Rayonier Inc. 2013 Form 10-K Summary
Business context and reporting period
Rayonier filed its Form 10-K for the fiscal year ended December 31, 2013, with quarterly data for the three months ended December 31, 2013. The company operated through Forest Resources, Real Estate, Performance Fibers and Other Operations, and qualified as a REIT at year-end. Rayonier owned or leased approximately 2.6 million acres in the United States and New Zealand and operated two specialty-cellulose mills.
Fourth-quarter 2013 sales were $520.2 million, continuing-operations income was $82.2 million, net income was $79.8 million and diluted EPS attributable to Rayonier was $0.62, compared with fourth-quarter 2012 sales of $412.7 million, continuing-operations income of $73.5 million, net income of $75.6 million and diluted EPS of $0.59.
Key financial metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Sales | $1,707.8 million | $1,483.5 million | 15.1% increase |
| Operating income | $422.8 million | $400.6 million | 5.6% increase |
| Operating margin | 24.8% | 27.0% | Down 2.2 percentage points |
| Income from continuing operations | $331.8 million | $271.4 million | 22.2% increase |
| Net income attributable to Rayonier | $371.9 million | $278.7 million | 33.4% increase |
| Diluted EPS | $2.86 | $2.17 | 32% increase |
| Cash provided by operating activities | $545.2 million | $445.9 million | 22.3% increase |
| Adjusted CAD | $292 million | $(19) million | Improved |
| EBITDA | $678 million | $560 million | 21.1% increase |
| Cash and cash equivalents | $199.6 million | $280.6 million | Decrease |
| Total debt | $1,574.2 million | $1,270.1 million | Increase |
| Debt to capital | 47% | 47% | Unchanged |
Net income included $42.0 million of after-tax income from discontinued operations, principally the gain on the sale of the Wood Products business. The reported 2013 effective tax rate was 13.0%, versus 23.8% in 2012; excluding non-routine items, management reported rates of 23.5% and 26.3%, respectively.
Capital expenditures were $158.9 million, including $141.1 million for the Jesup cellulose-specialties expansion and $20.4 million for timberland purchases. Investing cash outflows were $468.9 million, while financing cash outflows were $157.1 million. Dividends paid were $237.0 million, or $1.86 per share.
At December 31, 2013, available borrowing capacity was $243 million under the revolving credit facility and $140 million under the term credit agreement. The company had $112.5 million of debt due in 2014 and total contractual cash obligations of approximately $2.1 billion.
Material changes versus the prior comparable period
- Rayonier acquired an additional 39% of the New Zealand joint venture for approximately $139.9 million, increasing ownership to 65% and resulting in consolidation of 100% of the joint venture’s results from April 4, 2013. This added approximately $146 million of sales and $577 million of assets and increased debt by approximately $224 million.
- Forest Resources sales increased to $382 million from $230 million and operating income increased to $81 million from $46 million, mainly due to New Zealand consolidation, stronger timber pricing and higher volumes.
- Real Estate sales increased to $149 million from $57 million, primarily from non-strategic timberland sales, including approximately 128,000 acres of New York timberlands sold for $57 million.
- Performance Fibers sales declined to $1.042 billion from $1.093 billion and operating income fell to $311 million from $359 million. Lower specialty-cellulose volumes, the Jesup project transition and higher wood and production costs offset higher specialty-cellulose pricing.
- The $385 million cellulose-specialties expansion was completed in June 2013, adding approximately 190,000 metric tons of annual capacity and bringing total specialty-cellulose capacity to approximately 675,000 metric tons. The converted line began customer qualification in July 2013.
- Rayonier sold its Wood Products business in March 2013 for $80 million plus a working-capital adjustment and recognized a $42.1 million after-tax gain. The business is presented as discontinued operations.
- Debt increased, but leverage remained within management’s stated target: debt to EBITDA was 2.3 times and net debt to EBITDA was approximately 2.0 times.
Guidance, outlook, risks and unusual items
- Management expected to complete a tax-free spin-off of Performance Fibers in mid-2014, subject to final board approval, a favorable IRS private letter ruling and effectiveness of a Form 10 registration statement. The new Performance Fibers company was expected to raise approximately $1 billion of debt, with proceeds generally used by Rayonier to repay debt.
- For 2014, specialty-cellulose sales volume was expected to increase by 30,000 to 50,000 metric tons, while prices were expected to decline 7% to 8%. A planned Jesup recovery-boiler outage was moved into 2014 and was expected to reduce commodity-grade production by 35,000 to 40,000 tons.
- Management expected 2014 timber demand and pricing to exceed 2013 levels, supported by an improving U.S. housing market and continued Chinese log demand. Real Estate demand was expected to improve gradually, although transaction timing remained uncertain.
- First-half 2014 capital expenditures were forecast at $90 million to $95 million before strategic timberland acquisitions. Full-year spending after separation was expected to include approximately $35 million to $40 million for Forest Resources and Real Estate and $20 million to $25 million for Performance Fibers.
- China imposed a preliminary 21.7% anti-dumping duty on Rayonier’s lower-purity commodity-viscose products effective November 7, 2013. High-value cellulose-acetate and other high-value products were excluded. A final determination was expected in the second quarter of 2014.
- Environmental compliance remains a material cost and contingency. The company estimated $40 million to $60 million of future compliance costs related to industrial-boiler emissions rules and had $76.4 million of liabilities for environmental matters associated with prior dispositions and discontinued operations. Reasonably possible additional environmental losses were estimated at up to $30 million.
- Rayonier received a notice of intent to sue concerning alleged color and odor issues involving treated effluent from the Jesup mill. Management disputed the allegations and stated that it believed the mill was in compliance.
- Key operating risks include customer concentration, commodity and specialty-cellulose pricing, raw-material and energy costs, mill outages, weather and timber availability, environmental regulation, real-estate entitlement delays, foreign exchange, labor negotiations and the proposed separation.
- Two Performance Fibers customers represented approximately 13% and 11% of consolidated 2013 sales; the five largest Performance Fibers customers represented approximately 70% of that segment’s sales.
Most important facts for investors to verify
- Whether the Performance Fibers spin-off was completed on schedule, received the required IRS ruling and registration effectiveness, and how debt and cash were allocated between the two companies.
- The sustainability of specialty-cellulose pricing and margins after the disclosed 7% to 8% 2014 price reduction and the timing of customer qualification for expanded capacity.
- The final outcome and duration of China’s anti-dumping investigation and its effect on commodity-viscose sales.
- Actual 2014 cash generation, capital spending, debt repayment and dividend capacity following separation.
- Changes in environmental liabilities, including the industrial-boiler compliance program, legacy remediation exposure and the Jesup mill notice of intent to sue.
- The effect of New Zealand joint-venture consolidation, foreign exchange, timber prices and Chinese export demand on reported results and leverage.
- The allocation of the $112.5 million 2014 installment-note maturity and other contractual obligations, including timberland leases and purchase commitments.