1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 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 ( ) As of August 4, 2001, there were outstanding 27,236,502 Common Shares of the Registrant.
2 RAYONIER INC. FORM 10-Q JUNE 30, 2001 TABLE OF CONTENTS <TABLE> <CAPTION> PAGE <S> <C> PART I. FINANCIAL INFORMATION Item l. Financial Statements Statements of Consolidated Income for the Three Months and Six Months Ended June 30, 2001, and 2000 1 Consolidated Balance Sheets as of June 30, 2001, and December 3l, 2000 2 Statements of Consolidated Cash Flows for the Six Months Ended June 30, 2001, and 2000 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk 9 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 9 Item 5. Selected Operating Data 10 Item 6. Exhibits and Reports on Form 8-K 12 Signature 12 Exhibit Index 13 </TABLE> i
3 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS RAYONIER INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (unaudited) (Thousands of dollars, except per share data) <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2001 2000 2001 2000 --------- --------- --------- --------- <S> <C> <C> <C> <C> SALES $ 346,362 $ 303,910 $ 622,849 $ 658,507 --------- --------- --------- --------- Costs and Expenses Cost of sales 272,167 246,280 503,688 514,715 Selling and general expenses 9,635 9,416 17,193 19,352 Other operating expense (income), net 38 948 (432) 2,521 --------- --------- --------- --------- 281,840 256,644 520,449 536,588 --------- --------- --------- --------- OPERATING INCOME 64,522 47,266 102,400 121,919 Interest expense (17,537) (21,612) (36,452) (44,402) Interest and miscellaneous income (expense), net 737 (790) 214 (623) --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 47,722 24,864 66,162 76,894 Income tax expense (16,259) (7,433) (22,447) (23,990) --------- --------- --------- --------- NET INCOME $ 31,463 $ 17,431 $ 43,715 $ 52,904 ========= ========= ========= ========= EARNINGS PER COMMON SHARE (EPS) BASIC EPS $ 1.16 $ 0.64 $ 1.61 $ 1.93 ========= ========= ========= ========= DILUTED EPS $ 1.14 $ 0.63 $ 1.59 $ 1.90 ========= ========= ========= ========= </TABLE> The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements 1
4 RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Thousands of dollars) <TABLE> <CAPTION> ASSETS June 30, December 31, 2001 2000 ---------- ---------- <S> <C> <C> CURRENT ASSETS Cash and short-term investments $ 10,113 $ 9,824 Accounts receivable, less allowance for doubtful accounts of $3,573 and $3,969 119,834 117,114 Inventories Finished goods 63,327 60,627 Work in process 8,729 9,076 Raw materials 9,690 11,044 Manufacturing and maintenance supplies 16,956 16,359 ---------- ---------- Total inventories 98,702 97,106 Timber purchase agreements 28,971 33,775 Other current assets 9,106 12,779 ---------- ---------- Total current assets 266,726 270,598 ---------- ---------- OTHER ASSETS 58,078 63,129 TIMBER PURCHASE AGREEMENTS 6,168 6,335 TIMBER, TIMBERLANDS AND LOGGING ROADS, NET OF DEPLETION AND AMORTIZATION 1,147,758 1,192,388 PROPERTY, PLANT AND EQUIPMENT Land, buildings, machinery and equipment 1,373,505 1,360,296 Less - accumulated depreciation 766,713 730,472 ---------- ---------- Total property, plant and equipment, net 606,792 629,824 ---------- ---------- TOTAL ASSETS $2,085,522 $2,162,274 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 65,825 $ 87,401 Bank loans and current maturities 2,580 2,565 Accrued taxes 22,131 10,314 Accrued payroll and benefits 25,561 27,756 Accrued interest 26,225 11,745 Accrued customer incentives 9,103 18,163 Other current liabilities 19,581 22,389 Current reserves for dispositions and discontinued operations 15,239 15,434 ---------- ---------- Total current liabilities 186,245 195,767 ---------- ---------- DEFERRED INCOME TAXES 131,428 130,333 LONG-TERM DEBT 876,605 970,415 NON-CURRENT RESERVES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS 157,879 161,465 OTHER NON-CURRENT LIABILITIES 24,160 24,193 SHAREHOLDERS' EQUITY Common Shares, 60,000,000 shares authorized, 27,225,002 and 27,104,462 shares issued and outstanding 53,658 48,717 Retained earnings 655,547 631,384 ---------- ---------- 709,205 680,101 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,085,522 $2,162,274 ========== ========== </TABLE> The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements. 2
