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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended March 31, 2003

 

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from __________to __________

COMMISSION FILE NUMBER 1-6780

RAYONIER INC.

Incorporated in the State of North Carolina

I.R.S. Employer Identification Number 13-2607329

 

50 North Laura Street, Jacksonville, FL 32202

(Principal Executive Office)

 

Telephone Number:  (904) 357-9100

Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during the preceding l2 months and (2) has been subject to such filing requirements for the past 90 days.

Yes   x

No   o

As of April 30, 2003 there were outstanding 27,823,113 Common Shares of the Registrant.



Table of Contents

RAYONIER INC.
FORM 10-Q
MARCH 31, 2003

TABLE OF CONTENTS

 

 

PAGE

 

 


PART I.

FINANCIAL INFORMATION

 

 

 

 

Item l.

Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2003 and 2002

1

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2003 and December 3l, 2002

2

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002

3

 

 

 

 

Notes to Condensed Consolidated Financial Statements

4

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

 

 

 

Item 4.

Controls and Procedures

19

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

19

 

 

 

Item 5.

Other Information

20

 

 

 

Item 6.

Exhibits and Reports on Form 8-K

22

 

 

 

 

Signature

22

 

 

 

 

Certifications Under Exchange Act Rule 13a-14

23

 

 

 

 

Exhibit Index

25

i


Table of Contents

PART 1.  FINANCIAL INFORMATION
Item 1.  FINANCIAL STATEMENTS

RAYONIER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(Thousands of dollars, except per share data)

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2003

 

2002

 

 

 


 


 

SALES

 

$

265,938

 

$

268,704

 

 

 



 



 

Costs and Expenses

 

 

 

 

 

 

 

Cost of sales

 

 

238,253

 

 

229,037

 

Selling and general expenses

 

 

10,043

 

 

11,455

 

Other operating (income) expense, net

 

 

(1,604

)

 

570

 

 

 



 



 

 

 

 

246,692

 

 

241,062

 

 

 



 



 

OPERATING INCOME

 

 

19,246

 

 

27,642

 

Interest expense

 

 

(12,386

)

 

(15,473

)

Interest and miscellaneous income (expense), net

 

 

1,048

 

 

376

 

 

 



 



 

INCOME FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES

 

 

7,908

 

 

12,545

 

Income tax benefit (expense)

 

 

328

 

 

(3,568

)

 

 



 



 

INCOME FROM CONTINUING OPERATIONS

 

 

8,236

 

 

8,977

 

INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX EXPENSE OF $366

 

 

—  

 

 

424

 

 

 



 



 

NET INCOME

 

 

8,236

 

 

9,401

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

Unrealized (loss) gain on hedged transactions, net of income tax (benefit) expense of $(25) and $202

 

 

(45

)

 

345

 

 

 



 



 

COMPREHENSIVE INCOME

 

$

8,191

 

$

9,746

 

 

 



 



 

EARNINGS PER COMMON SHARE

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE

 

 

 

 

 

 

 

Continuing operations

 

$

0.30

 

$

0.33

 

Discontinued operations

 

 

—  

 

 

0.01

 

 

 



 



 

Net income

 

$

0.30

 

$

0.34

 

 

 



 



 

DILUTED EARNINGS PER SHARE

 

 

 

 

 

 

 

Continuing operations

 

$

0.29

 

$

0.32

 

Discontinued operations

 

 

—  

 

 

0.01

 

 

 



 



 

Net income

 

$

0.29

 

$

0.33

 

 

 



 



 

See Notes to Condensed Consolidated Financial Statements

1


Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of dollars)

 

 

March 31, 2003

 

December 31, 2002

 

 

 


 


 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,410

 

$

18,924

 

Accounts receivable, less allowance for doubtful accounts of $2,588 and $2,665

 

 

100,365

 

 

97,927

 

Inventory

 

 

 

 

 

 

 

Finished Goods

 

 

61,744

 

 

63,309

 

Work in process

 

 

7,115

 

 

7,303

 

Raw materials

 

 

5,682

 

 

6,564

 

Manufacturing and maintenance supplies

 

 

6,903

 

 

7,895

 

 

 



 



 

Total inventory

 

 

81,444

 

 

85,071

 

Timber purchase agreements

 

 

12,674

 

 

10,784

 

Other current assets

 

 

16,626

 

 

16,139

 

 

 



 



 

Total current assets

 

 

215,519

 

 

228,845

 

 

 



 



 

TIMBER PURCHASE AGREEMENTS

 

 

2,813

 

 

2,813

 

TIMBER, TIMBERLANDS AND LOGGING ROADS, NET OF DEPLETION AND AMORTIZATION

 

 

1,009,057

 

 

1,023,243

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

Land

 

 

20,321

 

 

19,847

 

Buildings

 

 

111,968

 

 

112,074

 

Machinery and equipment

 

 

1,262,551

 

 

1,255,406

 

 

 



 



 

Total property, plant and equipment

 

 

1,394,840

 

 

1,387,327

 

Less - accumulated depreciation

 

 

865,811

 

 

846,289

 

 

 



 



 

 

 

 

529,029

 

 

541,038

 

 

 



 



 

OTHER ASSETS

 

 

90,526

 

 

91,257

 

 

 



 



 

 

 

$

1,846,944

 

$

1,887,196

 

 

 



 



 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

 

$

64,478

 

$

66,770

 

Bank loans and current maturities of long-term debt

 

 

8,520

 

 

3,520

 

Accrued taxes

 

 

22,256

 

 

29,994

 

Accrued payroll and benefits

 

 

13,805

 

 

18,399

 

Accrued interest

 

 

18,378

 

 

8,314

 

Accrued customer incentives

 

 

6,446

 

 

11,121

 

Other current liabilities

 

 

15,197

 

 

17,734

 

Current reserves for dispositions and discontinued operations

 

 

14,253

 

 

15,902

 

 

 



 



 

Total current liabilities

 

 

163,333

 

 

171,754

 

 

 



 



 

DEFERRED INCOME TAXES

 

 

119,167

 

 

110,160

 

LONG-TERM DEBT

 

 

618,948

 

 

649,628

 

NON-CURRENT RESERVES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS

 

 

146,016

 

 

146,295

 

OTHER NON-CURRENT LIABILITIES

 

 

90,800

 

 

99,647

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Common Shares, 60,000,000 shares authorized, 27,805,314 and 27,719,409 shares issued and outstanding

 

 

77,399

 

 

76,613

 

Retained earnings

 

 

662,264

 

 

664,037

 

Accumulated other comprehensive income (loss)

 

 

(30,983

)

 

(30,938

)

 

 



 



 

 

 

 

708,680

 

 

709,712

 

 

 



 



 

 

 

$

1,846,944

 

$

1,887,196

 

 

 



 



 

See Notes to Condensed Consolidated Financial Statements

2


Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of dollars)

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2003

 

2002

 

 

 


 


 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Income from continuing operations

 

$

8,236

 

$

8,977

 

Non-cash items included in income from continuing operations:

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

41,570

 

 

43,224

 

Non-cash cost of land sales

 

 

2,963

 

 

2,700

 

Deferred income tax (benefit) expense

 

 

(766

)

 

276

 

Increase in accounts receivable

 

 

(2,438

)

 

(2,108

)

Decrease in inventory

 

 

3,444

 

 

3,355

 

Decrease in accounts payable

 

 

(2,292

)

 

(7,626

)

Increase in current timber purchase agreements and other current assets

 

 

(2,447

)

 

(1,681

)

(Decrease) increase in accrued liabilities

 

 

(266

)

 

10,984

 

(Decrease) increase in other non-current liabilities

 

 

(7,608

)

 

2,478

 

Decrease in timber purchase agreements and other assets

 

 

860

 

 

2,969

 

Expenditures for dispositions and discontinued operations

 

 

(1,928

)

 

(1,836

)

 

 



 



 

CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS

 

