher sales volume, partially
offset by higher depletion costs in the Southeast U.S. associated with the 1999
timberland acquisition.
Land (previously Timberland and Real Estate)
Land sales of $70 million and operating income of $38 million were above
1999 results by $49 million and $22 million, respectively. The improvement
essentially results from the first quarter 2000 land sales. In November 2000,
the Company announced that it would routinely sell between 2 percent to 4
percent of its land base each year in order to capture the appreciated value on
a more regular basis. As an example, if the 2 percent of our overall holdings
that were sold came from the Southeast U.S., using recent transaction prices
and the Company's average cost basis for Southeast properties, it is estimated
that operating income would increase by approximately $15 million, or 35 cents
in earnings per share, and EBITDA would increase by approximately $40 million.
Wood Products and Trading
Sales of $401 million were $61 million below the prior year, and an
operating loss of $17 million was unfavorable to 1999 by $14 million. Lumber
results declined dramatically from the prior year due to lower prices
19
and volume, as well as higher wood costs and expenses associated with the
start-up of the Eatonton, GA, facility. MDF results improved compared to the
prior year due to higher prices and volume and lower manufacturing costs.
Although trading volume declined, operating results reflected a slight
improvement.
Provision for dispositions
The provision for dispositions in 2000 increased $8 million over 1999
primarily resulting from increasing the closure reserves for the Port Angeles,
WA, Performance Fibers mill.
Corporate and other
Corporate and other costs of $13 million for 2000 were $3 million lower than
1999 principally due to lower incentive compensation and expenses associated
with the Company's corporate office restructuring and relocation.
Other Income/Expense
Interest expense of $86 million was $44 million above the prior year
principally due to financing the fourth quarter 1999 timberland acquisition and
slightly higher rates.
Other income improved $3 million when the sale of Rayonier's interest in a
New Zealand joint venture in 2000 is compared to the effect of the 1999
contract dispute charge and the gain from the sale of a non-strategic marine
terminal and related assets in the Northwest U.S.
Rayonier purchases foreign currency forward contracts to offset the impact
of New Zealand/U.S. dollar exchange fluctuations on operating results. The
mark-to-market loss on these contracts, included in "Interest and miscellaneous
income (expense), net," was $3.2 million compared to $0 in 1999. In 2000, the
New Zealand/U.S. dollar exchange rate declined from 0.51 on January 1, 2000, to
0.44 on December 31, 2000.
Income Taxes
The effective tax rate for 2000 was 28 percent compared to 30 percent in
1999. The effective tax rates are below U.S. statutory rates, primarily due to
the lower rates in effect for foreign subsidiaries, research and development
tax credits, and the reversal of tax provisions for items cleared as a result
of the completion of several tax audits.
Liquidity and Capital Resources
Cash flow from operating activities of $241 million in 2001 declined $38
million from $279 million in 2000. The decline was principally a result of
lower income. Rayonier used this operating cash flow to finance capital
expenditures of $77 million, pay dividends of $39 million, repurchase $2
million of its outstanding common shares and reduce debt by $123 million.
Year-end debt-to-capital ratio of 55 percent was 4 percentage points lower than
2000. The percentage of debt with fixed interest rates was 77 percent as of
December 31, 2001, and 68 percent as of December 31, 2000.
Cash flow from operating activities of $279 million in 2000 increased $66
million from 1999 principally as a result of higher income partly offset by
higher working capital requirements. The Company used this operating cash flow
to help finance capital expenditures of $90 million, reduce debt by $163
million, pay dividends of $39 million, and repurchase $18 million of its
outstanding common shares.
In addition to using cash flow from operations, the Company finances its
operations through the issuance of debt, and by entering into leases. These
financial obligations are recorded in accordance with accounting rules
applicable to the underlying transaction, with the result that some are
recorded as liabilities on the balance sheet,
20
while others are required to be disclosed only in the Notes to Consolidated
Financial Statements. The following table aggregates the Company's contractual
financial obligations:
Payments Due by Period
-----------------------------------------------
Contractual Financial Obligations (000's) Total 2002 2003-2004 2005-2006 Thereafter
----------------------------------------- -------- ------- --------- --------- ----------
Short-term bank loans.................. $ 5,000 $ 5,000 $ -- $ -- $ --
Current maturities of long-term debt... 2,600 2,600 -- -- --
Long-term debt......................... 842,205 -- 288,230* 3,610 550,365
Operating leases--timberland........... 95,508 4,599 8,883 8,409 73,617
Operating leases--PP&E, offices........ 27,725 5,555 12,111 3,495 6,564
-------- ------- -------- ------- --------
Total contractual cash obligations..... $973,038 $17,754 $309,224 $15,514 $630,546
======== ======= ======== ======= ========
--------
* Includes $77,550 of 7.5% debentures due 2002, which the Company has the
intent and ability to refinance using its available long-term credit
facilities. See also Note 11-Debt.
As part of its ongoing operations, the Company periodically issues
guarantees or financial instruments such as letters of credit and surety bonds.
The following table aggregates the Company's Financial Commitments as of
December 31, 2001:
Total
Amounts
Financial Commitments (000's) Committed
----------------------------- ---------
Standby letters of credit (1) $49,424
Guarantees (2)............... 12,900
Surety bonds (3)............. 15,090
-------
Total financial commitments.. $77,414
--------
(1) Approximately $39 million of standby letters of credit serve as credit
support for the Company's debt obligations in case of default. The
remaining letters of credit serve as support for various insurance
coverages. These standby letters of credit expire at various dates in 2002
and 2003 and are typically rolled over as required.
(2) Represents a Company guarantee of 85 percent of certain loans outstanding
for four chip mill facilities that provide chips to the Company's Jesup, GA
mill.
(3) Approximately $12 million of this amount is for bonds posted by the Company
to secure timber in the State of Washington. The remainder serves as
collateral for the Company's Worker's Compensation self-insurance program.
The discussion below is presented to enhance the reader's understanding of
Rayonier's ability to generate cash, its liquidity and its ability to satisfy
rating agency and creditor requirements. This information includes two measures
of financial results: Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA), and Free Cash Flow. These measures are not defined by
Generally Accepted Accounting Principles (GAAP). The discussion of EBITDA and
Free Cash Flow is not intended to conflict with or change any of the GAAP
disclosures described above, but to provide supplementary information that
management deems to be relevant to analysts, investors and creditors. EBITDA
and Free Cash Flow as defined may not be comparable to similarly titled
measures reported by other companies.
EBITDA is defined as earnings from continuing operations before significant
non-recurring items, provision for dispositions, interest expense, income
taxes, depreciation, depletion, amortization and the non-cash cost of land
sales. In 2001, EBITDA was $339 million or $12.27 per share, a decrease of $54
million or $1.92 per share from 2000. The decrease was primarily due to lower
cash operating income generated in the Performance Fibers segment and to a
lesser degree in the Timber and Land segment. In 2000, EBITDA was $393 million
or $14.19 per share, an increase of $140 million or $5.21 per share from 1999.
The increase was primarily due to higher
21
income, resulting from Timber sales related to the 1999 timberland acquisition,
stronger Land sales, as well as higher Performance Fibers income.
Below is a reconciliation of Net income to EBITDA for the three-year period
ended December 31, 2001 (in millions except per share amounts):
Per Per Per
2001 Share 2000 Share 1999 Share
------ ------ ------ ------ ------ -----
Net income..................................... $ 57.6 $ 2.09 $ 78.2 $ 2.82 $ 68.7 $2.44
Add: Income tax expense........................ 25.0 0.90 30.5 1.10 29.5 1.05
Interest expense.......................... 69.1 2.50 85.8 3.10 42.2 1.50
Depreciation, depletion & amortization.... 177.1 6.42 176.9 6.38 105.4 3.73
Non-cash cost of land sales............... 10.0 0.36 14.3 0.52 7.4 0.26
Gain on sale of joint venture............. -- -- (7.6) (0.27) -- --
Provision for dispositions................ -- -- 15.0 0.54 -- --
------ ------ ------ ------ ------ -----
EBITDA......................................... $338.8 $12.27 $393.1 $14.19 $253.2 $8.98
====== ====== ====== ====== ====== =====
The most restrictive long-term debt covenants in effect for Rayonier at
December 31, 2001, provided that the ratio of total debt to EBITDA not exceed
4.0 to 1 and EBITDA to consolidated interest expense not be less than 2.5 to 1
at the end of 2001. As of December 31, 2001, the ratios were 2.5 to 1 and 4.9
to 1, respectively. The most restrictive long-term debt covenants in effect for
Rayonier Timberlands Operating Company (RTOC) provided that the ratio of
consolidated cash flow available for fixed charges to consolidated fixed
charges not be less than 1.6 to 1 through December 31, 2001, and not less than
1.65 to 1 thereafter. Additionally, the ratio of consolidated total debt to
consolidated cash flow available for fixed charges may not exceed 4.5 to 1
through December 31, 2001, and may not exceed 4.25 to 1 each quarter end
thereafter. As of December 31, 2001, the ratios were 2.6 to 1 and 2.9 to 1,
respectively. In addition to the covenants listed above, the revolving credit
agreements include customary covenants that limit the incurrence of debt, the
disposition of assets and the making of restricted payments between RTOC and
Rayonier. The Company is currently in compliance with all of these covenants.
Free Cash Flow is defined as EBITDA plus or minus significant non-recurring
items, changes in working capital and long-term assets and liabilities, plus
proceeds from exercise of employee stock options, less income taxes, interest
expense, custodial capital spending, prior year dividend levels and the
non-cash costs of land sales. Rayonier defines custodial capital spending as
capital expenditures required to maintain our current earnings level over the
cycle and to keep facilities and equipment in safe and reliable condition as
well as in compliance with regulatory requirements. Free Cash Flow decreased
$66 million to $139 million in 2001 primarily as a result of lower EBITDA and
unfavorable working capital changes partly offset by lower interest expense.
Below is a reconciliation of Cash Provided by Operating Activities to Free
Cash Flow for the three-year period ended December 31, 2001 (in millions except
per share amounts):
2001 2000 1999
------ ------ ------
Cash provided by operating activities................................. $241.3 $278.9 $213.4
Decrease/(increase) in timber purchase agreements and other assets. (7.1) 9.8 9.3
Custodial capital spending, net.................................... (63.7) (68.4) (67.2)
Proceeds from sale of joint venture................................ -- 14.6 --
Dividends at prior year level...................................... (39.2) (35.1) (34.3)
Exercise of employee stock options................................. 11.6 2.6 5.5
Decrease/(increase) in cash and short-term investments............. (4.3) 2.4 (5.6)
------ ------ ------
Free Cash Flow........................................................ $138.6 $204.8 $121.1
====== ====== ======
Free Cash Flow per share.............................................. $ 5.02 $ 7.39 $ 4.30
====== ====== ======
22
Free Cash Flow is available to invest in discretionary capital spending, pay
dividends above the prior year level, repurchase the Company's common shares
and reduce debt.
In 2001, capital expenditures of $77 million included $64 million of
custodial capital spending, of which $4 million was for environmental spending.
The remaining 2001 spending of $13 million was for discretionary capital
spending principally for our NovaThin(R) line of engineered absorbent products.
Rayonier expects to invest approximately $90 million in capital projects for
each of the two years ended 2002 and 2003. Capital projects include profit
improvement, custodial capital, timberlands reforestation and various projects
to comply with new environmental laws and requirements. As new environmental
regulations are promulgated, additional capital spending may be required to
ensure continued compliance. See also Environmental Regulation.