5 RAYONIER INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (unaudited) (Thousands of dollars) <TABLE> <CAPTION> Six Months Ended June 30, ----------------------- 2001 2000 --------- --------- <S> <C> <C> OPERATING ACTIVITIES Net income $ 43,715 $ 52,904 Non-cash items included in income: Depreciation, depletion and amortization 99,820 92,801 Deferred income taxes (316) 4,839 Non-cash cost of land sales 8,170 8,058 (Decrease) increase in other non-current liabilities (33) 3,913 Change in accounts receivable, inventory and accounts payable (25,988) 1,250 Decrease (increase) in current timber purchase agreements 4,804 (6,510) Decrease (increase) in other current assets 3,673 (2,309) Increase in accrued liabilities 12,234 1,431 Expenditures for dispositions and discontinued operations, net of tax benefits of $1,411 and $1,802 (2,370) (3,118) --------- --------- CASH FROM OPERATING ACTIVITIES 143,709 153,259 --------- --------- INVESTING ACTIVITIES Capital expenditures, net of sales and retirements of $237 and $571 (39,771) (49,431) Change in timber purchase agreements and other assets 4,757 8,801 --------- --------- CASH USED FOR INVESTING ACTIVITIES (35,014) (40,630) --------- --------- FINANCING ACTIVITIES Issuance of debt 135,000 55,549 Repayment of debt (228,795) (138,748) Dividends paid (19,552) (19,652) Repurchase of common shares -- (9,350) Issuance of common shares 4,941 1,723 --------- --------- CASH USED FOR FINANCING ACTIVITIES (108,406) (110,478) --------- --------- CASH AND SHORT TERM INVESTMENTS Increase in cash and short-term investments 289 2,151 Balance, beginning of year 9,824 12,265 --------- --------- Balance, end of period $ 10,113 $ 14,416 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 21,972 $ 43,574 ========= ========= Income taxes $ 14,221 $ 11,208 ========= ========= </TABLE> The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated statements. 3
6 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED) 1. BASIS OF PRESENTATION The unaudited financial statements reflect, in the opinion of Rayonier Inc. and subsidiaries (Rayonier or the Company), 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. For a full description of accounting policies, please refer to the Notes to Consolidated Financial Statements in the 2000 Annual Report on Form 10-K. 2. EARNINGS PER COMMON SHARE The following table provides details of the calculation of basic and diluted earnings per common share in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" for the three months and six months ended June 30, 2001, and 2000 (share amounts actual): <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30 June 30 2001 2000 2001 2000 ---- ---- ----- ---- <S> <C> <C> <C> <C> Net income $ 31,463 $ 17,431 $ 43,715 $ 52,904 =========== =========== =========== =========== Shares used for determining basic earnings per common share 27,166,182 27,324,476 27,145,779 27,357,419 Dilutive effect of: Stock options 216,054 192,293 210,763 193,325 Contingent shares 202,000 360,000 202,000 360,000 ----------- ----------- ----------- ----------- Shares used for determining diluted earnings per common share 27,584,236 27,876,769 27,558,542 27,910,744 =========== =========== =========== =========== Basic earnings per common share $ 1.16 $ 0.64 $ 1.61 $ 1.93 =========== =========== =========== =========== Diluted earnings per common share $ 1.14 $ 0.63 $ 1.59 $ 1.90 =========== =========== =========== =========== </TABLE> 3. 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. The adoption did not have a material impact on the Company's consolidated financial position or results of operations. Rayonier holds New Zealand dollar forward contracts in order to minimize foreign exchange risk. The Company has exposure on New Zealand dollar denominated expenses it pays in conjunction with its operations in New Zealand. These contracts are marked to market as in the past, and the resulting gains and losses are included in the "Interest and miscellaneous income (expense), net" line. The Company incurred a gain of approximately $0.2 million and a loss of approximately $0.8 million on these foreign currency contracts during the three months and six months ended June 30, 2001, respectively. At June 30, 2001, the Company held contracts maturing through April 2002 totaling $6.3 million (nominal value). The Company also held Danish Krone forward contracts during the first six months of 2001 to hedge a firm commitment related to equipment purchases. The final payment on the equipment, payable in Danish Krones, was made by the Company during June 2001, and all outstanding Danish Krone contracts matured. The maximum foreign currency forward contracts outstanding during the first six months of 2001 totaled $17.7 million. 4
