Rayonier 2012 10Q 3Q2012
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 September 30, 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 October 18, 2012, there were outstanding 123,205,340 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
 
6.
 
 
 
 

i


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 September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
SALES
$
408,988

 
$
385,091

 
$
1,136,694

 
$
1,100,218

Costs and Expenses
 
 
 
 
 
 
 
Cost of sales
278,651

 
266,184

 
794,519

 
786,467

Selling and general expenses
15,837

 
15,762

 
51,705

 
48,187

Other operating expense (income), net (Note 15)
1,392

 
(4,171
)
 
(5,054
)
 
(5,580
)
 
295,880

 
277,775

 
841,170

 
829,074

Equity in income of New Zealand joint venture
66

 
994

 
250

 
3,817

OPERATING INCOME
113,174

 
108,310

 
295,774

 
274,961

Interest expense
(8,253
)
 
(12,356
)
 
(36,133
)
 
(38,300
)
Interest and miscellaneous income, net
234

 
331

 
294

 
935

INCOME BEFORE INCOME TAXES
105,155

 
96,285

 
259,935

 
237,596

Income tax (expense) benefit
(24,595
)
 
8,624

 
(56,859
)
 
(17,822
)
NET INCOME
80,560

 
104,909

 
203,076

 
219,774

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
Foreign currency translation adjustment
5,373

 
3,584

 
3,115

 
11,314

New Zealand joint venture cash flow hedges
878

 
(630
)
 
86

 
(498
)
Amortization of losses from pension and postretirement plans, net of income tax expense of $1,482, $1,017, $4,332 and $2,871
3,401

 
2,261

 
9,943

 
6,449

Total other comprehensive income
9,652

 
5,215

 
13,144

 
17,265

COMPREHENSIVE INCOME
$
90,212

 
$
110,124

 
$
216,220

 
$
237,039

EARNINGS PER COMMON SHARE (Note 2)
 
 
 
 
 
 
 
Basic earnings per share
$
0.66

 
$
0.86

 
$
1.66

 
$
1.81

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.62

 
$
0.84

 
$
1.58

 
$
1.75

 
 
 
 
 
 
 
 
Dividends per share
$
0.44

 
$
0.40

 
$
1.24

 
$
1.12



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)
 
September 30, 2012
 
December 31, 2011
ASSETS
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
215,475

 
$
78,603

Accounts receivable, less allowance for doubtful accounts of $418 and $399
109,943

 
95,008

Inventory
 
 
 
Finished goods
95,026

 
96,261

Work in progress
6,421

 
5,544

Raw materials
17,337

 
18,295

Manufacturing and maintenance supplies
2,299

 
1,898

Total inventory
121,083

 
121,998

Prepaid and other current assets
78,680

 
48,893

Total current assets
525,181

 
344,502

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
1,489,889

 
1,503,711

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Land
29,021

 
26,917

Buildings
143,854

 
140,269

Machinery and equipment
1,412,283

 
1,355,897

Construction in progress
218,365

 
96,097

Total property, plant and equipment, gross
1,803,523

 
1,619,180

Less — accumulated depreciation
(1,173,712
)
 
(1,157,628
)
      Total property, plant and equipment, net
629,811

 
461,552

INVESTMENT IN JOINT VENTURE (Note 5)
70,189

 
69,219

OTHER ASSETS
198,798

 
190,364

TOTAL ASSETS
$
2,913,868

 
$
2,569,348

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
 
 
 
Accounts payable
$
91,662

 
$
72,873

Current maturities of long-term debt
41,268

 
28,110

Accrued taxes
64,722

 
5,223

Accrued payroll and benefits
25,066

 
26,846

Accrued interest
17,401

 
7,044

Accrued customer incentives
9,620

 
10,369

Other current liabilities
28,398

 
17,855

Current liabilities for dispositions and discontinued operations (Note 10)
8,929

 
9,931

Total current liabilities
287,066

 
178,251

LONG-TERM DEBT
967,785

 
819,229

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS (Note 10)
75,524

 
80,893

PENSION AND OTHER POSTRETIREMENT BENEFITS (Note 12)
140,153

 
140,623

OTHER NON-CURRENT LIABILITIES
25,374

 
27,279

COMMITMENTS AND CONTINGENCIES (Notes 9 and 11)

