Rayonier 2012 10Q 1Q2012
Table of Contents



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, 2012
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 No. 13-2607329
1301 RIVERPLACE BOULEVARD
JACKSONVILLE, FL 32207
(Principal Executive Office)
Telephone Number: (904) 357-9100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x        NO  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x       NO  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
  
Accelerated filer  o
Non-accelerated filer  o
  
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o        NO  x

As of April 17, 2012, there were outstanding 122,451,271 Common Shares of the registrant.



















Table of Contents

TABLE OF CONTENTS
 
Item
 
  
Page
 
 
PART I - FINANCIAL INFORMATION
 
1.
 
 
 
 
 
 
 
 
 
2.
 
3.
 
4.
 
 
 
PART II - OTHER INFORMATION
 
2.
 
6.
 
 
 
 

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Table of Contents

PART I.        FINANCIAL INFORMATION

Item 1.         Financial Statements

RAYONIER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
 
 
Three Months Ended March 31,
 
2012
 
2011
SALES
$
355,780

 
$
357,731

Costs and Expenses
 
 
 
Cost of sales
253,313

 
257,511

Selling and general expenses
19,619

 
16,433

Other operating income, net
(1,148
)
 
(2,118
)
 
271,784

 
271,826

Equity in income of New Zealand joint venture
13

 
1,673

OPERATING INCOME
84,009

 
87,578

Interest expense
(11,825
)
 
(13,317
)
Interest and miscellaneous (expense) income, net
(23
)
 
293

INCOME BEFORE INCOME TAXES
72,161

 
74,554

Income tax expense
(18,724
)
 
(16,142
)
NET INCOME
53,437

 
58,412

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
Foreign currency translation adjustment
5,825

 
288

New Zealand joint venture cash flow hedges
1,205

 
(567
)
Amortization of gains/losses from pension and postretirement plans, net of income tax expense of $1,368 and $928
3,140

 
2,093

Total other comprehensive income
10,170

 
1,814

COMPREHENSIVE INCOME
$
63,607

 
$
60,226

EARNINGS PER COMMON SHARE (Note 2)
 
 
 
Basic earnings per share
$
0.44

 
$
0.48

 
 
 
 
Diluted earnings per share
$
0.42

 
$
0.47

 
 
 
 
Dividends per share
$
0.40

 
$
0.36



See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 
March 31, 2012
 
December 31, 2011
ASSETS
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
236,575

 
$
78,603

Accounts receivable, less allowance for doubtful accounts of $350 and $399
97,198

 
95,008

Inventory
 
 
 
Finished goods
80,457

 
96,261

Work in progress
2,864

 
5,544

Raw materials
16,922

 
18,295

Manufacturing and maintenance supplies
2,074

 
1,898

Total inventory
102,317

 
121,998

Prepaid and other current assets
62,010

 
48,893

Total current assets
498,100

 
344,502

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
1,504,291

 
1,503,711

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Land
26,952

 
26,917

Buildings
144,018

 
140,269

Machinery and equipment
1,350,939

 
1,355,897

Construction in progress
157,376

 
96,097

Total property, plant and equipment, gross
1,679,285

 
1,619,180

Less — accumulated depreciation
(1,157,275
)
 
(1,157,628
)
      Total property, plant and equipment, net
522,010

 
461,552

INVESTMENT IN JOINT VENTURE (Note 5)
74,388

 
69,219

OTHER ASSETS
195,094

 
190,364

TOTAL ASSETS
$
2,793,883

 
$
2,569,348

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
 
 
 
Accounts payable
$
100,681

 
$
72,873

Current maturities of long-term debt
50,512

 
28,110

Accrued taxes
17,350

 
5,223

Accrued payroll and benefits
20,322

 
26,846

Accrued interest
11,075

 
7,044

Accrued customer incentives
7,148

 
10,369

Other current liabilities
16,064

 
17,855

Current liabilities for dispositions and discontinued operations (Note 10)
9,931

 
9,931

Total current liabilities
233,083

 
178,251

LONG-TERM DEBT
973,717

 
819,229

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS (Note 10)
79,194

 
80,893

PENSION AND OTHER POSTRETIREMENT BENEFITS (Note 12)
140,517

 
140,623

OTHER NON-CURRENT LIABILITIES
24,987

 
27,279

COMMITMENTS AND CONTINGENCIES (Note 9 and 11)

 

SHAREHOLDERS’ EQUITY
 
 
 
Common Shares, 240,000,000 shares authorized, 122,450,771 and 122,035,177 shares issued and outstanding
634,976

 
630,286

Retained earnings
810,687

 
806,235

Accumulated other comprehensive loss
(103,278
)
 
(113,448
)
TOTAL SHAREHOLDERS' EQUITY
1,342,385

 
1,323,073

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
2,793,883

 
$
2,569,348



See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

 
Three Months Ended March 31,
 
2012
 
2011
OPERATING ACTIVITIES
 
 
 
Net income
$
53,437

 
$
58,412

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
31,168

 
31,870

Non-cash cost of real estate sold
1,382

 
296

Stock-based incentive compensation expense
6,466

 
4,275

Amortization of debt discount/premium
1,890

 
2,152

Deferred income taxes
3,028

 
7,345

Amortization of gains/losses from pension and postretirement plans
4,508

 
3,021

Other
(1,909
)
 
(5,215
)
Changes in operating assets and liabilities:
 
 
 
Receivables
(1,911
)
 
(14,766
)
Inventories
17,035

 
9,161

Accounts payable
3,978

 
14,644

All other operating activities
(6,007
)
 
6,957

Expenditures for dispositions and discontinued operations
(1,711
)
 
(2,447
)
CASH PROVIDED BY OPERATING ACTIVITIES
111,354

 
115,705

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(42,079
)
 
(34,761
)
Purchase of timberlands
(8,689
)
 
(2,942
)
Jesup mill cellulose specialties expansion (gross purchases of $41,051, net of purchases on account of $15,025)
(26,026
)
 

Change in restricted cash
(5,609
)
 

Other
8,736

 
6,882

CASH USED FOR INVESTING ACTIVITIES
(73,667
)
 
(30,821
)
FINANCING ACTIVITIES
 
 
 
Issuance of debt
340,000

 

Repayment of debt
(165,000
)
 
(75,000
)
Dividends paid
(49,249
)
 
(43,894
)
Proceeds from the issuance of common shares
2,061

 
5,399

Excess tax benefits on stock-based compensation
3,946

 
3,970

Debt issuance costs
(3,565
)
 

Repurchase of common shares
(7,783
)
 
(7,826
)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
120,410

 
(117,351
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(125
)
 
116

CASH AND CASH EQUIVALENTS
 
 
 
Change in cash and cash equivalents
157,972

 
(32,351
)
Balance, beginning of year
78,603

 
349,463

Balance, end of period
$
236,575

 
$
317,112

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid (received) during the period:
 
 
 
Interest
$
5,213

 
$
4,671

Income taxes
$
325

 
$
(5,892
)
Non-cash investing activity:
 
 
 
Capital assets purchased on account
$
44,576

 
$
16,425



See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

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


1.
BASIS OF PRESENTATION
Basis of Presentation
The unaudited condensed consolidated financial statements and notes thereto of Rayonier Inc. and its subsidiaries ("Rayonier" or the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, these financial statements and notes reflect all adjustments necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. These statements and notes should be read in conjunction with the financial statements and supplementary data included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC.
Subsequent Events
The Company evaluated events and transactions that occurred after the balance sheet date but before financial statements were issued, and one subsequent event warranted disclosure. See Note 13Debt for additional information.

2.
EARNINGS PER COMMON SHARE
The impact of the August 24, 2011 three-for-two stock split is reflected for all periods presented in the following table which provides details of the calculations of basic and diluted earnings per common share:
 
Three Months Ended March 31,
 
2012
 
2011
Net income
$
53,437

 
$
58,412

Shares used for determining basic earnings per common share
122,352,435

 
121,420,046

Dilutive effect of:
 
 
 
Stock options
719,166

 
715,043

Performance and restricted shares
651,729

 
697,691

Assumed conversion of Senior Exchangeable Notes (a) (b)
2,967,187

 
1,462,679

Assumed conversion of warrants (b)
1,241,612

 

Shares used for determining diluted earnings per common share
127,932,129

 
124,295,459

Basic earnings per common share
$
0.44

 
$
0.48

Diluted earnings per common share
$
0.42

 
$
0.47


 
Three Months Ended March 31,
 
2012
 
2011
Anti-dilutive shares excluded from the computations of diluted earnings per share:
 
 
 
Stock options, performance and restricted shares
445,859

 
196,964

Assumed conversion of exchangeable note hedges (a)
2,967,187

 
1,462,679

Total
3,413,046

 
1,659,643

(a) Upon maturity of the Senior Exchangeable Notes (the "Notes"), Rayonier will not issue additional shares for the Notes due to the offsetting exchangeable note hedges (the "hedges"). However, Accounting Standards Codification 260, Earnings Per Share requires the assumed conversion of the Notes to be included in dilutive shares if the average stock price for the period exceeds the strike prices, while the assumed conversion of the hedges are excluded since they are anti-dilutive. Rayonier will distribute additional shares upon maturity of the warrants if the stock price exceeds the strike prices of $41.78 for the Notes due 2012 and $39.85 for the Notes due 2015. For additional information on the potential dilutive impact of the Senior Exchangeable Notes, warrants and exchangeable note hedges, see Note 11 — Debt in the 2011 Annual Report on Form 10-K and Note 13 — Debt of this Form 10-Q.
(b) The higher shares used for determining earnings per common share was primarily due to an increase in the average stock price from $39.71 in first quarter 2011 to $45.07 in first quarter 2012.