7 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLAR AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED) 4. IDENTIFIABLE ASSETS Total assets by segment as of June 30, 2001, and December 31, 2000, follows (in millions): IDENTIFIABLE ASSETS <TABLE> <CAPTION> 2001 2000 ---- ---- <S> <C> <C> Performance Fibers $ 613 $ 643 Timberland Management 1,210 1,243 Wood Products and Trading 228 234 Corporate and other 24 32 Dispositions 11 10 ------ ------ Total $2,086 $2,162 ====== ====== </TABLE> See Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations for information about segment sales and operating income. 5. SHAREHOLDERS' EQUITY An analysis of shareholders' equity for the six months ended June 30, 2001, and the year ended December 31, 2000, follows (share amounts actual): <TABLE> <CAPTION> Common Shares Total -------------------------- Retained Shareholders' Shares Amount Earnings Equity ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> BALANCE, JANUARY 1, 2000 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 -- -- 43,715 43,715 Dividends paid ($0.72 per share) -- -- (19,552) (19,552) Issuance of shares under incentive stock plans 120,540 4,941 -- 4,941 Repurchase of common shares -- -- -- -- ----------- ----------- ----------- ----------- BALANCE, JUNE 30, 2001 27,225,002 $ 53,658 $ 655,547 $ 709,205 =========== =========== =========== =========== </TABLE> 6. RECLASSIFICATIONS Certain reclassifications of the prior period amounts have been made to conform to the current year presentation. 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." Freight costs are now charged to cost of sales rather than netted against sales. The Company's financial statements have been reclassified to reflect the increase in sales and cost of sales of $20.4 million for the three months ended June 30, 2000, and $36.2 million for the six months ended June 30, 2000. On November 28, 2000, the Company announced its intention to focus on two core businesses, Performance Fibers and Timberland Management, and de-emphasize activities in a third segment, Wood Products and Trading. Based upon the segment changes and the Company's intention of selling timberlands on a more regular basis, certain items in the financial statements have been reclassified. The gain of $23.1 million from the sale of timberland in the first quarter of 2000 was reclassified to Timberland and Real Estate and had the effect of increasing sales by $49.6 million and cost of sales by $26.5 million. The non-cash expenses relating to the depletion of merchantable and pre-merchantable timber for timberland sales are recorded in the "Depreciation, depletion and amortization" line of the cash flow statement, and the basis in the land is recorded in the "Non-cash cost of land sales" line. All changes noted herein had no effect on net income or earnings per share in the prior period. 5
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SEGMENT INFORMATION Rayonier operates in three major business segments: Performance Fibers, Timberland Management, and Wood Products and Trading. The Performance Fibers segment includes two reportable business units, Cellulose Specialties and Absorbent Materials. The Timberland Management segment includes two reportable business units, Timber Harvest, and Timberland and Real Estate. Prior years' segment information has been reclassified to conform with the segment information presented in the current year. The amounts and relative contributions to sales and operating income attributable to each of Rayonier's reportable business units for the three months and six months ended June 30, 2001, and 2000, were as follows (thousands of dollars): <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2001 2000 2001 2000 --------- --------- --------- --------- <S> <C> <C> <C> <C> SALES Performance Fibers Cellulose Specialties $ 95,930 $ 86,531 $ 185,885 $ 173,969 Absorbent Materials 49,791 57,469 98,870 111,183 --------- --------- --------- --------- Total Performance Fibers 145,721 144,000 284,755 285,152 --------- --------- --------- --------- Timberland Management Timber Harvest 49,839 50,606 111,663 113,283 Timberland and