 

SHAREHOLDERS’ EQUITY
 
 
 
Common Shares, 480,000,000 and 240,000,000 shares authorized, 123,189,001 and 122,035,177 shares issued and outstanding
662,504

 
630,286

Retained earnings
855,766

 
806,235

Accumulated other comprehensive loss
(100,304
)
 
(113,448
)
TOTAL SHAREHOLDERS' EQUITY
1,417,966

 
1,323,073

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
2,913,868

 
$
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)

 
Nine Months Ended September 30,
 
2012
 
2011
OPERATING ACTIVITIES
 
 
 
Net income
$
203,076

 
$
219,774

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
102,499

 
101,758

Non-cash cost of real estate sold
3,005

 
3,108

Stock-based incentive compensation expense
12,212

 
11,793

Amortization of debt discount/premium
5,367

 
6,471

Deferred income taxes
(17,688
)
 
(5,967
)
Amortization of losses from pension and postretirement plans
14,275

 
9,320

Non-cash adjustments to unrecognized tax benefit liability

 
(16,000
)
Other
(2,701
)
 
(5,177
)
Changes in operating assets and liabilities:
 
 
 
Receivables
(14,169
)
 
(24,071
)
Inventories
(646
)
 
(8,435
)
Accounts payable
(13,326
)
 
6,346

Income tax receivable/payable
52,189

 
29,483

All other operating activities
16,416

 
4,782

Expenditures for dispositions and discontinued operations
(6,867
)
 
(6,915
)
CASH PROVIDED BY OPERATING ACTIVITIES
353,642

 
326,270

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(112,015
)
 
(87,156
)
Purchase of timberlands
(11,632
)
 
(94,162
)
Jesup mill cellulose specialties expansion (gross purchases of $130,718 and $14,567, net of purchases on account of $25,936 and $6,508)
(104,782
)
 
(8,059
)
Change in restricted cash
(12,796
)
 
8,323

Other
4,281

 
513

CASH USED FOR INVESTING ACTIVITIES
(236,944
)
 
(180,541
)
FINANCING ACTIVITIES
 
 
 
Issuance of debt
355,000

 
180,000

Repayment of debt
(198,653
)
 
(180,000
)
Dividends paid
(152,358
)
 
(136,563
)
Proceeds from the issuance of common shares
20,732

 
8,248

Excess tax benefits on stock-based compensation
7,057

 
4,951

Debt issuance costs
(3,698
)
 
(2,027
)
Repurchase of common shares
(7,783
)
 
(7,909
)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
20,297

 
(133,300
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(123
)
 
393

CASH AND CASH EQUIVALENTS
 
 
 
Change in cash and cash equivalents
136,872

 
12,822

Balance, beginning of year
78,603

 
349,463

Balance, end of period
$
215,475

 
$
362,285

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid during the period:
 
 
 
Interest
$
18,239

 
$
23,706

Income taxes
$
14,912

 
$
4,992

Non-cash investing activity:
 
 
 
Capital assets purchased on account
$
52,727

 
$
16,504



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 (all of which are normal recurring 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 two subsequent events were identified that warranted disclosure. See Note 13Debt for additional information.