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

3.
INCOME TAXES
Rayonier is a real estate investment trust ("REIT"). In general, only the taxable REIT subsidiaries, whose businesses include the Company's non-REIT qualified activities, are subject to corporate income taxes. However, the Company is subject to U.S. federal corporate income tax on built-in gains (the excess of fair market value over tax basis for property held upon REIT election at January 1, 2004) on taxable sales of such property during calendar years 2004 through 2010 and 2012 through 2013. In 2011, the law provided a built-in-gains tax holiday. Accordingly, the provision for corporate income taxes relates principally to current and deferred taxes on taxable REIT subsidiaries' income and certain property sales.
The Company's effective tax rate is below the 35 percent U.S. statutory tax rate primarily due to tax benefits associated with being a REIT. Effective tax rates were 25.9 percent and 21.7 percent for the three months ended March 31, 2012 and 2011, respectively. The higher tax rate in 2012 was due to proportionately higher expected earnings from our taxable REIT subsidiaries.

4.
RESTRICTED DEPOSITS
In order to qualify for like-kind exchange ("LKE") treatment, the proceeds from real estate sales must be deposited with a third-party intermediary. These proceeds are accounted for as restricted cash until a suitable replacement property is acquired. In the event that the LKE purchases are not completed, the proceeds are returned to the Company after 180 days and reclassified as available cash. As of March 31, 2012 and December 31, 2011, the Company had $5.6 million and $0.0 million, respectively, of proceeds from real estate sales classified as restricted cash in Other Assets, which were deposited with an LKE intermediary.

5.
JOINT VENTURE INVESTMENT
The Company holds a 26 percent interest in Matariki Forestry Group ("Matariki"), a joint venture ("JV") that owns or leases approximately 0.3 million acres of New Zealand timberlands. In addition to the investment, Rayonier New Zealand Limited ("RNZ"), a wholly-owned subsidiary of Rayonier Inc., serves as the manager of the JV forests and operates a log trading business.
Rayonier’s investment in the JV is accounted for using the equity method of accounting. Income from the JV is reported in the Forest Resources segment as operating income since the Company manages the forests, and its JV interest is an extension of the Company’s operations. A portion of Rayonier’s equity method investment is recorded at historical cost which generates a difference between the book value of the Company’s investment and its proportionate share of the JV’s net assets. The difference represents the Company’s unrecognized gain from RNZ’s sale of timberlands to the JV in 2005. The deferred gain is recognized on a straight-line basis over the estimated number of years the JV expects to harvest the timberlands.

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

6.
SHAREHOLDERS’ EQUITY
 An analysis of shareholders’ equity for the three months ended March 31, 2012 and the year ended December 31, 2011 is shown below (share amounts not in thousands):
 
Common Shares
 
Retained
Earnings
 
Accumulated Other Comprehensive Loss
 
Shareholders’
Equity
 
Shares
 
Amount
 
Balance, December 31, 2010
121,023,140

 
$
602,882

 
$
717,058

 
$
(68,358
)
 
$
1,251,582

Net income

 

 
276,005

 

 
276,005

Dividends ($1.52 per share)

 

 
(186,828
)
 

 
(186,828
)
Issuance of shares under incentive stock plans
1,220,731

 
13,451

 

 

 
13,451

Stock-based compensation

 
16,181

 

 

 
16,181

Excess tax benefit on stock-based compensation

 
5,681

 

 

 
5,681

Repurchase of common shares
(208,694
)
 
(7,909
)
 

 

 
(7,909
)
Net loss from pension and postretirement plans

 

 

 
(46,263
)
 
(46,263
)
Foreign currency translation adjustment

 

 

 
3,546

 
3,546

Joint venture cash flow hedges

 

 

 
(2,373
)
 
(2,373
)
Balance, December 31, 2011
122,035,177

 
$
630,286

 
$
806,235

 
$
(113,448
)
 
$
1,323,073

Net income

 

 
53,437

 

 
53,437

Dividends ($0.40 per share)

 

 
(48,985
)
 

 
(48,985
)
Issuance of shares under incentive stock plans
585,351

 
2,061

 

 

 
2,061

Stock-based compensation

 
6,466

 

 

 
6,466

Excess tax benefit on stock-based compensation

 
3,946

 

 

 
3,946

Repurchase of common shares
(169,757
)
 
(7,783
)
 

 

 
(7,783
)
Amortization of gains/losses from pension and postretirement plans

 

 

 
3,140

 
3,140

Foreign currency translation adjustment

 

 

 
5,825

 
5,825

Joint venture cash flow hedges

 

 

 
1,205

 
1,205

Balance, March 31, 2012
122,450,771

 
$
634,976

 
$
810,687

 
$
(103,278
)
 
$
1,342,385

 
7.
SEGMENT AND GEOGRAPHICAL INFORMATION
Rayonier operates in four reportable business segments: Forest Resources, Real Estate, Performance Fibers, and Wood Products. Forest Resources sales include all activities that relate to the harvesting of timber. Real Estate sales include all property sales, including those designated for higher and better use ("HBU"). The assets of the Real Estate segment include HBU property held by the Company’s real estate subsidiary, TerraPointe LLC. The Performance Fibers segment includes two major product lines, cellulose specialties and absorbent materials. The Wood Products segment is comprised of lumber operations. The Company’s remaining operations include harvesting and selling timber acquired from third parties (log trading). These operations are reported in "Other Operations." Sales between operating segments are made based on fair market value, and intercompany sales, purchases and profits (losses) are eliminated in consolidation. The Company evaluates financial performance based on the operating income of the segments.
Operating income (loss) as presented in the Condensed Consolidated Statements of Income and Comprehensive Income is equal to segment income (loss). Certain income (loss) items in the Condensed Consolidated Statements of Income and Comprehensive Income are not allocated to segments. These items, which include gains (losses) from certain asset dispositions, interest income (expense), miscellaneous income (expense) and income tax (expense) benefit, are not considered by management to be part of segment operations.

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

Total assets, sales, operating income (loss) and depreciation, depletion and amortization by segment including Corporate were as follows:
 
March 31,
 
December 31,
ASSETS
2012
 
2011
Forest Resources
$
1,618,311

 
$
1,603,515

Real Estate
107,080

 
102,682

Performance Fibers
706,260

 
646,447

Wood Products
21,758

 
21,264

Other Operations
23,456

 
24,576

Corporate and other
317,018

 
170,864

Total
$
2,793,883

 
$
2,569,348

 
 
Three Months Ended March 31,
SALES
2012
 
2011
Forest Resources
$
52,195

 
$
48,180

Real Estate
12,647

 
13,462

Performance Fibers
250,855

 
251,163

Wood Products
19,209

 
15,790

Other Operations
21,140

 
30,412

Intersegment Eliminations (a)
(266
)
 
(1,276
)
Total
$
355,780

 
$
357,731

(a)
Intersegment eliminations primarily reflect sales from our Forest Resources segment to our Performance Fibers segment.
  
 
Three Months Ended March 31,
OPERATING INCOME (LOSS)
2012
 
2011
Forest Resources
$
8,005

 
$
11,050

Real Estate
6,478

 
7,372

Performance Fibers
80,630

 
75,710

Wood Products
923

 
453

Other Operations
(931
)
 
799

Corporate and other
(11,096
)
 
(7,806
)
Total
$
84,009

 
$
87,578


 
Three Months Ended March 31,
DEPRECIATION, DEPLETION AND AMORTIZATION
2012
 
2011
Forest Resources
$
16,833

 
$
15,404

Real Estate
1,845

 
2,691

Performance Fibers
11,361

 
12,715

Wood Products
755

 
821

Corporate and other
374

 
239

Total
$
31,168

 
$
31,870


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

8.
FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
The following table presents the carrying amount and estimated fair values of financial instruments held by the Company at March 31, 2012 and December 31, 2011, using market information and what the Company believes to be appropriate valuation methodologies under generally accepted accounting principles:
 
March 31, 2012
 
December 31, 2011
Asset (liability)
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Cash and cash equivalents
$
236,575

 
$
236,575

 
$
78,603

 
$
78,603

Current maturities of long-term debt
(50,512
)
 
(58,213
)
 
(28,110
)
 
(29,319
)
Long-term debt
(973,717
)
 
(1,123,502
)
 
(819,229
)
 
(994,851
)
Rayonier uses the following methods and assumptions in estimating the fair value of its financial instruments:
Cash and cash equivalents — The carrying amount is equal to fair market value.
Debt — The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities.
Variable Interest Entity
Rayonier holds a variable interest in a bankruptcy-remote, limited liability subsidiary ("special-purpose entity") which was created in 2004 when Rayonier monetized a $25.0 million installment note and letter of credit received in connection with a timberland sale. The Company contributed the note and a letter of credit to the special-purpose entity and using the installment note and letter of credit as collateral, the special-purpose entity issued $22.6 million of 15-year Senior Secured Notes and remitted cash of $22.6 million to the Company. There are no restrictions that relate to the transferred financial assets. Rayonier maintains a $2.6 million interest in the entity and receives immaterial cash payments equal to the excess of interest received on the installment note over the interest paid on the Senior Secured Notes. The Company's interest is recorded at fair value and is included in "Other Assets" in the Condensed Consolidated Balance Sheets. In addition, the Company calculated and recorded a de minimus guarantee liability to reflect its obligation of up to $2.6 million under a make-whole agreement pursuant to which it guaranteed certain obligations of the entity. This guarantee obligation is also collateralized by the letter of credit. The Company's interest in the entity, together with the make-whole agreement, represents the maximum exposure to loss as a result of the Company's involvement with the special-purpose entity. Upon maturity of the Senior Secured Notes in 2019 and termination of the special-purpose entity, Rayonier will receive the remaining $2.6 million of cash. The Company determined, based upon an analysis under the variable interest entity guidance, that it does not have the power to direct activities that most significantly impact the entity's economic success. Therefore, Rayonier is not the primary beneficiary and is not required to consolidate the entity.
Assets measured at fair value on a recurring basis are summarized below:
 
Asset
 
Carrying Value at
March 31, 2012
 
Level 2
 
Carrying Value at
December 31, 2011
 
Level 2
Investment in special-purpose entity
 
$
2,690

 
$
2,690

 
$
2,690

 
$
2,690

 
 
 
 
 
 
 
 
 
The fair value of the investment in the special-purpose entity is determined by summing the discounted value of future principal and interest payments that Rayonier will receive from the special-purpose entity. The interest rate of a similar instrument is used to determine the discounted value of the payments.