In 1996, Rayonier began a Common Share repurchase program to minimize the
dilutive effect on earnings per share of its employee incentive stock plans.
This program limits the number of shares that may be repurchased each year to
the greater of 1.5 percent of our outstanding shares or the number of incentive
shares actually issued to employees during the year. In October 1998, the Board
authorized the repurchase of an additional one million shares through December
31, 2000. In October 2000, the Board authorized the repurchase of an additional
one million shares. These share repurchases were authorized in addition to the
1.5 percent of outstanding shares normally repurchased each year. Below is a
table of share repurchases for the past three years:
2001 2000 1999
------- -------- --------
Shares repurchased....................... 52,900 433,000 551,867
Cost of repurchased shares (in thousands) $ 2,031 $ 17,624 $ 23,791
Average cost per share................... $ 38.39 $ 40.70 $ 43.11
Rayonier has revolving credit agreements with a group of banks that provide
unsecured credit facilities totaling $225 million. In November of 2002, $55
million of the facility expires, and the remaining $170 million expires in
November of 2004. The revolving credit facilities are used for direct
borrowings. In the past, these facilities were also used as support for the
Company's commercial paper program. As of December 31, 2001, Rayonier had $225
million of available borrowings under its revolving credit facilities.
Approximately $83 million of the borrowings is expected to be available to
refinance 7.5% debentures and short-term bank loans that are due in 2002. In
connection with the financing of the 1999 major timberland acquisition, RTOC
entered into an agreement with a group of banks that provided RTOC with
revolving credit facilities totaling $75 million that expire in 2004. As of
December 31, 2001, RTOC had $70 million of available borrowings under its
revolving credit facilities. In addition, Rayonier has on file with the
Securities and Exchange Commission shelf registration statements to offer $150
million of new public debt securities. Management believes that internally
generated funds, combined with available external financing as described above,
will enable Rayonier to fund capital expenditures, dividends, share
repurchases, working capital, and other liquidity needs for the foreseeable
future.
In February 2002, Standard & Poor's revised its outlook on the Company to
stable from negative and re-affirmed their triple-'B'-minus rating on the
Company's long-term debt. In addition, they withdrew their 'A-3' short-term
debt rating on the Company's commercial paper program at the Company's request,
as the program is currently inactive due to the focus on debt reduction.
Critical Accounting Policies
The preparation of Rayonier's financial statements requires the Company to
make estimates, assumptions and judgements that affect the assets, liabilities,
revenues and expenses, and disclosure of contingent assets and liabilities
reported in this Annual Report on Form 10-K. The Company bases these estimates
and assumptions on historical data and trends, current fact patterns,
expectations and other sources of information it believes are reasonable.
Actual results may differ from these estimates under different conditions.
In response to the Securities and Exchange Commission's encouragement to
discuss the Company's most critical accounting policies, those that are "both
very important to the portrayal of the Company's financial condition and
results, and requires management's most difficult, subjective or complex
judgements," we offer the
23
following. This analysis is deemed preliminary as specific guidelines,
regulations or framework have not been published or identified.
Merchantable inventory and depletion costs as determined by forestry timber
harvest models
Significant assumptions and estimations are used in the recording of
timberland inventory cost and depletion. Rayonier employs a forestry technical
services group at each of its timberland management locations. Merchantable
standing timber inventory is estimated annually, using industry-standard
computer software. The inventory calculation takes into account growth,
in-growth (annual transfer of oldest pre-merchantable age class into the
merchantable inventory), timberland sales and the annual harvest specific to
each business unit. An annual business unit depletion rate is established by
dividing merchantable inventory book cost by standing merchantable inventory.
Pre-merchantable records are maintained for each planted year age class,
recording acres planted, stems per acre, and costs of planting and tending.
Changes in the assumptions and/or estimations used in these calculations may
affect the Company's results, in particular, timber inventory and depletion
costs.
Depreciation of long-lived assets as specifically affected by economic
obsolescence
The Company depreciates its assets using the units of production and the
straight-line methods over the useful economic lives of the assets involved.
Management believes these depreciation methods are appropriate in the
circumstances and more closely match revenues with expenses versus other
generally accepted accounting methods. Long-lived assets are periodically
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. The physical life of
equipment, however, may be shortened by economic obsolescence caused by
environmental regulation, competition and other causes.
Environmental costs associated with discontinued operations
Rayonier has significant liabilities recorded for environmental costs
relating to past dispositions and discontinued operations that span
approximately 25 years into the future. Significant estimates are used in
determining the proper value of these obligations at a given point in time,
especially due to the long-term nature of the obligations. Factors affecting
these estimates include, but are not limited to, technological and regulatory
changes, results from on-going work and management's judgement. Management
periodically reviews its environmental liabilities for technological and
regulatory changes. A material change in an estimate in any given period could
have a favorable or unfavorable effect on the results of the Company's
operations.
Determining the adequacy of pension assets and liabilities
Numerous estimates and assumptions are required to determine the proper
amount of pension and postretirement liabilities to record in the Company's
financial statements. These include discount rate, return on assets, salary
increases, health care cost trends, longevity and service lives of employees.
Although there is authoritative guidance on how to select these assumptions,
the Company's management and its actuary exercise some degree of judgement when
selecting these assumptions. Selecting different assumptions, as well as actual
versus expected results, would change the net periodic benefit cost and funded
status of the benefit plans recognized in the financial statements.
Realizability of both recorded and unrecorded tax assets and liabilities
The Company has recorded certain deferred tax assets that management
believes will be realized in future periods. These assets are reviewed
periodically in order to assess their realizability. This review requires
management to make assumptions and estimates about future profitability
affecting the realization of these tax benefits. If the review indicated that
the realizability may be less than likely, a valuation allowance would be made
at that time.
In addition, the Company has not provided taxes on approximately $69 million
of undistributed foreign earnings as the Company intends to reinvest such
earnings in the future. This assumption is reviewed periodically to ensure that
any changes in the Company's ability to reinvest these earnings will be
properly disclosed and accounted for.
24
New Accounting Standards
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement requires entities to record a legal obligation
associated with the retirement of a tangible long-lived asset in the period in
which it is incurred. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. The Company will adopt the standard effective January 1,
2003, and is currently assessing the impact on its operations.
Environmental Regulation
Rayonier is subject to stringent environmental laws and regulations
concerning air emissions, water discharges and water disposal. Such
environmental laws and regulations include the Federal Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act, and the Comprehensive
Environmental Response, Compensation and Liability Act. Management closely
monitors all of its environmental responsibilities, together with trends in
environmental laws and believes that the Company is in substantial compliance
with current environmental requirements. It is the opinion of management that
substantial expenditures over the next 10 years will be required in the area of
environmental compliance. During 2001, 2000, and 1999, Rayonier spent
approximately $4 million, $4 million and $3 million, respectively, for capital
projects related to environmental compliance for ongoing operations. During the
two-year period 2002-2003, Rayonier expects to spend approximately $17 million
on such capital projects.
During 1997, the Environmental Protection Agency (EPA) finalized its Cluster
Rules governing air emissions but, due to the specialty nature of Rayonier's
Performance Fibers products and operations, the agency postponed finalizing
water discharge rules and certain air emissions rules governing the Company's
mills. Rayonier continues to work with the EPA to establish such rules for its
mills, but the timing and costs associated with such rulemaking are uncertain.
In the opinion of management, capital costs to be incurred over the next three
to five years associated with environmental regulations will not exceed $30
million at the Performance Fibers mills.
Federal, state and local laws and regulations intended to protect threatened
and endangered species, as well as wetlands and waterways, limit and may
prevent timber harvesting, road building and other activities on private lands.
A portion of the Company's timberlands is subject to some level of harvest
restrictions. Over the past several years, the harvest of timber from the
Company's timberlands in the state of Washington has been restricted as a
result of the listing of the northern spotted owl, the marbled murrelet and
several species of salmon and trout as threatened species under the Endangered
Species Act. In 1999, the timber industry and federal, state, local and tribal
governments, entered into an agreement, known as the Forests and Fish Report.
The Washington Forest Practices Board has adopted rules implementing the
Forests and Fish Report which further restrict timber harvest within buffers
along streams with fish habitat. All of these restrictions have caused Rayonier
to restructure and reschedule some of its harvest plans and have reduced the
total acreage and volume of timber available for harvest. These restrictions
have not had a material impact on Rayonier's annual harvest volumes, and
Rayonier has made changes to its long-term harvest plan to compensate for these
restrictions.
Rayonier currently estimates that expenditures during 2002-2003 for
environmental remediation and monitoring costs for all dispositions and
discontinued operations will total approximately $26 million. Such costs,
including monitoring and remediation costs, will be charged against our
reserves for estimated environmental obligations that we believe are sufficient
for costs expected to be incurred over the next 25-30 years with respect to
dispositions and discontinued operations. At December 31, 2001, these reserves
totaled approximately $169 million. The actual future environmental costs are
dependent on the outcome of negotiations with federal and state agencies and
may also be affected by new laws, regulations and administrative
interpretations, and changes in environmental remediation technology. Based on
information currently available, management does not believe that any future
changes in estimates would materially affect Rayonier's consolidated financial
position or results of operations.
25
Market and Other Economic Risks
Rayonier is exposed to various market risks, including changes in commodity
prices, interest rates and foreign currency exchange rates. Our intent is to
minimize the economic impact of these market risks. Derivatives are used, as
noted below, in accordance with policies and procedures approved by the Board
of Directors and are managed by a senior executive committee whose
responsibilities include initiating, managing and monitoring resulting
exposures. Rayonier does not enter into financial instruments for trading
purposes.
Most of Rayonier's revenues and expenses are U.S. dollar-denominated.
However, the Company does have some risk within its New Zealand operation
related to foreign currency pricing and costs. Periodically, the Company enters
into foreign currency forward contracts to hedge the risks of foreign currency
fluctuations and commodity forward contracts to fix certain energy costs. At
December 31, 2001, the Company held foreign currency contracts maturing through
May 2002 totaling $4.6 million and natural gas forward contracts maturing
through February 2002, totaling $0.5 million. The fair value of outstanding
foreign currency contracts, at year-end, was an asset of approximately $0.1
million. Market risk resulting from a hypothetical 4-cent change in the New
Zealand dollar/U.S. dollar exchange rate amounts to an approximate change of
$0.4 million pre-tax income/loss.
Cyclical pricing of commodity market paper pulp ultimately influences
Performance Fibers prices, particularly in the Company's Absorbent Materials
business unit. However, since Rayonier is a non-integrated producer of
specialized Performance Fibers for non-papermaking end uses, its high-value
product mix tends to lag (on both the upturn and downturn) commodity paper pulp
prices and its peaks and valleys are less severe.
Rayonier periodically enters into interest rate swap agreements to manage
its exposure to interest rate changes, or in back-to-back arrangements at the
time debt is issued in order to cost effectively place the debt. These swaps
involve the exchange of fixed and variable interest rate payments without
exchanging principal amounts. At December 31, 2001, there were no interest rate
swap agreements outstanding.
The fair market value of long-term fixed interest rate debt is subject to
interest rate risk; however, Rayonier intends to hold most of its debt until
maturity. Occasionally, callable bonds will be refinanced at the Company's
option if favorable economic conditions exist. Generally, the fair market value
of fixed-interest-rate debt will increase as interest rates fall and decrease
as interest rates rise. The estimated fair value of our fixed-rate debt at
December 31, 2001, was $675 million compared to $651 million in carrying value.
