Rayonier 2013 10Q 1Q2013
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, 2013
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 18, 2013, there were outstanding 126,025,778 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
 
1.
 
2.
 
6.
 
 
 
 

i


Table of Contents

PART I.        FINANCIAL INFORMATION

Item 1.         Financial Statements

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
 
 
Three Months Ended March 31,
 
2013
 
2012
SALES
$
393,719

 
$
336,571

Costs and Expenses
 
 
 
Cost of sales
266,018

 
235,708

Selling and general expenses
16,099

 
19,265

Other operating income, net
(3,503
)
 
(1,139
)
 
278,614

 
253,834

Equity in income of New Zealand joint venture
258

 
13

OPERATING INCOME
115,363

 
82,750

Interest expense
(7,717
)
 
(11,825
)
Interest and miscellaneous income (expense), net
57

 
(23
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
107,703

 
70,902

Income tax expense
(4,445
)
 
(18,303
)
INCOME FROM CONTINUING OPERATIONS
103,258

 
52,599

DISCONTINUED OPERATIONS, NET (Note 2)
 
 
 
Income from discontinued operations, net of income tax expense of $22,273 and $422
44,477

 
838

NET INCOME
147,735

 
53,437

OTHER COMPREHENSIVE INCOME
 
 
 
Foreign currency translation adjustment
975

 
5,825

New Zealand joint venture cash flow hedges
554

 
1,205

Gain from pension and postretirement plans, net of income tax expense of $2,204 and $1,368
4,969

 
3,140

Total other comprehensive income
6,498

 
10,170

COMPREHENSIVE INCOME
$
154,233

 
$
63,607

EARNINGS PER COMMON SHARE (Note 3)
 
 
 
BASIC EARNINGS PER SHARE
 
 
 
Continuing Operations
$
0.83

 
$
0.43

Discontinued Operations
0.36

 
0.01

Net Income
$
1.19

 
$
0.44

DILUTED EARNINGS PER SHARE
 
 
 
Continuing Operations
$
0.79

 
$
0.41

Discontinued Operations
0.34

 
0.01

Net Income
$
1.13

 
$
0.42

Dividends per share
$
0.44

 
$
0.40



See Notes to Consolidated Financial Statements.

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Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 
March 31, 2013
 
December 31, 2012
ASSETS
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
266,017

 
$
280,596

Accounts receivable, less allowance for doubtful accounts of $503 and $417
105,693

 
100,359

Inventory
 
 
 
Finished goods
95,614

 
103,568

Work in progress
2,404

 
4,446

Raw materials
13,482

 
17,602

Manufacturing and maintenance supplies
2,143

 
2,350

Total inventory
113,643

 
127,966

Deferred tax assets
66,509

 
15,845

Prepaid and other current assets
38,896

 
41,508

Total current assets
590,758

 
566,274

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
1,565,782

 
1,573,309

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Land
21,804

 
27,383

Buildings
134,337

 
147,445

Machinery and equipment
1,389,212

 
1,444,012

Construction in progress
327,353

 
268,459

Total property, plant and equipment, gross
1,872,706

 
1,887,299

Less — accumulated depreciation
(1,112,468
)
 
(1,180,261
)
      Total property, plant and equipment, net
760,238

 
707,038

INVESTMENT IN JOINT VENTURE (Note 6)
73,830

 
72,419

OTHER ASSETS
211,677

 
203,911

TOTAL ASSETS
$
3,202,285

 
$
3,122,951

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
 
 
 
Accounts payable
$
108,493

 
$
70,381

Current maturities of long-term debt
50,000

 
150,000

Accrued taxes
30,059

 
13,824

Accrued payroll and benefits
18,471

 
28,068

Accrued interest
11,200

 
7,956

Accrued customer incentives
8,936

 
10,849

Other current liabilities
25,168

 
18,640

Current liabilities for dispositions and discontinued operations (Note 11)
8,398

 
8,105

Total current liabilities
260,725

 
307,823

LONG-TERM DEBT
1,150,471

 
1,120,052

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS (Note 11)
71,799

 
73,590

PENSION AND OTHER POSTRETIREMENT BENEFITS (Note 13)
158,829

 
159,582

OTHER NON-CURRENT LIABILITIES
21,271

 
23,900

COMMITMENTS AND CONTINGENCIES (Note 10 and 12)

 

SHAREHOLDERS’ EQUITY
 
 
 
Common Shares, 480,000,000 shares authorized, 125,903,058 and 123,332,444 shares issued and outstanding
673,098

 
670,749

Retained earnings
968,973

 
876,634

Accumulated other comprehensive loss
(102,881
)
 
(109,379
)
TOTAL SHAREHOLDERS' EQUITY
1,539,190

 
1,438,004

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
3,202,285

 
$
3,122,951



See Notes to Consolidated Financial Statements.