Real Estate 62,224 3,856 63,458 56,935 --------- --------- --------- --------- Total Timberland Management 112,063 54,462 175,121 170,218 --------- --------- --------- --------- Wood Products and Trading 92,284 114,633 176,091 222,515 Intersegment Eliminations (3,706) (9,185) (13,118) (19,378) --------- --------- --------- --------- TOTAL SALES $ 346,362 $ 303,910 $ 622,849 $ 658,507 ========= ========= ========= ========= OPERATING INCOME (LOSS) Performance Fibers 13,158 21,008 27,878 38,509 Timberland Management Timber Harvest 21,370 27,881 56,673 68,647 Timberland and Real Estate 34,344 3,089 35,184 29,107 --------- --------- --------- --------- Total Timberland Management 55,714 30,970 91,857 97,754 --------- --------- --------- --------- Wood Products and Trading (39) (783) (6,252) (2,662) Corporate and other (4,311) (3,929) (11,083) (11,682) --------- --------- --------- --------- TOTAL OPERATING INCOME $ 64,522 $ 47,266 $ 102,400 $ 121,919 ========= ========= ========= ========= </TABLE> RESULTS OF OPERATIONS SALES AND OPERATING INCOME Sales for the second quarter of 2001 were $346 million, $42 million above prior year, primarily due to a major timberland sale and continued strength in Cellulose Specialties markets. Operating income for the second quarter was $65 million, $17 million above prior year, primarily due to the major timberland sale. Sales for the six months ended June 30, 2001, were $623 million, $36 million lower than for the same period of 2000, mainly due to weaker trading activity and lower lumber prices and volume. Operating income for the six months ended June 30, 2001, was $102 million, $20 million lower than prior year, primarily due to lower timber prices, higher Performance Fibers manufacturing costs and unfavorable trading activity. 6
9 PERFORMANCE FIBERS Sales of Performance Fibers products for the second quarter of 2001 were $146 million, $2 million higher than second-quarter 2000, while sales for the six months ended June 30, 2001, of $285 million, were essentially flat compared to last year's results. Operating income for the three and six months ended June 30, 2001, was $13 million and $28 million, respectively, which was $8 million and $11 million lower than the year ago results. The decline in operating income was due to lower fluff pulp prices and higher manufacturing costs, partially offset by strength in Cellulose Specialties sales volumes. CELLULOSE SPECIALTIES Cellulose Specialty sales of $96 million for the second quarter of 2001 were $9 million higher than the second quarter of 2000 and sales of $186 million for the six months ended June 30, 2001, were $12 million higher compared to the same period in 2000. The increase, over prior year for the three- and six-month periods, was primarily due to 12 percent and 9 percent higher sales volumes, respectively, partly offset by slightly lower prices. ABSORBENT MATERIALS Absorbent Material sales of $50 million for the second quarter of 2001 were $8 million lower than the second quarter of 2000, while sales of $99 million for the six months ended June 30, 2001, were $12 million lower compared to the same period in 2000. The decrease from prior year for the three and six month periods, was primarily due to lower sales volumes of 8 percent and 12 percent, respectively, as well as to weaker fluff pulp prices. TIMBERLAND MANAGEMENT Sales of $112 million and operating income of $56 million for second-quarter 2001 were $58 million and $25 million higher than second-quarter 2000, respectively. Sales of $175 million for the six months ended June 30, 2001, were $5 million above prior year, while operating income of $92 million was $6 million lower than the same period in 2000. TIMBER HARVEST Timber Harvest sales for the second quarter of 2001 were $50 million, essentially even with the second quarter of 2000. Operating income of $21 million was $7 million lower than prior year. Sales for the six months ended June 30, 2001, were $112 million, $2 million lower than the prior year. Operating income for the same period declined by $12 million to $57 million. These decreases were primarily due to lower Northwest U.S. timber volumes compared to an unusually high level last year, partially offset by an increase in Southeast U.S. timber volumes following the ramp-up of the October 1999 timberland acquisition in late 2000 and into early 2001. In addition to the volume changes over prior year, timber