2.
EARNINGS PER COMMON SHARE
The following table provides details of the calculations of basic and diluted earnings per common share:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Net income
$
80,560

 
$
104,909

 
$
203,076

 
$
219,774

Shares used for determining basic earnings per common share
122,848,705

 
121,790,059

 
122,552,910

 
121,665,644

Dilutive effect of:
 
 
 
 
 
 
 
Stock options
603,761

 
689,643

 
667,960

 
716,095

Performance and restricted shares
755,884

 
1,179,047

 
735,653

 
1,121,909

Assumed conversion of Senior Exchangeable Notes (a) (b)
3,683,936

 
1,823,600

 
3,148,423

 
1,883,270

Assumed conversion of warrants (a) (b)
2,067,380

 
117,260

 
1,443,606

 
143,182

Shares used for determining diluted earnings per common share
129,959,666

 
125,599,609

 
128,548,552

 
125,530,100

Basic earnings per common share
$
0.66

 
$
0.86

 
$
1.66

 
$
1.81

Diluted earnings per common share
$
0.62

 
$
0.84

 
$
1.58

 
$
1.75

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Anti-dilutive shares excluded from the computations of diluted earnings per share:
 
 
 
 
 
 
 
Stock options, performance and restricted shares
123,217

 
142,135

 
261,759

 
198,594

Assumed exercise of exchangeable note hedges (a)
3,683,936

 
1,823,600

 
3,148,423

 
1,883,270

Total
3,807,153

 
1,965,735

 
3,410,182

 
2,081,864

(a) Upon maturity of the Senior Exchangeable Notes (the "Notes"), Rayonier will not issue additional shares for the full difference between the strike price and the market price 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 exercise 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 $41.50 for the Notes due 2012 and $39.58 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 13Debt of this Form 10-Q.
(b) The higher number of shares in 2012 was primarily due to an increase in the average stock price from $40.93 for the three months ended September 30, 2011 to $48.13 for the three months ended September 30, 2012 and from $41.14 for the nine months

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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)

ended September 30, 2011 to $45.65 for the nine months ended September 30, 2012.

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.
Unrecognized Tax Benefits
During the third quarter of 2011, the Company received a final examination report from the U.S. Internal Revenue Service ("IRS") regarding Rayonier TRS Holdings Inc. ("TRS") 2009 tax return. As a result, the Company reversed the uncertain tax liability recorded in 2009 relating to the taxability of the alternative fuel mixture credit and recognized a $16 million tax benefit in the third quarter of 2011.
Alternative Fuel Mixture Credit ("AFMC") and Cellulosic Biofuel Producer Credit ("CBPC")
The U.S. Internal Revenue Code allowed two credits for taxpayers that produced and used an alternative fuel in the operation of their business through December 31, 2009. The AFMC is a $.50 per gallon refundable, non-taxable excise tax credit, while the CBPC is a $1.01 per gallon credit that is nonrefundable, taxable and has limitations based on an entity's tax liability. Rayonier produces and uses an alternative fuel ("black liquor") at its Jesup, Georgia and Fernandina Beach, Florida Performance Fibers mills, which qualified for both credits. The Company claimed the AFMC on its 2009 tax return.
In the third quarters of 2012 and 2011, management approved the exchange of approximately 22 million gallons and 11 million gallons, respectively, of black liquor previously claimed for the AFMC for the CBPC. The total number of exchange gallons approved year-to-date were 82 million and 41 million for 2012 and 2011, respectively. The third quarter impact of the exchange was $2.6 million and $2.0 million for 2012 and 2011, respectively. The year-to-date impact was $11.7 million and $6.1 million for 2012 and 2011, respectively. For additional information on the AFMC and CBPC, see Note 8 — Income Taxes in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.
During the second quarter 2012, Rayonier recognized $3.4 million of interest expense related to the exchange; however, in August, the IRS released guidance stating interest payments are not required for AFMC funds exchanged for the CBPC, based upon the manner of the Company's original claim. As a result, in the third quarter Rayonier reversed the $3.4 million of interest expense previously recorded.
Effective Tax Rate
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. The Company's effective tax rates in 2012 were higher than 2011. The change was primarily due to tax benefits received in 2011, including the reversal of the reserve related to the taxability of the AFMC and a $9.3 million benefit associated with the structuring of a transfer of higher and better use properties to the taxable REIT subsidiary from the REIT.

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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)

The tables below reconcile the U.S. statutory rate to the Company's effective tax rate for each period presented (in millions of dollars).
 