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Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 
Three Months Ended March 31,
 
2013
 
2012
OPERATING ACTIVITIES
 
 
 
Net income
$
147,735

 
$
53,437

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
35,992

 
30,413

Non-cash cost of real estate sold
633

 
1,382

Stock-based incentive compensation expense
3,280

 
6,466

Amortization of debt discount/premium
419

 
1,890

Tax benefit of AFMC for CBPC exchange
(18,761
)
 

Amortization of losses from pension and postretirement plans
6,279

 
4,508

Gain on sale of discontinued operations, net
(42,670
)
 

Gain on foreign currency forward contracts
(1,881
)
 

Other
(3,243
)
 
1,874

Changes in operating assets and liabilities:
 
 
 
Receivables
(8,778
)
 
(1,911
)
Inventories
11,197

 
17,035

Accounts payable
15,386

 
3,978

Income tax receivable/payable
15,915

 
11,469

All other operating activities
99

 
(17,476
)
Payment to exchange AFMC for CBPC
(70,311
)
 

Expenditures for dispositions and discontinued operations
(1,631
)
 
(1,711
)
CASH PROVIDED BY OPERATING ACTIVITIES
89,660

 
111,354

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(32,664
)
 
(42,079
)
Purchase of timberlands
(1,560
)
 
(8,689
)
Jesup mill cellulose specialties expansion (gross purchases of $57,693 and $41,051, net of purchases on account of $20,959 and $15,025)
(36,734
)
 
(26,026
)
Proceeds from disposition of Wood Products business
83,741

 

Change in restricted cash
9,908

 
(5,609
)
Other
1,790

 
8,736

CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
24,481

 
(73,667
)
FINANCING ACTIVITIES
 
 
 
Issuance of debt
100,000

 
340,000

Repayment of debt
(170,000
)
 
(165,000
)
Dividends paid
(57,744
)
 
(49,249
)
Proceeds from the issuance of common shares
4,091

 
2,061

Excess tax benefits on stock-based compensation
6,191

 
3,946

Debt issuance costs

 
(3,565
)
Repurchase of common shares
(11,241
)
 
(7,783
)
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
(128,703
)
 
120,410

EFFECT OF EXCHANGE RATE CHANGES ON CASH
(17
)
 
(125
)
CASH AND CASH EQUIVALENTS
 
 
 
Change in cash and cash equivalents
(14,579
)
 
157,972

Balance, beginning of year
280,596

 
78,603

Balance, end of period
$
266,017

 
$
236,575

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid during the period:
 
 
 
Interest
$
3,562

 
$
5,213

Income taxes
$
70,403

 
$
325

Non-cash investing activity:
 
 
 
Capital assets purchased on account
$
49,094

 
$
44,576



See Notes to Consolidated Financial Statements.

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Table of Contents

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


1.
BASIS OF PRESENTATION
Basis of Presentation
The unaudited 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, 2012, as filed with the SEC.
Reclassifications
Certain 2012 amounts have been reclassified to agree with the current year presentation. See Note 2Sale of Wood Products Business for information regarding reclassifications for discontinued operations.
New Accounting Standards
In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This standard requires reporting, in one place, information about reclassifications out of AOCI by component. An entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount is reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified to net income in their entirety, an entity is required to cross-reference to other currently required disclosures that provide additional detail about those amounts. The information required by this standard must be presented in one place, either parenthetically on the face of the financial statements by income statement line item or in a note. See Note 15Accumulated Other Comprehensive Loss for our disclosures required under this guidance.
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 was identified that warranted disclosure. See Note 6Joint Venture Investment for additional information.

2.
SALE OF WOOD PRODUCTS BUSINESS

On March 1, 2013, Rayonier completed the previously announced sale of its Wood Products business (consisting of three lumber mills in Baxley, Swainsboro and Eatonton, Georgia) to International Forest Products Limited (“Interfor”) for $80 million plus a working capital adjustment. The sale is consistent with the Company's strategic plan to fully position its manufacturing operations in the specialty chemicals sector. Rayonier will not have significant continuing involvement in the operations of the Wood Products business. Accordingly, the operating results of the Wood Products business, formerly reported as a separate operating segment, are classified as discontinued operations in the Company's Consolidated Statements of Income and Comprehensive Income for all periods presented. Certain administrative and general costs historically allocated to the Wood Products segment, which will remain with the Company after the sale, are reported in continuing operations.

Rayonier recognized an after-tax gain of $42.7 million on the sale. The gain is included in "Income from discontinued operations, net" on the Consolidated Statements of Income and Comprehensive Income for the period ended March 31, 2013.