 

39,328

 

 

61,712

 

 

 



 



 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Capital expenditures, net of sales and retirements of $51 and $762

 

 

(18,192

)

 

(15,972

)

 

 



 



 

CASH USED FOR INVESTING ACTIVITIES OF CONTINUING OPERATIONS

 

 

(18,192

)

 

(15,972

)

 

 



 



 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

Issuance of debt

 

 

43,000

 

 

9,500

 

Repayment of debt

 

 

(68,772

)

 

(45,272

)

Dividends paid

 

 

(9,998

)

 

(9,940

)

Issuance of Common Shares

 

 

120

 

 

8,392

 

 

 



 



 

CASH USED FOR FINANCING ACTIVITIES OF CONTINUING OPERATIONS

 

 

(35,650

)

 

(37,320

)

 

 



 



 

CASH PROVIDED BY DISCONTINUED OPERATIONS

 

 

—  

 

 

459

 

 

 



 



 

CASH AND CASH EQUIVALENTS

 

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

 

(14,514

)

 

8,879

 

Balance, beginning of year

 

 

18,924

 

 

14,123

 

 

 



 



 

Balance, end of period

 

$

4,410

 

$

23,002

 

 

 



 



 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

Cash paid during the period:

 

 

 

 

 

 

 

Interest

 

$

1,670

 

$

2,719

 

 

 



 



 

Income taxes

 

$

10

 

$

2,604

 

 

 



 



 

See Notes to Condensed Consolidated Financial Statements

3


Table of Contents

RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands unless otherwise stated)

1.

BASIS OF PRESENTATION

 

 

 

The unaudited condensed consolidated financial statements of Rayonier Inc. and its subsidiaries (Rayonier or the Company), reflect all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results of operations, the financial position and the cash flows for the periods presented.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of certain estimates by management 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.  For a full description of the Company’s significant accounting policies, please refer to the Notes to Consolidated Financial Statements in the 2002 Annual Report on Form 10-K.

 

 

 

New Accounting Standards

 

 

 

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations. This statement requires entities to record the cost of any legal obligation for 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 adopted the standard effective January 1, 2003, and as anticipated, it did not have a material impact on the Company’s financial condition, results of operations or cash flows.  As a result, specific disclosures relating to asset retirement obligations are not required.

 

 

 

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. This Interpretation applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date.  It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise held a variable interest that it acquired on or before January 31, 2003.  The Company will adopt this Interpretation as of July 1, 2003.  The Company believes it does not have any unconsolidated variable interests that constitute a majority variable interest requiring consolidation, and as a result, there will be no impact on its financial condition, results of operations or cash flows upon adoption.

 

 

 

Reclassifications

 

 

 

Certain items in prior year’s condensed consolidated financial statements have been reclassified to conform to the current year presentation.

 

 

2.

INCENTIVE STOCK PLANS

 

 

 

The Company accounts for stock based compensation utilizing the intrinsic value based method under Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees.  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.

 

 

 

Pursuant to the disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, the following table provides a reconciliation for the three months ended March 31, 2003 and 2002 that adds back to reported net income the recorded expense under APB No. 25, net of related income tax effects, deducts the total fair value expense under SFAS No. 123 net of related income tax effects, and shows the reported and pro forma earnings per share amounts.  For additional information on the incentive stock plans see Note 18-Incentive Stock Plans in the Company’s 2002 Annual Report on Form 10-K.

4


Table of Contents

RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands unless otherwise stated)

 

 

Three Months Ended
March 31, 2003

 

Three Months Ended
March 31, 2002

 

 

 


 


 

Net income, as reported

 

$

8,236

 

$

9,401

 

Total stock-based employee compensation cost included in the determination of net income, net of related tax effects

 

 

1,136

 

 

1,869

 

Total stock-based employee compensation cost determined under fair value method for all awards, net of related tax effects

 

 

(1,315

)

 

(1,521

)

 

 



 



 

Pro forma net income

 

$

8,057

 

$

9,749

 

 

 



 



 

Earnings per share:

 

 

 

 

 

 

 

Basic, as reported

 

$

0.30

 

$

0.34

 

Basic, pro forma

 

$

0.29

 

$

0.35

 

Diluted, as reported

 

$

0.29

 

$

0.33

 

Diluted, pro forma

 

$

0.29

 

$

0.35

 

 

3.

EARNINGS PER COMMON SHARE

 

 

 

The following table provides details of the calculation of basic and diluted earnings per common share(share and earnings per share amounts actual):

 

 

 

Three Months Ended
March 31,

 

 

 


 

 

 

2003

 

2002

 

 

 


 


 

Income from continuing operations

 

$

8,236

 

$

8,977

 

Income from discontinued operations

 

 

—  

 

 

424

 

 

 



 



 

Net income

 

$

8,236

 

$

9,401

 

 

 



 



 

Shares used for determining basic earnings per common share

 

 

27,780,859

 

 

27,526,125

 

Dilutive effect of:

 

 

 

 

 

 

 

Stock options

 

 

125,300

 

 

309,708

 

Contingent shares

 

 

229,500

 

 

250,000

 

 

 



 



 

Shares used for determining diluted earnings per common share

 

 

28,135,659

 

 

28,085,833

 

 

 



 



 

Basic earnings per common share

 

 

 

 

 

 

 

Continuing operations

 

$

0.30

 

$

0.33

 

Discontinued operations

 

 

—  

 

 

0.01

 

 

 



 



 

Net income

 

$

0.30

 

$

0.34

 

 

 



 



 

Diluted earnings per common share

 

 

 

 

 

 

 

Continuing operations

 

$

0.29

 

$

0.32

 

Discontinued operations

 

 

—  

 

 

0.01

 

 

 



 



 

Net income

 

$

0.29

 

$

0.33

 

 

 



 



 

5


Table of Contents

RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands unless otherwise stated)

4.

SHAREHOLDERS’ EQUITY

 

 

 

An analysis of shareholders’ equity for the three months ended March 31, 2003, and the year ended December 31, 2002, follows (share and per share amounts actual):

 

 

 

Common  Shares

 

Accumulated
Other
Comprehensive
Income/(Loss)

 

Retained
Earnings

 

Shareholders’
Equity

 

 

 



 

 

Shares

 

Amount

 

 



 



 



 



 



 

Balance, January 1, 2002

 

 

27,345,395

 

$

59,721

 

$

(702

)

$

649,775

 

$

708,794

 

Net income

 

 

 

 

 

—  

 

 

—  

 

 

54,172

 

 

54,172

 

Dividends paid ($1.44 per share)

 

 

 

 

 

—  

 

 

—  

 

 

(39,910

)

 

(39,910

)

Issuance of shares under incentive stock plans

 

 

444,014

 

 

17,566

 

 

—  

 

 

—  

 

 

17,566

 

Repurchase of common shares

 

 

(70,000

)

 

(3,144

)

 

—  

 

 

—  

 

 

(3,144

)

Unrealized gain on hedged transactions

 

 

 

 

 

—  

 

 

697

 

 

—  

 

 

697

 

Minimum pension liability adjustments

 

 

 

 

 

—  

 

 

(30,933

)

 

—  

 

 

(30,933

)

Tax benefit on exercise of stock options

 

 

 

 

 

2,470

 

 

—  

 

 

—  

 

 

2,470

 

 

 



 



 



 



 



 

Balance, December 31, 2002

 

 

27,719,409

 

$

76,613

 

$

(30,938

)

$

664,037

 

$

709,712

 

Net income

 

 

 

 

$

—  

 

$

—  

 

$

8,236

 

$

8,236

 

Dividends paid ($0.36 per share)

 

 

 

 

 

—  

 

 

—  

 

 

(10,009

)

 

(10,009

)

Issuance of shares under incentive stock plans

 

 

85,905

 

 

771

 

 

—  

 

 

—  

 

 

771

 

Unrealized gain (loss) on hedged transactions

 

 

 

 

 

—  

 

 

(45

)

 

—  

 

 

(45

)

Tax benefit on exercise of stock options

 

 

 

 

 

15

 

 

—  

 

 

—  

 

 

15

 

 

 



 



 



 



 



 

Balance, March 31, 2003

 

 

27,805,314

 

$

77,399

 

$

(30,983

)

$

662,264

 

$

708,680

 

 

 



 



 



 



 



 

 

5.