Three Months Ended September 30,
 
2012
 
2011
Income tax expense at federal statutory rate
$
37

 
35.0
 %
 
$
34

 
35.0
 %
REIT income not subject to tax
(6
)
 
(5.7
)%
 
(11
)
 
(11.3
)%
Other
(3
)
 
(2.9
)%
 
(4
)
 
(3.7
)%
Income tax expense before non-routine items
28

 
26.4
 %
 
19

 
20.0
 %
AFMC for CBPC exchange
(3
)
 
(3.0
)%
 
(2
)
 
(2.1
)%
AFMC reserve reversal

 

 
(16
)
 
(16.6
)%
Installment note prepayment

 

 
(9
)
 
(9.3
)%
Built-in gains tax holiday

 

 
(1
)
 
(1.0
)%
Income tax expense (benefit) as reported
$
25

 
23.4
 %
 
$
(9
)
 
(9.0
)%
 
Nine Months Ended September 30,
 
2012
 
2011
Income tax expense at federal statutory rate
$
91

 
35.0
 %
 
$
83

 
35.0
 %
REIT income not subject to tax
(18
)
 
(7.0
)%
 
(25
)
 
(10.6
)%
Other
(4
)
 
(1.6
)%
 
(5
)
 
(1.9
)%
Income tax expense before non-routine items
69

 
26.4
 %
 
53

 
22.5
 %
AFMC for CBPC exchange
(12
)
 
(4.5
)%
 
(6
)
 
(2.6
)%
AFMC reserve reversal

 

 
(16
)
 
(6.7
)%
Installment note prepayment

 

 
(9
)
 
(3.9
)%
Built-in gains tax holiday

 

 
(4
)
 
(1.8
)%
Income tax expense as reported
$
57

 
21.9
 %
 
$
18

 
7.5
 %


4.
RESTRICTED DEPOSITS
In order to qualify for like-kind exchange ("LKE") treatment, the proceeds from certain real estate sales must be deposited with a qualified third-party intermediary. These proceeds are accounted for as restricted cash until 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 September 30, 2012 and December 31, 2011, the Company had $12.8 million and $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 nine months ended September 30, 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

New Zealand 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

 

 
203,076

 

 
203,076

Dividends ($1.24 per share)

 

 
(153,545
)
 

 
(153,545
)
Issuance of shares under incentive stock plans
1,323,581

 
20,732

 

 

 
20,732

Stock-based compensation

 
12,212

 

 

 
12,212

Excess tax benefit on stock-based compensation

 
7,057

 

 

 
7,057

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

 

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

 

 

 
9,943

 
9,943

Foreign currency translation adjustment

 

 

 
3,115

 
3,115

New Zealand joint venture cash flow hedges

 

 

 
86

 
86

Balance, September 30, 2012
123,189,001

 
$
662,504

 
$
855,766

 
$
(100,304
)
 
$
1,417,966

 
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 estimated 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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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:
 
September 30,
 
December 31,
ASSETS
2012
 
2011
Forest Resources
$
1,623,370

 
$
1,603,515

Real Estate
110,582

 
102,682

Performance Fibers
840,082

 
646,447

Wood Products
18,716

 
21,264

Other Operations
23,424

 
24,576

Corporate and other
297,694

 
170,864

Total
$
2,913,868

 
$
2,569,348

 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
SALES
2012
 
2011
 
2012
 
2011
Forest Resources
$
59,853

 
$
57,265

 
$
164,711

 
$
162,482

Real Estate
13,043

 
32,177

 
37,369

 
57,945

Performance Fibers
288,221

 
255,457

 
793,586

 
739,426

Wood Products
22,825

 
16,492

 
65,864

 
50,239

Other Operations
26,293

 
25,950

 
76,702

 
94,869

Intersegment Eliminations (a)
(1,247
)
 
(2,250
)
 
(1,538
)
 
(4,743
)
Total
$
408,988

 
$
385,091

 
$
1,136,694

 
$
1,100,218

(a)
Intersegment eliminations primarily reflect sales from our Forest Resources segment to our Performance Fibers segment.
  