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

The following table summarizes the operating results of the Company's discontinued operations and the related gain for the periods ended March 31, 2013 and 2012, as presented in "Income from discontinued operations, net" in the Consolidated Statements of Income and Comprehensive Income:
 
Three Months Ended March 31,
 
2013
 
2012
Sales
$
16,968

 
$
19,209

Cost of sales and other
(14,258
)
 
(17,949
)
Gain on sale of discontinued operations
64,040

 

Income from discontinued operations before income taxes
66,750

 
1,260

Income tax expense
(22,273
)
 
(422
)
Income from discontinued operations, net
$
44,477

 
$
838


The sale did not meet the "held for sale" criteria prior to the period it was completed. The major classes of Wood Products assets and liabilities included in the sale are as follows:
 
March 1, 2013
Accounts receivable, net
$
4,127

Inventory
4,270

Prepaid and other current assets
2,053

Property, plant and equipment, net
9,990

Total assets
$
20,440

 
 
Total liabilities
$
596


Cash flows from discontinued operations are immaterial both individually and in the aggregate. As such, they are included with cash flows from continuing operations in the Consolidated Statements of Cash Flows.

Pursuant to the purchase and sale agreement, Rayonier will provide Interfor with saw timber procurement services for the three lumber mills through December 31, 2013. Rayonier also contracted with Interfor to purchase wood chips produced at the lumber mills for use at Rayonier's Jesup pulp mill and market other wood chips produced by the mills to third parties on Interfor's behalf. The Company will purchase 100 percent of the Baxley mill chips for five years and 25 percent of the Swainsboro mill chips through the end of 2013. The purchase price of these chips will be based on the average price paid by the Company to unrelated third parties. Prior to the Wood Products sale, saw timber procurement services for and wood chip purchases from the lumber mills were intercompany transactions eliminated in consolidation as follows:

 
Three Months Ended March 31,
 
2013
 
2012
Wood chip purchases
$
1,650

 
$
3,234

Saw timber procurement services
223

 
287

Total intercompany
$
1,873

 
$
3,521




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

3.
EARNINGS PER COMMON SHARE
The following table provides details of the calculations of basic and diluted earnings per common share:
 
Three Months Ended March 31,
 
2013
 
2012
Income from continuing operations
$
103,258

 
$
52,599

Income from discontinued operations
44,477

 
838

Net income
$
147,735

 
$
53,437

Shares used for determining basic earnings per common share
124,479,865

 
122,352,435

Dilutive effect of:
 
 
 
Stock options
533,031

 
719,166

Performance and restricted shares
448,440

 
651,729

Assumed conversion of Senior Exchangeable Notes (a)
2,115,959

 
2,967,187

Assumed conversion of warrants (a) (b)
2,859,593

 
1,241,612

Shares used for determining diluted earnings per common share
130,436,888

 
127,932,129

Basic earnings per common share:
 
 
 
Continuing operations
$
0.83

 
$
0.43

Discontinued operations
0.36

 
0.01

Net income
$
1.19

 
$
0.44

Diluted earnings per common share:
 
 
 
Continuing operations
$
0.79

 
$
0.41

Discontinued operations
0.34

 
0.01

Net income
$
1.13

 
$
0.42

 
Three Months Ended March 31,
 
2013
 
2012
Anti-dilutive shares excluded from the computations of diluted earnings per share:
 
 
 
Stock options, performance and restricted shares
220,701

 
445,859

Assumed conversion of exchangeable note hedges (a)
2,115,959

 
2,967,187

Total
2,336,660

 
3,413,046

(a) The Senior Exchangeable Notes due 2012 (the "2012 Notes") matured in October 2012; however, no additional shares were issued due to offsetting exchangeable note hedges. Similarly, Rayonier will not issue additional shares upon maturity of the Senior Exchangeable Notes due 2015 (the "2015 Notes") due to offsetting hedges. 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 is excluded since they are anti-dilutive. As such, the dilutive effect of the assumed conversion of the 2012 Notes was only included for the three months ended March 31, 2012, while the effect of the 2015 Notes was included for both periods presented.
The warrants sold in conjunction with the Notes due 2012 began maturing on January 15, 2013 and matured ratably through March 27, 2013. As a result, 2,036,976 shares were issued through the end of the first quarter and 97,918 shares issued in the first week of April. The dilutive impact of these warrants was calculated based on the amount of time they were outstanding before settlement during the first quarter. Rayonier will distribute additional shares upon maturity of the warrants for the Notes due 2015 if the stock price exceeds $39.43 per share. For additional information on the potential dilutive impact of the Senior Exchangeable Notes, warrants and exchangeable note hedges, see Note 11 — Debt in the 2012 Annual Report on Form 10-K and Note 14Debt of this Form 10-Q.
(b) The higher shares used for the assumed conversion of the warrants were primarily due to an increase in the average stock price from $45.07 in first quarter 2012 to $55.47 in first quarter 2013.