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

9.
GUARANTEES
 The Company provides financial guarantees as required by creditors, insurance programs, and state and foreign governmental agencies. As of March 31, 2012, the following financial guarantees were outstanding:
Financial Commitments
 
Maximum Potential
Payment
 
Carrying Amount
of Liability
Standby letters of credit (a)
$
43,477

 
$
38,110

Guarantees (b)
 
2,555

 
43

Surety bonds (c)
 
6,134

 
1,330

Total financial commitments
$
52,166

 
$
39,483

(a)
Approximately $39 million of the standby letters of credit serve as credit support for industrial revenue bonds. The remaining letters of credit support various insurance related agreements, primarily workers’ compensation and pollution liability policy requirements. These letters of credit will expire at various dates during 2012 and 2013 and will be renewed as required.
(b)
In conjunction with a timberland sale and note monetization in the first quarter of 2004, the Company issued a make-whole agreement pursuant to which it guaranteed $2.6 million of obligations of a special-purpose entity that was established to complete the monetization. At March 31, 2012, the Company has a de minimus liability to reflect the fair market value of its obligation to perform under the make-whole agreement.
(c)
Rayonier issues surety bonds primarily to secure timber harvesting obligations in the State of Washington and to provide collateral for the Company’s workers’ compensation self-insurance program in that state. These surety bonds expire at various dates between 2012 and 2014 and are expected to be renewed as required.
 
10.
LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS
An analysis of the liabilities for dispositions and discontinued operations follows:
 
March 31,
 
December 31,
 
 
2012
 
2011
 
Balance, beginning of period
$
90,824

 
$
93,160

 
Expenditures charged to liabilities
(1,711
)
 
(9,209
)
 
Increase to liabilities
12

 
6,873

 
Balance, end of period
89,125

 
90,824

 
Less: Current portion
(9,931
)
 
(9,931
)
 
Non-current portion
$
79,194

 
$
80,893

 
The Company is exposed to the risk of reasonably possible additional losses in excess of the established liabilities. As of March 31, 2012, this amount could range up to $29 million, allocable over several of the applicable sites, and arises from uncertainty over the availability, feasibility or effectiveness of certain remediation technologies, additional or different contamination that may be discovered, development of new or more effective environmental remediation technologies and the exercise of discretion in interpretation of applicable law and regulations by governmental agencies.
The Company believes established liabilities are sufficient for costs expected to be incurred over the next 20 years with respect to its dispositions and discontinued operations. Remedial actions for these sites vary, but include on-site (and in certain cases off-site) removal or treatment of contaminated soils and sediments, recovery and treatment/remediation of groundwater, and source remediation and/or control.
 
11.
CONTINGENCIES
Rayonier is engaged in various legal actions, including certain environmental proceedings, and has been named as a defendant in various other lawsuits and claims arising in the normal course of business. While the Company has procured reasonable and customary insurance covering risks normally occurring in connection with its businesses, it has in certain cases retained some risk through the operation of self-insurance, primarily in the areas of workers’ compensation, property insurance and general liability. These other lawsuits and claims, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flow.

9


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

12.
EMPLOYEE BENEFIT PLANS
The Company has four qualified non-contributory defined benefit pension plans covering a significant majority of its employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plans. The Company closed enrollment in its pension plans to salaried employees hired after December 31, 2005, to Fernandina hourly employees hired after April 30, 2006, to Jesup hourly employees hired after March 4, 2009 and to Wood Products hourly employees hired after February 28, 2011. Currently, all plans are closed to new participants. Employee benefit plan liabilities are calculated using actuarial estimates and management assumptions. These estimates are based on historical information, along with certain assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause the estimates to change.
The net pension and postretirement benefit costs that have been recognized during the stated periods are shown in the following table:
 
Pension
Postretirement
 
Three Months Ended March 31,
 
Three Months Ended March 31,
 
2012
 
2011
 
2012
 
2011
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost
$
1,940

 
$
1,695

 
$
210

 
$
182

Interest cost
3,989

 
4,522

 
223

 
236

Expected return on plan assets
(5,879
)
 
(6,455
)
 

 

Amortization of prior service cost
302

 
340

 
6

 
22

Amortization of losses
4,056

 
2,593

 
144

 
66

Net periodic benefit cost
$
4,408

 
$
2,695

 
$
583

 
$
506

 
 
 
 
 
 
 
 
 
The Company made no discretionary contributions to the pension plans during the three months ended March 31, 2012. The Company has no mandatory pension contribution requirements for 2012, but may make discretionary contributions.

13.
DEBT
In March 2012, Rayonier issued $325 million of 3.75% Senior Notes due 2022. Approximately $150 million of the proceeds from these notes were used to repay borrowings outstanding under the Company's revolving credit facility. The Company had $445 million of available borrowings under the revolving credit facility at March 31, 2012.
As of March 31, 2012, the $172.5 million 4.50% Senior Exchangeable Notes due 2015 became exchangeable at the option of the holders for the calendar quarter ending June 30, 2012. Per the indenture, in order for the notes to become exchangeable, the Company's stock price must exceed 130 percent of the exchange price for 20 trading days in a period of 30 consecutive trading days as of the last day of the quarter. Of the $172.5 million in principal, $145.1 million remained classified as long-term debt due to the ability and intent of the Company to refinance it on a long-term basis.
There were no other significant changes to the Company's outstanding debt as reported in Note 11 — Debt of the Company's 2011 Annual Report on Form 10-K.
Subsequent Event
An asset sales covenant in the Rayonier Forest Resources ("RFR") $112.5 million installment note agreement requires the Company, subject to certain exceptions, to either reinvest cumulative timberland sale proceeds for individual sales greater than $10 million (the "excess proceeds") in timberland-related investments or, once the amount of excess proceeds not reinvested exceeds $50 million, to offer the note holders prepayment of the notes ratably in the amount of the excess proceeds. During April 2012, the excess proceeds exceeded the $50 million limit and as a result, repayment of $59.9 million has been offered to the note holders through May 15, 2012, at which time the excess proceeds will reset to zero.

10


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

14.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated Other Comprehensive Loss was comprised of the following:
 
March 31, 2012
 
December 31, 2011
Foreign currency translation adjustments (a)
$
40,302

 
$
34,477

Joint venture cash flow hedges
(2,636
)
 
(3,841
)
Unrecognized components of employee benefit plans, net of tax
(140,944
)
 
(144,084
)
Total
$
(103,278
)
 
$
(113,448
)
(a) During the three months ended March 31, 2012, the increase in net foreign currency translation adjustments was due to the strengthening of the New Zealand dollar against the U.S. dollar.





11


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

15.
CONSOLIDATING FINANCIAL STATEMENTS
The consolidating financial information below follows the same accounting policies as described in the consolidated financial statements, except for the use of the equity method of accounting to reflect ownership interests in wholly-owned subsidiaries, which are eliminated upon consolidation, and the allocation of certain expenses of Rayonier Inc. incurred for the benefit of its subsidiaries.
In October 2007, TRS issued $300 million of 3.75% Senior Exchangeable Notes due 2012, and in August 2009 TRS issued $172.5 million of 4.50% Senior Exchangeable Notes due 2015. The notes for both transactions are fully and unconditionally guaranteed by Rayonier Inc. as the Parent Guarantor and Rayonier Operating Company LLC ("ROC") as the Subsidiary Guarantor. In connection with these exchangeable notes, the Company provides the following condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.

 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the Three Months Ended March 31, 2012
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Subsidiaries of
Rayonier TRS
Holdings Inc.
(Non-
guarantors)
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
$

 
$

 
$

 
$
335,438

 
$
38,171

 
$
(17,829
)
 
$
355,780

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
247,054

 
26,818

 
(20,559
)
 
253,313

Selling and general expenses

 
3,311

 

 
15,512

 
796

 

 
19,619

Other operating expense  (income), net

 
121

 

 
1,512

 
(2,781
)
 

 
(1,148
)
 

 
3,432

 

 
264,078

 
24,833

 
(20,559
)
 
271,784

Equity in income (loss) of New Zealand joint venture

 

 

 
171

 
(158
)
 

 
13

OPERATING (LOSS) INCOME

 
(3,432
)
 

 
71,531

 
13,180

 
2,730

 
84,009

Interest expense
(1,249
)
 
(238
)
 
(10,226
)
 
687

 
(799
)
 

 
(11,825
)
Interest and miscellaneous income (expense), net
1,912

 
1,327

 
(1,208
)
 
(3,904
)
 
1,850

 

 
(23
)
Equity in income from subsidiaries
52,774

 
55,446

 
45,745

 

 

 
(153,965
)
 

INCOME BEFORE INCOME TAXES
53,437

 
53,103

 
34,311

 
68,314

 
14,231

 
(151,235
)
 
72,161

Income tax (expense) benefit

 
(329
)
 
4,174

 
(22,569
)
 

 

 
(18,724
)
NET INCOME
$
53,437

 
$
52,774

 
$
38,485

 
$
45,745

 
$
14,231

 
$
(151,235
)
 
$
53,437

OTHER COMPREHENSIVE INCOME
10,170

 
10,170

 
102

 
102

 
7,132

 
(17,506
)
 
10,170

COMPREHENSIVE INCOME
$
63,607

 
$
62,944

 
$
38,587

 
$
45,847

 
$
21,363

 
$
(168,741
)
 
$
63,607

 

12


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

 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the Three Months Ended March 31, 2011
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Subsidiaries of
Rayonier TRS
Holdings Inc.
(Non-
guarantors)
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
$

 
$

 
$

 
$
328,265

 
$
42,833

 
$
(13,367
)
 
$
357,731

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
244,297

 
27,997

 
(14,783
)
 
257,511

Selling and general expenses

 
2,716

 

 
13,070

 
647

 

 
16,433

Other operating expense (income), net

 
49

 

 
298

 
(2,464
)
 
(1
)
 