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
OPERATING INCOME (LOSS)
2012
 
2011
 
2012
 
2011
Forest Resources
$
11,184

 
$
10,792

 
$
27,438

 
$
33,681

Real Estate
8,420

 
28,077

 
20,897

 
40,458

Performance Fibers
101,455

 
74,897

 
265,812

 
221,709

Wood Products
1,618

 
(740
)
 
6,669

 
(1,274
)
Other Operations
(419
)
 
1,122

 
(201
)
 
955

Corporate and other
(9,084
)
 
(5,838
)
 
(24,841
)
 
(20,568
)
Total
$
113,174

 
$
108,310

 
$
295,774

 
$
274,961


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
DEPRECIATION, DEPLETION AND AMORTIZATION
2012
 
2011
 
2012
 
2011
Forest Resources
$
18,793

 
$
16,614

 
$
52,662

 
$
47,866

Real Estate
1,288

 
5,677

 
4,733

 
10,598

Performance Fibers
15,077

 
15,592

 
41,577

 
40,089

Wood Products
787

 
689

 
2,369

 
2,344

Corporate and other
368

 
323

 
1,158

 
861

Total
$
36,313

 
$
38,895

 
$
102,499

 
$
101,758


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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
A three-level hierarchy that prioritizes the inputs used to measure fair value was established in the Accounting Standards Codification as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than quoted prices included in Level 1.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table presents the carrying amount, estimated fair values and categorization under the fair value hierarchy of financial instruments held by the Company at September 30, 2012 and December 31, 2011, using market information and what the Company believes to be appropriate valuation methodologies under generally accepted accounting principles:
 
September 30, 2012
 
December 31, 2011
Asset (liability)
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
 
 
 
Level 1
 
Level 2
 
 
 
Level 1
 
Level 2
Cash and cash equivalents
$
215,475

 
$
215,475

 
$

 
$
78,603

 
$
78,603

 
$

Restricted cash
12,796

 
12,796

 

 

 

 

Current maturities of long-term debt
(41,268
)
 

 
(57,993
)
 
(28,110
)
 

 
(29,319
)
Long-term debt
(967,785
)
 

 
(1,179,011
)
 
(819,229
)
 

 
(994,851
)
Rayonier uses the following methods and assumptions in estimating the fair value of its financial instruments:
Cash and cash equivalents and Restricted cashThe 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 $2.3 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
September 30, 2012
 
Level 2
 
Carrying Value at
December 31, 2011
 
Level 2
Investment in special-purpose entity
 
$
2,676

 
$
2,676

 
$
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

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

to determine the discounted value of the payments.

9.
GUARANTEES
 The Company provides financial guarantees as required by creditors, insurance programs, and state and foreign governmental agencies. As of September 30, 2012, the following financial guarantees were outstanding:
Financial Commitments
 
Maximum Potential
Payment
 
Carrying Amount
of Liability
Standby letters of credit (a)
$
18,955

 
$
15,000

Guarantees (b)
 
2,254

 
43

Surety bonds (c)
 
7,164

 
1,389

Total financial commitments
$
28,373

 
$
16,432

(a)
Approximately $15 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 $2.3 million of obligations of a special-purpose entity that was established to complete the monetization. At September 30, 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:
 
September 30,
 
December 31,
 
 
2012
 
2011
 
Balance, beginning of period
$
90,824

 
$
93,160

 
Expenditures charged to liabilities
(6,867
)
 
(9,209
)
 
Increase to liabilities
496

 
6,873

 
Balance, end of period
84,453

 
90,824

 
Less: Current portion
(8,929
)
 
(9,931
)
 
Non-current portion
$
75,524

 
$
80,893

 
The Company is exposed to the risk of reasonably possible additional losses in excess of the established liabilities. As of September 30, 2012, the estimate of 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 probable 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 could 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.