A one-percentage point decrease in prevailing interest rates at December 31,
2001, would result in an increase in the fair value of our fixed-rate debt of
approximately $0.7 million.
Safe Harbor
Comments about market trends, anticipated earnings, expected pricing levels,
projected capital spending levels and the Company's ability to meet future
capital needs, sufficiency of reserves, availability of tax deductions and
future activities, such as land sales, timberland purchases, timber harvests
and manufacturing production levels, are forward-looking and are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. The following important factors, among others, could cause actual
results to differ materially from those expressed in the forward-looking
statements: changes in global market trends and world events that could impact
customer demand; interest rate and currency movements; fluctuations in demand
for cellulose specialties, absorbent materials, timber and wood products;
adverse weather conditions; changes in production costs for wood products and
performance fibers, particularly for raw materials such as wood, energy and
chemicals; unexpected delays in the closing of land sale transactions; and
implementation or revision of governmental policies and regulations affecting
the environment, import and export controls and taxes.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on page ii.
26
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 15, 2002, the Board of Directors of Rayonier Inc., upon the
recommendation of the Audit Committee, rescinded the appointment of Arthur
Andersen LLP ("Andersen") as independent auditors for 2002, given the current
circumstances surrounding Andersen. The Audit Committee is currently evaluating
the appointment of an independent auditor for 2002 and will act expeditiously
in making a recommendation to the Board of Directors. In the interim, the Board
of Directors has authorized management to engage Andersen as needed on a
special appointment basis to continue to provide independent auditing services.
Andersen's reports on the Company's consolidated financial statements for
each of the years ended 2001, 2000 and 1999 did not contain an adverse opinion
or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles.
During the years ended December 31, 2001, 2000, 1999 and through the date of
this filing, there were no disagreements with Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement(s), if not resolved to the satisfaction
of Andersen, would have caused them to make reference to the subject matter of
the disagreement(s) in connection with their report.
None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred within Rayonier's three most recent fiscal years and
the subsequent interim period through March 20, 2002.
The Company provided Andersen with a copy of the above disclosures. Filed
herewith as Exhibit 16 is a copy of Andersen's letter, dated March 20, 2002,
stating its agreement with such statements. Also filed herewith as Exhibit 99
is a letter dated March 20, 2002, from the Company to the Securities and
Exchange Commission detailing certain quality assurances that Andersen provided
to the Company in a letter dated March 15, 2002.
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 is incorporated herein by reference to
the definitive proxy statement referred to above in Item 10.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
27
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 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 Schedule II--Valuation and Qualifying Accounts. All other
financial statement schedules have been omitted because they are not
applicable, the required matter is not present or the required
information has been otherwise supplied in the financial statements
or the notes thereto.
3. See Exhibit Index on pages B, C, D, and E for a list of the exhibits
filed or incorporated herein as part of this report.
(b) Reports on Form 8-K:
None
28
REPORT OF MANAGEMENT
To Our Shareholders:
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 accounting principles generally accepted in
the United States and, where necessary, include information that is 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 policies, procedures and a written code of conduct that are
communicated to Rayonier's employees. Management continually monitors the
system of internal controls for compliance. Rayonier's independent certified
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.
W. L. NUTTER
Chairman, President and
Chief Executive Officer
GERALD J. POLLACK
Senior Vice President and
Chief Financial Officer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of Rayonier Inc:
We have audited the accompanying consolidated financial statements of
Rayonier Inc. (a North Carolina corporation) and subsidiaries as of December
31, 2001 and 2000 and for each of the three years in the period ended December
31, 2001, as described in the Index to Financial Statements. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
Schedule II--Valuation and Qualifying Accounts is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Jacksonville, Florida
January 18, 2002
F-1
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
For the Years Ended December 31,
(Thousands of dollars, except per share data)
2001 2000 1999
---------- ---------- ----------
SALES........................................................ $1,164,913 $1,226,878 $1,108,035
---------- ---------- ----------
Costs and Expenses
Cost of sales............................................. 982,550 991,817 939,260
Selling and general expenses.............................. 36,298 31,213 39,644
Other operating income, net............................... (3,709) (707) (6,599)
Provision for dispositions................................ -- 15,044 --
---------- ---------- ----------
1,015,139 1,037,367 972,305
---------- ---------- ----------
OPERATING INCOME............................................. 149,774 189,511 135,730
Interest expense............................................. (69,083) (85,753) (42,193)
Interest and miscellaneous income (expense), net............. 1,871 (2,687) (3,163)
Gains from sales of assets................................... -- 7,574 7,746
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES..................... 82,562 108,645 98,120
Provision for income taxes................................ (24,964) (30,458) (29,467)
---------- ---------- ----------
NET INCOME................................................... 57,598 78,187 68,653
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain on hedged transactions, net of income tax
expense of $4........................................... 7 -- --
Minimum pension liability adjustments, net of income tax
benefit of $416......................................... (709) -- --
---------- ---------- ----------
COMPREHENSIVE INCOME......................................... $ 56,896 $ 78,187 $ 68,653
========== ========== ==========
NET INCOME PER COMMON SHARE
BASIC EPS................................................. $ 2.12 $ 2.87 $ 2.48
========== ========== ==========
DILUTED EPS............................................... $ 2.09 $ 2.82 $ 2.44
========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
F-2
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
(Thousands of dollars)
ASSETS
2001 2000
---------- ----------
CURRENT ASSETS
Cash and short-term investments........... $ 14,123 $ 9,824
Accounts receivable, less allowance for
doubtful accounts of $3,392 and $3,969.. 101,480 117,114
Inventory................................. 91,010 97,106
Timber purchase agreements................ 18,996 33,775
Other current assets...................... 9,451 12,779
---------- ----------
Total current assets.................. 235,060 270,598
---------- ----------
OTHER ASSETS................................. 72,328 63,129
TIMBER PURCHASE AGREEMENTS................... 5,120 6,335
TIMBER, TIMBERLANDS AND LOGGING ROADS, NET
OF DEPLETION AND AMORTIZATION.............. 1,131,723 1,192,388
PROPERTY, PLANT AND EQUIPMENT
Land, buildings, machinery and equipment.. 1,371,550 1,360,296
Less--accumulated depreciation............ 790,769 730,472
---------- ----------
580,781 629,824
---------- ----------
$2,025,012 $2,162,274
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
F-3
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
(Thousands of dollars)
LIABILITIES AND SHAREHOLDERS' EQUITY
2001 2000
---------- ----------
CURRENT LIABILITIES
Accounts payable....................................................... $ 65,247 $ 87,401
Bank loans and current maturities...................................... 7,600 2,565
Accrued taxes.......................................................... 13,606 10,314
Accrued payroll and benefits........................................... 14,471 27,756
Accrued interest....................................................... 6,391 11,745
Accrued customer incentives............................................ 12,935 18,163
Other current liabilities.............................................. 17,360 22,389
Current reserves for dispositions and discontinued operations.......... 15,310 15,434
---------- ----------
Total current liabilities.......................................... 152,920 195,767
---------- ----------
DEFERRED INCOME TAXES..................................................... 131,723 130,333
LONG-TERM DEBT............................................................ 842,205 970,415
NON-CURRENT RESERVES FOR DISPOSITIONS AND DISCONTINUED
OPERATIONS.............................................................. 153,394 161,465
OTHER NON-CURRENT LIABILITIES............................................. 35,976 24,193
SHAREHOLDERS' EQUITY
Common Shares, 60,000,000 shares authorized, 27,345,395 and 27,104,462
shares issued and outstanding........................................ 59,721 48,717
Retained earnings...................................................... 649,775 631,384
Accumulated other comprehensive income (loss).......................... (702) --
---------- ----------
708,794 680,101
---------- ----------
$2,025,012 $2,162,274
========== ==========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements
F-4
RAYONIER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Years Ended December 31,
(Thousands of dollars)
2001 2000 1999
--------- --------- ---------
OPERATING ACTIVITIES
Net income....................................................................... $ 57,598 $ 78,187 $ 68,653
Non-cash items included in income
Depreciation, depletion and amortization...................................... 177,124 176,913 105,425
Deferred income taxes......................................................... (1,227) 12,674 2,768
Gain on sale of joint venture................................................. -- (7,574) --
Non-cash cost of land sales................................................... 10,013 14,316 7,359
Reserves for dispositions..................................................... -- 15,044 --
Increase (decrease) in other non-current liabilities............................. 8,874 (133) (1,894)
Change in accounts receivable, inventory and accounts payable.................... (755) 5,055 14,926
Decrease (increase) in current timber purchase agreements........................ 14,779 (3,298) 5,299
Decrease (increase) in other current assets...................................... 3,328 (1,672) 2,086
(Decrease) increase in accrued liabilities....................................... (23,310) (4,951) 16,959
Expenditures for dispositions and discontinued operations, net of tax benefits of
$3,033, $3,344 and $4,701....................................................... (5,162) (5,622) (8,133)
--------- --------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES...................................... 241,262 278,939 213,448
--------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures, net of sales and retirements
of $491, $1,124 and $1,624....................................................... (76,964) (88,387) (92,969)
Acquisition of Smurfit timberlands............................................... -- -- (231,436)
Proceeds from the sale of joint venture, net of cash costs....................... -- 14,550 --
Change in timber purchase agreements and other assets............................ (7,147) 9,832 9,344
--------- --------- ---------
CASH USED FOR INVESTING ACTIVITIES......................................... (84,111) (64,005) (315,061)
--------- --------- ---------
FINANCING ACTIVITIES
Issuance of debt................................................................. 159,000 266,172 352,971
Repayment of debt................................................................ (282,175) (429,370) (191,737)
Dividends paid................................................................... (39,207) (39,185) (35,669)
Repurchase of Common Shares...................................................... (2,031) (17,624) (23,791)
Issuance of Common Shares........................................................ 11,561 2,632 5,469
--------- --------- ---------
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES........................... (152,852) (217,375) 107,243
--------- --------- ---------
CASH AND SHORT TERM INVESTMENTS
Increase (decrease) in cash and short-term investments........................... 4,299 (2,441) 5,630
Balance, beginning of year....................................................... 9,824 12,265 6,635
--------- --------- ---------
Balance, end of year............................................................. $ 14,123 $ 9,824 $ 12,265
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest...................................................................... $ 72,637 $ 85,167 $ 37,529
========= ========= =========
Income taxes.................................................................. $ 19,299 $ 18,802 $ 17,152
========= ========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of Smurfit timberlands............................................... -- -- $ 485,000
Issuance of installment notes.................................................... -- -- $ 485,000
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
F-5
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands unless otherwise stated)
1. NATURE OF BUSINESS OPERATIONS
Rayonier Inc. (Rayonier or the Company) operates in three reportable
segments under Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related Information,
Performance Fibers, Timber and Land, and Wood Products and Trading. The
Performance Fibers segment includes two business units: Cellulose Specialties
and Absorbent Materials. The Timber and Land segment includes two business
units, Timber and Land.
Performance Fibers
Rayonier is a leading manufacturer of high-performance cellulose fibers. The
Company owns and operates fiber production facilities at Jesup, GA, and
Fernandina Beach, FL, with a combined annual capacity of approximately 720,000
metric tons. These fiber products are sold throughout the world to industrial
companies that produce a wide variety of products. Approximately two-thirds of
Rayonier's performance fiber sales are to export customers, primarily in Asia,
Europe and Latin America. The Performance Fibers segment includes two business
units: Cellulose Specialties and Absorbent Materials.