(2,118
)
 

 
2,765

 

 
257,665

 
26,180

 
(14,784
)
 
271,826

Equity in income of New Zealand joint venture

 

 

 
194

 
1,479

 

 
1,673

OPERATING (LOSS) INCOME

 
(2,765
)
 

 
70,794

 
18,132

 
1,417

 
87,578

Interest expense

 
(130
)
 
(13,050
)
 
(112
)
 
(25
)
 

 
(13,317
)
Interest and miscellaneous income (expense), net

 
1,337

 
(1,073
)
 
(5,024
)
 
5,053

 

 
293

Equity in income from subsidiaries
58,412

 
60,044

 
44,435

 

 

 
(162,891
)
 

INCOME BEFORE INCOME TAXES
58,412

 
58,486

 
30,312

 
65,658

 
23,160

 
(161,474
)
 
74,554

Income tax (expense) benefit

 
(74
)
 
5,155

 
(21,223
)
 

 

 
(16,142
)
NET INCOME
$
58,412

 
$
58,412

 
$
35,467

 
$
44,435

 
$
23,160

 
$
(161,474
)
 
$
58,412

OTHER COMPREHENSIVE INCOME (LOSS)
1,814

 
1,814

 
149

 
149

 
(191
)
 
(1,921
)
 
1,814

COMPREHENSIVE INCOME
$
60,226

 
$
60,226

 
$
35,616

 
$
44,584

 
$
22,969

 
$
(163,395
)
 
$
60,226

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 



13


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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
As of March 31, 2012
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Subsidiaries of
Rayonier TRS
Holdings
Inc. (Non-
guarantors)
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
131,626

 
$
27,671

 
$
60,750

 
$
8,520

 
$
8,008

 
$

 
$
236,575

Accounts receivable, less allowance for doubtful accounts

 
24

 

 
94,699

 
2,475

 

 
97,198

Inventory

 

 

 
110,274

 

 
(7,957
)
 
102,317

Intercompany interest receivable

 

 

 

 
3,111

 
(3,111
)
 

Prepaid and other current assets

 
974

 
796

 
53,540

 
6,700

 

 
62,010

Total current assets
131,626

 
28,669

 
61,546

 
267,033

 
20,294

 
(11,068
)
 
498,100

TIMBER AND TIMBERLANDS,
NET OF DEPLETION AND AMORTIZATION

 

 

 
40,154

 
1,462,277

 
1,860

 
1,504,291

NET PROPERTY, PLANT AND EQUIPMENT

 
2,484

 

 
517,340

 
2,186

 

 
522,010

INVESTMENT IN JOINT VENTURE

 

 

 
(11,281
)
 
85,669

 

 
74,388

INVESTMENT IN SUBSIDIARIES
1,328,752

 
1,524,491

 
1,202,519

 

 

 
(4,055,762
)
 

INTERCOMPANY NOTES RECEIVABLE
204,420

 

 
19,262

 

 

 
(223,682
)
 

OTHER ASSETS
3,535

 
26,802

 
5,750

 
699,073

 
12,469

 
(552,535
)
 
195,094

TOTAL ASSETS
$
1,668,333

 
$
1,582,446

 
$
1,289,077

 
$
1,512,319

 
$
1,582,895

 
$
(4,841,187
)
 
$
2,793,883

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
2,058

 
$
9

 
$
97,448

 
$
1,166

 
$

 
$
100,681

Current maturities of long-term debt

 

 
50,512

 

 

 

 
50,512

Accrued taxes

 
525

 

 
14,188

 
2,637

 

 
17,350

Accrued payroll and benefits

 
8,211

 

 
10,572

 
1,539

 

 
20,322

Accrued interest
948

 
366

 
8,818

 
334

 
609

 

 
11,075

Accrued customer incentives

 

 

 
7,148

 

 

 
7,148

Other current liabilities

 
2,237

 

 
7,367

 
6,460

 

 
16,064

Current liabilities for dispositions and discontinued operations

 

 

 
9,931

 

 

 
9,931

Total current liabilities
948

 
13,397

 
59,339

 
146,988

 
12,411

 

 
233,083

LONG-TERM DEBT
325,000

 

 
560,420

 

 
88,297

 

 
973,717

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS

 

 

 
79,194

 

 

 
79,194

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
113,491

 

 
27,026

 

 

 
140,517

OTHER NON-CURRENT LIABILITIES

 
17,557

 

 
6,809

 
621

 

 
24,987

INTERCOMPANY PAYABLE

 
109,249

 

 
49,783

 
215,307

 
(374,339
)
 

TOTAL LIABILITIES
325,948

 
253,694

 
619,759

 
309,800

 
316,636

 
(374,339
)
 
1,451,498

TOTAL SHAREHOLDERS’ EQUITY
1,342,385

 
1,328,752

 
669,318

 
1,202,519

 
1,266,259

 
(4,466,848
)
 
1,342,385

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,668,333

 
$
1,582,446

 
$
1,289,077

 
$
1,512,319

 
$
1,582,895

 
$
(4,841,187
)
 
$
2,793,883


14


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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2011
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Subsidiaries of
Rayonier TRS
Holdings
Inc. (Non-
guarantors)
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
8,977

 
$
59,976

 
$
7,398

 
$
2,252

 
$

 
$
78,603

Accounts receivable, less allowance for doubtful accounts

 
3

 

 
94,399

 
606

 

 
95,008

Inventory

 

 

 
133,300

 

 
(11,302
)
 
121,998

Intercompany interest receivable

 

 

 

 
3,848

 
(3,848
)
 

Prepaid and other current assets

 
2,328

 
808

 
36,937

 
8,820

 

 
48,893

Total current assets

 
11,308

 
60,784

 
272,034

 
15,526

 
(15,150
)
 
344,502

TIMBER AND TIMBERLANDS,
NET OF DEPLETION AND AMORTIZATION

 

 

 
39,824

 
1,462,027

 
1,860

 
1,503,711

NET PROPERTY, PLANT AND EQUIPMENT

 
2,551

 

 
456,754

 
2,247

 

 
461,552

INVESTMENT IN JOINT VENTURE

 

 

 
(11,006
)
 
80,225

 

 
69,219

INVESTMENT IN SUBSIDIARIES
1,238,661

 
1,490,444

 
1,156,896

 

 

 
(3,886,001
)
 

INTERCOMPANY NOTES RECEIVABLE
204,420

 

 
19,073

 

 

 
(223,493
)
 

OTHER ASSETS

 
26,850

 
6,491

 
702,087

 
6,856

 
(551,920
)
 
190,364

TOTAL ASSETS
$
1,443,081

 
$
1,531,153

 
$
1,243,244

 
$
1,459,693

 
$
1,566,881

 
$
(4,674,704
)
 
$
2,569,348

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
1,801

 
$
10

 
$
69,648

 
$
1,414

 
$

 
$
72,873

Current maturities of long-term debt

 

 
28,110

 

 

 

 
28,110

Accrued taxes

 
(27
)
 

 
3,934

 
1,316

 

 
5,223

Accrued payroll and benefits

 
13,810

 

 
10,563

 
2,473

 

 
26,846

Accrued interest
8

 
246

 
5,442

 
739

 
609

 

 
7,044

Accrued customer incentives

 

 

 
10,369

 

 

 
10,369

Other current liabilities

 
1,886

 

 
9,199

 
6,770

 

 
17,855

Current liabilities for dispositions and discontinued operations

 

 

 
9,931

 

 

 
9,931

Total current liabilities
8

 
17,716

 
33,562

 
114,383

 
12,582

 

 
178,251

LONG-TERM DEBT
120,000

 
30,000

 
580,647

 

 
88,582

 

 
819,229

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS

 

 

 
80,893

 

 

 
80,893

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
112,904

 

 
27,719

 

 

 
140,623

OTHER NON-CURRENT LIABILITIES

 
20,210

 

 
6,396

 
673

 

 
27,279

INTERCOMPANY PAYABLE

 
111,662

 

 
73,406

 
203,208

 
(388,276
)
 

TOTAL LIABILITIES
120,008

 
292,492

 
614,209

 
302,797

 
305,045

 
(388,276
)
 
1,246,275

TOTAL SHAREHOLDERS’ EQUITY
1,323,073

 
1,238,661

 
629,035

 
1,156,896

 
1,261,836

 
(4,286,428
)
 
1,323,073

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,443,081

 
$
1,531,153

 
$
1,243,244

 
$
1,459,693

 
$
1,566,881

 
$
(4,674,704
)
 
$
2,569,348

 

15


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

 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2012
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Subsidiaries of
Rayonier TRS
Holdings Inc.
(Non-
guarantors)
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES
$
(14,838
)
 
$
33,980

 
$
12,000

 
$
61,546

 
$
44,070

 
$
(25,404
)
 
$
111,354

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(55
)
 

 
(33,158
)
 
(8,866
)
 

 
(42,079
)
Purchase of timberlands

 

 

 

 
(8,689
)
 

 
(8,689
)
Jesup mill cellulose specialties expansion

 

 

 
(26,026
)
 

 

 
(26,026
)
Change in restricted cash

 

 

 

 
(5,609
)
 

 
(5,609
)
Investment in Subsidiaries

 

 
774

 

 

 
(774
)
 

Other

 
(69
)
 

 
8,955

 
(150
)
 

 
8,736

CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES

 
(124
)
 
774

 
(50,229
)
 
(23,314
)
 
(774
)
 
(73,667
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of debt
325,000

 

 

 

 
15,000

 

 
340,000

Repayment of debt
(120,000
)
 
(30,000
)
 

 

 
(15,000
)
 

 
(165,000
)
Dividends paid
(49,249
)
 

 

 

 

 

 
(49,249
)
Proceeds from the issuance of common shares
2,061

 

 

 

 

 

 
2,061

Excess tax benefits on stock-based compensation

 

 

 
3,946

 

 

 
3,946

Debt issuance costs
(3,565
)
 

 

 

 

 

 
(3,565
)
Repurchase of common shares
(7,783
)
 

 

 

 

 