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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)

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. Currently, all qualified 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 tables:
 
Pension
Postretirement
 
Three Months Ended
September 30,
 
Three Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost
$
2,102

 
$
1,695

 
$
227

 
$
99

Interest cost
4,321

 
4,522

 
242

 
257

Expected return on plan assets
(6,369
)
 
(6,455
)
 

 

Amortization of prior service cost
327

 
340

 
6

 
49

Amortization of losses
4,394

 
2,593

 
156

 
296

Net periodic benefit cost
$
4,775

 
$
2,695

 
$
631

 
$
701

 
Pension
 
Postretirement
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost
$
6,143

 
$
5,086

 
$
664

 
$
463

Interest cost
12,630

 
13,566

 
706

 
729

Expected return on plan assets
(18,618
)
 
(19,366
)
 

 

Amortization of prior service cost
956

 
1,020

 
18

 
93

Amortization of losses
12,846

 
7,779

 
455

 
428

Net periodic benefit cost
$
13,957

 
$
8,085

 
$
1,843

 
$
1,713

 
 
 
 
 
 
 
 
In 2012, the Company has no mandatory pension contribution requirements and does not expect to make any discretionary contributions.

13.
DEBT
In March 2012, Rayonier Inc. 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 $431 million of available borrowing capacity under the revolving credit facility at September 30, 2012.
As of September 30, 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 December 31, 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 during a period of 30 consecutive trading days as of the last day of the quarter. Of the $172.5 million principal, $131.2 million remained classified as long-term debt due to the ability and intent of the Company to refinance it on a long-term basis.
An asset sales covenant in the Rayonier Forest Resources, L.P. ("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

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

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 was offered to the note holders through May 15, 2012, at which time they declined and the excess proceeds were reset to zero.
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 Events
In October 2012, the Company negotiated amendments to the existing revolving credit facility. The amended and restated facility provides for improved pricing, with the borrowing rate decreasing from LIBOR plus 105 basis points to LIBOR plus 97.5 basis points. The facility fee decreased 5 points from 20 basis points to 15 basis points. The revised agreement also provides additional borrowing capacity through revision of the leverage ratio to permit debt of Rayonier Inc. and its subsidiaries up to 65 percent of consolidated net worth, plus the amount of consolidated debt. Previously, debt was limited to four times EBITDA. In addition, the Company can now transfer assets to any subsidiary, and any subsidiary can now transfer assets to other subsidiaries or to the Company. An additional covenant was added to limit debt at subsidiaries (excluding Rayonier Operating Company LLC and TRS, which are borrowers under the agreement) to 15 percent of Consolidated Net Tangible Assets. Also, the amended and restated credit agreement removed RFR as a borrower, but also eliminated specific negative covenants relating to RFR under this facility. The agreement also eliminated all requirements for subsidiary guarantors, other than cross-guarantees of the borrowers. As a result, these guarantors were also released from the 3.75% Senior Notes due 2022 issued by Rayonier Inc., leaving TRS and Rayonier Operating Company LLC as the remaining guarantors.
The 3.75% Senior Exchangeable Notes due 2012 (the "Notes") matured in October 2012 and the outstanding principal balance of $300 million was paid in cash, financed through borrowings on the Company's revolving credit facility. The exchangeable note hedges also matured and the associated shares were used to pay the excess exchange value of 2,221,056 shares of Rayonier stock. As a result, there was no impact on the number of shares outstanding. The available borrowing capacity under the credit facility immediately after repayment of the Notes was $131 million. The Company expects to refinance this $300 million borrowing on a long-term basis prior to year-end.
Warrants sold in conjunction with the issuance of the Notes and hedges remain outstanding and have maturity dates in first quarter 2013. The Company expects to settle the warrants in shares. For information regarding the dilutive effect of the assumed conversion of the warrants, refer to Note 2 — Earnings per Share.
See Note 11 — Debt of the Company's 2011 Annual Report on Form 10-K for additional information on the Notes, hedges and warrants.