SEGMENT INFORMATION

 

 

 

Rayonier operates in three reportable segments as defined by SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information: Performance Fibers, Timber and Land, and Wood Products.  The Company’s remaining operations are combined and reported in a category called “Other Operations” as permitted by SFAS No. 131.

 

 

 

Total assets, sales, and operating income by segment including corporate and dispositions were as follows:

 

ASSETS

 

As of
March 31, 2003

 

As of
December 31, 2002

 


 


 


 

Performance Fibers

 

$

537,613

 

$

548,426

 

Timber and Land

 

 

1,087,448

 

 

1,107,467

 

Wood Products

 

 

130,760

 

 

130,392

 

Other Operations

 

 

43,557

 

 

45,940

 

Corporate

 

 

41,948

 

 

42,411

 

Dispositions

 

 

5,618

 

 

12,560

 

 

 



 



 

Total

 

$

1,846,944

 

$

1,887,196

 

 

 



 



 

6


Table of Contents

RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2003

 

2002

 

 

 


 


 

SALES

 

 

 

 

 

 

 

Performance Fibers

 

$

128,490

 

$

129,291

 

Timber and Land

 

 

61,223

 

 

61,390

 

Wood Products

 

 

29,980

 

 

34,040

 

Other Operations

 

 

46,578

 

 

47,593

 

Intersegment Eliminations

 

 

(333

)

 

(3,610

)

 

 



 



 

TOTAL SALES

 

$

265,938

 

$

268,704

 

 

 



 



 

OPERATING INCOME (LOSS)

 

 

 

 

 

 

 

Performance Fibers

 

$

(1,241

)

$

6,831

 

Timber and Land

 

 

25,792

 

 

29,312

 

Wood Products

 

 

(3,238

)

 

(833

)

Other Operations

 

 

(4

)

 

(1,594

)

Corporate and other

 

 

(2,063

)

 

(6,074

)

 

 



 



 

TOTAL OPERATING INCOME

 

$

19,246

 

$

27,642

 

 

 



 



 

 

 

Operating income (loss) as stated in the preceding tables and as presented in the Condensed Consolidated Statements of Income and Comprehensive Income is equal to Segment income (loss).  The income (loss) items below “Operating income” in the Condensed Consolidated Statements of Income and Comprehensive Income are not allocated to segments.  These items, which include interest (expense) income, miscellaneous income (expense) and income tax (expense) are not considered by Company management to be part of segment operations.

 

 

6.

DISCONTINUED OPERATIONS

 

 

 

During the second quarter of 2002, the Company sold its New Zealand East Coast timber operations and associated assets for $64.4 million.  In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the sale and results of operations were recorded as discontinued operations.  The Company recorded after-tax income of $0.4 million from discontinued operations in the first three months of 2002.  Cash flow for the three months ended March 31, 2002 from the operation was $0.5 million.  The sale of New Zealand’s East Coast timber operations did not impact the three months ended March 31, 2003.  The Condensed Consolidated Statements of Income and Comprehensive Income, Condensed Consolidated Statements of Cash Flows and related Notes for the three months ended March 31, 2002 have been reclassified to present the East Coast operations as a discontinued operation.  The East Coast operations and associated assets were previously reported in the Company’s Timber and Land segment and in the Other Operations category.

 

 

 

Operating results of the discontinued operations are summarized below:

 

 

 

Three Months Ended March 31,
2002

 

 

 


 

Net sales

 

$

7,563

 

Operating income

 

 

790

 

Net income from discontinued operations

 

 

424

 

7


Table of Contents

RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)

 

A provision in the Company’s original agreement to purchase the East Coast property from the New Zealand government requires the Company, in the event of a sale, to guarantee five years of Crown Forest license obligations, estimated at $1.6 million per year.  However, the purchaser is the primary obligor and as such, has posted a performance bond with the New Zealand government.

 

 

7.

FINANCIAL INSTRUMENTS

 

 

 

The Company is exposed to various market risks, including changes in foreign exchange rates, interest rates and commodity prices.  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 Finance Committee of 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.

 

 

 

In the Company’s New Zealand timber operations and at its New Zealand medium density fiberboard (MDF) manufacturing facility, certain normal operating expenses, including salaries and wages, wood purchases, contractor and license fees, care and maintenance of timberlands and other production costs incurred in manufacturing MDF, are denominated in New Zealand dollars.  Rayonier hedges U.S./New Zealand dollar currency rate-risk with respect to these operating expenditures (cash flow hedges).

 

 

 

In the Company’s Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2003 and 2002, gains of approximately $0.7 million and $0.1 million, respectively, were recorded on foreign currency contracts primarily reflecting realized gains on contracts that matured, plus the time value changes for outstanding contracts.  The Company had mark to market after-tax gains on foreign currency contracts of approximately $0.7 million in “Accumulated other comprehensive income (loss)” (“AOCI”) in the Condensed Consolidated Balance Sheet recorded as of March 31, 2003.  When the forecasted transactions come to fruition and are recorded, the amounts in AOCI are reclassified to the Condensed Consolidated Statements of Income and Comprehensive Income.  The Company expects to reclassify the AOCI amount into earnings during the next thirteen months.

 

 

 

At March 31, 2003, the Company held foreign currency forward contracts maturing through April 2004 totaling a notional value of $10.0 million.  The largest notional amount of contracts outstanding during the first three months of 2003 totaled $10.2 million.

 

 

 

In March 2002, the Company entered into an interest rate swap on $50 million of 6.15 percent fixed rate notes payable maturing in February 2004.  The swap converts interest payments from the fixed rate to six month LIBOR plus 2.265 percent.  The interest rate swap qualifies as a fair value hedge under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.  As such, the net effect from the interest rate swap is recorded as part of interest expense.  The swap agreement settles every May 15 and November 15, until maturity.  During the three months ended March 31, 2003 and 2002, this swap agreement reduced the Company’s interest expense by $0.3 million and $0.1 million, respectively.  Based upon current interest rates for similar transactions, the fair value of the interest rate swap agreement resulted in an asset of approximately $1.5 million and a corresponding increase in debt at March 31, 2003.  As of March 31, 2002, the interest rate swap agreement resulted in a liability of $0.1 million with a corresponding decrease in debt.

 

 

 

On April 9, 2003, the Company’s wholly owned subsidiary, Rayonier Timberlands Operating Company, L.P. (RTOC) entered into an interest rate swap on $40 million of 8.288 percent fixed rate notes payable maturing on December 31, 2007.  The swap converts interest payments from the fixed rate to six month LIBOR plus 4.99 percent and qualifies as a fair value hedge under SFAS No. 133.  As such, the net effect from the interest rate swap will be recorded as interest expense.

 

 

 

The Company periodically enters into commodity forward contracts to fix fuel oil costs at its Performance Fibers mills.  The forward contracts partially mitigate the risk of a change in Performance Fibers margins resulting from an increase or decrease in fuel oil costs.The Company does not enter into commodity forwards for trading or speculative purposes.  In February 2003, the Company entered into contracts that fixed 90,000 barrels of fuel oil at $24.90 for the second quarter of 2003 and 60,000 barrels at $22.82 for the third quarter of 2003.  This represents approximately 50 percent and 30 percent of the Company’s second and third quarter estimated fuel oil consumption, respectively.  These contracts do not qualify for hedge accounting under SFAS No. 133 and are required to be marked to market.  The market valuation on the contracts as of March 31, 2003 resulted in an increase in “Other Operating Expense” of $0.5 million.