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

4.
INCOME TAXES
Rayonier is a real estate investment trust ("REIT"). In general, only its taxable REIT subsidiaries, whose businesses include the Company's non-REIT qualified activities, are subject to corporate income taxes. However, the Company was 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. In 2011, the law provided a built-in-gains tax holiday. In 2013, the law provided a built-in gains tax holiday for 2012 (retroactive) and 2013 which will impact the Company's 2013 provision. Accordingly, the provision for corporate income taxes relates principally to current and deferred taxes on taxable REIT subsidiaries' income and certain property sales.

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 tax credit (which is not taxable), 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 first quarter of 2013, management approved a $70 million tax payment to exchange approximately 120 million gallons of black liquor previously claimed for the AFMC for the CBPC. As a result, the Company recorded a $19 million discrete tax benefit in the current period reflecting reduced future tax payments of $89 million, including approximately $60 million realized during the remainder of 2013 and $29 million in the first half of 2014. There was no exchange of AFMC for CBPC in first quarter 2012. 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, 2012.

Provision for Income Taxes from Continuing Operations
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 rate in 2013 was lower than 2012 primarily due to recording the AFMC exchange and the federal research and experimentation tax credit (which was retroactively enacted in 2013).
The table below reconciles the U.S. statutory rate to the Company's effective tax rate for each period presented (in millions of dollars).
 
Three Months Ended March 31,
 
2013
 
2012
Income tax expense at federal statutory rate
$
38

 
35.0
 %
 
$
25

 
35.0
 %
REIT income not subject to tax
(11
)
 
(10.1
)%
 
(5
)
 
(7.7
)%
Other
(2
)
 
(1.5
)%
 
(1
)
 
(0.8
)%
Income tax expense before discrete items
25

 
23.4
 %
 
19

 
26.5
 %
Exchange of AFMC for CBPC
(19
)
 
(17.5
)%
 

 
 %
Other
(2
)
 
(1.8
)%
 
(1
)
 
(0.7
)%
Income tax expense as reported
$
4

 
4.1
 %
 
$
18

 
25.8
 %
Provision for Income Taxes from Discontinued Operations
In the first quarter, Rayonier completed the sale of its Wood Products business for $80 million plus a working capital adjustment . For the three months ended March 31, 2013 and 2012, income tax expense related to discontinued operations was $22.3 million ($21.4 million from the gain on sale) and $0.4 million, respectively. See Note 2Sale of Wood Products Business for additional information.


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

5.
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 LKE purchases are not completed, the proceeds are returned to the Company after 180 days and reclassified as available cash. As of March 31, 2013 and December 31, 2012, the Company had $0.7 million and $10.6 million, respectively, of proceeds from real estate sales classified as restricted cash in Other Assets, which were deposited with an LKE intermediary.

6.
JOINT VENTURE INVESTMENT
At March 31, 2013, the Company held 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.
Subsequent Event
In April 2013, Rayonier acquired an additional 39 percent ownership interest in the Matariki JV for approximately $140 million. As a 65 percent owner, the Company will be required to consolidate 100 percent of the JV's assets, liabilities and results of operations and record the non-controlling partner's 35 percent interest beginning in the second quarter of 2013.


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

7.
SHAREHOLDERS’ EQUITY
 An analysis of shareholders’ equity for the three months ended March 31, 2013 and the year ended December 31, 2012 is shown below (share amounts not in thousands):
 
Common Shares
 
Retained
Earnings
 
Accumulated Other Comprehensive Income/(Loss)
 
Shareholders’
Equity
 
Shares
 
Amount
 
Balance, December 31, 2011
122,035,177

 
$
630,286

 
$
806,235

 
$
(113,448
)
 
$
1,323,073

Net income

 

 
278,685

 

 
278,685

Dividends ($1.68 per share)

 

 
(208,286
)
 

 
(208,286
)
Issuance of shares under incentive stock plans
1,467,024

 
25,495

 

 

 
25,495

Stock-based compensation

 
15,116

 

 

 
15,116

Excess tax benefit on stock-based compensation

 
7,635

 

 

 
7,635

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

 

 
(7,783
)
Net loss from pension and postretirement plans

 

 

 
(496
)
 
(496
)
Foreign currency translation adjustment

 

 

 
4,352

 
4,352

Joint venture cash flow hedges

 