 
(7,783
)
Intercompany distributions

 
14,838

 
(12,000
)
 
(14,016
)
 
(15,000
)
 
26,178

 

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
146,464

 
(15,162
)
 
(12,000
)
 
(10,070
)
 
(15,000
)
 
26,178

 
120,410

EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 

 
(125
)
 

 

 
(125
)
CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents
131,626

 
18,694

 
774

 
1,122

 
5,756

 

 
157,972

Balance, beginning of year

 
8,977

 
59,976

 
7,398

 
2,252

 

 
78,603

Balance, end of period
$
131,626

 
$
27,671

 
$
60,750

 
$
8,520

 
$
8,008

 
$

 
$
236,575



16


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

 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2011
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Subsidiaries of
Rayonier TRS
Holdings Inc.
(Non-
guarantors)
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
CASH PROVIDED BY OPERATING ACTIVITIES
$
46,321

 
$
26,146

 
$
15,000

 
$
69,566

 
$
36,292

 
$
(77,620
)
 
$
115,705

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(62
)
 

 
(24,701
)
 
(9,998
)
 

 
(34,761
)
Purchase of timberlands

 

 

 

 
(2,942
)
 

 
(2,942
)
Investment in Subsidiaries

 

 
26,011

 

 

 
(26,011
)
 

Other

 

 

 
6,107

 
775

 

 
6,882

CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES

 
(62
)
 
26,011

 
(18,594
)
 
(12,165
)
 
(26,011
)
 
(30,821
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
Repayment of debt

 

 
(75,000
)
 

 

 

 
(75,000
)
Dividends paid
(43,894
)
 

 

 

 

 

 
(43,894
)
Proceeds from the issuance of common shares
5,399

 

 

 

 

 

 
5,399

Excess tax benefits on stock-based compensation

 

 

 
3,970

 

 

 
3,970

Repurchase of common shares
(7,826
)
 

 

 

 

 

 
(7,826
)
Intercompany distributions

 
(46,321
)
 
(15,000
)
 
(42,310
)
 

 
103,631

 

CASH USED FOR FINANCING ACTIVITIES
(46,321
)
 
(46,321
)
 
(90,000
)
 
(38,340
)
 

 
103,631

 
(117,351
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 

 
116

 

 

 
116

CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents

 
(20,237
)
 
(48,989
)
 
12,748

 
24,127

 

 
(32,351
)
Balance, beginning of year

 
29,759

 
283,258

 
1,280

 
35,166

 

 
349,463

Balance, end of period
$

 
$
9,522

 
$
234,269

 
$
14,028

 
$
59,293

 
$

 
$
317,112


 

17


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

In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022. The notes are fully and unconditionally guaranteed by the following subsidiaries of Rayonier Inc.: ROC, Rayonier Louisiana Timberlands LLC, Rayonier TRS Holdings Inc. and substantially all domestic subsidiaries of TRS Holdings Inc. In connection with these notes, the Company provides the following condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.
 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the Three Months Ended March 31, 2012
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
$

 
$
312,642

 
$
60,967

 
$
(17,829
)
 
$
355,780

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales

 
227,508

 
46,364

 
(20,559
)
 
253,313

Selling and general expenses

 
15,698

 
3,921

 

 
19,619

Other operating expense (income), net

 
980

 
(2,128
)
 

 
(1,148
)
 

 
244,186

 
48,157

 
(20,559
)
 
271,784

Equity in income of New Zealand joint venture

 

 
13

 

 
13

OPERATING INCOME

 
68,456

 
12,823

 
2,730

 
84,009

Interest expense
(1,249
)
 
(9,778
)
 
(798
)
 

 
(11,825
)
Interest and miscellaneous income (expense), net
1,912

 
(3,789
)
 
1,854

 

 
(23
)
Equity in income from subsidiaries
52,774

 
16,655

 

 
(69,429
)
 

INCOME BEFORE INCOME TAXES
53,437

 
71,544

 
13,879

 
(66,699
)
 
72,161

Income tax (expense) benefit

 
(18,770
)
 
46

 

 
(18,724
)
NET INCOME
$
53,437

 
$
52,774

 
$
13,925

 
$
(66,699
)
 
$
53,437

OTHER COMPREHENSIVE INCOME
10,170

 
10,170

 
7,030

 
(17,200
)
 
10,170

COMPREHENSIVE INCOME
$
63,607

 
$
62,944

 
$
20,955

 
$
(83,899
)
 
$
63,607


18


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

 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the Three Months Ended March 31, 2011
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
$

 
$
296,251

 
$
74,847

 
$
(13,367
)
 
$
357,731

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales

 
215,566

 
56,728

 
(14,783
)
 
257,511

Selling and general expenses

 
12,769

 
3,664

 

 
16,433

Other operating expense (income), net

 
1,060

 
(3,177
)
 
(1
)
 
(2,118
)
 

 
229,395

 
57,215

 
(14,784
)
 
271,826

Equity in income of New Zealand joint venture

 

 
1,673

 

 
1,673

OPERATING INCOME

 
66,856

 
19,305

 
1,417

 
87,578

Interest expense

 
(13,292
)
 
(25
)
 

 
(13,317
)
Interest and miscellaneous (expense) income, net

 
(4,762
)
 
5,055

 

 
293

Equity in income from subsidiaries
58,412

 
25,374

 

 
(83,786
)
 

INCOME BEFORE INCOME TAXES
58,412

 
74,176

 
24,335

 
(82,369
)
 
74,554

Income tax expense

 
(15,764
)
 
(378
)
 

 
(16,142
)
NET INCOME
$
58,412

 
$
58,412

 
$
23,957

 
$
(82,369
)
 
$
58,412

OTHER COMPREHENSIVE INCOME (LOSS)
1,814

 
1,814

 
(281
)
 
(1,533
)
 
1,814

COMPREHENSIVE INCOME
$
60,226

 
$
60,226

 
$
23,676

 
$
(83,902
)
 
$
60,226

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

19


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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
As of March 31, 2012
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
131,626

 
$
83,099

 
$
21,850

 
$

 
$
236,575

Accounts receivable, less allowance for doubtful accounts

 
89,582

 
7,616

 

 
97,198

Inventory

 
109,244

 
1,030

 
(7,957
)
 
102,317

Intercompany interest receivable

 

 
3,111

 
(3,111
)
 

Prepaid and other current assets

 
54,679

 
7,331

 

 
62,010

Total current assets
131,626

 
336,604

 
40,938

 
(11,068
)
 
498,100

TIMBER AND TIMBERLANDS,
NET OF DEPLETION AND AMORTIZATION

 
116,728

 
1,385,703

 
1,860

 
1,504,291

NET PROPERTY, PLANT AND EQUIPMENT

 
518,933

 
3,077

 

 
522,010

INVESTMENT IN JOINT VENTURE

 

 
74,388

 

 
74,388

INVESTMENT IN SUBSIDIARIES
1,328,752

 
796,030

 

 
(2,124,782
)
 

INTERCOMPANY NOTES RECEIVABLE
204,420

 

 

 
(204,420
)
 

OTHER ASSETS
3,535

 
706,429

 
37,666

 
(552,536
)
 
195,094

TOTAL ASSETS
$
1,668,333

 
$
2,474,724

 
$
1,541,772

 
$
(2,890,946
)
 
$
2,793,883

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
97,059

 
$
3,622

 
$

 
$
100,681

Current maturities of long-term debt

 
50,512

 

 

 
50,512

Accrued taxes

 
14,736

 
2,614

 

 
17,350

Accrued payroll and benefits

 
18,065

 
2,257

 

 
20,322

Accrued interest
948

 
9,518

 
609

 

 
11,075

Accrued customer incentives

 
7,148

 

 

 
7,148

Other current liabilities

 
8,700

 
7,364

 

 
16,064

Current liabilities for dispositions and discontinued operations

 
9,931

 

 

 
9,931

Total current liabilities
948

 
215,669

 
16,466

 

 
233,083

LONG-TERM DEBT
325,000

 
560,420

 
88,297

 

 
973,717

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS

 
79,194

 

 

 
79,194

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
140,517

 

 

 
140,517

OTHER NON-CURRENT LIABILITIES

 
23,554

 
1,433

 

 
24,987

INTERCOMPANY PAYABLE

 
126,618

 
228,460

 
(355,078
)
 

TOTAL LIABILITIES
325,948

 
1,145,972

 
334,656

 
(355,078
)
 
1,451,498

TOTAL SHAREHOLDERS’ EQUITY
1,342,385

 
1,328,752

 
1,207,116

 
(2,535,868
)
 
1,342,385

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,668,333

 
$
2,474,724

 
$
1,541,772

 
$
(2,890,946
)
 
$
2,793,883


20


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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2011
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
58,132

 
$
20,471

 
$

 
$
78,603

Accounts receivable, less allowance for doubtful accounts

 
90,658

 
4,350

 

 
95,008

Inventory

 
132,323

 
977

 
(11,302
)
 
121,998

Intercompany interest receivable

 

 
3,848

 
(3,848
)
 

Prepaid and other current assets

 
39,366

 
9,527

 

 
48,893

Total current assets

 
320,479

 
39,173

 
(15,150
)
 
344,502

TIMBER AND TIMBERLANDS,
NET OF DEPLETION AND AMORTIZATION

 
117,243

 
1,384,608

 
1,860

 
1,503,711

NET PROPERTY, PLANT AND EQUIPMENT

 
458,497

 
3,055

 

 
461,552

INVESTMENT IN JOINT VENTURE

 

 
69,219

 

 
69,219

INVESTMENT IN SUBSIDIARIES
1,238,661

 
801,838

 

 
(2,040,499
)
 

INTERCOMPANY NOTES RECEIVABLE
204,420

 

 

 
(204,420
)
 

OTHER ASSETS

 
710,663

 
31,622

 
(551,921
)
 
190,364

TOTAL ASSETS
$
1,443,081

 
$
2,408,720

 
$
1,527,677

 
$
(2,810,130
)
 
