Rayonier Inc. 2015 Form 10-K Summary
Business context and reporting period
Rayonier is a pure-play timberland REIT operating five segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading. As of December 31, 2015, it owned, leased or managed approximately 2.7 million acres in the U.S. South, Pacific Northwest and New Zealand. The filing covers the fiscal year ended December 31, 2015; quarterly data indicates fourth-quarter 2015 sales of $137.1 million and net income attributable to Rayonier of $10.3 million.
The 2015 results represent continuing operations following the June 2014 tax-free spin-off of Performance Fibers. Prior-period comparisons are therefore affected by discontinued-operations classification and the absence of the former manufacturing business.
Financial performance and liquidity
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Sales | $544.9 million | $603.5 million | Down 9.7% |
| Operating income | $77.8 million | $98.3 million | Down 20.9% |
| Operating margin | 14.3% | 16.3% | Down approximately 2.0 percentage points |
| Income from continuing operations attributable to Rayonier | $46.2 million | $55.9 million | Down 17.4% |
| Diluted EPS from continuing operations | $0.37 | $0.43 | Down 14.0% |
| Net income attributable to Rayonier | $46.2 million | $99.3 million | Down 53.5% |
| Adjusted EBITDA | $208.0 million | $213.5 million | Down 2.6% |
| Cash provided by operating activities | $177.2 million | $320.4 million | Down 44.7% |
| Adjusted CAD | $(13.6) million | $93.4 million | Lower, primarily due to $131.0 million of mandatory debt repayment |
Net income attributable to Rayonier exceeded reported continuing-operations income because 2015 included a net loss attributable to noncontrolling interest, primarily associated with the New Zealand joint venture. The filing does not provide a company-wide GAAP gross margin.
- Cash and cash equivalents were $51.8 million, compared with $161.6 million at year-end 2014; restricted cash was $23.5 million.
- Total debt was $833.9 million, versus $751.6 million in 2014. Debt to capital was 38%, net debt to Adjusted EBITDA was 3.8x, and net debt to enterprise value was 22%.
- Shareholders’ equity was $1.36 billion, down from $1.58 billion, partly reflecting dividends, share repurchases and foreign-currency and hedge-related comprehensive losses.
- Capital expenditures were $57.3 million; timberland acquisitions totaled $98.4 million, including approximately 36,750 acres and New Zealand forestry rights.
- The company paid $124.9 million of dividends, or $1.00 per share, and repurchased approximately 4.2 million shares for $100 million.
Material changes versus the prior comparable period
- Southern Timber sales declined 2% to $139.1 million, but Adjusted EBITDA increased to $101.0 million from $97.9 million. Harvest volume increased 4% to 5.49 million tons, while average stumpage pricing was broadly comparable.
- Pacific Northwest Timber sales fell 25% to $76.5 million and Adjusted EBITDA fell to $21.7 million from $50.8 million. Harvest volume declined 25% as part of the planned inventory-replenishment strategy, and sawtimber prices weakened amid lower Chinese demand and mill shutdowns.
- New Zealand Timber sales declined 11% to $161.6 million and Adjusted EBITDA declined to $33.0 million from $46.0 million. Higher volumes were offset by lower domestic and export prices, weaker China demand and a weaker New Zealand dollar.
- Real Estate sales increased to $86.5 million from $77.3 million, while Adjusted EBITDA increased to $70.8 million from $48.4 million. Higher acreage sold and improved pricing offset the absence of 2014 bankruptcy-settlement proceeds and reflected a greater contribution from non-strategic timberland sales.
- Trading sales declined 22% to $81.2 million because of lower China-related log pricing, although volumes increased.
- Interest expense decreased to $31.7 million from $44.2 million, primarily because of lower outstanding debt and refinancing actions. However, total year-end debt increased after the company issued new term and revolving facilities and consolidated New Zealand joint-venture debt.
- Other comprehensive loss was $39.5 million, driven largely by foreign-currency translation and cash-flow hedge losses.
Guidance, outlook, risks and unusual items
- Management expected a modest increase in Southern harvest volume in 2016, with prices generally comparable to 2015.
- Pacific Northwest volumes were expected to remain comparable to 2015, with potential price improvement dependent on export-market conditions.
- New Zealand harvest volume was expected to decline approximately 10% because of age-class variations, with average prices broadly in line with 2015.
- Management expected steady rural real-estate demand and stronger interest in selected development properties, including the Wildlight East Nassau project, with parcel sales anticipated in the second half of 2016.
- 2016 capital expenditures were forecast at $60 million to $65 million, excluding strategic acquisitions; real-estate development investments were expected at $10 million to $15 million; and dividend payments were expected to be approximately $123 million assuming a quarterly dividend of $0.25 per share.
- The company planned to recapitalize the New Zealand joint venture, increasing its ownership from 65% to approximately 77% and using proceeds from the new term loan to refinance approximately $161 million of joint-venture debt. Completion was expected in the first quarter of 2016.
- Material risks include cyclical timber, housing and real-estate markets; Chinese and other export-market demand; foreign-exchange and interest-rate volatility; weather, fire, disease and other natural events; environmental and endangered-species restrictions; timber inventory estimation risk; dependence on third-party logging and transportation providers; REIT qualification and tax risks; pension underfunding; and access to capital markets.
- The company and certain current and former officers and directors faced securities litigation, shareholder derivative demands and an SEC inquiry related to the 2014 internal review and restatement. The company could not estimate a probable loss or range of loss for the securities litigation. It also reported $4.1 million of shareholder-litigation costs in 2015.
- At December 31, 2015, the company reported compliance with debt covenants and REIT requirements. Management and Ernst & Young concluded that internal control over financial reporting was effective, and the audit opinion was unqualified.
Facts an investor should verify
- Whether the New Zealand joint-venture recapitalization and ownership increase to approximately 77% were completed as planned.
- The refinancing or repayment status of the New Zealand joint venture’s approximately $161 million debt maturity and the resulting consolidated interest expense.
- Progress, sales timing and required investment for the Wildlight development project.
- Actual 2016 timber prices and volumes, particularly Pacific Northwest and New Zealand export exposure to China.
- The status and potential financial impact of the securities litigation, derivative demands and SEC inquiry.
- Whether operating cash flow and Adjusted CAD support dividends, capital expenditures, acquisitions and future share repurchases at the reported debt levels.
- The company’s continued REIT qualification, debt-covenant compliance and pension funding requirements.