 

 

8


Table of Contents

RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)

8.

GUARANTEES

 

 

 

The Company issues financial guarantees to provide credit support for some creditors in case of default and to serve as collateral for certain self-insurance programs that the Company maintains.  As of March 31, 2003, the following were outstanding:

 

 

 

Maximum
Potential Payment

 

Carrying Amount
of Liability

 

 

 


 


 

Standby letters of credit (1)

 

$

76,591

 

$

62,239

 

Guarantees (2)

 

 

7,954

 

 

—  

 

Surety bonds (3)

 

 

14,187

 

 

870

 

 

 



 



 

Total

 

$

98,732

 

$

63,109

 

 

 



 



 

 

 

(1)  Approximately $62 million of the standby letters of credit serve as credit support for industrial revenue bonds.  The remaining letters of credit support various insurance coverages, primarily workers’ compensation and pollution requirements.  These letters of credit expire at various dates during 2003 and 2004 and are typically rolled over as required.

 

 

 

(2)  In conjunction with the sale of the New Zealand East Coast timber operations in 2002, the Company guaranteed five years of Crown Forest license obligations, estimated at $1.6 million per year.  The buyer of the property is the primary obligor and has posted a performance bond with the New Zealand government.  If the buyer fails to pay the obligations, the Company would then have to perform under the guarantee and seek legal redress from the buyer.  This guarantee expires in 2007.

 

 

 

(3) The Company has issued surety bonds primarily to secure timber in the State of Washington as well as providing collateral for the Company’s workers’ compensation self-insurance program in that state.  These surety bonds expire at various dates during 2003 and 2004 and are renewed as required.

 

 

 

Effective January 1, 2003, and in compliance with FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, the Company adopted the recognition requirements for guarantees entered into after December 31, 2002.The adoption did not have an impact on the Company’s consolidated results of operations or financial position for the three months ended March 31, 2003.

 

 

9.

CONTINGENCIES

 

 

 

From time to time, Rayonier may become liable with respect to pending and threatened litigation and environmental and other matters.  The following updates or repeats commentary included in the Company’s 2002 Annual Report filed on Form 10-K.

 

 

 

Legal Proceedings

 

 

 

The Company is involved in various legal actions, including those involving environmental matters that are discussed more fully in Note 10-Reserves for Dispositions and Discontinued Operations.  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.

 

 

 

On February 22, 2001, the Company received a notice of proposed disallowance from the Internal Revenue Service (IRS), arising from an issue in dispute regarding the Company’s 1996 and 1997 federal tax returns, which could have resulted in an additional tax liability of $28.3 million. The Company had been discussing this issue with the IRS since 1999, and in the first quarter of 2003 accepted a proposal from the IRS (the “Settlement Initiative”) in order to expedite the resolution of the matter. Under the Settlement Initiative the maximum disallowance was set at a 90 percent level. Accordingly, the Company adjusted its estimated first quarter 2003 tax provision to recognize a tax benefit of $2.3 million at a 10 percent minimum allowance threshold.Final resolution of this matter is not likely to occur until after 2003.

 

 

 

In December 2001, the United States commenced a lawsuit against the Company in the United States District Court for the Western Division of Washington to recover costs allegedly incurred by EPA in 1997 to conduct an Expanded Site Investigation at the Company’s Port Angeles mill site.  The EPA currently claims approximately $3.0 million in such costs.  Rayonier is challenging the EPA’s authority to recover this type of cost, as well as the validity of the amount spent.  The Company believes

 

 

9


Table of Contents

RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)

 

that the ultimate outcome will not have a material adverse impact on the Company’s financial position, liquidity or results of operations, and that its reserves at March 31, 2003 adequately include the probable costs to be incurred upon the ultimate resolution of the dispute.

 

 

 

Between 1985 and 1995, the Company sent contaminated soil excavated in connection with the cleanup of various closed wood processing sites to a third-party processor for recycling. The processing facility closed in 1995 and is the subject of a variety of environmental related charges by the EPA and the Louisiana Department of Environmental Quality.  In dispute is disposal liability for approximately 150,000 tons of recycled material from Company sites that are still owned and retained by the processor. A consent decree was entered in 1998 approving sale of the processing facility and assumption by the buyer of responsibility for movement of all remaining recycled material to a landfill. The parties were unable to complete the sale and the consent decree was vacated in May 2002.  As a result, the status of the sale of the facility and ultimate responsibility for removal and disposal of the recycled material on-site are now uncertain. There are numerous possible outcomes that could determine the Company’s ultimate liability, if any.  The Company believes that reserves at March 31, 2003 adequately include the probable costs to be incurred upon the ultimate resolution of the dispute.

 

 

 

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 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 compliance with current environmental requirements. It is the opinion of management that 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.

 

 

10.

RESERVES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS

 

 

 

The Company’s dispositions and discontinued operations include its Port Angeles, WA, mill, which was closed on February 28, 1997; its wholly owned subsidiary, Southern Wood Piedmont Company (SWP), which ceased operations in 1989 and included 10 former wood processing sites; its Eastern Research Division (ERD), which ceased operations in 1981; and other miscellaneous assets held for disposition.  SWP 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 various sites where the Company no longer operates.

10


Table of Contents

RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)

During the first quarter 2003, expenditures of $1.9 million for monitoring and remediation activities were charged to the reserves.  An analysis of activity in the reserves for dispositions and discontinued operations for the three months ended March 31, 2003 and the year ended December 31, 2002, is as follows:

 

 

March 31,
2003

 

December 31,
2002

 

 

 


 


 

Balance, January 1

 

$

162,197

 

$

168,704

 

Expenditures charged to reserves

 

 

(1,928

)

 

(9,241

)

Additions to reserves

 

 

—  

 

 

2,734

 

 

 



 



 

Balance, end of period

 

 

160,269

 

 

162,197

 

Less:  Current portion

 

 

(14,253

)

 

(15,902

)

 

 



 



 

Non-current portion

 

$

146,016

 

$

146,295

 

 

 



 



 

Rayonier has identified three SWP sites (Augusta, GA, Spartanburg, SC, and East Point, GA) and Port Angeles, WA as individually material and separate disclosure was presented in the Company’s 2002 Form 10-K.  There have not been any significant changes in these sites’ reserve requirements for the three months ended March 31, 2003, and therefore separate disclosure is not presented herein.  For an analysis of the reserve activity for the two years ended December 31, 2002 and a brief description of these individually material sites, see the Company’s 2002 Annual Report on Form 10-K, Note 12 to Consolidated Financial Statements. 

In addition, the Company is exposed to the risk of reasonably possible additional losses in excess of the established reserves for PRP sites.  As of March 31, 2003, this amount is estimated at $7 million and arises from uncertainty over the effectiveness of treatments, additional contamination that may be discovered, changes in laws, regulations and administrative interpretations and in environmental remediation technology.  Excluded from this estimate are two sites for which the Company is not able to determine reasonably possible additional losses.  Evaluation of these sites is in preliminary stages and sufficient data is not available to determine the extent of contamination, if any, and necessary remediation.

Rayonier currently estimates that expenditures for environmental remediation and monitoring costs for all dispositions will total approximately $14 million and $11 million in 2003 and 2004, 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 20 to 25 years with respect to the dispositions and discontinued operations. The amount of actual future environmental costs is 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, the Company does not believe that any future changes in estimates, if necessary, would materially affect its consolidated financial position or results of operations.

As of March 31, 2003 and December 31, 2002 Rayonier had $8.0 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 and the ERD.

11


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

The preparation of Rayonier’s consolidated financial statements requires the Company to make estimates, assumptions and judgements that affect the Company’s assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities.  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.  For a full description of the Company’s critical accounting policies, see the Management Discussion and Analysis in the 2002 Annual Report on Form 10-K.