$
2,569,348

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
65,732

 
$
7,141

 
$

 
$
72,873

Current maturities of long-term debt

 
28,110

 

 

 
28,110

Accrued taxes

 
3,838

 
1,385

 

 
5,223

Accrued payroll and benefits

 
23,070

 
3,776

 

 
26,846

Accrued interest
8

 
6,427

 
609

 

 
7,044

Accrued customer incentives

 
10,369

 

 

 
10,369

Other current liabilities

 
10,319

 
7,536

 

 
17,855

Current liabilities for dispositions and discontinued operations

 
9,931

 

 

 
9,931

Total current liabilities
8

 
157,796

 
20,447

 

 
178,251

LONG-TERM DEBT
120,000

 
610,647

 
88,582

 

 
819,229

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS

 
80,893

 

 

 
80,893

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
140,623

 

 

 
140,623

OTHER NON-CURRENT LIABILITIES

 
25,894

 
1,385

 

 
27,279

INTERCOMPANY PAYABLE

 
154,206

 
214,997

 
(369,203
)
 

TOTAL LIABILITIES
120,008

 
1,170,059

 
325,411

 
(369,203
)
 
1,246,275

TOTAL SHAREHOLDERS’ EQUITY
1,323,073

 
1,238,661

 
1,202,266

 
(2,440,927
)
 
1,323,073

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,443,081

 
$
2,408,720

 
$
1,527,677

 
$
(2,810,130
)
 
$
2,569,348


21


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

 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2012
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES
$
(14,838
)
 
$
86,628

 
$
39,726

 
$
(162
)
 
$
111,354

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(33,204
)
 
(8,875
)
 

 
(42,079
)
Purchase of timberlands

 
(102
)
 
(8,587
)
 

 
(8,689
)
Jesup mill cellulose specialties expansion

 
(26,026
)
 

 

 
(26,026
)
Change in restricted cash

 

 
(5,609
)
 

 
(5,609
)
Other

 
8,887

 
(151
)
 

 
8,736

CASH USED FOR INVESTING ACTIVITIES

 
(50,445
)
 
(23,222
)
 

 
(73,667
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Issuance of debt
325,000

 

 
15,000

 

 
340,000

Repayment of debt
(120,000
)
 
(30,000
)
 
(15,000
)
 

 
(165,000
)
Dividends paid
(49,249
)
 

 

 

 
(49,249
)
Proceeds from the issuance of common shares
2,061

 

 

 

 
2,061

Excess tax benefits on stock-based compensation

 
3,946

 

 

 
3,946

Debt issuance costs
(3,565
)
 

 

 

 
(3,565
)
Repurchase of common shares
(7,783
)
 

 

 

 
(7,783
)
Intercompany distributions

 
14,838

 
(15,000
)
 
162

 

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
146,464

 
(11,216
)
 
(15,000
)
 
162

 
120,410

EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 
(125
)
 

 
(125
)
CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents
131,626

 
24,967

 
1,379

 

 
157,972

Balance, beginning of year

 
58,132

 
20,471

 

 
78,603

Balance, end of period
$
131,626

 
$
83,099

 
$
21,850

 
$

 
$
236,575


22


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

 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2011
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
All Other
Subsidiaries
(Non-
guarantors)
 
Consolidating
Adjustments
 
Total
Consolidated
CASH PROVIDED BY OPERATING ACTIVITIES
$
46,321

 
$
73,960

 
$
41,745

 
$
(46,321
)
 
$
115,705

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(24,759
)
 
(10,002
)
 

 
(34,761
)
Purchase of timberlands

 

 
(2,942
)
 

 
(2,942
)
Other

 
6,107

 
775

 

 
6,882

CASH USED FOR INVESTING ACTIVITIES

 
(18,652
)
 
(12,169
)
 

 
(30,821
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Repayment of debt

 
(75,000
)
 

 

 
(75,000
)
Dividends paid
(43,894
)
 

 

 

 
(43,894
)
Proceeds from the issuance of common shares
5,399

 

 

 

 
5,399

Excess tax benefits on stock-based compensation

 
3,970

 

 

 
3,970

Repurchase of common shares
(7,826
)
 

 

 

 
(7,826
)
Intercompany distributions

 
(46,321
)
 

 
46,321

 

CASH USED FOR FINANCING ACTIVITIES
(46,321
)
 
(117,351
)
 

 
46,321

 
(117,351
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 
116

 

 
116

CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents

 
(62,043
)
 
29,692

 

 
(32,351
)
Balance, beginning of year

 
303,746

 
45,717

 

 
349,463

Balance, end of period
$

 
$
241,703

 
$
75,409

 
$

 
$
317,112










23


Table of Contents



Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
When we refer to "we," "us," "our," "the Company," or "Rayonier," we mean Rayonier Inc. and its consolidated subsidiaries. References herein to "Notes to Financial Statements" refer to the Notes to the Condensed Consolidated Financial Statements of Rayonier Inc. included in Item 1 of this Report.
The Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors which may affect future results. Our MD&A should be read in conjunction with the 2011 Annual Report on Form 10-K.
Forward-Looking Statements
Certain statements in this document regarding anticipated financial outcomes including earnings guidance, if any, business and market conditions, outlook and other similar statements relating to Rayonier's future financial and operational performance, are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as "may," "will," "should," "expect," "estimate," "believe," "anticipate" and other similar language. Forward-looking statements are not guarantees of future performance and undue reliance should not be placed on these statements. The risk factors contained in Item 1A — Risk Factors in our 2011 Annual Report on Form 10-K, among others, could cause actual results to differ materially from those expressed in forward-looking statements that are made in this document.
Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward- looking statements except as required by law. You are advised, however, to review any further disclosures we make on related subjects in our subsequent Forms 10-Q, 10-K, 8-K and other reports to the SEC.
 
Critical Accounting Policies and Use of Estimates
The preparation of financial statements requires us to make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates. For a full description of our critical accounting policies, see Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2011 Annual Report on Form 10-K.
Segments
We are a leading international forest products company primarily engaged in timberland management, the sale and entitlement of real estate, and the production and sale of high value specialty cellulose fibers and fluff pulp. We operate in four reportable business segments: Forest Resources, Real Estate, Performance Fibers, and Wood Products. Forest Resources sales include all activities which relate to the harvesting of timber. Real Estate sales include all property sales, including those designated for higher and better use ("HBU"). The assets of the Real Estate segment include HBU property held by our real estate subsidiary, TerraPointe LLC. The Performance Fibers segment includes two major product lines, cellulose specialties and absorbent materials. The Wood Products segment is comprised of lumber operations. Our remaining operations include harvesting and selling timber acquired from third parties (log trading). These operations are combined and reported in "Other Operations." Sales between operating segments are made based on fair market value, and intercompany sales, purchases and profits or losses are eliminated in consolidation.
We evaluate financial performance based on the operating income of the segments. Operating income, as presented in the Condensed Consolidated Statements of Income and Comprehensive Income, is equal to segment income (loss). Certain income (loss) items in the Condensed Consolidated Statements of Income and Comprehensive Income are not allocated to segments. These items, which include gains (losses) from certain asset dispositions, interest income (expense), miscellaneous income (expense) and income tax (expense) benefit, are not considered by management to be part of segment operations.


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Table of Contents


Results of Operations

 
Three Months Ended March 31,
Financial Information (in millions)
2012
 
2011
Sales
 
 
 
Forest Resources
 
 
 
          Atlantic
$
15

 
$
13

          Gulf States
10

 
8

          Northern
24

 
24

          New Zealand
3

 
3

          Total Forest Resources
52

 
48

Real Estate
 
 
 
Development

 

Rural
11

 
12

Non-Strategic Timberlands
1

 
1

Total Real Estate
12

 
13

Performance Fibers
 
 
 
Cellulose specialties
212

 
194

Absorbent materials
39

 
57

Total Performance Fibers
251

 
251

Wood Products
19

 
16

Other Operations
22

 
30

Total Sales
$
356

 
$
358

 
 
 
 
Operating Income (Loss)
 
 
 
Forest Resources
$
8

 
$
11

Real Estate
6

 
7

Performance Fibers
81

 
76

Wood Products
1

 

Other Operations
(1
)
 
1

Corporate and other
(11
)
 
(7
)
Operating Income
84

 
88

Interest Expense, Interest Income and Other
(12
)
 
(14
)
Income Tax Expense
(19
)
 
(16
)
Net Income
$
53

 
$
58

 
 
 
 
Diluted Earnings Per Share
$
0.42

 
$
0.47

 
 
 
 



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Table of Contents

FOREST RESOURCES
Sales (in millions)
2011
 
Changes Attributable to:
 
2012
Three months ended March 31,
Price
 
Volume/
Mix/Other
 
Atlantic
$
13

 
$

 
$
2

 
$
15

Gulf States
8

 
(1
)
 
3

 
10

Northern
24

 

 

 
24

New Zealand
3

 

 

 
3

Total Sales
$
48

 
$
(1
)
 
$
5

 
$
52

 
 
 
 
 
 
 
 
Operating Income (in millions)
2011
 
Changes Attributable to:
 
2012
Three months ended March 31,
Price
 
Volume/Mix/Cost
 
Atlantic
$
2

 
$

 
$
1

 
$
3

Gulf States

 
(1
)
 
2

 
1

Northern
8

 

 
(4
)
 
4

New Zealand/Other
1

 

 
(1
)
 

Total Operating Income
$
11

 
$
(1
)
 
$
(2
)
 
$
8

 
 
 
 
 
 
 
 
 
 
The Atlantic region's sales and operating income increased by $2 million and $1 million from the prior year period, respectively, as volumes increased 14 percent due to higher pulpwood demand.
In the Gulf States region, results improved from first quarter 2011 as volumes rose 28 percent mainly due to the 2011 timberland acquisitions, partially offset by a six percent decline in average prices due to a mix shift to pulpwood from sawlogs.
In the Northern region, first quarter sales were consistent with 2011, while operating income declined reflecting higher fuel and logging costs. As expected, high inventories at China ports resulted in lower stumpage sales for export markets; however, an increase in log volumes for domestic mills offset this volume decline.
The New Zealand sales represent timberland management fees for services provided to a New Zealand joint venture ("JV") in which we own 26 percent. The operating income primarily represents equity earnings related to the JV's timber activities, which declined in 2012 mainly due to lower export demand due to high inventory levels at China ports.
REAL ESTATE
Our real estate holdings are primarily in the southeastern U.S. We segregate these real estate holdings into three groups: development HBU, rural HBU and non-strategic timberlands. Our strategy is to extract maximum value from our HBU properties. We pursue entitlement activity on development property while maintaining a rural HBU program of sales for conservation, recreation and industrial uses.
Sales (in millions)
2011
 
Changes Attributable to:
 
2012
Three months ended March 31,
Price/Volume/Mix
 
Development
$

 
$

 
$

Rural
12

 
(1
)
 
11

Non-Strategic Timberlands
1

 

 
1

Total Sales
$
13

 
$
(1
)
 
$
12

Operating Income (in millions)
2011
 
Changes Attributable to:
 
2012
Three months ended March 31,
Price/Volume/Mix
 
Total Operating Income
$
7

 
$
(1
)
 
$
6


Real Estate sales of $12 million and operating income of $6 million both declined $1 million from the prior year period. In first quarter 2012, rural acres sold of 5,452 were comparable to the prior year period, while price and cost per acre were slightly unfavorable due to geographic mix.