pricing was negatively impacted by weak lumber markets. TIMBERLAND AND REAL ESTATE In May 2001, the Company closed the sale of approximately 57,000 acres of timberland in Northeast Florida for $59 million subject to final post-closing adjustments. This Pinhook property sale previously announced was part of the Company's ongoing strategic program to sell 2 to 4 percent of its timberland holdings annually in order to capture the appreciated value inherent in the timberlands. For the second quarter of 2001, the sale contributed $59 million and $33 million in sales and operating income, respectively. The net after-tax gain was $21 million or $0.75 per diluted share. Overall sales for Timberland and Real Estate of $62 million increased $58 million for the second quarter of 2000, while operating income of $34 million increased $31 million compared to the second quarter of 2000. The increase was principally due to the Pinhook transaction. Sales for the six months ended June 30, 2001, were $63 million, $7 million higher than prior year, while operating income for the same period improved $6 million to $35 million. The six months operating income improvement was less than that of the second quarter itself, as last year's six months results included income from a timberland sale of $23 million. WOOD PRODUCTS AND TRADING Second-quarter 2001 sales were $92 million compared to $115 million in the second quarter of 2000, while operating income was essentially at breakeven compared to a loss of $1 million a year ago. Operating income improved due to a reduction in manufacturing costs in lumber and medium-density fiberboard, partially offset by a decline in lumber volume and prices, and lower trading margins. Sales for the six months ended June 30, 2001, declined $46 million to $176 million from the prior year. Operating losses for the same period increased from $3 million to $6 million. These unfavorable variances were principally due to lower trading margins and weaker lumber prices and volume, partly offset by lower manufacturing costs. 7
10 CORPORATE AND OTHER Corporate and other expenses for the second quarter and the six months ended June 30, 2001, of $4 million and $11 million, respectively, were essentially flat compared to 2000. OTHER INCOME / EXPENSE Interest expense for the second quarter of 2001 was $18 million, a decrease of $4 million from the second quarter of 2000, primarily due to lower average debt. For similar reasons, interest expense for the six months ended June 30, 2001, declined by $8 million versus the prior year period. Miscellaneous income (expense) for the second quarter of 2001 was $0.7 million compared to $(0.8) million in the prior year, and $0.2 million for the six months ended June 30, 2001, compared to $(0.6) million for the six months ended June 30, 2000. The improvement for both the second quarter of 2001 and the six months ended June 30, 2001, was due to favorable mark-to-market adjustments on the New Zealand dollar forward contracts and the absence of bond refinancing expenses that were incurred in the second quarter of 2000. The effective tax rates were 34.1 percent for the second quarter of 2001 and 33.9 percent for the six months ended June 30, 2001, compared to 29.9 percent and 31.2 percent for the same periods last year. The higher tax rates in 2001 versus 2000 reflect the impact of lower tax benefits from foreign operations. The 2001 effective tax rates are below U.S. statutory rates, due to lower tax rates in effect for foreign subsidiaries and the impact of various tax credits. NET INCOME Net income for the second quarter of 2001 was $31.5 million, or $1.14 per diluted common share, compared to $17.4 million, or $0.63 per diluted common share, for the second quarter of 2000, primarily due to the Pinhook timberland sale in 2001. Net income for the six months ended June 30, 2001, was $43.7 million, or $1.59 per diluted common share, compared to $52.9 million, or $1.90 per diluted common share, for the six months ended June 30, 2000. Six months earnings were lower primarily due to lower timber and Performance Fibers prices (mainly fluff pulp) and lower trading activity. OTHER ITEMS The strong dollar and continuing weak global economy make it difficult to predict when market conditions might improve. Third and fourth quarter earnings are expected to be lower than second quarter earnings excluding the Pinhook timberland sale due to weak pricing for