Cellulose Specialties--Rayonier is one of the world's leading producers
of specialty cellulose products, most of which are used in dissolving
chemical applications that require a highly purified form of cellulose
fiber. Rayonier concentrates on producing the most highly valued,
technologically demanding forms of cellulose specialty products, such as
cellulose acetate and high-purity cellulose ethers, and is a leading
supplier of these products.
Absorbent Materials--Rayonier is a major supplier of performance fibers
for absorbent hygiene products. These fibers are typically referred to as
fluff fibers and are used as an absorbent medium in products such as
disposable baby diapers, feminine hygiene products, incontinence pads,
convalescent bed pads, industrial towels and wipes and non-woven fabrics.
Timber and Land
The Timber and Land segment includes two business units: Timber and Land.
Timber--Rayonier owns, leases or controls approximately 2.3 million acres
of timberlands in the U.S. and New Zealand. The Company manages timberlands
and sells standing timber to third parties.
Land--Rayonier invests in timberlands seeking to maximize its returns
from a full cycle of ownership. The end cycle includes selling portions of
its land base to capture the appreciated value of the underlying asset. This
program includes selling general timberland for others to manage and
harvest, and selling higher and better use (HBU) real estate properties more
valuable for commercial development, residential development and
conservation purposes.
Wood Products and Trading
Rayonier is a leading exporter, trader and manufacturer of softwood logs,
lumber and wood panel products. The Company manufactures and sells dimension
and specialty lumber and medium-density-fiberboard (MDF) products. Rayonier
operates three lumber manufacturing facilities in the U.S. and an MDF facility
in New Zealand. The Company purchases and harvests timber, sells logs and
purchases wood products for resale.
F-6
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Rayonier and
its subsidiaries. All significant intercompany balances and transactions are
eliminated. All subsidiaries are consolidated for financial reporting purposes.
For income tax purposes, several foreign subsidiaries are taxed in foreign
jurisdictions and are not included in the consolidated tax return filed in the
United States.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires the use of certain estimates
by management (e.g., useful economic lives of assets) in determining the amount
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. There
are risks inherent in estimating, and therefore, actual results could differ
from those estimates. See also - Critical Accounting Policies in Part II, Item
7, of the Management's Discussion and Analysis.
New Accounting Standards
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement requires entities to record a legal obligation
associated with the retirement of a tangible long-lived asset in the period in
which it is incurred. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. The Company will adopt the standard effective January 1,
2003, and is currently assessing the impact on its operations.
Cash and Short-Term Investments
Cash and short-term investments include time deposits and readily marketable
debt securities with maturities at date of acquisition of three months or less.
Inventory
Inventories are valued at the lower of cost or market. The cost of
manufactured performance fibers and MDF products are determined on the
first-in, first-out (FIFO) basis. Other products are valued on an average cost
basis. Inventory costs include material, labor and manufacturing overhead.
Physical counts of inventories are taken at least annually. The provision for
potential losses from obsolete, excess or slow-moving inventories is reviewed
periodically.
HBU real estate properties that are expected to be sold within one year are
included in inventory. HBU real estate properties that are expected to be sold
after one year are included in "Other Assets."
Timber Purchase Agreements and Timber-Cutting Contracts
Rayonier purchases timber for use in its Performance Fibers and Wood
Products and Trading businesses. Timber that will be harvested within one year
of the balance sheet date is classified as a current asset with the remainder
classified as a non-current asset. Rayonier evaluates the realizability of
timber purchases and timber-cutting contracts based on the estimated aggregate
purchase price and harvesting cost of such timber and the sales values to be
realized. Losses are recorded in the period that a determination is made that
the aggregate costs in a major operating area will not be fully recoverable.
F-7
Timber and Land
The acquisition cost of timber and land and real estate taxes, lease rental
payments, site preparation, and other costs relating to the planting and
growing of timber are capitalized. Such accumulated costs attributed to
merchantable timber are charged to cost of goods sold at the time the timber is
harvested or land is sold, based on the relationship of harvested timber to the
estimated volume of currently merchantable timber. Timber and land are stated
at the lower of cost, or market value.
Property, Plant, Equipment and Depreciation
Property, plant and equipment additions are recorded at cost, including
applicable freight, taxes, interest, construction and installation costs.
Interest capitalized in connection with major construction projects was $0 for
2001 and 2000 and $314 for 1999. Pulp mill assets are accounted for using the
composite method. 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, with no gain or loss recognized. Gains and
losses with respect to any significant and unusual retirements of assets and
all other assets not accounted for under the composite method are included in
operating income.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by net
undiscounted cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying value exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less cost to sell.
The Company depreciates its assets using units of production and
straight-line depreciation methods. At its Performance Fibers and MDF
manufacturing facilities, the units of production method is used for all assets
except office, lab, and transportation equipment. These assets are depreciated
using the straight-line method over their useful economic lives. In addition,
all of the assets at the Company's sawmills are depreciated using the
straight-line method over the useful economic lives of the assets involved.
Rayonier normally claims the maximum depreciation deduction allowable for tax
purposes.
Routine repair and maintenance costs are expensed as incurred. Costs
associated with planned major maintenance activities, generally requiring a
plant shutdown, are accrued pro rata in the year of the shutdown.
Revenue Recognition
Revenue from domestic sales of Performance Fibers products is recorded when
goods are shipped and title passes. Foreign sales are recorded when the
customer or agent receives the goods and title passes. Sale of timber is
recorded when title passes to the buyer. Timber sales are sold either
"lump-sum" with title passing immediately or "pay-as-cut" with title passing
when the purchaser harvests the timber. Revenues from "pay-as-cut" sales are
based on actual harvest volumes multiplied by contractually agreed upon prices.
Land sales are recorded when title passes and when payment or substantial down
payment is received.
Environmental Costs
Rayonier expenses environmental costs related to on-going businesses
resulting from current operations. Expenditures that meaningfully extend the
life or increase the efficiency of operating assets are capitalized. The
Company accrues environmental obligations related to past activities or
discontinued operations from which no current or future benefit is discernible.
These obligations span 25 years into the future and require significant
estimates to determine the proper value at any given point in time. Management
periodically reviews and adjusts these estimates based on technological,
regulatory or other changes that may affect them.
F-8
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
Research and Development
Research and development efforts are directed primarily at the development
of new and improved cellulose fiber grades and related products, improved
manufacturing efficiency, reduction of energy needs, improved product quality
and development, and improved environmental controls. Research activities
related to timberland operations include genetic tree improvement programs as
well as applied silviculture programs to identify management practices that
improve financial returns from timberland assets.
Foreign Currency Translation
Foreign operations, including Rayonier's New Zealand-based operations, use
the U.S. dollar as the functional currency. Monetary assets and liabilities of
foreign subsidiaries are translated into U.S. dollars at current exchange
rates. Non-monetary assets, such as inventories, timber, and property, plant
and equipment, are translated at historical exchange rates. Income and expense
items are translated at average exchange rates prevailing during the year,
except that inventories, depletion and depreciation charged to operations are
translated at historical rates. Exchange gains and losses arising from
translation are recognized currently in "Other operating income, net."
Income Taxes
Deferred income taxes are provided using the liability method under the
provisions of SFAS No. 109, Accounting for Income Taxes. Income taxes on
foreign operations are provided based upon the statutory tax rates of the
applicable foreign country. U.S. income taxes have not been provided on
earnings that the Company intends to permanently reinvest overseas.
Pension and Postretirement Benefits
Rayonier records pension and postretirement costs and liabilities, including
an additional minimum liability in accordance with SFAS No. 87, Employers'
Accounting for Pensions, and SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. Numerous estimates and assumptions
are required to record these costs and liabilities, including discount rate,
return on assets, salary increases, health care cost trends, longevity and
service lives of employees. Management reviews and updates these assumptions
periodically. In addition, in the Notes to Financial Statements, the Company
provides the disclosures required by SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits.
Reclassifications
Certain 2000 and 1999 amounts have been reclassified to agree with the
current year presentation. These changes had no effect on net income or
earnings per share (EPS).
3. SEGMENT AND GEOGRAPHICAL INFORMATION
Rayonier operates in three reportable segments under SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information:
Performance Fibers, Timber and Land (previously titled Timberland Management),
and Wood Products and Trading. The 1999 segment information has been
reclassified to agree with the segment presentation changes made in 2000 and
2001.
The accounting policies of all operating segments are the same as those
described in the Summary of Significant Accounting Policies. Sales between
operating segments are made based on fair market value and intercompany profit
or loss is eliminated in consolidation. The Company evaluates financial
performance based on the operating income of the segments.
F-9
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
Operating income (loss) as stated in the following table and as presented in
the Statements of Consolidated Income is equal to segment income (loss). The
income (loss) items below "Operating income" in the Statements of Consolidated
Income are not allocated to segments. These items, which include interest and
miscellaneous income (expense), and income tax (expense) benefit, are not
considered by Company management to be part of segment operations.
Segment information for each of the three years ended December 31, 2001,
follows (in millions of dollars):
Sales Operating Income (Loss)
---------------------- -------------------------
2001 2000 1999 2001 2000 1999
------ ------ ------ ------- ------- -------
Performance Fibers.................... $ 547 $ 576 $ 491 $ 35 $ 83 $ 40
Timber and Land....................... 281 280 177 145 152 116
Wood Products and Trading............. 358 401 462 (11) (17) (3)
Corporate, other, and eliminations (a) (21) (30) (22) (19) (28) (17)
------ ------ ------ ------- ------- -------
Total.............................. $1,165 $1,227 $1,108 $ 150 $ 190 $ 136
====== ====== ====== ======= ======= =======
--------
(a) Includes unallocated corporate expenses and intersegment eliminations.
Depreciation
Gross Plant Additions (a) Depletion and Amortization Identifiable Assets
------------------------- -------------------------- --------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
------- ------- ------ ------- ------- ------- -------- -------- --------
Performance Fibers....... $ 38 $ 32 $ 51 $ 75 $ 74 $ 65 $ 576 $ 643 $ 670
Timber and Land.......... 37 47 29 89 89 29 1,183 1,243 1,409
Wood Products and Trading 2 9 14 13 13 10 206 234 163
Corporate and other...... -- 2 1 -- 1 1 50 32 23
Dispositions............. -- -- -- -- -- -- 10 10 15
------- ------- ------ ------- ------- ------- -------- -------- --------
Total................. $ 77 $ 90 $ 95 $ 177 $ 177 $ 105 $ 2,025 $ 2,162 $ 2,280
======= ======= ====== ======= ======= ======= ======== ======== ========
--------
(a) Custodial capital spending was $64 million, $70 million and $69 million in
2001, 2000 and 1999, respectively. Custodial capital spending is defined as
capital expenditures to maintain current earnings level over the cycle and
to keep facilities and equipment in safe and reliable condition and to
comply with regulatory requirements.
Geographical Operating Information
Information by geographical operating area for each of the three years ended
December 31, 2001, is as follows (in millions of dollars):
Operating
Sales Income/(Loss) Identifiable Assets
-------------------- --------------- --------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
------ ------ ------ ---- ---- ---- ------ ------ ------
United States $1,012 $1,063 $ 946 $145 $189 $144 $1,717 $1,852 $1,940
New Zealand.. 113 115 106 5 (1) (7) 282 300 326
All other.... 40 49 56 -- 2 (1) 26 10 14
------ ------ ------ ---- ---- ---- ------ ------ ------
Total..... $1,165 $1,227 $1,108 $150 $190 $136 $2,025 $2,162 $2,280
====== ====== ====== ==== ==== ==== ====== ====== ======
F-10
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
Rayonier's sales for the three years ended December 31, 2001, are as follows
(in millions of dollars):
Sales by Destination
----------------------------------
2001 2000 1999
---------- ---------- ----------
United States $ 656 56% $ 662 54% $ 590 54%
Europe....... 126 11% 107 9% 101 9%
Japan........ 116 10% 135 11% 135 12%
China........ 81 7% 86 7% 56 5%
Other Asia... 97 8% 124 10% 125 11%
Latin America 45 4% 66 5% 66 6%
Canada....... 34 3% 34 3% 21 2%
All other.... 10 1% 13 1% 14 1%
------ --- ------ --- ------ ---
Total..... $1,165 100% $1,227 100% $1,108 100%
====== === ====== === ====== ===
The majority of sales to foreign countries are denominated in U. S. dollars.