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Table of Contents

PERFORMANCE FIBERS
Sales (in millions)
2011
 
Changes Attributable to:
 
2012
Three months ended March 31,
Price
 
Volume/
Mix
 
Cellulose specialties
$
194

 
$
26

 
$
(8
)
 
$
212

Absorbent materials
57

 
(8
)
 
(10
)
 
39

Total Sales
$
251

 
$
18

 
$
(18
)
 
$
251

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cellulose specialties sales improved in 2012 versus prior year as prices increased 14 percent reflecting strong demand. Cellulose specialties volumes decreased by four percent due to the timing of customer orders.
Absorbent materials sales decreased in the quarter as prices declined 17 percent from the prior year period reflecting weaker markets, while volumes decreased 19 percent due to the timing of customer orders.
The Jesup mill cellulose specialties expansion project ("CSE") is on pace to be completed by mid-2013. Upon completion of the CSE, we will be exiting the more commodity-like absorbent materials business and transitioning to producing only cellulose specialties.
Operating Income (in millions)
2011
 
Changes Attributable to:
 
2012
Three months ended March 31,
Price
 
Volume/
Mix
 
Cost/Other
 
Total Operating Income
$
76

 
$
18

 
$
(5
)
 
$
(8
)
 
$
81

 
 
 
 
 
 
 
 
 
 
Operating income improved in first quarter 2012 over the prior year period as higher cellulose specialties prices more than offset a seven percent increase in production costs and lower shipments due to the timing of customer orders.
WOOD PRODUCTS
Sales (in millions)
2011
 
Changes Attributable to:
 
2012
Three months ended March 31,
Price
 
Volume
 
Total Sales
$
16

 
$
(1
)
 
$
4

 
$
19

 
 
 
 
 
 
 
 
Operating Income (in millions)
2011
 
Changes Attributable to:
 
2012
Three months ended March 31,
Price
 
Volume/Costs
 
Total Operating Income
$

 
$
(1
)
 
$
2

 
$
1

 
 
 
 
 
 
 
 
Wood Products results improved in first quarter 2012 compared to the prior year period as volumes rose 26 percent due to favorable weather conditions. First quarter 2012 also benefited from lower wood costs.
OTHER OPERATIONS
Sales and operating income decreased from the prior year period due to lower Asian demand and foreign exchange losses in first quarter 2012.
Corporate and Other Expense/Eliminations
Corporate and other expenses increased $3 million from the prior year period primarily due to the recognition of stock based compensation expense associated with Lee Thomas' retirement.
Interest Expense, Interest Income and Other
Interest and other were slightly below the prior year period due to higher capitalized interest related to the CSE and lower cost of borrowings in first quarter 2012.
Income Tax Expense
The first quarter effective tax rate was 25.9 percent compared to 21.7 percent in 2011. The higher tax rate was due to

27


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proportionately higher expected earnings from our taxable REIT subsidiaries in 2012.
Outlook
In Forest Resources, we will continue capitalizing on local market opportunities in our Atlantic and Gulf regions, while in the Northwest we plan to increase harvest volumes as Asian markets improve. In Performance Fibers, we anticipate another record year driven by strong cellulose specialties markets and we are on track to complete our CSE project by mid-2013, as planned. We expect full year earnings to be comparable to 2011, excluding special items, and CAD to range from $285 million to $310 million, substantially above our dividend.
Our full year 2012 financial guidance is subject to a number of variables and uncertainties, including those discussed under Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations, Forward-Looking Statements of this Form 10-Q and Item 1A — Risk Factors in our 2011 Annual Report on Form 10-K. 

Liquidity and Capital Resources
Our operations have generally produced consistent cash flows and required limited capital resources. Short-term borrowings have helped fund cyclicality in working capital needs and long-term debt has been used to fund major acquisitions.
Summary of Liquidity and Financing Commitments (in millions of dollars)
 
As of March 31,
 
As of December 31,
 
2012
 
2011
Cash and cash equivalents (a)
$
237

 
$
79

Total debt
1,024

 
847

Shareholders’ equity
1,342

 
1,323

Total capitalization (total debt plus equity)
2,366

 
2,170

Debt to capital ratio
43
%
 
39
%
(a) Cash and cash equivalents consisted primarily of time deposits with original maturities of 90 days or less.
Cash Flows (in millions of dollars)
The following table summarizes our cash flows from operating, investing and financing activities for the three months ended March 31:
 
2012
 
2011
Cash provided by (used for):
 
 
 
Operating activities
$
111

 
$
116

Investing activities
(74
)
 
(31
)
Financing activities
120

 
(117
)
Cash Provided by Operating Activities
Cash provided by operating activities decreased primarily due to a $5.9 million income tax refund received in first quarter 2011.
Cash Used for Investing Activities
Cash used for investing activities rose mainly due to an increase in strategic capital, which included the Jesup mill CSE and timberland acquisitions. Additionally, capital expenditures and restricted cash from the timing of like-kind exchange transactions were higher in 2012.
Cash Provided by (Used for) Financing Activities
Cash provided by financing activities increased mainly due to net borrowings of $175 million in first quarter of 2012 versus net repayments of $75 million in first quarter of 2011. This was partially offset by higher dividend payments due to the third quarter 2011 dividend rate increase and payment of debt issuance costs for the $325 million of notes issued in 2012.
Expected 2012 Expenditures
Capital expenditures in 2012 are forecasted to be between $150 million and $155 million, excluding strategic acquisitions and the CSE. We spent $41 million ($26 million net of purchases on account) in the first quarter of 2012 on the CSE and expect

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Table of Contents

total expenditures in 2012 to range between $200 million and $210 million. Our 2012 dividend payments are expected to increase from $185 million in 2011 to $197 million assuming no change in the quarterly dividend rate of $0.40 per share. We have a $23 million note payable which matures June 2012 and $300 million in Senior Exchangeable Notes due October 2012. We expect to repay the note payable with cash on hand and refinance the Senior Exchangeable Notes.
We made no discretionary pension contributions in the first quarter of 2012. We have no mandatory pension contributions in 2012 but may make discretionary contributions. Cash payments for income taxes in 2012 are anticipated to be between $55 million and $60 million. Expenditures related to dispositions and discontinued operations were $2 million for the first quarter of 2012; full year 2012 expenditures of approximately $10 million are anticipated. See Note 10Liabilities for Dispositions and Discontinued Operations for further information.

Performance and Liquidity Indicators
The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures of financial results: Earnings before Interest, Taxes, Depreciation, Depletion and Amortization ("EBITDA"), and Adjusted Cash Available for Distribution ("Adjusted CAD"). These measures are not defined by Generally Accepted Accounting Principles ("GAAP") and the discussion of EBITDA and Adjusted CAD is not intended to conflict with or change any of the GAAP disclosures described above. 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 our operating performance, financial condition and cash generating ability. Management uses EBITDA as a performance measure and Adjusted CAD as a liquidity measure. EBITDA is defined by the Securities and Exchange Commission. Adjusted CAD as defined, however, may not be comparable to similarly titled measures reported by other companies.
We reconcile EBITDA to Net Income for the consolidated Company and Operating Income for the Segments, as those are the nearest GAAP measures for each. Below is a reconciliation of Net Income to EBITDA for the respective periods (in millions of dollars):
 
Three Months Ended March 31,
 
2012
 
2011
Net Income to EBITDA Reconciliation
 
 
 
Net Income
$
53

 
$
58

Income tax expense
19

 
16

Interest, net
12

 
14

Depreciation, depletion and amortization
31

 
32

EBITDA
$
115

 
$
120

EBITDA by segment is a critical valuation measure used by our Chief Operating Decision Maker, existing shareholders and potential shareholders to measure how the Company is performing relative to the assets under management. EBITDA by segment for the respective periods was as follows (millions of dollars):
 
Three Months Ended March 31,
 
2012
 
2011
EBITDA by Segment
 
 
 
Forest Resources
$
25

 
$
26

Real Estate
8

 
10

Performance Fibers
92

 
89

Wood Products
2

 
1

Other Operations
(1
)
 
1

Corporate and other
(11
)
 
(7
)
EBITDA
$
115

 
$
120

For the three months ended March 31, 2012, EBITDA was lower than the prior year period primarily due to lower operating results.