 

 
213

 
213

Balance, December 31, 2012
123,332,444

 
$
670,749

 
$
876,634

 
$
(109,379
)
 
$
1,438,004

Net income

 

 
147,735

 

 
147,735

Dividends ($0.44 per share)

 

 
(55,396
)
 

 
(55,396
)
Issuance of shares under incentive stock plans
743,381

 
4,091

 

 

 
4,091

Stock-based compensation

 
3,308

 

 

 
3,308

Excess tax benefit on stock-based compensation

 
6,191

 

 

 
6,191

Repurchase of common shares
(209,743
)
 
(11,241
)
 

 

 
(11,241
)
Maturity of warrants (Note 14)
2,036,976

 

 

 

 

Gain from pension and postretirement plans

 

 

 
4,969

 
4,969

Foreign currency translation adjustment

 

 

 
975

 
975

Joint venture cash flow hedges

 

 

 
554

 
554

Balance, March 31, 2013
125,903,058

 
$
673,098

 
$
968,973

 
$
(102,881
)
 
$
1,539,190

 

9


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

8.
SEGMENT AND GEOGRAPHICAL INFORMATION
Rayonier operates in three reportable business segments: Forest Resources, Real Estate and Performance Fibers. Prior to the first quarter of 2013, the Company operated in four reportable business segments, which included Wood Products. In March 2013, the Company sold its Wood Products business and its operations are shown as discontinued operations for all periods presented. See Note 2Sale of Wood Products Business for additional information.
Forest Resources sales include all activities related 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 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 Consolidated Statements of Income and Comprehensive Income is equal to segment income (loss). Certain income (loss) items in the 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.
Total assets, sales, operating income (loss) and depreciation, depletion and amortization by segment including Corporate were as follows:
 
March 31,
 
December 31,
ASSETS
2013
 
2012
Forest Resources
$
1,722,413

 
$
1,690,030

Real Estate
102,374

 
112,647

Performance Fibers
973,786

 
902,309

Wood Products (a)

 
18,454

Other Operations
31,238

 
23,296

Corporate and other
372,474

 
376,215

Total
$
3,202,285

 
$
3,122,951

(a)
The Company sold its Wood Products segment during the first quarter of 2013. See Note 2Sale of Wood Products Business for additional information.
 
Three Months Ended March 31,
SALES
2013
 
2012
Forest Resources
$
57,102

 
$
52,195

Real Estate
24,297

 
12,647

Performance Fibers
284,188

 
250,855

Other Operations
28,227

 
21,140

Intersegment Eliminations (b)
(95
)
 
(266
)
Total
$
393,719

 
$
336,571

(b)
Intersegment eliminations primarily reflect sales from our Forest Resources segment to our Performance Fibers segment.

10


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

  
 
Three Months Ended March 31,
OPERATING INCOME(LOSS)
2013
 
2012
Forest Resources
$
13,255

 
$
8,005

Real Estate
16,842

 
6,478

Performance Fibers
91,670

 
80,630

Other Operations
165

 
(931
)
Corporate and other
(6,569
)
 
(11,432
)
Total
$
115,363

 
$
82,750


 
Three Months Ended March 31,
DEPRECIATION, DEPLETION AND AMORTIZATION
2013
 
2012
Forest Resources
$
16,444

 
$
16,833

Real Estate
4,177

 
1,845

Performance Fibers
15,153

 
11,361

Corporate and other
218

 
374

Total
$
35,992

 
$
30,413


9.
FAIR VALUE MEASUREMENTS
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.
Foreign Currency Forward Contracts
As of March 31, 2013 and 2012, the impact of the Company's derivative instruments and their location within the Consolidated Statements of Income and Comprehensive Income was as follows:
 
 
 
March 31, 2013
 
March 31, 2012
 
Location of Gain
Recognized in Income
 
Carrying Amount
 
Fair Value (Level 1)
 
Carrying Amount
 
Fair Value (Level 1)
Foreign Currency Forward Contracts (a)
Other Operating Income, net
 
$
1,881


$
1,881

 

 

(a)
Foreign currency forward contracts are recorded in "Other Current Assets."

The Company entered into foreign currency forward contracts to hedge the exchange rate risk between the US dollar and the New Zealand dollar in connection with the Company's purchase of an additional 39 percent interest in the JV. The foreign currency forward contracts were settled in April 2013. See Note 6Joint Venture Investment for additional information on the purchase.