Segment Information

Rayonier operates in three reportable segments:  Performance Fibers, Timber and Land, and Wood Products.  Performance Fibers includes two major product lines, Cellulose Specialties and Absorbent Materials.  The Timber and Land segment’s strategies include buying and managing timberlands, selling timber, timberland and certain high-value timberlands (known as higher and better use, “HBU” land) to be used for conservation, real estate development and large tract preservation.  For presentation purposes, the Company classifies its sales activities into Timber sales and Land sales.  Timber sales include all activities that relate to the harvesting of timber, while Land sales include the sale of all timberland tracts, including those designated as HBU.  The Wood Products segment includes lumber and MDF.  The Company’s remaining operations are combined and reported in a category called “Other Operations” as permitted by SFAS No. 131 and include the purchasing and harvesting of timber from third parties, selling logs (timber trading) and trading wood products.

12


Table of Contents

The amounts and relative contributions to sales and operating income (loss) attributable to each of Rayonier’s reportable segments and product lines were as follows (thousands of dollars):

 

 

Three Months Ended
March 31

 

 

 


 

 

 

2003

 

2002

 

 

 


 


 

SALES

 

 

 

 

 

 

 

Performance Fibers

 

 

 

 

 

 

 

Cellulose Specialties

 

$

87,121

 

 

90,556

 

Absorbent Materials

 

 

41,369

 

 

38,735

 

 

 



 



 

Total Performance Fibers

 

 

128,490

 

 

129,291

 

 

 



 



 

Timber and Land

 

 

 

 

 

 

 

Timber (1)

 

 

43,589

 

 

42,313

 

Land (1)

 

 

17,634

 

 

19,077

 

 

 



 



 

Total Timber and Land

 

 

61,223

 

 

61,390

 

 

 



 



 

Wood Products

 

 

 

 

 

 

 

Lumber

 

 

20,402

 

 

25,816

 

MDF

 

 

9,578

 

 

8,224

 

 

 



 



 

Total Wood Products

 

 

29,980

 

 

34,040

 

Other Operations

 

 

46,578

 

 

47,593

 

Intersegment Eliminations

 

 

(333

)

 

(3,610

)

 

 



 



 

TOTAL SALES

 

$

265,938

 

$

268,704

 

 

 



 



 

OPERATING INCOME (LOSS)

 

 

 

 

 

 

 

Performance Fibers

 

$

(1,241

)

$

6,831

 

Timber and Land

 

 

 

 

 

 

 

Timber (1)

 

 

16,707

 

 

20,730

 

Land (1)

 

 

9,085

 

 

8,582

 

 

 



 



 

Total Timber and Land

 

 

25,792

 

 

29,312

 

Wood Products

 

 

 

 

 

 

 

Lumber

 

 

(2,559

)

 

(562

)

MDF

 

 

(679

)

 

(271

)

 

 



 



 

Total Wood Products

 

 

(3,238

)

 

(833

)

Other Operations

 

 

(4

)

 

(1,594

)

Corporate

 

 

(5,029

)

 

(6,405

)

Intersegment Elminations and Other

 

 

2,966

 

 

331

 

 

 



 



 

TOTAL OPERATING INCOME

 

$

19,246

 

$

27,642

 

 

 



 



 

(1) Subsequent to the Company’s original press release dated April 22, 2003, a reclassification of $2.2 million in sales and $0.3 million in operating income in the first quarter 2003 was made from the Timber product line to the Land product line.

Operating income (loss) as stated in the preceding tables and as presented in the Condensed Consolidated Statements of Income and Comprehensive Income is equal to Segment income (loss).  The income (loss) items below “Operating income” in the Condensed Consolidated Statements of Income and Comprehensive Income are not allocated to segments.  These items, which include interest (expense) income, miscellaneous income (expense) and income tax (expense), are not considered by Company management to be part of segment operations.

13


Table of Contents

Results of Operations

Sales and Operating Income

Sales and operating income for the first quarter of 2003 of $266 million and $19 million were $3 million and $8 million below the first quarter of 2002, respectively. The sales decrease was primarily due to unfavorable performance fibers sales mix, lower land sales and lower absorbent materials, U.S. timber and lumber prices.  Operating income also declined due to the lower prices as well as to higher performance fibers and MDF manufacturing costs.           

Performance Fibers

Performance fibers sales for the first quarter of $128 million were comparable to first quarter of 2002, while the segment had an operating loss of  $1 million compared to operating income of $7 million.   The unfavorable operating results were due to higher manufacturing costs, an unfavorable sales mix and lower absorbent material prices, partly offset by increased cellulose specialties prices.  Manufacturing costs were unfavorable largely due to higher hardwood prices caused by a weather related shortage in supply, increased energy costs and an extended maintenance shutdown at the Fernandina mill.  Also in the first quarter, a lower volume of high value-added cellulose specialties and a higher volume of lower-priced commodity absorbent materials were sold compared to first quarter 2002.  This unfavorable sales mix resulted from higher foreign cellulose specialties sales in the first quarter of 2002 versus 2003, and from the shortage of hardwood fiber, which limited production and sales of cellulose specialties. 

 

Cellulose Specialties

 

 

 

Sales of $87 million for the first quarter were $3 million below the prior year period.  While prices improved by 1 percent due to a change in product mix, volume decreased 5 percent due to the unfavorable sales mix as explained above.

 

 

 

Absorbent Materials

 

 

 

Sales of $41 million for the first quarter were $3 million above the prior year period due to an 11 percent increase in volume, partly offset by a 4 percent decline in average fluff pulp prices.  In addition to decreased fluff prices resulting from lower spot demand, the average price was further impacted by additional lower-priced paper pulp volume causing an unfavorable mix within the product line.

Timber and Land

Sales of $61 million in the first quarter were comparable to first quarter 2002, with higher timber sales offset by lower land sales.  Operating income of $26 million declined $4 million due to lower timber prices while land sales margins remained relatively constant.

 

Timber

 

 

 

Sales for the first quarter were $44 million, $1 million above the prior year period due to increased Northwest and Southeast U.S. volume of 11 percent and 10 percent, respectively, and a 62 percent increase in New Zealand timber prices due to the strengthening New Zealand dollar and improved product mix. These variances were partly offset by a 16 percent decrease in pine prices in the Southeast U.S. and a 9 percent decline in the Northwest U.S. timber prices.  In the Northwest U.S., prices declined due to generally weaker economic conditions and an increased supply of lumber from Canada despite the lumber import tariffs.  Although wet weather conditions in the Southeast U.S. resulted in poor availability of sawlogs and hardwood pulpwood, higher delivered prices to the customer were offset by higher logging and transportation costs resulting in no price changes at the forest level.  Pine pulpwood continued to be plentiful resulting in average prices declining.  Operating income of $17 million for the first quarter of 2003 was $4 million below the prior year period primarily due to lower U.S. timber prices and an unfavorable impact of balance sheet related foreign exchange translation partly offset by higher New Zealand timber prices.

 

 

 

Land

 

 

 

Sales for the first quarter of $18 million were $1 million below first quarter of 2002 while operating income of $9 million was comparable due to a first quarter 2002 New Zealand sale that resulted in a loss.

14


Table of Contents

Wood Products

Sales for the first quarter were $30 million, $4 million below first quarter 2002, primarily due to lower lumber volume and prices partly offset by higher MDF volume.  An operating loss of $3 million was $2 million unfavorable to first quarter 2002 primarily due to higher MDF manufacturing costs (affected by the New Zealand/U.S. dollar exchange rate) and lower lumber prices. 

Other Operations

Sales for the first quarter were $47 million, $1 million below first quarter 2002, with break-even operating income which represented an improvement of $2 million primarily due to higher log trading margins partly offset by lower wood products trading margins.     

Corporate

Corporate expenses of $5 million in the first quarter were $1 million below first quarter 2002 principally due to lower incentive compensation expenses.