14.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated Other Comprehensive Loss was comprised of the following:
 
September 30, 2012
 
December 31, 2011
Foreign currency translation adjustments
$
37,592

 
$
34,477

Joint venture cash flow hedges
(3,755
)
 
(3,841
)
Unrecognized losses of employee benefit plans, net of tax
(134,141
)
 
(144,084
)
Total
$
(100,304
)
 
$
(113,448
)


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

15.
OTHER OPERATING (EXPENSE) INCOME, NET
Other operating (expense) income, net was comprised of the following:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Lease income, primarily for hunting
$
1,357

 
$
1,369

 
$
6,263

 
$
4,563

Other non-timber income
433

 
567

 
2,324

 
1,551

Foreign currency (loss) gain
(979
)
 
1,017

 
(1,165
)
 
236

Loss on sale or disposal of property, plant & equipment
(1,176
)
 
(270
)
 
(2,908
)
 
(1,769
)
Insurance proceeds

 
1,890

 
2,319

 
1,890

Miscellaneous income (expense), net
(1,027
)
 
(402
)
 
(1,779
)
 
(891
)
Total
$
(1,392
)
 
$
4,171

 
$
5,054

 
$
5,580




13


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

16.
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, Rayonier TRS Holdings Inc. ("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
 AND COMPREHENSIVE INCOME
For the Three Months Ended September 30, 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
$

 
$

 
$

 
$
381,400

 
$
43,720

 
$
(16,132
)
 
$
408,988

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
266,987

 
28,282

 
(16,618
)
 
278,651

Selling and general expenses

 
2,762

 

 
12,717

 
358

 

 
15,837

Other operating expense (income), net

 
730

 

 
2,335

 
(1,681
)
 
8

 
1,392

 

 
3,492

 

 
282,039

 
26,959

 
(16,610
)
 
295,880

Equity in income (loss) of New Zealand joint venture

 

 

 
169

 
(103
)
 

 
66

OPERATING (LOSS) INCOME

 
(3,492
)
 

 
99,530

 
16,658

 
478

 
113,174

Interest (expense) income
(3,136
)
 
(196
)
 
(10,244
)
 
5,587

 
(264
)
 

 
(8,253
)
Interest and miscellaneous income (expense), net
1,630

 
1,594

 
(980
)
 
(3,872
)
 
1,862

 

 
234

Equity in income from subsidiaries
82,066

 
85,241

 
73,635

 

 

 
(240,942
)
 

INCOME BEFORE INCOME TAXES
80,560

 
83,147

 
62,411

 
101,245

 
18,256

 
(240,464
)
 
105,155

Income tax (expense) benefit

 
(1,081
)
 
4,096

 
(27,610
)
 

 

 
(24,595
)
NET INCOME
80,560

 
82,066

 
66,507

 
73,635

 
18,256

 
(240,464
)
 
80,560

OTHER COMPREHENSIVE INCOME
9,652

 
9,652

 
328

 
328

 
6,143

 
(16,451
)
 
9,652

COMPREHENSIVE INCOME
$
90,212

 
$
91,718

 
$
66,835

 
$
73,963

 
$
24,399

 
$
(256,915
)
 
$
90,212

 

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

 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
For the Three Months Ended September 30, 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
$

 
$

 
$

 
$
342,937

 
$
61,463

 
$
(19,309
)
 
$
385,091

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
254,969

 
32,376

 
(21,161
)
 
266,184

Selling and general expenses

 
2,566

 

 
12,584

 
612

 

 
15,762

Other operating expense (income), net

 
45

 

 
(2,606
)
 
(1,610
)
 

 
(4,171
)
 

 
2,611

 

 
264,947

 
31,378

 
(21,161
)
 
277,775

Equity in income of New Zealand joint venture

 

 

 
200

 
794

 

 
994

OPERATING (LOSS) INCOME

 
(2,611
)
 