11


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

Fair Value of Financial Instruments
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 March 31, 2013 and December 31, 2012, using market information and what management believes to be appropriate valuation methodologies under generally accepted accounting principles:
 
March 31, 2013
 
December 31, 2012
Asset (liability)
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
 
 
 
Level 1
 
Level 2
 
 
 
Level 1
 
Level 2
Cash and cash equivalents
$
266,017

 
$
266,017

 
$

 
$
280,596

 
$
280,596

 
$

Restricted cash (a)
651

 
651

 

 
10,559

 
10,559

 

Current maturities of long-term debt
(50,000
)
 

 
(50,000
)
 
(150,000
)
 

 
(150,000
)
Long-term debt
(1,150,471
)
 

 
(1,307,144
)
 
(1,120,052
)
 

 
(1,250,341
)
(a)
Restricted cash is recorded in "Other Assets" and represents the proceeds from LKE sales deposited with a third-party intermediary.
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 related 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 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
March 31, 2013
 
Level 2
 
Carrying Value at
December 31, 2012
 
Level 2
Investment in special-purpose entity
$
2,666

 
$
2,666

 
$
2,671

 
$
2,671

The fair value of the investment in the special-purpose entity is determined by summing the discounted value of future principal and interest payments 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.


12


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

10.
GUARANTEES
 The Company provides financial guarantees as required by creditors, insurance programs, and state and foreign governmental agencies. As of March 31, 2013, the following financial guarantees were outstanding:
Financial Commitments
Maximum Potential
Payment
 
Carrying Amount
of Liability
Standby letters of credit (a)
$
18,205

 
$
15,000

Guarantees (b)
2,254

 
43

Surety bonds (c)
7,231

 
1,388

Total financial commitments
$
27,690

 
$
16,431

(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 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 March 31, 2013, 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 2013 and 2014 and are expected to be renewed as required.
 
11.
LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS
An analysis of the liabilities for dispositions and discontinued operations follows:
 
March 31,
 
December 31,
 
 
2013
 
2012
 
Balance, beginning of period
$
81,695

 
$
90,824

 
Expenditures charged to liabilities
(1,631
)
 
(9,926
)
 
Increase to liabilities
133

 
797

 
Balance, end of period
80,197

 
81,695

 
Less: Current portion
(8,398
)
 
(8,105
)
 
Non-current portion
$
71,799

 
$
73,590

 
The Company is exposed to the risk of reasonably possible additional losses in excess of the established liabilities. As of March 31, 2013, 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 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.
 
12.
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.


13


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

13.
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 March 31,
 
Three Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost
$
2,419

 
$
1,940

 
$
249

 
$
210

Interest cost
4,834

 
3,989

 
240

 
223

Expected return on plan assets
(7,424
)
 
(5,879
)
 

 

Amortization of prior service cost
388

 
302

 
6

 
6

Amortization of losses
5,727

 
4,056

 
218

 
144

Net periodic benefit cost
$
5,944

 
$
4,408

 
$
713

 
$
583

 
 
 
 
 
 
 
 
In 2013, the Company has no mandatory pension contribution requirements, but may make discretionary contributions.

14.
DEBT
The warrants sold in conjunction with the issuance of the 3.75% Senior Exchangeable Notes due 2012 began maturing on January 15, 2013 and continued to mature through March 27, 2013. As of March 31, 2013, 7,984,078 of the 8,313,511 warrants have settled, resulting in the issuance of 2,036,976 Rayonier common shares. The remaining warrants settled through April 2, 2013 and an additional 97,918 common shares were issued.
As of December 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 March 31, 2013. 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. During the quarter ended March 31, 2013, the note holders did not elect to exercise the exchange option. Based upon the average stock price for the 30 trading days ended March 31, 2013, these notes again became exchangeable at the option of the holder for the calendar quarter ending June 30, 2013. The entire balance of the notes remained classified as long-term debt at March 31, 2013 due to the ability and intent of the Company to refinance them on a long-term basis.
During first quarter 2013, the Company made net repayments of $70 million on its $450 million unsecured revolving credit facility. The Company had $242 million of available borrowings under this facility at March 31, 2013.
There were no other significant changes to the Company's outstanding debt as reported in Note 11 — Debt of the Company's 2012 Annual Report on Form 10-K.


14


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

15.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated Other Comprehensive Loss was comprised of the following:
 
Foreign currency translation gains
 
New Zealand joint venture cash flow hedges (a)
 
Unrecognized components of employee benefit plans, net of tax (b)
 
Total
Balance as of December 31, 2012
$
38,829

 
$
(3,628
)
 
$
(144,580
)
 
$
(109,379
)
Other comprehensive income before reclassifications
975

 
554

 
530

 
2,059

Amounts reclassified from accumulated other comprehensive income

 

 
4,439

 
4,439

Net other comprehensive income
975

 
554


4,969


6,498

Ending balance
$
39,804

 
$
(3,074
)
 
$
(139,611
)
 
$
(102,881
)
(a)
Rayonier records its proportionate share of the JV’s cash flow hedges as increases or decreases to "Investment in Joint Venture" with corresponding adjustments to "Accumulated other comprehensive loss" in the Company’s Consolidated Balance Sheets.
(b)
See Note 13 — Employee Benefit Plans for additional information.