Intersegment Eliminations and Other

Income of $3 million in the first quarter was $2 million above first quarter 2002 due to positive balance sheet related foreign exchange translation and lower intersegment eliminations. 

Other Income / Expense 

Interest expense for the first quarter of 2003 was $12 million, a decrease of $3 million from the prior year period mainly due to lower debt.  Interest and miscellaneous income of $1 million was $0.7 million higher than first quarter 2002 primarily due to $0.8 million of interest income relating to settlement of pre-1994 tax audit issues.

The following table reconciles the Company’s income tax provision at the U.S. statutory tax rate to the reported provision and effective tax rate for the first three months ended March 31 (dollars in millions):

 

 

2003

 

%

 

2002

 

%

 

 

 


 


 


 


 

Income tax provision from continuing operations at U.S. statutory rate

 

$

2.8

 

 

35.0

 

$

4.4

 

 

35.0

 

State and local taxes, net of federal benefit

 

 

0.1

 

 

0.7

 

 

0.1

 

 

0.8

 

Foreign operations

 

 

(0.6

)

 

(7.9

)

 

(0.6

)

 

(4.9

)

Tax benefit on foreign sales

 

 

(0.1

)

 

(1.2

)

 

(0.5

)

 

(3.5

)

Permanent differences

 

 

(0.1

)

 

(1.0

)

 

0.1

 

 

0.5

 

Tax benefit from audit negotiations

 

 

(2.3

)

 

(29.4

)

 

—  

 

 

—  

 

Research and development tax credits and other, net

 

 

(0.1

)

 

(0.4

)

 

0.1

 

 

0.5

 

 

 



 



 



 



 

Income tax (benefit) provision from continuing operations as reported

 

$

(0.3

)

 

(4.2

)

$

3.6

 

 

28.4

 

 

 



 



 



 



 

The effective tax rate for the first quarter of 2003 was (4.2) percent compared to 28.4 percent for the prior year first quarter, mainly due to the benefits arising from tax audit negotiations and foreign operations.  See also Note 9-Contingencies for additional information relating to the tax audit negotiations. 

Income from Continuing Operations

Income from continuing operations for the first quarter of 2003 was $8.2 million, or $0.29 per diluted common share, compared to $9 million, or $0.32 per diluted common share, for the prior year first quarter.  The decrease is primarily due to higher performance fibers’ hardwood and energy costs and lower Southeast U.S. timber and lumber prices, partially offset by lower interest expense.

15


Table of Contents

Income (loss) from Discontinued Operations

The Company did not have any discontinued operations income or loss for the three months ended March 31, 2003.  Income from discontinued operations for the quarter ended March 31, 2002 was $0.4 million or $0.01 per share. 

Other Items

The Company expects second quarter 2003 reported earnings to be significantly higher than first quarter primarily due to the April 14, 2003 closing of the $40 million Matanzas Marsh land sale.  Stronger results are also expected from Performance Fibers due to improved product mix, volume and absorbent materials prices, while U.S. timber volume is expected to be lower.

Liquidity and Capital Resources

Cash Flow

Cash flow provided by operating activities from continuing operations of $39 million for the three months ended March 31, 2003, was $22 million below the same period in the prior year, primarily due to lower operating income, higher working capital requirements and a $10 million pension fund contribution.  Cash provided by operating activities from continuing operations and existing cash investments at the beginning of the quarter financed capital expenditures of $18 million, dividends of $10 million and debt reduction of $26 million.  Cash flow used for financing activities for the three months ended March 31, 2003 was slightly less than the prior year period due to lower net debt repayments partly offset by lower employee stock options exercised.  The Company did not repurchase any of its common shares during the first three months of 2003 or 2002.  The Company did not have any cash investments at March 31, 2003, but had $21million of cash investments as of March 31, 2002, consisting of marketable securities with maturities at date of acquisition of 90 days or less. 

In April 2003, the Company made payments totaling $16 million to the Internal Revenue Service (“IRS”) in anticipation of settling prior year tax audits. Included in the payments was $11 million of tax and $5 million of interest.    In January 2003, the Company contributed $10 million to its pension plans; there are no material pension contributions required for the remainder of 2003.  The Company continues to anticipate a potential increase of $5 million in environmental spending for 2003 versus 2002. 

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) and the discussion of EBITDA and Free Cash Flow is not intended to conflict with or change any of the GAAP disclosures.  Management considers these measures to be important  to estimate the enterprise and shareholder values of the Company as a whole and of its core segments, and for allocating capital resources.  In addition, analysts, investors and creditors use these measures when analyzing the financial condition and cash generating ability of the Company.  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 interest expense, income taxes, depreciation, depletion, amortization and the non-cash cost of land sales.  EBITDA is a non-GAAP measure of gross cash generating capacity of the Company.  EBITDA of $65 million was $9 million below the prior year first quarter primarily due to lower operating income.

Below is a reconciliation of Cash Provided by Operating Activities of Continuing Operations to EBITDA for the respective periods (in millions except diluted per share amounts:

 

 

Three months ended March 31,

 

 

 


 

 

 

2003

 

2002

 

 

 


 


 

Cash Provided by Operating Activities of Continuing Operations

 

$

39.3

 

$

61.7

 

Income tax (benefit) expense

 

 

(0.3

)

 

3.6

 

Interest expense

 

 

12.4

 

 

15.5

 

Working capital increase (decrease)

 

 

5.6

 

 

(3.0

)

Other balance sheet changes

 

 

7.8

 

 

(3.9

)

 

 



 



 

EBITDA

 

$

64.8

 

$

73.9

 

 

 



 



 

EBITDA per share

 

$

2.31

 

$

2.63

 

 

 



 



 

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Table of Contents

Free Cash Flow is defined as cash provided by operating activities of continuing operations less net custodial capital spending, dividends at the prior year level and the tax benefit on the exercise of stock options.  Free Cash Flow is a non-GAAP measure of discretionary cash available for capital expenditures, paying dividends above the prior year level, repurchasing the Company’s common shares and/or reducing debt. 

Below is a reconciliation of Cash Provided by Operating Activities of Continuing Operations to Free Cash Flow for the respective periods (in millions):

 

 

Three months ended March 31,

 

 

 


 

 

 

2003

 

2002

 

 

 


 


 

Cash provided by Operating Activities of

 

 

 

 

 

 

 

Continuing Operations

 

$

39.3

 

$

61.7

 

Custodial capital spending, net

 

 

(16.0

)

 

(14.9

)

Dividends at prior year level

 

 

(10.0

)

 

(9.9

)

Tax benefit on exercise of stock options

 

 

—  

 

 

(1.3

)

 

 



 



 

Free Cash Flow

 

$

13.3

 

$

35.6

 

 

 



 



 

Free Cash Flow for the three months ended March 31, 2003, was $13 million, $22 million below the prior year period.  The decrease resulted from higher working capital requirements, a $10 million pension contribution and lower operating earnings.    

Debt

At March 31, 2003 debt was $627 million, representing a reduction of $26 million from December 31, 2002.  The debt-to-capital ratio was 47.0 percent compared with 48.0 percent at December 31, 2002.  Net debt, defined as debt less cash invested and intended for future debt reduction, is an additional non-GAAP measure that management uses as an indication of anticipated debt levels.  Net debt at March 31, 2003, was also $627 million as there were no cash investments.  Net debt at December 31, 2002 of $639 million was net of cash invested of $14 million.    

Rayonier has a revolving credit agreement with a group of banks that provide the Company with unsecured credit facilities totaling $170 million.  The revolving credit facilities are used for direct borrowings and in the past, as credit support for a commercial paper program.  As of March 31, 2003, the Company had $170 million of available borrowings under its facility, which expires in November 2004.  In addition, in connection with the financing of the Smurfit timberland acquisition, Rayonier Timberlands Operating Company, L.P. (RTOC), a wholly owned subsidiary of Rayonier, 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.  The balance of the term loan of $30 million at December 31, 2002 was paid off during the first quarter of 2003.  RTOC had $75 million of available borrowings as of March 31, 2003 under the revolving credit portion which expires in October 2004. 