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Table of Contents

The following tables reconcile Operating Income by segment to EBITDA by segment (millions of dollars):
 
Forest Resources
 
Real Estate
 
Performance Fibers
 
Wood Products
 
Other Operations
 
Corporate and Other
 
Total
Three Months Ended March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income (Loss)
$
8

 
$
6

 
$
81

 
$
1

 
$
(1
)
 
$
(11
)
 
$
84

Add: Depreciation, depletion and amortization
17

 
2

 
11

 
1

 

 

 
31

EBITDA
$
25

 
$
8

 
$
92

 
$
2

 
$
(1
)
 
$
(11
)
 
$
115

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
$
11

 
$
7

 
$
76

 
$

 
$
1

 
$
(7
)
 
$
88

Add: Depreciation, depletion and amortization
15

 
3

 
13

 
1

 

 

 
32

EBITDA
$
26

 
$
10

 
$
89

 
$
1

 
$
1

 
$
(7
)
 
$
120

Adjusted CAD is a non-GAAP measure of cash generated during a period which is available for dividend distribution, repurchase of the Company's common shares, debt reduction and strategic acquisitions net of associated financing (e.g. realizing LKE tax benefits). We define CAD as Cash Provided by Operating Activities adjusted for capital spending, the tax benefits associated with certain strategic acquisitions, the change in committed cash, and other items which include cash provided by discontinued operations, proceeds from matured energy forward contracts, excess tax benefits on stock-based compensation and the change in capital expenditures purchased on account. Committed cash represents outstanding checks that have been drawn on our zero balance bank accounts but have not been paid. In compliance with SEC requirements for non-GAAP measures, we reduce CAD by mandatory debt repayments which results in the measure entitled "Adjusted CAD."
Below is a reconciliation of Cash Provided by Operating Activities to Adjusted CAD (in millions of dollars):
 
Three Months Ended March 31,
 
2012
 
2011
Cash provided by operating activities
$
111

 
$
116

Capital expenditures (a)
(42
)
 
(35
)
Change in committed cash
5

 
(1
)
Excess tax benefits on stock-based compensation
4

 
4

Other
9

 
4

CAD
87

 
88

Mandatory debt repayments

 

Adjusted CAD
$
87

 
$
88

Cash used for investing activities
$
(74
)
 
$
(31
)
Cash provided by (used for) financing activities
$
120

 
$
(117
)

(a) Capital expenditures exclude strategic capital. Strategic capital totaled $41 million for the CSE and $9 million for timberland acquisitions for the three months ended March 31, 2012. Strategic capital totaled $3 million for timberland acquisitions for the period ended March 31, 2011.
Adjusted CAD was consistent from 2011 to 2012 as a tax refund received in first quarter 2011 was offset by a decrease in committed cash. Adjusted CAD generated in any period is not necessarily indicative of the amounts that may be generated in future periods.
Liquidity Facilities
In March 2012, Rayonier issued $325 million of 3.75% Senior Notes due 2022. Approximately $150 million of the proceeds from these notes were used to repay borrowings outstanding under our revolving credit facility. The Company had $445 million of available borrowings under this facility at March 31, 2012.
As of March 31, 2012, the $172.5 million 4.50% Senior Exchangeable Notes due 2015 became exchangeable at the option of the holders for the calendar quarter ending June 30, 2012. Per the indenture, in order for the notes to become exchangeable, the Company's stock price must exceed 130 percent of the exchange price for 20 trading days in a period of 30 consecutive trading days as of the last day of the quarter. If the note holders exercise their option prior to June 30, 2012, the Company intends to repay the notes with cash on hand or by accessing the revolving credit facility.

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Table of Contents

In connection with our installment note and credit facility, covenants must be met, including ratios based on the covenant definition of EBITDA and ratios of cash flows to fixed charges. At March 31, 2012, we are in compliance with all of these covenants.
In addition to these financial covenants, the installment note, mortgage note and credit facility include customary covenants that limit the incurrence of debt, the disposition of assets, and the making of certain payments between Rayonier Forest Resources ("RFR") and Rayonier among others. An asset sales covenant in the RFR $112.5 installment note agreement requires us, subject to certain exceptions, to either reinvest cumulative timberland sales proceeds for individual sales greater than $10 million (the "excess proceeds") in timberland-related investments and activities or, once the amount of excess proceeds not reinvested exceeds $50 million, to offer the note holders prepayment of the notes ratably in the amount of the excess proceeds. The amount of excess proceeds was $37.5 million at both March 31, 2012 and December 31, 2011. During April 2012, the excess proceeds exceeded the $50 million limit and as a result, repayment of $59.9 million has been offered to the note holders through May 15, 2012, at which time the excess proceeds will reset to zero.

Contractual Financial Obligations and Off-Balance Sheet Arrangements
For the three months ended March 31, 2012, the only significant changes to the Contractual Financial Obligations table as presented in Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2011 Annual Report on Form 10-K, were the issuance of $325 million of 3.75% Senior Notes due 2022 and the repayment of $150 million on our revolving credit facility. As a result of these changes, interest payments on long-term debt are expected to increase by approximately $101 million through the year 2022. See Note 13Debt for additional information. See Note 17 — Guarantees for details on the letters of credit, surety bonds and guarantees as of March 31, 2012.
Sales Volumes by Segment:
 
Three Months Ended March 31,
 
2012
 
2011
Forest Resources — in thousands of short green tons
 
 
 
Atlantic
737

 
645

Gulf States
442

 
346

Northern
441

 
436

               Total
1,620

 
1,427

Real Estate — in acres
 
 
 
Development
20

 
57

Rural
5,452

 
5,445

Non-Strategic Timberlands
238

 
330

Total
5,710

 
5,832

Performance Fibers
 
 
 
Sales volume — in thousands of metric tons
 
 
 
Cellulose specialties
117

 
122

Absorbent materials
51

 
63

Total
168

 
185

Wood Products
 
 
 
Lumber sales volume — in millions of board feet
70

 
56


Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market and Other Economic Risks
Our exposures to market risk have not changed materially since December 31, 2011. For quantitative and qualitative disclosures about market risk, see Item 7A — Quantitative and Qualitative Disclosures about Market Risk in our 2011 Annual Report on Form 10-K.

Item 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Rayonier management is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), are designed with the objective of ensuring that information required to be disclosed by the Company in reports filed under the Exchange Act, such as this quarterly report on Form 10-Q, is (1) recorded, processed, summarized and reported within the time

31


Table of Contents

periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Because of the inherent limitations in all control systems, no control evaluation can provide absolute assurance that all control exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective can provide only reasonable assurance that their objectives are achieved.
Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that the design and operation of the disclosure controls and procedures were effective as of March 31, 2012.
In the quarter ended March 31, 2012, based upon the evaluation required by paragraph (d) of SEC Rule 13a-15, there were no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting.
 

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Table of Contents

PART II.    OTHER INFORMATION

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table provides information regarding our purchases of Rayonier common stock during the quarter ended March 31, 2012:
Period
 
Total Number of Shares Purchased (1)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 to January 31
156,088

 
$
45.99

 

 
3,765,587

February 1 to February 29

 

 

 
3,765,587

March 1 to March 31
13,669

 
$
44.19

 

 
3,765,587

 
Total
169,757

 
 
 

 
3,765,587

(1)
Repurchased to satisfy the minimum tax withholding requirements related to the vesting of performance and restricted shares under the Rayonier Incentive Stock Plan.
See Item 5 - Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in our 2011 Annual Report on Form 10-K for additional information regarding our Common Share repurchase program.

Item 6.    Exhibits
1.1
Underwriting Agreement, dated February 29, 2012, among Rayonier Inc., the subsidiary guarantors named therein and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several underwriters named therein, relating to the 3.750% Senior Notes due 2022
Incorporated by reference to Exhibit 1.1 to the Registrant's March 1, 2012 Form 8-K
3.1
Amended and Restated Articles of Incorporation
Incorporated by reference to Exhibit 3.1 to the Registrant's May 25, 2010 Form 8-K
3.2
Bylaws
Incorporated by reference to Exhibit 3.2 to the Registrant's October 21, 2009 Form 8-K
4.1
Indenture, dated March 5, 2012, between Rayonier Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee
Incorporated by reference to Exhibit 4.1 to the Registrant's March 5, 2012 Form 8-K
4.2
First Supplemental Indenture relating to the 3.750% Senior Notes due 2022, dated March 5, 2012, among Rayonier Inc., as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee
Incorporated by reference to Exhibit 4.2 to the Registrant's March 5, 2012 Form 8-K
4.3
Form of Note for 3.750% Senior Notes due 2022 (contained in Exhibit A to Exhibit 4.2)
Incorporated by reference to Exhibit 4.2 to the Registrant's March 5, 2012 Form 8-K
31.1
Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act
Filed herewith
31.2
Certification of the Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act
Filed herewith
32
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
Furnished herewith
101
The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012, formatted in Extensible Business Reporting Language ("XBRL"), includes: (i) the Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2012 and 2011; (ii) the Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 (iii) the Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011; and (iv) the Notes to Condensed Consolidated Financial Statements

Furnished herewith pursuant to Rule 406T of Regulation S-T

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Table of Contents

SIGNATURE
Pursuant to the requirements 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
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer)
Date: April 25, 2012





34

Rayonier.EX31.1 1Q2012


EXHIBIT 31.1
CERTIFICATION
I, Paul G. Boynton, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Rayonier Inc.;
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 25, 2012
 
/S/ PAUL G. BOYNTON
 
Paul G. Boynton
President and Chief Executive Officer, Rayonier Inc.



Rayonier.EX31.2 1Q2012


EXHIBIT 31.2
CERTIFICATION
I, Hans E. Vanden Noort, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Rayonier Inc.;
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 25, 2012
 
 
/s/ HANS E. VANDEN NOORT
 
Hans E. Vanden Noort
Senior Vice President and
Chief Financial Officer, Rayonier Inc. 




Rayonier.EX32 1Q2012


EXHIBIT 32
CERTIFICATION
The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to our knowledge:
1.
The quarterly report on Form 10-Q of Rayonier Inc. (the "Company") for the period ended March 31, 2012 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
April 25, 2012
 
/s/ PAUL G. BOYNTON
  
/s/ HANS E. VANDEN NOORT
Paul G. Boynton
  
Hans E. Vanden Noort
President and Chief Executive Officer, Rayonier Inc.
  
Senior Vice President and
Chief Financial Officer, Rayonier Inc.