16.
OTHER OPERATING INCOME (EXPENSE), NET
Other operating income (expense), net was comprised of the following:
 
Three Months Ended March 31,
 
2013
 
2012
Lease income, primarily from hunting leases
$
2,462

 
$
2,385

Other non-timber income
474

 
842

Foreign currency loss
(184
)
 
(865
)
Loss on sale or disposal of property, plant & equipment
(429
)
 
(1,021
)
Gain on foreign currency forward contracts
1,881

 

Miscellaneous expense, net
(701
)
 
(202
)
Total
$
3,503

 
$
1,139




15


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

17.
CONSOLIDATING FINANCIAL STATEMENTS
The condensed 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 August 2009 TRS issued $172.5 million of 4.50% Senior Exchangeable Notes due 2015. The notes are 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 March 31, 2013
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
$

 
$

 
$

 
$
393,719

 
$

 
$
393,719

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
266,018

 

 
266,018

Selling and general expenses

 
2,401

 

 
13,698

 

 
16,099

Other operating (income) expense, net
(1,881
)
 
523

 

 
(2,145
)
 

 
(3,503
)
 
(1,881
)
 
2,924

 

 
277,571

 

 
278,614

Equity in income of New Zealand joint venture

 

 

 
258

 

 
258

OPERATING INCOME (LOSS)
1,881

 
(2,924
)
 

 
116,406

 

 
115,363

Interest (expense) income
(3,275
)
 
(252
)
 
(6,618
)
 
2,428

 

 
(7,717
)
Interest and miscellaneous income (expense), net
2,419

 
529

 
(751
)
 
(2,140
)
 

 
57

Equity in income from subsidiaries
146,710

 
148,765

 
123,469

 

 
(418,944
)
 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
147,735

 
146,118

 
116,100

 
116,694

 
(418,944
)
 
107,703

Income tax benefit (expense)

 
592

 
2,690

 
(7,727
)
 

 
(4,445
)
INCOME FROM CONTINUING OPERATIONS
147,735

 
146,710

 
118,790

 
108,967

 
(418,944
)
 
103,258

DISCONTINUED OPERATIONS, NET
 
 
 
 
 
 
 
 


 
 
Income from discontinued operations, net of income taxes

 

 

 
44,477

 

 
44,477

NET INCOME
147,735

 
146,710

 
118,790

 
153,444

 
(418,944
)
 
147,735

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 
 
 


 
 
Foreign currency translation adjustment
975

 
975

 
240

 
975

 
(2,190
)
 
975

New Zealand joint venture cash flow hedges
554

 
554

 

 
554

 
(1,108
)
 
554

Gain from pension and postretirement plans, net of income tax
4,969

 
4,969

 
4,012

 

 
(8,981
)
 
4,969

Total other comprehensive income
6,498

 
6,498

 
4,252

 
1,529

 
(12,279
)
 
6,498

COMPREHENSIVE INCOME
$
154,233

 
$
153,208

 
$
123,042

 
$
154,973

 
$
(431,223
)
 
$
154,233

 

16


Table of Contents
RAYONIER INC. AND SUBSIDIARIES
NOTES TO 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 March 31, 2012
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
$

 
$

 
$

 
$
336,571

 
$

 
$
336,571

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
235,708

 

 
235,708

Selling and general expenses

 
3,311

 

 
15,954

 

 
19,265

Other operating expense (income), net

 
121

 

 
(1,260
)
 

 
(1,139
)
 

 
3,432

 

 
250,402

 

 
253,834

Equity in income of New Zealand joint venture

 

 

 
13

 

 
13

OPERATING (LOSS) INCOME

 
(3,432
)
 

 
86,182

 

 
82,750

Interest expense
(1,249
)
 
(238
)
 
(10,226
)
 
(112
)
 

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

 
1,327

 
(1,208
)
 
(2,054
)
 

 
(23
)
Equity in income from subsidiaries
52,774

 
55,446

 
45,745

 

 
(153,965
)
 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
53,437

 
53,103

 
34,311

 
84,016

 
(153,965
)
 
70,902

Income tax (expense) benefit

 
(329
)
 
4,174

 
(22,148
)
 

 
(18,303
)
INCOME FROM CONTINUING OPERATIONS
53,437

 
52,774

 
38,485

 
61,868

 
(153,965
)
 
