Rayonier Inc. 2014 Form 10-K Summary
Business context and reporting period
Rayonier reported for the fiscal year ended December 31, 2014. Following the June 27, 2014 tax-free spin-off of Performance Fibers to Rayonier Advanced Materials, Rayonier became a pure-play timberland REIT focused on Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading.
- Owned, leased or managed approximately 2.7 million acres in the U.S. South, Pacific Northwest and New Zealand.
- Held a 65% controlling interest in the New Zealand joint venture, whose results were consolidated.
- Acquired approximately 62,000 acres of timberland for approximately $131 million.
- Effective in the fourth quarter, the Company realigned its segment reporting into five segments and reclassified prior periods.
Financial performance and condition
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Sales | $603.5 million | $659.7 million | Down 9% |
| Operating income | $98.3 million | $108.7 million | Down 10% |
| Income from continuing operations | $54.4 million | $105.8 million | Down 49% |
| Net income attributable to Rayonier | $99.3 million | $371.9 million | Down 73% |
| Diluted EPS from continuing operations | $0.43 | $0.80 | Down 46% |
| Adjusted EBITDA | $235 million | $220 million | Up 7% |
| Cash provided by operations | $316.5 million | $545.2 million | Down 42% |
| Cash and equivalents | $161.6 million | $199.6 million | Down $38.1 million |
| Total debt | $751.6 million | $1.574 billion | Down $822.7 million |
Operating margin was approximately 16.3% in 2014 versus 16.5% in 2013. Continuing-operations income was affected by $44.2 million of interest expense, $9.2 million of net interest and miscellaneous expense, and a $9.6 million income tax benefit. The filing does not present a single consolidated GAAP margin measure beyond the reported income statement data.
- Adjusted EBITDA by segment: Southern Timber $98 million, Pacific Northwest Timber $51 million, New Zealand Timber $45 million, Real Estate $70 million and Trading $2 million; corporate and other was $(31) million.
- Cash available for distribution was $115 million; adjusted CAD was also $115 million because no mandatory debt repayments were reported for the period.
- Capital expenditures from continuing operations were $63 million, excluding $130 million of strategic timberland acquisitions.
- Cash dividends paid were $257.5 million, or $2.03 per share, including a $0.50 per-share special dividend related to the spin-off.
- Debt-to-capital was 32%, debt-to-adjusted EBITDA was 3.2 times, net debt-to-adjusted EBITDA was 2.5 times, and net debt to enterprise value was 14%.
Material changes versus the prior comparable period
- The Performance Fibers spin-off materially changed the Company’s scale, asset base, cash flows and capital structure. The 2014 balance sheet excludes approximately $1.2 billion of assets and related liabilities transferred to Rayonier Advanced Materials; the 2013 balance sheet included Performance Fibers.
- 2014 sales declined primarily because 2013 included significant non-strategic timberland sales, including a $57 million New York timberland transaction, and because Trading sales were lower.
- Southern Timber sales increased to $142 million from $124 million, supported by higher pricing and stable volume. Adjusted EBITDA increased to $98 million from $87 million.
- Pacific Northwest Timber sales declined to $102 million from $110 million as harvest volume fell 16% to 1.7 million tons, partially offset by higher prices. Adjusted EBITDA declined to $51 million from $54 million.
- New Zealand Timber sales increased to $182 million from $148 million, principally reflecting a full year of consolidated joint venture results. Operating income declined to $9 million from $10 million, while adjusted EBITDA increased to $45 million from $38 million.
- Real Estate sales declined to $77 million from $149 million, primarily because 2013 included the large New York timberland sale. Adjusted EBITDA declined to $70 million from $84 million.
- Debt declined sharply after the spin-off. The Company used spin-off-related proceeds to repay debt and paid a special dividend.
- The Company identified and restated depletion expense for the quarters ended March 31 and June 30, 2014, increasing cost of sales by approximately $2 million in each quarter. The related material weakness in internal control was reported as remediated at December 31, 2014.
Guidance, outlook, risks and unusual items
- Management expected continued improvement in Southern pine sawlog prices in 2015 as U.S. housing and economic conditions gradually recovered.
- 2015 Pacific Northwest harvest volume was planned to be approximately 14% below 2014 levels, while Southern harvest volume was expected to be modestly higher.
- Management expected lower demand and pricing in the Pacific Northwest, and to a lesser extent New Zealand, due partly to increased Russian log exports to China following the ruble devaluation.
- Management expected lower non-strategic timberland sales and modestly lower rural land sales in 2015, consistent with reduced reliance on asset sales to support cash flow.
- 2015 capital expenditures were forecast at $65 million to $68 million, excluding strategic timberland acquisitions. Expected dividend payments were approximately $127 million assuming a quarterly dividend of $0.25 per share.
- Liquidity included $182 million available under the revolving credit facility and $100 million available under the term credit agreement. The Company reported compliance with all debt covenants.
- S&P downgraded the Company to BBB- during 2014; Moody’s rated it Baa2. Both outlooks were stable at year-end.
- Key risks include timber and real estate cyclicality, weather and natural disasters, environmental and permitting restrictions, export and foreign-exchange exposure, dependence on third-party logging and transportation providers, REIT qualification, interest rates and access to capital.
- The Company faced shareholder class actions, derivative demands and an SEC inquiry arising from the depletion accounting review and restatement. The filing states that potential losses could not be estimated at that stage.
- The qualified pension plan was underfunded by approximately $32 million at year-end, although no mandatory pension contribution was required in 2015.
Most important facts for investors to verify
- Reconcile continuing-operations results and cash flows after the Performance Fibers spin-off; 2013 balance-sheet and cash-flow comparisons are not fully comparable.
- Review the depletion restatement, remediation of the material weakness and the sensitivity of depletion expense to timber inventory estimates.
- Verify the maturity and refinancing plan for approximately $131 million of exchangeable notes due in 2015 and the New Zealand joint venture debt due in 2016.
- Assess whether projected Southern pricing and harvest volumes offset expected Pacific Northwest and New Zealand market pressure.
- Evaluate the sustainability of the $0.25 quarterly dividend against adjusted CAD, planned capital expenditures, acquisitions and debt obligations.
- Monitor the shareholder litigation and SEC inquiry related to the restatement, as the filing provides no estimable loss range.
- Confirm continued REIT qualification, debt covenant compliance, credit ratings and access to revolving and term credit facilities.