 
78,190

 
30,879

 
1,852

 
108,310

Interest (expense) income

 
(440
)
 
(12,139
)
 
328

 
(105
)
 

 
(12,356
)
Interest and miscellaneous income (expense), net

 
1,332

 
(1,121
)
 
(5,053
)
 
5,173

 

 
331

Equity in income from subsidiaries
104,909

 
106,350

 
76,971

 

 

 
(288,230
)
 

INCOME BEFORE INCOME TAXES
104,909

 
104,631

 
63,711

 
73,465

 
35,947

 
(286,378
)
 
96,285

Income tax benefit

 
278

 
4,840

 
3,506

 

 

 
8,624

NET INCOME
104,909

 
104,909

 
68,551

 
76,971

 
35,947

 
(286,378
)
 
104,909

OTHER COMPREHENSIVE INCOME
5,215

 
5,215

 
15

 
15

 
3,090

 
(8,335
)
 
5,215

COMPREHENSIVE INCOME
$
110,124

 
$
110,124

 
$
68,566

 
$
76,986

 
$
39,037

 
$
(294,713
)
 
$
110,124


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 INCOME
AND COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 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
$

 
$

 
$

 
$
1,062,065

 
$
125,475

 
$
(50,846
)
 
$
1,136,694

Costs and Expenses

 

 

 

 

 
 
 
 
Cost of sales

 

 

 
764,886

 
81,816

 
(52,183
)
 
794,519

Selling and general expenses

 
7,977

 

 
41,296

 
2,432

 

 
51,705

Other operating expense  (income), net

 
742

 

 
1,517

 
(8,473
)
 
1,160

 
(5,054
)
 

 
8,719

 

 
807,699

 
75,775

 
(51,023
)
 
841,170

Equity in income (loss) of New Zealand joint venture

 

 

 
507

 
(257
)
 

 
250

OPERATING (LOSS) INCOME

 
(8,719
)
 

 
254,873

 
49,443

 
177

 
295,774

Interest (expense) income
(7,502
)
 
(646
)
 
(30,713
)
 
4,639

 
(1,911
)
 

 
(36,133
)
Interest and miscellaneous income (expense), net
5,086

 
4,580

 
(3,022
)
 
(11,911
)
 
5,561

 

 
294

Equity in income from subsidiaries
205,492

 
211,635

 
179,787

 

 

 
(596,914
)
 

INCOME BEFORE INCOME TAXES
203,076

 
206,850

 
146,052

 
247,601

 
53,093

 
(596,737
)
 
259,935

Income tax (expense) benefit

 
(1,358
)
 
12,313

 
(67,814
)
 

 

 
(56,859
)
NET INCOME
203,076

 
205,492

 
158,365

 
179,787

 
53,093

 
(596,737
)
 
203,076

OTHER COMPREHENSIVE INCOME
$
13,144

 
$
13,144

 
$
1,128

 
$
1,128

 
$
2,719

 
$
(18,119
)
 
$
13,144

COMPREHENSIVE INCOME
$
216,220

 
$
218,636

 
$
159,493

 
$
180,915

 
$
55,812

 
$
(614,856
)
 
$
216,220

 
 
 
 
 
 
 
 
 
 
 
 
 
 

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 INCOME
AND COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 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
$

 
$

 
$

 
$
1,002,015

 
$
147,884

 
$
(49,681
)
 
$
1,100,218

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
750,375

 
90,630

 
(54,538
)
 
786,467

Selling and general expenses

 
7,497

 

 
38,639

 
2,051

 

 
48,187

Other operating expense (income), net

 
130

 

 
(406
)
 
(5,304
)
 

 
(5,580
)
 

 
7,627

 

 
788,608

 
87,377

 
(54,538
)
 
829,074

Equity in income of New Zealand joint venture

 

 

 
561

 
3,256

 

 
3,817

OPERATING (LOSS) INCOME

 
(7,627
)
 

 
213,968

 
63,763

 
4,857

 
274,961

Interest (expense) income