52,599

DISCONTINUED OPERATIONS, NET
 
 
 
 
 
 
 
 


 
 
Income from discontinued operations, net of income tax

 

 

 
838

 

 
838

NET INCOME
53,437

 
52,774

 
38,485

 
62,706

 
(153,965
)
 
53,437

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
5,825

 
5,825

 
(102
)
 
5,825

 
(11,548
)
 
5,825

New Zealand joint venture cash flow hedges
1,205

 
1,205

 

 
1,205

 
(2,410
)
 
1,205

Gain from pension and postretirement plans, net of income tax
3,140

 
3,140

 
2,380

 
2,380

 
(7,900
)
 
3,140

Total other comprehensive income
10,170

 
10,170

 
2,278

 
9,410

 
(21,858
)
 
10,170

COMPREHENSIVE INCOME
$
63,607

 
$
62,944

 
$
40,763

 
$
72,116

 
$
(175,823
)
 
$
63,607


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 



17


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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
As of March 31, 2013
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
151,978

 
$
20,930

 
$
31,749

 
$
61,360

 
$

 
$
266,017

Accounts receivable, less allowance for doubtful accounts
27

 
7

 
478

 
105,181

 

 
105,693

Inventory

 

 

 
113,643

 

 
113,643

Deferred tax assets

 

 

 
66,509

 

 
66,509

Prepaid and other current assets

 
3,618

 
629

 
34,649

 

 
38,896

Total current assets
152,005

 
24,555

 
32,856

 
381,342

 

 
590,758

TIMBER AND TIMBERLANDS,
NET OF DEPLETION AND AMORTIZATION

 

 

 
1,565,782

 

 
1,565,782

NET PROPERTY, PLANT AND EQUIPMENT

 
2,315

 

 
757,923

 

 
760,238

INVESTMENT IN JOINT VENTURE

 

 

 
73,830

 

 
73,830

INVESTMENT IN SUBSIDIARIES
1,599,115

 
1,827,667

 
1,486,647

 

 
(4,913,429
)
 

INTERCOMPANY NOTES RECEIVABLE
215,140

 

 
20,021

 

 
(235,161
)
 

OTHER ASSETS
4,042

 
28,086

 
4,826

 
174,723

 

 
211,677

TOTAL ASSETS
$
1,970,302

 
$
1,882,623

 
$
1,544,350

 
$
2,953,600

 
$
(5,148,590
)
 
$
3,202,285

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
1,463

 
$
222

 
$
106,808

 
$

 
$
108,493

Current maturities of long-term debt
50,000

 

 

 

 

 
50,000

Accrued taxes

 
14

 

 
30,045

 

 
30,059

Accrued payroll and benefits

 
8,578

 

 
9,893

 

 
18,471

Accrued interest
6,112

 
484

 
3,695

 
909

 

 
11,200

Accrued customer incentives

 

 

 
8,936

 

 
8,936

Other current liabilities

 
3,245

 

 
21,923

 

 
25,168

Current liabilities for dispositions and discontinued operations

 

 

 
8,398

 

 
8,398

Total current liabilities
56,112

 
13,784

 
3,917

 
186,912

 

 
260,725

LONG-TERM DEBT
375,000

 

 
698,916

 
76,555

 

 
1,150,471

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS

 

 

 
71,799

 

 
71,799

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
129,743

 

 
29,086

 

 
158,829

OTHER NON-CURRENT LIABILITIES

 
14,007

 

 
7,264

 

 
21,271

INTERCOMPANY PAYABLE

 
125,974

 

 
168,076

 
(294,050
)
 

TOTAL SHAREHOLDERS’ EQUITY
1,539,190

 
1,599,115

 
841,517

 
2,413,908

 
(4,854,540
)
 
1,539,190

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,970,302

 
$
1,882,623

 
$
1,544,350

 
$
2,953,600

 
$
(5,148,590
)
 
$
3,202,285


18


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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2012
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
252,888

 
$
3,966

 
$
19,358

 
$
4,384

 
$

 
$
280,596

Accounts receivable, less allowance for doubtful accounts

 
386

 

 
99,973

 

 
100,359

Inventory

 

 

 
127,966

 

 
127,966

Deferred tax assets

 

 

 
15,845

 

 
15,845

Prepaid and other current assets

 
1,566

 
691

 
39,251

 

 
41,508

Total current assets
252,888

 
5,918

 
20,049

 
287,419

 

 
566,274

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION

 

 

 
1,573,309

 

 
1,573,309

NET PROPERTY, PLANT AND EQUIPMENT

 
2,321

 

 
704,717

 

 
707,038

INVESTMENT IN JOINT VENTURE