In conjunction with the Company’s long-term debt, certain covenant restrictions are required based on the ratios of EBITDA to interest expense and total debt to EBITDA.  In addition, there are covenant requirements in effect for RTOC on the ratio of consolidated cash flow available for fixed charges to consolidated fixed charges and on the ratio of consolidated debt to consolidated cash flow available for fixed charges.  The covenants listed below are calculated on a trailing 12-month basis. 

The most restrictive long-term debt covenants in effect for Rayonier as of March 31, 2003, are as follows:

 

 

Covenant
Requirement

 

Actual ratio at
March 31, 2003

 

Favorable
(Unfavorable)

 

 

 


 


 


 

EBITDA to consolidated interest expense should not be less than

 

 

2.50 to 1

 

 

5.14 to 1

 

 

2.64

 

Total debt to EBITDA should not exceed

 

 

4.00 to 1

 

 

2.05 to 1

 

 

1.95

 

RTOC consolidated cash flow available for fixed charges to RTOC consolidated fixed charges should not be less than

 

 

1.65 to 1

 

 

2.41 to 1

 

 

0.76

 

RTOC consolidated debt to RTOC consolidated cash flow available for fixed charges may not exceed

 

 

4.25 to 1

 

 

2.84 to 1

 

 

1.41

 

In addition to the covenants listed above, the credit agreements include customary covenants that limit the incurrence of debt, the disposition of assets and the making of certain payments between RTOC and Rayonier.  The Company is currently in compliance with all of these covenants. 

The Company has on file with the Securities and Exchange Commission, a shelf registration statement to offer $150 million of new public debt securities.  Management believes that internally generated funds, combined with available external financing 

17


Table of Contents

as described above, will enable Rayonier to fund capital expenditures, dividends, share repurchases, working capital, and other liquidity needs for the foreseeable future.

During the second quarter of 2002, the Company guaranteed five years of Crown forest timberland lease obligations estimated at $1.6 million per year in conjunction with the sale of its New Zealand East Coast operations.  See Note 6-Discontinued Operations in the Notes to the Condensed Consolidated Financial Statements for additional information regarding the guarantee.  No material changes in guarantees or financial instruments such as letters of credit and surety bonds occurred during the first three months of 2003. 

New Accounting Standards

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. This Interpretation applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date.  It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise held a variable interest that it acquired on or before January 31, 2003.  The Company will adopt this Interpretation as of July 1, 2003.  The Company believes it does not have any unconsolidated variable interests that constitute a majority variable interest requiring consolidation, and as a result, there will be no impact on its financial condition, results of operations or cash flows upon adoption. 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Market Risk

The Company is exposed to various market risks, including changes in interest rates, foreign exchange rates and commodity prices.  The Company’s objective is to minimize the economic impact of these market risks.  Derivatives are used in accordance with policies and procedures approved by the Finance Committee of the Board of Directors and are managed by a senior executive committee whose responsibilities include initiating, managing and monitoring resulting exposures.  The Company does not enter into financial instruments for trading or speculative purposes.  See Note 7-Financial Instruments included in the Notes to the Condensed Consolidated Financial Statements.

The fair market value of the Company’s long-term fixed interest rate debt is subject to interest rate risk; however, Rayonier intends to hold most of its debt until maturity.  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 March 31, 2003, the Company had one interest rate swap agreement maturing in 2004 that resulted in an asset with a fair market value of $1.5 million.  Generally, the fair market value of fixed-interest rate debt will increase as interest rates fall and decrease as interest rates rise.   

On April 9, 2003, RTOC entered into an interest rate swap on $40 million of 8.288 percent fixed rate notes payable maturing on December 31, 2007.  The swap converts interest payments from fixed rates to floating rates and qualifies as a fair value hedge under SFAS No. 133.  As such, the net effect from the interest rate swap will be recorded as interest expense. 

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 and periodically enters into foreign currency forward contracts to hedge the risks of foreign currency fluctuations.  At March 31, 2003, the Company held foreign currency contracts maturing through April 2004 totaling $10 million.  The fair value of outstanding foreign currency contracts at March 31, 2003 was an asset of approximately $1.1 million.  Market risk resulting from a hypothetical 4-cent change in the New Zealand dollar/U.S. dollar exchange rate on the outstanding foreign currency contracts amounts to an approximate change of $0.7 million in pre-tax income/loss. 

The Company periodically enters into commodity forward contracts to fix certain fuel oil costs.  The forward contracts partially mitigate the risk of a change in Performance Fibers margins resulting from an increase or decrease in fuel oil costs.   The Company does not enter into commodity forwards for trading or speculative purposes.  In February 2003, the Company entered into contracts that fixed 90,000 barrels of fuel oil at $24.90 for the second quarter of 2003 and 60,000 barrels at $22.82 for the third quarter of 2003.  This represents approximately 50 percent and 30 percent of the Company’s second and third quarter estimated fuel oil consumption, respectively.  These contracts do not qualify for hedge accounting under SFAS No. 133 and are marked to market.  The market valuation on the contracts as of March 31, 2003 resulted in an increase in “Other Operating Expense” of $0.5 million.

18


Table of Contents

For a full description of the Company’s market risk, please refer to Item 7, Management Discussion and Analysis of Financial Condition and Results of Operations, in the 2002 Annual Report on Form 10-K.

Safe Harbor

Comments about market trends, anticipated earnings, expected pricing and volume levels, projected capital spending levels (including the expected costs of compliance with environmental regulations), sufficiency of reserves, availability of tax deductions and the ultimate effect of legal actions (including those involving environmental matters) 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; interest rate and currency movements; changes in capital markets and the resulting impact on returns on the Company’s pension plan assets and certain stock-based incentive plans; 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.  For additional factors that could impact future results, please see the Company’s 2002 Annual Report on Form 10-K on file with the Securities and Exchange Commission.

Item 4.  Controls and Procedures

On May 8, 2003, the Company’s disclosure committee met with the Chief Executive Officer and the Chief Financial Officer (the “certifying officers”) to evaluate the Company’s disclosure controls and procedures.  Based on such evaluation, the certifying officers concluded that the Company’s disclosure controls and procedures are well designed and effective in seeing that material information regarding the Company is promptly made available to senior management, including the certifying officers, in order to allow the Company to meet its reporting requirements under the Securities Exchange Act of 1934 in a timely manner.  The Company’s disclosure committee met with the Chief Executive Office and the Chief Financial Officer again on May 9, 2003 to finalize disclosure in this Form 10-Q.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their most recent evaluation.   

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

On February 22, 2001, the Company received a notice of proposed disallowance from the Internal Revenue Service (IRS), arising from an issue in dispute regarding the Company’s 1996 and 1997 federal tax returns, which could have resulted in an additional tax liability of $28.3 million. The Company had been discussing this issue with the IRS since 1999 and in the first quarter of 2003, it accepted a proposal from the IRS (the “Settlement Initiative”) in order to expedite the resolution of the matter. Under the Settlement Initiative the maximum disallowance was set at a 90 percent level. Accordingly, the Company adjusted its estimated first quarter 2003 tax provision to recognize a tax benefit of $2.3 million at a 10 percent minimum allowance threshold.    Final resolution of this matter is not likely to occur until after 2003.  In April 2003, the Company made pre-payments to the IRS totaling $16 million, $11 million in tax and $5 million in interest, in anticipation of audit settlements pertaining to this issue.

In December 2001, the United States commenced a lawsuit against the Company in the United States District Court for the Western Division of Washington to recover costs allegedly incurred by EPA in 1997 to conduct an Expanded Site Investigation at the Company’s Port Angeles mill site.  The EPA currently claims approximately $3.0 million in such costs.  Rayonier is challenging the EPA’s authority to recover this type of cost, as well as the validity of the amount spent.  The Company believes that the ultimate outcome will not have a material adverse impact on the Company’s financial position, liquidity or results of operations and that its reserves at March 31, 2003 adequately include the probable costs to be incurred upon the ultimate resolution of the dispute.