commodity absorbent materials and seasonally lower U.S. timber sales volume. However, strong demand for high-value cellulose specialty products is expected to continue. LIQUIDITY AND CAPITAL RESOURCES Cash flow provided by operating activities of $144 million for the first six months of 2001 decreased $10 million compared to the first six months of 2000. Lower income and a decrease in non-current liabilities accounted for the change. Cash flow used for investing activities for the first six months of 2001 of $35 million was $6 million lower than 2000 primarily due to lower capital expenditures, partially offset by a smaller decrease in other non-current assets. Cash flow used for financing activities for the six months ended June 30, 2001, was $108 million, a decrease of $2 million from 2000. This was primarily due to the absence of repurchases of common shares and an increase in the issuance of common shares, partially offset by higher debt repayments in 2001. The Company did not repurchase any of its common shares outstanding during the first six months of 2001. The Company repurchased 142,900 of its shares during the second quarter of 2000 at an average price of $40.64 or a total cost of $6 million, and 228,500 shares during the six months ended June 30, 2000, at an average cost of $40.92 or a total cost of $9 million. At June 30, 2001, debt was $879 million, a reduction of $94 million from December 31, 2000, and the debt-to-capital ratio was 55.4 percent compared to 58.9 percent at December 31, 2000. As of June 30, 2001, Rayonier had $375 million available under its revolving credit facilities. 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. The Company believes that internally generated funds, combined with available external financing, will enable Rayonier to fund capital expenditures, share repurchases, working capital and other liquidity needs for the foreseeable future. 8
11 OTHER DATA EBITDA (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 the land basis in timberland and real estate sales) for the first six months of 2001 amounted to $211 million, $12 million lower than the first six months of 2000. The decrease in EBITDA was primarily due to lower absorbent materials prices and volume in 2001. Cash provided by operating activities helped to finance capital expenditures of $40 million, dividends of $20 million, and allowed for a net reduction of $94 million of debt. Free cash flow (defined as EBITDA plus significant non-recurring items, less income taxes, interest expense, change in working capital, long-term assets and liabilities, custodial capital spending and prior-year dividend levels) decreased $1 million, to $103 million in the first six months of 2001, when compared to the same period ended last year. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK 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, 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 financial instruments for trading purposes. Circumstances surrounding the Company's exchange rate risk, commodity price risk and interest rate risk remain unchanged from December 31, 2000. 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 2000 Annual Report on Form 10-K. SAFE HARBOR Comments about market trends, anticipated earnings and activities in third quarter 2001 and beyond, including disclosures about anticipated pricing and sales levels, are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Changes in the following important factors, among others, could cause actual results to differ materially from those expressed in the forward-looking statements: global market conditions impacting supply and demand for wood products, export and domestic logs and high performance cellulose fibers; governmental policies and regulations affecting the environment, import and export controls and taxes; availability and pricing of competitive products; production costs for wood products and performance fibers, particularly for raw materials such as wood and chemicals; weather conditions in the Company's operating areas; and interest rate and currency movements. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of the Company was held on May 17, 2001. At that meeting, four directors were elected as follows (there were no broker non-votes with respect to the election of directors): <TABLE> <CAPTION> Votes For Votes Withheld ------------------------ <S> <C> <C> Directors of Class I, Term Expires in 2004: Ronald M. Gross 25,204,721 163,855 Katherine D. Ortega 25,211,662 156,914 Burnell R. Roberts 25,200,129 168,447 Directors of Class III, Term Expires in 2003: Ronald Townsend 25,209,676 158,900 </TABLE> 9