4. FINANCIAL INSTRUMENTS
The Company is exposed to various market risks, including changes in
commodity prices, interest rates and foreign exchange rates. The Company's
objective is to minimize the economic impact of these market risks. Derivatives
are used, as noted below, in accordance with policies and procedures approved
by the Board of Directors and are managed by a senior executive committee,
whose responsibilities include initiating, managing and monitoring resulting
exposures. The Company does not enter into such financial instruments for
trading purposes.
The Company adopted SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended, on January 1, 2001. SFAS No. 133 requires that
all derivative financial instruments such as interest rate swap contracts and
foreign exchange contracts be recognized in the financial statements and
measured at fair value regardless of the purpose or intent for holding them.
The adoption did not have a material impact on the Company's consolidated
financial position or results of operations. Transactions that provide for the
forward purchase or sale of raw materials are not included in the financial
statements until physical delivery of the product, as these transactions are
done in the normal course of business and qualify for treatment as normal
purchases and sales under SFAS No. 133.
Foreign Currency Forward Contracts
In the Company's New Zealand timber operations and at the New Zealand MDF
manufacturing facility, normal operating expenses include contractor and
license fees, care and maintenance of timberlands, salaries and wages, wood
purchases and other production costs incurred. Rayonier hedges U.S./New Zealand
dollar currency rate risk with respect to these New Zealand dollar operating
expenditures (cash flow hedging).
On September 1, 2001, the Company designated its New Zealand dollar forward
contracts as cash flow hedges of certain forecasted New Zealand dollar cash
outflows. Prior to this date, the Company marked the contracts to market and
recorded the resulting gain or loss in the Statements of Consolidated Income.
After the designation on September 1, 2001, changes in the fair value of the
forward contracts were deferred and recorded as part of "Accumulated other
comprehensive income (loss) (AOCI)." When the forecasted transaction comes to
fruition and is recorded, amounts in AOCI are reclassified to the Statements of
Consolidated Income. The change in the forward instruments' overall fair value
attributable to time value is excluded from the measurement of the
F-11
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
derivatives' effectiveness, and those changes are recognized in earnings
throughout the life of the contract. These amounts are recorded on the line
entitled "Interest and miscellaneous income (expense), net" in the Statements
of Consolidated Income.
At September 30, 2001 quarter end, the Company recorded an increase to
current liabilities and a charge to accumulated other comprehensive income
(loss) of $209 after tax reflecting unrealized losses on the forward contracts.
At December 31, 2001, changes in the fair value of the forward contracts
resulted in net after-tax gains of $216 and an unrealized after-tax gain of $7
was recorded in accumulated other comprehensive income (loss). In 2001, the
gains and losses representing the change in the forward contracts' time value,
which is ignored for purposes of measuring the contracts' effectiveness, were
insignificant.
The maximum foreign currency forward contracts outstanding at any point in
time during 2001 and 2000 totaled $17.7 million. At December 31, 2001, the
Company held New Zealand foreign currency contracts maturing through May of
2002, totaling $4.6 million.
Interest Rate Swap Agreements
Rayonier periodically uses interest rate swap agreements to manage exposure
to interest rate fluctuations. Such agreements involve the exchange of fixed
rate interest payments for floating rate interest payments over the life of the
agreement without the exchange of any underlying principal amounts. Rayonier's
credit exposure is limited to the fair value of the agreements, and the Company
enters into agreements only with counterparties having a long-term bond rating
of "A" or higher. The Company does not enter into interest rate swap agreements
for trading or speculative purposes and matches the terms and contract notional
amounts to existing debt or debt expected to be refinanced. At December 31,
2000, the Company had an interest rate swap agreement with a total notional
value of $5 million, which expired on February 23, 2001. There were no interest
rate swap agreements outstanding at December 31, 2001.
Fair Value of Financial Instruments
At December 31, 2001, and 2000, the estimated fair values of Rayonier's
financial instruments were as follows:
2001 2000
-------------------- ----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
--------- ---------- --------- -----------
Asset (liability).................
Cash and short-term investments... $ 14,123 $ 14,123 $ 9,824 $ 9,824
Debt.............................. (849,805) (873,662) (972,980) (1,067,485)
Foreign currency forward contracts 59 59 (392) (392)
Interest rate swap agreements..... -- -- -- (59)
Rayonier uses the following methods and assumptions in estimating the fair
value of its financial instruments:
Cash and short-term investments--The carrying amount is equal to fair
market value.
Debt--The Company's short-term bank loans and floating rate debt
approximate fair value. The fair value of fixed rate long-term debt is based
upon quoted market prices for these or similar issues or rates currently
available to the Company for debt with similar terms and maturities.
Foreign currency forward contracts--The fair value of foreign currency
forward contracts is based on dealer-quoted market prices of comparable
instruments.
F-12
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
Interest rate swap agreements--The fair value of interest rate swap
agreements is based upon the estimated cost to terminate the agreements,
taking into account current interest rates and creditworthiness of the
counterparties.
5. GAINS FROM SALES OF ASSETS
In December 2000, Rayonier sold its 25 percent interest in a New Zealand
timberland joint venture for $14.6 million, resulting in a gain of $7.6
million. In October 1999, Rayonier sold a marine terminal and associated
properties in Hoquiam, WA, to the Port of Grays Harbor for $9.5 million,
resulting in a gain of $7.7 million.
6. CURRENT AND DEFERRED COSTS
Unamortized debt issuance costs of approximately $6,707 and $7,438 at
December 31, 2001, and 2000, respectively, are included in "Other Assets."
Approximately $4,697 and $5,862 of the year 2001 and 2000 balances,
respectively, relate to the 1999 major timberland acquisition. Such costs are
amortized to interest expense over the respective term of the debt instruments
and totaled $1,800, $2,184 and $529 in 2001, 2000 and 1999, respectively.
Software costs are capitalized and amortized over a period not exceeding 60
months. Deferred software costs included in "Other Assets," net of accumulated
amortization, totaled $7,732 and $11,428 as of December 31, 2001, and 2000,
respectively. Amortization expense was $4,833, $5,323 and $4,248 in 2001, 2000
and 1999, respectively.
Research and development costs are expensed as incurred and aggregated
$9,309, $10,252 and $10,179 in 2001, 2000 and 1999, respectively.
7. MAJOR TIMBERLAND ACQUISITION
On October 25, 1999, Rayonier, through its subsidiary, Rayonier Timberlands
Operating Company (RTOC), acquired approximately 968,000 owned and leased acres
of timberland in Georgia, Florida and Alabama from Jefferson Smurfit
Corporation (U.S.) (JSC) in a business combination accounted for by the
purchase method. Under a Timber Cutting Agreement, the Company agreed to sell
JSC 1.4 million tons of timber at prevailing market prices for 2000 and 2001.
In late 2000, the Company and JSC amended the Agreement, whereby the volume
sold was limited to the timber designated prior to September 5, 2000. The
acquisition cost of $716 million, allocated to timberlands and land held for
resale, was financed by $485 million in notes issued to JSC and $231 million in
cash borrowed under a bank credit facility. RTOC manages the timberlands and
sells standing timber on an open-market basis.
F-13
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
8. INCOME TAXES
The provision for income taxes consists of the following:
2001 2000 1999
------- ------- -------
Current
U.S. federal... $16,974 $14,516 $20,200
State and local 759 636 1,004
Foreign........ 2,359 1,450 1,372
------- ------- -------
20,092 16,602 22,576
------- ------- -------
Deferred
U.S. federal... 4,877 13,987 10,582
State and local 376 1,272 902
Foreign........ (381) (1,403) (4,593)
------- ------- -------
4,872 13,856 6,891
------- ------- -------
Total....... $24,964 $30,458 $29,467
======= ======= =======
Deferred income taxes represent the tax effects related to recording
revenues and expenses in different periods for financial reporting and tax
return purposes. Deferred tax assets (liabilities) at December 31, 2001 and
2000 were related to the following principal temporary differences:
2001 2000
--------- ---------
Accelerated depreciation and depletion............... $(150,600) $(154,990)
Reserves for dispositions and discontinued operations 41,811 35,837
Deferred gain on land sale........................... (11,678) --
All other, net....................................... (13,874) (11,180)
--------- ---------
$(134,341) $(130,333)
========= =========
At December 31, 2001, the Company had New Zealand net operating loss
carryforwards of $24 million. In addition, $1.4 million of foreign tax credit
carryforwards and $7.3 million in deferred tax assets were available to reduce
future income taxes. Management believes that it will obtain the full benefit
of the deferred tax assets based on its evaluation of the Company's anticipated
profitability over the period of years that the temporary differences are
expected to be tax deductible. The current portion of the deferred tax
liability of $2.6 million at December 31, 2001, is included in "Accrued taxes"
in the accompanying Consolidated Balance Sheet.
The Company has not provided taxes on approximately $69 million of
undistributed foreign earnings, as the Company expects to reinvest such
earnings in the future.
In 2001, the tax benefit of $1.5 million related to the exercise of stock
options was credited directly to shareholders' equity and is not included in
the consolidated tax provision.
F-14
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
A reconciliation of the income tax provision at the U.S. statutory rate to
the reported provision for income taxes follows:
2001 2000 1999
------- ------- -------
Income tax provision at U.S. statutory rate...................... $28,897 $38,026 $34,342
State and local taxes, net of federal tax benefit................ 746 1,240 1,239
Foreign operations............................................... (4,016) 1,438 (2,509)
Foreign sales corporations....................................... (2,137) (4,464) (2,100)
Permanent differences............................................ 2,727 385 (1,465)
Reduction in tax reserves resulting from completion of tax audits -- (4,979) --
Research and development tax credits and other, net.............. (1,253) (1,188) (40)
------- ------- -------
Provision for income taxes--reported.......................... $24,964 $30,458 $29,467
======= ======= =======
Effective tax rate............................................... 30% 28% 30%
======= ======= =======
9. NET INCOME PER COMMON SHARE
Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share is calculated by dividing net income by the weighted average
number of common shares outstanding adjusted to include the potentially
dilutive effect of outstanding stock options. In 2001, 604,970 exercisable
stock options were excluded from the computation of diluted earnings per share
due to their anti-dilutive effect. In 2000, 1,051,472 stock options were
similarly excluded.