19


Table of Contents

Item 5(a).  Selected Supplemental Financial Data* 

 

 

Three Months Ended

 

 

 


 

 

 

March 31,
2003

 

March 31,
2002

 

 

 


 


 

Performance Fibers

 

 

 

 

 

 

 

Sales Volume

 

 

 

 

 

 

 

Cellulose specialties, in thousands of metric tons

 

 

99

 

 

104

 

Absorbent materials, in thousands of metric tons

 

 

78

 

 

70

 

Production as a percent of capacity

 

 

97.7

%

 

96.3

%

Timber and Land

 

 

 

 

 

 

 

Sales volume - Timber

 

 

 

 

 

 

 

Northwest U.S., in millions of board feet

 

 

77

 

 

70

 

Southeast U.S., in thousands of short green tons  (1)

 

 

1,194

 

 

1,241

 

New Zealand, in thousands of metric tons

 

 

111

 

 

121

 

Timber sales volume -

 

 

 

 

 

 

 

Intercompany

 

 

 

 

 

 

 

Northwest U.S., in millions of board feet

 

 

—  

 

 

15

 

Southeast U.S., in thousands of short green tons

 

 

3

 

 

5

 

New Zealand, in thousands of metric tons

 

 

19

 

 

13

 

Acres sold

 

 

19,708

 

 

18,900

 

Wood Products

 

 

 

 

 

 

 

Lumber sales volume, in millions of board feet

 

 

71

 

 

79

 

Medium-density fiberboard sales volume, in thousands of cubic meters

 

 

41

 

 

36

 

 

 

* Prior period amounts were reclassified to reflect the New Zealand East Coast operations as  discontinued operations

 

 

(1)

Subsequent to the Company’s original press release dated April 22, 2003, a reclassification was recorded from the Timber product line to the Land product line, resulting in a reduction in 2003 timber sales volume previously recorded.

20


Table of Contents

Item 5(a).  Selected Supplemental Financial Data* (millions of dollars)

 

 

Three Months Ended

 

 

 


 

 

 

March 31,
2003

 

March 31,
2002

 

 

 


 


 

Geographical Data (Non-U.S.)

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

New Zealand

 

$

18.5

 

$

19.8

 

Other

 

 

4.6

 

 

13.3

 

 

 



 



 

Total

 

$

23.1

 

$

33.1

 

 

 



 



 

Operating income  (loss)

 

 

 

 

 

 

 

New Zealand

 

$

1.5

 

$

(0.6

)

Other

 

 

(0.4

)

 

(1.4

)

 

 



 



 

Total

 

$

1.1

 

$

(2.0

)

 

 



 



 

Timber

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

Northwest U.S.

 

$

20.3

 

$

17.3

 

Southeast U.S.  (1)

 

 

19.4

 

 

22.7

 

New Zealand

 

 

3.9

 

 

2.3

 

 

 



 



 

Total

 

$

43.6

 

$

42.3

 

 

 



 



 

Operating income  (loss)

 

 

 

 

 

 

 

Northwest U.S.

 

$

12.6

 

$

12.9

 

Southeast U.S. (1)

 

 

4.2

 

 

7.8

 

New Zealand

 

 

(0.1

)

 

—  

 

 

 



 



 

Total

 

$

16.7

 

$

20.7

 

 

 



 



 

EBITDA

 

 

 

 

 

 

 

Performance Fibers

 

$

17.5

 

$

25.1

 

Timber and Land

 

 

48.5

 

 

53.6

 

Wood Products

 

 

(0.3

)

 

2.3

 

Other Operations

 

 

0.2

 

 

(1.1

)

Corporate and other

 

 

(1.1

)

 

(6.0

)

 

 



 



 

Total

 

$

64.8

 

$

73.9

 

 

 



 



 

 

 

* Prior period amounts were reclassified to reflect the New Zealand East Coast operations as  discontinued operations

 

 

(1)

Subsequent to the Company’s original press release dated April 22, 2003, a reclassification of $2.2 million in sales and $0.3 million in operating income in the first quarter 2003 was made from the Timber product line to the Land product line.

21


Table of Contents

Item 5(b).  Other Information

 

(b)

Approval of Non-Audit Services To Be Performed By Independent Auditors

 

 

 

 

 

At the Audit Committee’s regularly scheduled February meeting, the Committee approved non-audit services to be provided by Deloitte & Touche, independent auditors, covering compliance reviews of foreign entities non-income tax requirements in the aggregate amount of $9,000.

Item 6.  Exhibits and Reports on Form 8-K

 

(a)

See Exhibit Index

 

 

 

 

b)

Reports on Form 8-K:

 

 

 

 

 

 

1)

Rayonier filed a report on Form 8-K dated February 28, 2003 to announce the Company’s plans to invest $25 million to upgrade the Jesup, GA, Performance Fibers mill.

SIGNATURE

 

 

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

RAYONIER INC. (Registrant)

 

 

 

BY:

 

 

 

/s/ HANS E. VANDEN NOORT

 

 


 

 

Hans E. Vanden Noort
Vice President and
Corporate Controller

 

 

 

May 9, 2003

 

22


Table of Contents

CERTIFICATIONS UNDER EXCHANGE ACT RULE 13a-14

I, W. L. Nutter, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Rayonier Inc.;

 

 

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

 

 

 

a.

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

 

 

 

 

 

b.

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

 

 

 

 

 

c.

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

 

 

 

a.

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

 

 

 

 

 

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

 

 

 

6.

The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:  May 9, 2003

 

 

 

 

/s/ W. L. NUTTER

 


 

W. L. Nutter
Chairman, President and Chief Executive Officer, Rayonier Inc.

 

 

23


Table of Contents

I, Gerald J. Pollack, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Rayonier Inc.;

 

 

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

 

 

 

a.

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

 

 

 

 

 

b.

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

 

 

 

 

 

c.

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

 

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

 

 

 

a.

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

 

 

 

 

 

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

 

 

 

6.

The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:  May 9, 2003

 

 

/s/ GERALD J. POLLACK

 


 

Gerald J. Pollack
Senior Vice President and Chief Financial Officer, Rayonier Inc.

24


Table of Contents

EXHIBIT INDEX

EXHIBIT NO.

 

DESCRIPTION

 

LOCATION


 


 


2

 

Plan of acquisition, reorganization,arrangement, liquidation or succession

 

None

 

 

 

 

 

3.1

 

Amended and restated articles of incorporation

 

No amendments

 

 

 

 

 

3.2

 

By-laws

 

No amendments

 

 

 

 

 

4

 

Instruments defining the rights of security holders, including indentures

 

Not required to be filed.  The Registrant hereby agrees to file with the Commission a copy of any instrument defining the rights of holders of the Registrant’s long-term debt upon request of the Commission.

 

 

 

 

 

10

 

Material contracts

 

None

 

 

 

 

 

11

 

Statement re: computation of per share earnings

 

Not required to be filed

 

 

 

 

 

12

 

Statement re: computation of ratios

 

Filed herewith

 

 

 

 

 

15

 

Letter re: unaudited interim financial information

 

None

 

 

 

 

 

18

 

Letter re: change in accounting principles

 

None

 

 

 

 

 

19

 

Report furnished to security holders

 

None

 

 

 

 

 

22

 

Published report regarding matters submitted to vote of security holders

 

None

 

 

 

 

 

23

 

Consents of experts and counsel

 

None

 

 

 

 

 

24

 

Power of attorney

 

None

 

 

 

 

 

99

 

Certification of periodic financial reports under Section 906 of the Sarbanes-Oxley Act of 2002

 

Filed herewith

25