12 ITEM 5. SELECTED OPERATING DATA <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, ------------------- ---------------- 2001 2000 2001 2000 --------- -------- ------- ------ <S> <C> <C> <C> <C> PERFORMANCE FIBERS Pulp Sales Volume Cellulose specialties, in thousands of metric tons 110 98 213 196 Absorbent materials, in thousands of metric tons 75 83 147 168 Production as a percent of capacity 98.1% 101.1% 98.4% 102.6% TIMBERLAND MANAGEMENT Timber sales volume Northwest U.S., in millions of board feet 49 64 137 154 Southeast U.S., in thousands of short green tons 1,611 1,137 3,246 2,136 New Zealand, in thousands of cubic meters 325 289 603 542 Intercompany timber sales volume Northwest U.S., in millions of board feet 6 19 35 39 Southeast U.S., in thousands of short green tons 16 11 30 23 New Zealand, in thousands of cubic meters 170 154 308 263 WOOD PRODUCTS AND TRADING Lumber sales volume, in millions of board feet 63 70 120 135 Medium-density fiberboard sales volume, in thousands of cubic meters 39 39 76 76 Log trading sales volume North America, in millions of board feet 37 62 86 124 New Zealand, in thousands of cubic meters 249 305 463 549 Other, in thousands of cubic meters 109 86 232 205 </TABLE> 10
13 SELECTED SUPPLEMENTAL FINANCIAL DATA (millions of dollars, except per share data) <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, -------------------- --------------------- 2001 2000 2001 2000 --------- -------- --------- --------- <S> <C> <C> <C> <C> GEOGRAPHICAL DATA (NON-U.S.) Sales New Zealand $ 26.2 $ 28.7 $ 50.2 $ 51.9 Other 13.2 16.5 25.2 29.5 --------- -------- --------- --------- Total $ 39.4 $ 45.2 $ 75.4 $ 81.4 ========= ======== ========= ========= Operating Income (Loss) New Zealand $ 0.0 $ (0.4) $ 0.6 $ (1.5) Other (0.9) 0.3 (0.8) 0.3 --------- -------- --------- --------- Total $ (0.9) $ (0.1) $ (0.2) $ (1.2) ========= ======== ========= ========= TIMBERLAND MANAGEMENT Sales Northwest U.S. $ 13.1 $ 21.7 $ 38.2 $ 56.0 Southeast U.S. 92.2 27.1 123.9 104.1 New Zealand 6.7 5.7 13.0 10.2 --------- -------- --------- --------- Total $ 112.0 $ 54.5 $ 175.1 $ 170.3 ========= ======== ========= ========= Operating Income Northwest U.S. $ 8.7 $ 17.4 $ 28.8 $ 47.0 Southeast U.S. 45.8 11.9 59.9 48.0 New Zealand 1.3 1.7 3.2 2.8 --------- -------- --------- --------- Total $ 55.8 $ 31.0 $ 91.9 $ 97.8 ========= ======== ========= ========= EBITDA PER SHARE Performance Fibers $ 1.18 $ 1.38 $ 2.40 $ 2.71 Timberland Management 3.64 1.68 5.66 5.56 Wood Products and Trading 0.14 0.10 0.03 0.16 Corporate and other (0.16) (0.19) (0.45) (0.47) --------- -------- --------- --------- Total $ 4.80 $ 2.97 $ 7.64 $ 7.96 ========= ======== ========= ========= </TABLE> 11
14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit Index. (b) Rayonier, Inc. filed a report on Form 8-K dated April 24, 2001, for a news release issued on April 16, 2001, concerning the Pinhook timberland sale. 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:GERALD J. POLLACK -------------------------- Gerald J. Pollack Senior Vice President and Chief Financial Officer (Chief Accounting Officer) August 14, 2001 12
15 EXHIBIT INDEX ------------- <TABLE> <CAPTION> EXHIBIT NO. DESCRIPTION LOCATION ---------- ----------- -------- <S> <C> <C> 2 Plan of acquisition, reorganization, None arrangement, liquidation or succession 3.1 Amended and restated articles of incorporation No amendments 3.2 By-laws No amendments 4 Instruments defining the rights of security holders, Not required to be filed. The including indentures Registrant hereby agrees to file with the Commission a copy of any instrument defining the rights of holders of the Registrant's long-term debt upon request of the Commission. 10 Material contracts None 11 Statement re: computation of per share earnings Not required to be filed 12 Statement re: computation of ratios Filed herewith 15 Letter re: unaudited interim financial information None 18 Letter re: change in accounting principles None 19 Report furnished to security holders None 22 Published report regarding matters None submitted to vote of security holders 23 Consents of experts and counsel None 24 Power of attorney None 99 Additional exhibits None </TABLE> 13