The following table provides details of the calculation of basic and diluted
EPS for 2001, 2000, and 1999:
2001 2000 1999
----------- ----------- -----------
Net income............................. $ 57,598 $ 78,187 $ 68,653
=========== =========== ===========
Shares used for determining basic EPS.. 27,210,802 27,236,377 27,681,845
Dilutive effect of:
Stock options....................... 215,391 153,358 253,580
Contingent shares................... 175,705 313,126 240,000
----------- ----------- -----------
Shares used for determining diluted EPS 27,601,898 27,702,861 28,175,425
=========== =========== ===========
10. INVENTORY
Rayonier's inventories included the following at December 31, 2001, and 2000:
2001 2000
------- -------
Finished goods........................ $55,530 $60,627
Work in progress...................... 8,570 9,076
Raw materials......................... 9,636 11,044
Manufacturing and maintenance supplies 17,274 16,359
------- -------
Total inventory....................... $91,010 $97,106
======= =======
F-15
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
11. DEBT
Rayonier's debt included the following at December 31, 2001, and 2000:
2001 2000
-------- --------
Short-term bank loans at weighted average interest rates of 2.97% at
December 31, 2001, and 8.01% at December 31, 2000..................... $ 10,000 $ 39,500
Commercial paper at discount rates of 7.75%............................. -- 20,000
Medium-term notes due 2001 at an average interest rate of 7.35%......... -- 16,000
Medium-term notes due 2004 at fixed interest rates of 6.00% to 6.15%.... 50,000 55,000
Debentures at 7.5% coupon due 2002...................................... 77,550 77,550
Pollution control and industrial revenue bonds due
2002-2015 at variable interest rates of 1.55% to 6.50%................ 77,255 79,930
RTOC installment notes due 2007-2014 at fixed interest rates of 8.29% to
8.64%................................................................. 485,000 485,000
RTOC term loan due 2004 at a weighted average interest rate of 3.64% at
December 31, 2001, and 8.26% at December 31, 2000..................... 150,000 200,000
-------- --------
Total debt.............................................................. 849,805 972,980
Less: Short-term bank loans.......................................... 5,000 --
Current maturities................................................... 2,600 2,565
-------- --------
Long-term debt.......................................................... $842,205 $970,415
======== ========
During 2001, the Company reduced its long-term debt by $123.2 million. The
$77,550 of 7.5% debentures due 2002 and $5,000 of short-term bank loans are
classified as long-term debt maturing in 2004, because the Company has the
ability and intent to refinance the notes using its available long-term credit
facilities.
Principal payments due during the next five years and thereafter are as
follows:
2002..... $ 7,600
2003..... 2,760
2004..... 285,470
2005..... 3,095
2006..... 515
2007-2015 550,365
--------
$849,805
========
Rayonier has revolving credit agreements with a group of banks that provide
the Company with unsecured credit facilities totaling $225 million. The
revolving credit facilities are used for direct borrowings and in the past, as
credit support for a commercial paper program. As of December 31, 2001, the
Company had $225 million of available borrowings under this facility. In
November 2002, $55 million of the facility expires and in November 2004, the
remaining $170 million of the facility expires. In addition, in connection with
the financing of the Smurfit timberland acquisition, RTOC entered into an
agreement with a group of banks that provided RTOC with revolving credit
facilities totaling $75 million and a term loan of $200 million, of which $150
million is outstanding at December 31, 2001. As of December 31, 2001, RTOC had
$70 million of available borrowings under the revolving credit portion, which
expires in 2004. Also due in 2004 are $50 million of medium-term notes. In
addition, the Company has on file with the Securities and Exchange Commission,
shelf registration statements to offer $150 million of new public debt
securities.
F-16
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
Rayonier has debt covenants based on earnings before interest, taxes,
depreciation, and amortization (EBITDA). EBITDA is defined as earnings from
continuing operations before significant non-recurring items, provision for
dispositions, interest expense, income taxes, depreciation, depletion,
amortization and the non-cash cost of land sales. This measure is not defined
by generally accepted accounting principles. The most restrictive long-term
debt covenants provide that the ratio of total debt to EBITDA not exceed 4.0 to
1 and EBITDA to consolidated interest expense not be less than 2.5 to 1. The
ratio of consolidated cash flow available for fixed charges to consolidated
fixed charges, as defined, should not be less than 1.6 to 1 through December
31, 2001, and should not be less than 1.65 to 1 thereafter. Additionally, the
ratio of consolidated total debt to consolidated cash flow available for fixed
charges should not exceed 4.5 to 1 through December 31, 2001, and should not
exceed 4.25 to 1 thereafter. As of December 31, 2001, the Company was in
compliance with all its covenants.
12. DISPOSITIONS AND DISCONTINUED OPERATIONS
Dispositions and discontinued operations include Rayonier's Port Angeles,
WA, mill, which was closed on February 28, 1997; its wholly owned subsidiary,
Southern Wood Piedmont Company (SWP), which ceased operations in 1986; its
Eastern Research Division, which ceased operations in 1981; and other
miscellaneous assets held for disposition.
As of December 31, 2001, and 2000, Rayonier had $6.9 million of receivables,
net of reserves, from insurance claims included in "Other Assets." Such
receivables represent the Company's claim for reimbursements in connection with
property damage settlements relating to SWP's discontinued wood preserving
operations.
An analysis of activity in the reserves for dispositions and discontinued
operations for each of the three years ended December 31, 2001, follows:
2001 2000 1999
-------- -------- --------
Balance, January 1....................................... $176,899 $168,531 $181,365
Benefit reserves related to dispositions and discontinued
operations reclassified from other liabilities......... -- 2,290 --
Expenditures charged to reserves......................... (8,195) (8,966) (12,834)
Additions to reserves.................................... -- 15,044 --
-------- -------- --------
Balance, December 31..................................... $168,704 $176,899 $168,531
======== ======== ========
In the fourth quarter of 2000, the Company increased its closure reserve by
approximately $16 million for the Port Angeles, WA, mill to cover future site
maintenance costs and environmental remediation obligations. Other reserves
were reduced in 2000 by approximately $1 million based on current evaluations.
Charges to the reserve in 1999 relate primarily to the dismantling and
demolition of the Port Angeles mill that was completed in 1999. Environmental
remediation at the mill site commenced in 2000 with completion expected by
2005.
Rayonier currently estimates that expenditures for environmental remediation
and monitoring costs for all dispositions and discontinued operations in 2002
and 2003 will total approximately $13.1 million and $13.6 million,
respectively. Such costs will be charged against Rayonier's reserves for
estimated environmental obligations, which include monitoring and remediation
costs. The Company believes such reserves are sufficient for costs expected to
be incurred over the next 25-30 years with respect to dispositions and
discontinued operations. The amount of actual future environmental costs is
dependent on the outcome of negotiations with federal and state agencies and
also may be affected by new laws, regulations and administrative
interpretations,
F-17
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
and changes in environmental remediation technology. Based on information
currently available, the Company does not believe that any future changes in
estimates, if necessary, would materially affect its consolidated financial
position or results of operations.
13. SHAREHOLDERS' EQUITY
An analysis of shareholders' equity for each of the three years ended
December 31, 2001, follows:
Accumulated
Common Shares Other
-------------------- Comprehensive Retained Shareholders'
Shares Amount Income/(Loss) Earnings Equity
---------- -------- ------------- -------- -------------
Balance, January 1, 1999................ 27,767,309 $ 82,031 $ -- $559,398 $641,429
Net income.............................. -- -- -- 68,653 68,653
Dividends paid ($1.29 per share)........ -- -- -- (35,669) (35,669)
Issuance of shares under incentive stock
plans................................. 191,652 5,469 -- -- 5,469
Repurchase of common shares............. (551,867) (23,791) -- (23,791)
---------- -------- ------ -------- --------
Balance, December 31, 1999.............. 27,407,094 $ 63,709 $ -- $592,382 $656,091
Net income.............................. -- -- -- 78,187 78,187
Dividends paid ($1.44 per share)........ -- -- -- (39,185) (39,185)
Issuance of shares under incentive stock
plans................................. 130,368 2,632 -- -- 2,632
Repurchase of common shares............. (433,000) (17,624) -- -- (17,624)
---------- -------- ------ -------- --------
Balance, December 31, 2000.............. 27,104,462 $ 48,717 $ -- $631,384 $680,101
Net income.............................. -- -- -- 57,598 57,598
Dividends paid ($1.44 per share)........ -- -- -- (39,207) (39,207)
Issuance of shares under incentive stock
plans................................. 293,833 11,561 -- -- 11,561
Unrealized gain on hedged transactions.. -- -- 7 -- 7
Minimum pension liability adjustments... -- -- (709) -- (709)
Repurchase of common shares............. (52,900) (2,031) -- -- (2,031)
Tax benefit on exercise of stock options -- 1,474 -- -- 1,474
---------- -------- ------ -------- --------
Balance, December 31, 2001.............. 27,345,395 $ 59,721 $ (702) $649,775 $708,794
========== ======== ====== ======== ========
14. INCENTIVE STOCK PLANS
The 1994 Rayonier Incentive Stock Plan (the 1994 Plan) provides for the
grant of incentive stock options, non-qualified stock options, stock
appreciation rights, performance shares and restricted stock, subject to
certain limitations. Under the 1994 Plan, the Company may grant options to its
employees up to 4.5 million Common Shares. The exercise price of each option
equals the market price of the Company's stock on the date of grant. An
option's maximum term is 10 years. Options vest in one-third increments over a
three-year period starting on the date of grant.
Restricted stock granted under the 1994 Plan vests after three years. No
restricted shares were granted in 2001 or 2000. During 1999, 5,000 restricted
shares were granted at a price of $45.56 per share.
F-18
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
In 2001, 2000 and 1999, 103,500, 120,000 and 55,500 Common Shares,
respectively, were reserved for contingent performance shares. The actual
number of performance shares to be issued is contingent upon the Company's
total shareholder return, compared with either the Standard and Poor's 1500
Paper and Forest Product Index (2001 class), or a competitive peer group of 12
companies within the forest products industry (2000 and 1999 classes) over a
three-year period. The grant-date fair values of the 2001, 2000 and 1999
performance shares were $38.31, $46.75 and $45.56, respectively. The Company
applies APB Opinion No. 25, Accounting for Stock Issued to Employees, to
account for its stock plans. The compensation cost recognized was $3,156, $433
and $1,252 in 2001, 2000 and 1999, respectively.
The Company adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock Based Compensation. Under SFAS No. 123, net income and
basic and diluted earnings per share would have been reduced by $2,284 or 8
cents per share, $3,259 or 12 cents per share and $2,343 or 8 cents per share
for 2001, 2000 and 1999, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model.
The following weighted average assumptions were used for grants in 2001, 2000
and 1999, respectively: dividend yield of 3.7 percent, 3.6 percent and 3.4
percent; expected volatility of 28.7 percent, 44.0 percent and 25.7 percent;
risk-free interest rates of 4.8 percent, 6.5 percent and 4.7 percent, and an
expected life of 7.5 years for all three years. The weighted average fair value
of options granted during 2001, 2000 and 1999 was $9.69, $18.04 and $10.91,
respectively.
A summary of the status of the Company's stock option plans as of December
31, 2001, 2000 and 1999, and changes during the years then ended is presented
below:
2001 2000 1999
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
Options outstanding at
beginning of year.......... 2,192,410 $37.78 1,911,642 $36.01 1,843,496 $34.20
Granted...................... 368,050 $38.56 373,250 $46.24 255,500 $45.43
Exercised.................... (291,333) $31.52 (64,318) $31.81 (160,349) $29.14
Canceled..................... (45,667) $43.49 (28,164) $43.47 (27,005) $42.34
--------- --------- ---------
Outstanding at end of year... 2,223,460 $38.61 2,192,410 $37.78 1,911,642 $36.01
========= ========= =========
Exercisable at end of year... 1,461,100 $36.77 1,335,181 $33.66 1,317,190 $32.85
========= ========= =========
The following table summarizes information about stock options outstanding
and exercisable:
Options Outstanding at Options Exercisable at
December 31, 2001 December 31, 2001
--------------------------------------- ----------------------
Number Weighted Weighted Average Number Weighted
Range of of Average Remaining of Average
Exercise Prices Shares Exercise Price Contractual Life Shares Exercise Price
--------------- ------- -------------- ---------------- ------- --------------
$28.88-$33.50 709,677 $31.13 3.1 709,677 $31.13
$36.25-$43.78 961,866 $39.71 6.9 495,380 $40.01
$44.00-$50.75 551,917 $46.32 7.6 256,043 $46.17
F-19
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
15. EMPLOYEE BENEFIT PLANS
Employee benefit plan liabilities are estimated using actuarial estimates
and management assumptions. These estimates are based on historical
information, along with certain assumptions about future events. Changes in
assumptions, as well as changes in actual experience, could cause these
estimates to change. Rayonier has pension plans covering substantially all of
its employees. Certain plans are subject to union negotiation. The pension
plans are non-contributory. The following tables set forth net periodic benefit
cost of Rayonier plans, and total pension and postretirement benefit expense
for the three years ended December 31, 2001:
Pension Postretirement
---------------------------- ----------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- ------ ------ ------
Components of Net Periodic Benefit Cost
Service cost................................ $ 5,314 $ 4,772 $ 5,312 $ 411 $ 394 $ 438
Interest cost............................... 9,772 8,980 8,147 1,777 1,449 1,341
Expected return on plan assets.............. (12,356) (11,334) (10,269) -- -- --
Amortization of prior service cost.......... 1,285 1,088 1,088 (53) (434) (434)
Amortization of transition amount........... (661) (661) (661) -- -- --
Amortization of losses...................... 81 89 142 463 461 618
-------- -------- -------- ------ ------ ------
Net periodic benefit cost of Rayonier plans. 3,435 2,934 3,759 2,598 1,870 1,963
Defined contribution plans.................. 2,362 2,318 2,222 -- -- --
Multi-employer plans........................ -- -- -- -- 565 525
-------- -------- -------- ------ ------ ------
Total pension/postretirement
benefit expense........................... $ 5,797 $ 5,252 $ 5,981 $2,598 $2,435 $2,488
======== ======== ======== ====== ====== ======
F-20
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
The following tables set forth the funded status of the Rayonier pension and
post-retirement benefit plans, the amounts recognized in the balance sheets of
the Company at December 31, 2001 and 2000, and the principal weighted average
assumptions inherent in their determination:
Pension Postretirement
-------------------- ------------------
2001 2000 2001 2000
-------- -------- -------- --------
Change in Benefit Obligation
Benefit obligation at beginning of year.......... $125,267 $115,661 $ 19,955 $ 19,370
Service cost..................................... 5,314 4,772 411 394
Interest cost.................................... 9,772 8,980 1,777 1,449
Actuarial loss................................... 7,397 3,342 1,984 443
Plan amendments.................................. 7,213 -- 6,894 --
Benefits paid.................................... (8,102) (7,488) (2,685) (1,701)
-------- -------- -------- --------
Benefit obligation at end of year................ $146,861 $125,267 $ 28,336 $ 19,955
-------- -------- -------- --------
Change in Plan Assets
Fair value of plan assets at beginning of year... $119,951 $129,746 $ -- $ --
Actual return on plan assets..................... (1,284) (3,261) -- --
Employer contributions........................... 20,753 1,660 2,685 1,701
Other expense.................................... (878) (706) -- --
Benefits paid.................................... (8,102) (7,488) (2,685) (1,701)
-------- -------- -------- --------
Fair value of plan assets at end of year......... $130,440 $119,951 $ -- $ --
-------- -------- -------- --------
Reconciliation of Funded Status at End of Year
Funded status.................................... $(16,421) $ (5,316) $(28,336) $(19,955)
Unrecognized prior service cost.................. 14,333 8,405 4,298 (2,649)
Unrecognized actuarial net loss (gain)........... 15,024 (7,215) 8,895 7,374
Unrecognized net transition obligation........... (861) (1,522) -- --
-------- -------- -------- --------
Prepaid/(accrued) benefit cost................... $ 12,075 $ (5,648) $(15,143) $(15,230)
-------- -------- -------- --------
Amounts Recognized in the Consolidated Balance Sheet Consist of:
Prepaid benefit cost.............................. $ 18,661 $ 7,817 $ -- $ --
Accrued benefit liabilty.......................... (9,506) (13,465) (15,143) (15,230)
Intangible asset.................................. 1,793 -- -- --
Accumulated other comprehensive loss.............. 1,127 -- -- --
-------- -------- -------- --------
Prepaid/(accrued) benefit cost.................... $ 12,075 $ (5,648) $(15,143) $(15,230)
-------- -------- -------- --------
Weighted Average Assumptions as of December 31:
Discount rate..................................... 7.40% 7.75% 7.40% 7.75%
Return on plan assets............................. 9.75% 9.75% -- --
Rate of compensation increase..................... 5.00% 5.00% -- --
Ultimate health care trend rate................... -- -- 5.00% 5.50%
F-21
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
As of December 31, 2001, Rayonier decreased its plans' weighted average
discount rate from 7.75 percent to 7.4 percent to more closely approximate
interest rates on high quality, long-term obligations. In 2001, the assumed
ultimate health care trend rate used to determine cost was 7.5 percent
gradually decreasing to an ultimate rate of 5.5 percent in 2005. The rate to
determine cost in 2002 will be 10.0 percent gradually decreasing to an ultimate
rate of 5.0 percent in 2007.
The following table shows the effect of a one-percentage point change in
assumed health care cost trends:
1 Percent
----------------
Effect on: Increase Decrease
---------- -------- --------
Total of service and interest
cost components.............................. $ 54 $ (49)
Accumulated post-retirement benefit obligation $809 $(750)
The sum of the projected benefit obligations and the sum of the fair value
of Plan assets for those pension plans with projected benefit obligations in
excess of Plan assets were $70.5 million and $50.9 million, respectively at
December 31, 2001, and $59.9 million and $44.5 million, respectively, as of
December 31, 2000. The sum of the accumulated benefit obligations and the sum
of the fair value of Plan assets for those pension Plans with accumulated
benefit obligations in excess of Plan assets were $60.4 million and $50.9
million, respectively, as of December 31, 2001, and $51.3 million and $44.5
million, respectively, as of December 31, 2000.
The provisions of SFAS No. 87, Employers' Accounting for Pensions, required
Rayonier to record an additional minimum liability of $2.9 million at December
31, 2001. This liability represents the amount by which the accumulated benefit
obligation exceeds the fair market value of Plan assets and accrued amounts
previously recorded. The additional liability may be offset by an intangible
asset to the extent of previously unrecognized prior service cost. An
intangible asset of $1.8 million was recorded on December 31, 2001, and is
included on the line titled "Other assets" in the Consolidated Balance Sheet.
The remaining amount of $1.1 million, net of related tax benefits, is recorded
as a component of shareholders' equity on the line titled "Accumulated other
comprehensive income (loss)" in the Consolidated Balance Sheet at December 31,
2001.
Rayonier Hourly and Salaried Defined Contribution Plans include Rayonier
common shares with a fair market value of $43,972 and $38,027 at December 31,
2001 and 2000, respectively.
16. COMMITMENTS
The Company leases certain buildings, machinery and equipment under various
operating leases. Total rental expense for operating leases amounted to $7,203,
$7,490 and $7,265 in 2001, 2000 and 1999, respectively. Additionally, the
Company has indirectly guaranteed approximately $12.9 million of debt that is
secured by equipment used by its vendors to provide products to the Company.
The Company also has long-term leases on certain timberlands in the
Southeastern U.S. These leases typically have initial terms of approximately 30
to 65 years, with renewal provisions in some cases. Such leases are generally
non-cancelable and require minimum annual rental payments.
F-22
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
At December 31, 2001, the future minimum rental payments under operating and
timberland leases were as follows:
Operating Timberland
Leases Leases
--------- ----------
2002................... $ 5,555 $ 4,599
2003................... 10,106 4,475
2004................... 2,005 4,408
2005................... 1,768 4,222
2006................... 1,727 4,187
Thereafter through 2036 6,564 73,617
------- -------
$27,725 $95,508
======= =======
17. CONTINGENCIES
From time to time, Rayonier may become liable with respect to pending and
threatened litigation and environmental and other matters.
Legal Proceedings
The Company is involved in various legal actions, including those involving
environmental matters. Some of the actions include claims for substantial
amounts. While the ultimate results of these legal actions and related claims
cannot be determined, the Company does not expect that they will have a
material adverse effect on the Company's consolidated financial position or
results of operations.
Rayonier has been designated a potentially responsible party (PRP), or has
had other claims made against it, under the U.S. Comprehensive Environmental
Response, Compensation and Liability Act and/or comparable state statutes at
ten sites, all of which relate to operations classified under "Dispositions and
Discontinued Operations." Cost recovery actions against Rayonier and other PRPs
are pending with respect to four of these sites. Rayonier has entered into or
is in the process of negotiating consent orders for environmental remediation
at five of these sites. Rayonier believes that an appropriate provision for
remediation costs is included in its reserves for estimated environmental
obligations, including the reserves for dispositions and discontinued
operations. See Note 12, Dispositions and Discontinued Operations. In addition,
there are various lawsuits pending against or affecting Rayonier and its
subsidiaries, some of which involve claims for substantial sums, but whose
outcomes are not expected to materially impact the Company's consolidated
financial position or results of operations.
On February 22, 2001, the Company received a notice of proposed disallowance
from the Internal Revenue Service (IRS) for $28.3 million in tax deficiency and
related penalties for an issue in dispute regarding the Company's 1996 and 1997
federal tax returns. The Company has been discussing this issue with the IRS
since 1999. As a result, the notice of proposed disallowance was not
unanticipated and the Company has provided adequate book reserves. The Company
is contesting this matter and believes that the ultimate outcome will not have
a material adverse impact on the Company's financial position, liquidity or
results of operations.
Environmental Matters
Rayonier is subject to stringent environmental laws and regulations
concerning air emissions, water discharges and waste disposal. Such
environmental laws and regulations include the Federal Clean Air Act, the
F-23
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands unless otherwise stated)
Clean Water Act, the Resource Conservation and Recovery Act, and the
Comprehensive Environmental Response, Compensation and Liability Act. The
Company closely monitors all of its environmental responsibilities, together
with trends in environmental laws and believes that the Company is in
substantial compliance with current environmental requirements. It is the
opinion of management that substantial expenditures over the next 10 years will
be required in the area of environmental compliance. During 1997, the
Environmental Protection Agency (EPA) finalized its Cluster Rules governing air
emissions but, due to the specialty nature of Rayonier's Performance Fibers
products and operations, the agency postponed finalizing water discharge rules
and certain air emissions rules governing the Company's Performance Fibers
mills. The Company continues to work with the EPA to establish such rules for
these mills, but the timing and costs associated with such rulemaking are
uncertain. In the opinion of management, future capital costs associated with
existing environmental rules will not have a material impact on the Company's
consolidated financial position or results of operations.
Federal, state and local laws and regulations intended to protect threatened
and endangered species, as well as wetlands and waterways, limit and may
prevent timber harvesting, road building and other activities on the Company's
timberlands. Over the past several years, the harvest of timber on private
lands in the state of Washington has been restricted as a result of the listing
of several species of birds and fish under the Endangered Species Act. The
Company, through industry groups, has worked with the state of Washington to
implement workable protective measures with respect to several endangered
species. The effect has been to restrict harvesting on portions of the
Company's Washington timberlands. The Company has taken account of these
restrictions in its harvest plans. Such efforts are ongoing and, in the opinion
of management, will not have a material impact on the Company's consolidated
financial position or results of operations. Additionally, a number of
environmental groups have filed suit in both federal and state courts
challenging various aspects of existing and proposed state and federal
regulations. This litigation is not expected to have a material impact on
Rayonier's annual harvest volume.
18. QUARTERLY RESULTS FOR 2001 AND 2000 (UNAUDITED)
Quarter Ended
------------------------------------------------ Total
March 31 June 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- ----------
(Thousands of dollars, except per share amounts)
2001
Sales............ $276,487 $346,362 $274,961 $267,103 $1,164,913
Operating income. 37,878 64,522 22,065 25,309 149,774
Net income....... 12,252 31,463 6,025 7,858 57,598
Basic EPS........ .45 1.16 .22 .29 2.12
Diluted EPS...... .45 1.14 .22 .28 2.09
2000
Sales............ $354,597 $303,911 $269,502 $298,868 $1,226,878
Operating income. 74,653 47,266 33,565 34,027 189,511
Net income....... 35,473 17,431 12,105 13,178 78,187
Basic EPS........ 1.30 .64 .45 .48 2.87
Diluted EPS...... 1.27 .63 .44 .48 2.82
F-24
RAYONIER INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000, and 1999
Balance
at Charged to
Beginning Cost and Balance at
of Year Expenses Additions/(1)/ Write-Offs End of Year
--------- ---------- ------------- ---------- -----------
(In thousands)
Year ended December 31, 2001
Allowance for doubtful accounts. $3,969 -- -- (577) $3,392
====== === === ====== ======
Year ended December 31, 2000
Allowance for doubtful accounts. $4,859 114 -- (1,004) $3,969
====== === === ====== ======
Year ended December 31, 1999
Allowance for doubtful accounts. $4,843 125 280 (389) $4,859
====== === === ====== ======
--------
(1) Includes collected amounts previously charged to the reserve.
All other required information is included in the accompanying Notes to
Consolidated Financial Statements.
F-25
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: /S/ HANS E. VANDEN NOORT
-------------------------
Hans E. Vanden Noort
Vice President and
Corporate Controller
March 20, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board,
------------------------------ President, Chief Executive
W. L. Nutter Officer and Director
(Principal Executive Officer)
/S/ GERALD J. POLLACK Senior Vice President and March 20, 2002
------------------------------ Chief Financial Officer
Gerald J. Pollack
(Principal Financial Officer)
/S/ HANS E. VANDEN NOORT Vice President and March 20, 2002
------------------------------ Corporate Controller
Hans E. Vanden Noort
(Principal Accounting Officer)
* Director
------------------------------
Rand V. Araskog
* Director
------------------------------
Ronald M. Gross
* Director
------------------------------
Paul G. Kirk, Jr.
* Director
------------------------------
Katherine D. Ortega
* Director
------------------------------
Burnell R. Roberts
* Director
------------------------------
Carl S. Sloane
* Director
------------------------------
Ronald Townsend
* Director
------------------------------
Gordon I. Ulmer
*By: /S/ HANS E. VANDEN NOORT March 20, 2002
---------------------------
Hans E. Vanden Noort
Attorney-In-Fact
A
EXHIBIT INDEX
Exhibit No. Description Location
----------- ----------- --------
2.1 Purchase and Sale Agreement dated July 28, Incorporated by reference to Exhibit 2.1 to the
1999 between Rayonier Inc. and Jefferson Registrant's November 12, 1999 Form 8-K/A,
Smurfit Corporation (U.S.) Amendment No. 1
2.2 First Amendment to the Purchase and Sale Incorporated by reference to Exhibit 2.2 to the
Agreement dated October 25, 1999 between Registrant's November 12, 1999 Form 8-K/A,
Rayonier Inc. and Jefferson Smurfit Corporation Amendment No. 1
(U.S.)
2.3 Assignment and Assumption Agreement dated Incorporated by reference to Exhibit 2.3 to the
October 25, 1999 between Jefferson Smurfit Registrant's November 12, 1999 Form 8-K/A,
Corporation (U.S.) and Timber Capital Holdings Amendment No. 1
LLC
2.4 Assignment Agreement dated October 25, 1999 Incorporated by reference to Exhibit 2.4 to the
between Rayonier Inc. and Rayonier Registrant's November 12, 1999 Form 8-K/A,
Timberlands Operating Company, L.P. Amendment No. 1
3.1 Amended and Restated Articles of Incorporation Incorporated by reference to Exhibit 4(a) 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 December 31, 1995 Form 10-K
4.1 Indenture dated as of September 1, 1992 between Incorporated by reference to Exhibit 4.1 to the
the Company and Bankers Trust Company, as Registrant's December 31, 1993 Form 10-K
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 the
December 13, 1993 Registrant's December 31, 1993 Form 10-K
4.3 364-Day Credit Agreement dated as of Filed herewith
November 19, 2001 among Rayonier Inc. as
Borrower, the banks named therein as the Initial
Lenders and Citibank, N.A. as Agent for the
Lenders.
4.4 Three Year Credit Agreement dated effective Filed herewith
November 19, 2001 among Rayonier Inc. as
Borrower, the banks named therein as Initial
Lenders, and Citibank, N.A. as Agent for the
Lenders.
4.5 Credit Agreement dated as of October 25, 1999 Incorporated by reference to Exhibit 4.1 to the
between Rayonier Timberlands Operating Registrant's September 30, 1999 Form 10-Q
Company, L.P. and Credit Suisse First Boston,
Morgan Stanley Senior Funding, Inc. and
Citibank, N.A.
4.6 Note Purchase Agreement dated as of Incorporated by reference to Exhibit 4.2 to the
October 25, 1999 between Rayonier Timberlands Registrant's September 30, 1999 Form 10-Q
Operating Company, L.P. and Timber Capital
Holdings LLC.
B
Exhibit No. Description Location
----------- ----------- --------
4.7 Other instruments defining the rights of security Not required to be filed. The Registrant hereby
holders, including indentures 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 Rayonier 1994 Incentive Stock Plan, as amended Incorporated by reference to Exhibit 10.1 to the
Registrant's September 30, 1998 Form 10-Q.
10.2 Rayonier Supplemental Senior Executive Incorporated by reference to Exhibit 10.2 to the
Severance Pay Plan Registrant's December 31, 1997 Form 10-K.
10.3 Rayonier Investment and Savings Plan for Incorporated by reference to Exhibit 10.3 to the
Salaried Employees Registrant's December 31, 1997 Form 10-K.
10.4 Retirement Plan for Salaried Employees of Filed herewith
Rayonier Inc. effective as of March 1, 1994,
Amended and Restated January 1, 2000 and
Further Amended Through October 19, 2001.
10.5 Form of Indemnification Agreement between Incorporated by reference to Exhibit 10.9 to the
Rayonier Inc. and its Directors and Officers Registrant's December 31, 1993 Form 10-K
10.6 Rayonier Inc. Excess Benefit Plan Incorporated by reference to Exhibit 10.10 to
the Registrant's December 31, 1993 Form 10-K
10.7 Amendment to Rayonier Inc. Excess Benefit Incorporated by reference to Exhibit 10.7 to the
Plan dated August 18, 1997 Registrant's December 31, 1997 Form 10-K
10.8 Rayonier Inc. Excess Savings and Deferred Incorporated by reference to Exhibit 10.8 to the
Compensation Plan Registrant's December 31, 1997 Form 10-K
10.9 Form of Rayonier Inc. Excess Savings and Incorporated by reference to Exhibit 10.13 to
Deferred Compensation Plan Agreements the Registrant's December 31, 1995 Form 10-K
10.10 Form of Indemnification Agreement between Incorporated by reference to Exhibit 10.1 to the
Registrant and directors of Rayonier Forest Registrant's March 31, 1994 Form 10-Q
Resources Company, its wholly owned
subsidiary which is Managing General Partner of
Rayonier Timberlands, L.P., who are not also
directors of Registrant
10.11 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
10.12 Form of Rayonier 1994 Incentive Stock Plan Incorporated by reference to Exhibit 10.1 to the
Contingent Performance Share Award Registrant's June 30, 1994 Form 10-Q
Agreement
C
Exhibit No. Description Location
----------- ----------- --------
10.13 Form of Rayonier 1994 Incentive Stock Plan Incorporated by reference to Exhibit 10.17 to
Restricted Share Award Agreement the Registrant's December 31, 1995 Form 10-K
10.14 Form of Rayonier 1994 Incentive Stock Non- Incorporated by reference to Exhibit 10.18 to
qualified Stock Option Award Agreement the Registrant's December 31, 1995 Form 10-K
10.15 Rayonier Substitute Stock Option Plan Incorporated by reference to Exhibit 4(c) to the
Registrant's Registration Statement on Form
S-8 (File No. 33-52891)
10.16 Form of Rayonier Substitute Stock Option Incorporated by reference to Exhibit 10.20 to
Award Agreements the Registrant's December 31, 1995 Form 10-K
10.17 Split-Dollar Life Insurance Agreement dated Incorporated by reference to Exhibit 10.2 to the
June 22, 1994 between Rayonier Inc. and Ronald Registrant's June 30, 1994 Form 10-Q
M. Gross
10.18 Amendment to Split-Dollar Life Insurance Incorporated by reference to Exhibit 10.18 to
Agreement, dated July 22, 1997 the Registrant's December 31, 1997 Form 10-K
10.19 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
10.20 Amendment to Deferred Compensation / Incorporated by reference to Exhibit 10.20 to
Supplemental Retirement Agreement, dated the Registrant's December 31, 1997 Form 10-K
July 22, 1997
10.21 Consulting Agreement dated October 19, 1998 Incorporated by reference to Exhibit 10.21 to
between Rayonier Inc. and Ronald M. Gross the Registrant's December 31, 1998 Form 10-K
10.22 Form of Rayonier Outside Directors Incorporated by reference to Exhibit 10.22 to
Compensation Program/Cash Deferral Option the Registrant's December 31, 1999 Form 10-K
Agreement
10.23 Description of Rayonier Split-Dollar Life Incorporated by reference to Exhibit 10.23 to
Insurance/Deferred Compensation Retention the Registrant's December 31, 2000 Form 10-K
Benefit Program
10.24 Change in Control Agreement for W. Lee Nutter. Incorporated by reference to Exhibit 10.23 to
the Registrant's September 30, 2001,
Form 10-Q.
10.25 Trust Agreement for the Rayonier Inc. Legal Filed herewith
Resources Trust
10.26 Trust Agreement for the Rayonier Inc. Filed herewith
Supplemental Senior Executive Severance Pay
Plan and the Change in Control Agreement for
W. Lee Nutter Executive Severance Trust
D
Exhibit No. Description Location
----------- ----------- --------
10.27 Other material contracts None
11 Statement re computation of per share earnings Not required to be filed
12 Statements re computation of ratios Filed herewith
13 Annual report to security holders, Form 10-Q or Not applicable
quarterly report to security holders
16 Letter re change in certifying accountant Filed herewith
18 Letter re change in accounting principles Not applicable
21 Subsidiaries of the Registrant Filed herewith
22 Published report regarding matters submitted to None
vote of security holders
23 Consents of experts and counsel Filed herewith
24 Powers of attorney Filed herewith
28 Information from reports furnished to state Not applicable
insurance regulatory authorities
99 Letter re Andersen assurances Filed herewith
E